NC452 Ga-Segonyana Audit Report 2015-16

0.43 MB·English

Report of the auditor-general to the Northern Cape
provincial legislature and the coun
Ga-Segonyana Local Municipality

Report on the financlal statements

Introduction

| was engaged to aust the financial statements of the Ga-Sezonyana Local Municipality
set out on pages ... to... which comprise the ataiement of fnancial position as at

30 Junie 2016, the statement of financial performenies, statement of changes in net
2ecats, and cash low statement and statement of comparison of bucgat and actual
‘amounts for the year than ended, ag well as the roles, comprising a summary af
significant accounting policies and athar axplanatary infeemation.

Accounting officer’s responsibility for the financial statements

2, The accounting offiseris responsible forthe preparation and fat presantation of these
Financial stalerents in accordance with the South Afican Standards of Ganeraly
Recognised Accounting Practice (SA standards of GRAP) and the requirements of the
Municigal Finance Managernent Act, 2002 (Act No. 58 af 2003) (MFMA), andthe Divison of
Revenue Act, 20%4 {Act No. 10 of 2014) (Dora), and for such infernal control as the
accounting officer datarmines ls necessary ta anabla the preparstion of financial
statements that ae free from material misstatement, whethor due (a fraud or exer.

Auditor-generaf’s responsibillty

3. My responsibility is to express an opinion on the financial statements based on
‘conducting the audit In aecordance with the Infernational Standards on Auditing
Because of the matfers deserlhed In the basis fer disclainar of epinion pareGRAPhs,
hovwever, | was unable to obtain sufficient appropriate audit evidence ta provide a basis,
for an eualt opinion.

Basls for disclaimer of opinion

Property, plant and equipment

4. |vas unable to obigin sufficient appropriate ault evidence for dferences noted with
the recalculation of depreciation and accumulated depreciation due to an inadequate
‘mgnagement accounting and inforation system fo aecount for dapraciation. | was
‘unable to confirm this by altemative means. Consequently, | was unable fa determine
whether any adjustment relating to property, plantand equipment olated at Rt 046 404
969 (2015; R981 183 198), in note $0 the financial saiements, and depreciation and
‘amortisation stated at R48 780 891 (2015: R45 603 573) in note 29 to the nancial
Statements ware neoeessy.

5. The municipality didnot record all property plant and equipment in accardancs with
GRAP 17, Property, slant and equipment, The financial statements did net agree with
the asest register. Consequently, property, plant and equipment was overstaied by
RS 200 408. Additionally, thera was a resultant Impeet on the eurplus forthe period and
the aecumulated surplus,

6. The municipality did not record addllons in aocordance with GRAP 17, Praperty, plant
and equipment. Certain infrastructure addtions ware recorded inthe incorrect period.
Consequently, addlons was overstated by at least R17 227 70a (2018: Ra 008 770}, |
\Was unable to determine the full extent cus fo inedequate records and suppexting
<ocumentatien beina provided. Additionally, Ihere was a zesukant impact on
depreciation, the surplus forthe currant and previous periods and the accumulated
surplus.

7. [as unable fo obtain sufficient appropriate aualt evidence regarding infrastructure
assets . as | was unabla (o physically very assets on the asset segister. [was unable to
‘confirm this by alternative means. Consequently, Iwae unable to determine whether any
adjustment relaling to infrastructure assets stated at RBSD 485 198, In nole 9 lo the
Financial statements, was necessary.

2 The municipality did not record assets in accordance with GRAP 17, Property, lant and
‘aqufpment. Capltal work in progress and infrastructure assats idemtied were net
recorded in the accounllng racords. Consequently, property, plant and equipment were
Understated. [was unable to determina the ull extent of the understatement as it was
impracticable to do so. Akitionally, ere was a resultant Impact on depracietion,
accumulated depreciaiion the surplus forthe peried the accumulated surplus.

