Auditor-General’s findings an indictment of previous administration 

26 January 2017

The City of Johannesburg tabled its Integrated Annual Report for the 2015/16 financial year at today’s Council meeting. Thisis a reflection of how the City used its R52.6 billion budget in 2015/16 to bring public services to the more than 4.6 million people of this metro.

The Report by the Auditor-General confirms the rampant maladministration witnessed under the previous ANC-led government and is an indictment of that administration.

The City’s audit outcomes for 2015/16 show an overall regression compared to the previous financial year. During 2014/15, six out of twelve City entities had a clean audit outcome while only four entities achieved this outcome in the 2015/16 financial year.

Expenditure

In the current reporting period, the total balance for fruitless and wasteful expenditure reached R 26 268 000.00 with R 7 441 000.00 being incurred in the 2015/16 reporting period.

Under the previous administration, a shocking lack of attention to financial management practices resulted in a failure to adequately investigate cases of unauthorised, irregular and fruitless and wasteful expenditure.

This left the City’s Council unable to assess whether or not the identified expenditure could effectively be recovered. This also means that individuals implicated are yet to face investigation and possible criminal charges.

79.72% of the total balance of fruitless and wasteful expenditure disclosed in the annual financial statement is yet to be investigated.

Similarly, the total balance for unauthorised expenditure reached R 3 417 609 000.00 with R 692 587 000.00 being incurred in 2015/16.

Further to this, the total balance of irregular expenditure reached R1 780 532 000.00, up from R1 565 214 000.00, due to the contravention of supply chain management procedures in the City as a whole.

69% of this irregular expenditure was only identified during the audit process and not detected by the City’s monitoring processes. This points to flaws in the City’s monitoring processes that perpetuated a culture of corruption and secrecy.

Payment of suppliers

The audit process confirmed that in a number of instances, invoices from suppliers were not paid within 30 days from the date of receipt as required by law. Assessments by the Auditor-General indicate that on average, the City takes 90 days to pay its suppliers.

The long outstanding payments to suppliers have a negative impact on the sustainability of business and ultimately the economic growth of the City.

As a former entrepreneur and as someone who believes that government must create an enabling environment for strong business growth within the country, I believe the present situation cannot be allowed to continue.

As such, I have instructed the City’s management to report back to my office on what measures are to be instituted to turn the present situation around.

Awards to persons in the service of the state

The City’s supply chain management regulations plainly prohibit awards to persons or entities owned or managed by persons in the service of the City, or if they are in service of any other state institution.

The audit further found that three officials employed by the State, including two City officials, unduly benefitted from the City to the amount of R18 455 309.00.

Included in the Auditor General’s investigation was an audit identifying awards made to close family members of City employees. The findings indicated that –

Close family members of seven officials had an interest in awards made to the value of R4 014 744.00. Three of these officials did not declare their interest;

56% of the awards to close family members, amounting to R2 257 243.00, were not disclosed in the financial statements; and

All seven service providers submitted a declaration but did not declare their interest.

I am immediately handing these matters over to General Shadrack Sibiya, who heads up the City’s anti-corruption unit, for further investigation.

Contract management

The report found that contract performance and monitoring measures applied in the monitoring of six contracts, valuing R51 476 962.00, were insufficient. As a result, payments made to these contracts were in excess of the contract values.

Procurement processes

Under procurement management, the following were detected by the Auditor-General:

- five contracts with a value of R398 672 000.00 were procured without inviting competitive bids, and the deviations were approved even though it was practical to invite competitive bids;

- ten contracts and quotations to the value of R51 744 127.00 were procured from suppliers without valid tax clearance from the South African Revenue Services;

- one contract with a total value of R18 928 000.00 was awarded to a bidder who did not meet the minimum threshold for local production and content. Further, the identified suppliers did not obtain the necessary authorisation from the Department of Trade and Industry to import such materials;

- one contract with a value of R300 000.00, was awarded to bidders who did not score the highest points in the bid evaluations, and where there was no justification for the deviation;

- seventeen contracts and quotations with a value of R542 849.00 were awarded to bidders who did not submit a declaration of whether they were employed by the state or connected to any person employed by the state;

- four quotations with a value of R192 492.00 were awarded without approval by an appropriately delegated official; and

- one award to the value of R81 760.00 was procured without inviting at least the minimum prescribed number of written price quotations from prospective suppliers, and the deviation was approved even though it was possible to obtain the quotations.

Transgressions identified in previous financial years

Disgracefully, unauthorised expenditure identified in previous financial years was not investigated to determine whether a person was liable for the expenditure.

These outstanding investigations amount to R 1 011 033 000.00.  This state of affairs was the same for both reported irregular and fruitless and wasteful expenditure to the value of R 830 872 778.00 and R1 886 221.00 respectively.

The report also includes other audit findings that are indicative of transgressions by officials or other role players that must be investigated and disciplinary steps taken, based on the results of the investigations. These include:

32 officials failed to disclose their own interest or that of a close family member, partner or associate in contracts. These contracts were valued at R 308 836 314.00; and

80 suppliers were found to have submitted false declarations of interest to the amount of R 954 931 226.00.

We are committed to ensuring a speedy investigation of these.

These findings by the Auditor-General are indicative of the City’s desperate need for a competent, trustworthy, and professional civil service that puts the interests of our residents first. The 33 000 employees of the City must be aligned to the outcomes of our service and economic delivery agenda.

When our residents engage with our civil servants they must feel that they have been dealt with in a professional and caring manner. Residents must also have confidence in our intention to eradicate corruption and waste in the City. Corruption is public enemy number one in this City and we must ensure that this municipality’s funds go to those it ought to - its residents.

As Executive Mayor, I will set the right tone at the top by insisting on credible feedback regarding good governance disciplines and exercising my oversight responsibility to ensure accountability, performance and consequence management where necessary.

To begin addressing the City’s problems we have -

- a Compliance Unit (Screening Committee) which has been intensified to interrogate compliance in detail and scrutinize all supply chain management contracts and ensure compliance;

- made amendments to the administration of our tender system to improve its efficiency and promote transparency and fairness; and

- capacitated the City’s Internal Anti-corruption Unit which will scrutinise cases in desperate need of investigation within the City.

We have a long way to go, but it can be done. The days of blatant maladministration in the City going unpunished have come to an end.

When I came into office I promised the residents of this great City change. We are working tirelessly towards ensuring that we administer a City that our residents can be proud of.

Issued by Tony Taverna-Turisan, Director of Communications, Office of the Executive Mayor, Herman Mashaba, 26 January 2017