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Understanding municipal politics: Exploring fruitless & wasteful expenditure

EWN explores the Auditor-General latest municipal audit report to unpack the level of wasteful expenditure in local governments.

An aerial view of voting stations around Johannesburg shows scores of people already lining up. Picture: Aki Anastasiou/EWN.

Municipal spending forms the backbone of service delivery. The actions of municipal managers and their finance teams has a direct and real impact on the lives of the people they serve - spend their budgets well and South Africa's cities and towns function efficiently; waste the money allocated each year and the provision of water, electricity and other services suffer.

This project will look at specific local government financial information based on the audit outcomes for the 2014-2015 financial year [please note, this differs from a calendar year], and for preceding years.

This financial information is contained in both the respective audited annual financial statements (AFS) of the local government entities, and in various notes and reports produced by the office of the Auditor-General (AG) of South Africa.

AFSs are available, from 2002-2003, at the Treasury website.

Auditor-General notes for municipalities can be viewed, for the past four years, at https://municipalmoney.gov.za.

The AG’s website notes that their audit reports “contribute to a culture of public sector accountability that makes a difference in the lives of South African citizens.” This is an important and significant sentiment, but AG reports and audit notes are not necessarily helpful at an individual municipal level, or for audiences that are not comfortable with auditing and financial terms. The consolidated MFMA report, for example, runs to 152 pages.

For this reason, smaller break-out projects that single out expenditure or income categories, or take closer looks at individual municipalities, will play an equally important role in driving public sector transparency, not only accountability.

In this overview EWN looks specifically at the category of “fruitless and wasteful expenditure”, for both the financial year in question and for the worst-performing municipalities over a five-year period.

Definitions/legislation:

Fruitless and wasteful expenditure is defined as “expenditure that was made in vain and could have been avoided had reasonable care been taken.”

A commonly cited example of fruitless and wasteful expenditure is that of paying a deposit for a venue, then failing to use the venue thereby losing the deposit. So it is both fruitless and wasteful.

Fruitless and wasteful expenditure is distinguished from irregular expenditure (“expenditure that was not incurred in the manner prescribed by legislation”) and unauthorised expenditure (“expenditure incurred by municipalities outside the budget approved by the council or not in accordance with the conditions of a grant.”) These categories, while more significant (by value) than the “fruitless” category, are also incrementally more ambiguous and complex, and would require much more extensive explanation and investigation in order to distinguish between, say, legal and necessary expenditure that failed to strictly comply with supply chain management (SCM) protocols, versus illicit or unnecessary expenditure.

• Three types of local government entities are considered for this report (indicated on the spreadsheet):

  • Metropolitan municipalities (MET)

  • District municipalities (DM)

  • Local municipalities (LM)

The differences between municipal structures is explained here, together with a list and map showing South Africa’s municipal entities.

There is also a structure called a Municipal Entity (ME), which is included in the AG consolidated report, but which is excluded for evaluation of the total amount of municipal fruitless and wasteful expenditure. An example of a municipal entity would be, for example, JHB Water.

• Local government finance is regulated by the Municipal Finance Management (MFMA) Act 56 of 2003.

Visit EWN's special municipal spending portal - created in partnership with the Auditor-General - to see how your taxes are being spent at local government level.

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