Progress Report on Operation Clean Audit by 2014

Progress Report on Operation Clean Audit by 2014 Presentation to Select Committee on Appropriations 17 October 2012 1

Outline of Presentation 1. 2. 3. 4. 5. 6. 7. 8. 9. 10. 11. 12. 13. Introduction LGTAS- Its Origin Aims and Objectives of LGTAS Original targets of LGTAS A period of non activity-the lull LGTAS today-the revival Achievements Operation Clean Audit: Background Operation Clean Audit: Development of an Action Plan. Operation Clean Audit: Refinement of Action Plan. What have we done to support municipalities? Actions by other role players to improve municipal audit outcomes Conclusion 2

LGTAS-Where it originated? Strategy (LGTAS) The Local Government Turnaround was approved by Cabinet during December 2009. It was intended as the overarching strategy that includes flagship projects such as Operation Clean Audit (OPCA), Business-Adopt-a-Municipality, Revenue Enhancement as well as the Special Purpose Vehicle (SPV), now the Municipal Infrastructure Support Agency (MISA) and Clean Cities Clean Towns. The objectives of LGTAS was to Build Confidence between the people and Government; Build a model Municipality characterised by the ability to provide quality services, 3

Introduction The purpose of the presentation is to present to the Select Committee the status of LGTAS since its inception to date. An attempt will be made to present the details of what has been achieved in pursuit of the objectives set in 2009 The presentation will not dwell much on all the components of LGTAS but will focus on Operation Clean Audit (OPCA). 4

LGTAS-OPCA aims Guiding vision: By 2014, all 278 municipalities achieve unqualified audit opinion on their Annual Financial Statements Strategic goal: To provide assistance to all municipalities to achieve sustainable improvement of systems for maintaining quality financial and information management Strategic purpose: To address all issues raised by the Auditor General and reduce the vulnerability to risks in the municipal financial management and governance process through targeted interventions 5

LGTAS-OPCA objectives Between 2010 and 2011, no municipality achieving Adverse and Disclaimer Audit opinions. o Not achieved: According to preliminary disclaimers – 50 and adverse opinions – 7. results, At least 60% of the all municipalities achieving unqualified audit opinion by 2012 o According to preliminary results, now at 44. 5% (2010 -11) At least 75% of all municipalities achieving unqualified audit opinions by 2013 100% of all municipalities achieving unqualified audit opinions by 2014. 6

A Period of non-activity – The Lull As a result of restructuring in the department there was a state of paralysis for approximately 18 months (from 2011 to mid 2012) and with uncertainty at the political and administrative levels The original LGTAS team was disbanded at the beginning of 2011. The impetus of the LGTAS had so much buy in and Provinces and municipalities continued implementing some components of the strategy; e. g. establishment Provincial Coordinating Committees of OPCAs Institunalization of the LGTAS units in the Provinces, Appointment of staff for LGTAS support. 7

LGTAS today With the arrival of the new Minister there was a renewed focus and emphasis created on the acceleration of the LGTAS was revived with a refined focus on 108 targeted municipalities. These were approved by MINMEC of 25 May 2012. 8

LGTAS today-the renewal The renewed focus in terms of which LGTAS is accelerated up to 2014 is through the following priority areas: 1. Accelerating service delivery 2. Enhancing Good Governance 3. Promoting sound financial management 4. Fighting corruption 5. Facilitating sustainable infrastructure development. These five focus areas are mutually reinforcing and directly play a critical role in improving the audit outcomes of municipalities. 9

Aligning the OPCA vision with 5 areas Visits we conducted to all Provinces from July to end of August 2012 to discuss the Provincial LGTAS Action Plans for the 108 identified LGTAS municipalities; Finalised the action plans in respect of the 108 municipalities and A report on the profile of at least the 108 municipalities in relation to the 5 LGTAS focus areas will be concluded by the end of November 10

The Audit Outcomes The slides that follow provide information with regard to the progress in municipal audit outcomes from 2008/09 to 2010/11 and the provincial breakdown of the 2010/11 Municipal Audit Outcomes 11

2008/09 to 2010/11 Municipal Audit Outcomes: National Audit Opinion 2010/11 2009/10 2008/09 Clean 5% 2% 0, 3% Financially unqualified with findings 41% 43% 41% Financially statements financial 46% 45% 42% Qualified 20% 26% 17% Adverse 5% 3% 4% Disclaimer 23% 25% 37% Audits not issued 6% 2% 0, 3% Total municipalities 278 278 AFS submission outstanding 3% 2% 0, 3% unqualified Notes: Based on information as of 27 July 2012. 12

What the above figures tell us The figures above tell a story of improvement in the municipalities that received a financially unqualified opinion without findings and those with findings from 42% to 46%. It shows a fluctuation in numbers of those that received a qualified opinion In the two previous financial years there was no improvement in municipalities that received adverse and disclaimer opinion These figures serve as a point of reference regarding our intervention and support actions. 13

