Unqualified audit, but R40 m irregular expenditure

UMVOTI Municipality obtained an unqualified audit report from the KZN Auditor General for the financial year 2016/17, despite irregular expenditure of R40 million and wasteful expenditure of R3 million.

This was revealed at a full Umvoti Council meeting held last Wednesday, January 31; a meeting which did not comply with a number of important requirements in terms of the Municipal Finance Management Act (MFMA) as follows.

• Agendas were delivered on Monday afternoon, less than the stipulated 48 hours. Only two IFP councillors received a copy of the AG’s report and the bulk of the councillors (ANC and IFP) did not. Officials apologised on the late delivery even though they had been fully aware of the deadline for presentation of the AG and annual report, which was received by the officials in December 2017.

• How do the officials justify a 10 x 3 advertisement at a cost of R5 760 in The Witness of Friday, February 2 in the form of a public notice that the meeting to table the draft annual report and mid-year budget, etc. “will be held on Wednesday, 31 January”.

In terms of the MFMA, this meeting must be open to the public and a reasonable time must be allowed.

Not surprisingly, no mention is made of the legality of informing the public of the meeting two days after it has taken place.

But non-compliance with legislation fades into the background when considering the following.

Which is correct?

• Irregular expenditure was incurred by the municipality amounting to R40,32 million caused by non-compliance with supply chain management regulations.

AG states: “The municipality did not investigate to determine if any person is liable for the expenditure in terms of MFMA.” Insufficient audit evidence that all contracts were awarded in accordance with legislative requirements — inadequate supply chain management monitoring controls.

Required price quotations for transactions under R200 000 were procured without obtaining the price quotations and transactions over R200 000 without inviting competitive bids as required in the act.

Of concern too is that the accounting officer approved the deviations even though “it was not impractical to invite competitive bids”.

• Municipality “materially underspent” the small town rehabilitation grant by R4,17 million so did not achieve some of it’s planned service-delivery targets.

• Electricity losses: Quoted directly from the AG report: “As disclosed in note 39 to the financial statements, material losses of R7,31 million (2015-16: R5,10 million) were incurred, which represents 15,17% (2015-16: 17,99%) of total electricity purchased, which contradicts what is stated in the financial statements as “Total distribution loss” is 15,17% (2016/17) and 17,99% (2015/2016).

• Why did the municipality report that it had repaired 6119,65 square potholes and patches per square metre as the audited value points out only 1 360 sq done; reported kilometres of rural gravel roads maintained according to municipality: 181,8 kms but the audited value is 41 kms. “Even the indicators developed and reported were not reliable.”

Furthermore, the AG states that management did not implement adequate internal controls to ensure that the financial statements were accurate, complete and agreed with supporting schedules. There were inadequate monitoring processes to ensure measurability and reliability of planned and reported indicators and targets.

How lucky can Umvoti Municipality be to receive another unqualified audit — material misstatements of non current assets; current liabilities, revenue and disclosure items identified by the auditors in the submitted financial statements were subsequently corrected, resulting in an unqualified audit.

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