COSATU concerned at Auditor-General's report

The Congress of South African Trade Unions has noted with concern the report on South Africa's municipalities and municipal entities for the 2012-13 financial year by Auditor-General (AG) Kimi Makwetu. 

While there are some small improvements on previous years' reports, the overall picture which emerges of the quality of financial management in our municipalities is still appalling.

Out of the 319 audits completed, only 22 municipalities and 8 municipal entities achieved clean (‘unqualified') audits ‘with no findings'. This amounts to 9% of the total, slightly up from the 5% in 2011-12. These 22, says the AG, "have demonstrated impeccable levels of discipline and oversight in their financial management and operational activities".

138 (41%) municipalities received ‘unqualified opinions' but ‘with findings'. This means they have accounted accurately for the financial transactions they have carried out, but the ‘with findings' suggests that they may not have been transparent in the manner in which they conducted their activities, as there were instances where they did not follow the required processes.

84 (25%) received ‘qualified audit opinions', meaning they could not adequately and accurately account for all the financial effects of the transactions and activities they conducted and therefore the financial statements they presented were unreliable in certain areas. Many in this category gave performance information that either was not useful or was unreliable, which compromised the ability to drive effective accountability.

A further eight municipalities (2%) received ‘adverse audit opinions'. They performed similarly to those with ‘qualified opinions', except that unreliable financial statements were common in most areas, not limited to certain areas like those with qualified opinions. These eight have demonstrated extreme levels of lack of accountability for financial statements and controls have broken down everywhere.

But the most worrying statistic is that 59 municipalities (a shocking 18%) received ‘disclaimed audit opinions'. This means, said the AG, they could not provide the required evidence to enable the auditors to perform tests to satisfy themselves regarding the fair presentation of financial statements.

"The stewardship over their financial affairs is not at desirable and acceptable levels, characterised by a failure to provide credible evidence to support amounts and disclosures in financial statements. Anything could have happened to the financial resources entrusted upon them and the auditor has significant uncertainty about the financial statements, and thus unable to express an opinion on whether the financial statements can be relied upon".

Some particularly disturbing information in the report is the level of non-compliance with relevant laws and regulations, on which 90% of municipalities had ‘findings', many of which related to supply chain management, on which irregular expenditure was reported at 265 auditees (83%), mainly due to the lack of, or breakdown of, basic controls and inadequate implementation of appropriate consequences for poor performance or transgressions.

Such irregular expenditure totalled R11, 6 billion in the period under review. "We have ascertained through audit tests that R8 billion of this amount represents goods and services that were received despite the normal processes governing procurement not being followed," says the AG. "The balance of R3,6 billion is at risk due to lack of supporting documentation, and we were therefore unable to confirm whether goods and services were received or not".

In less diplomatic language, this means there has been too little control over the corrupt abuse and manipulation of tenders and procurement of goods and services and too little action to enforce the law.

Another serious charge is the excessive misuse of consultants in financial reporting.

Most municipalities used consultants to assist with the preparation of financial statements, at a total cost of R695 million, in many cases on top of the fixed cost of employing internal staff to fulfil financial management and reporting responsibilities.

The federation welcomes the criticism by the Minister of Co-operative Governance and Traditional Affairs, Pravin Gordhan, of this use of consultants - "the so-called private sector people".  He rightly asks: "Why do these consultants get paid? What are they doing in municipalities and why are they contributing to undermining our municipal financial performance as opposed to actually assisting?"

So what needs to be done to improve this still disastrous crisis of maladministration in our local government structures?

The AG makes the point that the small but slowly growing number of municipalities which are performing well proves that there is no inherent reason why all the rest cannot do so. He proposes the following "winning formula":

a) Introducing basic accounting and daily control disciplines

b) Enforcing compliance with all legislation

c) Employing staff in accounting and financial management positions with the required level of technical competence and experience

d) Calling for information and reports regularly with a view to supervising implementation of financial management improvement plan

e) Allowing the chief financial officer to be in charge of the financial records and report thereon to the municipal manager

f) The council keeping the monitoring of the financial improvement plan on its quarterly meeting agenda, and

g) The municipal manager reviewing management accounts with the chief financial officer every month.

COSATU agrees fully with all of that, but, as we say every year when these reports are published, why have not such measures not been adopted and enforced years ago? The key problem is that year after year, the AG uncovers such problems, yet there are virtually no consequences for those responsible.

The federation welcome the Minister's assurance that "tougher forms of enforcement would be implemented to deter ‘naughty people in the system'." We demand to see more action in the disciplinary hearing and the courts against these ‘naughty people'!

The fundamental challenge is a massive drive to enforce the laws against irregular and unauthorised spending and corruption, bring those responsible to court and punish those found guilty.

We must also encourage and defend the whistle-blowers who are risking their lives to expose corruption and mismanagement. After two years we still do not know who was responsible for the murder of North West ANC councillor, Moss Phakoe, when he was about to expose corruption in his municipality. Someone has not only got away with corruption but with murder.

We must find ways to enforce a culture of public service, change the mindset of those running our municipalities and insist on legal consequences for those who break the law, in particular any who are found to be corruptly using their public position to advance their private business interests.

Public representatives and their officials must either serve the people honestly and efficiently, or resign and make way for others who will do so.

Statement issued by Patrick Craven, COSATU national spokesperson, July 31 2014

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