9. During 2018, {es unable to obtain suffclart appropriate audit evidence regarding other
assets, as | was unable to physically verify assele on the asst reglelar. woe unable to
‘confirm this by altemative means. Consaquently, [was unabla to determine whether any
adjustment relating o other assets stated at R16 642 113, In nete 9 to the financial
statomonts, was neceassry,

10. During 2015, the municipality eid nol review the residual values and useful Ives of
infrastructure assets al each reporting data, in accordance nith GRAP 17. Property,
plant and squjpment and assess impairment in accordance with GRAP 26 impatment of
cast-gencrating assets Inrasinuclura assole with a carrying amount of 1 911 757
‘were included in the financial statements will not ih usa. | was not able fo deterrine
the canect nel camying amount of infrastructure assots, as it was impracticable (9 do so.
‘My opinion on the current period's financial statements is also modified because af the
poselble effect ofthis matter on the comparability ofthe current pertod's figures,

Investment property

11, The monicipaiy did not correctly account for al tems of Investment property in
‘accordance with GRAP 16, favesiment property. Municipal land which were in the
‘municipality's name as par the tila deed was nol racegnised as investment propery.
Consequently, investment property was understated and il was impractical to determine:
its full extent Adcitonally, there was a resultantimpact on the accumuialad surplus.

Receivables from non-exchange transactions

12. twas unable fo obinin sufficient appropriate auslt evidence for the sundry dablors and
other reveivables from non-axchange traneaotone, a6 underying records were not
‘evalable to substantiate the balances. | was unatle to confit the aundry debtors and
thar receWvablas from non-axchange transacfions by alternative means, Coneequertly,
[wes unable to determine whather any adjustment tothe sundry debtors and other
receivables from norrexchange transactions, stated at R10 769-060 in note 5 tothe
financial statements, wae neceseary.
VAT teceivable

12. Iwas unable to obtein sufficient appropriate audit evidence regarding VAT racaivabla
dts © an Inadequate management accounting and information system to account for
\VAT. | was unable to confirm the balanoa dlediosad by alternative means.
Conssquenily. | was unable to determine whether any adjustment relating to VAT
receivable, stated at R29 489 373 (2016, RA 113 731) innate 6 fo the Marcial
slatoments, was necessary.

Payables from exchange transactions

74. | was unable to obtain sufficient appropriate auclt evidence that management had
properly charged and accounted for retention money. Due to the state of the accounting
records, | was unable io contirm tha retanlion maney by allemative means,
Consequently, | was unable ta determine whether any adjustment le retention money,
slated at R18 582 050 (216: RQ 977 653} in note 14 to the financial statements, wae
eceasary,

15. Iwas unable to obtain sufficient appropriate audit avidenoe that manegamant had
properly accounted for trade payables related tp sale of stands, due t the stata of he
‘socounting records. | was unable to confirm the trade payables by alternative means,
Consequently, | vee unable to determine whether any adjustment fo trade payables,
slated at R4 227 807 In note 14 lo the financial statements, was necessary.

Revenue from exchange transactions

16. During 2015, Iwas unable to obtain suffice appropriate aust evidence that
management had properly accounted for earviea charges, dus to tha state of the
‘accounting racords. | wes unable to confinm the service charges by alternativa means.
Consequently, Iwas unable to delermine whether ary adjustment to eervioe charges,
stated st R100 311 968 in nate 21 to the financial statements, was necoscary. My
‘pinion on the currant pettec's financial statements is also madtfied because ofthe
possible effect of this mattar on tha comparabilty ofthe current period's figures.

Revenue from non-exchange transactions

17, During 2015, 1 was unable ta obtain suficlont appropriate aust evidence that
‘management had property accounted for propery ratee, due to the state of the
accounting records. twas unable to confirm the property rates by allermatve maans.
Consequently. was unable fo determine whether any adjustment to property rates,

stated at R31 078 474 in note 24 tothe financial staternents, was necacsary. My opinion

(on the current pariad’a fhancis] statements is also modified because of the nose bke
effect ofthis mattar on tha comparability ofthe current period's figures

