The Auditor General of South Africa released a report on the financial health of the Nelson Mandela Bay’s metropolitan municipality on 30 July 2014.
“Wouldn’t it be great to tell the metro’s 1 152 115 citizens (official 2011 census figures) a bit of good news,” I thought.
In the report a green icon shows progress, a yellow icon indicates stagnation and a red icon shows regression. There are no green icons in the report I am afraid and only one red icon for Financial and performance management with all the other areas showing stagnation.
The Nelson Mandela Bay Metropolitan Municipality once again received a Qualified Audit which the Auditor General defines as; “The financial statements contain material misstatements in specific amounts, or there is insufficient evidence for us to conclude that specific amounts included in the financial statements are not materially misstated.”
One also needs to be aware that, unlike in private sector audits, the AGSA’s audit scope in the public sector is much broader. Besides the audit of financial statements, it also covers reporting of performance against predetermined objectives as well as compliance with laws and regulations.
The Auditor General found the following areas of concern for NMBMM:
No movement in audit outcome
The stagnation in the audit outcome was due to political and administrative instability, which filtered through to the key functional areas of the municipality. This was evident in the municipality not responding to our recommendations, a weak control environment and a lack of accountability, which resulted in previously reported matters recurring in 2012-13. In addition, key vacancies at senior management level were not filled timeously and practices that promote clean administration were not entrenched within the daily, weekly and monthly activities of the municipality.
Six key risk areas
The metro made little or no progress in the six key risk areas. We reported repeat findings on SCM, HR management, the quality of financial statements and financial health due to a lack of leadership intervention. The lack of consequence management further added to these challenges.
IT-related policies and procedures remained unapproved due to delays caused by the high staff turnover of key officials and a lack of decisive leadership. This also contributed towards the lack of improvement in respect of user access and security controls, as action plans to address deficiencies were not adequately monitored.
Our primary concern in respect of the financial health analysis was the cash flow of the municipality, which was under pressure due to poor debt collection. Furthermore, the municipality was unable to spend its full capital budget and 45% of the targets for the year were not achieved, which had a negative impact on service delivery.
Key controls and root causes
The deterioration or lack of improvement in the key controls was due to a failure to implement daily disciplines over the processing and reconciling of transactions, as well as over the filing and safeguarding of documentation. A lack of consequences for poor performance, particularly relating to SCM, also contributed. Inadequate leadership and the poor status of controls in respect of SCM increased the risk of the municipality’s exposure to fraudulent activities.
The following controls must be strengthened to create a control environment that supports reliable financial and performance reporting and compliance with legislation:
- Stability is required at the leadership level and a culture of decisive leadership must be embraced. This must be complemented by the correct leadership tone to effectively discharge responsibilities regarding monitoring, oversight and the filling of critical vacancies with appropriately qualified and skilled officials.
- Proper consequence management for poor performance and transgressions should be implemented for all officials as part of the performance management system.
- Daily, weekly and monthly financial disciplines should be entrenched into municipal activities, systems and process, thus promoting a culture of clean administration.
Impact of key role players on audit outcomes
Senior management officials did not create an environment favourable for entrenching clean administration disciplines and facilitating effective oversight. As a result, there were inadequate processes to generate credible information on which to base decisions. Thus, senior management provided limited assurance.
The executive mayor and municipal manager were appointed during the financial year under review. Due to their short time in office, they were unable to have an impact on the control environment, and thus provided only limited assurance. We met with the executive mayor six times during the financial year; however, these meetings had no impact due to the reason mentioned above.
The internal audit unit and audit committee were fully functional, but provided limited assurance, as management did not adequately respond to their recommendations. The Department of Local Government and Traditional Affairs and the Provincial Treasury provided support by seconding an acting city manager in the absence of a permanent city manager, as the newly appointed municipal manager resigned after the financial year-end after only three months at the metro. They also had various meetings with the leadership to assist with resolving the governance and instability issues, but their interventions have not yet positively influenced the audit outcome.
The municipal council and MPAC were not fully committed to implementing the previous year’s commitments.
The following key commitments by the mayor have not been fulfilled:
- Management commits to fill critical vacancies, with emphasis on those of the city manager and executive directors
- Management commits to ensuring actions are implemented in terms of the action plan developed to address audit findings.
- Management commits to achieving a clean audit, improved service delivery and internal controls, sound financial and performance management and addressing all matters of emphasis raised by the AGSA through quarterly implementation and monitoring of financial and internal controls.
Click here to download the General report on audit outcomes local government Eastern Cape 2012-13 which is 4 571 kilobytes in size and 256 pages long.
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