Report of the auditor-general to North-West provincial legislature and council on the Kgetlengrivier Local Municipality
Report on the audit of thefinancial statements
Disclaimer of opinion
1. I was engaged to audit the financial statements of the Kgetlengrivier Local Municipality set out on pages XX to XX, which comprise of the statement of financial position as at 30 June 2020, the statement of financial performance, statement of changes in net assets, cash flow
statement and the statement of comparison of budget and actual amounts for the year then ended, as well as the notes to the financial statements, including a summary of significant accounting policies.
2. I do not express an opinion on the financial statements of the Kgetlengrivier Local Municipality.
Because of the significance of the matters described in the basis for disclaimer of opinion section of my report, I have not been able to obtain sufficient appropriate audit evidence to provide a basis for an audit opinion on these financial statements.
Basis for disclaimer of opinion Property, plant and equipment
3. I was unable to obtain sufficient appropriate audit evidence for property, plant and equipment due to differences between the financial statements and the accounting records and due to the lack of information to support prior year restatements and adjustments in the current year reflected as “other changes, movements” in note 4. I was unable to confirm property plant and equipment by alternative means. Consequently, I was unable to determine whether any adjustments relating to property plant and equipment of R575 556 674 (2019: R596 220 209) as disclosed in note 4 and the related prior period adjustments as disclosed in note 37 to the financial statements were necessary.
Receivables from non-exchange transactions
4. I was unable to obtain sufficient appropriate audit evidence for receivables from non-exchange transactions due to differences between the financial statements and the accounting records and due to the lack of information to support prior year adjustments. I was unable to confirm the receivables from non-exchange transactions by alternative means. Furthermore, the municipality did not correctly account for receivables from non-exchange transactions due to differences between valuation role and rates used in billing, resulting in receivables from non- exchange transactions and revenue from property rates being understated by R2 433 465.
Consequently, I was unable to determine whether any further adjustments relating to
receivables from non-exchange transactions of R6 459 298 (2019: R9 724 273) as disclosed in note 7 and the related prior period adjustments as disclosed in note 37 to the financial
statements were necessary.
Receivables from exchange transactions
5. I was unable to obtain sufficient appropriate audit evidence for receivables from exchange transactions due to differences between the financial statements and the accounting records
and due to the lack of information to support prior year adjustments. I was unable to confirm receivables from exchange transactions by alternative means. Furthermore, the municipality did not correctly account for receivables from exchange transactions due to differences between prepaid electricity reports and actual billing resulting in receivables from exchange transactions and revenue from service charges being understated by R25 409 271.
Consequently, I was unable to determine whether any further adjustments relating to receivables from exchange transaction of R29 272 344 (2019: R68 985 054) as disclosed in note 9, the related prior period adjustments as disclosed in note 37 to the financial statements, and debt impairment of R90 951 923 (2019: R36 837 190) as disclosed in note 26 to the financial statements, were necessary.
Cash and cash equivalents
6. I was unable to obtain sufficient appropriate audit evidence for cash and cash equivalents due to differences between the financial statements and the accounting records and due to lack of information to support prior year adjustments. I was unable to confirm cash and cash
equivalents by alternative means. Consequently, I was unable to determine whether any adjustments relating to cash and cash equivalents of R5 873 921 (2019: R2 738 966) as disclosed in note 11 and the related prior period adjustments as disclosed in note 37 to the financial statements were necessary.
Payables from exchange transactions
7. I was unable to obtain sufficient appropriate audit evidence for payables from exchange transactions due to differences between the financial statements and the accounting records and due to lack of information to support prior year adjustments. I was unable to confirm payables from exchange transactions by alternative means. Consequently, I was unable to determine whether any adjustments relating to payables from exchange transactions of R320 860 350 (2019: R244 785 818) as disclosed in note 14 and the related prior period adjustments as disclosed in note 37 to the financial statements were necessary.
