Irregular expenditure in municipalities balloons to over R16bn - AG

Johannesburg – Deviation from supply chain management regulations resulted in the irregular expenditure of municipalities ballooning over 50% to R16.81bn, the auditor general revealed.

According to auditor general Kimi Makwetu’s report on local government audit outcomes, released on Wednesday, the expenditure does not necessarily mean money was wasted or that fraud was committed, but is rather an indication of non-compliance.

The auditor generalassessed 263 municipalities and 51 municipal entities. On average, 20% of the 263 municipalities was classified as having “robust and strong” financial controls, said Makwetu.

“The challenge is to push the same discipline on the others,” he said. Compliance was fairly weak in the area of supply chain management. Ninety-eight percent or R16.5bn of irregular expenditure was as a result of non-compliance with legislation.

About 69% of irregular expenditure was attributed to non-compliance for the year in review, and 31% was attributed to non-compliance in previous years.

READ: Municipalities lack accountability for finances – AG

The findings showed marginal improvements, with little movement by municipalities in terms of their performance in audit outcomes. For example, 44 out of the 63 municipalities which were qualified with findings were unchanged from the previous year.

No consequences, so no change

Makwetu said it is likely that these municipalities continue to deviate from supply chain management regulations for reasons such as emergencies. “Some stay the same and nothing happens to them if they deviate from supply chain management.”

Makwetu said there are no consequences for these deviations, which is a problem.

He added that this reflected a lack of competitive bids, as municipalities continue to rely on certain suppliers in their procurement. This opens the door for needed investigation by the council to determine if errors are intended, the report highlighted.

“Through council’s investigation, it is also determined who is responsible for the non-compliance and what its impact was,” the report said.

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If non-compliance had no impact and negligence was not proven, this could be condoned. But if it was intentional, disciplinary action, recovery from the losses from the implicated officials and the cancelling of the contract and reporting to the police could follow, the report suggested.

These are the main culprits

Eastern Cape, North West, KwaZulu-Natal and Mpumalanga were the main contributors to the increase in irregular expenditure. Eastern Cape’s irregular expenditure increased by 60% to R5.6bn, North West increased by 117% to R2.5bn, KwaZulu-Natal increased by 50% to R2.3bn and Mpumalanga increased by 162% to R2.2bn.

The municipalities with the highest contribution to irregular expenditure include OR Tambo District in the Eastern Cape (R1.5bn), Nelson Mandela Bay Metro in the Eastern Cape (R1.2bn), Ngaka Modiri Molema District in the North West (R912m), Mbombela in Mpumalanga (R755m), City of Tshwane Metro in Gauteng (R653m), Bushbuckridge in Mpumalanga (R570m), Alfred Nzo District in the Eastern Cape (R405m), Buffalo City Metro in the Eastern Cape (R370m), uThukela District in KwaZulu-Natal (R304m) and Mafikeng in the North West (R304m).

The major reasons for non-compliance are linked to procurement without competitive bidding or quotation processes (42%) at R6.9bn. Non-compliance with procurement process requirements accounted for R8.5bn (52%) of irregular expenditure and non-compliance with legislation related to contract management accounted for R997m (6%) of the spend.

The findings also show that a third, or 88 of municipalities which disclosed their financial statements, incurred irregular expenditure. The full amount is still unknown and the auditor general recommended that it be investigated.

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