MFMA 2019-20

SECTION 3: STATE OF LOCAL GOVERNMENT AUDIT OUTCOMES 43 Examples illustrating challenges municipalities face in adequately investigating irregular expenditure At JB Marks , the municipal public accounts committee was not adequately resourced to enable them to properly investigate irregular expenditure to determine if the municipality had suffered any losses and if any person was liable for such losses. As a result, the council mandated the audit committee to investigate the irregular expenditure, but this committee could also not implement the requirements prescribed by section 32 of the Municipal Finance Management Act, mainly due to a lack of adequate procurement documentation. In addition, the supply chain management unit was not adequately capacitated. The audit committee was terminated on 10 March 2020 and new members were only appointed on 28 September 2020, which further hampered the investigation of irregular expenditure. The council had also not been able to adopt the oversight report for the previous financial year, contributing to a lack of monitoring of recommendations made with regard to irregular expenditure. NW The City of Tshwane Metro had a backlog of investigations into allegations of possible fraud, corruption as well as unauthorised, irregular and fruitless and wasteful expenditure. This was due to internal capacity constraints and funding challenges caused by budget cuts that hindered the municipality from contracting external consultants to assist with investigations. GP EFFECTING CONSEQUENCES It is of great concern that more than 60% of municipalities did not materially comply with legislation relating to effecting consequences. Outcomes 5% (11) 38% (75) 172 (86%) 57% (114) Status of compliance with legislation on effecting consequences The most common findings involved the lack of investigation of unauthorised, irregular as well as fruitless and wasteful expenditure. This means that sufficient steps were not taken to recover, write off, approve or condone such expenditure. In total, 96 municipalities (48%) did not investigate the previous year’s irregular expenditure, 88 (44%) did not do so for fruitless and wasteful expenditure, and 80 (40%) failed to investigate the previous year’s unauthorised expenditure. As a result, the year-end balances of these types of unwanted expenditure continue to grow. The year-end balance of irregular expenditure that had accumulated over many years (inclusive of outstanding audits) and had not been dealt with totalled R108,24 billion, while that of unauthorised expenditure stood at R71,76 billion, and the fruitless and wasteful expenditure added up to R9,28 billion. Investigations into these types of expenditure should be done in an objective and diligent manner. Councils should not write off or condone such expenditure without making sure that losses had not been suffered or that any such losses cannot be recovered. With material findings With findings With no findings