Tax theft shocker

2011-07-02 18:33

A sizeable chunk of the money wasted by municipal officials last year went into the pockets of officials and their family members.

Auditor-General (AG) Terence Nombembe’s Consolidated General Report on Local Government Outcomes 2009/10 paints a dismal picture of the way in which municipalities execute their financial ­responsibilities.

Released in Pretoria this week, the report points a finger at mayors, accounting officers and other officials who do not execute their legislated responsibilities, comply with laws and regulations, and keep and submit proper records of administering taxpayer funds.

Irregular expenditure
Nombembe found that more than R4 billion of irregular expenditure (spending in contravention of ­financial legislation) was incurred last year.

A total of 168 municipalities and 22 municipal entities incurred this amount in irregular expenditure – a 71% increase from R2.4 billion in the 2008/9 financial year.

These municipalities were able to identify only R440 million worth of irregular expenditure themselves. AG audits unearthed R3.7 billion.

What were these irregular amounts spent on? R3.9 billion was spent on went to supply chain management items such as tenders or ­contracts with service providers, and R16 million to employee compensation.

As for supply chain management, irregular expenditure resulted mainly from contracts being awarded by 63 municipalities to people in the service of the state or their ­family members and uncompetitive or unfair procurement at 159 municipalities.

The AG found that:
» Contracts to the value of R139 million were awarded to state employees;

» Municipalities awarded contracts to the value of R76 million to people in their employ, which ­included 19 councillors, a mayor and a municipal manager;

» Further contracts to the value of R110 million were awarded to close family members of municipal employees, which included five councillors, three mayors and two municipal managers;

» There were probes into 87 (more than a third of) municipalities for supply chain management irregularities, fraud or financial misconduct;
» At 32 municipalities more than one forensic investigation took place in the review period;

» Most irregularities surfaced in KwaZulu-Natal (36 incidents), Eastern Cape (21), Gauteng (15) and Western Cape (15).

Unauthorised expenditure
A total of 110 municipalities and two municipal entities incurred another R5 billion in unauthorised expenditure – almost double the amount of R2.7 billion in the 2008/9 financial year.

So bad are their financial systems that municipalities managed to identify only about half (R2.7 billion) of the unauthorised expenditure (spending that is not in accordance with the purpose of a budget vote) themselves. The AG picked up the rest.

Significant increases in unauthorised expenditure occurred in Gauteng (235%), Eastern Cape (61%), North West (39%) and Western Cape (65%).
Gauteng accounted for 33% (R1.7 billion) of unauthorised ­expenditure and the Tshwane metro for a staggering R1.5 billion.

Wasteful expenditure
A total of 105 municipalities and 16 municipal entities incurred R189 million in fruitless and wasteful expenditure (spending in vain and which would be avoidable had reasonable care been exercised), compared to R128 million in the 2008/9 financial year.

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