Irregular expenditure at municipalities doubles

Auditor-general Kimi Makwetu says that irregular expenditure among South Africa’s municipalities has more than doubled over the last five years, to R14.75 billion.

Releasing his report on local government audit outcomes for the 2014-15 financial year,  Makwetu revealed that municipalities have shown an improvement in their audit results over the past five years from 2010-11 to 2014-15.

He said the number of municipalities that received financially unqualified audit opinions with no findings (commonly known as “clean audits”) had increased from 13 to 54.

However, 18 additional municipal entities also achieved clean audit status, taking the total number of clean audits to 72 in the current period.

Irregular expenditure

Irregular expenditure has more than doubled since 2010-11 to R14.75 billion and is incurred by an increasing number of municipalities, the report said.

The reason for the increase in irregular expenditure, according to Makwetu, is continued non-compliance with SCM legislation, but also an improvement in the ability of municipalities to detect and disclose current and prior year irregular expenditure in their financial statements.

In 2010-11, 73% of the irregular expenditure was identified during the audit, while in  2014-15 municipalities identified 69% of the irregular expenditure – some using consultants to determine the full extent of irregular expenditure.

Municipalities in North West, Mpumalanga, Eastern Cape and Limpopo were the main contributors to the significant increase in irregular expenditure over the past five years, the AG said.

Fruitless and wasteful expenditure  

Fruitless and wasteful expenditure in 2014-15 was more than R1 billion higher than in 2010-11 at R1.34 billion, and was  again incurred by an increasing number of municipalities.

Municipalities in the provinces of Mpumalanga, Eastern Cape, North West, Free State and Northern Cape were the main contributors to this increase.

Unauthorised expenditure

Unauthorised expenditure also increased threefold from 2010-11 to R15.32 billion.

“The main reason for  the unauthorised expenditure remains overspending of the budget; however, more than 60% of the overspending related to non-cash items, i.e. estimates of depreciation or impairments that were not correctly budgeted for,” the report said.

Financial health of municipalities

In 2014-15 the AGSA rated the financial health of 92% of the municipalities as either concerning or requiring intervention. The figure stood at 82% in 2012-13 when the overall assessments were introduced.

Makwetu said that the most concerning indicators over the past three years were municipalities spending more than the resources they had available; current liabilities exceeding current assets at year-end; debtors not paying or taking very long to pay their  debt; and creditors not being paid on time.

“In total, 26% of municipalities were in a particularly poor financial position by the end of 2014-15, with material uncertainty with regard to their ability to continue operating in the  foreseeable future – 10 more municipalities than in 2011-12,”  said Makwetu.

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Irregular expenditure at municipalities doubles