CHAPTER 10

FINANCIAL REPORTING AND AUDITING

Part 1: Annual financial statements of municipalities

[Municipalities not having sole ownership control over municipal entities]

Preparation of annual reports and financial statements

66. (1) The [municipal manager] accounting officer of a municipality [that does not have sole ownership control over any municipal entity] must for each financial year [prepare]—

(a) in the case of a municipality that has sole ownership control over one or more municipal entities, prepare an annual report consisting of –

(i) a summary of the activities of the municipality and such municipal entity or entities during that financial year; and

(ii) consolidated financial statements for the municipality and such municipal entity or entities in accordance with generally recognised accounting practice; and

(b) in the case of a municipality that does not have sole ownership control over a municipal entity, prepare an annual report consisting of –

(i) a [report on] summary of the activities of the municipality during that financial year; and

(ii) financial statements for the municipality in accordance with generally recognised accounting practice.

(2) The annual report [and financial statements] referred to in subsection (1) (a) or (b) must—

(a) fairly present the state of affairs of the municipality, its business, its financial results, its performance against prescribed financial management performance indicators and its financial position as at the end of the financial year in question;

(b) include the prescribed particulars relating to transfers –

(i) received from an organ of state in the national or provincial sphere of government;

(ii) made to or received from another municipality; and

(iii) made to any organisation outside government; and

(c) indicate –

(i) whether the municipality has complied with the relevant annual Division of Revenue Act, including the conditions of any grant made to the municipality;

(ii) whether the conditions on any other grant, including grants not covered by the annual Division of Revenue Act or from other organs of state in the provincial and municipal sphere, were complied with;

(iii) the reasons for any non-compliance;

(iv) whether funds destined for the municipality in terms of the annual Division of Revenue Act were for any reason delayed or withheld; and

(v) how such funds transferred to the municipality were spent, per vote or per specific programme;

(d) in respect of each bank account held by the municipality during the relevant financial year, state –

(i) the name of the bank where the account is or was held, and the type and number of the account; and

(ii) [reflect] year opening and year end balances in [all] each of these bank accounts [established by the municipality in terms of section 7];

(e) include a list of all external mechanisms for any service delivery within the municipality at the beginning and end of the financial year, including-
    1. all partnerships with private entities and a summary of their mandate, including a summary of the service delivery agreements and the period covered by such agreements;
    2. a list of all municipal entities under the ownership control of the municipality, including an indication of all minority shareholders at the beginning and end of the financial year, and a summary of their articles of association and any service delivery agreements existing for part or all of the financial year;
    3. a list of all other municipal entities that the municipality has a share in at the beginning and end of the financial year, and a summary of their articles of association and any service delivery agreements existing for part or all of the financial year;
    4. a list of all municipal entities that provide any services within the municipality;

(f) [reflect] include particulars of any financial interest the municipality may have in any other undertakings, including in a municipal entity under the joint ownership control of the municipality; [and]

(g) include particulars of—

(i) any material losses through criminal conduct and any material unauthorised, [or] irregular or fruitless and wasteful expenditures that occurred during the financial year and which are irrecoverable;

(ii) any criminal or disciplinary steps taken as a result of such losses or such unauthorised, [or] irregular or fruitless and wasteful expenditures; and

(iii) any material losses recovered or written off;

(h) include particulars of –

(i) councillor salaries, allowances and benefits, whether financial or in kind, including a statement whether or not those salaries, allowances and benefits are within the upper limits of the framework envisaged in section 219 of the Constitution; and

(ii) any arrears owed by individual councillors to the municipality at any time during the relevant financial year for more than 90 days, including the names of those councillors;

(i) disclose particulars of all investments of the municipality as at the beginning and end of the financial year;, and any other significant investments held during the financial year; and

(j) include any other matters that may be prescribed.

(3) The annual report referred to in subsection (1) (a) must in addition contain the particulars as set out in section 69 (2) in respect of each municipal entity under the sole ownership control of the relevant municipality.

Auditing of financial statements

67. (1) The [municipal manager] accounting officer of a municipality, within two months after the end of a financial year, must submit the consolidated financial statements prepared in terms of section 66 (1) (a) (ii) or the financial statements prepared in terms of section 66 (1) (b) (ii) to the Auditor-General for auditing.

(2) The Auditor-General must—

(a) audit those financial statements; and

(b) submit an audit report on those statements to the [municipal manager] accounting officer within three months of receipt of the statements.

