South African municipalities are facing significant financial challenges, with just under R5.2 billion lost due to irregularities, including non-compliance with financial regulations and suspected fraud. The Auditor General of South Africa’s latest Material Irregularities (MI) in Local Government report sheds light on the extent of these losses, highlighting 268 instances flagged among 170 auditees in the 2021/22 financial year.
Material Irregularities (MIs) encompass various forms of non-compliance with legislation, fraud, theft, or breaches of fiduciary duties that result in or are likely to result in substantial financial losses or harm to public resources and institutions. In the review period, 194 instances of MIs led to material financial losses, totaling R5.19 billion.
These irregularities span a range of issues, including payments for undelivered goods and services, unfair procurement practices, ineffective use of consultants, failure to receive value for money, unbilled or unrecovered revenue, interest and penalties on late payments, and asset and investment losses.
In addition to the financial losses, the AGSA identified 44 instances where substantial harm was inflicted on public sector institutions due to repeated disclaimers and non-submission of financial statements. Furthermore, 29 instances resulted in harm to the general public, such as water source pollution and poor landfill management stemming from municipal irregularities.
The AGSA emphasizes that many of these losses and harms could have been prevented through adherence to basic disciplines and processes by municipalities and their managers.
To address these challenges, the AGSA has taken steps to deal with the losses, resolving 57 instances (21%) and initiating appropriate action in 35% of cases. However, in 61 instances, no appropriate action has been taken, necessitating further processes.
Efforts to recover losses are underway, with R183 million already recovered and an additional R310 million in the process of being recovered. Moreover, the audit process prevented a further R19 million in losses.
The AGSA has invoked its powers in specific municipalities to take appropriate action, underscoring the seriousness of the situation.
These findings underscore the urgent need for improved governance and financial management within South African municipalities. Effective oversight, transparency, and accountability are essential to safeguarding public resources and restoring trust in local government.
By addressing these challenges head-on, municipalities can work towards ensuring sustainable and equitable development for all South Africans. The AGSA’s report serves as a wake-up call, urging stakeholders at all levels to prioritize good governance and ethical conduct to build a brighter future for the nation.
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