Unspent conditional grants and receipts
8. I was unable to obtain sufficient appropriate audit evidence for unspent conditional grants and receipts in the prior year due to differences between the financial statements and the
accounting records and due to lack of information to support prior year adjustment. I was unable to confirm the unspent conditional grants by alternative means. Furthermore, not all current year receipts identified from the bank statements was correctly included in unspent conditional grants and receipts resulting in cash and cash equivalents being understated by R28 578 574, the VAT receivable being overstated by R18 378 574, revenue from government grants and subsidies being overstated by R12 602 344 and unspent conditional grants being understated by R2 402 344. Consequently, I was unable to determine whether any further adjustments relating to unspent conditional grants and receipts of R8 459 206 (2019:
R10 200 000) as disclosed in note 12 and the related prior period adjustments as disclosed in note 37 to the financial statements were necessary.
Employee benefit obligations and provisions
9. During 2019, I was unable to obtain sufficient appropriate audit evidence for provisions due to differences between the financial statements and the accounting records. I was unable to confirm these provisions by alternative means. My audit opinion on the financial statements for the period ended 30 June 2019 was modified accordingly. My opinion on the current year financial statements was also modified because of the possible effect of this matter on the comparability of the employee benefit obligations and provisions for the current period. In addition, the municipality incorrectly classified a leave reserve funds as provisions, resulting in provisions being overstated by R8 072 894 and payables from exchange transactions being understated by R8 072 894. Consequently, I was unable to determine whether any further adjustment relating to provisions of R42 944 762 as disclosed in note 13 to the financial statements was necessary.
VAT receivable
10. During 2019, I was unable to obtain sufficient appropriate audit evidence for the VAT due to differences between the financial statements and the accountings records. My audit opinion on the financial statements for the period ended 30 June 2019 was modified accordingly. My opinion on the current year financial statements was also modified because of the possible effect of this matter on the comparability of VAT receivable for the current period. In addition, I as unable to obtain sufficient appropriate audit evidence for adjustments of R3 627 839 to the corresponding figure as information requested from management was not made available. I was unable to confirm VAT by alternative means. Consequently, I was unable to determine whether any adjustment relating to VAT receivables of R795 973 as disclosed in the financial statements, was necessary.
Investment property
11. During 2019, the municipality did not correctly account for investment property as required by GRAP 16, Investment property as the fair value adjustment of investment property was incorrectly classified as gains on disposal of property, plant and equipment and the Koster golf course was incorrectly classified as land and buildings. My audit opinion on the financial statements for the period ended 30 June 2019 was modified accordingly. My opinion on the current year financial statements was also modified because of the possible effect of this matter on the comparability of Investment property for the current period. In addition, the accounting policy of investment property does not address subsequent measurement of investment property. Consequently, investment property was understated by R9 753 896, accumulated surplus was understated by R4 054 000 and land and buildings was overstated by R13 807 896.
Fines, penalties and forfeits
12. I was unable to obtain sufficient appropriate audit evidence for revenue from fines, penalties and forfeits due to differences between the financial statements, the accounting records and traffic fines reports. I was unable to confirm this revenue by alternative means. Consequently, I was unable to determine whether any adjustment relating to revenue from fines, penalties and forfeits of R32 684 500 (2019: R7 208 000) as presented in the statement of financial
performance was necessary.
Service charges
13. During 2019, I was unable to obtain sufficient appropriate audit evidence for sale of water due to differences between the financial statements and the accounting records and for sale of electricity due to differences between the reports from the service provider and the accounting records. and I was unable to confirm this revenue by alternative means. In addition, I was unable to determine whether any adjustments to sale of electricity of R40 345 102 and sale of water of R3 490 986 included in service charges as disclosed in note 17 to the financial statements were necessary. My audit opinion on the financial statements for the period ended 30 June 2019 was modified accordingly. Consequently, my opinion on the current period’s financial statements is also modified because of the possible effect of this matter on the comparability of the current period’s figures.