(3) No person may alter the financial statements or audit report after the

Auditor- General has submitted the audit report to the accounting officer.

Tabling and adoption of annual reports [financial statements] and audit reports

68. (1) The [municipal manager] accounting officer of a municipality, within one month of receiving the Auditor- General’s audit report, must—

(a) table in the municipal council the annual report [the financial statements] and the audit report; and

(b) submit to the National Treasury, the relevant [provincial treasury and the MEC responsible for local government in the province] provincial legislature and any other organ of state that may be prescribed—

(i) copies of the annual report [the financial statements] and the audit report; and

(ii) particulars of any corrective action taken in response to the [findings of] issues raised in the audit report.

(2) The Auditor- General may submit the financial statements and the audit report directly to a municipal council, the MEC for Local Government or the National Treasury if the accounting officer of the municipality fails to comply with subsection (1).

[(2)] (3) Representatives of the Auditor-General [the National Treasury, the relevant provincial treasury and the provincial department responsible for local government matters in the province] and any national or provincial department are entitled to attend, and to speak at, any meeting of the municipal council at which the [financial statements] annual report and the audit report are tabled or discussed or at which decisions concerning the [financial statements] annual report and the audit report are to be taken.

[(3)] (4) The [municipal manager] accounting officer must—

(a) give written notice of [such] those meetings to the Auditor-General [the National Treasury, the relevant provincial treasury] and the [relevant] provincial department responsible for local government matters in the province;

(aA) by advance notice in the media, inform the local community of those meetings, which meetings must be open to the public;

(b) attend such meetings for the purpose of responding to questions concerning the [financial statements] annual report and the audit report; and

(c) submit copies of the minutes of these meetings to the Auditor-General [the relevant provincial treasury] and the relevant provincial department responsible for local government matters.

[(4)] (5) The [financial statements] annual report and the audit report must be made public when tabled in the municipal council and published on the municipality’s official website.

(5) The municipal council must consider the annual report and the audit report, and adopt the annual report.

(6) Within 14 days of the adoption of the annual report the accounting officer must –

(a) make copies of the annual report accessible to the public, interested organisations and the media, free of charge or at a reasonable price; and

(b) submit a copy of the annual report to –

(i) the MEC for local government in the province;

(ii) the Auditor-General; and

(iii) such other organs of state as may be prescribed.
(7) The National Treasury may issue guidelines on the manner in which municipal councils should internally consider and adopt the annual report, the annual financial statements and the audit report.

[(5) This section must be read with section 46 of the Municipal Systems Act.]

Part 2: Annual financial statements of municipal entities

Preparation of annual reports and financial statements

69. (1) The accounting authority of a municipal entity must for each financial year prepare an annual report consisting of—

(a) a [report on] summary of the activities of the entity during that financial year; and

(b) financial statements for the entity in accordance with generally recognised accounting practice, unless the Accounting Standards Board approves another accounting standard for that entity.

(2) The annual report [and financial statements] referred to in subsection (1) must—

(a) fairly present the state of affairs of the municipal entity, its business, its financial results, its performance against predetermined objectives and its financial position as at the end of the financial year in question;

(b) reflect particulars of any financial interest the entity may have in any other undertakings;

(c) include particulars of—

(i) any material losses through criminal conduct and any material irregular expenditure that occurred during the financial year;

(ii) any criminal or disciplinary steps taken for such losses or irregular expenditure;

(iii) any material losses recovered or written off;

(iv) any financial assistance received from any organ of state in any sphere of government and commitments made by any organ of state on its behalf;

(v) any contingent liabilities for the municipality or municipalities exercising ownership control over the entity; and

(vi) any other matters that may be prescribed; and

(d) if the municipal entity is a company, include the financial statements of any subsidiaries which were established before section …..took effect.

Auditing of financial statements

70. (1) The accounting authority of a municipal entity, within one month after the end of a financial year, must submit the financial statements prepared in terms of section 69(1)(b) to—

(a) the [auditors of the entity] Auditor-General for auditing; and

(b) the municipality or municipalities exercising ownership control over that entity.

(2) The [auditors] Auditor-General must—

(a) audit those financial statements; and

(b) within three months of receipt of the financial statements, submit an audit report on those statements to the municipal entity and the entity’s controlling municipality.

(3) No person may alter the financial statements or audit report after the

Auditor- General has submitted the audit report to the municipal entity.

