ACTION PLAN TO ADDRESS AUDIT FINDINGS

in order , as required by SCM regulation 43Pg 4Compliance :Financial andperformancemanagementThe municipality did not adequately review the financialstatements and the annual performance report prior submissionfor auditing120131.Appointment of a GRAP specialistservice provider to conduct qualityreview.2.Tabling of the financial statements tothe Audit committee prior submissionto the Auditor General3. The Annual Performance Report forthe 2013/14 financial year will bereviewed through one on onedepartmental session to be heldfacilitated by the Monitoring andEvaluation unit and it will be furtherreviewed at Senior Manager Meeting.This process will be included in thecorporate calendar.Financial Services31 August2014Monitoring andEvaluation31 August20149

MANAGEMENT REPORT FINDINGSPg 50AF 5AOPO- NonecomplianceSubmission report onperformancemanagement toCouncilThe Municipal Planning and Performance ManagementRegulations (GNR 796 of 24 August 2001) Reg 14(4)(a)(iii) statesthat the performance audit committee (or audit committee, ifperforming this function), submitted, at least twice during afinancial year, an audit report on the review of the performancemanagement system to the council.The Audit Committee will submit a reportto Council after reviewing second quarterperformance management report and willalso submit to Council after reviewing thefourth quarter performance managementreport.Internal Audit30 June 20141. The audit finding will be addressedwith the implementation of the2013/2014 adjustments budget –Whereby austerity measures (costcurtailment measures) will be factoredin the adjusted budget targeting adownwards adjustment of generalexpenditure by 10 per cent, the capitalexpenditure funded from internalgenerated revenue (own revenue) andIDP operating projects expenditurebudget will adjusted downwards by atleast 26 per cent.Financial Services: Budget andTreasury30 June 2014Financial Services: ExpenditureManagement30 June 2014The performance audit committee (or audit committee, ifperforming this function), did not submit, at least twice during afinancial year, an audit report on the review of the performancemanagement system to the councilThis will result in none compliance with the performancemanagement regulationsPg 51AF 6Unspent conditionalgrants- FinancialHealth- Grants notcash backed1.2.3.4.Total unspent conditional grants at year end areR138,520,706 per note 17 to the annual financialstatements.The cash and cash equivalents balance per note 39 to thefinancial statements is R8,543,390.As a result the unspent grants liability at year end is notcash backed and may indicate financial difficulties at themunicipalityThe allocations of conditional grants were utilised forpurposes other than those stipulated in the grantframework, in contravention of section 15(1) of DoRA2.Pg 53AF 7Expenditure- Nonecompliance Payment made after30 daysMunicipal Finance Management Act 56 of 2003 section 65 statesthe following:The accounting officer of a municipality is responsible for themanagement of the expenditure of the municipality.(2) The accounting officer must for the purpose of subsection (1)Ringfencing of conditional grantsmonies by opening a separate bankaccount for the grant monies.1. Implementation of the austeritymeasures.2. Implementation of the cash flowmanagement model.3. Improved Contracts Management:Capacity building within the Technical10

take all reasonable steps to ensure—(e)that all money owing by the municipality be paid within 30days of receiving the relevant invoice or statement, unlessprescribed otherwise for certain categories of expenditurePg 63AF 14Expenditure AFCONDifference- VAT paidto a non VAT VendorMunicipal Finance Management Act 56 of 2003 65 states that:Expenditure management.(1) The accounting officer of a municipality is responsible for themanagement of the expenditure of the municipality.(2) The accounting officer must for the purpose of subsection (1)take all reasonable steps to ensure—(f) that the municipality complies with its tax, levy, duty,pension, medical aid, audit fees and other statutorycommitmentsPg 67AF 16Expenditure AFCONComplianceUnauthorizeddeviationsProcurement process – (1) A supply chain management policymust subject to regulation 11 (2), provide for the procurementof goods and service by way of:(d) A competitive bidding process for(i) Procurements above a transaction value of R200 000 (Vatincluded) , and(ii) The procurement of long term contracts.The following transactions above R200,000 were not procuredthrough competitive bidding process and there was no approveddeviationServices Department initiated in the2012/13 and 2013/14 will beenhanced with a focus on contractsmanagement to deal with rapidprocessing and verification ofrequisitions for work done onconstruction projects.1.The audit finding was rectified in thefinancial records of the municipality2.Accurate creation of suppliers onthe procurement system3.Capturing and verification of order’sinformation in the quotation4.Verification of the invoice againstthe order issued5.Implementation of the creditorsverification checklist1.A SCM deviations committee will beestablished to deal with all deviationrelated procure to ensure that theycomply with the SCM regulations.2.All deviations will be forwarded tothe internal audit to ensure thatregular reporting and disclosure aredone to both council and in thefinancial statementsFinancial Services: ExpenditureManagement30 June 2014Financial Services: SCM30 March201411

