Table Of ContentReport of the auditor-general to the Northern Cape
provincial legislature and the council on Mier Local
Municipality
Report on the financial statements
Introduction
1. [hava audited the financial statements of the Mier Local Municipality set aut on pages
26 fo xx, which comprise the slatement of financial position 9s at 20 June 2015, the
tatoment of financial performance, statement of changes in net assels, cash law
statement and algtement of compariaon af budget and actual amounts for the year then
ended, as wel as tha notes, comprising @ summary of signifieant seseuntng policies
and other explanatory information.
Accounting officer's responsibility for the financial statements
2. Tho accounting offcer is responsible for the preparation and far presentation ofthese
financial statoreri In acsoriance with South Aficon Standants of Generally
Recognised Accounting Practice (SA standards of GRAP) and the requtereens of the
Munigpal Firanos Menagamart Act of Saul Afric, 20 (Act No. 86 of 2009) (MEMA),
and the Duislon of Revanus Act af South Ac, 2014 (Act No. 10 of 2014) (DORA) and for
Such internal contol as the accounting offeor determinas fs necossery to enable the
preparation of financial siaterents thal are free from material missiterert, whether
fue to fraud ero
Audilor-general's responsibility
3. My responsiblliy fs to expraes an opinlon on these financial etalements based an my
audit. | conducted my audit in accordance with Intemattanal Standards on Auditing
‘Those standards require that | comply with ethical requirements, and plan and perform
the audit ta obiain reasonable assurence about whether the financial statements are
{fee from material misstatement
4. An audit involves performing procedures to obtain audit evidence about the amounts
and disclosures in the financial sietements. The procedures selected depend on the
auditors judgement, including tha assessment of the risks of material misstatement of
the financial slalemenis, whether due fo ffaud ar eran. In making thase risk
assecements, the auditor considers internal contral relevant to the muricipalty
preparation and fair presantation af the financial statamants In order ta design udit
procedures that are appropriate in the circumstances, but not for the purpose of
‘expressing an opinion on the effectiveness of the municipality internal cortiol, An audit
also includes evalvaling tha appropristenass of accounting policies used and the
reasonableness of accounting estimates made by management, as wall as avalusting
tha avarall presantstion ofthe firencialststemenis,
5. [believe that tha audil evidence | have ob
‘a basis for my qualified audit opinion.
1d is sufficient and appropriate to provide
Basis for qualified opinion
Investment property
6 was unable to obtain sufficient appropriate evidence for the fait value adjustments
relating to investment property disclosed in the annual financial statements, a5 audit
evidence could not be submitiad fo dalomnina the renials charged fer the properties on
‘which the fair valuation fe based. | was unable to confirm the fair value by alternative
means. Consequently, | wae unable to determina whether any adjustments relating to
investment proparty staied at R13 686 300 In the financleh statemants wes necessary.
‘Additionally there is a consequential impact on other gains and losses stated at R776
O87 disclosed
Revenue from exchange transactions
7. Iwas unable to obialn sufficient apprprals avail evidence tor the service charges
included in the annual financial statements, as audit evidence could act be submited ta
determine the reasonableness of estimated water consummation charged during the year.
Twas unable to confi the service charges by aterallve means, Coneequenly, | was
tunable to determine whether any adjusiment relating to the services charges, wator
revenue, stated at R260 116 (2044:R2 496 $63) in the annual financial statements
‘was neceesary
8. The munioipalty did nof have adequate systems in place 1D ensure that all municipal
consumers are charged for water, sanidatin and refuse during the current and arior
year, as requlred by GRAP 9, Revenue from Exchange Trensections. | was unable to
quantify the amount of missiatement on the annual financial slatements as was
impracticable to do so, consequently revanue from exchange transactions and trade and
otter racalvebles ftom exchange transactions Is misstated wth an undetermined
‘amount. Additionally, there is @ consaquential impact on the surplus and accumulated
surplus for the period
8, The munlelpalty dhd not recognise profit shares to bs recelved from agreements enierad
ino with third panies, as raquited by GRAP 8, Revanue from Exchange Transactions. |
was unable to quantify the amount of misstatement on the annual financial statements
28 i was impracticable to do 60, consequently revenus from exchange transactions and
hhade and other receivables from exchange transactions are understated with an
undetemined amount, Addifonally, there is @ cansequential impaci on the surplus and
‘accumulated sumplue for the period.
