A number of municipalities also submitted their financial statements after the legislative deadline
WITH only one municipality in the Northern Cape, namely ZF Mgcawu District Municipality, receiving a clean audit, the auditor-general has slammed mayors, municipal managers and senior management for “blatantly disregarding” orders.
Auditor-General Kimi Makwetu has revealed that irregular expenditure by local municipalities was R261 million.
According to the report, the overall outcomes in the Northern Cape remained the same (two municipalities improved and two regressed).
“The stagnation confirms that our previous year’s message of mayors, municipal managers and senior management needing to hold each other and their subordinates accountable, was blatantly disregarded, resulting in many instances where similar findings were raised during the audit process.”
Makwetu added that the key root causes that contributed to these failures were inadequate consequences for poor performance and transgressions, the slow response by management, and the slow response by the political leadership.
A number of municipalities also submitted their financial statements after the legislative deadline.
“The late submission of financial statements by six municipalities (Kai !Garib, Kgatelopele, Phokwane, Renosterberg, Tsantsabane, and Ubuntu) resulted in their audits not being finalised in time for inclusion in this report.”
Makwetu added that despite previously raising concerns about the quality of the financial statements, only ZF Mgcawu District was able to submit quality financial statements in the year under review.
“Most municipalities relied heavily on the external auditors to identify misstatements in their financial statements.”
Municipalities spent R70 million on consultants for financial reporting (excluding consultants paid by other institutions), compared to R36 million in 2015/16.
“Worryingly, the financial statements of 54% of the 24 municipalities that used consultants for financial reporting were still disclaimed or qualified.”
Makwetu pointed out further that predetermined objectives remained an area where progress was lacking, with 76% of the municipalities being unable to produce performance reports that were useful and reliable, indicating that there was a lack of capacity and understanding of the performance reporting process.
A further concern raised was the status of compliance with legislation by municipalities in the Province. “A total of 96% of the municipalities had material findings due to non-compliance with legislation. This was the one audit area that had been in a dire position for a long time and leadership continued to ignore the need to hold staff accountable.”
The most common compliance findings related to the quality of financial statements submitted for auditing (96%); preventing unauthorised, irregular and fruitless and wasteful expenditure (88%); and the management of procurement and contracts (80%).
Irregular expenditure decreased from R457 million in the previous year to R261 million in the year under review. Of the R261 million, R105 million (40%) related to multi-year contracts that were reported as irregular expenditure in 2015/16 as well.
A total of 97% of the irregular expenditure in 2016/17 resulted from instances of non-compliance with supply chain management regulations.
Makwetu pointed out that despite the decrease in the amount of irregular expenditure, the number of municipalities incurring such expenditure remained high at 80%.
“Fourteen municipalities were still investigating the full extent of their irregular expenditure, meaning that the R261 million disclosed as irregular expenditure in 2016/17 was in all likelihood understated.”
During the year under review, municipalities wrote off or condoned irregular expenditure amounting to only R110 million.
“The fact that there was only one insignificant instance where irregular expenditure was recovered from the liable person indicates that investigations either are not taking place or are not rigorous enough to resolve the significant balance of irregular expenditure recorded by the Province.”
The level of unauthorised expenditure increased since the previous year and amounted to
R1 034 million – all of which was due to budget overspending, with 70% relating to non-cash items that had not been budgeted for.
Gamagara Municipality again incurred the most unauthorised expenditure in the Province, amounting to R374 million.
In addition, the level of fruitless and wasteful expenditure again increased and amounted to
R54 million. Of the R54 million, 94% related to interest and penalties mainly due to the late payment of suppliers, including Eskom, water service providers and the South African Revenue Service.
“The financial well-being of the Province remained a concern, with a material uncertainty regarding the financial health of 56% of the municipalities.”
Makwetu pointed out that the cash-flow difficulties experienced by many municipalities was evident from the fact that 13 municipalities struggled to pay Eskom, while six were struggling to pay water service providers.
“The electricity was cut at four municipalities during the year and three of them subsequently entered into payment arrangements with Eskom to avoid further cuts, while seven avoided electricity cuts by making payment arrangements with Eskom from the start.”
An assessment on progress of infrastructure projects as well as infrastructure maintenance showed that water losses were not disclosed (85%) or resulted in a qualification (10%); 75% of the municipalities did not have a plan for the maintenance of water infrastructure that set specific time frames and targets; planned targets or key milestones were not achieved at 50% of the municipal infrastructure grant projects; 50% of the municipalities did not perform an assessment of the condition of water infrastructure; and 45% of the road projects were completed later than planned.
“The above findings confirm the need for better budget management, project planning and progress monitoring to ensure the timely delivery of quality municipal services.”
Makwetu further slammed leadership’s inaction which, he said, created a culture of “no consequences”.
To improve audit outcomes and strengthen accountability in the Province, Makwetu said the following had to happen: the tone has to be set from the top (by senior managers, the municipal manager and the mayor) that there is zero tolerance for poor performance and transgressions; municipal councils have to be fully capacitated to effectively exercise their oversight role; municipalities should strive towards sound records management; and the vigorous implementation and execution of action plans need to be at the forefront of all initiatives.