MFMA 2019-20

142 Consolidated general report on the local government audit outcomes • MFMA 2019-20 seven material irregularity notifications to the accounting officers at four municipalities relating to interest incurred due to not paying suppliers within 30 days or the agreed time frames. Leakages due to unmaintained and deteriorating infrastructure, unmetered consumption and illegal connections crippled an already strained financial system. This resulted in municipalities suffering significant water and electricity losses. As at 30 June 2020, the municipalities on which we report had creditors amounting to R6 billion and cash of only R1,3 billion. These figures increase to R15,1 billion and R1,8 billion, respectively, if we take into account the seven audits signed off after the cut-off date. The available cash at year-end could not settle the current municipal debt, which means that the next year’s budget will have to finance the existing debt, jeopardising the municipalities’ ability to realise the next year’s priorities. Limited progress has been made at the municipalities that the province put under its mandatory intervention three years ago, in terms of section 139(1)(a) of the Municipal Finance Management Act. The provincial cooperative governance department and the provincial treasury assisted the municipalities with developing and implementing financial recovery plans. However, this did not bring about any improvements, mainly due to weaknesses in the billing system and a lack of commitment by municipal leadership and management to respond appropriately to the weaknesses. The management and monitoring of infrastructure projects was ineffective. A total of R1,5 billion in conditional grants (R2,8 billion if we include the seven subsequently completed audits) for infrastructure development was allocated to municipalities. However, accounting officers did not effectively monitor the related spending and performance of contractors in order to derive the intended efficiencies and quality. This indicated that the project management units did not function as expected. At Emakhazeni, we identified deficiencies in the project for the phased closure and rehabilitation of the existing waste disposal site and the commissioning of a waste disposal site at Belfast, valued at R16,5 million. After conducting a site visit, we noted project deficiencies such as overclaiming certain items on the payment certificate, items claimed in excess of the bills of quantities, quantities paid but not found on site, and overpayments for fencing materials and installation. The deficiencies translated into fruitless and wasteful expenditure of R4,7 million. Although the contractor had completed the project at year-end, the landfill site had not yet been decommissioned and quality defects had not been corrected, leading to waste being dumped illegally. The municipality will incur additional costs to remove the illegally dumped waste from the site, which could have been avoided had the implementation of the infrastructure project been adequately monitored. Due to non-adherence to laws and regulations as well as a lack of consequences, the province continued to struggle with preventing unauthorised, irregular and fruitless and wasteful expenditure. Municipalities procured some goods and services without adhering to relevant supply chain management legislation, which contributed to the irregular expenditure balance. The province has yet to deal with a high balance of R3,5 billion in irregular expenditure, of which R874,9 million related to the current year. This balance increases to R5,4 billion (of which R1,3 billion relates to the current year) if we take into account the seven audits subsequently finalised. Most municipalities do not have controls to enable adherence to the relevant legislation, let alone to detect any non-adherence. The covid-19 pandemic also put a spotlight on the weak controls around procurement processes. This was evident at four municipalities (eight if we take into account those audits subsequently completed) that were not able to accurately account for their irregular expenditure amounts and that had irregular expenditure as one of the modification paragraphs in their audit reports as a result. While we continued to report on the non-adherence that gave rise to undesirable expenditure, some councils did not investigate the unauthorised, irregular and fruitless and wasteful expenditure reported in prior years. In most instances where councils had investigated such expenditure, they had concluded that no one was liable. While we acknowledge the effort that the councils are starting to put in to address the unauthorised, irregular and fruitless and wasteful expenditure balances, we remain concerned that the process might be superficial, as most of these investigations are not resulting in any consequences being implemented. Because of the internal control weaknesses highlighted above, only three municipalities improved their audit outcomes for the 2019-20 financial year. Even after taking into account the audits that we signed off after the cut-off date, this