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Groundhog Year: Municipal audit shows billions missing due to corruption and incompetent finance staff

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Xolisa Phillip has had quite an adventure as a journalist in the roles of subeditor, news editor, columnist and commentator. She pretends to be Olivia Pope during the day, while still maintaining a presence in journalism – a passion project she cannot shake away. Journalism keeps finding Phillip no matter where she is and somewhat manages to hold its own space no matter where she is professionally.

The Auditor-General has released the municipal audit outcomes for 2019/20. A total of 22 councils were unable to account for R6-billion and received disclaimers. This, despite spending R1-billion on consultants to help compile financial statements. Where there was shoddy record-keeping, service delivery was also lacking. Madibeng in North West and the Chris Hani District Municipality in the Eastern Cape are standout cases, for all the wrong reasons.

When it comes to South Africa’s more than 270 municipalities, there’s not much money to go around in service of residents, but the fact remains that the wrong hands remain in control of the tills. 

That, in short, captures the essence of the Auditor-General’s latest assessment of local government financial administration for 2019/20.

The observation about the wrong hands being at the tills was made by the late Kimi Makwetu for the 2018/19 municipal audit outcomes. The statement was so succinct that current Auditor-General, Tsakani Maluleke, who deputised Makwetu and then succeeded him in 2020, used it as the opener to the 2019/20 audit outcomes presentation of some 200 municipalities. The remaining 70-plus municipalities’ audits are still being processed.

The Auditor-General conducts the review in terms of the Municipal Finance Management Act and is empowered to carry out the work by the Public Audit Act.

Auditor-General Maluleke presented the latest municipal audit results on Tuesday to a joint sitting of Parliament’s Standing Committee on Public Accounts and the Standing Committee on Auditor-General. 

National Treasury has already released the local government revenue and expenditure figures for the third quarter of 2020/21.

The figures from Treasury give an early indication of how financial matters are being conducted at councils, and are a preliminary gauge of probable audit results.

Here is where things get interesting: the municipal revenue and expenditure numbers are intended to be a tool for oversight, but councils are not capturing information correctly. Instead, municipalities are bypassing the official platform for making inputs and are using spreadsheets first, before capturing data on the official system. 

Doing this defeats the purpose of monitoring, and often leads to fruitless, wasteful, unauthorised and irregular expenditure, according to Treasury.

Maluleke confirms this, but not in those exact words. In the 2019/20 audit, 22 municipalities – in the Eastern Cape, Northern Cape, KwaZulu-Natal, North West, Mpumalanga and Western Cape – got disclaimers. The only reason the Free State is absent from the list of provinces with severely faulty municipal administrations is because the region’s councils did not submit information on time.

Disclaimers happen when financial information provided by councils is so unreliable that the Auditor-General cannot confirm it or verify its credibility. It is often highly opaque and hard to follow. In extreme cases, the Auditor-General has to approach third parties for information to piece together a rudimentary account of a money trail.

The 22 municipalities that got disclaimers received R6-billion in equitable share and conditional grant allocations from the fiscus. Although only just under R1-billion remains of the money, not a single municipality of the 22 could account for how the funds were spent. 

A particularly vexing element of this is that the councils paid R1-billion to consultants for assistance in compiling financial statements for auditing.

But the huge spend on consultants did not have a positive correlation with audit outcomes, or make a material difference to the quality of their financial statements. 

The Auditor-General had to approach Treasury, among others, for information on equitable share and conditional grant allocations to determine how much money had been disbursed to the 22 councils.  

Two cases stand out: One in North West and the other in the Eastern Cape.

Madibeng, in North West, was unable to explain how the council spent R600-million of its R800-million allocation. The Chris Hani District Municipality, in the Eastern Cape, was allocated R1-billion and has R42-million left in its bank account – but is missing a paper trail to account on how the money was used.

Both councils have major issues with the provision of services to residents. Madibeng, for instance, has an unreliable water supply.

Chris Hani municipality paid R66-million to consultants and another R24-million to one consultant to assist it to compile financial statements, but has nothing to show for it.

Most of the 22 disclaimed municipalities have staff in their finance offices, but they lack the requisite skills to put together “simple financial statements”, according to Maluleke. 

Although consultants are brought in as a quick-fix solution, this does not help councils in the absence of credible information to back up information contained in financial statements compiled by consultants.  

The inadequate record-keeping also points to weak internal controls. 

Officials employed to do this work do not track information on a monthly, quarterly, half-yearly basis or otherwise. This is a structural defect that cannot be corrected by exorbitant spending on consultants. It calls for accountability from the top.

In addition to being hopeless at keeping their books, municipalities are also bad debtors. A consequence of this is that creditors, including Eskom, the water boards and the South African Revenue Service (SARS), are not paid on time. 

It is quite ironic that councils, which already have limited and stretched resources, are incurring SARS interest and penalty costs for capturing incorrect information and bungling value-added tax calculations.

The poor payment record to creditors is made worse by dismal revenue collection. Taken together, these metrics – payments to creditors and revenue collection – are key litmus tests for municipalities’ financial health. The signs are not looking good.

In some councils, finances have deteriorated to the point where the going concern status hangs in the balance. These municipalities, and others facing financial difficulties, are dipping into their equitable share and conditional grant allocations to pay salaries instead of spending the funds on the provision of services. 

This further compromises councils’ ability to spend money on maintaining existing infrastructure. That, in turn, makes service delivery unpredictable and inefficient. DM/BM

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  • Poor record-keeping is deliberate. Example: A storeman can be held accountable for missing stock by finding that stock levels don’t agree with the records of movements. He cannot be held accountable for missing stock if no such records were kept (by a different person). Their common boss could, but would blame a broken system.

  • I’d say that the top municipal officials will continue employing poor quality people as a means of disguising their theft. They must just be left to rot until the people rise up against this abuse.