Towns in the Vhembe district, whose local authority lost R369 million due to the collapse of VBS Bank. This meant it couldn’t pay for repairs and maintenance of water pipes and boreholes, which resulted in water interruptions. Photo: Sarel van der Walt
  • The latest report from the auditor-general into local government financial management found shocking instances of fraud and lack of financial control.   
  • In total, irregular expenditure exceeded R32 billion.
  • Some of the examples include municipal money used for clothing and cookware, as well as botched multi-million-rand infrastructure projects.
  • For more articles, go towww.BusinessInsider.co.za.

Shocking financial mismanagement continued at many South African municipalities in the past year, the latest report from the Auditor-General (AG) into local government found.

The AG, Kimi Makwetu, titled his report “Not much to go around, yet not the right hands at the till”, and it shows enormous unauthorised, irregular, fruitless and wasteful expenditure – as well as "inaccurate and lacklustre revenue collection".

Many municipalities are crippled by debt and unable to pay for water and electricity.

Only 8% of municipalities received a clean audit, and on average they took 180 days to pay creditors. Irregular expenditure exceeded R32 billion – up from R24 billion in the previous year.

Here are some of the worst instances of municipal mismanagement.

Madibeng: Municipal money was used to pay for clothes and AMC cookware

The municipality, centred on Brits, lost R31.5 million in the VBS Bank collapse. The municipal manager and chief financial officer both resigned, but no further action has been taken, the AG notes.

Debit orders against the municipality’s bank account were used to pay accounts of private individuals for items such as clothing, DSTV, and AMC cookware.

“Despite reporting this to the municipal public accounts committee as well, no investigation or action has been taken to stop these transactions or to recover the money from the individuals and safeguard the municipality from continuing to incur financial losses.”

Metsimaholo: Civil servants classified as 'indigent'

Situated in Sasolburg, the council comprised of various political parties, which made the functioning of the council and decision-making difficult, says the AG. The council couldn’t decide on appointments, which resulted in vacancies in all senior manager positions since 2017. Also, civil servants and individuals doing business with government are listed on the municipality's indigent register, which means that they are exempted from certain payments. Additionally, more than 2,600 dead people are also still included on the indigent register. 

In the previous year, the municipality also spent almost R22 million on the Oranjeville Sports Complex. “For the amount spent, only a fence was visible during our site visit,” the AG says.

“We reported some of these findings in prior years and the municipality’s leadership did not take any action to address them.”

Fezile Dabi District: Double disaster with financial statements

Also situated in Sasolburg, with Metsimaholo as one of its administrative areas, the district’s financial statements were prepared by two different consulting firms. The first consultants were paid R300,000 to prepare the financial statements – but the municipal manager rejected the statements, citing "poor quality".

“However, no action was taken by the municipality to ask the consultants to re-perform the work or recover the funds paid to them,” the AG found. The second set of consultants were paid R1.6 million for the preparation of a completely new set of financial statements. “Based on our findings on the financial statements, it is clear that the second firm of consultants did not apply due care when preparing them. No action was taken against the officials for poor performance. Moreover, no action was taken against the second consultants for the poor delivery that resulted in the regression of the audit outcome.”

Dihlabeng: Millions spent on a shoddy road

Situated in Bethlehem, the municipality spent R1.5 million more on a new tarred road than budgeted – and the project was also completed six months late. When management inspected the road immediately after completion, they identified cracks and patches, as well as the absence of stormwater channels in critical sections. “This led to the recording of an impairment of R3.5 million in the financial statements,” says the AG. “No consequences had been implemented against the contractor or the official who allowed the project to be completed with poor-quality workmanship at a cost higher than the contract value.”

The municipality also paid a contractor R9.5 million for the construction of the Clarens Water Treatment Works. “However, when we visited the site we found that no work had been done. We then identified that R3 million had been paid for the project’s designs and R6.5 million had been used by the contractor to purchase the material for the project, but this was stored at his own premises,” the AG said.  

Moqhaka: Sewage contaminates drinking water

The municipality did not undertake the necessary repairs and maintenance at the Kroonstad Wastewater Treatment Works, resulting in the collapse of a newly-activated sludge plant, flooding the old biological plant with raw sewage, the report found. This sewage was pumped into the Vals River (a tributary of the Vaal River) – the town’s main source of drinking water. 

“The spillage of sewage above the drinking water extraction point resulted in unnecessarily high purification costs for the municipality. Additionally, the municipality lacked skilled and experienced personnel to ensure the wastewater plant’s continual maintenance and repairs. Due to the lack of preventative controls, the municipality spent a lot of money to remove the sewage from the river, which could have been avoided. No action was taken by the council against the officials responsible for these municipal failures,” according to the report.

Nala: No internal audits for five years

The internal audit unit at the municipality, situated in Bothaville, has not produced any reports for the past five years, despite paying salaries of R800,000 per year. This was because the head of internal audit did not have the relevant qualifications and skills.

