Causes of qualified audit opinions: a case study of Mafikeng Local Municipality North West Province

Abstract

The issue of financial statements of municipalities, being qualified yearly by the Auditor General of South Africa, is a cause for concern to the general public and government. For the past five years more than 75% of municipalities in the North West Province have annual financial statements, which are continuously qualified by the Auditor General of South Africa. The Mafikeng Local Municipality is one of these municipalities. A quantitative study was undertaken to investigate the causes of qualified audit opinions in municipalities, with a case study of Mafikeng Local Municipality in the North West Province. Recommendations are offered to improve the quality of the financial statements and consequently limit the possibility of a qualified audit opinion. The main objective of the study was to determine the factors that influence the financial statements of Mafikeng Local Municipality to be qualified by the Auditor General. Data were sourced from managers and accountants working in the financial department of Mafikeng Local Municipality. The results indicated that the poor quality of the financial statements and consequently their qualification by the Auditor General could be attributed to a lack of ethics and accountability of municipal officials and their lack of adequate education and professional experience in preparing the financial statements in the financial department of Mafikeng Local Municipality and the Audit Committee.This suggests that there is need for proper monitoring and enforcement of the Municipal Fund Management Act with regard to ethics, accountability, educational requirements and professional experience of officials in key positions in the financial department of the municipality.