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Report of the auditor-general to the Limpopo Provincial Legislature and the council on Maruleng Local Municipality Report on the financial statements Infreduction 1. [have audited the financial statements of the Maruleng Lccal Municipality set out on pages xxx to 200%, which comprise the statement of financial position as at 30 June 2016, the ‘statement of financial performance, statement of changes In net assets, cash flow statement and statement of comparison of budget and actual mounts far the year then ended, as well 28 the notes. comprising # summary of significant accounting policies and other explanatory information. Accounting officer's responsibility tor the financlal statements 2. The accounting officer is responsible for the preparation and fair prasentetion of these financial statements in accordance with South AVtican Standards of Generally Recaghised Accounting Practice (SA standards of GRAP) and the requirements of the Muniopel Finance Management ‘Act of South Africa, 2003 (Act No, 56 of 2003) (MFMIA] an¢ the Division of Revenue Act of South Aiea, 2018 (Act No, 1 of 2015) (DORA), and for euch inlemal control as the accounting officer tetermines [s necessary to enable the preparation of financial siatements that are ffee fram material misstatement, whether dus to fraud of error Auditer-general's responsibility 3. My responsibilty is to express an opinion on these financial statements based on my aust. 1 conducted my auait in accordance with Internationel Standards an Auciting. Those stendards raquire that | comply with ethical requirements. and plan and perform the audit to obtain reasonable assurance about whether the financial statements are free from material misstatement 4. An aucit involves performing procedures to obiain aucit evidence about the amounts and disclosures In the financial statements. The procedures selected depend on the audiior’s judgement. Including the assessment of the risks of material misstatement of the financial statements. whether due to fraud oF error. In making those risk assessments, the auditor Considers internal contro relevant tothe municipality's preparation and fair presentation ofthe financial statements in order to design audit procedures that are eppropriate in the ircumstances, but not for the purpose af expressing an opinion on the effectiveness of the ‘municipalty’s intemal control. An auct also includes evaluating the appropriateness of ‘accounting policies used and the reasonableness of accounting estimates made. by management, 23 well as evsluating the overall presertation of the financial statements. 5. [believe that the audit evidence | heve obtained is eufficlent and appropriate to provide a basis for my audit opinion, Opinion In my opinion, the financial statements present fairly, n all material respects, the financial position ofthe Meruleng Lacal Municipality as at $0 une 2016 end ite nancial aerformance and cash flows forthe year en ended, in accordance with the SA standards of GRAP and the requirements of the MFMA and DORA, Emphasis of matter 7. [drew attention to the matters below. My opinion is nal modified in respect af these matters, Restatement of corresponding figures 8. As disclosed In note 36 to ths financial statements, the corrasponcing figures for 30 June 2018 have been restated as a resull of an error discovered during the 2076-16 financial year in the financial statements of the municipality at, and for the year ended, 30 June 2015, Unauthorised expenditure ®, As disclosed in note 48 to the financial statements, the municpalky incurred unautrericed expenditure of R6 807 862 as a rosull of expenditure Incurred in excess of the amounts provided for In the voles of the approved budget Inegular expenditure 10. As disclosed in note 43 to the financial stetements, iregular expenditure arnounting fo RS 247 887 has been incurred by the municipality, due to contraventions of the supply chalh management policy, Significant uncertainties ‘11. With reference to note 42 to the financial statements, the municipality Is the defendant in 6 ‘awevit relating to & house gutted by fire. The municipality is opposing the claim ae it believes the claim to be fictitious. The ulimate outcome af the matter cannot presently be determined land no provision for any labilty that may result has been mad inthe financial statements, Additional matters 12. | Grew attention to the metters below. My opinion Is not modified in respect of these malters. Unaudited supplementary schedules 18, The supplomentary information set out on pages »x to xx daas not form part of the financial statements and is presented 28 additions! information, | have nat audtes this schedule and, ‘accordingly, | do not exprese an opinion thereon. Unaudited disclosure notes 414, Interms of section 125(2)(e) of the MFMA the municipally is required to disclose particulars of non-compliance with the MFMA. This disclosure requirement dis not form part of the audit of the financial statements and accordingly | do not exaress an opinion thereon, Report on other legal ond regulatory requirements 18, In accordance with the Public Audit Act of South Arica, 2004 (Act No. 28 of 2004) (PAA) and the general notice issued in terms thereof, | have @ resporeibilty to report findings on the Teporied performance information against predetermined objectives for selected development priorties presented in the annual performance report, compliance with legislation and internal ‘contol. The objective of my tests was to Identify reportable findings as described under esch subheading, but nat fo gather evidence fo express assurance on these matters. Accordingly, | do not express an opinion ar conclusion on these meter. Predetermined objectives 16, | performed procedures to abiain evidence about the usefulness anc reliailty of the reported Performance information for the following selected cevelopment priorities presented in the ‘annual performance repod ofthe municipally forthe yeer ended 80 June 2016: + Development prlority 2: Besic service dalivery on pages xx to xx ‘+ Develooment priority 4: Financial viability on pages «to xx 17. | evaluated the usefulness of the reported performance information to determina whether it \was presented in accordance with the Netlonal Treasury's annval reporting principles ane wihether the reported performance was consistent with the planned development priorities. | further performed teste to determine whether indicators and targets were well defined, verifiable, specific, measurable, time bound and relevart, as required by the Natlonal Treasury's Framework for maneging programme performance information (FMP), 18. | assessed the reliability of the reported performance information to determine whether it was valid, accurale and complete. 