What’s a billion between friends?

The City of Tshwane has recently tabled for public comment a set of financial statements that differs materially from a set tabled in council on January 28.

This follows the late finalisation of its audit report by the Auditor-General of South Africa. The audit report was finalised the day before the council meeting, falling foul of the legislated timeline setting a deadline of December 31. Copies, literally hot off the printing presses, were handed out to opposition councillors during the meeting, Moneyweb learnt.

However an updated set of audited financial statements, which the council did not see, reflects almost R1 billion of irregular expenditure more than the set tabled in January. R880 million of this variance constitutes the money paid to PEU Capital Partners in terms of the controversial smart electricity-metering contract.

In spite of Mayor Kgosientso Ramokgopa’s announcement in the middle of last year that the contract would be cancelled by the end of last year, it seems to be proceeding as before, with regular payments being made to PEU.

The city earlier refused to respond to questions from Moneyweb about its failure to award a tender that was aimed at replacing the PEU contract. One of the bid specifications was that the successful bidder would have to buy PEU’s infrastructure at a price to be determined.

Moneyweb learnt that an unknown appraiser placed a price tag of almost R1 billion on the infrastructure, which raised the eyebrows of some prospective bidders.

When Ramokgopa tabled the city’s annual report on January 28, as required by the Municipal Finance Management Act, he omitted three of the components the Act prescribes, namely the Auditor General’s report on the financial statements, his audit report on the city’s performance report and any corrective measures taken or to be taken in response to issues raised in the audit reports.

These omissions were disclosed in a report to council: “These items are not included, as the final AGSA report is still outstanding. The AGSA has indicated they are in the process of finalising and will make available the final report soon,” the report stated.

The report continues: “However, the audit of predetermined results, the human resources and the annual financial statements have taken into consideration recommendations made by the AGSA during the audit process.”

This reassurance might have created the impression that the adjustments the AGSA required before signing off on the city’s unqualified audit, had been incorporated in the statements.

The AGSA in the same council meeting tabled his audit report, without attaching the audited financial statements or the corrective measures taken or to be taken on the basis of the audit report.

The Municipal Finance Management Act (MFMA) determines if the mayor fails to submit components of the annual report before the end of January, he must submit it “as soon as may be possible.”

Ramokgopa however failed to table the outstanding corrective measures during the January council meeting and no council meeting has been held since.

The MFMA obliges the accounting officer to make the annual report public and invite comment from the local community immediately after it was tabled in council.

The city has published it on its website, but with the latest version of the financial statements. AGSA supplied Moneyweb with a copy of the audited statements, and this seems to be the set Tshwane published together with its annual report – reflecting R1.5 billion of irregular expenditure, including the PEU contract. The statements tabled in council earlier reflected a still-concerning R520 million in irregular expenditure.

Asked about the variance, the City of Tshwane responded: “You will recall that the audit report was only issued by the auditor general on the 27^th of January and the financial statements which were included in the annual report were subject to the final audit report of the AGSA.

“You will note that in the annual report, there was information outstanding as a result of the finalisation of the audit report which included the action plans to deal with matters in the audit report as well as the financial statements upon which the audit report is based.

“The only matter that was not finalized was the irregular expenditure note which was only finalized with the issuing of the audit report by the AGSA.”

The city told Moneyweb the final annual report incorporating the amended annual financial statements and report of the AGSA as well as action plans on matters raised by the AGSA in its audit report will be tabled in the council meeting of March 2016.

DA spokesperson for finances, councillor Lex Middelberg disputed the city’s response, saying that Tshwane created the impression that the annual financial statements tabled in council were the final ones.

He points out that the AGSA never gave reasons for the delay in finalising the audit, as required by the MFMA and alleges the delay was caused by negotiations between the AGSA, the City of Tshwane and National Treasury about the classification of the PEU contract as irregular.

Treasury earlier told Moneyweb it had no knowledge of such meetings with finance minister Pravin Gordhan.

Middelberg alleges the AGSA signed off on the Tshwane audit on January 28 only and, on condition that the statements would be adjusted. The adjusted statements did not exist at the time of signing, he maintains.

This, Middelberg says, facilitated efforts to hide almost R1 billion in irregular expenditure, including the PEU contract, from scrutiny by councillors like him.

AfriSake attorney Willie Spies says the AGSA’s inclusion of the PEU contract strengthens his client’s pending case in the North Gauteng High Court to have the contract cancelled due to unlawfulness.

Spies said AfriSake will now expedite its efforts and will ask the court for a just and equitable solution that will reverse the extraordinary enrichment of certain parties as a result of the PEU contract.

In another development the City of Tshwane on Thursday published a notice in terms of which the public meeting called to discuss the annual report, has been cancelled. No reason or alternative date was given and residents were merely invited to submit written responses.