Expenditure

18. During 2018, the muniipalty did not clasely all items of ropairs and maintenance in
socordancs with GRAP 1, Presentation of financial statements. General expenses of
Ra 861 061 and bulk purchases of R1 883 357 were incarreclly recognised as repairs
and maintenanae. Consequently, repairs and mslntenance wae overstated by
6 784 408. In adition, tre municipality did not have adequate systoms fo maintain
expenditure and | wae unable to determine is full extent, There was a resultant impact
on general expenditure and bulk purchases. My opinion on the current period's financial
statements ia also modified because af the possible effael of this matler on the
‘comparabllty of the current perio figures.
1B. During 2015, the municipality did not record expancliura In aocardanoa with GRAP 1,
Presentation of fhancial sistemerts. | was unable to obtain sufficient approprlala audit
‘evidence for general expenditure as supporting documentation was not provided.
Consequently, | wes unable to determine whether ary adjustments relating to general
expenditure, stated at R79 803 619 inthe eiaiement of financial performance, were
‘necessary. My opinion on the 2015-16 financial statemants Is aloe modified because of
the possible effec ofthis matter on the comparsbily ofthe current parlod's fguree,

Cash flow statement

20. | was unable to oblain sutican! appropriate aucit evidence related to cash Raw fram
‘pereting activities and cash flows from investing activifes in the cash flow statement.
This was dus to underlying records nat supporting calculations. I was unable to confirm
these casi flow items by allemalive means, Consequently, I was unable to determing
‘whathor any adjustment to thase items, stated In the financial etstements for the eurrent
nd previous year, was necessary

Prior period errors

21. Iwas unable fo ablaln sufficient appropriate autit evidence for tha rastatament of the
‘corresponding figures of financial sialament ine tems included in revenue, expenditure,
‘depreciation, Impaliment loss and employee cost. As described in note 41 to the
financial statements. the restatement was to rectify the previous year's mlsslalarnants. |
‘was unable to confirm the restatamant by allamnatNe meane. Consequently. | was
“unable te datermine whether any adjustment to the corresponding figures was
necessary. My opinion an the 2015-16 financial statemients is alsa modfiad because of
the posslble effect af this matter on the comparabilty ofthe current period's figures. iy
‘addition, the nature of the changes in accounting policies, descriplane of the transitional
provisions, the amounts of the adjustments for each financial ine item affected end the
‘mounts of the adjustments relating tn parlods before those presented were nat
adequately disclosed in the financial statements,

Inegular expenditure

2. The municipality did not disclose all the regular expenditure inthe notas to the financial
statements, 28 required by saction 12&{2\dyi} of the MFMA. The municpally Incurred
‘expenditure in contravention of the supply chain manegement (SCM) requirements and
ccaunal dd not hava the authority tc condene inegular expendi es disclosed in the
note 46 fo the financial statemants, raculing in regular expenditure being understated
in the current and previous yaar. In addition, Iwas unable fo obtain sufficient appropriate
audit evidence regerding irregular expenditure due tothe lack of evidence that
management had properly identfied, Investigated and recorded all iegular expenditure
‘raneactions during the current and prior years, the Intations placed an the scape of
tha work periomed relsting to expenditure and the lack of a proper eystom af internal
control to support and account for, and identify, regular expendiure, Twas unabla to
confirm the tralance disclosed by allematlve maans. Consequently, | was unable
determina whether any further adjustment to iregufar emendilura, disclosed as
RSS 0B4 885 (2015: L183 &40 607) In nota 46 to the Financial statements, was
necaseary.

Unauthorised expenditure

23. During 2016, unauthorised expenditure stated at R192 043 4883 in note 44 fp the
financial staternanis was not calculated according to tha defintion of unauthorised
expenditure stipulated in tha MIFMA. The amount disclosed was consaquartly
understated by R34 625 481. Consequantly, this has a impact on the clasing balance of
the currant yaer. My opinion on the 2015-16 financial statements ls also modtfiod
because of the possibie effect ofthis matter on the comparably of the current period’
figures.

Commitments

24. During 2016, the municipality cid not accurately calculate and disclose commitments a6
required by GRAP 17, Property, plant and equipment. This resutled In commalmments
boing understated by Ra 553 323. In addition, Twos unable to obtain auficent
‘gpproprfala sucit evidence for the amounis disclosed as commibonts, | was unible to
substantiate commitments by allornativg mesns, Consequently, Iwas unable fo
dalemmine whether any further adjustments to commitments, disclosed as R111 100 704
inrnots 88 ta the finsneial statements, were necessary.

