The impact of AGSA’s extended mandate on the misuse of public funds
In 2020-21 the AGSA’s extended mandate had been implemented in 94 (2019-20: 57) municipalities. There were 185 active material irregularities with an estimated total financial loss of R3,9 billion as reflected in the 2020-21 local government general report. R1,6 billion of this estimated financial loss was money lost by municipalities that had invested in VBS Mutual Bank.
The nature of the reported material irregularities related to procurement and payment, resource management, revenue management, interest and penalties, fraud and non-compliance, harm to the general public and to public sector institutions. 58 material irregularities related to interest and penalties resulting from Eskom, water boards, the South African Revenue Services and other suppliers not paid timeously and thus charging interest and penalties. 35 material irregularities related to procurement and payment due to the overpricing of goods and services procured or appointed supplier not delivering, uneconomical procurement resulting in overpricing of goods and services procured and payment for goods or services not received or of poor quality or not in line with contracts or to ineligible beneficiaries.
The AGSA reported that there has been a shift at municipalities from a slow response to findings and recommendations reported over the years to attention now being paid to what has been reported as material irregularities, resulting in action being taken to resolve these material irregularities by municipal managers. This is after the AGSA had used the enforcement mandate to take further action. By 15 April 2022, 5% of material irregularities had been resolved, 69% had appropriate action being taken to resolve them, while 26% had no appropriate action taken to resolve them resulting in the AGSA invoking their powers as mandated by the PAA.
The average age of the material irregularities has been reported to be 10 months from the date of notification. This age is influenced by delays in implementing the necessary action by municipal managers. Notable causes of these delays include instability at municipal manager level and delays in the completion of investigations by municipal councils which leads to delays in the recovery of financial losses and the completion of disciplinary processes together with the implementation of actions by the municipal managers.
While it has been noted that the exercise of the additional powers by the AGSA has resulted in improvement in the slow response by municipalities to the findings and recommendations reported by the AGSA, SAICA urges municipal councils and mayors to exercise their oversight responsibilities to prevent the occurrence of material irregularities. Municipal managers are also urged to diligently exercise their financial management responsibilities to avoid incurring losses. Where transgressions have been noted, effective consequence management must be implemented to ensure proper accountability in local government.
About SAICA
The South African Institute of Chartered Accountants (SAICA), South Africa’s pre-eminent accountancy body, is widely recognised as one of the world’s leading accounting institutes. The Institute provides a wide range of support services to more than 50 000 members and associates who are chartered accountants (CAs[SA]), as well as associate general accountants (AGAs[SA]) and accounting technicians (ATs[SA]), who hold positions as CEOs, MDs, board directors, business owners, chief financial officers, auditors and leaders in every sphere of commerce and industry, and who play a significant role in the nation’s highly dynamic business sector and economic development.
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