Expenditure
14. The municipality did not correctly account for expenditure as required by GRAP 1, Preparation of financial statements as not all invoices were recorded in the correct financial period and due to expenditure not being correctly classified. This resulted in contracted service being
overstated by R4 085 266, general expenses being understated by R17 763 720, the VAT receivable being understated by R2 818 127 and trade payables included in payables from exchange transactions being overstated by R10 860 327. There is a consequential impact on the deficit for the year and the accumualted surplus.
15. I was unable to obtain sufficient appropriate audit evidence for general expenses and adjustments to the corresponding figure due to the state of the accounting records and as information requested from management that was not made available. I was unable to confirm general expenses by alternative means. Consequently, I was unable to determine whether any further adjustment relating to general expenses of R28 351 759 (2019: R27 300 941) as disclosed in note 29 to the financial statements was necessary.
Employee related costs
16. I was unable to obtain sufficient appropriate audit evidence for employee related costs due to differences between the accounting records and the financial statements and that information requested from management was not made available. I was unable to confirm the employee related costs by alternative means. Consequently, I was unable to determine whether any adjustment to employee related costs of R67 223 020 (2019: R65 812 131) as disclosed in note 22 to the financial statements was necessary.
Licenses and permits
17. I was unable to obtain sufficient appropriate audit evidence for licences and permits as information requested from management was not made available. I was unable to confirm this revenue by alternative means. Consequently, I was unable to determine whether any
adjustments relating to revenue from licenses and permits of R3 596 123 (2019: R11 941 164) as presented in the statement of financial performance was necessary.
Government grants and subsidies
18. I was unable to obtain sufficient appropriate audit evidence for government grants and subsidies and for adjustments to the corresponding figure due to the status of the accounting records and as information requested from management was not made available. I was unable to confirm this revenue by alternative means. Consequently, I was unable to determine whether any adjustment relating to revenue from government grants and subsidies of R113 838 794 (2019: R132 808 202) as disclosed in note 21 to the financial statements was necessary.
Accumulated surplus
19. I was unable to obtain sufficient appropriate audit evidence for the restatement of the
corresponding figure for the accumulated surplus due to the status of the accounting records.
As presented in the statement of changes in net assets, the restatement was made to rectify previous year misstatements, however, the restatement could not be substantiated by supporting audit evidence. I was unable to confirm the restatement by alternative means.
Consequently, I was unable to determine whether any adjustment to the accumulated surplus of R289 081 770 (2019: R452 180 168) in the statement of changes in net assets was
necessary.
Interest received consumer debtors
20. I was unable to obtain sufficient appropriate audit evidence for interest received on outstanding consumer debtors due to the limitation of scope on consumer debtors as information requested from management for consumer debtors was not made available . I was unable to confirm the interest received consumer debtors by alternative means. Consequently, I was unable to determine whether any adjustment to the interest received consumer debtors of R12 412 607 (2019: R14 801 422) in the statement of financial performance, was necessary.
Property rates
21. During 2019, I was unable to obtain sufficient appropriate audit evidence for property rates as information requested from management, including the valuation roll, was not made available. I was unable to confirm this revenue by alternative means. Consequently, I was unable to determine whether any adjustment relating to revenue from property rates of R7 325 475 as disclosed in note 20 to the financial statements was necessary. My audit opinion on the financial statements for the period ended 30 June 2019 was modified accordingly. My opinion
on the current year financial statements was also modified because of the possible effect of this matter on the comparability of Property rates for the current period.
Bulk purchases
22. During 2019, I was unable to obtain sufficient appropriate audit evidence for bulk purchases as information requested from management was not made available and I was unable to confirm bulk purchases by alternative means. I was unable to determine whether any adjustment relating to bulk purchases of R30 478 717 as disclosed in note 27 to the financial statements was necessary. My audit opinion on the financial statements for the period ended 30 June 2019 was modified accordingly. Consequently, my opinion on the current period’s financial statements is also modified because of the possible effect of this matter on the comparability of the current period’s figures.
