This week we look at the Vhembe District Municipality's finances with regard to the auditor-general's (AG) report for the 2015/16 financial year and it is literally a case of leaving the "worst" for last.
Over the past few weeks, the Zoutpansberger looked at the finances of the Makhado, Musina, and Thulamela Municipality regarding the AG's report for the 2015/16 financial year. The Vhembe District Municipality (VDM) was by far the worst-performing municipality, to such an extent that Auditor-General Kimi Makweta had no option but to give the VDM a disclaimer of opinion. This means that the AG did not have all of the underlying documentation needed to determine an opinion. For example, the lack of underlying documentation and the amounts in question may be so great that it is impossible to give any opinion at all.
Basically what it comes down to is that the documentation the VDM submitted was so seriously lacking that the AG could, in several instances, not find any sufficient audit evidence to make an informed decision or to check the numbers. The AG contributes this "messy" situation, however, to the fact that several key positions at the VDM had remained vacant during the year under review. "For example, at Vhembe District, most of the officials at senior manager level were acting in their positions, while the posts of municipal manager and CFO had been vacant for 18 and 14 months, respectively. This instability contributed to the irregular expenditure of R181 million incurred by the municipality in the year under review," says Makweta in his report.
As for the basis of the disclaimer of opinion, the AG has been extremely critical of the VDM's internal controls regarding leadership, financial and performance management and governance.
With regard to leadership, the AG states that the instability at the level of accounting officer resulted in a breakdown in internal controls. "Significant findings that were identified during the audit require the accounting officer to hold senior managers accountable," says the AG. This, however, did not happen. "Management did not always provide the required supervision and review over daily and monthly recording and reconciliation of transactions and account balances to ensure that the municipality complied with all applicable financial reporting," the AG adds. According to the AG, action plans were developed; however, these plans were never fully implemented, reviewed or monitored "…and thus the reoccurrence of findings that were reported on in the prior year," says the AG.
As for financial and performance management, the AG has found that the VDM did not have a proper system of record management that provides for the maintenance of information that supports the reported performance contained in the annual performance report. The VDM also did not develop an effective system that verifies the accuracy, completeness and the reliability of the reported performance contained in the annual performance report.
Regarding the VDM's financial statements, the AG states that financial statements were also not reconciled with the underlying records to ensure the accuracy, completeness and reliability of the reported financial statements. "Monthly reconciliations for financial reporting and compliance with laws and regulations were not subjected to proper review…" says the AG.
Some of the matters pointed out by the AG that resulted from this lack of oversight by the VDM's senior management make for shocking reading.
For instance, the VDM suffered material water losses to the amount of R367 280 806 as a result of inadequate water distribution management. The VDM's financial statements also indicated that they suffered inventory losses to the amount of R279 268 as a result of theft of inventory. "… losses to the amount of R3 433 420 were incurred as a result of theft and vandalism to municipal property," states the AG report. Another big loss to the VDM was that of R84 298 676 impairment they suffered due to inadequate collection practices.
The lack of oversight also greatly contributed to unauthorised expenditure of R302 071 369 because of expenditure incurred in excess of the amounts provided for in the votes of the approved budget. As for irregular expenditure, the AG states that the municipality incurred expenditure amounting to R180 679 556 as a result of the contravention of the supply chain management (SCM) regulations.
With all these "losses" mentioned above it is no wonder that the VDM is technically bankrupt. "…the financial statements indicate that the municipality's current liabilities exceeded its current assets by R193 125 360. This condition, along with other matters as set forth … indicates the existence of a material uncertainty that may cast significant doubt on the municipality's ability as a going concern," the AG states.
With the 2016/17 financial year drawing to an end on 30 June this year, much has changed at the VDM. One such change was the recent appointment of Mr Reuben Rambado as municipal manager. Whether his appointment will have any positive impact on the VDM's latest financial statement to be reviewed, remains to be seen. The VDM cannot, however, fare too much worse than in previous years. One would, however, suspect that they would like to break the cycle of "bad reviews". They also received a disclaimer of opinion in 2013 and 2014, while getting an adverse audit opinion for the 2014/15 financial year.