10. The municipality did not charge interest on arear consumer accounts, as required by
the MFMA section 84, Revenue Management and the fair value principals of revenue 3s
feet out In GRAP © and 22 for Revenue from Exchange and Non — Exchange
Transactions. | was unable to quantity the emount of the misstatement on the annus!
financial statements for the current and prior year as it was impracticable to do so,
consequently ravenue from exchange Sensactions and trade and other receivables from
exchange and nan - exchange ttancactions ara understalad with an undotsrmined
amount. Additionally. there is @ consequential impact on the surplus and aceumulated
‘surplus for the period.
Consumer depostts
11. The municipality did not charge caneumar deposits as required by the Credit Control
Policy adopted by council for the municipaly for the current and prior year.
Consequanily, Iwas unable fo quantity the amount of the misstetement on the enews
financial statements a6 it was impracticable to do so. Additionally, there is a
‘eonsaquential impact on the accumulated surplus for the period,
Inventory
12. The municipality did not have adequate systems in place to monitor and report on water
lasses for the current and prior year, a6 raquired by tha eaction 125 af the MFA,
‘Consequently, no disclosure was made in the annual fnencial statements; |! was unable
te quantiy the amount of the misstatement on the annual financial statements as ilwas
impracticable to do sa. Additional, there is a consequential impact an water invertary,
the surplus and accumulated surplus for the period,
19. | wes unable to obisin sufficient appropriate audit evidence regerding inventory as the
‘municipality does not have adequate systems in place. I was unable to contin the
inventory by alternative means. Consequerily | was unable to determine whether any
adjustment relating lo Inventory stated at R439 018 (2014:R706 755) in the financial
Stafomanis was necaseary.
Qualified opinion
414. In my apinion, except for the possible effects of the matters described in the basis for
‘qualified opinion paragraphs the financial statements present fairy, in all meterial
raspacis the nancial position of the Mier Local Municipaliy ae al 30 June 2018 nd ite
financial performance and cash fiows for the yaar than ended, in accordance wih BA
standards of GRAP and the requirements of the MFMA, and DoRA.
Emphasis of matters
15. | draw attention to the matters below. My opinion is not modified in respect of these
matters.
Significant uncertainties
48, With reference to note 47 to the fihenclal statomants, the munlelpay In aaveral
Tawsuits. The ultimate outcome of the matters cannot presently be determined and no
provision for any iabilty thet may resut has been made in the financial statements.
Restatement of corresponding figures
17. As disdosed in note 36 to the financial statements, the corresponding figures for 30
June 2014 hava bean restated as a resull of an error discovarad during 2016 in the
‘nancial statements of the municpally a, and for he year ended, 90 June 2044.
Going concem
418. Nota 62 to the financial statements Indleates that the municipal budget was overspent
by R11 197 796 during the yoar onded 30 June 2015 and a6 of that dats, the
municipality's current Vabiliies excesded ite total assets by R 3 548 264. These
conditions, along with other matters as set forth in note 52, indicate the existence of 2
materia! uncertainty that may cast significant doubt on the muricipaly’s ability to
oparata as a gong cancamn.
Addiffonal matters
19. 1 draw atiention to the matters below. My opinion is not modified in respect of these
matters,
Unaudited supplementary schedules
20. The supplementary information set out an pages XX la XX dase net form part of tha
‘nanedal statemanis and Is praserted as addilonal Information, Ihave nol audited thase
schsdule(s) and, accordingly, I do not express an opinion thereon.
Unaudited disclosure notes
21. In tems 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 net forin
pat ofthe audi of the financial statements and accordingly {da nat express an opinion
thereon,
Report on other legal and regulatory requirements
22, In accordance with the Public Audit Act of South Africa, 2004 (Act No. 25 of 2004) (PAA)
‘and tha general notice iesued in terms thereof, Ihave a responsibilly lo eaport findings
fn the reported performance information against predelermined objectives for selected
develoamient objectives presenled in the annual performance report, compliance with
logisiation and inlemal control. Tha objective of my teste was to identify reportable
findings a8 described under each subheading, but not to gather evidence ta express
assurance on these matters. Accordingly, | de not express an opinion or conclusion on
thoso matters
Predetermined objectives
2, The annual performance rapert wae not presented for aurliing and consequently my
findings below are Imlted fo the procedures performed on the strategic planning and
Rerformance management documenta for the follawing selected development
objectives.