Pg 68AF 17Pg 71AF 18Expenditure AFCONComplianceDeviations approvednot validExpenditure AFCONIrregular CateringWe noted that the deviations for the following payments are notvalid according the applicable laws & regulations (MFMA, MBRR& MSCMR):i.On the 19 October 2012 the Municipality had proofthat an amount of R31,000,000 was allocated to it (DoRA 2012amended) as one of the hosting cities.ii.The tournament started in January 2013.iii.Therefore normal procurement processes would havebeen followed according to Municipal Finance Management Act56 of 2003 , Municipal budget and reporting regulations GN 393of 17 April , Municipal Supply Chain Management RegulationsGNR 868 30 May Sec 11iv.Payments documented below are applicable tosuppliers paid in connection with the AFCON tournament.v.Payments were not disclosed as Irregular expenditurein the AFS.Municipal Finance Management Act 56 of 2003 Sec 65 sates:Expenditure management.—(1) The accounting officer of amunicipality is responsible for the management of theexpenditure of the municipality.(2) The accounting officer must for the purpose of subsection (1)take all reasonable steps to ensure—(a) that the municipality has and maintains an effective systemof expenditure control, including procedures for the approval,authorisation, withdrawal and payment of funds;1.A SCM deviations committee will beestablished to deal with all deviationrelated procure to ensure that theycomply with the SCM regulations.Financial Services: SCM30 March2014Financial Services: SCM30 May 20142. All deviations will be forwarded to theinternal audit to ensure that regularreporting and disclosure are done toboth council and in the financialstatements.3. Encourage Departments to improve intheir planning utilising SCMprocurement Calendar as a tool.1. Centralise the procurement of goodsand services to the SCM office.2. Establish a performance and contractmanagement division within the SCMunitDuring the audit of expenses the inconsistency in the followingtransaction has been noted:i. Based on enquiries we were informed that the R3,000 was tocover 2 days, and 3 meals (breakfast, lunch and supper). Thiswould result in the average cost of R500 per meal per volunteer.This appears excessive at face value and potentially irregular12

expenditure.ii. Please can management explain and provide us with thecompetitive bidding supporting documents for this transaction.Pg 73AF 19Pg 74AF 20Procurement- NonecomplianceMonitoring ofexpenditure on thecontract20.ProcurementCompliance- Use ofconsultantsiii. Secondly, the fact that there was an unnecessary payment for149 volunteers that did not exist also alludes to irregularitiesregards this transaction.In terms of sec 116 2 (a) of MFMA the accounting officer of amunicipality or municipal entity must-1. Establish a Performance and contractmanagement division with the SCMunitFinancial Services: SCM30 June 2014A policy will be developed that will bedealing with the use of externalconsultants by the MunicipalityFinancial Services: SCM30 May 2014(a) take all reasonable steps to ensure that a contract oragreement procured through the supply chain managementpolicy of municipality or municipal entity is properly enforced.(b) monitor on a monthly basis the performance of the contractunder the contract or agreement.NoteContract registers are in place to record contracts awarded tosuppliers however monthly monitoring of expenditure on thecontracts was not performed as the post for monitoring andevaluation was still vacant at year end.The following deficiencies in internal controls were identified inappointing the consultants:(a)There is no policy in place that defines the main purpose andobjective of appointing consultants and that includes measuresto address over reliance on consultants.(b)Management does not review whether the objectives of theinstitution are better achieved through use of consultants orpermanent staff.(c)Where consultants are used, the services needs are13

