IMFO Audit Somerset West | Western Cape Government

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IMFO Audit Somerset West

9 April 2013

On behalf of the Western Cape Government I welcome you to the IMFO Indaba 2013.

The theme of this year’s Indaba is,

‘Good Governance: The Key to Sustainable Service Delivery’

and I have been asked to speak on the topic ‘Role of audit which encompasses both internal and external audit in supporting good governance and sustainable service delivery’.

This is a wide-ranging topic.  In fact, there are three interconnected topics of which service delivery is the final and possibly most important link in the chain.

The conceptual role that audit plays in supporting good governance and ultimately service delivery can be stated as providing:insight, foresight and oversight within the municipal structures, business processes, administration, as well as with stakeholders.

Insight in assisting decision-makers by providing an independent assessment of government programs, policies, and operations;

Foresight in bettering the municipality’s performance through careful analysis of trends and emerging challenges by way of financial audits, performance audits, and advisory services to fulfil each of these roles; and

Oversighon whether government entities are doing what they are supposed to do and to detect and deter public corruption.

Four significant benefits are derived from an independent audit namely: better management, improved accountability, improved IGR and service delivery:

Better management is achieved by the identification of deficiencies within municipal processes through a critical evaluation of performance information which is the cornerstone of good governance.

The audit function does not assume a management function but is rather an independent consultative role thereby maintaining integrity of the process.

Improved accountability:

Audits assist with the independence of the governance processes, the management culture, policies, strategies and interaction with stakeholders. More specifically, it enhances accountability by giving credibility to the policy agenda set by the political leadership. 

In respect of financial sustainability and management, the purpose of an audit is to contribute towards the viability and prosperity of a municipality and to achieve the developmental objectives of facilitating local economic growth, and job creation and the delivery of sustainable services.

Improved IGR and service delivery outcomes:

Monitoring of progress with respect to addressing the audit findings and implementation of the recommendations must be dealt with in a conclusive and expeditious fashion.

The desired outcomes may not be immediately felt.  But the ongoing role of monitoring provides greater understanding and appreciation of the past and present challenges.

Audit provides an opportunity for sound intergovernmental relations between local, provincial and national government

However, while all spheres of government have a role to play, local government remains  at the coal face of service delivery. 

In fact, delivery of municipal services is central to the existence of local government who is duty bound to provide these services in a sustainable manner as contained in section 152 [1] of the Constitution.

This right is further safeguarded in the constitutional guarantee that municipalities should structure and manage their administrations, budgeting and planning processes to give priority to the basic needs of the community.

In order to fully appreciate the role of audit towards good governance and sustainable service delivery lets pause to reflect on the lives and reality of our fellow citizens. Are they happy with the current levels of service delivery?

Alarmingly, 2012 signified the highest number of protests of any year with 226 protests across the country.

A proportional breakdown for the causes of the service delivery protests attributed 35.5% to poor service delivery; 22.4% to non-municipal services and 16.9% to poor municipal governance, while dissatisfaction with municipal services; socio-economic conditions and party political grievances also contributed.

One of the greatest hurdles confronting sustainable service delivery from a governance perspective may be attributed to fraud and corruption.

Corruption runs contrary to accountability and the rule of law because it undermines governance, diminishes public trust, and threatens the ethics of government and society.

Audit re-enforces good governance through the provision of unbiased, objective assessments on whether public resources are responsibly and effectively managed to achieve intended results.  

Audits further, help government organizations achieve accountability and integrity, improve operations, and instil confidence among citizens and stakeholders.

Given the current global economic tensions as well as local constraints on-going financial viability of municipalities is disconcerting to say the least.

Municipalities are progressively under pressure due to growing demands associated with increasing population numbers and economic growth which results in increased demands for service delivery.

Census 2011shows that the Western Cape is the second fastest growing province.

National Treasury forewarned the challenges associated to municipal finances.

In 2009/10 it found 66 municipalities to be in financial distress, in 2010/11 it was roughly the same number while in 2011/12 it found 94 municipalities to be in financial distress, which amounts to a 42% increase from the last year.

In unpacking these findings, Treasury identified a range of negative contributing indicators. These ranges from negative cash balances; overspending of operating budgets; and under spending of capital budgets as well as the high number of both creditors and debtors.

Also unauthorised, irregular, fruitless and wasteful expenditure had grown from R3.9bn in 2009/10 to R15.5 billion 2011/12.

According to Minister Pravin Gordhan this dramatic increase is attributed to poor planning, poor leadership, poor implementation and a failure to hire the right people.

Of note, municipalities collectively failed to collect R77 bn. due for services and underspent their capital budgets by around R10 bn.

Exacerbating this state of financial management is the rapid pace of financial reforms, while the required skills, capacity and systems experienced challenges to deliver on this mandate.

This is evidenced in the extent to which municipalities have been struggling with the implementation of financial reforms, resulting in a heavy reliance on consultants

SALGA, confirms attributing factors to be:

(i)complexity of the legal frameworks;

(ii)inadequate capacity;

(iii) high cost of implementation

In fact, SALGA bemoans the state of revenue generation by municipalities- due to the numerous national and provincial policy and legislative developments or lack thereof which it argues is progressively constraining the ability of municipalities to collect revenue.

I am very concerned about the viability and long-term financial sustainability of municipalities because the ability of municipalities to manage its finances efficiently and effectively is critical in ensuring resources is optimally spent on the provision of services. 

How do municipalities, government and citizens know that in doing its business, municipalities are employing the best options that yield the best outcomesYear on year, the most pressing matters raised by the AG relates to SCM; HR and material errors and omissions.  ? Or stated differently, are municipalities maximising resources to give effect to its developmental mandate?

Year on year, the most pressing matters raised by the AG relates to Supply chain Management and Human Resources and material errors and omissions. 

In 2010/11, the AG added additional focus on performance management. 

The AG is concerned that political leadership is yet to heed the call to view audit outcomes not as an ultimate goal but rather as a means to achieving effective sustainable service delivery.

The role of the Municipal Public Account Committees is not to be underestimated.  There is a mistaken view that MPACs is a duplication of the role of the Audit Committee.

But the Audit Committee can only make recommendations to Council whereas the MPAC comprise of councilors who can exercise their oversight over the executive functionaries of the Council.

In conclusion I would like to emphasise that, Government must strive to implement the guiding principles of insight, foresight and oversight to implement the recommendations of the auditors as this will lead to municipalities addressing its financial challenges and its performance concerns.

I would again like to stress the importance of service delivery and that its importance not be under-played. The relationship between the audit process and service delivery is of prime importance . Also the cost of an audit is now becoming a cause for concern and will have to be looked at going forward.

The wave of corruption that has been gaining momentum in our local municipalities will be thwarted if its day-to-day operations and planning is built on the findings of the auditors.

Such strategies will improve the financial health of our municipalities which would directly lead to improved service delivery for our communities. Which is after all why municipalities exist, to serve the people!

 I thank you.

Media Enquiries: 

Peter Pullen
Spokesperson for Minister Bredell
Tel: 021 483 2820
Cell: 082 574 3773