Municipal irregular expenditure increases by approximately R7bn

On Wednesday, the auditor-general (AG) of South Africa, Kimi Makwetu released yet another set of local government audit results for the 2018-19 financial year, which revealed that there has not been much progress in the management of the municipalities’ finances.

The Municipal Finance Management Act (MFMA) consolidated general reports are based on audit work performed on municipalities and their entities.

Releasing his latest report titled ‘Not much to go around, yet not the right hands at the till‘ on the performance of South Africa’s municipalities, Makwetu said irregular expenditure in all municipalities amounted to R32.06 billion from R25.2 billion in the previous year, which is almost a R7-billion increase.

Makweti said this includes the R10.6-billion irregular expenditure of those municipalities of which the audits were completed after the cut-off date for the report, which was 31 January 2020, as well as the unaudited amounts disclosed in the financial statements of the municipalities whose audits were still outstanding.

The AG, however, noted that irregular expenditure did not necessarily mean there was corruption.

He cautioned that the amount could be even higher, as 55% of the municipalities were qualified because the amount they disclosed was incomplete or they disclosed that they had incurred irregular expenditure, but that the full amount was not known.

In addition, R0.36 billion worth of contracts could not be audited due to missing or incomplete information.

“Municipalities have a poor track record of dealing with irregular expenditure and ensuring accountability. As a result, the year-end balance of irregular expenditure that had accumulated over many years and had not been dealt withstood at R65.59 billion whether through recovery, condonement or write-off”.

Makwetu said municipalities raised a revenue of R226 billion, but the municipalities would only be able to recover R90 billion of the total.

“When we consolidated all the financial statements, all of them raised a total revenue of R226 billion for the year, but if you look at the total, many of the municipalities have conceded recovering 60% of them are unlikely.”

He said government could afford to lose money because of poor decision-making, neglect or inefficiencies.

The AG further said the audit office continued to see a rise in fruitless and wasteful expenditure, with 200 municipalities losing R2.07 billion in the current year.

“Over the three-year period, R4.27 billion of government expenditure was fruitless and wasteful.”

The AG highlighted that only 8% of municipalities had clean audits, which represented about 20 municipalities.

“Gauteng and the Western Cape are the only provinces that have maintained good financial reporting while the rest of the municipalities have weaknesses related to controls and systems. Look at a few others like Limpopo and Eastern Cape who did not meet the deadline for audit submissions.”

Makwetu added that there was no clean audit in the North West.

“The municipal financial control systems in this province have broken down. Many municipalities have not signed up for good financial reporting.”

The AG said most municipalities continued to fail in these areas to provide credible financial statements and performance reports, which was crucial to enable accountability and transparency in government.

“Not only did the unqualified opinions on the financial statements decrease from 47% to only 43%, but the quality of the financial statements provided to us for auditing showed no improvement from the previous year. Only 18% of the municipalities could give us financial statements without material misstatements.”

He added that the performance reports of 67% of the municipalities that produced such reports had material flaws and were not credible enough for the council or the public to use.

“Municipalities spent R1.26 billion on consultants for financial reporting services, of which only 7% was as a result of vacancies in municipal finance units. This amount includes R522 million for consultant costs at municipalities with outstanding audits where financial statements were received.

“Only 14% of the municipalities using consultants showed an improvement in their audit outcomes, while 22% regressed.”

The AG said the office assessed 79% of the municipalities which showed that just under a third of the municipalities were in a vulnerable financial position.

“The inability to collect debt from municipal consumers was widespread. In these circumstances, it is inevitable that municipalities will struggle to balance the books. Overall, 34% of the municipalities disclosed a deficit which amounted to R6.29 billion.

“The financial woes of local government also weighed heavily on municipal creditors. The average creditor-payment period was 180 days. At year-end, R53.52 billion was owed to municipal creditors but the cash available amounted to only R43.2 billion.

“The money owed to Eskom by year-end was in arrears of R11.31 billion, of which R9.02 billion had already been outstanding for more than 120 days. The water boards also struggled to collect money owed by municipalities – their accounts were R6.24 billion in arrears, of which R5.38 billion was for more than 120 days.”

Makwetu said the audits identified a number of shortcomings in the development and maintenance of infrastructure.

“Infrastructure development projects displayed widespread under-spending of budgets, delays in project completion, non-compliance with supply chain management legislation, and irregular expenditure.”

The key concern, the AG noted, was the lack of attention being paid to water and sanitation infrastructure which showed that the condition of water and sanitation infrastructure was not assessed at over a third of the responsible municipalities.

Meanwhile, 41% of the municipalities did not have policies for maintenance.

“It is not unexpected then, that 36% of the municipalities responsible for water services and related infrastructure disclosed water losses of more than 30%. The overall water losses disclosed amounted to R6.56 billion.

“The maintenance of roads did show some improvement, but 27% of the municipalities did not develop or implement approved road maintenance plans for renewal and routine maintenance, while a backlog in renewal and routine maintenance continued at 16% of the municipalities.”

Makwetu maintained that strong leadership was needed in local government to turn around the financial position of each municipality.

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