By Luvuyo Mjekula
The Auditor General (AG) slapped Makana Local Municipality with a fourth straight disclaimer audit opinion this week, citing a culture of non-accountability, non-reporting, no progress and a lack of processes in the system.
The AG said, as it is, the municipality cannot be trusted with money.
Having to audit the municipality’s financial statements comprising its financial position as at 30 June 2023; financial performance; changes in net assets; cash flow statement and the statement of comparison of budget and actual amounts for the year that ended; as well as the notes to the financial statements, including a summary of significant accounting policies, proved impossible for the AG.
In his report, tabled, in person, at an ordinary council meeting at the City Hall in Makhanda on Tuesday this week, he said he was “unable to obtain sufficient appropriate audit evidence to provide a basis for an audit opinion on the financial statements”.
Chief among the deficiencies that formed the basis for the disclaimer of opinion was the municipality’s failure to fully record irregular expenditure in the notes to its financial statements as required by section 125(2) (d) of the Municipal Finance Management Act (MFMA).
“Expenditure incurred was in contravention with supply chain management requirements, and I was unable to determine the full extent of the impact as it was impracticable to do so.”
The report stated that the AG could also not confirm fruitless and wasteful expenditure in the financial statements as the amount of R4.7m disclosed was not based on accurate and complete underlying accounting records.
Furthermore, the AG was unable to determine whether any adjustments were necessary to the unauthorised expenditure stated at R779.3m stated in the financial statements.
On other matters, including consequence management, the AG report stated that allegations of financial misconduct laid against officials of the municipality had not been investigated as required by the MFMA. Also, goods and services with a transaction value of below R200 000 were procured without obtaining the required price quotations, in contravention of SCM Regulation 17(1)(a) and (c).
The AG said the biggest concern was that the municipality was spending minimally on [service delivery], and the value of assets was deteriorating.
More reasons for the disclaimer opinion included the following:
- The AG was unable to obtain sufficient appropriate audit evidence for property, plant and equipment.
- Was unable to obtain sufficient appropriate audit evidence for investment property as the amounts disclosed did not agree with the underlying records. “Consequently, I was unable to determine whether any adjustments were necessary to the investment property, stated at R187.9m.
- There was not enough evidence for heritage assets as amounts disclosed did not agree with underlying records.
- Was not able to obtain sufficient appropriate audit evidence for inventories.
- Unable to obtain sufficient appropriate audit evidence for unspent conditional grants as the amounts disclosed in the financial statements did not agree with the underlying records.
- Not able to obtain sufficient appropriate audit evidence that revenue from both exchange and non-exchange transactions had been properly and completely accounted for in the current year due to the status of the accounting records.
- Lack of adequate systems and processes for record management hampered auditing of employee-related costs.
- On finance costs, the municipality did not recognise interest incurred on employee benefits obligations.
- Unable to obtain evidence for contracted services due to lack of adequate systems and processes for record management.
- Bulk purchases could not be confirmed due to a lack of adequate systems and controls to account for record management.
Bulk electricity losses, financial instruments and risk management, statements of changes in net assets as well as deviations from supply management regulations also formed the basis for the adverse audit outcomes.
In a stern address to the Council, the AG emphasised there was no time for talk but action in order to turn things in the institution around.
“I don’t want to be the speaker of doom, but it is now or never for the municipality to turn its situation around.”
He said it had become a foregone conclusion that Makana would obtain a disclaimer. “It is now an expectation.”
The AG said Makana’s was one of only a few audits where he made a note of coming in person, investing his time and his portfolio’s resources.
Incidentally, Makana was one of only three municipalities in the Eastern Cape to receive a disclaimer audit outcome in the final audit. The other two are Sunday’s River Local Municipality and Amathole District Municipality.
He said the last time he was in Makana Municipality; he had told the council it was time to stop talking and time for action. Reflecting on those conversations, he said there was unfortunately no evidence of progress towards improvement.
The report was met with mixed reviews in Council. DA leader in Makana, councillor Luvuyo Sizani, expressed disappointment. “It is similar to previous [audit]reports. It is becoming a culture that a disclaimer is coming. The issue of document keeping is simple… It can’t be that in this day and age, people are still not properly keeping documents,” Sizani asserted.
ANC councillors welcomed the report, one calling it painful and another calling for heads to roll and for unpopular decisions to be made.
Mayor Yandiswa Vara welcomed the report, saying it painted a bleak picture but was a true reflection of the status quo in Makana. “We have taken note of the report; it is not a good picture. A fourth disclaimer – it’s not nice, along with the impact it comes with. It’s painful.”
Municipal manager Phumelele Kate shared the mayor’s sentiments. “[The current state of the municipality] is not acceptable. We need to clean out our books.” Kate said they were putting plans in place to turn the situation around and were already involved in serious discussions.
Vara assured the AG that when he returned to Makana at the beginning of the next financial year, in April, there would be improvements.
According to Council Speaker Mabhuti Matyumza, a proposal had been submitted that all relevant stakeholders of the institution would meet on Thursday 1 February, to discuss the report, along with external support, apparently sought to provide expert advice and assistance. “We must support both the mayor and the municipal manager to change the status quo. All councillors and relevant offices must attend so we can discuss the report, including the audit action sheet,” said Matyumza.