+ Strategic objective 1 :Proviston of Basie Infrastructure on pages x tox
+ Strategic objective 2¢Enhanes communily servis an pages x la x
+ Strategic abjective 5 -Provide accountable local government eervioes to Ine
logal pommunity on pages x 10 x
24, | assessed the information to determine whether the performance indicators and taryats
wore well defined, variable, specie, measurabla, the bound and relevant, as required
by the Nallonat Traesuy’s Framewerk for managing programme peremance
information (ENPPI,
25, The metarial findings in raepect of the aslacted davolopmant objectives ara as folaws:
Provision of Basle Infrastructure
Usefulness of performance information
28. The National Treasury Framework for managing programme performance
Infomation {FMPP!) requires the following:
> Performance targets must be spacific in clearly identifying the nalure and
‘aquired level of performance. A total of 100% of the targets were not specific.
+ Performencs targets must ba maasurable, | could not measure the required
performance for 100% af the targets
«The petiod or deadline for delivery of fargats muct be spaciiod. A total of 100%
of the targets were not ume Bound,
+ Performancs indicators must be well defined by having clear data definitions to
thal data ean be conelstenily and ls eaay to understand ard use. A taal of 100%
of the indioators were nat verifiable
This was because management did not edhere to the requiramants ofthe FMPPI due to
« lack of proper systems, processes and technical indicator descriptions. Management
also did not implement a sufficient pracess for reporting on predetermined objective.
27. The FMPPI requires indicators to relat logically and direct to an aspecl of the
audtes’s mandate and the realisation of strategic goals and objectives.
Performance indicators did nol relate logically and directly to an aspect ofthe
auditee’s mandate and the realisation of strategle goale and abjectives. The
relevance of the 100% ndleatars could nat be aseassed dus to a lack of
corroborative supporting evidence to verify management's explanation why the
indicators ware considered important ancl relevant tothe realisation ofthe strategie
goals and objectives,
Enhance community services
Usefulness of performance information
28. Tha National Treasury Framewonk far managing programme performance
information (FMPPI} requires the following:
+ Performance targets must be spaciic in clearly idenfiying the nature and
raqulrad level of perfomance, A tal of 100% of the targets were not specific,
+ Performance tergele must be measurable. | could not measure the required
performance for 100% af the targets
+ The period or deaclina for dellvary of targets must be specified. A toa! of 100%
of the targets swore not time bound.
» Performance indicators must be well defined by having clear data definitions to
that data can be consistently and is easy to understand and use. A taal of 100%
of tha Indlagtars wora nai verlabl,
This was because management did nat auhere to the requirements of the FIMPPI due to
a lack of proper systems, processes and technisat indicator deseriplions. Management
alsa did nat mplament a sulfclent roses for reporting on predatarmined objective,
29. The FMIPPI requires indicators to relate logically and directly to an aspect of the
auditee’s mandate and the realisation of stralegic goels ard objectives.
Performance indicators did net relata logically and ciectly ta an aspect of the
auditee’s mandate and the realisation of strafegic goals and objectives. The
relevance of the 100% indicators oould net be aseavsed dus to lack of
corroborative supparting evidence ta verify managements explanation why the
indicators were considered important and relevant to the realisation of the strategic
‘opis and objectives,
Provide accountable local government services to the local
community
Usefulness of performance information
30. Tha Nalional Traasury Framework for managing programme pecformence
Information (FPP!) requires the fllowing:
» Performances targete muel be speclic In clearly Identifying the nature and
required level of performanca. A total of 100% of the targets Ware not spec
+ Performance targeta must be measurable, | could not meaoure the required
Performance for 100% of the targets
+ The period of deadline for delivery of targets must be apeaiied. A total of 100%
cof tha targete were net time Bound,
' Performancs indicators must be wet! defined by having clear data definitions to
that deta can be consistently and ic easy to understand and use. A total of 100%
‘of tha indicators ware not variable
This was because management did not adhere to the requirements of the FMIPPI due to
a lack of proper eysteme, processes and lachnicalindicalor descriptions, Management
also did not implamment a sufficient pracess for reporting on predatarmined cbjectiva,
231. The FMPPI requires indicators to retate logically and directly to an aspect of he
audiiee’s mandate and the realiation of strategic goals and objectives.
