City’s multi-million rand SAP system criticised by AG

WHILE uMhlathuze Municipality has been commended for its clean audit status, the Auditor General (AG) has criticised its implementation of the SAP system, with costs escalating beyond R300-million.

The SAP accounting system - cited in the AG’s 2020/21 consolidated general report on local government audit outcomes released last week - has been 'poorly managed... incurring costs that could have been avoided'.

AG Tsakani Maluleke said the municipality had spent R266-million on the SAP implementation which later increased to R276-million as a result of project delays.

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However, uMhlathuze mayor Xolani Ngwezi told the ZO on Tuesday that the system's expenditure to date stands at R311-million. He said this represents all invoices and payments made to SAP since the City of uMhlathuze awarded the tender in 2017, under the previous administration.

The municipality had appointed EOH Mthombo (Pty) Ltd to implement the enterprise resource planning software.

However, the company - which was embroiled in a corruption scandal - asked to be released from its contractual obligations. Rather than pursuing legal action to compel EOH to deliver, the municipality opted to release the company from its duties.

'The acting city manager, Nkosenye Zulu, who the new administration brought in, in March informed exco that he was alarmed the city has incurred R311-million on Municipal Standard Chart of Account (mSCOA) conversion which is currently incomplete,' said Ngwezi.

He said comparatively bigger municipalities pay much less for what is now a 'delayed and incomplete conversion' and that 'fruitless and wasteful expenditure has to be curtailed'.

'Mr Zulu also mentioned that, over and above this undue cost, the city still pays for unintegrated modules such as Payday and others that ought to be integrated on top of this alarming SAP cost,' continued Ngwezi.

He said they are seeking to minimise costs by terminating SAP and sourcing a less expensive company through public tender that will run parallel with SAP until it can run on its own.

'This comes when SAP has proposed yet another extension for a further period at an additional cost of R60-million, which the acting city manager advised against,' said Ngwezi.

'Notwithstanding a series of clean audit findings for several years, uMhlathuze assures its ratepayers that there shall be no further wastage of money on financing a staggering SAP bill, but rather fixing water-related problems, stabilising the grid and making other deliverables,' the mayor concluded.

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In the report, the AG also expressed concern with the audit outcomes of a number of municipalities in the province, including uMkhanyakude, which received a disclaimed audit opinion.

Maluleke said political instability, inexperienced officials and system-related challenges led to the poor opinions at three disclaimed municipalities, all of which were under administration.

‘A disclaimed opinion is the worst audit opinion a municipality can receive, as it means that the municipality could not provide auditors with evidence for most of the amounts and disclosures in its financial statements,' she said.

'This is confirmation of dysfunction in the management of the municipality, with a devastating impact on the lives of the residents as they are robbed of service delivery.'

She said the dire state of uMkhanyakude and Ulundi municipalities, among others, casts 'significant doubt whether they will be able to continue operating in the near future'.

'This effectively means that such municipalities do not have enough revenue to cover their expenditure and that they owe more money than what they have.

'Many of these municipalities have been in this dire financial position multiple times over the term of the previous administration,' she said.