George Municipality improves with an unqualified opinion
George Municipality is pleased to advise that our audit outcome for 2018/19 has improved to an unqualified opinion. An unqualified opinion is an independent auditor's judgment that a company's financial statements are fairly and appropriately presented, without any identified exceptions, and in compliance with generally accepted accounting principles (GRAP). An unqualified opinion is the most common type of auditor's report.
The Auditor-General of South Africa's (AGSA) report to George Municipality noted that our management should be commended for implementing most of the action plans as requested by both the external and internal audit. This allowed for an improvement in the internal control environment with corrective measures in place and had a direct impact on the audit outcome.
George Municipality did not get a clean audit for 2017/18 and instead got what is termed a financially qualified opinion with findings the Auditor-General was of the opinion that the Financial Statements submitted by the municipality were fairly presented, with the exception of a specified area which would then be referred to as the findings.
The findings in this instance related directly to the George Municipal Preferential Procurement Policy (GMPPP) which according to the Auditor-General contradicted legislation. The George PPP was drafted with the assistance of an external service provider and legal expert and is based on the same policy as that used by other Western Cape municipalities. The policy was approved by the George Council in 2014 and implemented by our Supply Chain Management in order to ensure that when going out on a tender process, that the fair and equitable procurement of services and/or goods took place.
It must be noted that George Municipality achieved a clean audit successfully each year from 2016 with this policy in place, and it was only with the auditing of the 2017/18 Financial Statements that the Auditor-General concluded that the George Municipal Preferential Procurement Policy had been applied incorrectly. As such, all of the tenders awarded from 2014 by the municipality, were regarded and declared as irregular - due to the policy the implementation of the said policy during the awarding of tenders.
Following the findings for 2017/18, the municipality amended the 2014 Preferential Procurement Policy to bring it in line with the Preferential Procurement Policy Framework Act. The corrected version was approved by Council in March 2019 and this amended policy meets with the approval of the Auditor-General in terms of the MFMA and Supply Chain procedures and policies.
The term irregular expenditure is defined as the spending of money or funds in a way that does not comply with regulations in terms of public finances and procurement i.e. the purchasing of services and/or goods. This definition does not mean that the services were not received or that there were any procurement irregularities in terms of payment. The irregularity relates only to the processes followed ,as was required by the approved George PPP policy which gave the appearance of Council intervention in tenders. In terms of the policy, the PPP specifications for each tender were to be drafted and submitted to the relevant Section 80 Committees for review and which required the signature of the Portfolio Councillor, Chairperson of the Section 80, on the document. Albeit an administrative signature, the Auditor-General viewed it as interference.
The audit process generally takes from three (3) to four (4) months and towards the end of the audit process for the 2017/18 financials the AG pronounced the ruling regarding the PPP, which left George Municipality unable to quantify to the AG the value of the irregular expenditure incurred and the municipality was required to make a material misstatement, which in the context of the financial audit means that there is untrue information in the financial statement that could affect the financial decisions of the one who relies on the statement. And for that reason George Municipality received a qualified opinion with findings for 2017/18.
The value of the irregular expenditure has been quantified and corrected in the 2018/19 Financial Statements. The Financial Statements submitted to the George Council for the 2018/19 year indicated the procedures applied to correct the qualified opinion for 2017/18 and have also been referred to Municipal Public Accounts Committee (MPAC).
George Municipality remains committed to the principles of good governance and continues to practice the principles and procedures required to maintain our fiscal discipline and stability. Our officials remain committed to delivering services of a high quality, continued good governance and compliance with legislation.
AFS Audited Financial Statements
A Qualified opinion is defined as an auditor's opinion that the financials are fairly presented, with the exception of a specified area. Unlike an adverse or disclaimer of opinion, a qualified opinion is generally still acceptable to lenders, creditors, and investors.
An unqualified opinion is an independent auditor's judgment that a company's financial statements are fairly and appropriately presented, without any identified exceptions, and in compliance with generally accepted accounting principles (GRAP). An unqualified opinion is the most common type of auditor's report.
A clean audit or opinion is an unqualified auditor's report regarding an entity's financial statements. Such a report indicates the auditor's belief that the entity's financial statements fairly present its financial results, financial position, and cash flows.
Irregular Expenditure spending money/funds in a way that does not comply with regulations in terms of public finances and procurement (purchasing of services/goods). Whilst irregular expenditure is incurred as a result of transactions, conditions or events where there have been legislative transgressions, there are, however, instances where such transactions, conditions or events have not resulted in an institution suffering a loss and where value for money was derived from the use of the goods procured or services rendered.
GMPPP George Municipal Preferential Procurement Policy issued in terms of the Preferential Procurement Policy Framework Act 5 of 2000 and its regulations.
Source: George City