Submission of annual reports [financial statements] and audit reports

71. (1) The accounting authority of a municipal entity, within one month after receiving the Auditor-General’s report [of the auditors on those financial statements] in terms of section 70 (2) (b), must submit to the controlling municipality of the entity [or municipalities exercising ownership control over that entity and if the Auditor-General did not perform the audit, also to the Auditor-General]—

(a) the annual report of the entity for that financial year;

[(b) the financial statements for that financial year;] and

(b) the Auditor-General’s report. [of the auditors on those statements]

(2) The Auditor- General may submit the financial statements and the audit report directly to the controlling municipality of the municipal entity if the accounting authority of the entity fails to comply with subsection (1).

Compliance to be monitored

71A. The accounting officer of a municipal entity’s controlling municipality must –

(a) monitor whether the accounting authority of the entity complies with section 70 (1) or 71;

(b) establish the reasons for any non-compliance; and

(c) promptly report any non-compliance, together with the reasons for such non-compliance, to the council of the municipality and the Auditor- General.

[Municipalities having sole ownership control over municipal entities]

[Preparation of annual reports and financial statements

72. (1) The municipal manager of a municipality that has sole ownership control over one or more municipal entities must for each financial year prepare—

(a) a report on the activities of the municipality during that financial year; and

(b) in accordance with generally recognised accounting practice consolidated financial statements in respect of—

(i) the municipality; and

(ii) all municipal entities under the sole ownership control of the municipality.

(2) The annual report and consolidated financial statements referred to in subsection (1) must—

(a) fairly present the state of affairs of the municipality and the municipal entities under the sole ownership control of the municipality, their business, their financial results, their performance against prescribed financial management performance indicators and their financial position as at the end of the financial year in question;

(b) reflect year end balances in all bank accounts opened by the municipality in terms of section 7;

(c) reflect in those statements any financial interest the municipality or any such municipal entity may have in any other undertakings, including in a municipal entity under the joint ownership control of the municipality; and

(d) include particulars of—

(i) any material losses through criminal conduct, any material unauthorised or irregular expenditure by the municipality and any material irregular expenditure by any municipal entities under the sole ownership control of the municipality, which occurred during the financial year;

(ii) any criminal or disciplinary steps taken as a result of such losses, unauthorised expenditure or irregular expenditure;

(iii) any material losses recovered or written off;

(iv) councillor benefits, whether financial or in kind;

(v) any arrears owed by councillors to the municipality; and

(iv) any other matters that may be prescribed.

Auditing of financial statements

73. (1) The municipal manager of a municipality, within two months after the end of a financial year, must submit the consolidated financial statements prepared in terms of section 72(1)(b) to the Auditor-General for auditing.

(2) The Auditor-General must, within three months of receipt of the statements—

(a) audit the consolidated financial statements; and

(b) submit an audit report on those statements to the municipality.

Tabling of annual reports, financial statements and audit reports

74. (1) The municipal manager, within one month of receiving the audit report from the Auditor-General, must—

(a) table in the municipal council—

(i) the annual report;

(ii) the consolidated financial statements; and

(iii) the audit report; and

(b) submit to the National Treasury, the relevant provincial treasury and the MEC responsible for local government in the province—

(i) copies of the annual report, the consolidated financial statements and the audit report; and

(ii) particulars of any corrective action taken in response to the findings of the audit report.

(2) Representatives of the Auditor-General, the National Treasury, the relevant provincial treasury and the provincial department responsible for local government matters in the province are entitled to attend, and to speak at, a meeting of the municipal council at which the consolidated financial statements and the audit report are tabled or discussed or at which decisions concerning the consolidated financial statements and the audit report are to be taken.

(3) The municipal manager must—

(a) give written notice of such meetings to the Auditor-General, the National Treasury, the relevant provincial treasury and the relevant provincial department;

(b) attend such meetings for the purpose of responding to questions concerning the financial statements and audit report; and

(c) submit copies of the minutes of these meetings to the Auditor-General, the relevant provincial treasury and the relevant provincial department.

(4) The annual report, consolidated financial statements and audit report must be made public when tabled in the municipal council.

(5) This section must be read with section 48 of the Municipal Systems Act.]

Part 3: General

Meetings open to public

75. The meetings of a municipal council referred to in sections 68 [and 74] and of any committee of the council conducting hearings on the annual report of the municipality or a public entity must be open to the public and a reasonable time must be provided for members of the public to address the council or committee.

