The Auditor-General South Africa (Agsa) has told sordid tales of metropolitan municipalities that have either stagnated or regressed in their audit findings.
Agsa business unit leaders who oversee the metros across the provinces on Tuesday briefed parliament’s standing committee on public accounts (Scopa) on the financial performance of at least four metros.
The City of Ekurhuleni received a qualified audit opinion with findings, a regression from its previous two-year streak of unqualified audit outcome.
Agsa’s Tlamelo Ramantsi told the committee that the material findings stemmed from procurement and contract management as well as contract performance.
“Some contracts were awarded to bidders based on points given for requirements that differed from those stipulated in the original invitation of bids. Contract performance was inadequately monitored, with insufficient measures in place to ensure effective contract management.”
This audit outcome and qualification, according to Ramantsi, was driven by one audit paragraph that to some extent indicates that this is not a complete breakdown of the reporting quality of the annual financial statements.
“In the performance report, we have not had material findings throughout the past four years in the area of audit of performance, which is a demonstration that the controls in the main are intact.”
He expressed concern at the municipality’s level of compliance with legislation, suggesting that the source of the problem is breakdowns in procurement and contract management indicated by the material findings.
The municipality also faced a data breach, which resulted in what the AG described as an inadequate design and implementation of IT controls to prevent and detect unauthorised access to financial reporting systems.
“The qualification area was driven mainly by the unauthorised access to the consumer master data, which resulted in the wiping out of some consumer data from the system. When we tried alternative audit procedures, it became apparent that we could not.”
This resulted in Ekurhuleni’s inability to construct that master data, so the AG could not audit it through alternative means.
The city was also called out for its weak internal controls.
“Our overall assessment is that the internal audit and audit committee was assessed as partial control mainly due to a breakdown that internal audit could not identify and assist management in closing those gaps, control failures in the supply chain management environment as well as the ICT space.”
Despite the concerns, Ekurhuleni was commended for a relatively stable administration leadership.
“The city manager who has recently been appointed has been in the environment for a substantial number of years, he has demonstrated in-depth understanding, and he could deal with all the issues, material and otherwise, to address the audit parities.
“We have no reason to doubt the skill associated with the top administrative leadership in the city.”
However, the city received a lashing for its lack of compliance with legislation related to supply chain management processes.
“The majority of the indicators and audit priorities have no findings, and we have seen this over a number of years. It is safe to say that in terms of expenditure management and procurement and contact management, breakdowns persist.
“An analysis of the procurement finding relates mainly to deviation management, and we see that deviations are not supported by the urgency required to be demonstrated.”
Another systemic area identified pertains to the specifications sent out to the market.
“There are just too many discretions and inconsistencies in the evaluations [according to specifications]. There is deviation from the specifications which is against the prescripts, and this continues to be a matter of systemic audit findings,” he said.
Ramantsi told Scopa the city’s contract management ought to be highlighted, because during their audit they identified continued instances where contracts are not adhered to in management processes as supported by the service-level agreements and continue to show breakdowns.
“Another major supply chain management observation is the unfair disqualification of otherwise qualifying bidders which inherently is not fair. There are contract performing and monitoring processes which are simply not in place. Even if they are in place, we continue to see breakdowns that result in inadequate monitoring of those. We see potential misrepresentations.”
Meanwhile, the City of Tshwane received its third consecutive qualified with findings outcome.
The metro was accused of not providing assurance given the systemic matters that have impacted the audit focus areas.
We continue to see serious challenges in infrastructure planning, delivery and maintenance. We also continue to see major projects in housing, water and electrification having been delayed for years. We also see poorly maintained infrastructure which is undermining the delivery of basic services.
— Vanuja Maharaj, business unit leader overseeing KZN
Despite receiving a nod for the stability of its section 56 managers who lead the administration, the AG conceded that the municipality could use a skills injection to improve its audit performance.
“Our assessment of the leadership is that there has been relative stability as far as the administrative leadership is concerned. But the skills levels at that top administration can be improved given the sustained qualified audit opinion that could have been resolved some time back already.”
The AG’s office explained that the basis of the qualified opinion was due to its property, plant and equipment area, saying the infrastructure and community assets were not valued and that assets were recorded at inflated values.
In addition, the municipality faced contingent liabilities, with a limitation of scope due to a lack of complete and accurate registers.
Ramantsi told Scopa that Tshwane was on the lookout for progress as there were signs of improvement on their oversight mechanisms.
“In the past, we didn’t have issues around governance and oversight ― however, issues emerged in the year that has recently been concluded and there are noticeable improvements in what they’ve scoped.
“We have seen some green shoots regarding the turnaround, however, those will be confirmed in the upcoming audit cycle.”
In KwaZulu Natal, the Ethekwini metropolitan municipality seems to be doing slightly better than its counterparts, having received an unqualified audit opinion with findings.
But business unit leader overseeing KZN, Vanuja Maharaj, told Scopa that the overall picture of the metro remains concerning.
“We continue to see serious challenges in infrastructure planning, delivery and maintenance. We also continue to see major projects in housing, water and electrification having been delayed for years. We also see poorly maintained infrastructure which is undermining the delivery of basic services.
“As far as the capital expenditure and operational budgets, they are not in a position to meet ongoing infrastructure challenges.”
Vanuja said there was a challenge with institutionalising accountability.
“Action plans have been developed, but they are not effectively implemented or monitored, so it lacks real commitment to change.”
The AG team decried widespread non-compliance where laws and regulations are routinely ignored with controls not functioning.
“Consequence management has also not been consistently enforced, and without consequences, there will be a culture of impunity.”
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