News

Response to the MFMA Audit Report

The Beaufort West Municipality take cognisance of the recent MFMA Audit Report issued by the Auditor General with specific reference to irregular expenditure.

It is critical to clarify the misperceptions about irregular expenditure and it is incumbent upon the Municipality to respond to misleading media reports which create the impression that irregular expenditure equates to money that has been misappropriated/stolen. This kind of reporting adversely impact on the reputation of a municipality and have consequences for all municipalities. In the interest of Stakeholder Relationship Management, it becomes important that the Auditor General take reasonable steps to ensure that the public is properly informed, to avoid unnecessary tension between Municipalities and its citizens. 

It is important to firstly define the term irregular expenditure. Irregular expenditure referred to money that was not spent in the manner prescribed by law. As per the Municipal Finance Management Act “MFMA 56/2003” “irregular expenditure”, in relation to a municipality or municipal entity means – 

1. expenditure incurred by a municipality or municipal entity in contravention of, or that is not in accordance with, a requirement of the MFMA, and which has not been condoned in terms of section 170;
2. expenditure incurred by a municipality or municipal entity in contravention of, or that is not in accordance with, a requirement of the Municipal Systems Act, and which has not been condoned in terms of that Act 
3. expenditure incurred by a municipality in contravention of, or that is not in accordance with, a requirement of the Public Office Bearer Act, 1998 (Act No. 20 of 1998); or 
4. expenditure incurred by a municipality or municipal entity in contravention of, or that is not in accordance with, a requirement of the supply chain management policy of the municipality or entity or any of the municipality by-laws giving effect to such policy, and which has not been condoned in terms of such policy or bylaw, but excludes expenditure by a municipality which falls within the definition of “unauthorized expenditure”

The following are examples of irregular expenditure: 

• Purchases exceeding threshold 
• Procuring without inviting competitive bids 
• Non-compliance with delegations of authority 
• Non-compliance with legislation, e.g. public service regulations 

The irregular expenditure of R52 million referred to by the Auditor General relates to transactions where SCM policies were not always followed. The biggest amount relates to a contract that was awarded to ASLA in 2008  for R31 509 033.75. The components could be stratified as follows:

• During the audit of procurement and contract management, it was noted that contract 15/2008 with regards to ASLA, which was originally signed for a period of 3 years, was still in effect and the following shortcomings/non-compliance was identified:
• No evidence of a competitive process or the awarding of the bid was noted as only the ASLA bid document was submitted for audit purposes.
• No contract value was specified on the contract.
• No evidence of a periodic review of the contract could be submitted for audit purposes.
• No evidence of a contract extension could be submitted for audit purposes and possible non-compliance with section 33 (1) of the MFMA
• No evidence that the contract was subsequently reviewed.
• Non – compliance with circular 62 of the MFMA as contract may have been expanded by more than 20%.

The second biggest amount of irregular expenditure relates to the upgrade of the Merweville sports ground ( R13,600 million) and the rest relates to projects related to the drought ( Upgrading of Klein Hans Rivier Scheme and the installation of new boreholes).

Audit terms and jargon are confusing to the public as it is, and the Auditor General staff should ensure that the public is educated in terms such as fruitless and wasteful expenditure, irregular and unauthorised expenditure, unqualified, qualified, and clean audit opinions. Examples of misinterpretation of audit opinions is that the public deem unqualified audit reports as a disaster and a qualified opinion as positive.  It is therefore imperative that the Auditor General as a key stakeholder in Local government act in the best interest of municipal institutions.

Kosie Haarhoff

Municipal Manager