Municipal Audit Outcomes 2015/16: Auditor-General briefing

Meeting report

Mr A Nyambi (ANC) said the Committee of NCOP Committee Chairpersons had invited members of the Portfolio Committee on Cooperative Governance and Traditional Affairs, the Portfolio Committee on Appropriations and the Portfolio Committee on Water and Sanitation as well as the relevant Select Committee chairpersons. It was important that the members from the Cooperative Governance & Traditional Affairs Committees join the meeting to engage with the Auditor General of South Africa, as they had a vested interest on the proposed outcomes.
 

The Committee accepted the apologies of Mr M Mohapi (Chair: NCOP Cooperative Governance & Traditional Affairs), Mr B Nthebe, (Chair: NCOP Economic and Business Development) and Mr S Mohai (Chair: NCOP Appropriations) who were absent with apologies.

Auditor-General of South Africa on the Municipal Audit Outcomes 2015/16
Mr Thembekile Kimi Makwetu, Auditor General, stated that, the Audit for the FY2015/16 for local government, was completed in November 2016. By January 2017, all the municipalities, through their annual reporting processes, as required by the Municipal Systems Act, had submitted their reports to their respective Councils and therefore would have reflected on the substantive matters highlighted by their Audit.

The presentation was for the analysis of the problems identified during the audit of 263 municipalities in the FY2015/16 Audit. There have been ongoing discussions with all the provinces which were to end the following day, with the briefing of the provincial leadership of Mpumalanga Province. All other provinces’ officials had been briefed on pertinent issues concerning them in their various respective official capacities with regard to their legislated responsibilities in supporting the local government.

AGSA presets milestones, at the beginning of June every year, to present on the outcomes of the local government’s financial statements as well as their financial management. This year’s local government financial statements presentation is built on the principle of embracing accountability in financial management and reporting. It reports on the agreed deliverables as well as the resources appropriated to achieve the objectives and ensures that preset targets are met according to the service delivery programs as well as the IDPs of municipalities.

The Auditor-General noted that only 18% of internal controls were satisfactory with the root causes of this being determined as: poor response by the political leadership in addressing risks and improving controls; ignorance of duty and lack of accountability and prolonged vacancies in key positions. All municipalities have been encouraged to put in place delivery programs which would thereby be subjected to internal controls and supervision. These processes, if done correctly, will allow those charged with an oversight mandate to able to do the necessary monitoring which would provide assurance on the financial management of local government. This will in effect also reduce the instances of abuse of public resources.

AGSA shall ensure that audit standards are upheld and raised to address financial management deficiencies or the effectiveness of the delivery of services. There should be more action and less rhetoric, as all stakeholders in the monitoring process should be involved since they influence the allocation and distribution of resources down to local government. A less tolerant approach by stakeholders will result in accountability and actual consequences enforced against deliberate non-compliance with legislation.

AGSA has identified key focus areas to ensure that accounting standards are appraised on a regular basis. It conducted a pilot program, in the last six months, where 29 municipalities and national information departments were appraised on the status of their accounting records in their financial management. The exercise, being a pilot program, was not tested nationwide, and was focused on engaging the accounting officers in effort to take note on whether there were adequate control measures in place. It also had the objective of creating an early financial warning system to those charged with the mandate of oversight.

For any financial system to be regarded as acceptable, they ought to adhere to laws and regulations and have transparent reporting on performance information. The factors identified that influence the performance of a financial systems in local government and other institutions include, internal controls, financial health, compliance with laws and regulations and the degree of irregular expenditures are some of. It was observed that only 20% of the municipalities evaluated in the pilot program had a clean record with regard to satisfactory internal controls and only about 18% of municipalities did not have instances of irregular expenditures on their supply chain.

Irregular expenditure was found in about 86% of the municipalities, in the FY2013-14, it was R11,334 million and in the FY2015-16 it was R16.810 million. This has led to some projects going unfinished. For example, the OR Tambo District (EC), (R1.569 million) where there was lack of competitive bidding or a quotation process; the Nelson Mandela Bay Metro (EC) (R1.286 million) had a complete failure of supply chain management (SCM) processes not being followed; the Ngaka Modiri Molema District (NW) (R912 million) had payments made to multi-year contracts previously found irregular;  and Mbombela (MP) (R 755 million) where multiple contracts were extended despite the lack of competitive bidding..

It has also been observed that there were unauthorized expenditures with 99% of the 2014-15 financial year occurrences, caused overspending of the budget. The financial viability of municipalities is on a steady decline with 44% in net current liabilities position, 40% take more than 120 days to pay their creditors and 93% deem more than 10% of their debt non-recoverable.

Discussion
Mr K Mileham (ANC) asked for clarity on the figures for irregular expenditure for the FY2015-16 since they did not add up to the figures presented in the movement in UIFW balances for the same year.

A member expressed his concern about the 43% leadership concerns highlighted in the presentation and asked what measures were in place to address it. He noted that the irregular expenditure was at a bad state and asked if there were follow ups being made on this. He noted that there were 73 municipalities without disciplinary boards and asked what remedies are available.

Another member asked when AGSA would be available to meet with Members to interrogate the presentation thoroughly. Also, what does AGSA do to the municipalities that have repeated irregular expenditure year in year out and what will AGSA do in solving the financial crisis, going forward. He asked about the root cause of the irregular expenditure and if it was caused by corruption or negligence.

Mr C De Beer (ANC) (NCOP Finance Chairperson) proposed that they should have another meeting with the Auditor General and the Portfolio Committee of Cooperative Governance and Traditional Affairs to assess the financial situation presented. He noted that billions of rand are spent on training of municipal officials yet the performance results are poor. He asked if there was a form of evaluation.

The Auditor-General noted that the details of the wasteful expenditure will be included in the main report after it has been completed and tabled. Regarding remedies and the way forward, he borrowed the decision of the Court in the case of Standing Committee on Public Accounts (SCOPA) vs SABC, which held that SABC should submit its financial statements to the Auditor General by the 31 May 2017, and there after the Auditor General shall provide a report by the 31 July 2017, where upon, from 1 August, the items of irregular and fruitless expenditure shall be subject to a forensic audit by the SIU until a final recommendation on their recoveries is tabled for recommendation to the board. He noted that, if the responsible people could adopt the same tone, then irregular expenditure would end. This would also send the strong message that institutions which incur high levels of irregular expenditure will be subjected to consequences in form of forensic investigation.

AGSA needs to change the attitude of institutions and send a message that there will be consequences and attachment of responsibility to individuals involved. AGSA has come up with proposals on what ought to be done in order to make an effective change in accordance with the PFMA and other laws.

The Auditor-General said that there should not be any disposition without value in the supply chain of institutions so to curb inflation of prices. There needs to be proper controls implemented in the public service where discretion is exercised so as to reduce the risk of abuse.

The Chairperson noted that there is direct correlation between the troubles municipalities face and their level of accountability. He proposed that there should be a session of the National Assembly and the National Council of Provinces to discuss the way forward in making Annual Performance Plans and Budget Votes. The Committee shall deliberate later on the recommendations proposed and take them into consideration on how they could be incorporated into the service delivery system.

The Chairperson thanked the Members from the various Committees that had attended the meeting and thereafter, adjourned the meeting.