Irregular spending at South African municipalities hits R32 billion – here’s what they’re wasting money on

Auditor-general (AG), Kimi Makwetu, has released the latest municipal audit results, showing an overall regression in auditing outcomes for the 2018-19 financial year.

In the report, Makwetu paints 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”.

He strongly cautioned that these administrative and governance lapses “make for very weak accountability and the consequent exposure to abuse of the public purse”.

Among the findings of an overall decline in the quality of municipal financial records, and a general regression in terms of management, the audit report also highlighted an alarming increase in irregular, unauthorised and wasteful expenditure.

According to Makwetu, irregular expenditure increased to R32.06 billion from the R25.2 billion reported last year.

This includes the irregular expenditure (R10.60 billion) of those municipalities of which the audits were completed after the cut-off date for the report (31 January) as well as the unaudited amounts disclosed in the financial statements of the municipalities whose audits were still outstanding.

However, the auditor-general warned that the amount could be even higher, as 55% of the municipalities were qualified because the amount they disclosed was incomplete and/or they disclosed that they had incurred irregular expenditure but that the full amount was not known.

In addition, R360 million worth of contracts could not be audited due to missing or incomplete information.

“Municipalities have a poor track record of dealing with irregular expenditure and ensuring accountability. As a result, the year-end balance of irregular expenditure that had accumulated over many years and had not been dealt with (through recovery, condonement or write-off) stood at R65.59 billion,” he said.

The AG started identifying material irregularities at select municipalities in the 2019/19 period, in terms of his enhanced powers that came into effect in April last year.

Here, he identified three broad categories of irregularities, which could have been prevented with simple checks in place.

These are:

  • Assets not being safeguarded resulting in theft or vandalism;
  • Payments for goods and services not received; and
  • Unfair procurement process that resulted in overpricing.

“The material irregularities we identified and reported are not complex accounting or procurement issues and could have been prevented through basic controls,” he said.

Here is a breakdown of the worst offenders when it comes to irregular spending among the provinces:

  • KwaZulu Natal: R6.7 billion
  • Eastern Cape: R6.7 billion
  • North West: R5.5 billion
  • Gauteng: R5 billion
  • Western Cape: R2.7 billion
  • Limpopo: R2.1 billion
  • Free State: R1.7 billion
  • Mpumalanga: R1.4 billion
  • Northern Cape: R390 million

What municipalites are wasting their money on

Irregular expenditure is expenditure that is non-compliant with legislation in process leading to expenditure.

Overall, R21.46 billion in irregular expenditure was declared at 220 municipalities (96%) – R10.6 billion was audited. The combined irregular expenditure for both completed and outstanding audits is R32.06 billion.

In terms of irregular expenditure, 93% of all audits found that money was spent without complying with supply chain management legislation. This includes:

  • Procurement without following competitive bidding or quotation processes;
  • Non compliance with procurement process requirements; and
  • Inadequate contract management

Unauthorised expenditure is expenditure that is more than budgeted, or is not in accordance with grant conditions.

R11.98 billion in unauthorised expenditure was declared at 147 municipalities (64%) – R3.93 billion was audited. The combined unauthorised expenditure for both completed and outstanding audits is R15.91 billion.

In 99% of cases of unauthorised spending, it was expenditure beyond budgetary means. This includes:

  • Payments in excess of budget;
  • Payments related to non-cash items, which represent a poor estimations, ie asset impairments.

Wasteful expenditure is expenditure made in vain – which could have been avoided if reasonable care was taken.

R2.07 billion in fruitless and wasteful expenditure was declared at 200 municipalities (87%) – R1.05 billion was audited. The combined fruitless and wasteful expenditure for both completed and outstanding audits is R3.12 billion

Most of the wasteful spending relates to penalties and interest on overdue accounts. Other wasteful items include:

  • Litigation and claims;
  • ICT licences not being utilised;
  • Discontinued projects;
  • Eskom and water board interest.

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Irregular spending at South African municipalities hits R32 billion – here’s what they’re wasting money on