CONSOLIDATED GENERAL REPORT on the audit outcomes of LOCAL GOVERNMENT 2010-11

FOREWORD

I hereby present to National Parliament, provincial legislatures and municipal councils my 2010-11 general report on local government audit outcomes. I use this opportunity to take stock of Operation clean audit, and the most significant risks we face in our administrations.

Operation clean audit was launched by government in 2009 to address the poor audit outcomes of local government. Although many advances had been made in transforming local government since 1994, the legislative reforms and the financial and performance reporting practices had not been institutionalised. Operation clean audit inspired focus, and over the past three years initiatives were launched to support the achievement of the clean audit goal.

My office and I also responded with the introduction of quarterly assessments of the key controls of our auditees in the areas of leadership, fi nancial and performance management and governance. We sought meaningful engagements with political leaders on a quarterly basis to share our assessments and identify risks and we invited commitments to address the stumbling blocks in the way of clean audits.

At these meetings across our country, I have said that in spite of all these initiatives and commitments, the progress towards clean audits has been slow. The 2010-11 audit outcomes did not show improvement, with about 50% of auditees unable to submit their annual financial statements in time or obtain financially unqualified audit opinions. The majority of those that received financially unqualified audit opinions achieved it by correcting the mistakes identified through the audit process.

This is not a sustainable practice. Except for the 5% that received clean audit opinions, all the auditees had material findings on their service delivery reporting and/or non-compliance with laws and regulations. Even though I have consistently stressed the urgent need to address the weaknesses in supply chain management, service delivery reporting, human resource management and information technology controls, there has been very limited improvement.

The desired progress to clean audits is at risk, if the following three root causes are not addressed:

Officials in key positions at more than 70% of the auditees do not have the minimum competencies and skills required to perform their jobs. While a lack of dedicated capacity is at the root of the weaknesses in service delivery reporting, the skills gap is most pronounced in the financial discipline.

There is an opportunity to turn around the situation. The provision of dedicated resources for service delivery reporting, the implementation of the legislation on minimum competency levels and the recent amendments to the Municipal Systems Act are important interventions. It will, however, require coordination and commitment from all political structures and government to ensure the success of these legislative reforms.

At least 73% of the auditees showed signs of a general lack of consequences for poor performance. This is evidenced by the fact that modified audit opinions remained the norm. When officials and political leaders are not held accountable for their actions, the perception could be created that such behaviour and its results are acceptable and tolerated. This could make even those people that are giving their best under trying circumstances despondent.

I found that more than half of our auditees can attribute their poor audit outcomes to mayors and councillors that are not responsive to the issues identified by the audits and do not take our recommendations seriously. They are slow in taking up their responsibilities and do not take ownership of their role in implementing key controls. If this widespread root cause is not addressed, it will continue to weaken the pillars of governance.

The honouring of the commitments made in response to these audit outcomes is crucial. In this regard, I single out the commitment to elevate cooperation and strengthen the working relationship between public accounts and portfolio committees, as well as to cement their regular engagements with my office.

The coordination of the capacity building support between the Premiers' offices, treasuries and cooperative governance departments at national and provincial levels, together with the South African Local Government Association (SALGA), is a precondition for the goals of Operation clean audit to be realised.

I have seen a few examples across the country of commitment by leaders and officials which translated into improved audit outcomes and I am confident that similar results can be achieved from the smallest local municipality to the largest metros.

In conjunction with the relevant departments, my office has actively participated in providing input into the development of solutions to the challenges highlighted in this report. I believe that all that is needed is the sustained involvement of the leadership in utilising those solutions.

I wish to thank the audit teams from my office and the audit firms that assisted for their diligent efforts in providing useful and relevant information and insights that promote oversight and accountability in government. Together, we will continue to contribute towards the strengthening of our country's democracy through auditing.

Auditor-General
Pretoria
June 2012

This is an extract from the Auditor General's Consolidated General Report on the Audit Outcomes of Local Government 2010-2011 issued July 23 2012. The full version can be accessed here - PDF.

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