Aggregation of immaterial uncorected misstatements

25. The financial statements were materially misstated due to the cumulative effect of
‘numerous individually immaterial uncorrected misstatements in the folkaving items
Included In tha statement of fnancial position, the statement of financial porformanos-
and the notes fa the financial staternent:

‘+ Propertias earmarked to be eald was nol recognised as Inventory. It was impractical
{o determing the full extent thereof.
‘+ Recelvables from axchange transactions were overstated by R3.024 077.

Disclaimer of opinion

28. Because of the significance of the matters described in he basis for disclaimer of
‘opinion paragraps, | have not baen able to obtain aufisient appropriate auclt evidence
lo provide a basis far an auxit opinian. Accordingly, | do net exprase an opinion on the,
financlal statements

Emphasis of matters

27. draw attertion to the mattora below. My epinion fa nat mediffed in respect of these
matters,

Restatement of comesponding figures

28, As disclosed in note 41 tothe financial statements, the corresponding figures for
{30 Juns 2015 have been restated 2s a result of errors dlecovered during 30 June 2018
in the financial statamants of the Ga-Segonyana Local Municipal at, and for tha yaar
‘ended 30 June 2018.

Material losses and impaiments

20. As disclosed in notes 4 and 5 tothe financial statements, a significant provision for the
Irnpelrment of recewvables from exchange transactions and nan-exchange trensactions
‘was mada, which consttutes 50% and 874 ofthe total receivables fram exchange
‘transactions and non-exchange fransactons balanes reapectvely

30, As disclosed in note 48 to the financial statements, matevlal lasses of Ra 565 189 and
R10 390 376 ware Incurred ae a regu ofthe citribuon of electicity and watar
respectively
Additional matters

1. I draw attention to the matters below. My opinion is not modified in respect of these
ators.

Unaudited supplementary schedules

‘32, The supplementary Infomation set out on pages xx to xx daes nat form part of the
financial statements and is presented a6 additonal information. | have not audited these
schedules and, accordingly. I da nat express an opirien on them.

Unaudited disclosure notes

33. Intarms of eectian 125(2)(e} of the MFMA the municipalty Ie required ta disclose
particulars of non-compliance wih the MFMA, This disclosure requiramant dd nat farm
part ofthe audit ofthe financial statements ard, aenerdingly, Ido nat express an opinion
ont

Withdrawal from the audit engagement

34. The numerous misstatements identified in the financial statements ara indicative of
significant fraud, whieh calls Info question the ralbiliy of avidance abtained and the
ganunaness of Ure accounting records and dacumentation, But for the legisiated
requirement to perferm the audit of the municipality, Twould have withdrawn fram the
engagement in tems of the ISAs,

Report on other logal and regulatory requirements

95. Im accondance with the Pubic Auelit Act, 2004 (Aet No, 25 of 2004) (PAA}and the
general noliea issued in terms thereof, | have a responslblly to report ndings on the
Teported performance Information against predetermined objectives far salactad
‘objectives presented inthe annual nerfarmanca report, compliance with legislation and
Infemel control. The objactive of my tests was fo identity reporlable findings 25
described under each subheading, bul nol te gather evidence to express assurance on
these matters, Accordingly, do not exprass an opinion or conclusion on these matters,

Pre objectives

36. | perlormed procedures to obtain evidence about the usefulnese and reliability of the
reported performance inforration for the following seleciad objectvet presented in the
‘arinual performance report of tha municipality for the year endled 30 June 2016:

‘+ Key periormance area 1 : Basic service delivery on pages 1x to ax

37. |avaluated the raparted performance information against the averallerteria of
Usefulness and reliably,

38, | evaluated the usefiiness of the reported performanes information te determine
\whather it was consletent with the planned objectives. | further netformad tests to
determine whethsr indicators and largats ware wall defined, veritable, specie,
‘measurable, ime bound aod relevant, as required by the National Treasury's
Framework for Managing Programme Performance Information (FMPPN,
3, | assessed the relisilty ofthe reported performancs Information to determine whather It
‘was valid, accurate and complete,

40. Tha malarial findings in respact of the selected ebjactives are as follaus:

Key performance area 1: Basle service delivery

Usefulness of reported performance information

41. The FMPP! requires that performanca targets should specify the period or deadiine for
delivery. A total f 64% of the indicatars ware not time bound.

