Experiences and common shortfalls
on GRAP 17 audits
Shelmadene Petzer
Auditor-General of South Africa
Introduction
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Drivers of internal control
Asset management systems
Asset registers
Reconciliation between the General Ledger and the
asset register
Ownership of assets
Identification of infrastructure
Assessment of useful lives, residual values and
impairment
Use of consultants and valuation experts
Directive 4 transitional provisions
General comments
Drivers of internal control
Leadership
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Provide effective leadership based on a culture of honesty, ethical
business practices and good governance, protecting and enhancing
the best interests of the entity
Exercise oversight responsibility regarding financial and performance
reporting and compliance and related internal controls
Implement effective HR management to ensure that adequate and
sufficiently skilled resources are in place and that performance is
monitored
Establish and communicate policies and procedures to enable and
support understanding and execution of internal control objectives,
processes, and responsibilities
Develop and monitor the implementation of action plans to address
internal control deficiencies
Establish an IT governance framework that supports and enables the
business, delivers value and improves performance
Drivers of internal control (continued)
Financial and performance management
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Implement proper record keeping in a timely manner to ensure that
complete, relevant and accurate information is accessible and
available to support financial and performance reporting
Implement controls over daily and monthly processing and
reconciling of transactions
Prepare regular, accurate and complete financial and performance
reports that are supported and evidenced by reliable information
Review and monitor compliance with applicable laws and regulations
Design and implement formal controls over IT systems to ensure the
reliability of the systems and the availability, accuracy and protection
of information
Drivers of internal control (continued)
Governance
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Implement appropriate risk management activities to ensure that
regular risk assessments, including consideration of IT risks and fraud
prevention, are conducted and that a risk strategy to address the risks
is developed and monitored
Ensure that there is an adequately resourced and functioning internal
audit unit that identifies internal control deficiencies and recommends
corrective action effectively.
Ensure that the audit committee promotes accountability and service
delivery through evaluating and monitoring responses to risks and
providing oversight over the effectiveness of the internal control
environment including financial and performance reporting and
compliance with laws and regulations
Asset management systems
Challenges
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Costly to acquire asset management software that support GRAP
compliant information
Under-utilisation of functionalities of the asset management system
Asset management system not integrated with the financial system
Lack of skills and/or capacity to operate and maintain the asset
management system
Suggestions
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A single asset management system to be implemented by all
municipalities
Asset management systems to be run by suitably qualified and
experienced consultants
Monetary support to enable municipalities to obtain suitable asset
management software
Improved training and support by National and Provincial
Treasuries
Asset registers
Challenges
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Asset registers are not:
o mathematically accurate
o complete
o updated and maintained
Information in the asset registers does not facilitate GRAP compliance
Asset information in the asset register is not descriptive, making
identification of and locating the assets difficult
Asset registers are not available for audit on a timely basis
Auditing of a GRAP compliant asset register for the first time is time
consuming and requires the involvement of senior auditors and/or
experts; the audit time between Aug and Nov is insufficient to do this
Asset registers (continued)
Suggestions
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Regular (monthly / quarterly) asset counts and monitoring
Continuous (at least monthly) update and maintenance of asset
registers
Proper identification (bar-coding) of assets
Implementation of safeguarding controls
Reconciliation between the General Ledger and the asset
register
Challenges
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Information in the asset registers does not reconcile to the General
Ledger
Unidentified / unexplained reconciling items
Separate asset management and financial systems – no integration
Suggestions
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Implementation of a real time integrated system – costly
Monthly reconciliation of the General Ledger and the asset register
and asset management system (as opposed to at the end of the year
when required by auditors)
Proper monthly reviews by senior officials of reconciliations
Ownership of assets
Challenges
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Tribal land:
o ownership of land
o buildings constructed thereon by municipalities
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Uncertainty about ownership of:
o land in rural areas or where land has not yet been sub-divided
o community buildings constructed on municipal land
o buildings such as schools and clinics that are incorrectly
recognised in the financial statements of a municipality instead of
the DPW or Department of Basic Education
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Title deeds:
o none available
o in the name of former regional councils
o in the old names of the municipalities prior to name changes
o in the name of previous municipalities prior to amalgamation or
changes in demarcation
Ownership of assets (continued)
Challenges (continued)
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Valuation roll:
o impact of ownership issues on the completeness of the valuation
roll (and consequently on revenue generation)
o reconciliation of information in the asset register with the
valuation roll
Uncertainty about ownership of assets due to many changes in
powers and functions; sometimes annually and/or with retrospective
effect, with insufficient consideration of the practical implementation
issues
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Clarity is needed where functions are shared between:
o local and district municipalities (e.g. water services)
o municipalities and departments (e.g. clinics)
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No guidance or support is available to assist with these matters
Ownership of assets (continued)
Suggestions
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NT and COGTA should provide detailed guidance per municipality on
shared powers and functions and who should account for the related
assets
