The R1.6bn VBS write-off and other worrying stats from the Auditor General

The Auditor General
has been given more teeth, and should be allowed to use them, Parliament’s
Standing Committee on Public Accounts and the Standing Committee on the Auditor
General have said.

The office of the AG had
briefed a joint sitting by the two committees about the state of municipal
finances on Tuesday morning.

In a joint statement,
the two committees said the AG now “had the power to go after officials
who transgressed legislation such as the Public Finance Management Act and the
Municipal Finance Management Act (MFMA)”, and should be allowed to use
these powers.

The AG’s office shared
concerning statistics that shed light on the state of finances and
accountability at the country’s councils – including a R1.5bn write-off from VBS
investments; over R18bn in debt to Eskom; and that nearly two-thirds of
municipalities were not complying with legislation.

Here are some key
takeaways from the statement.

R1.6bn write-off from VBS investments

According to AG Kimi Makwetu, 14 municipalities lost
money to the tune of a combined R1.6bn due to the fallout at VBS Mutual Bank.

• Dr Ruth S Mompati
  Municipality R101.8m
• Elias Motsoaledi
  Local Municipality R55 986
• Ephraim Mogale Local
  Municipality R84m
• Fetakgomo Greater Tubatse
  Municipality R245.1m
• Greater Giyani
  Municipality R161.6m
• Lepelle Nkumpi Local
  Municipality R154.9m
• Limpopo Municipality
  R122.4m
• Madibeng Local
  Municipality R31.4m
• Mafikeng Local
  Municipality R84.9m
• Makhado Local
  Municipality R62.7m
• Merafong Local
  Municipality R51m
• Moretele Local
  Municipality R51.5m
• Vhembe District
  Municipality R2 977
• West Rand District
  Municipality R77.3m

In his MFMA audit report, Makwetu said in spite of
such investments not being permitted, 16 municipalities invested money with VBS
Mutual Bank in the 2016/17 and 2017/18 financial years. Of these, 14 made
losses.

“Two of the municipalities managed to withdraw
their funds in time, but the remaining 14 municipalities lost their investments
and have disclosed impairments (meaning that they wrote off these investments)
totalling R1.6bn in their current year financial statements,” said
Makwetu.

76% of municipalities’ financial health requires
urgent intervention

As many as 195 municipalities around the country are
in need of urgent intervention in light of their financial health.

The AG told Parliament that the municipalities in
question struggled to collect debts owed to them, and could not pay for goods
and services they received within a space of 174 days.

R18.28bn owed to Eskom

The total amount of debt owed to Eskom by the country’s
municipalities stands at R18.2bn, according to the AG.

The crisis exists mostly because of the financial
distress most councils find themselves in and a lack of financial controls to
address it, meaning even compliant ratepayers live under the threat of having
their power interrupted due to non-payment by their municipality.

Eskom told Fin24 in June that the debt crisis it
was locked in with various municipalities around the country had not improved
since last year, despite the establishment of an inter-ministerial task team
and a number of concessions to make repayment easier for councils.

60% material non-compliance with legislation

The percentage of municipalities that failed to
effect consequences for non-compliance with legislation rose from 54% in 2016/17
to 60% in 2017/18.

The percentage of municipalities that failed to
follow up on allegations of financial and supply chain management misconduct or
fraud grew from 66% to 74% in the same period.

The percentage of councils that failed to
investigate all instances of unauthorised, irregular, fruitless and wasteful
expenditure went from 60% to 62% in the same period.

18 municipalities with clean audits

Only 18 municipalities in the entire country got
clean audits, according to the MFMA audit report.

There are 257 municipalities in South Africa in
total, when the 44 district municipalities are taken into account.

Gauteng, Northern Cape, KwaZulu Natal and
Mpumalanga each only had one municipality which obtained a clean audit. No
municipalities in the North West, Limpopo or the Free State got a clean audit.