/ 26 June 2019

Billions lost in disorganised municipalities

Makwetu addressed the media and presented the results of the municipal audit in Pretoria on Wednesday.
Auditor General Kimi Makwetu. (Gallo)

Auditor General Kimi Makwetu has called on leadership at municipalities, from municipal managers, mayors and councils, and even people in the provincial legislature to take an active role in the financial behaviour municipalities, and start holding errant employees to account.

Makwetu addressed the media and presented the results of the municipal audit in Pretoria on Wednesday. He said that without this leadership, the amendments to the Public Audit Act — which comes into effect in 2019 and gives the auditor general more bite — will be useless.

“The leadership sets the tone at the top of any organisation,” he said.

“If an organisation’s leaders are unethical, have a disregard for governance, compliance and control, and are not committed to transparency and accountability, it will filter through to the lower levels of the organisation. Inevitably, a culture of poor discipline, impunity and non-delivery will develop, leading to the collapse of the organisation.”

He said: “The leaders in local government should therefore steer their municipalities to success. They should take responsibility for the deteriorating accountability in municipalities and it is their duty to turn the situation around.”

In terms of the new legislation, the auditor general will be empowered to make recommendations for binding remedial action when municipalities act irregularly. But only after municipalities and their accounting officers ignore recommendations from the auditor general.

Then, the auditor general will then be empowered to issue a debt certificate against the accounting officer at the municipality. They will then be held personally liable for whatever municipal funds are lost as a result of that irregularity.

Makwetu said there was a six percentage point increase in the number of municipalities that implemented consequence management on the part of oversight structures in municipalities and provinces, as well as a failure to investigate findings.

This was evidenced in the fact that 74% of the 257 municipalities audited did not adequately follow up on allegations of financial and supply chain misconduct and fraud. Nearly half of municipalities — 45% — did not even have all the required mechanisms for reporting and investigating transgressions, or possible fraud.

READ MORE: Financial state of municipalities has worsened — AG

During his address, Makwetu also revealed that irregular expenditure had decreased from R27-billion in the previous financial year to just over R21.2-billion.

Municipalities in the Eastern Cape alone was responsible for R7-billion of this, followed by Gauteng’s R3.2 billion, Kwa-Zulu Natal and North West province at R2.9-billion and R3.2-billion respectively. Limpopo and Mpumalanga accounted for just over R1-billion each.

He also said that 34% of the audited municipalities disclosed expenditure that exceeded their incomes. As a result, the total deficit recorded amounted to R5.8-billion.

“While the poor economic climate does play a role in the deterioration of municipalities financial health, many [municipalities] are just managing their finances as well as they should. For example, we are reporting fruitless and wasteful expenditure expenditure that amounted to R1.3-billion for the period under review. This is effectively money lost,” Makwetu said.

“The potential R1.6-billion loss of investments made with the VBS Mutual Bank also significantly weakened the financial position of the 16 affected municipalities, and had an impact on the delivery of infrastructure and maintenance projects,”

Makwetu quoted a project at Metsimaholo Local Municipality, in the Free State, where, in a project to construct a R21.9-million sports complex, 99% of the money was spent but there were no visible structures. The Free State, he added, had all of its municipalities in a perilous financial position and he cited that this was one of the provinces where leadership ignored reports of maladministration.