Reliability of reported performance information

42, The FMPP| requires ausitaes to have appropriate systems to callact, collate, veity and
stors performance information to ansure valid, accurate and complate reporting of aetval
achievements against planned objectives, indicalons and targets. {waa unable to oblalnt
the information and explenalions | considered necessary to satisfy myself ae to the
reliability ofthe reported performance Information. This was due fo the fact that the
audltee could not provide sufficient appropriate evidence In support ofthe reported
performance information

Additional matter

43, I cra altetion to the folowing malar

Achievement of planned targets

144, Refer to the annual performance report on pages 1 to 88 for information on the
achievement of planned targets for the year. This Information should be considerad in
the context ofthe qualfied and cisclaimer of opinions expressed on the usefulness ard
‘ality of the reported perfomance Information in paraGRAPhs 19 and 21 af this
repo

Unaudited supplementary schedules

45. The supplamaniary information set out on pages 1 to x does not form part ofthe
annual performance rapor! and is presented as ackitional information, We have not
fudited these schedules and, accordingly, we da not express @ conclusion therBan,

Compliance with legislation

4. {performed procedures to obtain evidentes that the municipality had eompliad with
applicable laglslaion regarding financial matters, fnancial management and other
relaled matters. My malarial findings on compliance with specttc matars in key
loglslatlon, 28 set out in the general nofiea issued in terms of the PAA, are as follows:

Strategic planning and performance management

47, The performance management system did not relate to the employee's performance.
managemant processes, as required by section $8(a) af tha Municipal Systems Act.
200 (Act No. 44 of 2003) endl municipa planning and perfonnanca management
regulation 72x
Budgets

48, The folal unforssoon and unevoidable emenditure excosded 4% of own revenue fn
‘contravention of tha munlelpal budget and reporting regulation 72.

Financial stetements, performance and annual reports

449, The annual performance report fo the yeer under review did not include the
parfarmanes of the municipalty and each extemal services provider, as required by
section 46 (1}(a) of the Municipal Systems Act.

‘50. The financial statements submited for auditing wore not prepared in all ratetal
respects in accordance with the requirements of section 122 of the MFMA, Material
misstatements of non-current aasete, curort aasets ibilies, revenue, expenditure
‘and disclosure items identfied by the auditors in the submitted financial statements
were subsequent corrected and the supporting racords were provided, but the
lncorrected material misstatements and supporting records that could nat be provided
resulted inthe financial statements racelving @ disclaimer of aut opinion.

Procurement and contract management

51. Goods and services with a transaction value of below R200 000 were procured without
obialning the req.ired price quotations, in contraventton af SCM ragulation 17(8) and
fc)

52. Goods and servicas with a transaction value ahovs R200 000 were procured without
inulin competitive bids, as required by SCM regulation 19a),

5. Deviations were approved by the acoounting offer even thaugh it was net impracical
talavte competiive bis, in contravention of SCM regulation 38(1).

‘54. Suffcfent appropriate audit evidence could nat be abtalned thai bide wore evaluated by
bid evaluation committees composad of officials from the departments requlring tha
goods of services and at least one SCM practtloner of the municipality, a8 required by
‘SCM regulation 2842)

55. Contracts were awarded lo bidders based on points given for citarla that dilfeed from
these stipuiated in the orginal inition for bidding, in contravention of SCM regulations
21(b) and 28(1)(a) and the Proferential Procurement Regulations.

56. Bid adjudication comrnitiens ware not always composed in accordance wth SCM
regulation 292)

ST. Contracts were awarded to suppliers whose tax matters hee! not been declared by the
South African Ravenua Service to bs in order, in contravention of SCM ragulalen 43.

58, Thresholds for local content on designated sector’ procurement were nat property
sppllad In secardance withthe requirements of preferential procurement regulation 8

59. I could not abiain sulicianl appropriate aucit evidence that the preference point system
‘waa applied in all procurement of goods and services above R30 000, as required by
section 2(@) of the Preferential Procurement Policy Framework Act (PPPFA] and SCM
regulation 28(1Xa).
(60. Contracts and quotatlone were awarded to bidders based on preference paints that
‘were not allocated in accordance wih the requiremenie of the PPPFA and its
regulations.

