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92% of SA’s municipalities flunk their audits

ENCA reports that only 8% of South Africa’s municipalities have achieved a clean audit in the 2017/2018 financial year.

According to auditor-general Kimi Makwetu, this is down from an already dismal 14% last year, and shows that the municipalities aren’t listening to the auditor-general’s advice.

About 74% of municipalities failed to follow up on allegations of fraud and financial misconduct, which makes sense when you realise 45% didn’t even have the required mechanisms to report or investigate these allegations in the first place.

EWN reports that 88% of municipalities aren’t awarding tenders fairly, and 824 suppliers have made false declarations to be paid.

About a billion rand’s worth of tenders even went to state officials, which is illegal according to the Municipal Financial Management Act.

Another billion rand went to consultants in order to help them prepare their reports for the auditor general.

Which is made worse by the fact that there was another R1.2 billion worth of procurement he couldn’t audit in the municipalities’ books because of incomplete information.

And finally, according to News24  the South African Municipal Workers’ Union (SAMWU) is threatening to go on strike – because about 30 municipalities and the Free State have paid their staff late this month.

SAMWU is demanding that staff be paid immediately.

Matjhabeng municipal spokesman Kgojane Mututle explained the late payments by claiming that the salaries bill was particularly high this month because of bonuses.

Its June.

My Take

SAMWU are 100% in the right here. Late payment is not something to be tolerated, and the excuses given are lame ones that I think don’t speak to the real core of the problem.

That core is the fact that nobody knows what is going on – because only about 8% of our municipalities have clean audits.

The thing with accounting is that the main business of accounting isn’t really about the audit – it is about ensuring that management have the information they need in order to run whatever the books are being set up for.

If you’re managing a simple retail company you want your sales team to know how much stock you have so they can sell it. You also want your buyers to know what is selling so you can stock up on that.

You want to know what your salaries bill is so you can pay your staff.

So in that 92% of our municipalities where the books don’t pass muster, it wouldn’t be a surprise to me if, say, 30 of them had their books in such a state that they fail to be usable on this day-to-day basis.

Basically there is so much crooking going on, that the municipal managers and mayors are flying blind with no real knowledge of what assets they have to work with, and what liabilities they owe.

Which opens the door to dodgy contractors charging for goods and services they didn’t provide because who really knows that they really didn’t provide them? The books are such a mess, that this information is not easily accessible.

And when you get situations like staff and legitimate creditors being paid late – well risk and reward comes into it.

If I think doing something has an element of risk to it, I’m going to charge more for that thing. This is why banks will charge some people more interest than others – because they have assessed the risk of somebody defaulting on that loan and they want to get more money if they’re taking more risk.

The exact same thing happens in salaries and wages – if payday is a moving target, workers will get fed-up and expect a bigger payday in exchange for the risk they’re taking every month that they don’t get paid on the due date.

We complain about the unions because they make easy targets, but it is important to realise that there is often more going on when a strike gets called than simply low salaries. Sometimes it is political grandstanding – which really needs to stop – but often it is that workers are dealing with far more than is being reported.

People tend to feel that they can put up with more nonsense in exchange for more money – which means rather than a reduction in the nonsense they tend to demand the more money, and that is what gets reported.

So what do we see with government employees, who do run the risk of not being paid on time? Another story on ENCA reveals that government is the primary driver for increased salaries in South Africa.

Bankserve found that real take-home pay increased by 2.6 percent over inflation for the year to May, according to ENCA, but the private sector can’t afford to pay workers more than 1% over inflation.

This is the real financial cost of shoddy book keeping, it increases the costs of everything else because everybody is taking more risk dealing with these municipalities than they should, and the municipalities are easy targets for crooks.

And it illustrates something that I have repeatedly harped on – the major issue with our government isn’t strictly speaking a matter of stated policy, it is a failure in all of these little jobs like ensuring that the accounts are relatively accurate, that all adds up to our sky high unemployment, our education crisis, our healthcare crisis, our crime problem etc…

It is also oddly enough, why I don’t think South Africa is irrecoverable. The issues aren’t insurmountable impossibilities, they aren’t anything that should be beyond anybody’s capabilities – this is basic book keeping we’re talking about here, most small to medium sized businesses in South Africa can achieve a clean audit, can pay their workers on time, and can in fact ensure that when a creditor submits an invoice that they got whatever is on the invoice.

We’re limping along with a government that cannot achieve the degree of management present in your average spaza shop, imagine what we could achieve with a government that just achieved these base minimums.

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