Irregular expenditure at SA municipalities tops R11 billion

The auditor-general has revealed that the bulk (264) of South Africa’s municipalities incurred irregular expenditure of R11.473 billion in the 2013/2014 financial year.

This was an ‘improvement’ from the R12.226 billion incurred by 270 auditees in 2012-13, auditor-general Thembekile Kimi Makwetu said on Wednesday (3 June).

Releasing his report on local government audit outcomes for the year under review, Makwetu said that 17% of 268 municipalities and 57 related entities achieved clean audits in the 2013/2014 financial year, up from 9% before.

Fruitless and wasteful spend

The AG highlighted a reduction in irregular and fruitless and wasteful expenditure; but noted an increase in unauthorised expenditure.

Makwetu said that non-compliance with procurement process requirements was the main contributor to the irregular expenditure.

Fruitless and wasteful expenditure of R687 million was incurred by 250 auditees – an improvement from the R860 million incurred by 222 auditees in the previous year.

Unauthorised expenditure of R11.402 billion was incurred by 190 municipalities (71%) – a significant increase compared to the R8.502 billion incurred by 175 municipalities in the previous year.

In total, 61% of the unauthorised expenditure related to non-cash items, meaning accounting estimates such as impairments and provisions, the report said.

Best and worst

Makwetu said a number of provinces showed an improvement in their audit outcomes, with the biggest contributors to the total number of clean audits being Gauteng with 13, KwaZulu-Natal with 20, and the Western Cape with 18.

“Even though audit outcomes improved and should be celebrated”, some of these improvements had been achieved through over-reliance on consultants and the correction of errors identified by auditors during the audit process, the AG said.

The total irregular expenditure attributable to Gauteng municipalities is R1.1 billion; KwaZulu-Natal R2.3 billion; and the Western Cape R162 million.

Provinces with limited positive movement with significant financial management and control deficiencies included the Eastern Cape, Mpumalanga and the Northern Cape, while provinces where financial management disciplines are very weak with significant control weaknesses were the Free State, Limpopo and North West.

Management of consultants

The report showed that 84% of the auditees used consultants to assist them with either financial reporting or the preparation of performance information, or both these areas (an increase from the 80% in the previous year).

The estimated cost of consultancy services was R821 million, which includes the amounts spent by treasuries and departments of cooperative governance.

The amount increased from R725 million in the previous year, and represents only a portion of the estimated R3.15 billion spent on consultancy services by local government, Makwetu said.