A report into Makana Municipality’s financial affairs released this week by the Auditor General has revealed millions of rands in unauthorised, unsubstantiated and irregular spending and that the municipality is the defendant in several multimillion-rand lawsuits.
A report into Makana Municipality’s financial affairs released this week by the Auditor General has revealed millions of rands in unauthorised, unsubstantiated and irregular spending and that the municipality is the defendant in several multimillion-rand lawsuits.
It stated that the lack of efficient top management was the cause of its financial difficulties. In the report issued on Monday, the Auditor General (AG) expressed alarm at the lack of progress in Makana’s financial affairs as this is the third successive poor audit result.
The disclaimer, for the 2010/11 financial year, means the AG could not obtain sufficient appropriate audit evidence to provide a basis for an audit opinion. “Adequate information was not detected by the municipality’s system of internal control and constituted noncompliance with the Municipal Finance Management Act.”
Makana was among 17 local municipalities in the Eastern Cape receiving a disclaimer. The report, for the year ending 30 June 2011, pointed out that the problems that had led to disclaimers in previous years remained unchanged.
The municipality had failed to provide sufficient appropriate evidence regarding a number of expenses. These include a bank overdraft of R3.9 million, the write-off of trade payables amounting to R1.4m and the existence of debtors amounting to R16m. The municipality also could not provide supporting documents for journal entries amounting to R33m that were processed to the bank account in the general ledger.
In addition to unauthorised expenditure with a value of R47.7m, the report identified discrepancies on amounts provided by management for irregular and wasteful expenditure.
An amount of R7m in irregular spending was detected, in addition to the R3.7m disclosed by the management. For wasteful expenditure, the municipal management disclosed an amount of R743 928, but the report discovered a further expenditure of R1.6m.
The AG also found that there is a 22% discrepancy in indicators reported in the Integrated Development Plans (IDP) and the Annual Performance Report (APR). The latter did not reflect the targets set for the reported indicators.
The audit also revealed that the municipality is the defendant in several lawsuits amounting to an estimated R50m. The municipality is opposing these claims. However, it has not made any provisions in the financial statements for any liability that may result from those lawsuits.
Lack of effective management within the top management of the municipality was noted as the main cause of its financial difficulties.
During the year, the former Chief Financial Officer (CFO) Jackson Ngcelwane was suspended and investigated for possible irregularities pertaining to Supply Chain Management. He was later found guilty on two charges and was dismissed last month. The report claimed that the CFO, who is the accounting officer, failed to exercise oversight responsibility over reporting and compliance with laws and regulations and internal controls.
The municipality is faced with several challenges and among the biggest are that they have acting staff in senior positions and the current Municipal Manager Ntombi Baart is set to undergo disciplinary proceedings after allegations of serious misconduct. She has been serving a 90-day precautionary suspension.
One of the areas forming part of disciplinary investigations will be her role, as the municipality’s chief accounting officer, in continued poor audit reports. Baart was investigated by Council-appointed attorneys Smith Tabata, who recommended disciplinary proceedings.
The attorneys said her inability to provide sufficient appropriate audit evidence, information and / or documentation, giving rise to two disclaimers of opinion amounted to “financial misconduct”.
The AG released his findings on local government in the Eastern Cape this week and expressed concern about officials in key positions in the province who lacked competence and skills. He released the report for the 2010/2011 financial year, saying the audit outcomes in the province’s local municipalities had shown little improvement, with very slow progress towards achieving unqualified opinions.
Of the 45 municipalities in the province, not one of them had received the desired clean audit opinion. In his foreword to the 2010/2011 annual report, Executive Mayor Zamuxolo Peter said the council took a firm decision that a disclaimer was not acceptable and that an urgent effort was required to improve the situation.
“Having obtained two disclaimers in a row, we further recognised the challenges which needed to be addressed to improve our audit opinion and agreed to seek assistance from other spheres of government where necessary,” Peter said.
Makana received a qualified audit in 2008/2009. Peter admitted that the recent audit opinion signified
that drastic steps needed to be taken in order to improve the financial management of the municipality.
