EHLANZENI DISTRICT MUNICIPALITY – BEST PRACTICE

CLEAN AUDIT AND ASSET MANAGEMENT

PRESENTED BY: MR. WISEMAN KHUMALO –CFO

07 FEB 2013

CONTENTS

• INTRODUCTION• SUMMARY OF AUDIT OUTCOMES• 2014 AUDIT GOAL• KEY TO SUCCESS• APPROACH – CLEAN AUDIT (STRATEGIC AND

OPERATIONAL)• BEST PRACTICES – ASSETS (PPE)• CHALLENGES CURRENT AND FUTURE• LESSONS LEARNT AND WAY FORWARD

INTRODUCTION

• EDM COVERS FIVE LM’s (NKOMAZI, BBR, UMJINDI,THABACHWEU AND MBOMBELA)

• PAST FIVE YEARS – TWO UNQUALIFIED (2007/8, 2008/9), THREE CLEAN AUDITS (2009/10,2010/11,2011/12)

• GRADE 5 DETERMINATION OF UPPER LIMITS• 1 550 000m POPULATION OF THE DISTRICT

INTRODUCTION

INTRODUCTIONOPPORTUNITIES & AREAS OF INVESTMENTS

Mining, timber cluster, agro processing, agriculture, scenic attractions, revitalization of railway transport, ICT

Agricultural farming, Live stock farming, Rural CBD (Precinct development), ICT, Timber growing, Tourism, Arts and craft, CRDP

Fresh produce market, agriculture and agrarian reform, live stock farming, Industrial parks, Tourism routes, Cultural and heritage, ICT and Informal Trading, manufacturing –sugar cane & CRDP

Agriculture, Forestry, fishing, manufacturing, tourism, construction and utilities, Social and community services, & CRDP

Mining, manufacturing, agriculture and agro tourism, farming and nature conservation &Mining,

AUDIT OUTCOMES: EDM• 2007/8 – Unqualified with matters• 2008/9 – Unqualified with only one matter• 2009/10 – Unqualified with no matters (Clean

Audit)• 2010/11 – Unqualified with no matters (Clean

Audit)• 2011/12 – Unqualified with no matters (Clean

Audit)• EDM have been able to maintain the clean audit

(3 YRS)

2014 CLEAN AUDIT GOAL

• WHERE IT BEGAN?????- LAUCHED BY MPUMALANGA PROVINCE IN DECEMBER

2009- IMMEDIATELY STARTED PLANNING FOR 2009/10

FINANCIAL YEAR- IDENTIFIED OUR STRENGHTS AND WEAKENESSES- STRENGTHEN MANAGEMENT TEAM – COMMON GOAL

OF CLEAN AUDIT- STANDING ITEM ON SENIOR MANAGEMENT MEETING- ZERO TOLERANCE TO NON-PERFORMANCE

KEY TO SUCCESS

• LEADERSHIP – CENTRE MUST HOLD• FINANCIAL AND PERFORMANCE

MANAGEMENT – SOUND INTERNAL CONTROLS, COMPLIANCE

• FUNCTIONAL GOVERNANCE STRUCTURES

Auditor – General also looks at these issues during the audit

KEY TO SUCCESS (CONT….)• NO CONSULTANTS USED IN AFS PREP• FINANCE STAFF AVERAGE 10 YEARS

EXPERIENCE – GRAP TRAINING QUARTERLY• ACCOUNTING SYSTEM – HAVE BEEN USED

OVER 15 YEARS STILL TRAINING BEING PROVIDED

• CLEAN ADMINISTRATION – PRIORITY (ALL RESPONSIBLE FOR FRAUD PREVENTION, RISK MANAGEMENT,ETC

• U, I, F – SERIOUS CONSEQUENCES • ZERO TOLERANCE TO POOR PERFORMANCE

KEY TO SUCCESS (CONT…) INFORMED AND EFFECTIVE FINANCE PORTFOLIO

COMMITTEE INDEPENDENT AND QUALIFIED FUNCTIONAL AND

EFFECTIVE AUDIT COMMITTEE RISK MANAGEMENT COMMITTEE IN PLACE AND

FULLY FUNCTIONAL OPEN AND TRANSPARENT REPORTING

MECHANISMS (SCM AND OTHER REGULATORY REPORTING)