Lease rentals on operating leases
23. I was unable to obtain sufficient appropriate audit evidence for lease rental on operating leases as information requested from management was not made available. I was unable to confirm these lease rentals by alternative means. In addition, the municipality did not disclose the information relating to these operating leases as required by GRAP 13, Leases. I was unable to quantify the omitted disclosure as it was impracticable to do so. Consequently, I was unable to determine whether any adjustment to lease rental on operating leases of R10 369 382
(2019:R13 601 997) as presented in statement of financial performance was necessary.
Finance costs
24. During 2019, I was unable to obtain sufficient appropriate audit evidence for finance costs as information requested from management was not made available. I was unable to confirm finance costs by alternative means. I was unable to determine whether any adjustment relating to finance costs of R8 616 831 as disclosed in note 25 to the financial statements was
necessary. My audit opinion on the financial statements for the period ended 30 June 2019 was modified accordingly. Consequently, my opinion on the current period’s financial
statements is also modified because of the possible effect of this matter on the comparability of the current period’s figures.
Unauthorised expenditure
25. I was unable to obtain sufficient appropriate audit evidence for adjustments made to
unauthorised expenditure as information requested from management was not made available.
I was unable to confirm the unauthorised expenditure by alternative means. Consequently, I was unable to determine whether any adjustment relating to unauthorised expenditure of R224 948 834 (2019: R70 541 675) as disclosed in note 42 to the financial statements was necessary.
Irregular expenditure
26. I was unable to obtain sufficient appropriate audit evidence for irregular expenditure due to differences between the financial statements and the accounting records and due to
information requested from management not being made available for the correction of prior period errors. I was unable to confirm the irregular expenditure by alternative means. In
addition, the municipality made payments of R7 115 740 in contravention with the supply chain management requirements which were not included in irregular expenditure disclosed.
Consequently, I was unable to determine whether any further adjustment relating to irregular expenditure of R175 084 822 (2019: R118 163 189) as disclosed in note 44 to the financial statements was necessary.
Commitments
27. I was unable to obtain sufficient appropriate audit evidence for commitments as information requested from management was not made available. I was unable to confirm commitments by alternative means. In addition, the municipality did not correctly disclose all capital
commitments as required by GRAP 17, Property, plant and equipments resulting in
commitments being understated by R12 097 108. Consequently, I was unable to determine whether any further adjustment relating to commitments of R51 808 207 (2019: R89 822 489) as disclosed in note 33 to the financial statements was necessary.
Contingencies
28. I was unable to obtain sufficient appropriate audit evidence for contingencies due to the state of the accounting records. I was unable to confirm the contingencies by alternative means.
Consequently, I was unable to determine whether any adjustment relating to contingencies as disclosed in note 34 to the financial statements was necessary.
Cash flow statement
29. I was unable to obtain sufficient appropriate audit evidence for the calculation of net cash flows from operating activities and investing activities, as the municipality did not appropriately account for cash and non-cash items as required by GRAP 2 Cash flow statements. The municipality’s system did not allow for the performance of alternative procedures to determine the extent of this misstatement. Consequently, I was unable to determine whether any
adjustment to the net cash flows from operating activities and investing activities disclosed in the cash flow statement and the note thereto, was necessary.
Fruitless and wasteful expenditure
30. I was unable to obtain sufficient appropriate audit evidence for fruitless and wasteful
expenditure as information requested from management was not made available for audit as well as the state the accounting records. I was unable to confirm the fruitless and wasteful expenditure by alternative means. Consequently, I was unable to determine whether any further adjustment relating to fruitless and wasteful expenditure of R15 791 364 (2019: R7 329 197) as disclosed in note 43 to the financial statements was necessary.
Related parties
31. The municipality did not have an adequate system to account for its related party transactions as required by GRAP 20, Related party disclosures. Government grants and subsidies received from Provincial Treasury were not included in the disclosure of related parties in the financial statements. This resulted in related parties as disclosed in note 35 being understated by R113 838 794.
Material losses
32. The municipality did not disclose water and electricity distribution losses as required by section 125(2)(d)(i) of the Municipal Finance Management Act, 2003 (Act No. 56 of 2003) (MFMA). As the municipality did not have adequate control measures in place to accurately determine the nature and extent of these losses, I was unable to quantify the resulting misstatement as it was impracticable to do so.
