By Thato Mahlangu
Municipalities continue to waste billions of rands through corruption-related activities, the Auditor-General of South African (AGSA) revealed on Tuesday.
Auditor-general (AG) Kimi Makwetu said in his 2018/19 Municipal Finance Management Act (MFMA) audit report that municipalities should ask themselves if they are investing in qualitative and preventative measures which would help to avert the mismanagement and wasteful expenditure of funds meant to accelerate investment in poor, underserved communities.
The audit report, which investigates a municipality’s financial well-being by examining its financial records and legislative compliance, reflects on performances of 257 municipalities and 21 municipality entities annually.
Makwetu described the audit outcomes for local government for the period 2018 to 2019 as an “undesirable picture of billions of rand in funds allocated to municipalities being managed in ways that are contrary to the prescripts and recognised accounting disciplines”.
Makwetu found that extra monies were paid, during this accounting period, to consultants when in fact municipalities had the means to use manpower of internal staff which would cut costs. This is just one of the AG’s long-standing complaints, one that comes up every year.
Nothing to celebrate from audit report outcomes, says union
The South African Municipal Workers’ Union (Samwu) said on Thursday, 02 July 2020, they blamed the deteriorating financial state municipalities were finding themselves, on the Department of Cooperative Governance and Traditional Affairs (Cogta) and the South African Local Government Association (SALGA).
Cogta’s Gauteng provincial MEC Lebogang Maile said in a press statement that he welcomed the report, and congratulated municipalities which have performed “better”.
Samwu said municipalities are legally supposed to abide by the MFMA and the supply chain regulations. “They are supposed to receive clean audit outcomes, there is therefore nothing special about a municipality that achieves this, it is a legal requirement which should be normalized.”
How did these municipalities fare?
The report has revealed how some municipalities have continued to regress even though previously the AGSA has advised municipal officials on what do to in order to improve their finances.
Thirty-one municipalities have shown an improvement while 76 have regressed, a net regression of 45 municipalities.
According to the AGSA, 28 of the 257 municipalities could not be audited as their financial statements were not submitted, while only 8% or 20 municipalities received clean audits. “This in no way calls for a celebration, we should rather be lamenting the state of municipal finances,” Samwu said.
Clean audits for some
A large number of municipalities in the Western Cape have worked hard to maintain clean audits, said Makwetu, with exceptions in some Central Karoo and Garden Route districts who seem to be failing to get their house in order.
Makwetu acknowledges the efforts of those hard-working municipalities, and said these municipalities are telling a positive story of how they run their operations.
“The financial statements of a municipality tell the story of how well a municipality is managed. As is the case with these few municipalities, it can be a good story of disciplined spending that achieves value for money; meticulous billing and collecting practices; assets that are maintained and safeguarded; careful investments and savings for emergencies and future projects; and commitments to creditors and the community being honoured,” Makwetu said.
Thirteen of these municipalities are in the Western Cape – Cape Winelands and West Coast district municipalities, Bergriver, Cape Agulhas, Cederberg, Drakenstein, Hessequa, Langeberg, Overstrand, Prince Albert, Saldanha Bay, Theewaterskloof and Witzenberg. Other municipalities that consistently perform well are Senqu (Eastern Cape), Midvaal (Gauteng), Okhahlamba (KwaZulu-Natal), Capricorn district municipality (Limpopo), Gert Sibanda and Nkangala district municipalities (Mpumalanga), and John Taolo Gaetsewe district municipality (Northern Cape).
According to the report, the best practices at these municipalities included a stable leadership that has shown some commitment in effecting a strong controlled environment and productive governance.
“There was continuous monitoring of audit action plans in order to timeously address any audit findings and a proactive approach to dealing with emerging risks were also common features at these municipalities,” the report revealed.
Shocking figures show regression in municipalities per province
In the Eastern Cape, the report indicates irregular expenditure of R2.5-billion incurred during the year under review. A further R4.2-billion was flagged for audits finalised subsequent to the cut-off date for this report. The province spent a total of R118-million on consulting costs for financial reporting. Of this, R2-million was spent by municipalities whose audits had not been finalised by the cut-off date of the report.
Municipalities have spent millions spent to improve audit outcomes – yet no consequences for poor performance have occurred.
