MFMA 2019-20

SECTION 4: MUNICIPALITIES WITH A HISTORY OF DISCLAIMED AUDIT OPINIONS 89 was suspended in March 2021. Instability in the accounting officer position resulted in a failure to implement and regularly monitor basic financial controls, the absence of an adequate action plan, and an environment that accommodated poor performance. The municipality is under financial distress and relies heavily on the equitable share. A significant portion (61%) of the equitable share was spent on employee costs, with the remainder going to bulk purchases. It is therefore concerning that the municipality incurred fruitless and wasteful expenditure of R4 million on interest and penalties, and paid exorbitant consultant costs for financial reporting services, which equate to 96% of the finance staff salary bill. Based on the disclaimer and concerns about the accuracy, validity and completeness of the performance information, we cannot confirm that the entire total expenditure budget of R446 million, made up of R415 million operational and R30 million capital expenditure, was appropriately spent on service delivery. For example, for one project to upgrade a gravel road in Lebaleng, the municipality terminated the contract with a service provider before the project was completed but after the full amount of R4,12 million had already been paid. A new service provider then had to be appointed. A significant portion of revenue could not be recovered and there was no leadership will to implement a robust collection process. The municipality also provided for a substantial portion of revenue (98%) to be written off as it is highly unlikely to be recovered. In November 2020, the National Treasury warned the municipality about late payments to bulk suppliers. These late payments resulted in water supply shortages and numerous community protest actions around service delivery. Our site visits confirmed the continuing deterioration of wastewater treatment plants, pump stations, landfill sites and illegal dumping hotspots, which could severely affect the health and safety of the surrounding communities. Our current audit also shows shortcomings in this area. For example, we qualified bulk water purchases due to inadequate supporting documents for the expenses disclosed in the financial statements. The disastrous state of the roads around Wolmaransstad and in Kgakala, as well as the fact that the municipality’s reported achievements against the predetermined service delivery objectives were not supported by evidence, clearly illustrate the poor state of service delivery. The municipality relies on consultants to prepare the financial statements each year. Disappointingly, despite our key message in the previous year about the late appointment of consultants, they were again appointed well after year-end. They were also expected to produce financial statements in a weak control environment characterised by a lack of reconciliations and poor record keeping. For example, the municipality does not have a centralised, access-controlled location for record keeping. As a result, most of the documents required for audit purposes could not be located. Consultants were paid R15,1 million in the current year. This is equivalent to 96% of the finance unit staff cost of R15,8 million, which covers more than 60 employees, including a chief financial officer position that was filled for 10 months of the year. The cost of consultants therefore comes down to expenditure incurred in vain, as it did not result in any improvement in the audit outcome. The increasing irregular expenditure balance remains a concern and we raised a qualification on the completeness of the irregular expenditure as not all incurred irregular expenditure was included. Shortcomings include contracts that were extended or modified without the appropriate approval, a lack of monitoring of contractors, and local content requirements not being properly applied. The instability in the accounting officer position, the dysfunctional municipal public accounts committee and the lack of political will by the council to take action, contributed significantly to the increased irregular expenditure and the fact that it was not investigated. The poor audit outcomes and service delivery issues were made worse by infighting at leadership level. The provincial leadership intervened through section 139(1)(b) of the Constitution and placed the municipality under administration during 2018 and 2019. However, the appointed administrator could not intervene and experienced significant pushback from the council, including several court cases. At times, the administrator was not even allowed access to the municipal premises. As a result, most of the audit issues were not responded to and supporting documents were not submitted. The resistance to the interventions demonstrated the lack of political will to change the status quo and improve accountability. This muddled accountability totally disrupted not only the audit