Audit reports are produced to empower all stakeholders, including citizens, with important information on how municipalities are performing and delivering on critical services, writes Mabatho Sedikela.
As Auditor-General Tsakani Maluleke prepares to release the 2021-22 local government audit results on 31 May, it is worth reminding the citizens and the broader stakeholders in the accountability ecosystem how these municipal outcomes are an important tool to help them to hold their elected representatives accountable and enhance participatory democracy.
We strongly believe that the citizenry is a critical part of our country’s accountability ecosystem – where those charged with the governance and administration of our municipalities are held accountable for how they spend public funds to better lives through quality services.
These reports are produced to empower all stakeholders, including citizens, with important information on how municipalities are performing and delivering on critical services.
How the audit office plays its role in the accountability chain
As part of this accountability ecosystem, we at the Auditor-General of South Africa play our part by auditing every municipality and municipal entity in the country and reporting on the quality of their financial statements and performance reports, as well as on their compliance with key laws and regulations.
We further assess the root cause of any error or non-compliance, based on the internal control that has failed to prevent or detect it. We report in the following three types of reports:
- We report our findings, the root causes of such findings and our recommendations in management reports that we issue to the senior management and municipal managers, or chief executive officers in the case of municipal entities, and also share with the mayors and audit committees.
- We include our opinion on the financial statements, material findings on the performance report and compliance with key laws and regulations, as well as significant deficiencies in internal controls, in an audit report, which is published with the annual reports of our auditee and presented to municipal councils.
- Annually, we report on the audit outcomes of all municipalities and entities in a consolidated general report, in which we also analyse the root causes that need to be addressed to improve audit outcomes. Before we publish these reports, we share the outcomes and root causes with the national and provincial leadership, Parliament, and the legislatures, as well as other key role players in national and provincial government.
Over the past few years, we have intensified our efforts to assist in improving audit outcomes by identifying the key controls that should be in place at municipalities, regularly assessing these and sharing the results of the assessment with mayors, municipal managers, chief executive officers and audit committees.
During the audit process, we work closely with municipal managers, chief executive officers, senior management, audit committees and internal audit units, as they are key role players in providing assurance on the credibility of the auditees’ financial statements and performance reports, as well as on their compliance with legislation.
We also continue to strengthen our relationship with the mayors, ministers and members of the executive council responsible for cooperative governance, coordinating and monitoring departments (such as the treasuries, premier’s offices and departments of cooperative governance), and Parliament and the provincial legislatures, as we are convinced that their involvement and oversight have played – and will continue to play – a crucial role in local government performance.
Categories of our audit outcomes
After we have completed our annual audits, we rate the performance of municipalities and entities under these five categories:
Municipalities that receive a financially unqualified opinion with no findings (commonly known as ‘clean audit’) are those that are able to produce financial statements that are free of material misstatements (errors or omissions that are so significant that they affect the credibility and reliability of the financial statements); and to measure and report on their performance in line with the predetermined objectives in their integrated development plans and/or service delivery and budget implementation plans in a manner that is useful and reliable and comply with key legislation.
Auditees that receive a financially unqualified opinion with findings are those that are able to produce financial statements without material misstatements, but are struggling to:
- align their performance reports to the predetermined objectives to which they have committed in their integrated development plans and/or service delivery and budget implementation plans;
- set clear performance indicators and targets to measure their performance against their predetermined objectives;
- report reliably on whether they have achieved their performance targets; and
- determine which legislation they should comply with, and implement the required policies, procedures and controls to ensure that they comply.
Municipalities and entities that receive a financially qualified opinion with findings face the same challenges as those that are financially unqualified with findings in the areas of reporting on performance and compliance with key legislation. In addition, they are unable to produce credible and reliable financial statements. Their financial statements contain misstatements that they cannot correct before the financial statements are published.The financial statements of municipalities and entities that receive an adverse opinion with findings include so many material misstatements that auditors disagree with virtually all the amounts and disclosures in the financial statements.
Those auditees with a disclaimed opinion with findings cannot provide us with evidence for most of the amounts and disclosures in the financial statements. We are therefore unable to verify whether the funds were used towards what they had planned to spend on. Auditees with adverse and disclaimed opinions are typically also unable to provide sufficient supporting documentation for the achievements they report in their performance reports; and not complying with key legislation.
Better audit outcomes indicate that our municipalities are governed properly and lay the foundation for efficient, effective and economic service delivery. Such audit results also go a long way in helping to create better lives for the people of South Africa, especially underserved communities. But for this to happen, all of us, including the citizenry and our community-based formations, have to see ourselves as part of the accountability ecosystem by using these reports effectively to hold government accountable for the decisions it makes at our municipalities on our behalf.
Mabatho Sedikela is the Head of Audit (Provincial) at the Auditor-General of South Africa. News24 encourages freedom of speech and the expression of diverse views. The views of columnists published on News24 are therefore their own and do not necessarily represent the views of News24.