The auditor general
You have probably shouted to the heavens, “Where is my money going?”, as you drive past a gushing burst pipe while water restrictions are in full swing. Or, when you have driven through a pothole. Or when your suburb goes dark just as you start cooking supper.
Now you can find the answer to your question.
Launched by the treasury and the nonprofit civic technology lab Code4SA, and announced in the medium-term budget, the website Municipal Money reveals exactly how municipalities are spending their cash and where it comes from.
It lists key ratios that illustrate how well or poorly budgets are being used and categorises these performance indicators into good, average and poor. For anyone intimidated by terms such as “cash coverage” or “liquidity ratio”, the site explains what they mean.
The treasury avoids ranking municipalities’ performances but the indicators measure their financial health and act as an early warning system, says Elsabe Rossouw, the director for local government data.
They include one most of us are familiar with – fruitless and wasteful expenditure. Users can see how levels of fruitless and wasteful expenditure have changed from 2012 onwards. These figures include unauthorised and irregular expenditure. Unlike fruitless and wasteful expenditure, which is money spent in vain, unauthorised is “any spending that was not budgeted for or that is unrelated to the municipal department’s function”.
Irregular expenditure contravenes legislation, municipal policies or bylaws, for instance such as awarding a contract without a tender.
The Nelson Mandela Bay Metro, for example, used about 19% of its operating budget on fruitless and wasteful expenditure in 2014, the most recent information available. The figure includes more than R565-million in irregular expenditure, more than R745-million in unauthorised expenditure and more than R122-million spent fruitlessly.
The figures are almost double those of similar municipalities, according to the website.
There is some lag in the data, Rossouw says, because all municipalities are required to share their audit opinions, annual financial statements and annual reports with the public first at meetings of local councils, ward committees and on its own websites, and then with their respective provincial treasuries and the national treasury.
They must also submit their final audited results to the national treasury’s local government database, which is the source of all information on the website.
In some cases, municipalities don’t submit information to the database, and sometimes the auditor general raises queries that they must answer before the audit can be concluded.
In the case of fruitless and wasteful expenditure, the website notes that because there can be much debate over whether spending is categorised as fruitless, unauthorised or irregular, the figures used for this indicator are the restated audited amounts published 18 months after the financial year-end.
Aside from wasteful spending, the website gives the public a view of a many other indicators, with more up-to-date data, such as how well a local government is managing its cash balance.
In the case of Nelson Mandela Bay, although the indicators reveal a metro struggling in many respects, with consecutive qualified audits, its cash balance was more than R1.4-billion.
According to the site, if a municipality’s bank account is in overdraft, it has a negative cash balance. A negative cash balance is a sign of “serious financial management problems” because a municipality should have enough cash in hand from month to month to pay for things such as salaries and its suppliers.
No one indicator is more important than another, says Rossouw.
“Citizens should look at all the indicators and, if there are more red indicators than green, it would indicate that their municipality is not performing as it should in certain areas of measurement,” she says.
Poor spending levels are not necessarily a sign of poor performance. They can be related to poor planning or overoptimistic budgeting and revenue collection assumptions.
So, how are some of the big metros fairing?
Nelson Mandela Bay Metro
Although it has money in the bank, the Eastern Cape metro has had several qualified audits, has routinely underspent on repairs and maintenance, and has had a consistently poor current debtors collection rate – a measure that looks at the percentage of new revenue that a municipality collects. The most recent auditor general report revealed that it had losses of almost R150-million in water and over R240-million in electricity.
Retief Odendaal, the member of the mayoral council (MMC) responsible for the budget and treasury, says the new administration that took over after the local government elections has warned officials that an investigation will be launched into any transaction that results in fruitless, wasteful, unauthorised or irregular expenditure, and the amount will be recovered from them personally if they are found to have acted in a deliberate or negligent manner.