2010/11 Municipal Audit Outcomes: Provincial Breakdown Audit Opinion Clean Nat EC FS GP KZN LP MP NC NW WC 5% 0% 0% 0% 8% 6% 19% 0% 0% 6% Financially 41% unqualified with findings Financially 46% unqualified financial statements Qualified 20% 28% 21% 67% 77% 10% 33% 25% 9% 73% 28% 21% 67% 85% 17% 52% 25% 9% 80% 29% 13% 33% 11% 43% 14% 19% 13% 10% Adverse 5% 4% 8% 0% 2% 13% 0% 0% Disclaimer 23% 38% 54% 0% 2% 27% 33% 53% 26% 0% Audits not 6% issued Total munics 278 n/a 4% n/a n/a 3% 52% 10% 45 24 12 61 30 21 32 23 30 AFS sub 3% outstanding n/a 4% n/a n/a 3% 2% n/a Notes: Based on information as of 27 July 2012. GP, KZN and WC have achieved the 2012 target of 60% unqualified opinion 14

Trend per province: 2008/09 to 2010/11 Municipal Audit Outcomes (1/3) Audit Opinion EC 09/10 0% EC 08/09 0% FS 10/11 0% FS 09/10 0% FS 08/09 0% GP 10/11 0% GP 09/10 0% GP 08/09 8% Fin 28% unqualified with findings Fin 28% unqualified fin statements 20% 21% 13% 67% 75% 67% 20% 21% 13% 67% 75% Qualified 28% 31% 28% 13% 25% 4% 33% 25% Adverse 4% 7% 16% 8% 4% 8% 0% 0% 0% Disclaimer 38% 42% 36% 54% 75% 0% 0% 0% Audits not n/a issued Total munics 45 n/a 4% 4% n/a n/a 45 45 24 24 24 12 12 12 AFS sub n/a outstanding n/a 4% 4% n/a n/a Clean EC 10/11 0% Notes: Based on information as of 27 July 2012. 15

Trend per province: 2008/09 to 2010/11 Municipal Audit Outcomes (2/3) Audit Opinion KZN 09/10 0% KZN 08/09 0% LP 10/11 7% LP 09/10 3% LP 08/09 0% MP 10/11 19% MP 09/10 14% MP 08/09 0% Fin 77% unqualified with findings Fin 85% unqualified fin statements 85% 72% 10% 27% 33% 38% 43% 85% 72% 17% 30% 27% 52% 43% Qualified 11% 13% 40% 27% 14% 29% Adverse 2% 2% 0% 13% 0% 0% 0% Disclaimer 2% 2% 15% 27% 30% 47% 33% 29% Audits not n/a issued Total munics 61 n/a n/a 61 61 30 30 30 21 21 21 AFS sub n/a outstanding n/a n/a Clean KZN 10/11 8% Notes: Based on information as of 27 July 2012. 16

Trend per province: 2008/09 to 2010/11 Municipal Audit Outcomes (3/3) Audit Opinion NC 09/10 3% NC 08/09 0% NW 10/11 0% NW 09/10 0% NW 08/09 0% WC 10/11 7% WC 09/10 3% WC 08/09 0% Fin 25% unqualified with findings Fin 25% unqualified fin statements 22% 19% 9% 9% 17% 73% 70% 80% 25% 19% 9% 9% 17% 80% 73% 80% Qualified 19% 53% 13% 22% 13% 10% 13% 3% Adverse 0% 0% 0% 26% 0% 4% 0% 7% 0% Disclaimer 53% 22% 69% 0% 49% 61% 0% 7% 17% Audits not 3% issued Total munics 32 n/a 52% 22% 4% 10% n/a 32 32 23 23 23 30 30 30 AFS sub 3% outstanding n/a 26% 22% 4% n/a n/a Clean NC 10/11 0% Notes: Based on information as of 27 July 2012. 17

Operation Clean Audit: Action Plan § § The Municipal Audit outcomes are instructive for us to work harder if we are to succeed in realising the objectives we set ourselves as Government, of achieving audit ratings that will speak of a model Municipality. The identified three critical areas from the Auditor. General’s report to be looked at if the vision is: Ø Leadership (both political and administrative); Ø Governance; and Ø Financial management. 18

OPCA: Development of Action Plan § § § Developed an action plan (attached hereto) that clusters activities to be undertaken up to 2014 within the context of the three areas mentioned above. The action plan identifies the stakeholders responsible for particular actions in the drive to support municipalities to achieve a favourable audit opinion. The plan itself is a collaborative effort that draws from roles played by specific stakeholders in support of municipalities 19

OPCA: Refinement of Action Plan § § § Convened a LG Min. Mec in September 2012 and invited municipalities that consistently achieved a clean audit; consistently never submitted Annual Financial Statements; and municipalities that showed significant improvement to share with Min. MEC what are issues to be looked at This was to take a cue from success stories in municipalities that are doing well and to appreciate the challenges that some municipalities are experiencing. Refined the action plan accordingly 20

