TCM finances in dire straits

LYDENBURG – The Auditor General (AG) released its report on Thaba Chweu Municipality’s financial statements for the 2013 year end.

The outcome of the statement paints a rather grim picture of TCM’s financial expenditures and cash-flow situation to which the AG frequently refers to as “being unable to obtain sufficient audit evidence”.

In his report, the Auditor General said, “It is my responsibility to express an opinion on the financial statements based on conducting the audit in accordance with the Public Audit Act of South Africa, 2004 (Act No. 25 of 2004) (PPA), the general notice issued in terms thereof and International Standards on Auditing.

Because of the matters described in the basis for disclaimer of opinion paragraphs, however, I was unable to obtain sufficient appropriate audit evidence to provide a basis for an audit opinion.”

With regard to investment properties, the AG found that TCM did not record investment properties in the notes to the financial statements as required by Generally Recognized Accounting Practice (GRAP), but investment properties were identified during his audit. “I was unable to obtain sufficient appropriate audit evidence to confirm the valuation of these properties.

The municipality’s records did not permit the application of alternative procedures. Consequently, I was not able to determine whether any adjustments to investment properties as disclosed to the financial statements were necessary.”

With reference to TCM’s expenditure, the AG again said that the municipality did not have adequate systems to ensure that all transactions relating to expenditure incurred were properly accounted for as value-added tax (VAT) was claimed from exempt services, assets were incorrectly classified as expenditure and duplicate payments were made.

“Consequently, I was unable to determine whether any further adjustment to general expenditure stated at R54 088 870 in the financial statements was necessary.”

He also found that the municipality did not accrue for post-employment medical benefits of R21 334 000, long service leave awards of R6 0976 000 and annual leave awards of R11 272 000 as required by GRAP. “The effects on the financial statements are that provisions and the deficit are understated by R39 582 000.”

It was also found that TCM did not disclose unauthorised expenditure in the notes to the financial statements as required by Section 125(4)(a) of the Municipal Finance and Management Act (MFMA). “The municipality incurred expenditure amounting to R42 921 545 that had not been budgeted for.”

A staggering R75 053 262 irregular expenditure was also identified. Once again the AG said that it was unable to obtain sufficient appropriate audit evidence to satisfy itself as to the completeness of these expenditures.

The AG confirmed there were ongoing investigations regarding alleged irregularities and fraudulent activities. “These investigations had not been concluded at the date of this report.”

DA Cllr Nicko Janse van Vuuren said the fact that TCM received such a bad audit report was very disconcerting. “It reflects many years of mismanagement and a lack of control. It must be noted though, that TCM has embarked on a process to rectify the situation and has even gone to the extent of appointing consultants, with the help of Ezhlanzeni District Municipality, to eventually get to the goal of obtaining a clean audit.

The public also need to note that with reference to irregular and unauthorised expenditure it refers mostly to poor internal controls on accounting and information systems that led to such a bad report. In most cases it does not reflect any kind of criminal activity, but rather lack of control.

It does, however in my opinion leave loopholes for fraudulent activities and is therefore unacceptable. In my recent dealings with the newly appointed municipal manager, Mr Jomo Mnisi, I have become hopeful that the will is there to reach a situation to gain a good audit, although the proof will be in the outcomes of future audit reports.

We, as the opposition party, will continue to hold the municipality accountable until we get to a situation where the public can trust that their money will be spent wisely and effectively.”