You have been appointed as a consultant at ABC Municipality to do a thorough assessment of the

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Question:

You have been appointed as a consultant at ABC Municipality to do a thorough assessment of the municipality’s risk management activities. Your assessment included interviews with council members and municipal staff, a review of the minutes taken during formal meetings of management and the city council, reading the risk management policy, procedures, and guidelines, conducting an overview of the approach and work performed by internal and external auditors as portrayed in their reports, and enquiry into any legal actions taken by or against the municipality.

From the work performed so far, you have listed the following concerns for further follow-up:

a. No formal risk management policy or any other formal documentation, approved by the Council, could be found to support risk management activities being taken by the municipality.

b. The recently appointed accounting officer used to work as an accountant for a company in ABC and had no time to read the Municipal Finance Management Act (MFMA) since her appointment. Her main concern is to resolve the accounting backlog and prepare financial statements for the year that has already ended.

c. Internal auditing reports indicated that internal auditing services have been outsourced and that internal audit work involved ad-hoc compliance audits on purchases and payments. The internal auditing consultants have also assisted with the collection of outstanding debts.

d. The words ‘risk assessment”, “risk analysis”, “risk-based” or ‘risk identification” could not be found in any of the electronically filed audit committee minutes for the past four years.

e. Tests have been performed on a vacant piece of land on the outskirts of ABC for its suitability to be used as a graveyard. Geographical reports indicated that the development of the graveyard could cause contamination of ABC’s drinking water in rainy seasons, should the water table rise above a certain level. Since this level has not been reached in thirty years, the Council decided to go ahead with the development.

f. Even though there is evidence of three separate events of fraud and corruption in the local ABC media, no evidence could be found of legal action taken by the municipality in this regard. All the individuals related to the events have subsequently resigned from the municipality. Their personal files contain no record of these events, and no traces of disciplinary hearings could be found either.

REQUIRED:

2.1 For each of the above concerns, explain the possible effect on good corporate governance.

2.2 For each concern mentioned, recommend suitable actions to be taken in terms of the MFMA, King IV and/or International Standards for the Professional Practice of Internal Auditing.