Annette Lovemore, the MMC on infrastructure and engineering, says the city is taking several actions to curb water losses, which are estimated to be R40-million a month in revenue. These include a nonrevenue water task team to address water demand management, better water metering and water pressure reduction measures to reduce the strain placed on ageing pipes.
To reduce electricity losses, driven largely by theft and illegal connections, Lovemore says the metro will next month launch a programme to eliminate these connections. This includes remote metering to counter large-scale theft by larger customers. The city has also taken a decision to prosecute electricity thieves.
Ethekwini
The metro has consistently received unqualified audit reports and is doing well when it comes to indicators such as its cash balance and spending on its operating budget.
Nevertheless 1.4% of its operating budget was deemed to have been on fruitless and wasteful expenditure. Anything more than 0% is deemed poor. The city has also experienced water losses amounting to R699-million.
Sandile Mnguni, the city’s head of expenditure, says this expenditure referred entirely to irregular expenditure because of minor breaches of supply-chain management policy. The bulk of the amount, about R219-million, has since been condoned by the metro council.
The city has been reducing irregular expenditure in recent years by introducing monitored procurement plans in all departments, centralising the city’s contract register and the integration of an e-procurement system with its financial accounting system.
The city has also been addressing water losses by installing pressure-reducing valves, improving its leak-detection and repair strategy, upgrading industrial and commercial water meters and installing bulk meters in informal areas.
Johannesburg
The city eradicated wasteful expenditure in 2014, and is successfully collecting revenues, with its current debtors’ collection rate at 100%.
But the city is underspending on repairs and maintenance, only reaching about 6% of a target of 8%. According to the website, this indicator looks at how much money was budgeted for repairs and maintenance as a percentage of a municipality’s total fixed assets – its property, plant and equipment.
For every R10 spent on building or replacing infrastructure, 80c should be spent every year on repairs and maintenance.
The city’s MMC for finance, Rabelani Dagada said that it has the 8% target in sights, as part of its long-term financial strategy. The metro has however, increased actual spending on repairs by 86% from R691-million in 2013, to R1.3-billion in 2016. Although the amount spent on repairs and maintenance has increased, there was also a similarly large increase in spending on property plant and equipment which rose from R4,2-billion to R7-billion over the same period.
As such the ratio of repair and maintenance to investment in proporty plant and equipment remained low due to this increased spending. City entities such as theJohannesburg Roads Agency, Johannesburg Water and City Power employ people who are fully occupied with repair and maintenance work, said Dagada. But this cost is carried on the financial statements under salaries and not reflected in the repairs and maintenance budget, contributing to a distortion in the ratio.
Cape Town
The city also reduced fruitless or wasteful expenditure to 0% and has managed to meet or exceed the target 8% spend on repairs and maintenance since 2013.
But it has been underperforming when it comes to spending on its capital budget, which includes spending on infrastructure projects.
Underspending on a capital budget can lead to an underdelivery of basic services, according to the site. The indicator looks at the percentage by which actual spending falls short of the budget for capital expenses. Municipalities should aim to spend at least 95% of their capital budgets.
In Cape Town’s case, the difference between its budgeted capital expenditure and what was actually spent was 19% in 2014 and 13% in 2015. But, says Ian Neilson, the city’s executive deputy mayor, the underspending referred to comprises a very small percentage of the overall spend. For instance, areas of underspend have at times occurred in the human settlements and utility services spheres, he says.
“These spheres are highly influenced by community dynamics, political influences, crime and vandalism. Contractual matters and legislative and due processes have sometimes also contributed to delayed spending.”
Some savings have been achieved when projects were finalised and came in below budget, according to Neilson. In most cases, contracts are in place to complete the work of the outstanding amounts but were not completed by the end of the financial year.
This does not always affect service delivery because the upgrades may only have been required some months after the end of the financial year, he says. Nevertheless, any “potential blockages” are receiving increased attention, he adds.
Visit municipalmoney.gov.za to see how your municipality is faring