EHLANZENI DISTRICT
MUNICIPALITY – BEST PRACTICE
CLEAN AUDIT AND ASSET
MANAGEMENT
PRESENTED BY: MR. WISEMAN
KHUMALO –CFO
07 FEB 2013
CONTENTS
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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
INTRODUCTION
OPPORTUNITIES & 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 keeping
Compliance and Reconciliations
Reporting
Sound Internal controls
monitoring
OUTPUT:
clean administration (Accountability)
Enhanced and transparent oversight
Effective and efficient reporting
Enhanced 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 STANDARD
IDENTIFICATION
RECOGNITION
MEASUREMENT
PRESENTATION
DISCLOSURE
ASSET REGISTER
• COMPLY WITH GRAP
• SEVEN SUBHEADINGS NEEDED TO FULLY COMPLY
1. ACQUISITION
2. IDENTIFICATION AND LOCATION
3. ACCOUNTABILITY
4. PERFORMANCE
5. DISPOSAL
6. ACCOUNTING
7. 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 / COMPONENTISATION
CHECK 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 ALLOCATION
DEPRECIATE SEPARATELY EACH SIGNIFICANT PART
REVIEW 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, ETC
ACCOUNTING POLICY TO BE IN PLACE
ACCOUNTING TREATMENT : VERY CRITICAL (CHOICE
IS YOURS – EITHER COST OR FAIR VALUE, IF COSTS
GRAP 17 DEPRECIATE AND ACCOUNT FOR
IMPAIRMENT LOSSES
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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 5825
wkhumalo@ledc.co.za