South African municipalities have accrued just under R5.2 billion in material losses due to irregularities – which include non-compliance to financial regulations and suspected fraud.
According to the Auditor General of South Africa’s latest Material Irregularities (MI) in Local Government report, 268 MIs have been flagged among 170 auditees in the 2021/22 financial year, leading to losses, harm to public sector institutions and the public at large.
The AGSA defines MIs as any non-compliance with or contravention of legislation, fraud, theft or a breach of a fiduciary duty identified that resulted in or is likely to result in a material financial loss, the misuse or loss of a material public resource, or substantial harm.
Over the review period, the AG found 194 instances where MIs led to material financial losses, amounting to R5.19 billion.
These irregularities include:
- Payments for goods and services not received
- Unfair, uncompetitive or uneconomical procurement
- Ineffective use of consultants
- Value for money not received
- Revenue not billed or not recovered
- Interest and penalties on late or non-payments and
- Asset and investment losses
On top of the R5.2 billion in material losses, the AGSA also found 44 instances where “substantial harm” was done to public sector institutions through repeated disclaimers and the non-submission of financial statements.
There were 29 further instances of harm done to the general public through pollution of water sources or poor landfill site management as a result of the irregularities.
According to the AGSA, these irregularities and losses could have been prevented had the municipalities and their managers adhered to basic disciplines and processes.
As per its mandate, the AG has taken further steps to deal with the losses, having so far resolved 57 instances (21%) and appropriate action being taken in 35% of cases.
However, no appropriate action was taken in 61 of these instances and further processes will follow.
The AGSA said that around R183 million of the financial losses have been recovered, with another R310 million in the process of being recovered. The audit process also prevented another R19 million of losses from taking place, it said.
The municipalities below were identified in the MI process as having the AGSA’s powers invoked to take the appropriate action.