permanent to the auditee, the cost of hiring consultants in notregularly compared with cost of training and employee ownstaff.(d)Consultants are not made aware that they should not:i.recruit or attempt to recruit the employee of the municipalityin preparation of a bid for contract at the auditeeii.recruit the employee of the municipality during execution ofthe relevant contract of the municipality.(e)Management information is not prepared that analyses theextent of the use of consultants that are appointed tosupplement or replace capacity to perform normal operationalfunctions.Pg 75AF 21ProcurementCompliance- Interestin state(f)The work of ‘Intenda’ (consultant) is not regulated by acontract signed by both the consultant and the delegatedofficial.In terms of section 44 of municipal supply chain managementregulations, the supply chain management policy of amunicipality or municipal entity must, irrespective of theprocurement process followed, state that the municipality ormunicipal entity may not make any award to a person:(a) Who is in the service of the state(b) If that person is not a natural person, of which any director,manager, principal shareholder or stakeholder is a person in theservice of the state or(c) Who is advisor or consultant contracted with the municipalityor municipal entity.1. The employers of the persons as listedby the findings has been notified andrequested to provide a permissiongranted by the executing authorityauthorising them to do remunerativework outside their workingenvironment 15 January 2014.Financial Services: SCM30 May 20142. Details of the companies and theirdirectors will be forwarded to NationalTreasury for the enlistment in theregister of restricted bidders.Awards were made to the suppliers in which the followingpersons in service of the state had a business or private interest.14

Name of cySITHEMBILEVINAH THABETHEMpumalanga:EducationAF 22Other importantmatters:22.Employee costInternal controlsDeficienciesSupplier nameCHRYSELDABUILDINGCONSTRUCTIONETHEL MUWAYIMpumalanga: HealthMpumalanga:EducationBONGANI MOSESLEHOKOMpumalanga: HealthSTE CURITYSERVICESMAJOTITRADINGENTERPRISE CCMOYAHABOTHYRZA OLEHLOHONOLOTRADINGENTERPRISENOMSA GRACENDLOVUPg 77Stateinstitutionwhereemployed3.Compensation and promotion based on achievements andperformance not done as there is no performance assessmentfor all employees.1.4.Supervisors are not trained to provide effective jobperformance counseling.2.5.Employees are not provided candid and constructive jobperformance counseling.3.6.Management does not enthusiastically endorse the use ofperformance-based management.4.A Performance Management systemframework for non-section 57 /56employees to be tabled before Councilbefore end of June 2014.Supervisors were trained in thesecond quarter of 2013/14 as well asfrom 24 to 31 January 2014.The PMS will be cascaded to levels 2to 5 in 2014/15 financial year andphased to lower levels in subsequentfinancial years.Periodic performance appraisals willbe conducted as per the said PMSCorporateServices30 June 201415

7.Promotion, compensation, and rotation of employees are notbased on periodic performance appraisals.framework but may not automaticallyinfluence promotion, compensationand rotation of employees.8.Performance appraisals are not based on the performanceareas indicated in the performance contracts of individuals.Pg 79AF 23Employee CostDifference- Accruedemployee bonuseslist does not agree tothe TB figure9.Importance of integrity and ethical values is reflected inperformance appraisal criteria.The accrued employee bonuses list does not agree to theamount in the trial balance and general ledger, resulting tounderstatement of payables:Total amount as per listingAmount as per Trial BalanceVariancePg 80AF 24Employee Cost Compliance- Noassessment ofperformance bonusfor senior managersThe accrued employees bonuses have beencorrected with a journal and a correctionof error will be done to the financialstatements.Financial Services: ExpenditureManagement31 July 2014Planning ,Monitoring andEvaluation /CorporateServices30 June 20148 925 338.33(9 001 756.61)(76 418.28)The competencies of Accounting officer, CFO, Head of SupplyChain, financial officers and SCM officials were ot assessedpromptly in order to identify and address gaps in competencylevels as required by the Municipal Regulations on MinimumCompetency Levels reg 13The following senior managers have entered into a performanceagreement and performance plan with the municipality andthere is no assessment made for their performance as requiredby the Performance Management Policy FrameworkNoInitials andSurnamePosition1Mr X C MzobeMunicipality Manager2Mr F S SibozaMs N TMthembuChief Operational Officer34Ms Z P MalazaActing chief Financial Officer5Mr N SeanegoGeneral Manager of Co-operate ServicesReview of all reconciliations and journalsfor correctness by Supervisors1.Performance Framework for theIndividual Assessment of Section 57Managers to be completed by 28February 20142. 2013/14 Mid Year IndividualAssessment of all Section 57 Managersto be completed by 31 March 20143.2013/14 Annual Individual PerformanceAssessment of the Section 57Managers to be completed by theDecember 2014Chief Financial Officer16