Performance Indicatare did net relaia logleally and dlractly to an aspect of the
auditee’s mandate and the realisation of strategic goals and objecives. The
relevance of the 100% indicatora could not he aesbaced due to a lack of
corroborative supparting evidence to verity management's exolanation why the
indicators were considered important and relevant tothe realisation ofthe strategic
goals and objectives.
Compliance lation
32. | performed procedures to obtain evidence that the municipality had complied with
applicable lagisiatan ragerding Mnanelal matters, financial management and other
related matters. My material findings on compliance with specifo matters in key
iaglslaton, as sat out In the ganeral noice issued interme of the PAA, are a6 follows!
Strategic planning and performance management
89. The municipalty did not establish a performance management system, as requited by
section 32{2} of the Municipal Systems Act.
34. The municipality did not conduct ls affairs ins manner which i¢ consistant with its
Integrated development plan as requlred by section 36 of the MSA, sections 21(2)(a) of
the MEMA and municipal planning and performenos management reguiation 6.
36. A performance audit cormmittes wat not in placa and the aud commilles was aol used
{o full the perfarmance audit commitise function, as required by Municipal planning and
perfermance management regulation 1442) (8)
‘38, Tho annual perfomance rapart forthe financial year under raview wae nat prepared, as
required by section 48 of the Munlcfpal Systems Act and section 121(3) (c) of the
NEMA,
37. The municlpalty dd not heve and maintain effective, efficient and transparent sysioms
of financial and risk management and Intamal controls as required by sactian 62/1)
of the MFMA
Budgets
38. The total unforeseen and unavoidable expenditure incurred exceaded 5% of own
revenues In contravention of Munlelpal Budget and Reporting Reguiation 72.
38, Expenditure was inourrad in excess ofthe limits of the amounts pravided for in the vates
of the approved budget, in conkavention of section 87(8) of the Municipal Finance
Management Act.
Financial statements, performance and annual reports
40, The Tanclel statements cubmitad for eudling wore nat praparad In all matarel
respects in aocordance with the requirements of section 122 of the Municipal Finance
Management Act, Material misstatements identiied by the auditors in the subritied
financial stotemants were net corrected and the sunporing records could nat be
provided subsequently which resulted in the financial statemenls receiving qualified
opinion.
41, The annual report for the year under raviow dass nol include: assessment of the
municipaltys gerlormance against measurable performance objectives far revenue
volection from each revenue source and for each budget vote and the report from the
‘aud commliiae, ae raqulked by caation 121(80) and ()) and 121(4}(g) of the MFMA,
42, The annual report fer the year under review does not include the report of the audit
committee, a5 required by MFMA 121 (9) () and 121 {4) (a)
Audit committees
43, An audil committee was not in place, as required by section 166(1) of the Municipal
Finance Management Act
Intemal audit
44. The intemal audit unit dif not function 6s required by section 10542} of the Munielpal
Finance Management Act, in thak It did not report to the audit committee on the
implamentstion of the intra aust plan.
Human resource management and compensation
48. The rmunicipaity did not develop and adopt appropriate systems (policies) and
procedures 10 monitor measure and evaluate performance of staf in contravention of
ssction 67(¢) of the Municipal Systems Act.
48, The municipat manager and senior managers directly accountable to the municipal
‘manager dic not sign performance agreements, as required by section 87(2) {a) of the
Municipal Systems Act
447, The competencies of financial and supply chain management offiials were not
ecessed ina timely manner in order to identify and address gaps in competency levels
2s requlrad by the Munie/pal Regulations on Minimum Competency Lovale regulation
13,
48, The municipality did not submit report an compliance with prescribed competency
lavals to the Nalfonal Treaaury and ralavant provinalal baacury as required by the
Ragulations on Minimum Compatency Levels regulation 14(2Xa).
49, The annus! report of the municipality did not refect information on compliance with
praseribed minlmum competencies as required by the Regulations on Minimum
‘Competency Levels regulation 1442)
Expenditure management
50. Money owed by the municipality was not always paid within 30 days as requlred by
section 65(2Xe) of the Municipal Financs Management Act
51. Raasonable stape were nol taken in prevent unauthorised expendi, irogular
expenditure and fruitless and wasteful expenditure, as required by eaction 62(1) (d} and
'35(4) of the Municipal Financs Management Act
Revenue management
52, Inlerset was not charged on all accounts in arrear
the Municlpal Finanes and Management Act
«a required by section 64(2) (9) of
53. An adequate management, accounting and information system which accounts for
revenue was notin place, as required by section 64(2) {e) and 97{h) of the Municipal
Finance Mangement Act.
