Cost cuts see dip in the quality of EC’s statements
Eastern Cape municipalities may have used fewer consultants in the 2016-17 financial year and saved millions of rands, but the costsaving measure negatively impacted on how they prepare financial statements.
These were some of the findings by provincial auditor-general Sithembele Pieters.
According to his report, A General Report on the Local Government Audit Outcomes, 90% of the 39 audited municipalities required adjustments to their financial statements during the year under review. Pieters said it was encouraging that the provincial treasury capacitated municipal finance units and engaged them on matters affecting their financial management.
“During the year under review, we saw a reduction in the use of consultants to prepare financial statements. This reduction in both the number of municipalities using consultants and their associated cost is a positive response to our previous recommendations relating to building in-house capacity and reduce the reliance placed on external consultants to prepare financial statements.
“However, this resulted in a 21% regression in the quality of the financial statements submitted for auditing, as 90% of the municipalities required material adjustments to their financial statements in 2016-17,” he said. The 9% increase in the number of performance reports with findings and 15% regression in the quality of the performance reports submitted for auditing were due to poor planning and lack of systems to track and to collect, collate and record information about actual performance.
It was reported last week that Eastern Cape municipalities had recorded irregular expenditure of R22.9bn. The irregular expenditure was due to noncompliance and lack of consequences for legislative transgressions. Pieters found there was 5%of clean audits, and 5% of non findings on compliance with legislation.
Pieters was concerned about the financial sustainability of 24 municipalities of the 39 in the province. He singled out Sarah Baartman, Great Kei, Mnquma, Makana, Emalahleni, Kouga, Ngqushwa and Joe Gqabi.
Pieters also said he was concerned about the three newly merged Enoch Mgijima, Walter Sisulu and Raymond Mhlaba municipalities. He said most of the irregular expenditure disclosed was caused by supply chain management transgressions. “One municipality used a contract secured by another municipality to appoint consultants to assist with financial reporting at a cost of R62m over three years.
“The original contract stipulated a value of R7m over 10 months, which the second acceded by R55m and 26 months.”
During the year under review, we saw a reduction in the use of consultants