Improvement welcomed, but further work needed, mayor says
Enoch Mgijima Local Municipality has attained a qualified audit opinion for the 2019/20 financial year, an improvement from an adverse opinion in 2018/19 and disclaimers from the two financial years before that.
The report was tabled by senior manager in the auditor general’s (AG) office, Sivuyile Ndabambi, in a virtual ordinary council meeting recently.
As far as payables from exchange transactions were concerned, the AG was unable to obtain sufficient appropriate audit evidence that retention fees for capital projects had been properly accounted for, nor whether an adjustment was necessary to retention fees, stated at R6.3m, to the financial statements.
Payables from exchange transactions was understated by R5.2m and accumulated surplus was overstated by the same amount.
The AG said the municipality did not identify and disclose all irregular expenditure in the financial statements, as required by 125(2)(d) (i) of the Municipal Finance Management Act.
“Expenditure incurred in contravention of the supply chain management (SCM) requirements resulted in irregular expenditure of R13.1m not disclosed. In 2019 it was R71.3m.
”I could not determine the adjustment required to the irregular expenditure, disclosed at R52.6m (2019: 518.9m),” he said.
According to the AG, the municipality did not identify and disclose all fruitless and wasteful expenditure in the financial statements, as required.
”Expenditure incurred in vain of R46.2m identified during the audit was not disclosed. ”I could not determine the adjustment required to the financial statements for fruitless and wasteful expenditure, disclosed at R4.1m.”
Expenditure in the statement of financial performance was materially misstated by R18.5m due to the cumulative effect of individually immaterial, uncorrected misstatements in the following items:
Employee-related costs, stated at R318.8m, overstated by R7.1m. Depreciation and amortisation, stated at R56.6m, overstated by R3.6m (2019: R3.6m).
Contracted services, stated at R27.3m, overstated by R3.2m. General expenses, stated at R56.1m, overstated by R2.3m. Bulk purchases, stated at R247.5m, overstated by R2m.
Repairs and maintenance, stated at R5.6m, overstated by R0.3m.
”I was unable to obtain sufficient evidence for the VAT receivable as EMLM did not have adequate systems in place to record all amounts due to them by the South African Receiver of Revenue. ”I was unable to confirm the VAT receivable by alternative means. ”Consequently, I was unable to determine whether any adjustments were necessary to the VAT receivable comparative amount, stated at R8,4m in the statement of financial position.
On exchange transactions, the AG said: ”I was unable to determine if any adjustments were necessary to the receivables from exchange transactions comparative amount, stated at R95.7m in the statement.”
The AG added that EMLM did not have adequate systems in place to monitor and report on the accrual for leave, disclosed at R34.2m.
Due to inadequate systems for recording and accounting for impairment, EMLM did not recognise receivables from non-exchange transactions, according to GRAP 104, financial instruments, he said.
Receivables from the non-exchange transactions comparative amount was understated by R43.8m and debt impairment was overstated by the same amount.
Property, plant and equipment did not agree with GRAP 17 and was overstated by R81.9m.
The comparative amount for accumulated surplus was overstated by R78.3m and the comparative amount for accumulated depreciation by R3.6m.
EMLM mayor Luleka Gubula said a qualified audit opinion did not mean the systems were running smoothly, but the council had noted the steady improvement over the year.
”Since the amalgamation of the three municipal entities, we have been showing poor administration. ”Now we note the strides made by our administration and the reported co-operation during the audit period.
”Council will continue playing our oversight role and provide undivided support to the administration to ensure clean administration.”
Gubula said EMLM would focus on improving and that an Audit Action Plan would be developed to rectify missteps of the previous financial year.