APPROPRIATE FINANCIAL SYSTEMS DYNAMIC AND COMPETENT MANAGEMENT

APPROACT TO CLEAN AUDIT – EDM (STRATEGIC)

INPUT: Politicians

sec 56 managers (all filled)Competent and qualified staff (critical posts

filled)Functional Governance structures (IA, AC, RMC

etc)

PROCESSES: policies and procedures

Record keepingCompliance and Reconciliations

ReportingSound Internal controls

monitoring

OUTPUT: clean administration (Accountability)Enhanced and transparent oversight

Effective and efficient reportingEnhanced service delivery

Informed decisions by leadership

APPROACH TO CLEAN AUDIT (OPERATIONAL)

● COORDINATION OF AUDIT PROCESS BY CFO AND MM● FUNCTIONAL AUDIT STERING COMMITTEE (2X / M)● CONSTRUCTIVE INTERACTION WITH THE AUDITORS AND

APPROPRIATE COMMITTEE STRUCTURES TO DEAL WITH AUDIT ISSUES

● KEEPING EXECUTIVE MANAGEMENT INFORMED OF AUDIT PROGRESS

● DETAILED FILE OF AUDIT WORKING PAPERS IN SUPPORT OF THE COMPILATION OF THE ANNUAL FINANCIAL STATEMENTS

● SCM (BELOW R200K AND ABOVE) – MORE THAN 10 STAFF MEMBERS CHECKING PAYMENTS IF THEY COMPLY

APPROACH TO CLEAN AUDIT (OPERATIONAL)● COMPLIANCE WORKING PAPERS – IN LINE

WITH REGULATIONS AND COMPLIANCE REGISTER AND CALENDER (BUDGET, REPORTING TO NT,PT, AG)

● AVAILABILITY OF KEY PERSONNEL DURING THE AUDIT PROCESS (NO LEAVE DURING AUDIT)

● EARLY RESOLUTION OF ISSUES AND AUDIT QUERIES – EXCEPTION REPORTS

● CHALLENGE TO UNREASONABLE DEMANDS AND FINDINGS – LAST WEEK OF NOVEMBER)

BEST PRACTICE – ASSETS

• LOCAL GOVERNMENT CAPITAL ASSETS MANAGEMENT GUIDE – A MUST READ

• ASSET MANAGEMENT POLICY – BENCHMARK WITH OTHER MUNICIPALITIES AND COMPLY

• BENCHMARK WITH MUNICIPALITIES THAT HAVE MADE IT, INFORMATION SHARING SESSIONS

• KNOW WHERE YOUR ASSETS ARE - GIS TOOL, ASSET NUMBERS,

• TRAINING, TRAINING, TRAINING OF STAFF MEMBERS

BEST PRACTICES - ASSETS• PRESCRIBED GRAP STANDARS – KNOW BY HEART - GRAP 16 (INVESTMENT PROPERTIES)

- GRAP 17 ( PPE)- GRAP 13 ( LEASES)- GRAP 31 ( INTANGIBLE ASSETS)- GRAP 103 (HERITAGE ASSETS)- GRAP 21 & 26 (IMPAIREMENT IF CASH GENERATING ASSETS AND NON CASH)

• GRAP 3 – ACCOUNTING POLICIES, CHANGES IN ACCOUNTING ESTIMATES AND ERRORS

• DIRECTIVE 5: APPENDIX G – 1 APRIL 2012

BEST PRACTICES: ASSETS

• EACH GRAP STANDARD: KNOW BY HEART- SET UP OF A GRAP STANDARDIDENTIFICATIONRECOGNITIONMEASUREMENTPRESENTATIONDISCLOSURE

ASSET REGISTER• COMPLY WITH GRAP• SEVEN SUBHEADINGS NEEDED TO FULLY COMPLY1. ACQUISITION2. IDENTIFICATION AND LOCATION3. ACCOUNTABILITY4. PERFORMANCE5. DISPOSAL6. ACCOUNTING7. MANAGEMENT AND RISK

BEST PRACTICE: ASSETS

• DEFINATION:- PROBABLE FUTURE ECONOMIC BENEFITS OR SERVICE POTENTIAL- WILL FLOW TO THE MUNICIPALITY- COST OR FAIR VALUE CAN BE MEASURED RELIABLY (- MUNIC SHOULD ALSO HAVE CONTROL OVER THE ASSETS- BE CAREFUL OF THE CAPITALISATION THRESHOLD IF AG WILL ACCEPT IT ( NO MINOR ASSETS IN GRAP)

