The Auditor General (AG) Kimi Makwetu is allegedly in breach of the Municipal Finance Management Act (MFMA) for failure to provide reasons for a delay in the signing of the City of Tshwane’s audit report for 2014/15.
This is the result of political pressure in the form of “negotiations” with the City’s political leadership, who is trying to avert a qualified report or even a disclaimer, the opposition party told journalists at a media briefing in Pretoria on Tuesday.
The AG’s office would not comment before the audit report had been made public, neither would the City of Tshwane. In terms of the MFMA, it has to serve before Council and be made public by January 31.
In terms of Section 126 of the MFMA, the municipality’s accounting officer has to submit the consolidated annual financial to the AG by the end September of every year. The AG has to submit the audit report relating to those statements within three months thereafter, which would mean by the end of December.
Should the AG fail to complete the audit within three months, Section 126(4) provides that he should “promptly submit a report outlining the reasons for the delay” to the municipality, the provincial legislature as well as parliament.
The Democratic Alliance (DA) alleges that the AG acted in breach of the MFMA by failing to submit such a report.
DA mayoral candidate Solly Msimanga told journalists the AG’s Management Report relating to Tshwane’s 2014/15 financial statements was mistakenly handed out to the City’s Municipal Public Accounts Committee on which the party has representation. The Management Report is a more comprehensive report of the AG’s findings that is issued to the auditee and not meant to be made public.
The report gave the DA insight into the City’s finance as financial information is regularly being withheld from it, Msimanga said.
He said, according to the report, the AG found R4 billion of irregular expenditure. This is more than ever recorded in any other metro. This means a sixth of the City’s operating budget was spent on contracts illegally entered into, he said.
The amount included R2.38 billion of irregular expenditure that the City failed to disclose, which was only discovered during the audit. The controversial PEU prepaid metering contract formed part of this amount.
Msimanga pointed out that irregular expenses have to be recovered by the municipality and said the DA will maintain pressure on the ruling ANC to do so, even if it means going to court.
DA shadow member of the mayoral committee Lex Middelberg, said the money so far spent on the PEU contract would firstly be recoverable from PEU, thereafter from Mayor Kgosientso Ramokgopa whom, he said, misled Council about the lawfulness of the contract and municipal manager Jason Ngobeni, while all ANC councillors who voted in favour of the contract would be next in line in their personal capacities.
Msimanga further said the AG found that the PEU contract was awarded “to a councillor or official of the City, without naming the person or persons involved”. He said: “The finding means that the AG has found evidence in his audit that PEU is essentially a front for a councillor or an official of the City”.
The Management Report further found electricity losses increased from 14 to 16%, representing R1 billion in lost revenue and 23% in water losses.
The debtors book increased from R7.1 billion in the previous financial year to R7.8 billion against the background of a shrinking tax base, Msimanga said. Debt impairments grew to a record level and the City’s debt burden “has become unaffordable”, he said.
Leon Claassen, analyst from Ratings Africa, said the delay in finalising Tshwane’s audit report is strange, especially since preparations for a discussion about the City’s finances at the council meeting on Thursday should be done on the basis of the findings.
He said in the absence of a report by the AG stating the reasons for the delay, it is a valid question whether political pressure in an election year is to blame.
“Tshwane’s finances did not look good in the previous financial year and media reports about questionable practices have raised concerns about the findings for 2014/15,” he said.
Claassen says funders and creditors rely on financial statements to assess their risk in doing business with an entity and it is of great concern when the AG apparently hesitates to certify that they are a true reflection of the City’s financial situation.