Auditor-General says Govan Mbeki Municipality passed audit, but warns against overspending
Officials responsible for unauthorised, irregular, fruitless and wasteful expenditure should be investigated and disciplined.
Although the Govan Mbeki Municipality has received an unqualified audit opinion with findings from the Office of the Auditor-General of South Africa (AGSA), marking a significant improvement after four consecutive years of qualified audit outcomes.
The audit results were presented during an ordinary council meeting held on January 28, at the municipal council chamber in Secunda.
Audit outcome overview
The Auditor-General reported that several material misstatements were initially identified in the municipality’s financial statements.
These included issues relating to bad-debt write-offs, municipal debt relief, investment property, unauthorised expenditure, and the cash flow statement.
Management subsequently corrected the misstatements, resulting in a financially unqualified audit opinion, albeit with findings.
No material findings were raised regarding the usefulness of key performance indicators (KPIs) and targets.
However, material findings were identified on the reliability of reported performance information. One such discrepancy concerned the indicator measuring the square metres of tarred roads repaired and maintained by June 30, 2025, where differences were identified between the reported and recalculated achievements.
Despite 100% of the allocated budget being spent, only 33% of targets were achieved under the Sustainable Physical Infrastructure and Improved Customer Care Services key performance area (KPA).
Non-compliance and irregular expenditure
The AGSA highlighted several areas of material non-compliance, including:
- Material misstatements in submitted financial statements
- Failure to prevent unauthorised, irregular, fruitless and wasteful expenditure
- Failure to pay suppliers within 30 days
- Incorrect calculation of preference points in terms of the Preferential Procurement Policy Framework Act
For the 2024/25 financial year, the municipality recorded:
- Irregular expenditure: R83.4m (2023/24: R209.3m)
- Unauthorised expenditure: R888.9m (2023/24: R911.1m)
- Fruitless and wasteful expenditure: R250.2m (2023/24: R295.7m)
The Auditor-General warned that ongoing budget overspending indicates the municipality is operating on an unfunded budget, contributing to severe cash-flow challenges and the failure to pay creditors within the legislated 30-day period, as required by section 65(2)(e) of the Municipal Finance Management Act (MFMA).
Revenue challenges
National Treasury supported the municipality through an equitable share of R458.01m (2023/24: R426,7m) and grants totalling R156.34m (2023/24: R168.12m).
The municipality budgeted R2.53b in own revenue, excluding grants (2023/24: R3.07b including grants), despite 68% of municipal debt being deemed irrecoverable. The average debt-collection period worsened to 215 days, up from 193 days in the previous year.
Outstanding debts include:
- Eskom arrears: R5.8b
- Rand Water arrears: R849.02m
Expenditure pressures
Employee-related costs, including councillor remuneration, amounted to R785.7m, consuming 62% of the municipality’s estimated recoverable revenue and equitable share. This leaves only 38% available for operational costs and service delivery.
Outstanding creditors stood at R5.91b at year-end, while the average creditor payment period increased sharply to 1 046 days, compared to 306 days in the previous year.
Additional concerns raised by the AGSA include:
Water losses: 44%
Electricity losses: R255.6b
Infrastructure maintenance spending: 4%, below the National Treasury norm of 8%
The municipality closed the financial year with a deficit of R733.21m, with expenditure exceeding revenue.
Financial sustainability at risk
According to the Auditor-General, the municipality is not financially sustainable, and continued liquidity challenges may threaten its ability to remain a going concern if urgent corrective measures are not implemented.
Future budgets are expected to be largely absorbed by the settlement of historic debt, further constraining service delivery.
Recovery plan and recommendations
The AGSA commended the municipality for approving and implementing a Financial Recovery Plan effective from July 1, 2024, noting that it could assist in restoring financial stability if properly executed.
Key risks requiring council attention include the lack of consequence management and persistent cash-flow challenges.
The Auditor-General recommended that:
Officials responsible for unauthorised, irregular, fruitless and wasteful expenditure should be investigated and disciplined before the end of the 2025/26 financial year
The 2026/27 budget should be cost-reflective, particularly in tariff setting. Council closely monitors efforts to reduce electricity and water distribution losses to acceptable levels by the end of the 2025/26 financial year.
