SALGA Launches Audit Support To Municipalities

SALGA acknowledges the progress towards unqualified audit outcomes. To fast track this improvement, it has now launched a new audit support programme that aims to provide all municipalities with the tools they need to achieve unqualified audits.

PROGRESS

The past five years have seen good progress in the area of audit outcomes, says Mohammed Lorgat, National Programme Director: Municipal Audit Support at SALGA. A greater number of municipalities [22] have received unqualified audits with no findings [dubbed clean audits], and there has also been a significant reduction of municipalities with adverse or disclaimed audit opinions.

The number of municipalities that are getting undesired audit outcomes is still, however, quite high. In the latest 2012/2013 audit, 50% of municipalities’ outcomes were unqualified, some with findings, some with no findings. The other 50% received a combination of qualified and adverse audit findings. Simphiwe Dzengwa, Executive Director Municipal Finances at SALGA, highlights the great improvement in audit outcomesin KZN. One example of this is Okhahlamba Local Municipality in KZN. The municipality has progressed from a poor outcome to the best audit outcome in the last cycle. ‘Okhahlamba Municipality has experienced all the Auditor-General audit opinions from 2008 up to now — from adverse, to disclaimer, to unqualified and clean. So I think we are a very unique brand,’ says Siza Sibande, municipal manager at Okhahlamba, as he highlights that with the required support and commitment, it is indeed possible to turn some dire situations into success stories.

According to Sibande, it takes a lot of hard work, focus, determination and dedication to achieve a clean audit. ‘You have to come to work every day with that ultimate goal in mind. You need a dynamic, competent team, people who share the same vision and work towards the same goals. The internalaudit team has to be properly qualified. Municipalities have a tendency to just employ somebody straight from school and say, “now you’ve become an auditor”, but it doesn’t work like that. You need somebody who understands local government legislation, somebody with inherent experience of local municipalities. You need a CFO who is committed and has the right qualifications, a municipal manager who’s driven by a passion to lead a clean administration, and a mayor who shares the passion, supports the cause, and doesn’t undermine it,’ explains Sibande.

‘It takes a lot of hard work, focus, determination and dedication to achieve a clean audit.’

In order to achieve an unqualified audit with no findings, it is also important to track your progress, says Sibande. ‘When I started in January 2012 the municipality had just come out of an adverse opinion in 2009, a disclaimer in 2010 and an unqualified audit in 2011. We then focused on all the AG queries that had been raised before. If you keep track of your previous queries and have a target in terms of how to minimise or eliminate them, that in itself gives you a start, because you then develop the necessary structures to address these issues and monitor progress on an ongoing basis. In our case, we had a target to resolve 85-90% of AG queries in 2012 and we ended up resolving 98%. In 2013, we aimed to be 100% clean of any previous AG queries and receive a clean audit,’ says Sibande.

But Sibande also adds that Okhahlamba Municipality’s focus isn’t necessarily to achieve an unqualified audit with no findings, but rather ‘to maximise our mandate and ensure that we deliver efficient services to our people. And a clean audit is positive feedback from that process’.

SUSTAINED SUCCESS

SALGA is very pleased that a number of municipalities have sustained a continuously clean audit over the past five years, says Dzengwa: ‘We are interacting with those municipalities to get an understanding of how they are doing it.’

Ehlanzeni District Municipality in Mpumalanga has maintained a clean audit outcome for five years in a row. According to Wiseman Khumalo, Chief Financial Officer at the municipality, a clean administration and the right staff are key ingredients in maintaining an unqualified audit with no findings: ‘Once you’ve recruited the right people, you need to enhance their technical expertise.’ And he says you shouldn’t have vacancies in senior management level: ‘You need to fill most of the critical posts and tie them up with a performance agreement.’

Secondly, governance structures like audit and risk committeesshould have a pool of different skills and they should function independently. Also critical is record-keeping, especially on the payment side. Khumalo stresses that all policies and procedures should be reviewed annually.

Also vital is compliance with legislation. ‘We have developed an internal compliance calendar which is monitored by the Risk Committee. Equally important is internal control,’ adds Khumalo.

‘We’ve also introduced an Individual Performance Management System and we assess all our staff members on a quarterly basis.

‘They sign a performance contract, and included in that performance contract is their personal development plan. As the CFO I then have to make sure they are trained. The assessment we’ll be doing this year will have 360-degree feedback. All of us are assessed, including myself. And we’ll try to introduce some incentives so that everyone buys into it. There is a huge buy-in from the unions as well.’

Dzengwa pointed out that SALGA has created platforms for municipalities like Ehlanzeni and Okhahlamba to share their experiences and their achievements with others. On 4 and 5 September, SALGA also hosted a National MunicipalManagers’ Forum in Mbombela, Mpumalanga, where all the municipalities that obtained an unqualified audit status with no findings were celebrated and acknowledged for their achievements. They were presuaded to impart their experiences with their colleagues from other municipalities in order to ensure collective improvement.

CONCERNS

‘Every municipality should be striving to get the best possible audit outcome,’ adds Lorgat. ‘And the first step is submitting financial statements for auditing on time.’

About 17 municipalities did not submit their audit statements on time for the 2012/2013 financial year. Another area of concern is the quality of financial statements that were handed in: ‘Although 95% submitted their financial statements on time, there was an issue regarding the quality of financial statements that were submitted with 82% of municipalities,’ says Lorgat.

