Municipalities’ costly fruitless and wasteful expenditure spikes to nearly R6bn

Auditor -General Tsakani Maluleke presented her annual audit outcomes of local government Picture: Thobile Mathonsi/African News Agency (ANA)

Auditor -General Tsakani Maluleke presented her annual audit outcomes of local government Picture: Thobile Mathonsi/African News Agency (ANA)

Published Jun 1, 2023


Cape Town - Nearly R6 billion has been lost in fruitless and wasteful expenditure by municipalities in just four years, says Auditor General Tsakani Maluleke .

She blamed the local government for their poor decision-making, neglect and inefficiencies for fruitless and wasteful expenditure which amounted to R5.9bn, showing a year-on-year increase since 2019.

Maluleke presented her annual audit outcomes of local government and presented observations and insights from the audits of the financial year ended June 30 2022, which covers the first year of the current administration.

For the year under review, municipalities had an estimated expenditure budget of R487.12bn to operate and deliver services.

“Local government is losing billions of rands each year because of poor decisions, neglect or inefficiencies. Fruitless and wasteful expenditure has continued to increase, and in 2021-22 it more than doubled, rising from R2.15bn to R4.74bn. Since 2019, the national audit office has also identified non-compliance and fraud through the Material Irregularity process, resulting in an estimated R5.19bn in financial loss,” said Maluleke

The material irregularity process continues to have an impact in the AG holding auditees to account where accountability has failed, she said.

Maluleke reported that the audit outcomes were in a poor state at the end of the previous administration’s term and the new administration, which was in office for half the period under review, had little impact and, as a result, did not improve in 2021-22.

“When we analysed the financial statements of the 217 municipalities with audit opinions other than disclaimed or adverse, we found 56% of them to have indicators of financial strain.

“If not attended to, this can result in significant doubt about their ability to continue operating. By year-end, just over half of all municipalities (52%) owed their creditors more money than they had available in the bank as they continued to spend money they did not have.

The total deficit in local government for the year amounted to R11.87bn, while 79 municipalities (36%) had spent more money than they had generated.

“As a result, municipalities were using their budget for the next year to cover their spending in the current year.

At 32% of municipalities, their current liabilities were more than 50% of their revenue budget for the next year.”

This means that the 2022-23 budget will pay for spending that had already taken place, either in 2021-22 or in prior financial years. The cycle was likely to continue unless municipalities reduced their spending and generated additional revenue, which is highly doubtful given the prevailing economic conditions and overall economic outlook, she warned.

Local governance expert and research fellow at the University of the Free State, DR Harlan Cloete, said the report “was almost as expected” as it showed similar details annually.

“The root cause is governance and the lack thereof. There are governance failures which is the root cause of the mismanagement. There is also the lack of accountability and municipalities are getting away with murder, with no consequence.

“A dashboard system should be implemented so municipalities can see where they are going wrong and there must be consequences. There must be stricter intervention,” said Cloete.

Policy analyst and researcher Nkosikhulule Nyembezi said: “There is a muted response from disgruntled citizens to the AG’s call for all South Africans to be ‘active participants in helping improve accountability and to hold local government accountable’, given the disdain treatment of poor and marginalised citizens by corrupt politicians and civil servants with political connections.

“It is worrying to see that current efforts to professionalise local government and combat corruption and maladministration are yielding poor results as Maluleke noted that ‘local government has been characterised by dysfunctional municipalities, financial mismanagement, council and administrative instability, and crumbling municipal infrastructure’.

“The poor dismissal record of unstable coalition local governments has accelerated not only financial mismanagement but also the deteriorating standards of living and service delivery failures, resulting in economic stagnation and deepening poverty.”

Nyembezi said the reluctance of provincial governments to intervene in cases of municipalities that received adverse audit opinions was another concern.

“Moreover, it is disturbing that even uMzinyathi District Municipality in KwaZulu-Natal, the only municipality under provincial intervention since October 2016, shows no improvement,” said Nyembezi.

The South African Government Association (SALGA) called on municipalities who received poor audits to turn around their financial management and governance.

“SALGA notes that the 2021/2022 Auditor General’s Municipal Financial Management Act (MFMA) Audit Outcomes indicate that 142 municipalities, representing 55% of all municipalities, provided credible financial statements and received clean and unqualified audits in the 2021/2022 financial year.

These municipalities were responsible for more than R351bn or 66% of the overall Local Government budget of R530bn...Furthermore, SALGA calls on the 45% of municipalities that received poor audit outcomes to work hard to turn around municipal financial management and governance to achieve the same outcomes that have been achieved by the majority of municipalities...

“However, the fact that local government could not produce credible financial statements for about a third of the finances under its control is a cause for concern.

No previous irregular, fruitless, and wasteful expenditure amount should remain unactioned at the end of the 2023/24 financial year. Equally there must be a significant reduction and eventually elimination of irregular, fruitless, and wasteful expenditure in the remaining financial years of this term. Non-submission or late submission of financial statements for audit purposes must be a thing of the past,” said SALGA.

Cape Times