I need clarification on your query. What is being audited? How is it being audited? And what do you mean by "clean" audit?

The Auditor General in South Africa expresses 4 opinions on financial statements of municipalities during audits. These are the following: 1. Unmodified ( unqualified), which indicates that the financial statements present fairly in all material respects. 2. Qualified, which the Auditor concludes that except for specially listed material misstatements, the financial statements remain a fair reflection. 3. Adverse, which Auditor disagrees with the representation made by management in the financial statements. 4. Disclaimer, where there is a lack of sufficient appropriate audit evidence. Now, majority of municipalities in South Africa are continuously getting disclaimer. Then the question is "What could be done to ensure that all municipalities in South Africa obtain the desirable audit outcomes? i.e. unmodified opinions. 

Hi Malefetsane,

It seems to me, from your description, that there is a disconnect between the Audtior General and the municipalities in expectations. Is there way of validating that the municipalities understand exactly what is expected of them - that is, exactly how to prepare their financial statements according to the Auditor General's expectations?

If there is a misunderstanding between the parties, then there needs to be clear guidelines as to how to achieve the desired results.

Hi Ariel!

I am glad to hear from you once again around this issue. In South Africa, their are laws and regulations that direct municipalities on how to prepare their financial statements. In most of the findings of the Auditor General the following are revealed: municipalities use consultants to prepare the statements; and more often than not, audit evidence is not always made available for verification purposes; internal audit function units are not present or are dysfunctional, and internal controls are not adequate. What worries more is that even political leadership at local level appears not keen to ensure the adherence to the laws and regulations. There are instances where some municipalities have been obtaining disclaimer opinions for 5 consecutive years without any improvement. Issues of unauthorised expenditure, irregular expenditure, waste and fruitless expenditure are very exorbitant. Therefore, given this exposition, there is a need to come up with a strategy to improve audit outcomes in South African municipalities. 

It seems that there are limited option available. Is it possibly to implement financial penalties on the municipalities for not meeting the Auditor General criteria? Also, perhaps the introduction of random audits or investigations outside of the usual reporting periods by the Auditor General's office may force the municipalities to consider their actions on a regular basis

Hi Ariel!

The last part of your suggestion is fascinating. Could you please elaborate a bit on how random audits or investigations outside of the usual reporting period of the Auditor General's office could be conducted in order to enforce municipalities to consider their actions on a regular basis.

The idea is that if the municipalities were constantly under the threat of a surprise audit, they would need to ensure that they were audit ready. More over, it would discourage fraud and abuse, because it would be readily detected upon a surprise audit.