6Mr R C Matola7Mr DShabanguGeneral Manager :Community ServicesGeneral Manager :Planning, PerformanceMonitoring and evaluation, Communicationsand Information Technology.8Mr D DMabuzaGeneral Manager:LED,Human Settlement,Urban and Rural development.Ms L L C ZuluMr N DMalokelaGeneral Manager :Technical Services910Pg 85AF 29PPE- Difference- Thefigures in the GL doesnot agree to thefigures in the AFSGeneral Manager :Technical ServicesIn terms of section 62(1)(b) General financial managementfunctions the accounting officer of a municipality is responsiblefor managing the financial administration of the municipality,and must for this purpose take all reasonable steps to ensure,that full and proper records of the financial affairs of themunicipality are kept in accordance with any prescribed normsand standards.1.Appointment of the Asset Managerand all other critical posts within theAsset accounting unit2.Reconciliation of the General Ledger ,Asset Register and the Annualfinancial statementsThe amount per GL/TB does not agree to the amount per AFS forthe following.3.Appointment of the service providerto update and maintain theimmovable asset register1.Appointment of the service providerto update and maintain theimmovable asset register2.Update of the immovable assetregister3.Land audit project to be conductedFinancial Services:Assets Accounting15 August2014Financial Services:Assets Accounting15 August2014Intangible tion862.37)Pg 86AF 30Investment propertyDifference- Propertynot owned bymunicipalityAmount perper AFS11 715501.00(267915.00)AmountDifference10 3611 353 981.71(28720 052.63In terms of section 62(1)(b) General financial managementfunctions the accounting officer of a municipality is responsiblefor managing the financial administration of the municipality,and must for this purpose take all reasonable steps to ensure,that full and proper records of the financial affairs of themunicipality are kept in accordance with any prescribed normsand standards.Properties sectionAs per the deeds search the following assets are not under the17

name of the municipality, however they are included in theinvestment properties register of the municipality.Pg 88AF 31Pg 90AF 32Pg 92AF 34PPE- Difference- TheFAR does not agreeto the AFSPPE- DifferenceDepreciation isoverstated in the AFSProcurement- NonecomplianceSubmission of thereport on theimplementation ofSCM policyIn terms of section 62(1)(b). General financial managementfunctions. The accounting officer of a municipality is responsiblefor managing the financial administration of the municipality,and must for this purpose take all reasonable steps to ensure,that full and proper records of the financial affairs of themunicipality are kept in accordance with any prescribed normsand standards.1.Appointment of the Asset Managerand all other critical posts within theAsset accounting unit2.Reconciliation of the General Ledger ,Asset Register and the Annualfinancial statementsThe amount disclosed in the AFS does not agree to the fixedasset register3.Appointment of the service providerto update and maintain theimmovable asset registerIn terms of section 62(1)(b). General financial managementfunctions. The accounting officer of a municipality is responsiblefor managing the financial administration of the municipality,and must for this purpose take all reasonable steps to ensure,that full and proper records of the financial affairs of themunicipality are kept in accordance with any prescribed normsand standards.1.Appointment of the Asset Managerand all other critical posts within theAsset accounting unit2.Reconciliation of the General Ledger ,Asset Register and the Annualfinancial statemen

1 The action plan consists of audit findings raised in the audit report, management report and the information systems audit findings. Audit findings which has been addressed and corrected during the audit process has not been included in the action plan.