The Free State’s irregular expenditure totalled R1.4-billion for the year under review.
A further R341.6-million in irregular expenditure was identified in audits finalised subsequent to the cut-off date for this report.
The province spent a total of R46-million on consultants to assist with financial reporting, although this had little impact on the quality of financial statements submitted for auditing. Of this, R17-million was spent by municipalities whose audits had not been finalised by the cut-off date of the report. The lack of skills transfer from consultants to municipalities was evident by some officials not even being able to provide the most basic of financial information without the help of a consultant.
In Gauteng, irregular expenditure in this province amounted to R1.7-billion for municipalities.
A further R3.3-billion was reported for audits finalised subsequent to the cut-off date, with the City of Tshwane Metro accounting for R2.9-billion of this amount, and Emfuleni R358-million.
Municipal entities in this province incurred R1.8-billion of irregular expenditure in the period of review.
The province spent a total of R341-million on consulting costs for financial reporting. Of this, R312-million was spent by municipalities whose audits had not been finalised by the cut-off date of the report.
KwaZulu-Natal showed increasing irregular expenditure, reported at R6.5-billion for the period under review, with eThekwini Metro incurring R2.34-billion of this amount.
A further R17.2-million in irregular expenditure can be attributed to audits finalised after the cut-off date for this report.
Consultants continued to be utilised in many instances to assist with the preparation of financial statements and financial reporting, with the province spending a total of R95-million in this regard; this while officials were in place to execute these functions. Of this, R1-million was spent by municipalities whose audits had not been finalised by the cut-off date of the report.
In Limpopo six municipalities in the province improved their audit outcomes and three regressed.
The improvements were mostly consultant-driven, but despite the province having spent a total of R249-million on consultants for financial reporting purposes, many municipalities continued to receive qualified opinions.
Of this, R127-million was spent by municipalities whose audits had not been finalised by the cut-off date of the report.
There was a high reliance on consultants, skills were not transferred, and some officials became complacent when consultants were appointed and did not perform the jobs they were appointed to do, raising questions about municipalities paying for officials and consultants to do the same job. Millions were spent to improve the outcomes, but there were no consequences for poor performance.
The impact of the R1.2-billion loss following the liquidation of VBS Mutual Bank is still being felt by the municipalities concerned, where service delivery has been affected.
The province’s irregular expenditure totalled R1.5-billion for the year under review. Another R594-million in irregular expenditure was reported for audits finalised after the cut-off date for this report.
In Mpumalanga, deteriorating accountability and financial management coupled with weakened oversight is at the centre of the significant regressions in audit outcomes in the province – six municipalities regressed and only two improved.
There was a breakdown in internal control across various municipalities, which included basic financial disciplines such as record keeping, reconciliations and verifications. Only two municipalities that made use of consultants improved their audit outcomes despite consultants being used to do the work of employed staff.
The province spent a total of R98-million on consulting costs for financial reporting. Of this, R3-million was spent by municipalities whose audits had not been finalised by the cut-off date of the report.
A trend of underspending on conditional grants reflects poor planning by municipalities – a total of R154,3-million was unspent. The province’s irregular expenditure totalled R1,09-billion for the year under review. A further R358-million was flagged for audits finalised subsequent to the cut-off date for this report.
In the Northern Cape, municipalities incurred irregular expenditure totalling R390 million.
The province spent a total of R47-million on consultant costs for financial reporting. Of this amount, R12-million related to audits finalised after the cut-off date for the report.
Despite the overall poor performance of municipalities in the province, a handful of municipalities continued to deliver good audit results, such as the John Taolo Gaetsewe district municipality that achieved a clean audit outcome.
North West municipalities incurred irregular expenditure totalling R3.7-billion, with a further R1.8-billion relating to audits finalised after the cut-off date for this report.
The cost of using consultants amounted to R227-million for financial reporting, with municipalities paying their staff and the consultants for the same service without any value being realised and resulting in a waste of scarce public resources.
Of this, R47-million was spent by municipalities whose audits had not been finalised by the cut-off date of the report.
The Western Cape incurred irregular expenditure totalling R2.7-billion. The province spent a total of R42-million on consulting costs for financial reporting.
Of this, R1-million was spent by municipalities whose audits had not been finalised by the cut-off date of the report.