AG notes “material uncertainty” about Tshwane’s ability to continue as a going concern

Auditor Tsakani Maluleke has issued an unfavorable audit opinion on the annual accounts of the city of Tshwane.

  • Auditor General Tsakani Maluleke has sounded the alarm about the city of Tshwane’s ability to continue business.
  • In a leaked report, the AG expressed a negative audit opinion on Metro’s fiscal year ending in July.
  • The city, which fired its CFO, said the audit result was a “disappointment” and not “remotely acceptable.”
  • For more financial news go to News24 Business front page.

Amid evidence of financial wrongdoing and misrepresentation of the Metro’s financial position, the Auditor-General of South Africa has warned that there is “material uncertainty” about the City of Tshwane’s ability to continue as a going concern.

A negative audit opinion of AGSA is set out in a leaked report, a copy of which was obtained by News24, and relates to the financial year July 2021 to June 2022.

In the report, which has yet to be formally submitted to the mayors’ committee, Tsakani Maluleke said that an unfavorable liquidity position, a recent negative rating from Moody’s and other matters indicate there is “material uncertainty” that casts “significant doubts on the company’s ability to continue as a going concern.” the community”.

The AGSA further noted that the City’s financial statements “inadequately present, in all material respects, the financial condition of the Tshwane Metropolitan Municipality as at June 30, 2022, and its financial performance and cash flow for the year…”

In its report, the AG pointed out “significant difficulties” encountered in obtaining the information requested by the accounting officer for audit purposes.

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AGSA highlighted a number of issues in the report, including “material discrepancies” between the municipality’s misreported budget and the amounts actually spent.

The municipality has also incorrectly prepared and disclosed its net cash flows from operating, investing and financing activities. Other contingent liabilities were duplicated, resulting in the contingent liability disclosure being overstated by R3.93 billion.

Unauthorized expenses were not correctly accounted for, resulting in such expenses being understated by R647 million. Poor records led to fruitless and wasteful spending being underestimated by over R1 billion.

The municipality also did not have an adequate system for identifying and disclosing all irregular expenses as required by law and therefore the AGSA could not determine what adjustment was required for the R10.45 billion reported irregular expenses.

Trade accounts payable were not correctly reconciled with supplier statements. As a result, not all payables were recognized and in some cases trade payables recognized in the accounting records could not be substantiated. This results in trade payables; and overheads, bulk purchases, contracted services and additions to tangible assets and equipment are all underestimated by R4.93 billion.

AGSA was also unable to obtain sufficient appropriate audit evidence for salaries and wages, which were reported at R7.42 billion, as the municipality was unable to provide information and supporting evidence “due to an inadequate internal control system”.

The negative audit opinion comes after Tshwane’s CFO, Umar Banda, was suspended and then fired in December for submitting non-compliant financial statements to the AG on behalf of the city, causing it “significant embarrassment,” the city said in legal reports documents.

The AGSA’s report will first be presented to the Mayor’s Committee and then to the Tshwane Council meeting scheduled for January 26.

“Not remotely acceptable”

“The negative report is a disappointment; it is not an outcome that is remotely acceptable within the framework of good governance,” Tshwane Executive Mayor Randall Williams said in a statement.

Findings of financial wrongdoing and misrepresentation of the City of Tshwane’s financial statements and financial condition “are being treated with the seriousness they deserve,” Williams said.

Williams said a process to appoint a new CFO is underway. “A report on the conduct of the former CFO in relation to the preparation of the financial statements and the audit process will also be submitted to the council,” he said.

Williams said the auditor-general also identified officials and aldermen who benefited from supply chain processes. “A proper investigation into the list of names compiled by the Auditor-General will be conducted and appropriate action will be taken to recover the funds and bring those responsible to justice,” he said.

The city said it is now working closely with the National Treasury and the Auditor-General to address the findings. “The National Treasury is also providing us with additional professional staff (two former CFOs) to support the city. We will also engage an external accounting firm to begin the preliminary audit of the first half of this fiscal year ended December 31, 2022,” Williams said. “We are firmly committed to improving the city’s future exam results.”

AGSA communications director Harold Maloka referred News24 to the community for comment on the leaked report. “AGSA will release the consolidated local government report later this year,” he said.

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