Metro flunks audit – again

Situation slightly better, ‘but there is still more work to do’

Better, but still not good enough.
The Nelson Mandela Bay municipality’s poor asset management and systems, shoddy record-keeping and its inability to get a proper handle on its water and electricity losses has earned the city its seventh consecutive qualified audit opinion.
The opinion from auditor-general Kimi Makwethu covers the 2017/2018 financial year – from July 2017 to June 2018 – when the city was being run by the then DA-led coalition.
While a full report detailing the reasons for the qualified opinion will be released to the council only in January, acting city boss Peter Neilson said the municipality had yet again been rapped over the knuckles for its troubled supply chain management department.
He said the tender records were still in a shambles as documents were missing, making it difficult to give a true account of the extent of irregular and fruitless and wasteful expenditure.
For the previous financial year, the audit qualification was as a result of the city’s slack management of its property, plant and equipment, which meant it could not correctly account for the value of its assets and infrastructure used to deliver services.
Poor financial records and an R11.5bn irregular expenditure bill dating back to 2002 also resulted in the qualified audit in the 2016/2017 financial year.
Neilson said the situation had improved somewhat, but there was still more work to do to get an unqualified audit.
“We’ve done much better to patch up some of the wrongs in the past, so we’re getting closer to our goal of fixing the problems,” he said.
“The supply chain [management] department is still not where it should be. So, it’s not a wonderful audit,” he said.
The audit result comes as the city has not had a permanent chief financial officer at work for two years.
Former CFO Trevor Harper, who was suspended in November 2016, resigned in February 2018 and his position has yet to be filled.
A qualified audit means there is a lack of proper internal controls and that the AG could not verify some financial information.
It does not bode well for potential investors keen to pour money into the city and sends a signal of an administration that does not quite have its house in order.
One of the big challenges highlighted by the AG is the ever-growing problem of water and electricity losses, which is costing the city hundreds of millions of rands in lost revenue every year.
In the year under review, the metro lost an average 43.9% of water due to leaks and unbilled usage.
This was a significant increase from the 35.5% water losses in 2016/2017.
Electricity losses for 2017/2018 were 13.9%.
Neilson said the AG raised concerns that the municipality was not making strides in decreasing its water and electricity loss figures.
The stand-in acting city manager, Mbuzeli Nogqala, who is filling in for Neilson while he is on leave, said it was premature to comment and provide details of the audit result at this stage.
He said it first had to go to the council at the end of January with the city’s audit action plan.
DA councillor Retief Odendaal, who was budget and treasury political head over the audit review period, said he was disappointed that the city could not achieve an unqualified audit, but it was also not unexpected.
“With the institutional knowledge I had, I knew we wouldn’t get there.
“It just highlights how broken the administration is and the importance to address many shortcomings.”
He said one issue highlighted by the AG was the city’s outdated IT system, which is not integrated and puts the municipality at risk.
“If we want to turn the administration around, a number of broken systems need to be fixed. To give you an idea of the problems we have, we had to fly a technician from China to fix our IT system.
“We need hundreds of millions of rands to fix it because we need a system that works and that is integrated.”
He said the municipality was simply not addressing the electricity and water losses problem, adding that the previous administration had planned to use R700m loan funding to fix that by replacing the old infrastructure.
It is unclear if the city still intends to obtain funding and if it will be used for new water and electricity infrastructure.
Odendaal said it was a mammoth task to work through the years of irregular expenditure by the city.
“About 1,500 investigations into instances of irregular expenditure need to be finalised.
“It would be impossible to conclude that quickly. The entire administration would come to a standstill if we had to tell officials to finalise that quickly.”

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