STEVE TSHWETE LOCAL MUNICIPALITY THE HOME OF STAINLESS STEEL SALGA- MUNICIPAL MANAGERS FORUM George Local Municipality 31 AUGUST 01 SEPTEMBER 2017 1
INSIGHT ON THE 2015/16 AUDIT OUTCOMES STEVE TSHWETE LOCAL MUNICIPALITY 2
TABLE OF CONTENT 1. Our Commitment 2. Major Challenges 3. 10 Critical Issues 4. Elements of Clean Audit 5. Overview on causes of financial statement qualifications 6. Core Compliance 7. Financial Management 8. Key control drivers for Clean Administration 9. Preparation of Financial Statements 10. Relationship with Auditor-General 11. Proposed Interventions FORUMS / TASK TEAMS 12. Clean Audits V/S Service Delivery 3
To always treat everyone with dignity and respect. To perform duties with integrity, honesty and diligence. To diligently apply the principles of Batho Pele in all dealings. OUR STANDARD OF GOOD FINANCIAL GOVERNANCE Discipline Accountability Fairness Transparency Responsibility Social Responsibility 4 There are many faces in the municipality contributing to the clean audit achievement.
MAJOR CHALLENGES Ø Internal controls deficiencies Ø Poor reconciliations and misstatement of financial statements Ø Poor credit control debt collection (affect cash flow) Ø Asset register not compliance to GRAP requirements Ø Increase prohibited expenditure (Unauthorised, irregular, fruitless and wasteful expenditure) Ø Reconciliation of a Valuation Rolls to a Billing systems Ø Unfunded budget (inflated revenue projections which do not materialise) Ø Poor reconciliation and cash flow management Ø Ineffective leadership and oversight responsibility (governance structures) Ø Lack of SCM policy and non compliance Ø Poor relationship between MM and CFO 5
MAJOR CHALLENGES (cont...) Ø Poor quality of AFS Information submitted for auditing Ø Slow response by management in SCM non compliance Ø Slow response to Audit enquiries raised within prescribed time Ø Slow filling of Key positions and/or with unsuitable candidates Ø Lack of consequences for poor performance and transgression Ø Reliance on consultants to produce AFS and Asset register Ø Ineffective Risk Management Ø Ineffective Billing System Ø Incredible Indigent policy and register Ø Lack of compliance, delegation, contract management and records system. 6
10 CRITICAL ISSUES Ø Relationships Political and Administration MM and CFO Ø Segregation of duties and Delegation register Ø Records Management Ø Legal Compliance and Litigation register Ø Contract Management Ø Monitoring system (Political and Administrative) Ø Institutional Arrangements - Competent and qualified personnel Ø Billing system Ø Performance Management System (SMART ) Ø Internal control 7
Risk Committee IT Compliance & Governance F&P Management Audit Committee Leadership IT Governance Governance Internal Audit Clean Audit Outcome 8
OVERVIEW ON CAUSES OF FINANCIAL STATEMENT QUALIFICATIONS Property Plant and Equipment (GRAP 17) Residual values, Useful lives not reviewed Fixed asset register incomplete and not updated Reconciliations of registers with GL not performed. Supporting documentation to support evidence. Performance Information and Predetermined Objectives Performance reports not submitted Usefulness of reported information measured against relevance and measurability 9 Non-Compliance with Laws and Regulations Unauthorised, irregular & fruitless and wasteful expenditure Submitted financial statements required material adjustments Non functional audit committees & Internal Control
OVERVIEW ON CAUSES OF FINANCIAL STATEMENT QUALIFICATIONS Critical Supply Chain Management Issues General non compliance to procurement and contract management. (Bid committees, Quotations etc) Awards made to persons in the service of the state. Competitive bids not invited. Missing contract documentation Governance Leadership Performance management Systems and processes Lack of proper record keeping 10
Core Compliance Identify and ensure core compliance issues are in place: Governance Internal Audit and Control. Performance Audits. Audit Committee. Legislative Compliance. Political Oversight 11 Financial: Unqualified Report. Proper Records and Documentation. Reporting and Legislative Compliance. Understand and Comply with Accounting Standards Framework. (GRAP)
KEY CONTROL DRIVERS FOR CLEAN ADMINITRATION Leadership Financial and Performance management Governance Effective leadership culture Proper record keeping Risk management Oversight responsibility Processing and reconciling controls Internal control HR management Regular reporting Audit committee Policies and procedures Compliance monitoring Audit action plans IT system controls IT governance Improved Unchanged Regressed Improved Unchanged Regressed Good Concerning Intervention required 12
Preparation of Financial Statements 13 Outsourced versus In-House Over 60% of municipalities are assisted by consultants Consultants were able to correct parts of financial statements that had been misstated but are unable to ensure that auditees progress towards unqualified reports. Disadvantages Consultants Appointed close to year-end No real impact Deficiencies in record keeping and reconciliations limit ability to prepare GRAP compliant statements. Vacancies and capacity of finance department staff.
