Municipality cannot confirm indigent status of people getting free services
Ndlambe Municipality received another qualified audit opinion from the Auditor General for the financial year ending June 30 2019.
Among the reasons for the qualified opinion was that “the municipality did not have adequate internal controls to confirm the indigent status of the customers who were not billed for service charges”.
The AG said he was unable to confirm the revenue from service charges by alternative means, and whether any adjustments were necessary to the amount of R127.1-million attributed to service charges revenue from exchange transactions and R9.4-million for related receivables from exchange transactions.
Another glaring item in the AG’s report was about the huge water losses – something reported on in the previous AG’s report.
Material water losses amounted to R27.1-million (the previous year it was R23.1-million), representing 53% of total water purchased in Ndlambe. This percentage has risen from 49.9% the previous year.
“The losses are predominantly due to physical losses from leaks, burst pipes and reservoir overflows. Furthermore, apparent losses are realised due to metering inefficiencies, meter faults, [and] unauthorised and unmetered consumption,” the AG said
Material electricity losses amounted to R6.3-million (R5.2-million in 2018), representing 13.57% of total electricity purchased. The AG said the losses were primarily due to losses in switchgear, overhead lines, obsolete aluminium lines, underground cables and transformers.
But he said losses were also attributed to metering, tampering and meter-reading losses.
Other reasons for the qualified opinion were that the municipality did not recognise property, plant and equipment in accordance with GRAP (Generally Recognised Accounting Practice) 17. The AG said this resulted in property, plant and equipment being understated by R6.7-million (the previous year it was understated by R7.8-million) and accumulated surplus being understated by R7.2-million (R5.5-million in 2018).
The AG said he was unable to obtain sufficient appropriate audit evidence to address the duplicate assets recorded under property, plant and equipment.
“I was unable to obtain the evidence required by alternative means. As a result, I was unable to determine whether any adjustments to property, plant and equipment of R941.7-million were required,” he said.
He said the municipality did not have a system in place to accurately record payables from exchange transactions. Incorrect amounts were recorded as trade payables, retention monies and accrued expenses. Payables from exchange transactions and general expenses were both overstated by R2.8-million.
The AG said the municipality did not have proper systems in place to identify and record all current year irregular expenditure, and to identify and disclose all deviations from the supply chain management (SCM) policy.
Without alternative means, he said it was impracticable to determine the full extent of the understatement of irregular expenditure disclosed at R563.8-million in the financial statements.
He was also unable to determine the full extent of the understatement of deviations, and whether any adjustments were necessary to the figure of R64.8-million.
Unauthorised expenditure to the amount of R58.8-million was incurred due to overspending of cash and non-cash items in various municipal departments.
Fruitless and wasteful expenditure amounting to R11-million was incurred in the current and prior year due to interest incurred on late payments and interest charged on a court order for the SA Municipal Workers Union pension fund.
In other matters, the AG said he was unable to obtain sufficient appropriate audit evidence for the reported achievement of the percentage of households having access to free basic services.
“This was due to a valid list of indigents not being available for audit purposes.”
The AG said unauthorised, irregular, as well as fruitless and wasteful expenditure incurred by the municipality was not investigated to determine if any person is liable for the expenditure, as required by the Municipal Finance Management Act.