Auditor-General finds ‘notable improvement’ in Limpopo municipalities, but raises alarm on costly consultants

“During the term of the previous administration, we saw a notable improvement in audit outcomes, especially in the adverse and disclaimed opinions of municipalities such as Mogalakwena, Thabazimbi and Modimolle-Mookgophong,” said Auditor-General (AG) Tsakani Maluleke.

The AG made this finding on Limpopo in the 2020-2021 consolidated general report on the local government audit outcomes.

Despite the improved audit outcomes in Limpopo municipalities, she said a key concern was an overdependence on external consultants to perform tasks that were supposed to be performed by municipal officials. 

“As we highlighted in our 2019-20 general report, we remained concerned about how sustainable this was, as the improvements were driven by an overreliance on consultants and audit adjustments with little to no improvements in the control environment,” added Maluleke. 

This caused municipalities in the province to spend more than R971-million on consultants for financial reporting over the past five years. This included R245-million in the 2020/21 financial year “despite municipalities employing officials who should have performed some of the functions”.

“These funds could have been spent to help individuals in key positions obtain the required skills, improve the control environment and address service delivery challenges,” said the AG. 

Despite the “excessive use of consultants”, the AG’s team identified material errors in the financial statements submitted for auditing by all municipalities except Waterberg District Municipality.

These errors were due to deficiencies in internal controls, unreliable information supplied to consultants, and poor controls to monitor consultants’ deliverables, according to the report. 

Of the 27 municipalities in the province, Waterberg District Municipality was lauded by the AG for being the only one to receive a clean financial audit. 

 

The AG’s office reported material non-compliance at most municipalities in the province.

“The most common findings related to material misstatements in the financial statements; unauthorised, irregular and fruitless and wasteful expenditure; and procurement and contract management,” read the report. 

Irregular expenditure amounted to R1.8-billion in 2020/21, largely because of non-compliance with supply chain management legislation, according to the AG report.

“Municipalities also did not sufficiently investigate and resolve 83% (R5-billion) of the prior year’s irregular expenditure closing balance of R6-billion, which thus increased to R9-billion. 

“This excessive increase in irregular expenditure heightens the risk of funds intended for service delivery being misused,” said Maluleke.

 

In addition to the R1.8-billion in irregular expenditure, municipalities racked up R3.6-billion in unauthorised expenditure, which the AG called a “significant increase from the previous year”. 

Daily Maverick has published these articles on municipal audit outcomes of each province, since the AG’s report release in June:

• Levels of financial stress – The best and worst municipal performers in KwaZulu-Natal


• Laingsburg, Kannaland and Beaufort West still identified as troubled Western Cape municipalities


• Gauteng municipalities rack up R6.6bn in irregular expenditure in a single year


• Northern Cape municipalities are in dire financial health and face collapse from unresponsive leadership


• Audits in North West reflect ‘a worsening culture of (un)accountability in the province’


• AG slams failing Free State municipalities after no clean audit in 5 years


• Eastern Cape’s ailing municipalities rack up R3.1bn in irregular expenditure

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Limpopo municipalities’ state of financial health

Maluleke said that the province’s financial health continued to deteriorate “despite consistent calls for the provincial leadership to attend to the crisis”.

https://www.dailymaverick.co.za/article/2022-06-19-more-than-quarter-of-sas-municipalities-are-on-brink-of-financial-collapse-warns-ag/

The AG singled out five municipalities (Ba-Phalaborwa, Musina, Thabazimbi, Modimolle-Mookgophong and Mopani District) as being in a vulnerable financial position, with the latter three in this state for five years. 

Of the five councils, Thabazimbi and Modimolle-Mookgophong are led by coalitions, while the remaining three are ANC-run. 

https://www.dailymaverick.co.za/article/2021-11-02-track-live-poll-results-via-daily-mavericks-customised-provincial-maps/

 

 

According to the AG report: “This indicates that the provincial interventions deployed at these municipalities were ineffective. The municipalities could not recover money from consumers for services rendered. Together with ineffective budgetary management processes, this led to delays in paying creditors.”

Maluleke explained that this was evident in the large outstanding debt of R3.2-billion, which includes interest owed to Eskom and the water boards; the average creditor payment period of 166 days; and the low expenditure on infrastructure maintenance and resultant crumbling infrastructure and poor service delivery. 

“To curb this deterioration in financial health, we urge the provincial treasury and the provincial cooperative governance, human settlements and traditional affairs department to help municipalities improve their budget and cash flow management processes, and to develop and implement strategies that will improve revenue and debt collection,” said the AG. 

In notes specific to Limpopo, Maluleke said it was concerning that all municipalities except Waterberg and Capricorn “had to make adjustments to the performance reports they submitted for auditing”.

“These misstatements occurred because corrective action was not taken to address identified control weaknesses and reviews were not adequate, which resulted in differences between the performance reported and the relevant supporting documentation,” she explained.

“If municipalities cannot account for their performance, we cannot conclude that services are being delivered consistently and at the required quality.”

 

Delayed service delivery

In a province facing severe water service delivery challenges, Maluleke expressed concern over delays in projects such as upgrading the Vondo water treatment works and constructing the Phiphidi reservoir in the Vhembe District. 

“Both of these projects were planned to have been completed by July 2020 and the delays have denied citizens their basic right to a fresh water supply,” said the AG. 

The effect of these delays, Maluleke explained, is delayed services to citizens, a continued shortage of infrastructure assets and the crumbling of existing infrastructure.

https://www.dailymaverick.co.za/article/2022-06-24-limpopo-villagers-forced-to-buy-water-with-social-grants-in-absence-of-service-delivery/

https://www.dailymaverick.co.za/article/2022-02-18-limpopo-villages-still-thirsty-for-access-to-clean-water-despite-lindiwe-sisulus-r143m-pledge/

“Leadership needs to increase oversight of project management and implement consequences for those responsible for failings,” stated the AG. DM