A damning report on the state of Makana Municipality's administration has sent officials into a flurry to explain failings such as "fruitless, wasteful, irregular and unauthorized expenditure".
A damning report on the state of Makana Municipality's administration has sent officials into a flurry to explain failings such as "fruitless, wasteful, irregular and unauthorized expenditure".
The Auditor General's report, released earlier this month, and tabled for discussion at a Special Council Meeting on Tuesday, has given Makana Municipality the least favourable rating possible for the 2009/10 financial year, namely, a Disclaimer.
This means the auditors do not express an opinion on the financial position of an organisation, because the source documentation wasn't satisfactory, or because the audit is not broad enough in scope for them to be able to form an opinion.
While this undoubtedly makes things awkward for municipal officials, as the city's management puts pressure on them to locate supporting documents, it's the bosses themselves who have some explaining to do after the AG's report's excoriating assessment based on the information that was available.
According to the report, the municipal administration is guilty of:
* Mismanaging municipal finances, including neglecting bank reconciliation;
* Not complying with legal requirements, for example consultation protocols;
* Fruitless, wasteful, irregular and unauthorised expenditure;
* Exceeding budget by about R24.5 million;
* Irregular expenditure to the tune of 19.8 million;
* Not disclosing or recovering an irregular expenditure of R58 637 relating to the discretionary use of an official vehicle for private purposes granted to the Mayor.
Leaving the municipality's top management little place to hide, Makana's internal audit committee chairperson, Chris Mbekela, cites "lack of leadership at the strategic apex" as being among the reasons for the problems the report highlights.
"There has been a competition between Adverse and Disclaimer, Adverse and Disclaimer," said Mbekela, referring to the Auditor General's report. He was presenting the internal audit committee's report at Tuesday's Special Council meeting, which looked at the draft annual report for the Makana Municipality.
This annual report incorporates the AG's audit for the year ending 30 June 2010. Mbekela urged the councillors to accept the AG's report as a true reflection of the state of the municipality, as had his committee.
"The system of internal control over financial reporting for the period under review was not efficient and not effective," Mbekela said. "Further, management response to the control environment was lacking in many instances."
Mbekela said the municipal management faced many teething challenges, and these should be read in conjunction with the AG's report. They included weak and fragile administration characterised by sluggish performance – "lack of leadership at the strategic apex" – which he said should be providing technical direction; and a lack of reliable information.
The AG had criticised the municipality's administration for not providing sufficient audit evidence for indicators of basic service delivery and Infrastructural development, such as the upgrading of Howieson's Poort and the installation of street lights.
Referring to the AG's report, Mbekela said the finances of the municipality were prone to mismanagement and maladministration and the bank reconciliation function was neglected. He said this problem had been raised frequently.
Another persistent problem he noted was non-compliance with legal requirements. For example, the AG's report revealed that, "The municipality has not afforded the local community at least 21 days to comment on the final draft of its integrated development plan before it is submitted to the council for adoption as per regulation 15 of Municipal Systems Act. "The local community has been afforded only five days to review and comment on the final draft of the IDP."
The municipality also fell short when it came to obtaining approval for exceeding electricity tariffs set by the National Electricity Regulator of South Africa.
"Fruitless, wasteful, irregular and unauthorized expenditure" had been highlighted in the AG's report, he said, which stated that fruitless and wasteful expenditure to the amount of R2.7 million had been incurred as a result of electricity and water losses above the threshold.
The AG had also reported that the budgets of a number of departments had been exceeded, totalling about R24.5 million. Irregular expenditure, the AG had reported, was to the tune of 19.8 million. Payments amounting to this figure had been made in violation of supply chain management requirements.
In addition, an irregular expenditure of R58 637, which resulted from the discretionary use of an official vehicle for private purposes granted to the Mayor, had not been disclosed or recovered. Mbekela said the water crisis had made things worse, causing discontent and animosity in the community of Grahamstown.
Makana Mayor, Vumile Lwana said the key issue raised in the AG's report was that the municipality's information management was not up to scratch. He said in terms of the six key performance indicators for areas such as Local Economic Development, Institutional Transformation and Organisational Development were below standard and the community knew this.
Lwana expressed disapproval in relation to proposed adjustments to the budget, to compensate for poor performance in certain areas of service delivery, saying the institution needed to be intolerant of mediocre performance.
Councillor Zamuxolo Peter supported Lwana's sentiments and proposed that the process of approving of the draft annual report be deferred. They needed to discuss and "reconfigure" issues raised by the AG's report, so they could pronounce their position on the situation.
Peter's proposal was seconded by councillor Thandeka Veliti. "We have a responsibility to manage the ratepayers' money," he said.
Just how bad can it be?
The office of the Auditor General has the responsibility in terms of the Municipal Finance Management Act 56 of 2003 to conduct an audit on the performance of each municipality, each financial year. This audit includes financial activities and record-keeping, and legal compliance.
The AG's report is qualified by one of these four descriptions:
(i) Unqualified Audit Opinion – No issues. The institution followed all accounting rules appropriately and the financial reports are an accurate representation of its financial condition.
(ii) Qualified Audit Opinion – This indicates that there are issues that the institution will have to deal with within the period of a year.
(iii) Adverse Audit Opinion – Indicates a number of serious issues with the audit, that must be addressed. (iv) Disclaimer Audit Opinion – Statement by the auditors that they do not express an opinion on the financial position of an institution, because they were not supplied with credible source documentation; or, the audit was not broad enough in scope to enable them to form an opinion.
