By OVAYO MILISA NOVUKELA and ROD AMNER
Makana Municipality Speaker Mthuthuzeli ‘Mabhuti’ Matyumza has acknowledged the Auditor-General’s serious ongoing concerns about the non-compliance of the municipality’s financial systems and vows that plans are being put in place to “deal decisively with these issues”.
The Supreme Court of Appeal recently ordered the Eastern Cape government to report to a judge every three months on progress made in the Makana Municipality’s Financial Recovery Plan.
The order came in the wake of a shocking report from the Auditor-General on the municipality’s financial health. It found that the municipality’s liabilities exceeded its assets by R813-million. “Material uncertainty exists that may cast significant doubt on the municipality’s ability to continue as a going concern,” the report says.
In an interview with Grocott’s Mail on Thursday, 17 March, Speaker Matyumza acknowledged severe weaknesses in the municipality’s financial systems but said some of these issues had “emanated from previous years”.
“One thing this report does not comment on is that some good progress has been made concerning irregular and wasteful expenditure. This has decreased from forty-something million to R5-million.”
“The audit committee is developing an action sheet that will respond to these issues decisively,” he said.
“We have reached a point where we will have to enact consequence management. When the AG raises serious concerns, we cannot keep quiet. Rest assured, we are aware that we will have to make some unpopular decisions,” Matyumza said. “A clean audit is important for investor confidence.”
“But, I was not surprised by [the AG report]because we had political instability in the past, where the Accounting Officer was fighting with the [previous]mayor. That instability was at the heart of these issues. When we were trying to address problems decisively, the two bulls were fighting.
“I am happy to say that in this new council, I see stability. There is close accountability and interaction within our departments.
“We recently appointed an asset register manager. A new Chief Financial Officer (CFO) will be appointed soon. It would be good to get a CFO who is a registered accountant so that we draw our own financial statements. The AG said he could not get any reliability on the finances based on the financial statement presented.
“This speaks to the capacity of the people who are supposed to do that work. Again, I am happy to say that the organogram structure at Finance is improving. We are getting competent people.
“And Rhodes University has come on board by assisting us by seconding three accountants to the municipal finance department,” Matyumza said.
The Auditor-General report highlights that auditors could not “obtain sufficient appropriate audit evidence regarding irregular expenditure (about R340-million) as the disclosure presented in the financial statements for auditing purposes was not based on accurate and complete underlying accounting records”.
Auditors also found themselves unable to obtain documentation for R577.4-million in unauthorised expenditure. The report further raises a complaint that the municipality did not prepare the cash flow statement in accordance with prescriptions. Chaotic documentation also prevented auditors from estimating the contingent liabilities for the municipality.
The report notes that the municipality paid R5.5-million in interest on overdue payments. Auditors indicated that they were unable to obtain evidence for claims made by the municipality in its annual report showing that it was delivering services to its communities due to bad recordkeeping and vague targets.
The report stated that the financial statements submitted by Makana Municipality for auditing “were not prepared in all material respects according to [the law]… Material misstatements identified by the auditors in the submitted financial statements were not adequately corrected. The supporting records could not be provided subsequently, resulting in the financial statements receiving a disclaimer of opinion.”
According to the auditors, the municipality has been reported for several material irregularities, including a failure to keep full and proper records that were “likely to result in substantial harm to the municipality as it contributed to the material uncertainty regarding its ability to continue operations”.
A criminal investigation is under way against a senior manager in the Makana Local Municipality.
Meanwhile, the Supreme Court order stated that if the Unemployed People’s Movement considers that the reports on adherence to the Financial Recovery Plan do not reflect sufficient progress, it may apply to the court to hear an application from its side.
It also states that the provincial government’s executive committee may still decide to dissolve the municipality.
