Table Of ContentAuditor-General of South Attica
Umainyathi District Municipality -
audit report 2015-16
Report of the auditor-general to the Kwazulu-Natal
Provincial Legislature and the council on
Umzinyathi District Municipallty
Report on the financial statements
Introduction
41. | audited the financial statemants of the Umzinysihi Disprct Municipality sel out on pages
10... whlch eompries the statement of financial position es at 26 Jina 201, the
Slatemant of financial performance, stalernent of changes in nat assets, cash flew
statement and the statement of comparison of budget with actual information forthe yaar
then endad, ae well as the nates, comprising a summary of significant accounting
policies and atner explanatory information.
Accounting officer's responsibility for the financial statements
2. The aczourting officer is responsible forthe preperation and fair presentation of tha
‘nancial statements in accordance with the South African Standards of Generally
Recognised Acoovaiing Practica (SA Standards of GRAP) and the requirements of the
Local Govarnment: Municipal Finanoa Management Act of South Africa, 2003 (Aat No.
156 of 2003) {MFMA) and the Division of Revenua Act of South Affica, 2015 (Act No. 1 of
2018) (DORA), and for such intemal control es the accounting officer determines Is
neveseary to enable the preparation of financial statements thal are free from material
misstatement, whether due fo fraud ar error.
Auditor-general’s responslbility
8. My responsibilty Is fo express an opinion on the fhancial statements based on my
‘audit Leonducted my aucit in aocordance with the International Standards on Auditing.
‘Those standards require that | comply with ethical eequitements and plan and perform
the audit je abtaln reasonable assurance about whether the financial statements are
{rea from material misstatement.
4. An auxtit involves performing procedures to obfaln audt evidence about the amounts
and dieclosuras inthe financial statements. The pfacadures selected depend on the
auditor's judgement, including the assessment of the risks of material misalatement of
the financial statements, whether due 19 fraud oF error. In making thee ise
‘aeseesmants, the auditor considers Internal control relevant to tha municipality's
preparation and fai presentation ofthe financial etatements in order to design aut
prooedutes that ara appropriate in the citcumstaniees, but not forthe purnose of
‘axprassing an opinion on the elfectiveness of the munlaipelty’s intemal control. An audit
also includes evaluating the appropriateness of acoounting policies used end the
reaeonableniass of accounting eellmates made by managomert, as wall as evaluating
tha overall presentation ofthe financial statement.
5. [believe thet the aucit evidence | have obtained Is sufficient and appropriate to provide
‘8 besis for my qualified audit opinion
Basis for qvalified opinion
Expenditure
©. fas uneble to cbiain suficiont appropriate eux evidence for expencilure dus to the
‘talus of the aecounling records, Supporting decurentation provided for expenditure did
ot heve adequate Information to determine whether all expenditure wes properly
facorded. | could not confirm the recorded expenditure by alternative means.
Consequently, | wae unable to determine whether any adjustment to general expences
Stated al R3O3,38 milion in the financial statements Was necessary.
Qualified opinion
7. In my opinion, excep! for the possible effects of the mattere described inthe basis for
ualfled opinion paragraph, the financial statements present fairly, in all material
Fespecte, te financial poatton of the Umzinyathi Distt Muricinalty as al 30 June 2016
and ils financial performance and cash flows for tha yssar then ended, In aocordance
with the SA Standards of GRAP and the roquirameris of the MFMA and DORA.
Emphasls of matter
B. I draw attention fo tha matter below.
Material losses
8. As disclosed in note 47 ta the financial statements, the municipality incured weter
loeses of R40,18 milion {8.16 milion kiolires), 2048: R47,92 milion (7,08 million
‘lloltres). This was due to burst plpes on reticulation lines, ageing Infaetructure and
ilegal connections,
Additional matter
10, | draw etantion to the matter below.
Unaudited disclosure notes
11. In terms of section 125(2}0) ofthe MFMIA tha municipaily fs required to disclose
particulars of non-compliance wih the MEMA, This dicoloeure requiremant did not forma
par ofthe audit ofthe financial statements and, accordingly, to not axprese an opinion
anit
Report on other legal and regulatory requirements
12, In sccordance with the Public Audit Act af South Arica, 2004 (Act No. 25 of 2004)
{PAA) and the generat notice issued in terms thereof, [have a responsibly to report
findings on the reported performance Information against predetermined objectives for
Sseleciad objectives presentad in the annual performance rapor, campance with
laglelation and intamel control. The chjective of my tests was to identify reportable
findings 2¢ described under each subheading, but nat fo galher evidence to express
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assurance on these matters. Accordingly, | do not express an apinion or noncluston on
them.
Predetermined objectives
18, | performed procedures to obtalh evidence about the usefulness. and reliably of he
reported performance information for beeic sarvice delivery and infrastructure
investment abjaciva as well as the cross cutting objective presented in the annual
pparformanca report of the municlpalty for the yaar ended 30 June 2016,
44, Levalusled the reported parformance information againet the oversilorterta of
usefulness and relly
16. Levelvated the usefulness of the reported performance information to determina
‘ahother twas consistent wih the planned objectivse. | further performad tasis lo
determine whether indicatore and targets wars well defined, verilable, spooti,
‘meaourable, time bound and relevant, as requlrad by the National Treasury's
Framework for Managing Programme Performanes Information (MPP)
46. | essesned Ihe reliability ofthe reported patformance information to determine wheter it
‘wee velld, accurate and complete.
