Assessment of factors that relate to qualified audit reports in the two municipalities

Abstract

This research examines the factors that contribute to qualified audit reports in municipalities in the Free State Province. Municipalities in South Africa are assigned the duty of providing services to the communities that reside within them. In this respect, they require financial resources to fulfil this constitutional mandate. To date, the municipalities in the country are not showing progress with regards to proper financial management systems to fulfil their mandate. Lack of accountability and mismanagement of finances are some of the challenges that affect municipalities in the country. The Annual audit reports on public institutions, compiled by the Auditor-General of South Africa (AGSA, 2018) pointed to a high prevalence of poor audit outcomes within the local municipalities, and the results of these outcomes illustrate both poor financial management by municipalities and a persistent non-compliance to the provision in the Municipal Finance Management Act (MFMA). There are areas which have been indicated by the AGSA as areas of major concern at a local government level. The AGSA pointed out weaknesses in internal controls, leadership, and governance in municipalities. Considering that audits of municipalities are conducted on annual basis, it is important that municipalities are responsive to all the requirements pertaining to the achievement of a clean audit. This research therefore endeavoured to establish challenges relating to the qualified audit reports in two municipalities in the Free State province. There are 23 municipalities in the Free State, according to the National municipal demarcation board. Two of the municipalities, namely Setsoto and Nketoana local municipalities in the Thabo Mofutsanyana district, were selected so that the study could be managed within the defined period. To achieve the objective of the study, the research applied a qualitative phenomenological approach to obtain objective and reliable information. A purposive sampling method was utilised in the selection of participants and data was collected through semi-structured interviews with the senior managers in the two municipalities based on their experience in strategic planning and knowledge of audit processes This research design was used as the study sought to obtain from the research participants information pertaining to various kinds of practices in the two municipalities in relation to audits. A summary of the responses of interviewees was provided in line with each of the study objectives. Data analysis and interpretation of the results were outlined using the framework matrix. Findings of the study confirmed the statements that were made by the Auditor-General of South Africa on audited municipalities and that factors that contributed to the achievement of qualified audit reports were related to poor financial management practices in the municipalities.