Going concern
33. The municipality’s current liabilities exceeded its current assets by R286 667 171 as at 30 June 2020 which, along with other matters, indicate the existence of a material uncertainty that may cast significant doubt on the municipality’s ability to operate as a going concern. The
aforementioned information has not adequately been disclosed in the notes to the financial statements. In addition, the municipality has not made an assessment of its ability to continue as a going concern.
Others matters
34. I draw attention to the matter below. My opinion is not modified in respect of these matter.
Unaudited disclosure notes
35. In terms of section 125(2)(e) of the MFMA, the municipality is required to disclose particulars of non-compliance with the MFMA. This disclosure requirement did not form part of the audit of the financial statements and accordingly I do not express an opinion thereon.
Unaudited supplementary schedules
36. The supplementary information set out on pages XX to XX does not form part of the financial statements and is presented as additional information. I have not audited this schedule and, accordingly, I do not express an opinion thereon.
Responsibilities of the accounting officer for the financial statements
37. The accounting officer is responsible for the preparation and fair presentation of the financial statements in accordance with the South African Standards of Generally Recognised
Accounting Practice (SA standards of GRAP) and the requirements of the MFMA and the Division of Revenue Act, 2019 (Act No. 16 of 2019) (DoRA) and for such internal control as the accounting officer determines is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error.
38. In preparing the financial statements, the accounting officer is responsible for assessing the municipality’s ability to continue as a going concern, disclosing, as applicable, matters relating to going concern and using the going concern basis of accounting unless the appropriate governance structure either intends to liquidate the municipality or to cease operations, or there is no realistic alternative but to do so.
Auditor-general’s responsibilities for the audit of the financial statements 39. My responsibility is to conduct an audit of the financial statements in accordance with
International Standards on Auditing (ISAs) and to issue an auditor’s report. However, because of the matters described in the basis for disclaimer of opinion section of this auditor’s, I was not able to obtain sufficient appropriate audit evidence to provide a basis for an audit opinion on these financial statements.
40. I am independent of the municipality in accordance with the International Ethics Standards Board for Accountants’ International code of ethics for professional accountants (including International Independence Standards) (IESBA code), as well as the other ethical requirements that relevant to my audit of the financial statements in South Africa. I have fulfilled my other ethical responsibilities in accordance with these requirements and the IESBA code.
Report on the audit of the annual performance report
Introduction and scope
41. In accordance with the Public Audit Act of South Africa, 2004 (Act No. 25 of 2004) (PAA) and the general notice issued in terms thereof, I have a responsibility to report material findings on the reported performance information against predetermined objectives for selected
[programmes/ objectives/ development priorities] presented in the annual performance report. I was engaged to perform procedures to raise findings but not to gather evidence to express assurance.
42. I was engaged to evaluate the usefulness and reliability of the reported performance
information in accordance with the criteria developed from the performance management and reporting framework, as defined in the general notice, for the following selected programme objectives presented in the annual performance report of the municipality for the year ended 30 June 2020:
Objective Pages in the annual performance report
KPA 1 – Basic services and infrastructure x – x
43. The material findings in respect of the usefulness and reliability of the selected objective are as follows:
KPA 1 – Basic services and infrastructure
Various indicators: Reported achievements were not consistent with the planned and reported targets, and the overall presentation of the performance information in the annual performance report is not comparable and understandable.
44. I was unable to audit the usefulness and reliability of the reported performance as the reported achievements was inconsistent with the planned indicator and target. In addition, the reported information was not comparable with prior year achievements as no prior year achievements were presented in the annual performance report. I was unable to confirm the reported achievement or comparison with prior year by alternative means. Consequently, I was unable to determine whether any adjustments to the reported achievements for the following indicators were required:
Planned indicator and target Reported
achievements Square metres of concrete reservoir sealed by 30 June 2020.
(1ML of concrete reservoir in place - ward 3, 4, 5 & 7) Not Achieved Square metres of concrete reservoir sealed by 30 June 2020.