SALGA also pointed out that not everyone is familiar with audit language. Dzengwa says: ‘For instance, the AG makes the point that for the 2012/2013 financial year, R11.3 billion is categorised under irregular expenditure. Everyone now jumpsin and says municipalities are stealing money, are mismanaging this and that, but they don’t read where the AG says that one can understand how some R8 billion of that money was spent. For example, if there had been a water crisis that the municipality had not budgeted for and money was taken from another programme to address the immediate crisis, the AG would have still categorised it as an irregular expenditure, because the money had not been spent in terms of its initial purpose. SALGA intends to work together with the AG’s office to put together a People’s Guide to Audit Outcomes that will simplify the audit language and make it easier to understand the AG’s report.’

Another issue is the timing of the AG’s report. Dzengwa pointed out that ‘the AG’s report came out on 30 July and on 31 August this year municipalities were expected to submit their financial statements for the previous year. In that time lapse a lot of things could have happened. So, although the audit outcome report is very important, we feel that it is released too late. There has to be a continuous assessment and monitoring of what happens in terms of management generally’.

‘It’s a combination of factors and not just hard technical skills that lead to an unqualified audit with no findings. Sometimes there are other issues that affect audit outcomes,’ says Dzengwa.

For Lorgat, one of the typical problems that prevent municipalities from obtaining unqualified audits with no findings is not getting the basics right. ‘Getting an adverse or disclaimed opinion means that you don’t have basic records available. So you haven’t engaged in the normal financial practices you should be doing on a daily, monthly or weekly basis.’ Another factor impeding development is that councillors are not always able to exercise oversight effectively. Vacancy levels are also very important, and linked to that is employing people without the necessary skills and competence who are not able to fulfil their functions effectively. There is also the issue of leadership. If a municipal manager is not effective in overseeing the management of the municipality, it poses a big challenge.

He feels municipalities themselves have to take the initiative and implement an audit action plan: ‘A big issue the Auditor- General has defined is a lack of consequences for financial misconduct, misdemeanours or non-compliance. That’s why SALGA wants to develop a Consequence and an Accountability Management Framework to drive the right behaviour, reward those driving the right behaviour and deter wrong behaviour by sanctioning incorrect behaviour.’

External factors could also have a bearing on how a municipality functions. Dzengwa pointed out that if, for example, a municipal manager is pressured by external forces, he or she is compromised.

SALGA’S AUDIT SUPPORT PROGRAMME

In order to provide better support to municipalities, SALGA has launched a multi-disciplinary municipal audit support programme. The programme is built on four pillars: financial management, leadership, governance and institutional capacity. Says Lorgat: ‘We want to assist municipalities in these four areas. As soon as we can address these pillars, then we will be able to get municipalities in a position to perform well sustainably.’

SALGA aims to initially focus on providing support to the 79 municipalities that received adverse and disclaimer audit opinions, or were not able to make the administrative deadline, by addressing the root causes that the Auditor-General identified in their audit reports and then focus on strengthening those four pillars. ‘We hope that we will actually get the municipalities to move forward sustainably and function well, both in terms of getting better audit outcomes and improved service delivery.’

‘We are not expecting all municipalities to obtain a cleanaudit immediately but we want to incrementally push them to unqualified audits,’ adds Dzengwa. ‘So, if a municipality previously received an 800-page management letter, and through our support we’ve managed to reduce that letter to 20 pages, that’s progress.’

While focusing on what the AG has mentioned in past reports, SALGA has also identified current emerging issues that impact on municipalities and audit outcomes going forward.

‘Sound financial management, internal auditing and good governance within municipalities form the fundamental basis of achieving unqualified audits with no findings.’

‘While the programme will provide hands-on support, SALGA also acknowledges that there are other role-players, like National Treasury, Provincial Treasury, national Department of Co-operative Governance and Traditional Affairs and provincial departments of local government, who should also be providing support to the municipalities. If there is already support being provided to a municipality by other role-players, we will complement that support and not redo what has already been done. And, where there is no support available, SALGA will fill that gap,’ adds Dzengwa.

SALGA is establishing a panel of experts who understand local government to provide hands-on support internally. ‘It will be a multi-disciplinary team comprising experts like former auditors and mayors that we will deploy to municipalities,’ explains Dzengwa.

SALGA will also make use of external resources such as professional firms and bodies like the Institute of Internal Auditors, the Institute of Municipal Finance Officers and other interested groups. ‘But you cannot provide support forever. We will deploy support providers for periods of time and monitor the impact it is having. Once a municipality gets to a certain level, of the support will be discontinued and moved somewhere else and the municipality should then be able to continue on its own,’ says Dzengwa. For this programme to work, the onus ultimately rests with the municipality, stresses Dzengwa: ‘The municipality has to be central, they have to take ownership and define exactly what they need. And then we will assist them to achieve it.’

IN CONCLUSION

Sound financial management, internal auditing and good governance within municipalities form the fundamental basis of achieving unqualified audits with no findings. ‘If you do not have these things in place it is highly unlikely, if not impossible, or a municipality to achieve an unqualified audit with no findings,’ says Lorgat.

‘When there are clear structures and processes, clearly defined roles and accountability frameworks in place, it makes life easy for everyone, because you know exactly what to do, and when,’ adds Dzengwa.

But as much as unqualified audit results with no findings are important, Dzengwa stresses that a balanced focus on service delivery is equally important: ‘It doesn’t help to get a clean audit if the public is complaining about services. So, as we assist municipalities with better audit outcomes, we also encourage improvement of services.’