R87 billion of South African taxpayers’ money wasted

South African municipalities together had an irregular expenditure of € R87.03 billion for the three financial years ending in 2023/24.

This is evident from the Auditor General of South Africa’s (AGSA) consolidated report on its assessment of the country’s 257 municipalities during the 2023/2024 financial year.

The AGSA defines irregular expenditure as any expenditure that is contrary to applicable law.

For example, if a municipality spends R25 million on purchasing generators for a school, but the tender process for the contract was not competitive and this could have been done for R19 million, the irregular expenditure amounts to R6 million.

This differs from material irregularities, which cover any form of non-compliance, as well as fraud, theft or breach of fiduciary duty.

The majority of this was made during the 2021/22 financial year, when R30.47 billion was recorded.

This then fell to R27.62 billion the following year, but rose again to R28.94 billion in 2023/24.

According to the AGSA, these figures could be significantly higher, as 40% of municipalities either qualified for the completeness of irregular expenditure or claimed to be still investigating this.

South Africa’s eight metropolitan municipalities accounted for R33.29 billion (38%) of all irregular expenditure.

The City of Cape Town was the only metropolis in the country to receive an unqualified audit opinion.

The cities of Johannesburg, Ekurhuleni and eThekwini all received unqualified audit opinions, while Buffalo City, Tshwane, Mangaung and Nelson Mandela Bay received qualified results.

The majority of the total expenditure was attributed to non-compliance with procurement processes, amounting to R55.35 billion.

Procurement without competitive bidding or quotation processes accounted for R18.48 billion, while non-compliance with legislation contributed a further R13.61 billion.

A further R590 million was attributed to “other types of irregular expenditure”.

In the 2023/2024 period alone, R27.39 billion of reported irregular expenditure was due to breaches of the five pillars of procurement.

“Procurements that were not fair, transparent, competitive and cost-effective accounted for R26.13 billion of this amount,” the AGSA said.

“The remaining R1.26 billion related to tenders that were not equitable, for example when municipalities did not properly apply the preference points system.”

The AGSA says it assesses whether the municipalities that made irregular expenditure received value for money spent.

During the year, a total of R75.06 million was paid for goods and services above market value, to overpaid employees, or for goods and services paid for but not received.

The impact on municipalities

In addition to leading to irregular expenditure, the AGSA states that procurement and contract management can also pose several other challenges for municipalities.

These include serious financial losses if purchasing practices are uncompetitive or uneconomical, as suppliers may fail to deliver.

Unfair procurement practices can also expose municipalities to lawsuits due to violations of procurement processes and regulations.

In turn, they also impact suppliers and the government’s socio-economic objectives to empower previously disadvantaged individuals.

ActionSA MP Alan Beesley said unless stricter oversight, improved auditing and tangible consequences for non-compliance are implemented, public confidence and government efficiency will continue to suffer.

“It is clear that there is no accountability and consequences for public officials. Until incompetent and corrupt officials are fired or jailed, nothing will change,” Beesley told Newsday.

“Everything depends on leadership, and unfortunately, competent and honest leadership is lacking in most state departments and entities.”

The Auditor General’s General Report

There are five types of audit results provided by the AGSA. The best result is a clean result, meaning that no misstatements can be found in an entity’s financial reporting. Forty-one received this advice.

This is followed by a financially unqualified outcome, which contains no material misstatements; However, issues have arisen regarding entity reporting.

Ninety-nine municipalities received these types of audit results.

If a municipality receives a qualified audit result, this means that the AG has determined that its financial reporting contains material misstatements for certain amounts. This turned out to be the case for 90 municipalities.

Due to an unfavorable audit outcome, material inaccuracies were found that are not limited to specific amounts, as was the case with six municipalities.

The final result is a disclaimer of audit opinion, meaning that the entity has not provided sufficient documentation to make an audit decision. Eleven municipalities have received a rejected auditor’s report.