(3.5 ML concrete reservoir in place - ward 3, 4, 5 & 8) Not Achieved Number of wastewater package Plant refurbished (1
wastewater package Plant in Mazista - ward 6). Achieved
Percentage completion of the construction of 0.25ML steel reservoir construction in Reagile Ext 4 & 8.
45. I was unable to obtain sufficient appropriate audit evidence to support the measures taken to improve performance relating to the completion of the Reagile steel reservoir in ward 5 or that clearly defined the predetermined method of collection to be used when measuring the actual achievement of “Not achieved, project at 95% complete” for the target of “% completion of the construction of 0.25ML steel reservoir construction in Reagile Ext 4 & 8”. This was due to insufficient measurement definitions or processes. In addition, the reported information was not comparable with prior year achievements as no prior year achievements were presented in the annual performance report. I was unable to confirm the reported achievement or comparison with prior year by alternative means. Consequently, I was unable to determine whether any adjustment to the reported achievement was required.
Number of pump station refurbished (1 x Rodeon sewer pump station - Ward 2).
46. I was unable to obtain sufficient appropriate audit evidence to support the measures taken to improve performance relating to the completion of the Rodeon sewer Pump station, or the usefulness and reliability of the reported performance as the reported achievement was inconsistent with the planned indicator and target, or that clearly defined the predetermined method of collection to be used when measuring the actual achievement of “Not achieved” for the target of “Number of Pump station refurbished”. This was due to insufficient measurement definitions or processes. In addition, the reported information was not comparable with prior
year achievements as no prior year achievements were presented in the annual performance report. I was unable to confirm the reported achievement or comparison with prior year by alternative means. Consequently, I was unable to determine whether any adjustment to the reported achievement was required.
Number of wastewater treatment plant (1 x wastewater treatment plant ward 1)
47. I was unable to obtain sufficient appropriate audit evidence to support the measures taken to improve performance relating to the Wastewater treatment plant, or the usefulness and reliability of the reported performance as the reported achievement of “Not achieved” was inconsistent with the planned indicator and target of “Number of wastewater treatment plant”.
This was due to insufficient measurement definitions or processes. In addition, the reported information was not comparable with prior year achievements as no prior year achievements were presented in the annual performance report. I was unable to confirm the reported achievement or comparison with prior year by alternative means. Consequently, I was unable to determine whether any adjustment to the reported achievement was required.
Other matter
48. I draw attention to the matters below.
Achievement of planned targets
49. Refer to the annual performance report on pages XX to XX for information on the achievement of planned targets for the year. This information should be considered in the context of the material findings on the usefulness and reliability of the reported performance information in paragraphs XX to XX of this report.
Report on the audit of compliance with legislation
Introduction and scope
50. In accordance with the PAA and the general notice issued in terms thereof, I have a
responsibility to report material findings on the municipality’s compliance with specific matters in key legislation. I performed procedures to identify findings but not to gather evidence to express assurance.
51. The material findings on compliance with specific matters in key legislation are as follows:
Financial statements and annual reports
52. The financial statements submitted for auditing were not prepared in all material respects in accordance with the requirements of section 122 of the MFMA. Material misstatements of current assets, current liabilities, revenue, expenditure and disclosure items, identified by the auditors in the submitted financial statement were not subsequently corrected, resulting in the financial statements receiving a disclaimer audit opinion.
53. The financial statements were not submitted to the Auditor-General, for auditing, within four months after the end of the financial year, as required by section 126(1)(a) of the MFMA.
54. A written explanation setting out the reasons for the failure to submit the financial statements to the Auditor-General within four months after the end of the financial year were not tabled in council as required by section 133(1)(a) of the MFMA.
55. The council failed to adopt an oversight report containing the council's comments on the 2018- 19 annual report, as required by section 129(1) of the MFMA.
Expenditure management
56. Money owed by the municipality was not always paid within 30 days, as required by section 65(2)(e).
57. An adequate management, accounting and information system was not in place which recognised expenditure when it was incurred, as required by section 65(2)(b) of the MFMA.
