None of the municipalities in the Free State, North West and Limpopo attained clean audit opinions for 2013/14, and a majority also achieved qualified, adverse or disclaimed audit opinions, according to a report released by the Auditor General Kimi Makwetu on Wednesday.

The report highlighted that the three provinces had incurred wasteful expenditure of R3.65-billion for that year.

The quality of financial statements submitted for auditing also remained poor, at between 92% and 97% of audits in the provinces, pointing to poor internal control environments at most municipalities.

The Consolidated Report on Audit Outcomes of Local Government for 2013/14 released by Makwetu, also found that irregular expenditure during the period stood at R11.4-billion, incurred by 264 auditees across the country, while fruitless and wasteful expenditure of R678-million was incurred by 250 auditees.

The number of municipalities found to have had unauthorised expenditure increased from 175 in 2012/13 to 190, out of a possible 335, amounting to R11.4-billion.

Speaking at the release of the report, Cooperative Governance and Traditional Affairs Minister Pravin Gordhan said wasteful expenditure stemmed from “plain greed”, adding that South Africa had a growing culture of nonpayment.

Asked whether this culture stemmed from pre-election promises by government of free housing, water, electricity and municipal services, Gordhan told Engineering News Online that they were “not necessarily related”, but that there were times that there were many councillors who did not perform their functions well.

“What we want in relation to election promises is that where municipalities are working within wards, they report to citizens on what is going on. The culture of nonpayment has a different kind of basis. South Africans like things for free.

“We need to understand this better, [but] we have had successes in this area, in relation to other taxes in our society. Fifteen years ago, ducking tax was quite a sport in South Africa – over a ten-year period, we changed that culture. Similar work needs to be done in the local government sphere to ensure that people understand why it’s necessary to pay their fair share,” he commented.

Further, the report found that noncompliance with key legislation remained at high levels. However, it argued that this was improving, with material compliance findings decreasing from 90% to 79%.

Supply chain management (SCM) was also flagged as a key area of concern, as there was a slight increase in the number of auditees with findings on SCM from 278, or 87%, to 290, or 90%.

“Although there was a reduction in the number of auditees with material findings, it is of concern that 68% of the municipalities and 42% of municipal entities had material findings on compliance with SCM legislation,” the report said.

Further, the Auditor General highlighted that it again experienced limitations in auditing SCM this year, although at fewer auditees. “Seventy-three auditees could not provide us with evidence that all their procurement processes of R1.3-billion complied with SCM legislation.”

There was also an increase in the value and extent of contracts and quotations awarded to suppliers in which employees and councilors had an interest, which amounted to R60-million, “even though this was prohibited by legislation”.

State officials were found to have had an interest in suppliers valued at R3.7-billion.

The number of auditees with a good financial health status also decreased, as 87% were rated as concerning or requiring intervention.

Gordhan noted that government was taking action to increase positive outcomes, stating that when employees were found to misuse funds, they were removed. “This allows for more effective people to do the job that needs to be done.”

“Are the relevant people performing as they should? There are no consequences for bad performers. Those political parties that are concerned about how their deployees are performing in particular areas must take a look at the reports and decide whether the right people are in the right place,” he said.

He added that municipal public accounts committees were in existence in many municipalities. “They work well in some, in others they don’t – [we are] giving more attention to [these committees] so that the internal accountability mechanism works,” Gordhan told Engineering News Online.

At the other end of the spectrum, the biggest contributors to the number of unqualified opinions with no findings on predetermined objectives and legislative compliance arose from Gauteng, with 13, or 39% of auditees having strong financial management; KwaZulu-Natal, where 20, or 28% of auditees had control disciplines; and the Western Cape, with 18, or 55% of auditees having good financial management.

The report noted that Limpopo deserved special mention. “For 2012/13 only one of its 32 auditees received an unqualified audit. The others received qualified, adverse and disclaimed audits. This improved dramatically to 15 unqualified audits for 2013/4. These results were achieved through hard work, dedication, leadership and consistent hands-on engagement by, with and in municipalities,” the report said.

Makwetu welcomed the fact that 198, or 58%, of all municipalities and municipal entities received unqualified audit opinions for their financial statements.

This was up from 165 last year. For municipalities, 148 now had unqualified audits – up from 120 last year. Auditees with unqualified opinions now accounted for 76% of the total local government expenditure budget of R315-billion.

“This means that almost eight out of every ten rand spent by local government is spent by entities with financially unqualified statements,” Makwetu said.

“The report recognises that a concerted effort was made to address irregular expenditure. Auditees with qualification on irregular expenditure decreased from 100 to 74,” he added.

An “overwhelming” 96% of auditees submitted their financial statements on time. This is an improvement over 93% in 2012/13 and a “massive improvement” from 78% in 2007/08.

Auditees qualified on the basis of inadequate information on property, infrastructure and equipment are down to 95, from 118 last year. “This item has been responsible for most qualifications over the past few years. Those receiving a financially unqualified opinion with no findings on objectives and legislative compliance deserve special congratulations,” Makwetu said.

This number increased to 58, consisting of 40 municipalities and 18 municipal entities.