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

23 Aug 2022

Nearly half of the 39 municipalities in the Eastern Cape are on the brink of financial collapse and are being investigated by the Hawks for corruption. According to the Auditor-General’s latest audit outcomes, only four councils across the province received clean audits. Both metros – Buffalo City and Nelson Mandela Bay – maintained qualified audits.

“While audit outcomes for the Eastern Cape province have improved in the last two years of the five years, with four municipalities having received clean audits, these improvements might not be sustainable with both metros maintaining qualified audit opinions,” said Auditor-General (AG) Tsakani Maluleke in the 2020-2021 consolidated general report on the local government audit outcomes.

The Eastern Cape is characterised by scores of municipalities either on the brink of collapse or already collapsed, debilitating strikes affecting water security and a high number of initiate deaths.

Of the 39 municipalities in the Eastern Cape, 11 are regarded as dysfunctional, 14 are considered as high risk and only 14 as low risk.

Poor state of financial health

According to the AG, poor financial management practices continued to plague Eastern Cape municipalities. Management did not adequately promote transparency and accountability or safeguard the public purse against all possible abuses.

https://www.dailymaverick.co.za/article/2022-08-16-premier-shuffles-eastern-cape-cabinet-with-eye-on-anc-december-conference-says-opposition/

The AG report shows how most municipalities are so broke that they are struggling to pay Eskom, which they owe R839-million. They also owe water boards R347.2-million and have incurred water losses amounting to R569.8-million.

However, the situation is even more dire. In response to questions from the DA, former Cogta MEC, Xolile Nqatha, revealed that the collective municipal debt owed to Eskom as of 30 April 2022 was spiralling out of control and is fast approaching the R3-billion mark – currently at a staggering R2.85-billion. These are the municipalities that owe the most:

Enoch Mgijima Local Municipality – R743m.

Walter Sisulu Local Municipality – R444m.

King Sabata Dalinyebo Municipality – R132m.

Raymond Mhlaba Local Municipality – R265m.

Inxuba Yethemba Local Municipality – R325m.

Dr BeyersNaudé Local Municipality – R285m.

Despite the financial constraints, municipalities still did not use allocated funds responsibly. The salary bill for all of the municipalities within the province exceeded the equitable share of R11.2-billion received from the national government and competed with service delivery for the limited government funds.

Irregular expenditure amounted to R3.1-billion, which added to the irregular expenditure incurred in previous years of R24.1-billion that had not been investigated.

Nelson Mandela Bay Metro, Buffalo City Metro and Nyandeni are the top contributors to the irregularities, at R1.4-billion, R311.2-million and R251.3-million, respectively.

The Hawks are investigating more than 40 fraud and corruption-related cases in 17 of the Eastern Cape’s 39 municipalities, and the NPA has, as of April 2022, obtained some notable convictions in these cases.

The municipalities under investigation are: Buffalo City Metro, Nelson Mandela Bay Metro, OR Tambo District Municipality, Chris Hani district, Amathole district, Alfred Nzo district, Engcobo Local Municipality, Enoch Mgijima, Inxuba Yethemba, Ndlambe, Great Kei, Amahlathi, Port St Johns, Sakhisizwe, Mbhashe, Walter Sisulu and Mnquma.

As part of the national intervention programme to halt the financial mismanagement, political instability and infighting in the Eastern Cape, the government has taken control of eight municipalities red-flagged by National Treasury as being on the brink of collapse and requiring urgent intervention. They are OR Tambo, Amathole and Chris Hani district municipalities and Makana, Amahlathi, Walter Sisulu, Enoch Mgijima and Raymond Mhlaba.

Fiscal management issues in Nelson Mandela Bay have impacted the public healthcare system as state hospitals face collapse in the wake of staff shortages, broken equipment, basic drug stockouts, emergency surgery delays, a specialist doctor brain drain, slashed operating times, a lack of nurses and a sharp rise in the neonatal death rate.

https://www.dailymaverick.co.za/article/2022-08-18-nelson-mandela-bay-state-hospitals-face-collapse-doctors-resign-on-unprecedented-scale/

In notes specific to the Eastern Cape, the AG’s office said both metros were losing millions of rands because they were not billing customers for services and because of irregular spending. Both metros received qualified audit opinions with findings, and have maintained the opinions for the past two consecutive years.

With specific reference to Buffalo City, the AG reported that the metro did not bill a “number” of customers for water services provided during 2019-2020, “resulting in a likely financial loss of R9.6-million”.

The AG said this was caused by several control deficiencies, including a lack of integrated processes and systems between the municipality’s directorates, as well as delays in updating systems and registers that linked water meters per property. These issues were addressed and billing started from 2020-2021. The municipal manager launched an investigation to identify the responsible officials.

According to the AG, in Nelson Mandela Bay a major issue was irregular expenditure worth R1.4-billion, mainly due to “awarding contracts based on deviations that were not justifiable”. In addition, the metro did not investigate “most of the prior year’s irregular expenditure, ending with a closing balance of R17.7-billion”.

Nelson Mandela Bay’s municipal account committee was also flagged for last dealing with irregular expenditure in November 2019.

The AG also notes a material irregularity issued to King Sabata Dalindyebo municipality for interest incurred due to late payments to Eskom and the SA Revenue Service, which has encouraged the municipality to implement a revenue recovery plan.

Amathole district municipality (ADM) has been in dire straits for at least five years. The AG said that despite interventions by the provincial government, ADM had not yielded any noticeable progress.

The AG has urged the provincial leadership in the Eastern Cape to take swift action to strengthen the control environment and instill accountability to ensure that objectives within the province are met.

Daily Maverick has previously published stories on the municipal audit outcomes of several provinces:

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

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

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

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 DM

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Poor state of financial health