AG: How to improve the state of our municipalities

Auditor-General Kimi Makwetu outlines solutions.
Legislative amendments have given the AG more bite – including processes that allow for accounting officers to be held personally liable for losses. Image: Elmond Jiyane, GCIS

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.

TitledNot 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’.”

Framework 

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.” 

Read: Auditor-General speaking into the void on local government corruption

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. 

Material irregularities 

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.”

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Get strategy, competence and efficienc right.

The ANCs methods are are diametrically opposite to all of these though.

Their strategy is over-employ for votes, do nothing to collect debt, allow the theft of services, try make Soweto look like Sandton, cadre deploy incomopent people, be opaque on tenders, centralized to throttle everything and do nothing against corruption.

Let me write that again…

Get strategy, competence, and efficiency right.
The ANC’s methods are diametrically opposite to all these though.
Their strategy is over-employ for votes, do nothing to collect debt, allow the theft of services, try make Soweto look like Sandton, cadre deploy incompetent people, be opaque on tenders, centralized to throttle everything and do nothing against corruption.

Should incomopent people be able to spell?

The solution is far simpler than that.

Create a disincentive for poor governance.
Political parties should be band for a period of 4 years if their municipality did not achieve the following targets:
1) 3% economic growth per year
2) reduction of jobless rate by 1% a year
3) clean audit

Hear, hear. When the ANC gained power, there was a rush to the feeding trough: i.e. appointments to municipal positions. Ability, competence, honesty and good work ethic were largely ignored. It all came down to how much power you could wield as a cadre, managing to force yourself into a lucrative position with annual above-inflation salary increases. Once there, the vast majority of municipal employees did virtually nothing. And the result is the sad state of well-run places like the former Grahamstown as well as literally hundreds of rural areas. Only 21 municipalities with a clean audit (out of hundreds) and R32 thousand million rand stolen/wasted. Yet the voters still vote the ANC in. Un-freaking-believable. I shake my head in sorrowful amazement. When will the majority wake up?

Arrest and jail thieves ?

let’s face it when things work efficiently, tenders are above board and there is proper accountability there is no room for corruption and downright theft. what would be the point of even working for these government organisations. Some of our big listed companies have also become adept at creative accounting as well.

These municipalities will never get right. It is like trying to draw blood from a stone. The auditor-General will grow grey hairs and ulcers trying to make these municipalities right. Mismanagement is a tool or strategy to allow corruption to thrive with legitimate excuses. Even a metric qualified student can run these municipalities better than the current municipality managers.

The answer is doing away with the municipalities handling monies. Let VAT be hiked to 18% where the 3% of all national VAT will be allocated to basic essential services like water, electricity,waste removal and treatment,just to name a few. No private household should be billed for municipality services. Only businesses should be billed as they recover those costs in the course of financial business accounting.

VAT will not be looted as it will be collected by SARS and disbursed by treasury. Everyvone will pay for services this way. No defaults and Eskom, water, and waste removal services will be paid centrally through treasury.

With everyone paying, then the government must ensure that service delivery is not questionable. Illegal connections will be eradicated through this system. Municipality expenditures will be under direct oversight of treasury. No more fruitful and irregular expenditure. Municipalities must cease to be banks and investment projects, but conduits for service delivery to the citizens.

But who will listen?… Too much vested interest in the state’s coffers.

Put educated PROVEN people in charge NOT someone’s friend or relative?????????

Zokey, fully agree but where you going to find those people. The people (political party) that find those people are corrupt. Never ending circle and there is no political will, as long as this is happening its distracting from all the other corrupt acts happening within government, great smoke screen for those in charge.
Not sure how this is solved, too deeply embedded in a crime ridden system.

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.

First question to the MM would be “Are you qualified to be a MM?”

A lot of MMs are ex teachers, health workers, friends of the Councillors.

Problem starts with the councillors.

It is impossible to improve the state of municipalities because, in a democracy, they merely reflect the state of the voters who appoint the municipal councillors. More than 80% of municipalities are bankrupt due to incompetence, negligence, corruption, sabotage and plunder. This is to be expected though. This situation is the logical consequence of a democratic dispensation. The demise of ANC municipalities and the implosion of service delivery is guaranteed by the constitution.

People have been writing about the state of municipalities for 25 years now. During all this time we only saw a rapid increase in the rate of decay. The rate of implosion is reaching “escape velocity”. It is too late for any amount of money or intervention to stop this process. This monster has a life of its own now.