61. Contracts ware awarded to bledars that dll nat acore the highest points in the
‘valuation process, in contravention af section 2(1KO of the PPPFA.

62. Contracts were awarded to bidders who did not eubmit a dectaration on whather thay
were employed by the siste or connected to any parson employed by the siate, as
aquired by SCM reguiation 13(c)

68. Awards were mada te providers who wore in the service of other state institutions or
\whose principal shareholders were inthe service of ether state inaulions, in
‘contravention of MEMA 112) and SCM regulation 44. Similar awards wore identified in
the previous year and no fective steps were taken to prevent ar combat the abuse of
the SCM process, as requirad by SCM regulation 3841).

Human resource management and compensation

64. The muricialty didnot develop and adopt apprapiete systems (policies) and
pmcaduree to monitor mesure and evaluate the performance of staf, in contravention
af sation 67(4) of the Municipal Syetems Ack.

Expenditure management

85, Reasonable steps were not taken to prevent Iregular, unauthoriced ge wel as frtlesa
and wasteful expenditureless and wasteful expendiiro, as required by eootion 62{1 Ka)
othe NEMA.

Revenue management

88, An effective system of intemal control for debtors and revenue was notin place, 2
rexwired by Section 64(2)() of tho MMA.

Asset management

87, An adequate management, accounting and information syetern that acoounte for aesats
waa not In place, ee required by section 82(2)(a) af the FMA.

88, An effective systom of intemal control for assets. which includes an asset ragister, was
notin place, as required by section 63(2\c} of tha MFMA,

68, Capital assets were permanently disposed af that were naaded to provide the minimum
level ef basic munizipel service, in contravention of section 14(1) of the MMA,

70. | could not obtain sufficient appropriate audit evidence that captst assete sold were
pproved by the counci, as required by section 14(2)(a) of the MFMA,
abi

ity management

71. Long-term debt was incurred without a resalullon of tha municipal council approving the
‘det agreamant, In contravention of section 46(2¥) of the MFMA,

Consequence management

72, Unauthorised expenditure incurred by the municipality wes nat investigated to datarmine
whether any pereon was lable forthe expenditure, as required by section 32(2Va) ofthe
MMA,

7, Ireguler 63 wel 2s frulies and wasteful expenditure incurred by the municipality was
‘ol invsstigated to determine it any person Is lable for Ihe expenditure, as required by
section 32(2}b) of the MFMA,

74, The condonation of irsgular expandliurs was not approved by the appropriate relevant
autharily, 2s cequired by sections 1 snd 170 of tha MFMA.

75. Authorisation of unauthorieed expenditure was not done through an adjustment budget,
15 required by section 22(2}(aXI} of the MEMA.

Internal control

76, Veonsidered internat contra relevant 10 my audit of the financial statements, annual
performance report and compliance with legislation. Tha matters repartad below are
limited tothe significant Intemal caetral deficiencies that resulted in the basle forthe
<iscleimer of opinion, the findings on the annual performance report and the findings an
‘compliance with logitetion included in this report.

Leadership

77. The leadership dit nol oversee the financial and performanca roparting, compliance and
related internal controls. The laadarship di not ensure that there were processes to
Tavlaw Information before is subnission. Matrial ears were detected in the financial
statements, and nen-complianes with legislation and intemal contol deficiencies wore
noted throughout the auclt process,

78, Tho loadership cid not set the corect tone atthe lop. Senior menagemert did not
‘adhere to Internal control, sthich resulted in unauthorised and inaguler expenditure not
being detected by managamert, 2¢ well ae non-complianca with relevant legisialian.

79, The lack of decisive action to mitigate emerging rske, implement timely correctiva
‘measures and address nor-porformance was evident by the fallure of the Feadership to
adequately address tha external eu findings in a timely manner. The muniaipaliy
faliod to property analyse the control wasknegses and Implement appropriate folaw-up
actions that adequately acressed the root causes.

80. The leadership did not ensure that ths rmunicipaity complied with appleable legisiation,
‘Material findings on compliance with lecislation were raleed Inthe year under review.
‘Tha muricipaliy’s Internal processes and systems did not prevent matertal now
complianes or iragular, unauthorised 9s wel ae fruitless and wasteful expenditure,