While unauthorised expenditure by South Africa’s municipalities has declined year-on-year, irregular expenditure has recorded a R2-billion increase as municipalities failed to follow legislated procurement procedures, the latest Auditor-General South Africa audit has revealed.

Unpacking the 2012/13 audit outcomes for municipalities and municipal entities, which had a combined total expenditure of R268-billion, Auditor-General Kimi Makwetu explained the irregular expenditure was prevalent in 265 – more than 80% – of the 319 municipalities audited.

regular expenditure, at R11.6-billion for the period under review, had increased signifi- cantly from the R9.32-billion reported in the prior year.

Makwetu said this was the result of a “signifi- cant breakdown” in controls, with the munici-palities and entities entering into trans-actions valued at a collective R8-billion without following the prescribed and transparent supply chain protocols.

While the goods and services were received, Makwetu said, the audit had identified weak-nesses in the procurement process and contract management of 74% of the municipalities, with 29% unable to provide evidence that their procurement processes had complied with legislation.

“The value of these controls cannot be emphasised enough, as they are an important mechanism to narrow the space for widespread abuse of the public resources that are required to provide services to citizens,” Makwetu stressed.

The audit report showed that about R95-million in contracts had been awarded to suppliers in which employees and councillors had an interest, and contracts valued at R455-million were awarded to suppliers that other State officials had an interest in.

The report explained that employees and councillors did not declare their interests in 35% of the contracts they received and, in 83% of these, suppliers did not declare that officials, councillors or other State official held a financial stake.

Further, the noncompliance with legislation had resulted in uncompetitive or unfair procure-ment processes at 71% of the auditees and inade-quate contract management at 33%.

The audit was unable to confirm whether goods and services were received or not for the balance of R3.6-billion of the irregular expenditure, owing to a lack of supporting documentation.

Cooperative Governance and Traditional Affairs Minister Pravin Gordhan pointed out that the reported irregular expenditure did not indicate extensive fraud and corruption.

However, he cautioned that there were some cases of corruption and plans were under way to explore new ways of strengthening enforcement and discouraging “such behaviour”.

Unauthorised expenditure had reduced from R10.1-billion in 2012 to R9.1-billion in 2013.

The total expenditure of all audited munici-palities comprised R62-billion for employment costs, R166-billion for goods and services and R40-billion in capital expenditure.

Many municipalities use internal services in the preparation of financial statements, but consultancy fees are becoming a cause for concern, and 77% of the municipalities spent nearly R700-million on consultants.

National Treasury and the Department of Cooperative Governance and Traditional Affairs were examining the option of introducing a centralised procure-ment structure for account-ing services.

Makwetu last week raised the alarm, stating that more than 80% of the municipalities were unable to produce financial statements that were free of material misstatements, with 110 of the auditees receiving financially unqualified opinions only because they had corrected all the material misstatements identified during the auditing process.

and the Treasury aimed to instil account-ability of service providers through, besides others, the withholding of payment to outside consultants failing to present comprehensive, accurate work, while the South African Local Government Association planned to launch a new programme last week aimed at capacitating municipalities and developing the required skills internally.

While the most common material noncom-pliance findings, identified at more than 60% of the municipalities, were on the quality of the sub-mitted financial statements, supply chain man-agement and the prevention of unauthorised, irregular and fruitless and wasteful expenditure, overall, the performance of South Africa’s munici-palities and municipal entities had registered slight improvements over the past five years.

Sixty-three municipalities had improved their audit outcomes during 2012/13, while only 25 of the audited municipalities had deteriorated.

The number of financially unqualified opinions with no findings, or the so-called ‘clean audit’, which showed a municipality had “impeccable levels of discipline and oversight” in its financial management and operational activities, increased to 30, accounting for 9% of the audited municipalities.

This compared favourably with the achieve-ment of clean audits for 16 entities, accounting for 5% overall, during the 2011/12 financial year, and four municipalities during 2008/9.