The 2018/2019 municipal audit report by Auditor-General (AG) Kimi Makwetu has again put the gross financial mismanagement at the bulk of South Africa’s municipalities into the spotlight.
Titled ‘Not much to go around, yet not the right hands at the till‘, it reveals that only 21 municipalities received a clean audit while irregular expenditure increased to R32 billion.
At the heart of this, said Makwetu, is a lack of basic systems of accountability, skilled personnel to carry out transactions, leadership oversight to prevent financial losses, and performance management systems for employees.
Speaking to Organisation Undoing Tax Abuse (Outa) chief executive Wayne Duvenage in a webinar on Wednesday, Makwetu made some suggestions on how local government can begin to turn the ship around to ensure better audit outcomes and, more importantly, better service delivery.
‘If I was a municipal manager … ‘
In terms of the Municipal Finance Management Act, municipal managers are the accounting officers and thus have the highest level of administrative responsibility. By law, they are required to put in a system of internal controls to narrow any opportunity for people to abuse public resources.
Makwetu recommended that, as a start, municipal managers should “clear the path with the council”.
This means that a municipal manager should present the council with a plan of execution for all the projects the municipality will be engaged in that will require the council’s support and involvement “but not the interference of individual council members”.
Makwetu explained that because of the risk associated with not meeting the needs of the citizens, the council is the best place to present the plan on how the projects that have been agreed upon will be implemented. But council members will need to be made aware that they are not responsible for deciding which companies must be awarded contracts to carry out those activities.
“It restores the authority of that particular council chamber because they then cannot turn around and say ‘We were not aware of how these things were going to be done’ and ‘We were not involved in the supply chain’.”
As a second step, the AG said he would get the council to sign for the development of a preventative controls framework that will be assigned to all managers in the municipality.
The framework will provide each manager, from HR to operations, with the institutional guidelines and policies they must operate within.
“What you are doing is you are saying [that] should there be any finances which are lost then they probably would have slipped through your preventative controls,” he said. “So let us make sure that all of us sign up to these preventative controls.”
Another layer of preventative authority lies with the council, which is legally entitled to receive quarterly reports detailing the progress of the various activities of the municipality. Makwetu said council members need to insist that these are tabled before them.
“Some of those are the basic disciplines and instruments that do not talk to the type of technical skills that auditors and accountants have,” he said.
“It’s about the connecting points between the administration and those [who] are charged with the oversight of the institution in order to make sure there is a proper implementation of projects and accountability.”
Makwetu said these daily checks and balances allow an accounting officer to remain regularly aware of the finances and activities of a municipality, and to correct any irregularities ahead of an audit.
The current report will see the AG’s new powers put into practice after three municipalities were found to have material irregularities.
In April 2019 amendments to the Public Audit Act came onto effect, giving the office of the AG more bite, by introducing the concept of a material irregularity.
This is defined as any “non-compliance with, or contravention of, legislation, fraud, theft or a breach of a fiduciary duty” that is identified during the auditing process and is likely to result in a financial loss or cause substantial harm to the public.
Once identified, the AG can refer the material irregularity to the relevant authoritative body, and provide recommendations of how it can be resolved within a set time frame. Should recommendations not be implemented the AG will issue binding remedial action to recover the losses.
Read: From bad to worse
If the accounting officer or accounting authority fails to implement the remedial action, including a directive to quantify and recover a financial loss, they will be issued with a certificate of debt where they will be held personally liable for the losses.
The latest report has identified six material irregularities spread between Ngaka Modiri Molema District Municipality in the North West, the City of Tshwane in Gauteng and Ga-Segonyana Municipality in the Northern Cape.
The nature of the irregularities includes the payment for goods and services that were not received; assets not safeguarded, resulting in theft or vandalism; and unfair procurement processes that have led to overpricing.
In total the potential financial losses are estimated to be R25.5 million.
“One of the most glaring issues that can happen in an institution is when someone makes a payment without getting the requisite value for it,” said Makwetu.
“What you have seen in our report now is if nothing substantial has been done by the accounting officers by the time we report on the next phase of the audit, we will then see which parts of the audits escalated to become a certificate of debt.”