The Makhado Municipality’s financial management has gone from bad to worse, with the auditor-general (AG) issuing a disclaimer with regard to the municipality’s financial statements for the year ending June 30, 2009. This is a step backward from the qualified AG report the municipality received for the previous financial year.

A qualified AG report means that the AG is satisfied with the municipality’s annual financial statements, except for maybe one or two issues that need to be addressed. Getting a disclaimer means that the municipality could not supply the AG with the necessary evidence to support the financial statements they submitted. According to finance experts, this is very bad and the only thing worse is for the AG to express an adverse opinion, meaning that all documentation submitted by a municipality for audit is fundamentally unreliable. In short, based on the AG’s findings for the 2008/9 financial year, the Makhado Municipality is just one step away from total financial chaos.

The report, issued on March 11 this year, only became available to the press last week. It paints a bleak financial picture, contributing the municipality’s financial wows to poor financial control, inadequate supervision by management and a lack of skilled personnel in the municipality’s finance department. The AG also points out that the municipality failed to resolve any of the qualification matters raised in the previous report by the AG. The municipality also did not appoint an audit committee during the financial year under review, thus breaking the law by contravening Section 166 of the Municipal Finance Management Act, which states that each municipality must have such a committee which must meet at least four times a year.

The municipality’s poor financial control, inadequate supervision and lack of skilled personnel become evident when analysing several of the AG’s findings. Under the heading Cash and Cash Equivalents, the AG states “included in the bank overdraft to the amount of R22.8 million, are reconciling items of un-presented cheques and outstanding deposits amounting to R125 million and R102 million respectively”.

What this mean is that the municipality issued cheques to the amount of R125 million, but never presented these to their creditors. The reason for this could be officials’ inability to match the R102 million deposits to actual debtor payments. This created a severe cash flow problem, which might have forced the municipality not to present cheques. The shortfall of R22.8 million is the difference between money owed by the municipality and deposits received.

Poor management and control are also evident with regard to the municipality’s asset management. Under the heading Property, Plant and Equipment, the AG states “assets amounting to R7.6 million were removed from the asset register, due to management´s not being able to trace these assets from the asset register to the physical assets”.

Many might ask themselves how it could be possible for the municipality to “lose” such a large number of assets? Again this could be attributed to poor management with regard to the municipality’s asset register. It is not uncommon for a municipality to auction off assets. Assets might also be destroyed or become outdated. In such an event, a list of these items must be presented to Council in order for them to take a resolution to remove these items from the municipality’s asset register. This evidently did not happen as the AG, in his own words, stated “I could not obtain a council resolution approving the removal of these assets from the asset register”. So, it could be that the municipality, due to poor management, still has assets on its asset register which it no longer has or owns.

The AG report highlights several other discrepancies with regard to the municipality’s financial statements, stating that the municipality either failed to provide supporting documentation or reasons for these discrepancies. This is what led the AG to issue a disclaimer against the municipality.

But is it all doom and gloom for the municipality?

Apparently not. As far as could be determined, the municipality has over the last financial year (2009/10) looked at several ways to improve on their annual AG report. This includes the appointment of an audit committee.

Questions as to what steps the municipality has taken to remedy its poor audit performance were put to municipal spokesperson Mr Louis Bobodi this week. He was also asked to elaborate on the issue of the un-presented cheques, outstanding deposits and the municipality’s chaotic asset register. Due to time constraints, however, Mr Bobodi indicated that the municipality will only be able to answer these questions in next week’s edition.