October 19, 2019

Watchdog Scopa’s new chairperson bares his teeth

Mkhuleko Hlengwa, the newly elected chairperson of the Standing Committee on Public Accounts (Scopa), stepped boldly into the role at the committee’s first working meeting of the sixth parliament by calling in the office of the Auditor-General (AG) for a presentation on a disturbing recent reportback on the 2017/18 local government audit outcomes.

The previous Scopa chairperson, Themba Godi, leader of the African People's Convention (APC), set the bar fairly high in the committee’s role as parliament’s corruption watchdog, and Hlengwa is going to have to work hard to keep it that way. Following up AG reports on municipal non-compliance was a brave challenge for a first committee meeting.

The Scopa meeting, which was held jointly with the Standing Committee on the Auditor-General which was invited to co-host, was told by a delegation from the office of the AG that irregular spending by municipalities continues to rise. Of the 257 municipalities visited for the financial year which ended on 30 June 2018 only 18 received clean audits, compared to 33 last year. Of those, 12 were from the Western Cape, while the Free State got no clean audits at all.

The committee was told by a delegation from the office of the AG that irregular expenditure in municipalities was currently at a high of R71 billion. The Acting National Leader: Audits attributed this mainly to the fact that irregular expenditure was not being addressed year-on-year. The joint meeting was alerted to the declining quality of financial statements compared to last year. The key issues she raised were the late submission and poor quality of statements.

Irregular spending by municipalities continues to rise, Standing Committee on Public Accounts and Standing Committee on the Auditor-General told.

There were signs of improvements in some performance reports, but she warned that some of the performance indicators and targets were not useful, and achievements were not necessarily reliable.

In terms of non-compliance with supply chain management legislation, she said accountability was deteriorating in all provinces; she put it at its highest levels since 2011/12. Her report referred to the absence of unfair or uncompetitive procurement processes, which often lead to higher prices or potential losses and exclusion of preferential suppliers (including local suppliers), adding this “undermines the country’s social transformation goals”. The report that she presented to the committees stated that 54% of municipalities failed to get the required three quotations from separate suppliers, competitive bidding was not demanded in 45% of procurement cases and the audit showed that declarations of interest were not submitted at 37% of municipalities.

The presentation revealed that 18 municipalities had been placed under administration and the financial health of 76% of municipalities were considered “concerning” or needing intervention. Altogether, 34% of municipalities showed a deficit and 31% of municipalities were described as “in a vulnerable financial position”.

The report confirmed an overall increase in unauthorised, irregular, fruitless and wasteful expenditure, and said sufficient steps had not been taken to recover, write-off, approve or condone this practice. She emphasised this by revealing that unauthorised expenditure had increased from R11.2 million last year to R12.9 million and confirmed that nearly 100% of unauthorised expenditure was the result of overspending. Although fruitless and wasteful expenditure had decreased slightly, from R1.6 million to R1.3 million, the number of municipalities incurring irregular expenditure had slightly increased from 211 to 219.

The committees were given details on non-compliance with legislation, reporting material non-compliance with key legislation on financial and performance management at 92% of municipalities. For example, 87% of municipalities exceeded the 30-day payment period required by law (the average payment period was 174 days). R18,28 billion was owed to Eskom and R9,05 billion owed to water boards.

Sixteen municipalities had invested in the VBS Mutual Bank, which is not permitted by law. Two had withdrawn their investments before the bank was placed under curatorship, but those remaining, which affected municipalities in Gauteng, Limpopo and North West provinces, had to write off a total of R1.6 billion.

According to the AG report, municipalities had experienced “no or poor service delivery” due to “underspending of grants, poor project management and delays and non-compliance with supply chain management legislation”.

In the face of this increase in poor performance and irregular spending at municipal level, committee members wanted to know what had become of the decision to expand the mandate of the AG to give him powers to go after officials who transgressed legislation such as the Public Finance Management Act (PFMA) and the Municipal Finance Management Act (MFMA). This extended mandate came into effect on the 1st of April 2019.

The Public Audit Amendment Act, which President Cyril Ramaphosa signed into law in November 2018, was meant to give the AG more teeth in order to hold delinquent municipalities to account. The extended mandate given to the AG includes issuing him with binding remedial action that must be taken by delinquent municipalities which, if not implemented, will result in the AG issuing a certificate of debt for failure to implement against the municipal manager.

Alf Lees, a committee member representing the opposition Democratic Alliance, described the AG report as "a horror story". He said it was worrying that the AG was not using its extended mandate "robustly". 

Lees said in a statement, "In light of the dismal municipal audit outcomes this year, it is paramount that the AG shows some teeth and holds delinquent and irresponsible municipalities to account".

The committees requested that the AG submit a list of the 17 municipalities that are repeat offenders when it comes to irregular expenditure with the age analysis, indicating that they intend holding meetings with each of them. The DA's Alf Lees requested a list of the nine municipalities that still have outstanding audits.

The committees also asked for a progress report on the increasing practice of threatening AG staff members who conduct the audits. They requested the office of the AG to report cases of municipalities threatening AG staff so that they can assist by following up with law enforcement agencies on the progress of these cases.

Told of the many late submission of financial statements, or statements of poor quality that showed a decline from the previous year – more than 80% of financial statements submitted for auditing contained material misstatements – the committees called for intervention and requested the office of the AG to submit a list of all municipalities that used consultants but still submitted poor financial statements.

The joint meeting was surprised to hear that 197 municipalities had used consultants, at a cost of R9.7 million. It was also pointed out that the use of consultants has not necessarily improved the state of financial reporting, and there appeared to be no skills transfer from these consultants to the staff of the municipalities.

The worst offenders when it came to accumulated irregular expenditure were Nelson Mandela Bay Metro (EC) – R12.4 billion; OR Tambo District (EC) – R3.2 billion; the City of Matlosana (NW) – R2.8 billion; the City of Johannesburg Metro (GP) – R2.7 billion; and Mogalekwena (LP) – R1.7 billion. These five municipalities accounted for 32% of the R71.1 billion in irregular expenditure.

AG Kimi Makwetu has attributed this poor showing to lack of accountability. He said in a statement after the audit results were released that it appeared local government role-players have declined to implement the recommendations of his office, “and in many instances even disregarded” them. He added, “As a result, the accountability for financial and performance management continues to worsen in most municipalities.”

Moira Levy

Additional information provided by the Parliamentary Monitoring Group.

Additional Info

  • Author: Moira Levy
Last modified on Friday, 26 July 2019 16:36

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