54, Revenue due to the munalpalty was not calculated an a manihiy basis, as required by
section 97(6) of the Municipal Finance Management Act.
55. A credit control and debt collection policy wa aot implamantad, as required! by section
£62(1) 7) (I) of Municlpal Finance Management Act
Asset and llabllity management
56. All investments were not made in accordance with the requirements of the investment
polley as required by Municipal Investment ragulatian 3(3)
Consequence management
57. Unauthodsed, regular and frullass and wasteful expencitate Incumed by the
‘munisipality vas not investigated lo determine if any person is ile forthe expenditure,
‘98 required by eection 32(2)(a\i] and 102(1) ef the Municipal Finance Management Act
58. Authorlsation of unauthorised expenditure was nat done through an adjustment budget,
2 required by seation 32(2}a}(0 of the Municipal Financial Management Ack
Procurement and contract management
59, Goods and servioge with a transaction value of below R200 000 ware procured without
‘obtaining tha raqulrod priea quolallane as required by SCM rogulstlon 17(a) & {c).
60. Bid adjudication was not always done by committees wich were composed in
accordance with SCM regulation 20(2),
61. Goods and services of @ trancsction velus above R200 000 were procured without
Invling compettive bids, as requlred by SCM regulation 19(@)
Conditional grants recelved
62. The municipality dd nat evaluate its performance in respect of programmes or functions
funded 6y the Municigal infrasttucture Grant, Local Goveraman! Financial Management
Grant and Municipal Syetams Improvement Grant allocation, af required by section
42(5) of the Divisian of Revere Act
Internal control
63. | considered internal control relevant to my aust of the financial statements, annual
performance report and compliance with legislation, The matters reported bskow are
limited to the significant Infamal cantral deflelencles that resulted In the basis for
ualtied, the findings on the annual performance report and the findings on compliance
wih legion included inthis report.
Leadership
64, The lack of decisive action to mitigate emerging risks and implement timely corrective
measures fo address nan-perfcrmence was evident by the failure of management ta
adequately address the intemal and external audi findings in a timely manner. The
murisipsliy faled to properly snelyee tha contol wasknesses and implement
_apptoprlale follon-up actions that adeqlataly addressed tha root causa
€5, Senior management of the entity did not set the comect tone at the top. Senior
management did nat adhere to intemal contras, which resulted in various instances of
irregular, frullasa and wasteful and unauthorised expanditura belng Inaurred and athar
mmaierial misstatements in the financial statements, nat detected by management,
86, The accounting officer did rot ensure thal internal cantrot procedures were developed,
Implemented and mositoeed to engure thet morthiy sols of GRAF financial statements
‘were prepared and subjected to review.
7. The accounting officer did nat communicate the camritment to quality in preparing the
fennuaf facial statarnanta,
668. Actions plans to address prior year audit findings were not prepared by the leadership of
the munlelpality rasuling in the reocounence of material misstatements in the anual
financial stoternoms end unrezalved matters from prior year audits, affecting the
auditor's opinion
Financiat and performance management
69, Weekly and monlhly reconciliations vere nat always adequately prepared for financial
hers during the yaar including payrll, texetion, payables, reoelvables; and propery,
plant and equipment. This has rasutad In the municipality being required to rely on
‘manuel reconciietions at year end. Due to the significant increase in volume of marist
reconciliations required, escurencs procesees were not implemented timely to ensure
infarmation is accurate and complete. AS @ resuit, a number of errors In the
reoonlstons were Kentified during te aucit
70. The annysl performance report wes not prepared and submited for audit, This was due
to stat members within the reporting usits nol fully understanding the performance
information requirements for audit purposes.
71. Menegement did not review the financial statements, to ensure the achievement of fair
presentation: this tesulled in material amendments lo he lingncial statements.
72, Specific traning interventions are needed in the municipalty to enable finance staf"
members to understand and implement the GRAP Financial Reporting Framework
effectively n order to fully meet the disclosure requirements of these standards,
73, Reconts management and maintenance disciplines should ba refined and Included In
the daily key conlols and reviewed and monitored by the appropriate level of
management