Submission of [financial statements] annual reports and audit reports to provincial legislatures

76. (1) The MEC responsible for local government must, without delay, submit a municipality’s [financial statements or consolidated financial statements] annual report to the relevant provincial legislature.

(2) The Auditor-General must, without delay, submit to the relevant provincial legislature –

(a) the audit report on [those] a municipality’s financial statements or consolidated financial statements; [to the relevant provincial legislature]

(b) a report on any responses by the relevant municipality or municipal entity to any issues raised in the audit; and

(c) an assessment whether these responses satisfactorily addressed those issues.

(3) The National Treasury may issue guidelines on how a provincial legislature may deal with the documents referred to it in terms of subsections (1) and (2) in accordance with its constitutional powers.

Consequences of non-compliance with certain provisions

77. (1) If [a municipal manager] the accounting officer of a municipality fails to submit financial statements to the Auditor-General in terms of section 67(1) [or 73(1)], or fails to table [financial statements] the annual report and the Auditor- General’s audit report [on those statements] in the municipal council in terms of section 68 (1) [or 74(1)]—

(a) the [municipal manager] accounting officer must promptly table in the council a written explanation setting out the reasons for the failure;

(b) the Auditor-General, in the case of any failure to submit financial statements for auditing—

(i) must [comment on whether there are grounds for taking disciplinary steps or instituting criminal proceedings; and] promptly inform the National Treasury, the MEC for local government in the province and the speaker of the council of the municipality of such failure; and

(ii) may issue a special report on the [delay] failure to the relevant provincial legislature; [and]

(bA) the municipal council –

(i) must request the mayor or any other councillor to investigate the reasons for the failure and report to the council; and

(ii) must take any appropriate steps to ensure that the financial statements are submitted to the Auditor-General or that the annual report is tabled in the council, as the case may be; and

(iii) may institute disciplinary proceedings against the accounting officer or other person responsible for the failure; and

(c) [the Minister, after consulting the Cabinet member responsible for local government, may withhold] the National Treasury may in terms of section 5 (2) (h) stop the transfer of funds from the National Revenue Fund to the municipality.

(2) The Auditor-General must submit to Parliament and the provincial legislatures –

(a) by no later than 31 October of each year, the names of any municipalities or municipal entities which have failed to submit their financial statements to the Auditor-General in terms of section 67 (1) or 70 (1); and

(b) at quarterly intervals thereafter, the names of any municipalities or municipal entities whose financial statements are still outstanding at the end of each interval.

Assessment of Auditor-General’s queries

78. The MEC for local government in consultation with the MEC for finance in a province must—

(a) assess all financial statements and audit reports and determine whether the affected municipality has addressed any [queries] issues raised by the Auditor-General in the audit report [may have raised]; and

(b) report to the provincial legislature any omission by a municipality to adequately address [such queries] those issues within 60 days.

Annual report to Parliament

79. The Cabinet member responsible for local government must annually report to Parliament on actions taken by MECs for local government to address [audit queries on financial statements] issues raised by the Auditor-General in audit reports on financial statements.

[Part 2: Auditing of municipalities]

Audits [requirements] to be performed by Auditor-General

80. (1) The annual financial statements of all municipalities and all municipal entities must annually be audited by the Auditor-General. [as required by section 188 of the Constitution]

(2) An audit contemplated in subsection (1) must be performed in terms of the Auditor-General Act, 1995 (Act No. 12 of 1995).

(3) The Auditor-General must report on compliance with this Act.

 

[Withholding of funds

81. If a municipality fails within a period determined by the National Treasury to take adequate steps to rectify any adverse findings of the Auditor-General in a report referred to in section 67(2) and 73(2), the Minister may withhold the transfer of funds from the National Revenue Fund to the municipality.]

[Part 3: Auditing of municipal entities]

[Appointment of auditors

82. (1) The annual financial statements of a municipal entity must be audited annually by—

(a) the Auditor-General; or

(b) a person registered in terms of section 15 of the Public Accountants’ and Auditors’ Act, 1991 (Act No. 80 of 1991), as an accountant and auditor, and engaged in public practice as such.

(2) If the Auditor-General does not perform the audit, a municipal entity—

(a) may appoint any person referred to in subsection (1)(b) as its auditor; and

(b) must give notice of such appointment to the Auditor-General and the municipality or municipalities exercising ownership control over it.

