‘Expensive but worthless’ – No improvement in municipal audits, despite R5.36 billion consultancy bill

Despite spending billions of rands, many South African municipalities are dysfunctional.

  • The Office of the Auditor General has criticized the excessive use of external consultants by municipalities.
  • Nearly two-thirds of the financial statements prepared by consultants still contained “material misstatements”.
  • But the AG plans to crack down on the ineffective use of consultants now.

South African municipalities have spent R5.3 billion on consultants over the past five years. A whopping 70% of them have used these consultants every year. From preparing financial statements to managing tax assets and services, permanent CFOs and their teams could not accomplish these tasks without outside help.

In the 2021/21 financial year alone, municipalities spent R1.26 billion on consultants. Of this amount, R431 million was spent on asset management. Around R300 million was spent on the preparation of the financial statements. Tax services absorbed just over R300 million. They paid R54 million for accounting services and the rest went to other “general services”.

But even with all those billions of rand spent on these tasks, 58% of the financial statements submitted by municipalities to the Auditor General of South Africa (AGSA) over the past five years contained “material misstatements” stemming from the work to which consultants were paid. Even after corrections, 41% had modified opinions, including three municipalities with unfavorable opinions and 18 with disavowed opinions.

In 2020/21 alone, the wage bill, plus the full consultant cost, saw municipalities bear a total bill of R11.6 billion.

“It’s a very costly solution where you don’t get any return on investment. The financial statements that are prepared are still not credible,” said AGSA’s provincial level audit manager, Mabatho Sedikela. .

READ ALSO | Municipalities pay consultants millions to do very basic tasks, says AG

Audit improvements are no cause for celebration

Even though clean audits in municipalities increased from 33 audits in 2016/17 to 41 in 2020/21, Sedikela said it was not much of an improvement. Indeed, the 41 that have obtained no-fault audits are mainly district municipalities. They are not so responsible for service delivery.

There were also 100 municipalities whose audits seemed to have improved because they obtained unqualified audit opinions with conclusions, i.e. they produced quality financial statements, but had struggling to produce quality performance reports. But Sedikela said it wasn’t a party either.

“We warn against this celebration because only 62 of the oddities that gave us financial statements were credible, that’s 25% of the municipalities. If we had arrived, on the first day, audited and expressed an audit opinion, only 62 would have had better results,” she says.

AG to crack down on shoddy deliveries

Sedikela said the AGSA has seen consultants take on assignments to help local government, even when their previous work has proven to be of poor quality.

“We have seen several of these consultants working and not providing services,” she said.

Sedikela told accountants attending the SAICA webinar that they should be guided by their profession’s code of ethics. They must meet the requirements of the work they are going to perform.

She said the AGSA is not against the idea of ​​using consultants where municipalities do not have enough capacity. After all, there was an average vacancy rate of 20% in municipal finance units in the 2020/21 audit year. But they must do so responsibly and an assessment must be carried out beforehand to demonstrate the need for outside help.

So far, the AGSA has taken the posture of “warning” offending consultants. But in the future, it will be hard for them.

“As we enter the next year when work is being done by the consultants and services have not been provided, we will consider publishing material irregularities… We will invoke our material irregularities so that the funds that have been used to pay the consultants and the value was not derived, goes back,” Sedikela said.

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Melissa C. Keyes