Preparation of Financial Statements Prepare Financial statements in-house. Benefits: Build in-house capacity. Responsibility/Ownership rests with municipality. Better control over balancing and verification of figures in general ledger with source documents. Informed responses to Auditor-General enquiries. Better understanding of accounting records and procedures Defend fairness of enquiries raised. Accurate and timeously response to AG on queries raised. 14
Relationship with Auditor-General Know the Auditor-General. Make sure there is a good and positive working relationship. Listen to their requirements during Audits. Respond to informal enquiries quickly and efficiently. Provide information as requested and if not available inform AG accordingly. Have a open office approach and assist as far as possible. Designate an official to be available during audit. 15
PROPOSED INTERVENTIONS FORUMS / TASK TEAMS FORUM / TASK TEAM 1: QUALITY OF SUBMITTED FINANCIAL STATEMENTS Development and implementation of Accounting Policies AFS & IFS Committees Development and Implementation of AFS & IFS preparation plans Conduct regular TB, GL and AFS / IFS Reconciliations AFS & IFS Reconciliation Schedules Develop and Implement AFS & IFS checklist Conduct AFS & IFS Review sessions FORUM /TASK TEAM 2 : QUALITY OF SUBMITTED PERFORMANCE INFORMATION Establishment of Planning Unit. Credibility of Municipal Plans Monitoring and Evaluation of implementation plans Performance review sessions Regular reporting as per required legislations FORUM / TASK TEAM 3: SUPPLY CHAIN MANAGEMENT Establishment of SCM Unit SCM Committees FORUM / TASK TEAM 7 Financial Delegations SCM Delegations Appointment of Responsibility Managers Policies and Procedures Compliance Checklists Regular Reporting COMPLIAINCE WITH LAWS AND REGULATIONS Development and implementation of compliance policy Development and implementation of compliance registers of all applicable laws and regulations Develop and implement monthly compliance checklist Develop operational compliance checklist Establishment of Compliance Units Establishment of Internal Audit : Compliance Units Monthly compliance reporting arrangements FORUM / TASK TEAM 4 INTERNAL CONTROLS Develop a list of standard policies and procedures Take stock of existing policies and procedures Develop outstanding policies and procedures Assessment of Control Environment Assessment of application Controls FORUM / TASK TEAM 5 HUMAN RESOURCES MANAGEMENT Municipal Organogram HR Delegations General HR Matters Competencies Instability Vacancies IT Governance and Controls Monitor and enforce implementation of developed policies and procudures FORUM / TASK TEAM 8 REVENUE AND CREDIT CONTROL MANAGEMENT Revenue and Credit Control Management Unit effectiveness Revenue and Credit Control Policies Revenue Enhancement Strategy Top 100 Users per Revenue Source / Category Government Accounts Reconciliations Maintenance of accurate Indigent Registers Monthly reporting and monitoring FORUM / TAK TEAM 6 INFORMATION TECHNOLOGY ITC Governance Structure establishment Functional ICT Unit within the Municipality Development ICT Strategy Disaster Recovery Plan User Access control and change management ICT Facilities and environmental control 18