19, The material findings in respect ofthe selected development priority are ae follows: Basic Service Delivery Usefulness of reported performance information Consistency of indicators and forgets 20. Section 41(c) of the Munlojpsl Systems Act, 2000 (Act No. 22 of 2000) {MSA} requires the service delivery agreement (SDBIP} to form the basis for {ne annual repent, thetefore requiring ‘conelstency of Indicators and targets between planning and reporting documents. Important ‘reported indicators and targels were not consistent with these In the approved service delivery agreement, This was due ta manegement not exercising proger oversight responsibilly over performance planning and reporting Mecsurabiliy of indicators and targets 21. The FMPPI requires thet perfomance indicators should be well defined by heving cleer definitions s0 that data can be collacted conelstently and le easy to understand and use. Important indicators were not well defined. Reliability of reported performance information 22, The FMPPI requires aucitess to have approariata systeme to collect, collate, very end store Performance information to ensure reliable reporting of actual achievements against planned objectives, indicators and targets. The reported achievements agains! planned targets of 48% indicators were rot rlizble when compared to the saurce information Financlal viability Usefulness of reported performance information 23. I didnot identity any materia findings on the usefulness of the reported performance. Reliability of reported performance information 24. The FMPPI requires aucitees to have appropriate systems to collect, calle, verily and store Performance information to ensure rallabie reporting of actual achievements agains! planned objectives, indicators and targets. The reported achievements against planned largets of 23% indicators were not reiabla sthen comaared to the source information. Additional matters 25. I draw attention to the matters below. My opinion is nat modified in respect of these matters Achievement of plenned targets 26. Refer to the ennual performance report on pages xx foxx for information on the achievement of the planned largets for the year. This information should be coneidered in the contex! ofthe ‘material findings on the usefulness and reliability of the reported performance information for the selected development priorities reported in paragraphs 20 to 24 ofthis report. Unaudited supplementary information 27, The supplementary information set out on pages 2 ta xx does nat form part of the annual Performance report and is presented as addllonal information. | have not audited these Schedules and, accordingly, Ido not rapart on them Compllance with legislation 28. | performed procedures to obtain evidence that the municipality hed complied with applicable ‘eglslation regarding finencial matters. financial management and olher related matters. My material findings on compliance with specific matters in Key legislation, as set out in the general notice issued in terms ofthe PAA, ara as fllows: Annual financial statements 29, The financial statements submitted for auditing were not prepared in all materist respects in accordance with the requirements of eectlon 122 of the NFMA. Material misstatements of non- current assets, currert assets, revenue and disclosure tems identified by the auditors in the submitted financial stetemeni were subsequently corrected, resulting In the finencil statements receiving an unqualified audit opinian, Expenditure monagement 30, Reasonable steps were not taken to prevent unauthorised expersiture, Inegular expenditure ‘ang fruitless and wasteful expend, as requited by eection 62(1) of the MFM Procurement and contract management 31. Goods and services wih 2 transaction value of below R200 000 were procured without obtening the cexuired price quotstions, in contravention of by Supply Chain Management Regulation (SCM regulation) 17(a) and (¢) 92. Goods end services of a transaction value above RZ00 000 ware procured without inviting competitive bids, as raquired by SCM regulation 19(a), 80. The preference point system was not applied in al procurement of goods and services above 20 000, a8 required by section 2(a) of the Preferential Procurement Policy Framework Ac! and SCM regulation 281 Ka), 36, Contracts were extended/meditied without tabling the reaeons for he propased amendment in the counell of the municipality, as required by section 16/3) of the MEMA, 3. Convacts were extended or modified without the approval of a properly delegated offical, in contravention of SCM regulation 6 26, Contracts were awarded to providers whose tax mallers had not been declared by the South Alfican Revenue Service to be in order, in contravention of SCM regulatlon 43, Revenue management 37. A credit control and debt collection policy was nol implemented, as required by section 06(b) cof the MSA and section 62{1)fKil) of the MEMA, Consequence management 38, Authorisation of unautherised expenditure wae not done through an adjustment budget, 86 required by section 32(2}(a\() of he MFA. intemal control 39. | considered intemal contrel relavanl to my uct of the financial statements, annual Performance report and compliance with leglelstion, The matters reported below are limited to (he signficart internal control deficiencies that rasuted in the basis for unqualified opinion, the findings on the ennual performance report and the findings on compliance with legislation included in this repon, Leadership 40. There has been instabilly in the position of accounting officer @s the incumbent was suspended for fen months during the year under review. Varlous officals were identified anc appointed to actin that capacity. The absence of @ permanenily appointed accounting offear Fesulled in a break down in the system of internal contreis, Significant findings thet were identified duting the aueit require the accounting aificer to hold seniar managers accountable, 41, The oversight responsibility regarding fancial and performance reporting and compliance anc related internal contols was not adequately exercised. Financial and performance management 42, The finanolat statements, performance report and other information included In the annuel report were nol properly reviewed for accuracy and completeness due to sore vacancies in the finance section and shortage of sklls with regarding performance reporting, 43. Compliance with laws and regulations was not propetty monitored by the accounting office. Other reports 46. | draw attention to the fllawing engagement that could potentially impacl on the municipaly's financial, perforriance and comalianca related matters. My opinion is not modfied in respect ofthis engagement that has been completed. Investigation 45. An incependent consulting firm ceriormet sn investigation atthe request of the municipsity regarding allagations of misconcucl against the municipal manager. The municipality has sinoe reached a settlement with the muricipal manager on 28 September 2018, Adie Severe Aucitor-General Polokwane 3D November 2018