Mopani District: Suspect spending of drought relief money

The district received R85 million in drought relief in March 2019, to establish boreholes in drought-stricken areas. Almost R60 million was spent by June last year, however the AG found evidence of duplicate payments, payments made without evidence that work had been done, and money paid for water provided through water tankers instead of being used on boreholes.

Collins Chabane: Big payment to the wrong person

A payment of R900,000 was made to the wrong supplier, and the municipality only managed to recover around R225,000 of that amount.

Modimolle-Mookgophong: No investigation of dodgy spending

Millions in irregular, unauthorised as well as fruitless and wasteful spending at this local municipality in the Waterberg was not investigated.

“The three main political parties in the council could not reach consensus on the process that needed to be followed in conducting an investigation into such unwanted expenditure. In some instances, the expenditure was condoned without any consideration of the circumstances under which it had been incurred,” the AG found.

Vhembe District: VBS was just ignored

Vhembe lost R369 million due to the collapse of VBS Mutual Bank, which meant it couldn’t pay for repairs and maintenance of water pipes and boreholes, which resulted in water interruptions.

Still, the municipal public accounts committee recommended to council that irregular as well as fruitless and wasteful expenditure relating to prior years be condoned without being properly investigated. “Such actions make the oversight of these committees questionable,” the AG found.

The municipality also processed payment for the same supplier invoice twice, amounting to more than R1.1 million.

Bela-Bela: 'Leadership simply does not care'

The AG was scathing in its assessment of the municipality, which also didn’t address problems with irregular, fruitless and wasteful expenditure.

“As far as the audit outcomes are concerned, there was no improvement at the municipality and no collective effort by the political leadership to address outcomes and service delivery issues (for example, the roads in town are in a very poor condition), despite the town being a popular tourist destination. The perception is that leadership simply does not care.”

Victor Khanye: Accounting system down for six months

The AG found a “complete breakdown” in internal controls at the municipality. The accounting system did not work for half of the year, with the result that the municipality transacted through the bank without recording the transactions on the accounting system.

Dr Ruth Segomotsi Mompati District: A VBS investor reinstated, R25 million spent on accounting ‘without any value being realised’

The district is in severe distress after losing almost R151 million due to the VBS collapse. “The suspended municipal manager, who was responsible for this investment, was reinstated without any actions being taken despite recommendations to the council by the disciplinary board in this regard,” the AG found.

It received almost R130 million from government for infrastructure, but these projects were not completed in the previous year, the AG also found. "This caused an uproar in the community and led to protest actions.”

There was a lack of basic controls, and consultants were used because a chief financial officer was not appointed. “We noted evidence of deteriorating accountability on the part of the municipality’s management, as all processes during the audit were led by the consultants. The basic errors identified in the financial statements were indicative of a lack of review and proper monitoring of the work done by the consultants. The finance unit, consisting of 25 staff members, had a salary cost of R9,3 million and a further R15,6 million was spent on consultants without any value being realised,” the report found.

Mamusa: Documents stacked on floors, infighting, and threats

Located in the town of Schweizer-Reneke, the municipality has received 11 consecutive disclaimed opinions for its audits. “They did not have a proper records management system, as documents were not kept in a strongroom or even in file cabinets. Instead, documents were stacked against the walls on office floors,” the AG said.

The AG also found the “most severe political infighting”, and says political leadership did not take responsibility for the audit process.

The municipality’s administrator received numerous threats and was prevented access to the municipal buildings by the protesters.

The council has been dissolved.

Maquassi Hills: Two people in the same job

Located in the town of Wolmaransstad, the municipality is currently under administration. The council appointed a municipal manager and the administrator appointed a different municipal manager, with the result that the municipality had two accounting officers.

“This muddled accountability totally disrupted not only the audit process but also the operations of the municipality, as no decisions could be made or actioned,” the AG said.

Ngaka Modiri Molema District: Overpayment for water tankers that travelled further than physically possible

There was a frequent overpayment for water tanker services in the district. The district failed to ensure that claims received from the supplier were appropriately checked before payments were made, resulting in payments made for distances longer than those actually required to be travelled to deliver water to rural communities, the AG found.

Lekwa Teemane: No money left

The municipality, situated in Christiana (which also includes the town of Bloemhof) is on the brink of collapse, the AG found. After its debt payments, there is almost no money left to pay operational expenses. “Due to these cash-flow constraints, the municipality used [infrastructure] grants to fund their operations, which in turn affected service delivery as funds earmarked for capital projects to improve infrastructure were misspent."

Emakhazeni: ‘Complete breakdown’

The AG found internal financial controls had completely broken down. “The municipality relied on consultants to do bank reconciliations, assist with the management of the asset register and also prepare financial statements, despite having individuals employed in the finance unit to do so.”

Receive a daily update on your cellphone with all our latest news: click here.

Get the best of our site emailed to you daily: click here.

Also from Business Insider South Africa: