Audit report is cause for alarm
Year after year, reading Auditor-General Kimi Makwetu’s report on the state of municipal finances is akin to being caught unexpectedly in an ice-cold shower. The auditor-general categorises audit failure in five degrees of severity in the conventional fashion, from “unqualified with no findings” to “disclaimed with findings”. The best that can be said about the report is that overall, it wasn’t much worse than 2016. The worst that can be said is that the situation is still shockingly bad.
Just take one metric: the total expenditure budget of municipalities and municipal entities in 2015-16 was R378bn. Only 19% of this amount — R70.9bn — was spent by municipalities with clean audits. By far the largest category (122) fell into the category of “unqualified with findings”, which constitutes expenditure of about R218bn.
While these can vary in seriousness, the three categories that follow — qualified, adverse and a disclaimer — indicate serious financial mismanagement. A third of municipalities fall into these categories. According to the auditor-general, 27% of SA’s municipalities are just not sustainable.
Problems range from light, procedural issues to municipalities not submitting financial statements at all. That particular category has jumped over the past year and now constitutes 5% of SA’s 263 municipalities.
Other than that, the broad parameters have remained consistent, or at least consistently bad, over the past three years. For example, roughly 18% of municipalities had clean audits in the past year compared with 20% the year before and 15% the year before that. The big problem is that the number of municipalities getting worse (36) roughly matches the number getting better (42).
The auditor-general divides expenditure that does not comply with authorising legislation into three categories, and this division is extremely instructive. The categories are “irregular”, “fruitless and wasteful” and “unauthorised”. None of the categories suggests the expenditure was necessarily fraudulent, but all of them, to a greater or less degree, include the danger of fraud. Mostly, these are procedural problems.
The eye-popping statistic here is “irregular” expenditure increased just over 50% over the previous period to R16.8bn. And this is just the past year. Makwetu noted that the year-end balance of irregular expenditure that had accumulated over the years now totalled R41.7bn.
It is instructive to dig deeper into the report to see what kind of procedural issues we are talking about. One particular issue pointed out by Makwetu is the number of awards to suppliers in which a municipal employee or a close family member had an interest. Legislation prohibits awarding contracts to this group and, in fact, to state officials entirely.
But clearly, this regulation is being honoured in the breach. Makwetu’s office found that at almost every second municipality, 110 municipalities in total, state employees were awarded contracts. At 46 municipalities, employees failed to declare their family members’ interest in awards and at 24 municipalities, employees failed to declare themselves!
It has been a feature of previous reports, but it is becoming increasingly obvious that the most compliant province is the Western Cape. This clearly has political ramifications. It is now extraordinary how much better the DA-controlled province is than all the rest. Just on 80% of Western Cape municipalities have clean audits.
The best the ANC-controlled provinces could offer is KwaZulu-Natal, with 18% clean audits. That is an amazing difference. This outcome matches the DA’s growing support in the Western Cape in local government elections — and is an ominous warning to the ANC for the future.
THE BEST THAT CAN BE SAID ABOUT THE REPORT IS THAT IT WASN’T MUCH WORSE THAN 2016