Municipalities' finances managed in ways contrary to recognised accounting disciplines - AG

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Auditor-General Kimi Makwetu. (Jan Gerber/News24)
Auditor-General Kimi Makwetu. (Jan Gerber/News24)
  • The Western Cape and Gauteng were the best performing provinces in terms of the audit outcomes of its municipalities.
  • In the overall audit outcomes, 46 municipalities regressed, while 33 improved.
  • Irregular expenditure for municipalities increased to R32.06bn.


With the exception of municipalities in Gauteng and the Western Cape, Auditor-General Kimi Makwetu painted a grim picture for municipalities in other provinces as he presented the local government audit results for the 2018-19 financial year.

Makwetu said the latest local government general report released on Wednesday detailed an undesirable picture of billions of rand in funds allocated to municipalities being managed "in ways that are contrary to the prescripts and recognised accounting disciplines".

He strongly cautioned that these administrative and governance lapses "make for very weak accountability and the consequent exposure to abuse of the public purse".

Here is an overview of the audit reports:

Gauteng
Irregular expenditure: R1.7bn

Makwetu praised municipalities in Gauteng as all the municipalities maintained their good audit outcomes.

Gauteng was the only province in which all the municipalities had unqualified audit opinions, with Midvaal obtaining the highest achievement, a clean audit opinion.

"This continued to elude the other municipalities due to good financial accounting but inadequate monitoring of the preventative controls necessary to ensure compliance with legislation and accurate reporting on service delivery achievements," Makwetu said.

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The AG did however point out that municipalities characterised by instability in political or administrative leadership, such as the City of Tshwane and City of Johannesburg metros, were unable to improve their outcomes.

Combining all the municipalities, the province's irregular expenditure amounted to R1.7bn. 

"A further R3.3 billion was reported for audits finalised subsequent to the cut-off date for this report, with the City of Tshwane metro, accounting for R2.9 billion of this amount and Emfuleni R358 million."

Western Cape

Irregular expenditure: R2.7bn


Makwetu also praised the Western Cape, as the province with the largest concentration of clean audits, as 93% of its municipalities received unqualified opinions on their financial statements.

"Eight municipalities retained their clean audit status - six of which have maintained this status for the past five years or longer.

"Municipalities that sustained their clean outcomes are characterised by control environments that are institutionalised, preventative in nature and reinforced by a strong tone set by leadership."

He said while more municipalities in the province struggled to collect debt, the overall financial health of the municipalities was the strongest of all the provinces.

The municipalities in the Western Cape combined incurred irregular expenditure totalling R2.7 bn.

KwaZulu-Natal (KZN)

Irregular expenditure: R6.5 billion


KZN did not fair as well as Gauteng or the Western Cape, with the AG announcing that there was little change in the audit outcomes of the province.

The audit outcomes were exacerbated by accountability not adequately practiced and enforced by leadership, and the failure of key controls, Makwetu said.

"Most district municipalities continued to struggle with basic financial and performance management processes, displayed a lack of responsiveness to implement and monitor action plans, and had weak governance structures that did not enable effective accountability," Makwetu said.

"Leadership did not always influence robust systems of internal control to drive good governance and discipline - more focus must be placed on exercising political oversight and addressing the aspirations of citizens."

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The AG added that the impact of this was evident in the increase of irregular expenditure, reported at R6.5 bn for the period under review.

eThekwini Metro incurred the bulk of this amount, with a total of R2.34bn in irregular expenditure.

A further R17.2 million in irregular expenditure can be attributed to audits finalised after the cut-off date for this report, Makwetu added.

Limpopo

Irregular expenditure: R1.5bn


Limpopo municipalities' audit outcomes still felt the impact of the R1.2bn loss following the liquidation of VBS Mutual Bank. This continues to affect service delivery, Makwetu said.

On the upside, six municipalities in the province improved their audit outcomes, on the downside, three regressed.

"The improvements were mostly consultant-driven, but despite the province having spent a total of R249 million on consultants for financial reporting purposes, many municipalities continued to receive qualified opinions," the AG said.

"Of this, R127 million was spent by municipalities whose audits had not been finalised by the cut-off date of the report."

Makwetu added that while millions were spent to improve the audit outcomes, there were no consequences for poor performance.

