Wednesday, 01 July 2020

Cape Town: Tabling his final audit report on municipalities of his seven-year term of office, Auditor-General Kimi Makwetu says there is not much to go by in terms of audit outcomes.Makwetu said this when he released the report on the municipal audit outcomes for the period 2018-19.

Releasing the report, titled “Not much to go around”, Makwetu said the report painted 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”.

“This title that is carried in this report was arrived at after a series of interactions that the office had with municipalities across the country and when we managed to drill down to all the financial statements of the entities that we were auditing and looking at all of them, we figured one of the key things we wanted to communicate as part of the audit results for this year was the fact local government, as it has been for many years, has not really had much resources to carry out its activities due to fiscal constraints as well as due to the economic headwinds that many of them had to face up to.

“However, we have also detected as we were going through these audits that we do not often find the right hands at the till – meaning that had those limited resources been under care and control with regards to the people looking after them as well as those that supervise the financial administration of local government, perhaps a lot more could have been achieved and perhaps a lot more could have arisen as a result of positive outcomes that we all were yearning for,” he said.

Audit outcomes at a glance

Releasing the report on Wednesday, the Auditor-General said there was again a regression in the audit outcomes.

He said over the three-year period, the audit outcomes of 76 municipalities regressed, with only 31 improving.

Makwetu said countrywide, 32 municipalities submitted their financial statements late and the financial statements of six were outstanding by 25 March.

“Not only did the unqualified opinions on the financial statements continue to show a steady decrease from 47% to only 43% (and a significant drop from 58% in 2016-17), but the quality of the financial statements provided to us for auditing again showed no improvement from the previous year.”

Makwetu also said that municipalities spent R1.26 billion on consultants for financial reporting services, of which only 7% was as a result of vacancies in municipal finance units. This amount includes R522 million for consultant costs at municipalities with outstanding audits where financial statements were received.

He said that the financial statements show increasing indicators of a collapse in local government finances – “we assessed 79% of the municipalities as having a financial health status that was either concerning or requiring urgent intervention. Just under a third of the municipalities were in a particularly vulnerable financial position”.

Fruitless, wasteful expenditure at municipalities stands at R2bn

Auditor-General Kimi Makwetu says government cannot afford to lose money because of neglect, inefficiencies or poor decision making.

“The levels of fruitless and wasteful expenditure have also increased. At the moment, in terms of all the municipalities that were audited, they have got an amount of about R2 billion worth of fruitless and wasteful expenditure.

“And this is expenditure that is incurred in vain that could have been avoided. However, if there were no proper systems of control, some of the expenditures are picked up after they have been incurred,” he said.

According to the report, which is on the Auditor-General’s website, over the three-year period, R4.27 billion of government expenditure was fruitless and wasteful.

In total, 91% of the municipalities did not comply with legislation. The outcome is similar to the previous year and slightly higher than the 85% in 2016-17.

The report cited a lapse in oversight and lack of controls relating to compliance in a number of areas, including supply chain management.

It also pointed to a regression in the compliance with supply chain management legislation since 2016-17.

The Office of the Auditor-General remained concerned that only 2% of the municipalities were fully complying with legislation, despite all the reporting and the amount of red flags that were raised.

“The levels of unauthorized expenditure are still high, where the levels of budgets that were agreed often exceeded, either because there were no plans for some of those projects that were implemented, or the estimates that were made in the beginning tend to be much lower than the actual expenditure that has been incurred.”

Meanwhile, irregular expenditure increased to R32 billion during the period under review.

According to the Auditor-General’s report, irregular expenditure increased to R32.06 billion from the R25.2 billion reported last year.

W Cape, Gauteng municipalities singled out for good financial management

Auditor-General Kimi Makwetu says the Western Cape and Gauteng are two out of the nine provinces that developed characteristics of good governance.

“Just looking at the map at a glance, you will see that the Western Cape and Gauteng are effectively the two provinces with municipalities that have developed characteristics of good financial management that have maintained disciplines of accurate and transparent reporting, that have been able to produce evidence with regards to a number of transactions that they have entered into and have reported on in the financial statements,” he said.

According to the Auditor-General’s report, Gauteng was the only province in which all the municipalities had unqualified audit opinions, but as in prior years, only Midvaal obtained a clean audit opinion.

This, however, 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.

The report also revealed that the largest concentration of clean audits remained in the Western Cape (45%), with 93% of the province’s municipalities receiving 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.

“However, if you look at the picture with regards to the rest of the other seven provinces, it is a mixed bag and I am sure you will not escape the dominant number of municipalities with [qualified findings] and [disclaimer with findings].

“When the auditors scrutinise these financial statements of the lot of these municipalities in the seven provinces, barring the Western Cape and Gauteng, we found a significant number of control failures when it comes to the disciplines of financial management.” he said.