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AG’s report reveals the municipalities where money goes to waste

With only 21 municipalities achieving a clean audit, more than R1-billion spent on consultants and over R32-billion in irregular expenditure, the auditor general’s report this week unveiled the extent of the meltdown of South Africa’s municipalities.

Kimi Makwetu’s message was clear — resources are limited and will continue to be the biggest problem when the wrong hands are at the till. 

No municipality in the Free State or the North West achieved a clean audit. As one of the worst-performing provinces, the Free State’s municipalities are characterised by a lack of financial controls and an ongoing culture of a lack of accountability, as well as a tolerance for transgressions.

The auditor general noted that although the majority of municipalities hired consultants to assist in financial reporting services — spending R741-million in total, only R51-million of this cost was as a result of vacancies in municipal finance units. 

Moreover, 59% of the statements the consultants worked on included material misstatements. Essentially, this means about R437-million of work done by consultants included misstatements. 

According to the auditor general’s consolidated report, the Amathole district municipality spent more than R27-million on one financial consultant, although it is already spending R96-million on salaries in the financial department. The second-highest spender on consultants was also in the Eastern Cape. The Buffalo City metropolitan municipality spent R12.3-million on two consultants.

Makwetu’s report was scathing about the province, stating that the widespread lack of financial controls and project monitoring, an ongoing culture of a lack of accountability, and a tolerance of transgressions resulted in a further regression in audit outcomes in the Eastern Cape.

“We do think that the hand of [municipal] councils, together with the municipal public accounts committee, needs to be a bit stronger. But there has to be an understanding that the external service providers must not be there forever. 

“Remember, you are engaging the services of a highly trained group of people, who are running their own businesses. Some are entire firms of accountants and auditors. You should expect people who have multiple years dealing with putting together … accounts,” said Makwetu. He added that if the council has approved extra spending on consultants, value for money should be tangible. 

(Graphic: John McCann/M&G)

Makwetu also noted that there has been an increase in irregular expenditure, to R32-billion. The biggest culprit was the eThekwini metropolitan municipality in KwaZulu-Natal, which incurred R2.34-billion of irregular expenditure. The report notes that in the 2018-19 financial year, 58% of irregular expenditure was incurred because of noncompliance with the proper procurement process for the construction of toilets at informal settlements and schools.

The City of Cape Town was also flagged as having spent about R240-million on legal services. 

“Irregular expenditure identified in the previous year was not investigated at 125 municipalities (55%),” reads the report. 

Supply-chain mismanagement is also still an issue for the auditor general, because material noncompliance with legislation is high. For instance, in Lekwa municipality, tender documents relating to the expenditure of R47-million were kept in the municipal manager’s office and could not be submitted for audit purposes within the agreed turnaround time. 

“These submission challenges persisted even after discussions with the municipal manager in audit steering-committee meetings, in which she committed that officials must retrieve and submit the requested tender documents to her office. 

“Some tender documents were subsequently submitted, but these could not be audited because they did not contain all the required information, such as scoring sheets and advertisements,” reads the report. 

R481-million worth of tenders were given to companies either owned or managed by employees of another state institution, who made false declarations. R13-million worth of contracts were awarded to companies owned by councillors and employees of the municipality. 

At 23 municipalities, employees also failed to declare their family members’ interests and R81-million was spent on contracts awarded to family members.

In the municipalities where such findings had been made in the previous financial year, 44% did not bother to investigate these findings.

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