"The province's irregular expenditure totalled R1.5 billion for the year under review. Another R594 million in irregular expenditure was reported for audits finalised after the cut-off date for this report."

Free State

Irregular expenditure: R1.4bn


The Free State remains once of the worst performing provinces in terms of the municipalities, as audit outcomes in the province continued to regress for the third consecutive year.

"Ten municipalities did not submit financial statements on time - even more than in prior years, which resulted in eight audits not having been completed by the time of the AG's general report," Makwetu said.

"Additionally, three municipalities received disclaimed opinions. This means that almost half of the municipalities in the Free State have not yet accounted for the manner in which they used taxpayers' money in 2018-19 or did it so poorly that their financial statements cannot be trusted."

Makwetu said the outcomes in the Free State municipalities were characterised by a lack of basic financial disciplines, an unwillingness to comply with legislation, and a general disregard for internal controls and accountability.

The province's irregular expenditure totalled R1.4bn for the year under review, a further R341.6m in irregular expenditure was identified in audits finalised subsequent to the cut-off date for this report, the AG said.

Eastern Cape

Irregular expenditure: R2.5bn


Makwetu said the AG report into municipalities in the Eastern Cape tells the story of a widespread lack of financial controls and project monitoring, an ongoing culture of a lack of accountability as well as a tolerance of transgressions.

This resulted in the further regression in audit outcomes in the province - improvements were rare and the general trend over the past three years remained negative, the AG said.

"Eight municipalities were unable to adequately support the information reported in their financial statements and received disclaimed opinions.

He continued:

Instead of the responsible and diligent financial management of the limited resources available, there were dysfunctional control environments; extensive disorder in accounting records; prolonged vacancies in key positions and instability in councils; poor procurement processes; no consequences for poor performance and transgressions; and unreliable reporting on municipal finances and programmes.

The report indicates irregular expenditure of R2.5bn incurred in the 2018/2019 financial review.

"A further R4.2 billion was flagged for audits finalised subsequent to the cut-off date for this report."

Mpumalanga

Irregular expenditure: R1.09bn


Makwetu said the deteriorating accountability and financial management coupled with weakened oversight led to the significant regressions in audit outcomes in the province.

Six municipalities regressed while only two improved.

"There was a breakdown in internal control across various municipalities, which included basic financial disciplines such as record keeping, reconciliations and verifications.

"Only two municipalities that made use of consultants improved their audit outcomes despite consultants being used to do the work of employed staff."

The province's irregular expenditure totalled R1.09bn for the year under review.

"A further R358 million was flagged for audits finalised subsequent to the cut-off date for this report," the AG said.

Northern Cape

Irregular expenditure: R390 million


Makwetu said the Northern Cape was in a prolonged state of undesirable audit outcomes, with yet another overall regression. Six municipalities regressed and only three improved.

"The breakdown in the control environment continued with little response by the leadership to the messages of the Auditor-General of South Africa to implement preventative controls," Makwetu said.

"The result has been an environment in which supply chain management processes are abused; bank accounts are not properly scrutinised; revenue is lost due to system failures and transactions that are recorded twice; and proper reconciliations are not performed.

"Despite the overall poor performance of municipalities in the province, a handful of municipalities continued to deliver good audit results, such as the John Taolo Gaetsewe district municipality that achieved a clean audit outcome."

The province incurred irregular expenditure totalling R390m.

North West

Irregular expenditure: R3.7bn


Makwetu also had harsh words for the North West, as nine municipalities received disclaimed opinions and eight received qualified opinions, which gave way to the third year of a downward trajectory in the province.

"The availability of documents or evidence to support financial activities remained a vast challenge across the municipalities, as evidenced by the number of repeat disclaimed opinions.

"The inability of the province to reverse the trend of negative audit outcomes points to a culture that is not proactive in dealing with control weaknesses flagged in prior years."

Makwetu added that accountability failures by senior management, municipal managers, mayors, internal audit units, audit committees, municipal public accounts committees and councils are indicative of a systemic breakdown in the discipline of financial control.

The North West municipalities in the province incurred irregular expenditure totalling R3.7bn with a further R1.8bn relating to audits finalised after the cut-off date for this report.

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