/ 23 May 2018

Local government audits regress

Auditor general Kimi Makwetu expressed concern that the money misspent by government entities is up by 55% over the previous year
Auditor general Kimi Makwetu.

Fruitless and wasteful expenditure across the country’s municipalities has risen 71% from the previous year, reaching R1.5-billion, Auditor General Kimi Makwetu revealed on Wednesday.

He was presenting his office’s report on local government audit outcomes for the 2016- 2017 year.

Makwetu revealed a general deterioration in all audit outcomes saying that despite his office’s “constant and insistent advice and caution to those charged with governance and oversight about administrative lapses since 2013, their counsel has largely not been heeded”.

Only 33 out of the country’s 257 municipalities, or 13%, managed to produce quality financial statements and performance reports and receive a clean audit, Makwetu said.

READ MORE: 55 municipalities have been identified as dysfunctional― Mkhize

The extent of irregular expenditure rose from R16.2-billion in the previous year to over R28.3-billion this year. However this was due to increased efforts to identify and transparently report the irregular expenditure.

Around R15-billion of this year’s total was as a result of irregular expenditure incurred in prior years, but only reported in 2016-17.

But the amounts relating to fruitless and wasteful, as well as irregular, expenditure may well be higher.

When it came to irregular expenditure – which relates to non-compliance with legislation in the process leading up to the spending – 53 municipalities were given qualified audits because incomplete information was disclosed. Makwetu’s office could also not audit procurement processes valued at over R1.2-billion due to missing or incomplete documentation.

In the case of fruitless and wasteful expenditure – which could have been avoided if reasonable care was taken – eight municipalities were qualified on the completeness of their disclosure.

Unauthorised expenditure improved slightly however, declining from R13.8-billion in the previous year to R12.6-billion.

It represents spending in excess of a budget, or not in accordance with a budget or grant conditions. But again, this may not represent the true figure as 17 municipalities did not make complete disclosures.

There were a number of reasons for what Makwetu termed the “ lousy” audit results.

READ MORE: The top ten municipal culprits not paying Eskom debt

These included the failure to investigate findings on irregularities in supply chain management and indicators of possible fraud, or improper conduct, which his office had recommended for investigation.

At 61% of the municipalities the council failed to conduct the required investigations into all instances of unauthorised, irregular and fruitless and wasteful expenditure reported in the previous year according to Makwetu.

This represented a 52% regression from the previous year.

He also highlighted the increasingly difficult environment for auditors, characterised by hostile auditees, and the growing contestation of audit findings.

At some of the municipalities and municipal entities under review, pressure was placed on audit teams to change conclusions to avoid negative outcomes, or the disclosure of misspending.

“Leadership should set the tone for accountability,” said Makwetu.

“If audit outcomes are not as desired, energy should be directed to addressing the problem and not to coercing the auditors to change their conclusions.”

But changes to the law to give the Auditor General’s office more teeth are imminent. Chairperson of parliament’s Standing Committee on the Auditor General, Vincent Smith said that the committee has finalised changes to Public Audit Act this week, and its report would be tabled in the National Assembly next week.

The proposed changes will include the power to refer cases of material irregularities to law enforcement agencies for investigation, as well as power to recover money lost as a result of irregularities.