While internal auditors are there to ensure that systems and processes are in place to accurately record financial activities, external auditors provide the important checks and balances that ultimately ensure investors, banks and the public can hold power to account. Picture: ISTOCK
While internal auditors are there to ensure that systems and processes are in place to accurately record financial activities, external auditors provide the important checks and balances that ultimately ensure investors, banks and the public can hold power to account. Picture: ISTOCK

There is a famous saying, often attributed to the late US banker Sam Fleming, which succinctly sums up the role of auditors: “In God we trust; everyone else we audit.”

Without credible auditors verifying the numbers, there would be no reason to trust the financial statements dished up by companies, government departments or any other institutions dealing with shareholder, taxpayer and donor money.

When auditors fail to fulfil their role — obtaining reasonable assurance that the financial results paint an accurate picture of the state of an organisation’s finances — the repercussions can be dire. Recent high-profile examples in SA include the collapse of VBS Mutual Bank, where KPMG signed off on materially false financial statements, and Steinhoff, where auditors failed to pick up accounting irregularities, with the subsequent slide in the share price costing investors about R200bn.

While internal auditors are there to ensure that systems and processes are in place to accurately record financial activities, external auditors provide the important checks and balances that ultimately ensure investors, banks and the public can hold power to account.

This is why the attacks in recent months on the staff of the auditor-general in various municipalities are so concerning. Staff members have been held hostage and subjected to death threats, and one was shot at in Emfuleni last week.

Not a single municipality in the North West, Limpopo or the Free State received a clean audit.

An investigation to determine whether the shooting was linked to her work as an auditor is in progress, but the rest of the team has in the meantime been withdrawn to ensure their safety.

Following a hostage situation in Tshwane earlier in October, auditing staff are now accompanied by the metro police as they finalise their asset verifications. A team has been withdrawn from the Moretele local municipality north of Hammanskraal after a death threat.

It is no secret that municipalities’ finances are a mess. The auditor-general’s latest available municipal audit outcomes report, published in May, found that only 33 of the country’s 257 municipalities had clean audits in 2017, down from 48 the year before.

Irregular expenditure jumped 75% to R28.4bn in the 2016/2017 financial year.For context, the VAT increase earlier in 2018 is expected to generate about R23bn in additional income in this financial year.

Not a single municipality in the North West, Limpopo or the Free State received a clean audit. In the North West, where violent service delivery protests earlier in 2018 led to the removal of former premier Supra Mahumapelo, unauthorised, irregular, fruitless and wasteful expenditure made up a whopping 44% of total budgeted spending, according to Municipal IQ.

The VBS scandal also had municipal victims, with 14 municipalities set to lose about R1.2bn that was illegally deposited with the mutual bank. The fact that these deposits were allowed to be made in the first place demonstrates a lack of controls and accountability in many local administrations. 

Municipal financial mismanagement has a direct and devastating impact on the delivery of basic services. In Emfuleni, where the auditor was shot at last week, the municipality has been pumping raw sewage into the Vaal River for months, with significant — and costly — implications for the environment and broader economy.

Unlike many other rural municipalities across the country that are suffering from mismanagement, Emfuleni is the core of SA’s industrial heartland and is located close to Johannesburg. It should be a well-functioning municipality that is focused on luring new businesses and investors to the area. Instead, it has seen Eskom cut its electricity supply over unpaid debt, which then leads to water provisioning failing as pumps cannot operate, with a negative effect on businesses and households. Its sewage problem has all but killed the tourism operations offering activities like river rafting and fishing on the Vaal.

If we want this country to work, we need to get our municipalities to work, and that requires improved financial management. Ensuring there is proper oversight in a safe environment free from intimidation is the first crucial step to achieving that.

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