14 November 2018
Media Release: Criteria for a ‘clean audit’
When an audit is performed on a Municipality it covers three main areas, namely the financial information, performance information and compliance with legislation. The latter has mostly to do with the Municipal Finance Management Act (MFMA), Act 56 of 2003 and regulations in terms thereof. Mossel Bay Municipality, as many other clean status auditees, may possibly lose its clean audit status due to findings of material non-compliance with legislation. The Municipality does not want to view non-compliance with legislation as less important, but the word “material” must be viewed in context.
When findings relate to annual financial information, it should be viewed as having a possible influence on the decisions of the users of the Annual Financial Statements. The Auditor-General raised the late submission of the Annual Financial Statements as at 30 June 2018 as a material non-compliance. The deadline for submission was 31 August 2018 and the Municipality was only able to submit the Annual Financial Statements by 12 September 2018. The reason for the late submission has been major changes that were required by legislation in the implementation of a new set of accounts. This was accepted by Council.
In the response to the Auditor-General’s findings the Municipality argued that the late submission is not material since the Annual Report will only be published in January 2019. The Annual Financial Statements are only published after the Auditor’s Report was issued and will therefore not influence the user’s decisions. The Auditor-General has been firm on this point and concluded that this is a material non-compliance.
The Auditor-General has also raised findings that relate to the supply chain practices followed by Mossel Bay Municipality. A finding highlighted the fact that bids were advertised without requesting for compliance with local content (basically proudly South African) in the production of goods. The finding has nothing to do with local suppliers in the Mossel Bay area, but is binding on all suppliers to provide goods that have a certain content of required South African production in the products.
This is highly technical and can be explained as follows: Although the goods provided might be compliant with the local content prescripts, because it has been advertised without it being required, the bid and any related expenditure is classified as a non-compliance. The portion of required local content in some instances is insignificant to the total value of the contract.