Millions in unexplained duplicate payments in a prominent South African city

The City of Matlosana is under scrutiny following the release of a damning report detailing widespread financial irregularities in the use of ratepayer funds.

An independent forensic audit that investigated possible irregularities in the R292.5 million paid to the municipality’s top 30 suppliers found material irregularities and breaches of internal policies and procedures.

On 24 October 2024, the City Council in Klerksdorp authorised the acting municipal manager to appoint an independent investigator to investigate various serious allegations against the Chief Financial Officer (CFO), who was arrested by the Hawks but reinstated after a CCMA case last year.

The one-month investigation reviewed payments from July 1, 2023, to March 31, 2024, focusing on compliance, service verification, split payments, employee misconduct, process improvements, top 15 stock items, and control deficiencies.

It uncovered a series of dubious payments to these suppliers, revealing potential fraud, policy non-compliance, and a significant loss of public funds.

This includes a lack of professional due diligence and care taken by the officials in processing supplier payments.

The findings were damning, and ultimately, this mis and malmanagement resulted in a decline in basic service delivery, which is eating away at the quality of life of residents and businesses.

The sample tested was only for sundry payments, and the results “demonstrated the deep-rooted and entrenched management override of controls,” according to the report.

“The findings demonstrate intent to either mislead or defraud the municipality as no control measures were implemented in processing the invoices,” it added.

The municipality has been riddled with financial woes. It has R2.3 billion debt owed to Eskom and around R2 billion to Midvaal Water, and these debts increase by around R100 million a month. Maladministration of funds worsens this standing.

DA councillor in the city Johannes le Grange called this “the most shocking report in the history of Matlosana.”

It is important to note that the report itself notes that the red-flag-riddled R292.5 million in ratepayer-funds investigated represent just 11% of total payments by the City during that time frame.

Performing a thorough investigation of the total payments would require more than a month, which was allocated to the firm.

Key findings

The findings saw a plethora of misuses of ratepayer funds. Many payments lacked sufficient documentation, such as delivery sign-offs, to verify the delivery of goods or services to recipients.

Failures to adhere to municipal policies and procedures led to control breakdowns and management override of internal controls, indicating potential fraud.

Overpayments were made to suppliers using the same purchase order numbers. For instance, nearly R7 million was overpaid to one firm.

Payments were also made to suppliers without valid contracts.

In addition, the municipality made duplicate payments using the same invoice numbers. For example, a paraffin service provider was paid R6.2 million using the same order number twice.

The findings also showed that payments exceeding R1.5 million were not approved by the Municipal Manager, as required, and the CFO or a delegated official did not sign off on numerous payments.

Some payment vouchers were missing invoices referenced on the cover page, leading to overpayments, while many payments were made without the necessary purchase orders and requisitions.

Additionally, delivery notes were often missing, making it difficult to confirm the delivery of goods or services.

Some delivery notes lacked GRN reference numbers, making verifying if they matched the invoices or orders impossible.

The report highlighted specific instances of irregularities that underscore the systemic failures within the municipality’s financial management processes.

For example, all payments made to one company lacked supporting documents, and there was no confirmed valid fuel supply and delivery contract.

Similarly, multiple hefty payments to another had the same invoice number but different amounts, with only one job card attached.

Recommendations

In light of these findings, the report put forward the following recommendations:

• Revisit all payments: Conduct a thorough review of all payments made during the period under review, including order payments to suppliers.
• Interview involved parties: Interview officials and suppliers who benefited from the management override of controls, particularly in cases where payments were made without invoices or valid contracts.
• Suspend sundry payments: Suspend all sundry payments, subject to approval by the Municipal Manager.
• Refer to SIU: Consider referring the report and detailed findings to the Special Investigating Unit (SIU) for further investigation.

Backlash

Opposition councillors accuse the municipality’s CFO, of failing to prevent financial mismanagement by permitting officials to process unauthorised and duplicate payments to service providers without senior management’s approval.

“The CFO, who should oversee order numbers, delivery bills, checklists, and authorise payments, takes advantage of the system to act without oversight, authorising multiple payments on the same invoice on the same day,” said le Grange.

This matter could also involve the municipal manager. Although he initiated the investigation by bringing it to the council’s attention, ultimate responsibility rests with him as the accounting officer.

Le Grange alleged that the Provincially seconded Provincial Executive Representatives are complicit in the issues, as these problems arose within their first three months.

He said they did not identify any transactions for scrutiny, and their internal control measures were ineffective.

The DA said that it would submit the independent investigator’s report on financial mismanagement to the Department of Cooperative Governance and Traditional Affairs and ask the President to hand it over to the Special Investigating Unit (SIU).

“The people of Matlosana deserve a municipality that works for them, not for the corrupt,” said le Grange.

The City of Matlosana was contacted for comment but did not respond by the time of publication. If a comment is received, it will be added.