Cities, towns technically bankrupt

Auditor-general finds mismanagement of funds at municipalities, ‘dodgy’ dealings and sheer incompetence

THE auditor-general, conveniently for the government, waited until after the State of the Nation Address by President Cyril Ramaphosa, to release his annual report. The president should be appropriately grateful.

The bad news from Kimi Makwetu is that more municipalities are near collapse and non-compliance has increased. The A-G’s staff are also increasingly being threatened with violence and hampered from doing their work.

For the past half-dozen years, every single A-G report into the financial state of municipalities has shown an accelerating downward trend in public finances. Every year, the A-G has bemoaned the lack of decisive leadership at the very top of government and the fact that there are no consequences for corruption and incompetence. Every single year, nothing substantial is done, setting the scene, ever more emphatically, for a major disaster.

According to the A-G’s report, more than a third of municipalities are technically bankrupt, with expenditure exceeding revenue, and 18 have been placed under direct administration.

“There are increasing indicators of a collapse. We assessed 76% of the municipalities to have a financial health status that was either concerning or requiring urgent intervention,” Makwetu said.

Only 8% of municipalities received clean audits, down from 14%. Almost two-thirds of municipalities ignored previous A-G-identified instances of material irregularities, while three-quarters of them made zero effort to investigate A-G-identified misconduct and fraud.

While there will have been a faint sigh of relief that irregular expenditure dropped from R29.7 billion to R25.2bn, the scale of deliberate dishonesty – rather than congenital incompetence – is staggering.

Almost a billion (R921m) of tenders were fraudulent awards to state-employed officials. Another R1.2bn of procurement could not be audited because of missing or incomplete documentation – in local government, “misfiled” and “lost” are synonyms for “stolen” and “shredded”.

More than 824 suppliers were identified as having made false declarations in order to win business. And in 88% of municipalities, the procurement processes were uncompetitive or unfair.

More than 80% of the R2bn illegally “invested” by municipalities, in the plundered VBS Mutual Bank, cannot be recovered. Of the 16 municipalities involved, 14 are now unable to pay creditors, maintain infrastructure or deliver services.

The big auditing firms have already taken a reputational hammering over complicity in state capture at SOEs, and criminal incompetence or collusion with private sector shenanigans, like the Steinhoff collapse.

The R907m spent on consultants to do the work of municipal staff – up by 20% on 2016/17 – did not buy even minimal competence. Almost twothirds (65%) of the reports on quality performance were “not credible”. Twothirds of the financial statements had “material misstatements” in the areas where the consultants had done the work.

Four out of 10 municipalities have no road maintenance plan and almost half of them – 48% and 49%, respectively – have no water or sanitation maintenance plans.

It’s clear from these A-G statistics that the recent prolonged collapses of water services, in Makhanda and the KwaZulu-Natal South Coast, are not anomalies. They are harbingers of nationwide collapses.

Municipalities owed R6bn to the water boards and, in March this year, R20bn to Eskom.

Behind this lies the culture of non-payment, tolerated for the past quarter century. According to the DA, in the Free State, in many municipalities in that province, barely 10% of residents pay their municipal bills.

The SA Municipal Workers Union (Samwu) warned this week it would strike if workers at around 30 municipalities nationwide who did not receive salaries this month-end are not paid immediately. The president, says Samwu, has been “complicit” in failing municipalities by not unlocking more central government funding.

To even begin to deal with this morass of overstaffing, under-performance and criminality, the Ramaphosa administration will have to lock horns with powerful and arrogant unions, that are nominally part of the governing alliance.

Whether a former trade-unionist president will dare pick up the gauntlet remains to be seen.