WITH irregular expenditure in the Northern Cape at a whopping R390 million, the auditor-general has warned that the Province is in a prolonged state of undesirable audit outcomes.
Auditor-General (AG) Kimi Makwetu released the audit outcomes for local government for the period 2018-2019 on Wednesday in a report titled “Not much to go around, yet not the right hands at the till to reflect the state of financial management in local government”.
Reflecting on the Northern Cape, Makwetu pointed out that the Province had recorded another overall regression, with six municipalities regressing and only three improving on their audit outcomes.
“The breakdown in the control environment continued with little response by the leadership to the messages of the Auditor-General of South Africa (AGSA) to implement preventative controls. The result has been an environment in which supply chain management processes are abused; bank accounts are not properly scrutinised; revenue is lost due to system failures and transactions that are recorded twice; and proper reconciliations are not performed.”
Makwetu stated further that for the year under review, the municipalities in the Province 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.”
He added that 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.
The MEC responsible for Cooperative Government, Human Settlements and Traditional Affairs, Bentley Vass, said meanwhile that he had noted with concern the audit outcomes released by the AG.
“The 2018-2019 MFMA Audit Outcomes for the Northern Cape Province as released by the AG presents a grossly concerning reflection of financial accountability in municipalities,” he stated.
The 31 municipalities in the Province had the following outcomes: one unqualified with no findings (John Taolo Gaetsewe District Municipality), 26 unqualified with findings, 12 qualified with findings, six disclaimers with findings and four outstanding audits.
“We congratulate John Taolo Gaetsewe District Municipality for obtaining a clean audit,” Vass said. He also noted the improvement of some municipalities, like Gamagara Local Municipality that improved from disclaimer with findings to qualified with findings and Hantam Local Municipality from qualified with findings to unqualified with findings.
“The audit outcomes depict a clear picture that preventative controls, that are assured by senior management, accounting officers and internal audit units, are not working effectively. This is the direct result of assurance providers not playing their role optimally and ultimately contributing to the outcomes of the audit.”
Vass added that irregular expenditure remained “the elephant in the room” adding that this was mainly attributed to supply chain non-compliance.
“The annual irregular expenditure increased from R350 million to R390 million, although the number of municipalities that incurred irregular expenditure decreased from 26 to 24.”
The top three contributing municipalities in irregular expenditure over a period of three years are Hantam, Gamagara and Emthanjeni local municipalities.
According to Vass, municipalities that did not comply with supply chain management legislation stood at 96%. “The AG has highlighted that in the main this relates to municipalities not inviting the required three written quotations.
“The awarding tenders to service providers, who are in service of other state institutions, and the lack of monitoring of contractors’ performance are also worrying findings that have an impact on vulnerability to fraud.”
He stated further that the use of consultants by municipalities for financial reporting had once again proven to be ineffective and did not provide value for money spent. “Ninety percent of financial statements submitted for auditing included misstatements in the areas in which consultants worked.”
Vass called for investigative bodies to intervene in instances of material irregularities. “Local government is a delicate sphere of governance as it is closest to the people and no efforts should be spared in cracking down where there is a contravention of legislation, fraud, theft or a breach of a fiduciary duty resulting in material financial loss, misuse or loss of a material public resource or substantial harm to the municipality.”
