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

Jul 16 2019 16:43
Khulekani Magubane, Fin24

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.

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