The Auditor General of South Africa has recorded and identified mounting issues at the local government level, with 170 municipalities and public entities racking up 268 cases of material irregularities in the 2021/22 financial year.
Material irregularities are instances of non-compliance or contravention of legislation, or fraud, theft and any other breach of fiduciary duties that result in a material financial loss.
The picture painted by the Auditor General is one of compounding failure at a municipal level, with material irregularities piling up over the years.
According to the AG, of the 268 cases recorded, 194 were attributed to material losses of R5.2 billion.
These relate to municipalities failing to pay for goods and services, unfair procurement processes, ineffective use of consultants, revenue not billed and not received, interest and penalties on late payments, and the loss of assets and investments.
There have also been other material impacts, such as public sector institutions failing to submit financial statements and hard done to the public through things like poor landfill management and the pollution of water sources.
According to founder and executive chairman of Sygnia, Magda Wierzycka, municipalities are the core of South Africa and the backbone of government.
Municipalities are essential, she said, as they are constitutionally mandated to procure and provide critical services and wield more power than national and provincial governments in this regard.
Therefore, if South Africa’s municipalities fail, the country fails.
Unfortunately, municipalities are already failing on the most basic of the basics, unable to deliver core needs like water and electricity. The latest findings from the Auditor General do not add much hope to the picture.
Administration experts have chalked the widespread failures to incompetent administrators being put in charge – going as far as to label the country a ‘gangster state’ – compounded by the abject failure to hold wrongdoers accountable, with zero consequences for not meeting the AG’s standards.
The Auditor General also noted widespread inaction when it comes to dealing with these problems.
No action was taken to address 86% of the matters raised, forcing the office of the AG to issue notifications to the municipalities and entities concerned.
A material irregularity is only ‘resolved’ once all possible efforts have been made to recover financial losses or address the cause of the harm, and to implement consequence management and prevent further losses.
Of the 268 cases identified, only 57 (21%) have been resolved. A further 95 are in the process of resolving the matters, but the rest are yet to do anything of substance.
On the more positive side, some recoveries have been made – but the R183 million recovered pales in comparison to the material losses of R5 billion that remain. A further R310 million is in the process of being recovered, the AG said.
Breaking down the material irregularities, the biggest problem lies in interest and penalty payments, which account for 67 of the cases. These relate to entities like Eskom, water boards, lender and suppliers not being paid on time and payroll and VAT taxes not being paid or incorrectly calculated.
The next biggest problem is procurement (50 cases) and resource management (49 cases). Here local government is failing to pay for goods and services, or when these payments are made, they are made to the incorrect beneficiaries.
With resources, assets are not safeguarded or protected, resulting in losses; investments are lost, or there is a general inefficiency in using resources altogether.
The Auditor General said that it is increasingly becoming the case that the office needs to invoke its powers to take action when accounting officers fail to do so.
While this has yielded some positive results, resolution of cases is often delayed by instability at an accounting officer level, ongoing investigations, and liquidation of suppliers and similar administrative pitfalls.
The AG said that the situation can be improved by monitoring councils on a more regular basis (quarterly) and having munipal manager positions be more stable.