58. Reasonable steps were not taken to prevent irregular expenditure, as required by section 62(1)(d) of the MFMA. The expenditure disclosed does not reflect the full extent of the irregular expenditure incurred as indicated in the basis for disclaimer of opinion. The majority of the disclosed irregular expenditure was caused by the non-compliance with supply chain management (SCM) regulations.
59. Reasonable steps were not taken to prevent fruitless and wasteful expenditure, as required by section 62(1)(d) of the MFMA. The expenditure disclosed does not reflect the full extent of the fruitless and wasteful expenditure incurred as indicated in the basis for disclaimer paragraph.
The majority of the disclosed fruitless and wasteful expenditure was caused due to interest and penalties on long outstanding accounts.
60. Reasonable steps were not taken to prevent unauthorised expenditure, as required by section 62(1)(d) of the MFMA. The full extent of the unauthorised expenditure could not be quantified as indicated in the basis for qualification paragraph.
Revenue management
61. An effective system of internal control for debtors was not in place, as required by section 64(2)(f) of the MFMA.
Consequence management
62. Unauthorised, irregular and fruitless and wasteful expenditure incurred by the municipality were not investigated to determine if any person is liable for the expenditure, as required by section 32(2)(b) of the MFMA.
Procurement and contract management
63. Sufficient appropriate audit evidence could not be obtained that all contracts and quotations were awarded in accordance with the legislative requirements as an adequate documentation management system are not in place to safely store and retrieve files and documents.
64. Sufficient appropriate audit evidence could not be obtained that construction contracts were awarded to contractors that were registered with the Construction Industry Development Board (CIDB) in accordance with section 18(1) of the CIDB Act and CIDB regulations 17 and 25(7A).
65. Sufficient appropriate audit evidence could not be obtained that all extensions or modifications to contracts were approved by a properly delegated official, as required by SCM regulation 5.
66. The performance of contractors or providers was not monitored on a monthly basis, as required by section 116(2)(b) of the MFMA. Similar non-compliance was also reported in the prior year.
67. The contract performance and monitoring measures and methods were not sufficient to ensure effective contract management, as required by section 116(2)(c) of the MFMA.
Conditional Grants
68. Performance in respect of programmes funded by the Municipal Infrastructure Grant, was not evaluated within two months after the end of the financial year, as required by section 12(5) of the DoRA.
Internal control deficiencies
69. I considered internal control relevant to my audit of the financial statements, reported performance information and compliance with applicable legislation; however, my objective was not to express any form of assurance thereon. The matters reported below are limited to the significant internal control deficiencies that resulted in the basis for disclaimer of opinion, the findings on the annual performance report and the findings on compliance with legislation included in this report.
Leadership has failed to appoint appropriately skilled staff in key positions within the
finance, performance and compliance units of the municipality. This resulted in overreliance on consultants to produce financial statements, however due to lack of proper record keeping and in-year reconciliations and controls the quality of information on which they rely are severely impacted.
Furthermore, leadership’s lack of in-year monitoring and oversight has promoted material limitations in the financial statements, non-compliance with laws and regulations and the absence of systems to support the collection, processing and reporting on performance against pre-determined objectives.
Management’s review and monitoring of financial and performance reporting, compliance with laws and regulations and internal controls is severely lacking. In addition, there are no systems in place to enforce compliance with laws and regulations and no actions are taken against staff responsible for poor performance.
The governance structures at the municipality remain unsuccessful in achieving the oversight as there are numerous internal control weaknesses and the lack of a proper action plan to address previous year findings.
Material irregularities
70. In accordance with the PAA and the material irregularity regulations, we have a responsibility to report on material irregularities identified during the audit.
Other material irregularities
71. I identified a material irregularity during the audit and notified the accounting officer thereof as required by Material Irregularity regulation 3(2). By the date of this auditor’s report, I had not yet completed the process of evaluating the responses from the accounting officer. The material irregularity will be included in the next year’s auditor’s report.
Rustenburg 31 July 2021
