A lot of criticism has been levelled at the Makhado Municipality in recent years about the state of its finances. Up to now, this criticism has been coming mostly from organizations and residents within the municipal area. Now the Auditor General (AG) of the province has added his voice to the protests about chaotic state of the municipality’s financial department.

One of the shocking facts that came to light in the AG’s latest report is that the municipality apparently no longer has records of residents who paid their initial deposit when their water and electricity were connected. This means that, if residents did not keep their original receipts, they could be held liable for another deposit, which might be a lot higher than the initial deposit paid. This, however, is just the tip of the proverbial iceberg.

The AG’s report is one long lament on the incompetence and lack of skills of the officials involved, as well as the municipality’s blatant disregard for guidelines provided by the National Treasury and the laws governing the handling of taxpayers’ money.

He starts off by pointing out that the municipality’s “Annual Report 2006/7 was already approved by Council and that the Audited Financial statements could not at that stage form part thereof”, which displays the attitude of Council towards the AG and his report. He also points out that the Director of Community Services and the Director of Technical Services had no comment on the report on July 11, while the director of finance simply took note of it.

The AG starts off by setting out the background against which the report is prepared, pointing out that the accounting officer of the municipality is responsible for the preparation and fair presentation of its financial statements in accordance with National Treasury guidelines and Municipal Finance Management Act. The responsibility of the AG, on the other hand, is to express an opinion on these financial statements, based on his audit in accordance with the International Standards on Auditing. Because of the matters discussed in the Basis for Disclaimer of Opinion paragraphs, however, the AG was not able to obtain sufficient appropriate audit evidence to provide a basis for an audit opinion. To download and read the complete report, click at the section at the top where it says "Files (1)".

The AG goes on to provide evidence in the mentioned Basis for Disclaimer of Opinion paragraphs, of which just a few examples are quoted here:

“* Paragraph 5: In my previous audit report dated 30 November 2007 I was unable to express an audit opinion on the financial statements of the municipality for the year ended 30 June 2006. The qualification matters have not been adequately resolved and my audit report is modified regarding the corresponding figures;

* Paragraph 6: The actual operating expenditure totalled R272.3 million and exceeded the adjusted budgeted expenditure of R251.6 million by R20.7 million. I regard the overspending as unauthorized expenditure in terms of the definition provided section 1(1) of the MFMA. The unauthorized expenditure was also not disclosed as a note to the financial statements as required by section 125(2) (d) of the MFMA;

* Paragraph 8: Supporting documentation to confirm the accuracy of the information and amounts disclosed in the notes to the financial statements as capital commitments of R14.9 million could not be provided;

* Paragraph 9: I was not provided with documentation to support the determination of the values [of assets] and the process followed. Consequently I was unable to confirm the valuation of the restated carrying value of assets totalling R775.8 million at 1 July 2006;

* Paragraph 12: … deposits totalling R11.5 million that appear on the bank statements and the year-end reconciliation as a reconciling item were not accounted for in the accounting records of the municipality;

* Paragraph 13: Unidentified deposits totalling R15.3 million appeared on the bank statements … the deposits were not accounted for …;

* Paragraph 14: Property rates totalled R9.1 million for the period under review. A reconciliation between the rates used in the billing system for property rates and the rates used in the valuation roll was not performed. I could not be provided with sufficient evidence to satisfy myself of the completeness and valuation of property rates;

* Paragraph 16: Due to limited information I was unable to confirm the completeness of electricity income totalling R95.1 million while an unexplained difference of R494 968 existed between the trial balance and the R95.1 million disclosed in the financial statements;

* Paragraph 25: The municipality closed the 2005/6 financial year with an operating surplus of R9.9 million. The change in the basis of accounting resulted in an operating deficit of R26.8 million for the 2005/6 financial year and is disclosed in the changes in net assets. The material movement totalling R36.8 million was not disclosed in the notes to the financial statements, as required by the Statement of Generally Recognised Accounting Practice and

* Paragraph 37: The electricity and water deposits balance per note to the financial statements totalled R5.2 million. No detail of these deposits could be provided to enable me to confirm the existence, obligation and valuation of deposits.”

These are just a few of the instances pointed out by the AG to indicate that no proper systems and control measures or standard financial procedures are being followed by the officials concerned. He further indicates that, while the provision of water and systems for domestic waste-water and sewage disposal is supposed to be the responsibility of the Vhembe District Municipality “the municipality accounted for all water and sewerage-related transaction in the accounting records … A government gazette proclaiming the functions and powers and/or adjustments thereto could, however, not be provided, while a valid service delivery agreement between the district municipality and the municipality was not concluded”. One can only conclude that neither party deemed it necessary to compile such an agreement, which leaves residents at the mercy of one or the other, with no clear legal recourse if a dispute should arise.

The AG concludes his report by stressing that no control measures, such as a performance audit committee, have been set up and neither has the municipality made any effort to develop and implement mechanisms, systems and processes for auditing the results of performance measurement as part of its internal auditing processes as required by section 45 of the MSA.