The mindful observer will take a step back, and ask: What is this force that drives this process of destruction? The issues of corruption, self-serving politicians, incompetence and negligence are not the driving forces. They are merely consequences, or symptoms, of the disease. Yet we keep on issuing panado to cure cancer.

What is the difference between the Canton of Zug and the Msinga municipality in KwaZulu Natal, or a DA municipality and an ANC municipality? The mindset of the voter is the driving force behind the difference in the outcome.

The mindset of the individuals who appoint the councillors, the managers and employees, who accept the municipal budget and who supervise over the finances is the only difference. Democracy works exactly as it is supposed to.

This undeniable reality brings us to the point. The state of municipalities is nothing more, and nothing less, than a manifestation of the mindset of the average voter. Now, how do you address this, my friend?

This reality at ANC municipalities cannot be changed with any amount of political intervention. Only privatisation that brings property rights, individualism, accountability and responsible behaviour patterns can deliver better results. Privatisation of municipal services is the only solution because it insulates service delivery from the mindset of the ANC voter. The capitalist always has to come to the rescue of the ignorant collectivist.

About that report title, Mr AG: did you mean
‘…yet not the right hands in the till’ or
‘… yet not the right hands at the tiller’?

Or were you trying to emulate the previous PPs passive-aggressive report titles?

The National Treasury and the Auditor General with all his paper systems are are part of the problem. When I started working for a municipality there was only one set of legislation, i.e. the Municipal Ordinance of 1974. The senior officials were professional registered people who could operate within that Ordinance. You reported to the Town Clerk, who reported to the Council and that’s it. The auditors came, audited the financial system and went without wasting everybody’s time. An engineer had time to spend with his staff maintaining and upgrading the municipal infrastructure. You all remember good municipal infrastructure a long time ago? Then came the laws, regulations and reporting of the new compensation. One had to attend courses to know all the new laws. For every project one has to report to the Municipal Manager, the Council, the District Council, the Provincial Government, National Treasury and the relevant regulator. Each law introduced another set of control mechanisms that had to be kept updated regularly. All kinds of plans and systems have to be in writing. The Auditor General wants to see a paper trail for every one of these control systems. Supply chain became a nightmare. A performance management system designed for an auditing company office was forced upon a maintenance of infrastructure system. Excellent engineers were reduced to compliance report writers. And then everybody asks where have the good municipal infrastructure gone.
Get rid of the paperwork, appoint professional people and allow them to do their work and the systems will gradually return.

The solution to fix municipalities is simple – make the counselor positions honorary again, in other words, no payment. Pre 94 all counselor positions were honorary and the system worked well.

It attracted a type of counselor with more life experience, say a retired businessman, accountant or teacher and they put the interests of the community first. Small municipalities would save much money that can be used for service delivery.

The ANC uses the counselor positions as pay-off for political loyalty – but there are thousands more votes in the town than in the council.

The skimmed audits are not intense enough, even the “clean audit” municipalities have major corruption in the procurement dept. could be picked up with a more detailed audit. A small forensic audit should be done, if of course there is any competency to do that.

I was a victim of National Treasury’s illogical regulations and the AG’s application of these regulations. We planned and designed an electrification project, the planning and design was excellent, the specifications were exact, the bill of quantities was accurate. The bid was adjudicated correctly, the best contractor was appointed, the project was completed to spec and within the bid price and 950 families had electricity in their houses for the first time. The technical auditors from Department of Energy was highly impressed with the project, to such an extent that they wanted copies of our project documents to help other municipalities. We thought we did great! Then came the AG’s people. They dug up a regulation from National Treasury which said that if your bid amount is above R10 million, the bid must be advertised for 30 days and we advertised it for only 21 days, They said they do not care that this regulation has not been adjusted for inflation for ten years, they do not care that the project was completed within budget, they do not care that the project was of excellent design and construction, they do not care that nothing was wasted or stolen. The only thing they cared about was that we breached that regulation, which makes it irregular expenditure. When I retired a few years ago that amount was still in their audit report as irregular expenditure, rolled over year after year. I asked the leader of the audit team if they are not allowed to apply their minds to the merit of the situation and his reply was simply “no!”.

Before 1994 the municipal manager was called a Town Clerk. One could not be appointed in that post without enough municipal experience and academic qualifications to obtain professional registry with the Institute of Town Clerks, which set quite high norms. After 1994, the institute was regarded as a racist barricade to keep cadres out. Maybe it is time to dust of those norms and standards. It is quite a highly paid job, so people who are not willing to go through the ranks and get the experience and qualifications, should not be appointed.

End of comments.

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