17. The material findings in respect ofthe selected objectives are as follows:
Basic service delivery and infrastructure investment
Usefulness of reported performance information
Relevance of indicators
Performance indicators not relevant
18. A total of 23% of the indicators did not relate logleally and directly an aspect of the
‘muricipalty’s mandate and the realisation of stralegic goals and abjectvas as per tho:
fervioe delivery and Budget implemontation plan, s¢ required by the FMP
Reliability of reported performance information
40, The FMPPI raquires municipality's to have appropriate syetems te collect, collate, verify
and sicre performance information to eneure reliable reporting of acival achievements
‘against planned objactives, indicalore and targets. | was unable te obtain the information
dnd explanations | considered necessary lo satlsfy myself as ta the relcblty of the
reported performance Information, This was because of limiations placed on the scope
fofmy work due 10 fhe absence ef Information systems and euficlant appropriate
fvienca in support of the reparted performance information. The audtes's records did
rot permit the application of atemellve audit procadures.
Cross cutting
26. | did not identity any material findings an the usefulness and relleblity of the reported
performence Information far the erose cating development abjacive.
Addifional matter
21. I draw attention tothe following matter:
Achievement of planned targets
22. The annual performanes report on pages x 10x and x ta x, which includes Information
‘on the achievement of the planned targets for the year, should be considered in tha,
‘ontext ofthe material findings on the usefulness and reliality of tha reported
performance information for the selected objective reported in paragraphe 18 and 19 of
this repos,
Compliance with legislation
23, | performed pracedutes to obtain evkfence that the municipality complied with applicable,
'egilation regarding financial matters, financfal management and other related matters
My material findings on compliance with specific matters In kay fegislation, as sat out In
the general nats iasuad in terms of the PAA, are as follows:
Annual financial statements, performance and annual reparts
24, The financial sfalaments submitted for auclting were not prepared in all material respects
In 2ecordance with the requirements of section 122 of the MFMA, Materia!
rmisstatorients identified by the audltots In the eubrtied financial statements were not
adequately corrected, which resulted in the fnanclel statements receiving @ qualified
audit opirion.
28. The perfomance management system and relaled sontrole were inadequala as they did
"ot deaeribe and represent the procseaes of performance monitoring and how It =
‘conducted, organised and managed, ao required by section 38 of the Municipal Systems,
Act of South Africa 2000 (Act No: 32 of 2000) and Municipal Planning and Performanes
Management Reguiation 7
28, The 2014-18 annual report was not tabled In the rnunicinal caunel within seven months
«after the end of the finsncial year. as required by section 127(2) of the MFM,
Procurement and contract management
27. Contracts were awardad to bidders who did not submit a dectaration an whethar they
‘ware employed by the state or conmatted to any persan employed by the slate, as
required by supply chain managernent (SCM) regulation 13(c),
28, Goods and services with a transaction value above R200 000 were procured without
Inving competitive bids, as required by SCM regulation 19(a),
28. imitations for competitive bidding ware not always advertised for a required minimum
Period of days, as requited by SOM regulation 22¢1) and 222},
30. Awards were made ta providers who were in the service of other state institutions or
‘whose dlrectorsiprincipal shareholders wore In the service of other etale Inattutians, in
contravention of section 112() of the MFMA and SCM regulation 44, Similar awards
‘wars Hlentfied in the previous yasr and no effective steps wara taken to prevent or
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‘combat the abuse of te SCM process, as raquirad by SCM regulation 38(1)
Expenditure management
81. Reasonabls steps were nat taken to prevent irregular expendiluna, 28 required by
section 821K) ofthe MFMA,
Conditional grants
92. The municipality did not avaluate its performance In respect of programmes funded by
the muriolpal Infzstructure grant alocalon and regional bulk infrastructure grant
allocation, at required by action 1246) of DoRA.
Infemal control
28, | oonsidered internal contra relevant to my auclt of the financial ststamants, annual
performanes report and complica with logistation. The maltars reported below are
Imited tothe significant intemal cantrol deficiencias hat resuited inthe basis for
ualfied opinion, the findings on the annusl pesformance report and the findings an
‘compliance with legislation included inthis report
Leadership
134. Tha acoounting officer and municipal council did nol oversee the praparation of the
annual fnencial statements, annual performance report and compliance with key
Iegielation
Financial and performance management
135. Tha accounting officer and management did not implement a proper records
management system to maintain decumants supparting reported perornance, supply
chain management, expenture and commitment.
36. There was inadequate monthly moritering and reconciling of transsetlons, balanoes and,
reports in raspect of SCM, raperting on predetenninad objectives, expenditure snd
‘commitments,
Governance
37, The audit commiliee and intomal audit did not adequately review the reporting of
predatermined objectives and financial statermants, and managemnant aid nat implement
intemal aud recommendations in raspect ofthe lack of supporting documentation for
reportad performance information on time.
Other reports
38. | draw attertion te the folowing engagement that could potentially heve an Impact on the
rmoricipalfy's financial, performances and complianoe-releted mates. My opinion le net
‘medifiad In respect ofthis engagement that has been completed
Investigation
39. One Investigation relating to alleged financial misconduct by a senior manager was
completed during the finencial year and the discipinary proses wee sill in progress.
Dadi
Auditor-Gans
Pistermaritzhurg
80 Novernber 2016
rae
Audng is bua pub confidence
