Municipalities lost about R5.19bn due to material irregularities: AG

The auditor-general says “material irregularities” by municipalities have led to financial losses of about R5.2bn since the office's new powers came into effect in April 2019.

The material irregularities were related to noncompliance with the law or suspected fraud.

Auditor-general Tsakani Maluleke was briefing parliament’s standing committee on the auditor-general on Friday about the material irregularity report on municipalities.

Her office identified 268 material irregularities, with 194 of them linked to a material financial loss, she said.

Much of the R5.19bn — R1.6bn — loss relates to losses associated with the investments in VBS Mutual Bank by municipalities.

Maluleke also revealed that the implementation of her office's newly acquired powers has saved South Africa more than R500m in local government alone.

The Public Audit Act empowers the auditor-general’s office to refer material irregularities — defined as any fraud, theft or breach — for investigation and the issuing of a certificate of debt to the officials involved.

Amendments to the act that came into effect in April 2019 give the AG powers to take remedial action against government entities flagged for material irregularities.

Once the AG issues a material irregularity notification to an entity or municipality, the accounting officer has to act to address the irregularities and transgressions they should have dealt with.

Maluleke said these notifications were making an impact as about R182.8m of losses had been recovered, losses of about R18.9m had been prevented and losses of R310.16m were being recovered.

“If you compare the R5.19bn financial losses we’ve identified through our samples, and you link it to the [R511m], you can see we are much better off investing in preventing these problems than trying to chase after them.

“The audit office can proudly say we have contributed to resource protection of at least R500m in local government so far,” she said.

Maluleke said most of the material irregularities arose from things that accounting officers should have been dealing with anyway.

“In 86% of the instances that we raised in our report, we found that accounting officers were simply not taking action until we raised the matter. That highlights matters around culture, around discipline, responsibility and responsiveness.”

But the AG noted that once her office flagged an issue, there would be some responsiveness where accounting officers would go and recover the financial losses.

In the 61 out of 268 cases where the AG found appropriate action had not been taken “we have not hesitated to apply our powers”.

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