Assistance and guidance from the Department of Rural Development
and Land Reform, DPW and NT in order to resolve ownership issues
Identification of infrastructure
Challenges
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Individual infrastructure assets are not identified, but indicated in the
asset register as one line “infrastructure assets”, consequently the
auditors cannot verify the existence and completeness thereof
Identification of infrastructure assets is a timely and costly process
Municipalities do not have the capacity and expertise to perform the
identification of infrastructure assets and need consultants, engineers
and other specialists to do so
Consultants in many cases do not understanding the full extent of
GRAP 17 requirements and either do an incomplete job or it takes very
long
Changes are made and adjusting journals prepared by the
consultants, without the municipality understanding (owning) the
detail behind these journals
Supporting documentation and working papers for the asset
verification are not properly maintained or not provided by the
consultants and are therefore not available to the auditors
Identification of infrastructure (continued)
Suggestions
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Better cooperation between technical and finance departments to
ensure all assets are identified
Municipal officials must be closely involved with the work performed
by consultants
Early involvement of the audit team at the start of the process
NT to provide a list of approved engineering consultants and other
specialists and prescribe what information such consultants must
make available for audit purposes
Knowledge sharing and assistance by metros and others who have
succeeded
Assessment of useful lives, residual values and impairment
Challenges
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It is impractical to assess useful lives, residual values and indicators
of impairment at each reporting date:
o large number of assets
o infrastructure assets, e.g. underground pipes
o costly
Fully depreciated assets still in use
Challenges with the distinction between cash-generating and noncash-generating assets for impairment purposes
Difficult to audit municipalities’ assessments of useful lives, residual
values and indicators and estimation of impairment; may require the
use of an expert by the auditors
Suggestions
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NT to provide guidance on simplified methods for assessing useful
lives, residual values and indicators and estimation of impairment
that still comply with GRAPs
Use of consultants and valuation experts
Challenges
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Extensive use is made of consultants/ experts
Affordability:
o contracting of consultants/ experts is expensive and not value for
money
o municipalities sometimes have to settle for consultants/ experts
which they can afford rather than those that are suitably qualified
and experienced to perform the required work
Poor quality of work; consultants/ experts are contracted to resolve
problems, yet the problem still remains after the consultants/ experts
have completed their work
There is a lack of control over the work performed by consultants/ experts
Consultants’/ experts’ supporting documentation and working papers
are not made available to the municipalities and auditors
No skills transfer takes place; making municipalities permanently
dependent on consultants/ experts
Use of consultants and valuation experts (continued)
Challenges (continued)
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Difficult and time consuming to audit the methods, assumptions,
data, etc. used by consultants/ experts
Contracts with consultants do not protect the interests of the
municipality (no penalties or come backs)
Suggestions
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NT to provide a list of approved consultants/ experts
NT to continually assess the experience and skills of such
consultants/ experts
NT to prescribe tariffs that consultants/ experts doing work in the
public sector may charge
NT to prescribe what information and supporting documentation
consultants/ experts must make available to the municipalities and
auditors
Standard contracts to be made available to protect the interests of
municipalities
Directive 4 transitional provisions
Challenges
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All assets were recognised at R0, as the transitional provisions
allowed assets to be recognised at provisional amounts
No asset management implementation plans to ensure municipalities
will achieve the GRAP 17 requirements at end of the transitional
provision period
No disclosure in the financial statements regarding the use of the
transitional provisions and the progress towards full GRAP
compliance
Assets acquired after the effective date of GRAP not recognised in the
asset register or recognised at R0
Confusion regarding what constitutes “recognition” and what forms
part of “measurement”
Municipalities have not started with the measurement of assets, but
are leaving this to year-3 of the transitional provision period
Changes resulting from full compliance with GRAP to be accounted
for retrospectively (cost and effort vs. benefit)
Directive 4 transitional provisions (continued)
Suggestions
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Municipalities to prepare and submit detailed asset management
implementation plans to NT
Provincial Treasuries to monitor implementation on a monthly basis,
supported with quarterly monitoring by National Treasury
General comments
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Inconsistencies in interpretation between different municipalities
Confusion about the status of and manner in which the ASB FAQs
should be applied
ASB FAQs not taken into consideration by municipalities as they are
not considered to have any status
Centralise certain systems and functions at districts or municipalities
in locations where skills are readily available
Non-accounting for assets impacts the ability to effectively maintain
assets, which in turn impacts on:
o useful lives, residual values and impairment
o losses (water, electricity, etc.)
o service delivery
General comments (continued)
In conclusion
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How good is the understanding of the standards by the average non
technical accountant?
o Section 89(1)(b) of the PFMA
The Accounting Standards Board must prepare and publish
directives and guidelines concerning the Standards of GRAP
o Section 89(2)(a) & (b) of the PFMA
In setting standards the Board must take into account all relevant
factors, including:
a. best accounting practices, both locally and internationally
b. the capacity of the relevant institutions to comply with the
standards
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Reputation promise/mission
The Auditor-General of South Africa has a constitutional mandate and,
as the Supreme Audit Institution (SAI) of South Africa, it exists to
strengthen our country’s democracy by enabling oversight,
accountability and governance in the public sector through auditing,
thereby building public confidence.
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