(3) The Auditor-General may—

(a) either on own initiative or at the request of the municipality or municipalities exercising ownership control over the relevant municipal entity, reject the appointment of an auditor appointed in terms of subsection (2); and

(b) appoint a different auditor.

Discharge of auditors

83. (1) A municipal entity may discharge an auditor appointed by it in terms of section 82(2)(a) before the expiry of that auditor’s term of appointment but only with the approval of—

(a) the municipality or municipalities exercising ownership control over that municipal entity; and

(b) the Auditor-General.

(2) An auditor appointed in terms of section 82(3)(b) may be discharged only in terms of the Auditor-General Act, 1995 (Act No. 12 of 1995).

(3) If a municipal entity intends discharging an auditor in terms of subsection (1), it must—

(a) give the auditor notice, in writing, setting out the reasons for the discharge; and

(b) give the auditor an opportunity to make representations, in writing, to the municipality or municipalities exercising ownership control over that municipal entity and the Auditor-General within 20 days of receipt of the notice.

(4) The Auditor-General must report any discharge of an auditor in terms of subsection (1) to the provincial legislature in question.

Duties and powers of auditors

84. (1) An auditor appointed in terms of section 82(2)(a) or (3)(b) must perform the functions of office as auditor in terms of legislation applicable to that person as auditor.

(2) In exercising the powers and performing the duties as auditor of a municipal entity, the auditor—

(a) has access at all reasonable times to all records, including books, vouchers, documents, plans and other property of the municipal entity;

(b) may require from the accounting authority for that municipal entity such information and explanations as are necessary for the purpose of the audit; and

(c) may investigate whether there are adequate measures and procedures for the proper application of sound economic, efficient and effective management.

(3) An auditor appointed in terms of section 82(2)(a) or (3)(b) may consult the Auditor-General or any person in the Office of the Auditor-General concerning any matter relating to the auditing of the municipal entity in question.

(4) An auditor appointed in terms of section 82(2)(a) or (3)(b)—

(a) must be given notice of every meeting of the municipal entity’s audit committee; and

(b) may attend, and participate in, any meeting of the audit committee at the expense of the municipal entity.

Reports of auditor

85. (1) The report of an auditor appointed in terms of section 82(2)(a) or (3)(b) must state separately in respect of each of the following matters whether in the auditor’s opinion—

(a) the annual financial statements of the municipal entity fairly present the financial position, financial results and cash flow of the entity in accordance with section 69(1)(b) applied on a basis consistent with that of the preceding year;

(b) the performance information furnished in terms of subsection 69(2)(a) is fair in all material respects and, if applicable, on a basis consistent with that of the preceding year; and

(c) the transactions that had come to the auditor’s attention during auditing were in all material respects in accordance with the mandatory functions of the municipal public entity determined by law or otherwise.

(2) The auditor—

(a) must report to the council or councils of the municipality or municipalities exercising ownership control over the municipal entity in question, the results of any investigation carried out under section 84(2)(c); and

(b) when reporting in terms of paragraph (a), may draw attention to any other matters within the auditor’s investigation which, in the auditor’s opinion, should be disclosed.

(3) The auditor must submit copies of the report to—

(a) the municipal entity in question;

(b) the municipality or municipalities exercising ownership control over that municipal entity;

(c) the National Treasury;

(d) the relevant provincial treasury; and

(e) the relevant provincial legislature.

Investigations and special audits by Auditor-General

86. (1) The Auditor-General may carry out an appropriate investigation or special audit of any municipal entity if the Auditor-General considers it to be in the public interest or upon the receipt of a credible complaint.

(2) The Auditor-General may appoint a person to carry out an investigation or special audit in terms of section (1) on behalf of the Auditor-General.

(3) If the Auditor-General issues a special report on an investigation or special audit in terms of subsection (1) or (2)—

(a) the report must be tabled promptly in the council or councils of the municipality or municipalities exercising ownership control over the municipal entity in question; and

(b) the Auditor-General must submit a copy of the report to—

(i) the National Treasury;

(ii) the relevant provincial treasury; and

(iii) the relevant provincial legislature.

(4) The Auditor-General may claim the reasonable cost of performing the duties and exercising the powers in terms of this section from the municipal entity in question, or, in the case of non-payment by the municipal entity, from the municipality or municipalities exercising ownership control over the municipal entity.

Accountability of municipal entities

87. The Auditor-General must annually report to Parliament and the provincial legislatures on specific and general findings regarding the accountability of municipal entities.]