ASSETS: BEST PRACTICE• IMMOVABLE AND IMMOVABLE ASSETS

- INFRASTRUTURE ASSETS: ROADS, NETWORKS ETC WHEN USING EXPERT: QUALIFICATIONS, EXPERIENCE, INDEPENDENCE DECLARATIONS

- DOCUMENT METHODOLOGY FOR: DETERMINING THE BOUNDRIES OF THE VERIFICATION, DETERMINING THE CURRENT REPLACEMENT COSTS, DEPRECIATED REPLACEMENT COSTS,ESTIMATED USEFUL LIVES, REMAINING USEFUL LIVES, RESIDUAL VALUES, CONDITION ASSESSMENT (PAR.56 GRAP 17)

ASSETS: BEST PRACTICE

• LAND AND BUILDINGS:- DEEDS SEARCH AND COMPARED WITH FAR- VALUATION ROLL COMPARED WITH FAR- SPLIT BETWEEN LAND AND BUILDINGS- LAND NOT TO BE DEPRECIATED EXCEPT LANDFILL SITE

• UNBUDLING / COMPONENTISATIONCHECK THE DPLG GUIDE PAGE 59 AND ENGINEERS TO ASSIST

ASSETS: BEST PRACTICE

• ASSETS IN USE - BUT FULLY DEPRECIATED (CANT SHOW ZERO

VALUES, ASSESS THE CONDITION OF THE ASSET, RE-LOOK AT THE USEFUL LIVES AND CORRECT ERROR OR CHANGE THE ESTIMATE – REMEMBER WHEN CORRECTING ERRORS GRAP 3 TO BE FULLY COMPLIED WITH)- ASSET MANAGEMENT POLICY (DISPOSAL / REPLACEMENT OR……

ASSETS: BEST PRACTICE

• DEPRECIATION:SYSTEMATIC ALLOCATIONDEPRECIATE SEPARATELY EACH SIGNIFICANT PARTREVIEW AT LEAST AT REPORTING DATE

- RESIDUAL VALUE- USEFUL FIVES- DEPRECIATION METHOD- CONDITION OF THE ASSETS

ASSETS: BEST PRACTICE

• INVESTMENT PROPERTY: DEF – EARN RENTALS, CAPITAL APRRECIATION (CRITICAL)

STAFF QUARTERS, HOSTELS, ETCACCOUNTING POLICY TO BE IN PLACEACCOUNTING TREATMENT : VERY CRITICAL (CHOICE IS YOURS – EITHER COST OR FAIR VALUE, IF COSTS GRAP 17 DEPRECIATE AND ACCOUNT FOR IMPAIRMENT LOSSES

CHALLENGES – CURRENT & FUTURE• MAINTAINING CLEAN AUDIT – NEW GRAP

STANDARDS TO BE IMPLEMENTED• RETENTION / RECRUITMENT OF SKILLED STAFF • ANNUAL ROTATION OF AUDITORS – NEW

AUDITORS YEARLY• SUPPLIERS WHOSE DIRECTORS ARE IN THE

SERVICE OF THE STATE• 30 DAYS (WHEN DO WE START COUNTING)• WRONG INTERPRETATION BY BOTH OF

STANDARDS AND REGS

LESSONS LEARNT AND WAY FORWARD

• IN-HOUSE COMPILATION OF AFS – IMPROVES CHANCES OF GETTING CLEAN AUDIT

• MANAGEMENT TO PERFORM ROUTINE MANAGEMENT WORK (ASSET MANAGEMENT UNIT IN PLACE)

• FUNCTIONAL GOVERNANCE STRUCTURES• COMPLIANCE WITH LAWS AND REGS – REPORT NON

COMPLIANCE TO COUNCIL, AG, PT AND NT (ASK FOR ADVICE WHERE NECESSARY)

• ON-GOING MANAGEMENT MEETINGS – CLEAN AUDIT TO BE A STANDING ITEM THROUGHOUT

• RETENTION / RECRUITMENT OF SKILLED STAFF – TO FILL CRITICAL POSITIONS

• ON-GOING TRAINING OF STAFF MEMBERS

THANK YOU

Contacts: Mr. W Khumalo (CFO)013 759 8513/48/082 460 5825wkhumalo@ledc.co.za