PROPOSED INTERVENTIONS FORUMS / TASK TEAMS TASKS WITH THE POTENTIAL OF BEING OUTSOURCED TASK TEAM 9 PROPERTY PLANT AND EQUIPMENTS Review of Municipal Asset Register (Tangible and Intangible) Physical Verification of Municipal Assets with an objective of ensuring existence, completeness and accuracy. TASK TEAM 10 UNAUTHORISED, IRREGULAR AND FRUITLESS AND WASTEFUL EXPENDITURE Review Registers for Unauthorised, Irregular and Fruitless and Wasteful Expenditure(UIFW). Reconcile UIFW Registers to Legers, Trial Balances, Interim/Annual Financial Statements Compile and maintain GRAP Compliance Municipal Asset Register Reconcile Asset Register to Municipal Ledger Accounts, Trial Balances and Interim / Annual Financial Statements. Monitor the status of UIFW within Municipalities (Investigation processes/ status) Conduct all outstanding investigations on UIFW within the affected Municipalities Monitor implementation of Investigations outcome / recommendations where applicable. Enforce consequence management within the identified or affected Municipalities 17
INSITUTIONALIZATION OF FORUMS / TASK TEAMS SUB-TASK TEAMS RESPONSIBLE FOR QUALITY OF ANNUAL FINANCIAL STATEMENTS Record Keeping Processing and Reconciliations Governance Human Resource Audit Action Plans TASK TEAM / FORUM NO 1 : QUALITY OF ANNUAL FINANCIAL STATEMENTS SUB-TASK TEAMS RESPONSIBLE FOR PERFORMANCE AND SERVICE DELIVERY Record Keeping Internal Controls Performance Audit Predetermine d Objectives and Sector Specific Complian ce TASK TEAM / FORUM NO 2 : PERFORMANCE AND SERVICE DELIVERY 18
INSITUTIONALIZATION OF FORUMS / TASK TEAMS SUB-TASK TEAMS RESPONSIBLE FOR SUPPLY CHAIN MANAGEMENT Record Keeping Internal Controls Human Resource Compliance Audit Action Plans TASK TEAM / FORUM NO 3 : SUPPLY CHAIN MANAGEMEN T SUB-TASK TEAMS RESPONSIBLE FOR INTERNAL CONTROLS Record Keeping Information Technology Processing and Reconciliation Property Plant and Equipment Employee Costs TASK TEAM / FORUM NO 4 : INTERNAL CONTROLS 19
INSITUTIONALIZATION OF FORUMS / TASK TEAMS SUB-TASK TEAMS RESPONSIBLE FOR INTERNAL CONTROLS Cash and Bank Revenue and Receivables Operating Expenditure Inventory Payables, Commitments, Provisions and VAT TASK TEAM / FORUM NO 4 : INTERNAL CONTROLS SUB-TASK TEAMS RESPONSIBLE FOR HUMAN RESOURCE MANAGEMENT Record Keeping Internal Controls Compliance Provisions Audit Action Plans TASK TEAM / FORUM NO 5 : HUMAN RESOURCE MANAGEMEN T 20
INSITUTIONALIZATION OF FORUMS / TASK TEAMS SUB-TASK TEAMS RESPONSIBLE FOR INFORMATION TECHNOLOGY Internal Controls Governance Human Resources ICT & Performance Audits Audit Action Plans TASK TEAM / FORUM NO 6 : INFORMATION TECHNOLOGY SUB-TASK TEAMS RESPONSIBLE FOR PROPERTY PLAN AND EQUIPMENT Record Keeping Processing and Reconciliations Compliance Quality of Annual Financial Statements Audit Action Plans TASK TEAM / FORUM NO 7 : PROPERTY PLANT AND EQUIPMENTS 21
INSITUTIONALIZATION OF FORUMS / TASK TEAMS SUB-TASK TEAMS RESPONSIBLE FOR UNAUTHORISED, IRREGULAR AND FRUITLESS AND WASTEFUL EXPENDITURE Internal Controls Supply Chain Management Compliance Quality of Annual Financial Statements Audit Action Plans TASK TEAM / FORUM NO 8 : UNAUTHORISED, IRREGULAR AND FRUITLESS AND WASTEFUL EXPENDITURE SUB-TASK TEAMS RESPONSIBLE FOR UNAUTHORISED, IRREGULAR AND FRUITLESS AND WASTEFUL EXPENDITURE 22
23 CLEAN AUDITS V/S SERVICE DELIVERY IDP and Budget process Ward Committees and Community meetings bi-monthly Monthly Political and Administrative Monitoring meetings Involvement of stakeholders in IDP and budget process Observation of Batho Pele Principles (Customer Service) Service standards and Charters Communication (sms system) Focus on previously disadvantage areas Capital Projects with internal funding Focus on provision of critical infrastructure Maintenance of existing infrastructure Institutional Memeory
STLM APPROACH (Cont ) KISS CONCEPT KEEP IMPROVE STOP START 24
NGIYATHOKOZA THANK YOU NGIYABONGA DANKIE 25