Key drivers § Municipalities that achieved clean audits indicated the key drivers for clean administration that lead to good financial management which include the following: Ø The leadership taking ownership of key controls Ø Consistently implementing audit recommendations; Ø Functional governance structures- MPACs, Finance Portfolio Committees, Audit Committees, Internal Audit units’ Risk management Committees; Ø Development and proper implementation of action plan; Ø Proper financial management skills; and Ø Proper record keeping. 21

Factors that negate the achievement of a Clean Audit § Factors that may negate the achievement of Clean Audit include, but are not limited to: ØLack of ownership by political leadership and management; ØLack of financial management skills; ØRepeat findings that are not addressed properly; ØAvailability of critical staff during the audit; and ØNone functional governance structures. 22

What have we done to support municipalities? GOVERNANCE 23

What have we done to support municipalities? Leadership We have supported the appointment of Municipal Managers and CFOs. The statistics regarding the filling of these posts are: Ø 219 out of 278 Municipal Managers posts were filled as at end September 2012; and Ø 278 CFO posts were filled as at the end of September 2012. Draft Regulations for Municipal Senior Managers have been developed governing the appointment and conditions of service of municipal managers and section 56 managers. It served before the LG Min. MEC of 16 September 2012; Consultations pursuant to the LG Min. MEC decisions are being finalised. 24

What have we done to support municipalities? Leadership supported municipalities to develop and implement recruitment and retention strategies: Work is being conducted in a pilot municipality with the intent - to roll out to 69 municipalities based on lessons learnt. Supporting municipalities to develop technical skills and in this regard: 2 HR officials from 35 municipalities were subjected to a 3 day programme hosted by the Institute of Municipal personnel Practitioners. Partnered with the Department of Social Development to develop a programme for the 35 municipalities for IDP interventions. 25

What have we done to support municipalities? Guidelines on the Establishment of MPACs have been put in place (joint DCo. G-National Treasury Guideline issued on 17 August 2011). Supported the establishment of MPACs. 87% of MPACs are currently established (see next slide for a provincial breakdown). DCOG monitors governance structures such as Audit Committees and Internal Audit Units 26

Stats on Municipal Governance Structures Province MPACs Audit Committees Internal Audit units EC 100% 98% 67% FS 42% 100% GP 100% 75% KZN 100% LP 100% MP 100% 95% NC 97% 91% 28% NW 100% 75% 61% WC 33% 97% 77% National 87% 96% 79% Stats is as of 30 September 2012 for MPACs whilst for Audit Committees and Internal Audit Units is as of 29 th March 2012. Note: With respect to Internal Audit Units, the established units may not meet the Office of Accountant General’s desirable maturity levels. 27

Stats on Municipal Audit Remedial Action Plans to Address the 2010/11 Municipal Audit Outcomes Province % of municipalities with Municipal Audit remedial Action Plans Info as of EC 100% 17 July 2012 FS 96% 20 July 2012 GP 100% 23 March 2012 KZN 100% 16 July 2012 LP 90% 4 April 2012 MP 95% 9 May 2012 NC 53% 2 April 2012 NW 43%% 24 May 2012 WC 83% 16 July 2012 National 86% 20 July 2012 Note: Stats takes into account information from provinces & the National Treasury. 28

FIGHTING CORRUPTION 29

What have we done to support municipalities? Continue to train municipal officials on ethics management: The following Four district municipalities and their local municipalities have been trained and are establishing Ethics Committees: Cacadu DM (Koega LM, Makana LM, Kougama LM, Camdeboo LM) Alfred Nzo DM (Matatiele LM, Umzimvubu LM). OR Tambo DM (Mhlontlo LM, Nyandeni LM, Ngquza Hill LM, King Sabata Dalindyebo) Overberg DM (Mosselbay LM). 30

Financial Management 31

What have we done to support municipalities? Supported municipalities on credit control and debt collection policies: • 39 municipalities have been supported in Kwa. Zulu-Natal and 18 in the Northern Cape • Developed a programme to roll this out to municipalities in other provinces. 32

Actions by partners. §Coordination of effort by all relevant stakeholders at national and provincial level is important in order to avoid duplication § In order to improve municipal audit outcomes, the following is also being done: • Municipalities have been prevailed upon to timely develop and implement municipal audit remedial action plans (by the 20 th July 2012, 89% of municipalities had audit remedial action plans developed • Provinces (Co. GTAs and Treasuries) monitor the implementation of the municipal audit remedial action plans. . 33

Conclusion § § Confident that the impact of our support interventions will become evident in the next 2011/2012 Audit Outcomes The target that all municipalities shall achieve a Clean Audit opinion by 2014 is unlikely to be achieved However, through combined effort and commitment seen in KZN we believe on average, our actions and interventions will result in 70% of municipalities achieving a Clean Audit opinion by 2014. We wish to also bring to the attention of the committee that the recent capacity assessment report by the Municipal Demarcation Board has given us the new impetus to accelerate the approval of regulations so that competent personnel are appointed in this sphere of government 34