The Thulamela Municipality has been lambasted by the auditor-general (AG) in her latest report on the municipality's financial statements. The municipality has not only regressed to a qualified AG report but has also been criticised for continuing to award tenders illegally. Furthermore, it has failed to deliver on its mandate, with numerous capital projects left incomplete. To top it off, the AG points out that there seem to be no consequences for these failures to comply with the law.
The Thulamela Local Municipality received a qualified report from the AG, Ms Tsakani Maluleke, for the 2023/24 financial year. This was the first time in six years that the municipality received a qualified report. Since 2018/19, the AG has expressed concern over several issues, but the municipality had at least managed to secure an unqualified report.
The AG criticised the municipality's finance department for failing to prepare the statements as required by the Municipal Finance Management Act (MFMA) properly. Mistakes identified by the auditors were not adequately corrected, and supporting records could not be provided, "which resulted in the financial statements receiving a qualified audit opinion."
She also expressed concern over debt impairment and irregular expenditure.
Non-compliance with the law
One of the AG's tasks is to assess whether the municipality has acted in line with various types of legislation, such as the MFMA. In her latest report, Ms Maluleke highlights that proper procurement processes were not followed when awarding tenders.
"Contracts were awarded to bidders that did not score the highest points in the evaluation process, as required by the 2022 Preferential Procurement Regulations 4(4) and 5(4)," she states.
Perhaps even more concerning is that tenders were awarded to providers whose directors or principal shareholders were in the service of other state institutions. This contravenes the MFMA and Supply Chain Management (SCM) Regulation 44. "Similar awards were identified in the previous year, and no effective steps were taken to prevent or combat the abuse of the SCM process," said the AG.
Contracts were also awarded to providers whose tax matters were not in order, in contravention of SCM regulations.
In September last year, members of the Directorate for Priority Crime Investigation (Hawks) conducted a surprise raid on the Thulamela Municipality, seizing electronic equipment such as laptops and cell phones from senior municipal managers. The raid was part of an investigation into a R61 million project to upgrade roads in the municipal area. It remains unclear what the outcome of this investigation is or whether it relates to allegations of tender fraud.
Ignoring debt collection
The AG was unimpressed with Thulamela's accounting methods. "Management did not prepare regular, accurate, and complete financial and performance reports that are supported and evidenced by reliable information," reads the report.
One of the first issues raised concerns the municipality's billing methods. Thulamela derives roughly 10% of its total income from property rates, with last year's total amounting to R96.77 million. However, the AG found that not all properties were being taxed.
"I identified properties in the valuation roll that were not billed," she states.
The main problem, however, is the municipality's inability to collect outstanding debt. In the 2023/24 financial year, the Thulamela Local Municipality wrote off R35.72 million as bad debt. The AG found this figure to be overstated, as R17.74 million did not qualify for write-off under the municipality's own policy.
Last year, the municipality made a provision for doubtful debts of R178 million as a result of non-payment of billed services and traffic fines. It anticipated collecting only 40% of all billed services, with the remaining 60% budgeted as a provision for bad debts.
Unfinished projects
The AG's concerns extend beyond financial discrepancies. The municipality was also evaluated on its performance, based on the objectives it had set. Thulamela was assessed on basic service delivery and local economic development.
One of the unfinished projects highlighted in the report was the Tshikombani testing station. The project was supposed to be completed by June 2024 but remains unfinished. The AG was told that "we are still waiting for Eskom to install the transformer and test the air conditioners."
The Tshikombani facility was first mentioned in the 2022/23 budget speech when the mayor at the time announced that R20 million would be spent on building testing stations at Tshikombani and Tshaulu. In her report, the AG also notes the failure to complete the Tshaulu facility.
Several other projects that were budgeted for never materialised or remain unfinished. These include the screen wall fence at Shayandima Cemetery, the construction of the Gundani landfill cell, and the upgrading of various roads and culverts.
Even in terms of assisting impoverished residents, the municipality failed to meet its targets. The plan was to register 1,450 indigent families to receive free basic waste services. Households earning less than R3,500 per month qualify for these services, but the municipality only managed to register 162 households.
Irregular expenditure
The Thulamela Local Municipality reported R16,983,804 in irregular expenditure for the previous financial year. The AG stated that reasonable steps had not been taken to prevent this.
Last year, the municipality wrote off R42.65 million in irregular expenditure without holding those responsible accountable. The footnote in the annual financial statements simply states that this was a Council decision, "as it was proven beyond reasonable doubt that the amount was not recoverable."
Most of the irregular expenditure stems from the 2022/23 financial year, when R25.45 million in such expenses were incurred. In 2022/23, Thulamela wrote off R1.74 million classified as irregular expenditure.
Municipality promises to address concerns
Thulamela Municipality spokesperson Mr Nndwamato Tshiila was asked for comment on the AG's report and the various issues highlighted. After a week, he responded on behalf of the municipal manager.
Tshiila stated that the municipality had committed to reporting all instances of non-compliance with the MFMA in the next annual report. Steps would be taken against officials who failed to follow legislation, and the Council had resolved to refer the matter of non-compliance to the Financial Misconduct Board.
The issue of irregular expenditure, which largely stems from poor procurement practices, would also be addressed. Tshiila said the municipality had entered into a three-year transversal contract with the National Treasury. This allows multiple government institutions to procure goods and services through National Treasury-facilitated contracts.
Regarding the incomplete Tshikombani testing station, Tshiila said Eskom had confirmed that electricity would be provided to the facility by 27 February. The total cost of the project was R39.37 million, funded from the municipality's own resources rather than a Municipal Infrastructure Grant (MIG).
The Tshaulu testing station, however, remains on hold because of a lack of funds. Budget constraints have also affected other projects, such as the fencing of Shayandima Cemetery.
The construction of the Gundani landfill cell is proceeding, but the municipality is awaiting approval of the design from the Department of Water and Sanitation.
Regarding indigent households, Tshiila said there had been a data-capturing error. The actual number of registered indigent households was 1,621, not 162, meaning the target had been exceeded.