Another day, another story of dodgy government contracts. Local government contracts, to be more specific.
The scene is Nelson Mandela Bay, 2014. As court papers tell it, the city is planning to roll out an integrated transit system and has secured a conditional grant from the National Treasury to help pay for it. Things are ready to roll.
So far so good.
But first, it needs a comms strategy. Luckily, there’s R3.6m floating around for the “development of a comprehensive communication and marketing strategy”. Spread over a year, that’s R300,000 a month. With an apparent cap of R6m. Which seems a little overenthusiastic on the spending front, but anyway.
Then things go properly sideways. First off, the contract is handed out without going out to tender. Then there’s another small issue: it turns out there’s already a comms company contracted. And the acting CFO has advised against the appointment as it would violate the metro’s supply chain management rules and, by implication, the Municipal Financial Management Act (MFMA).
Still, her advice is, ultimately, roundly ignored, and the R3.6m contract is pushed through.
Three weeks later, things take an even dodgier turn when the company submits an invoice for a whopping R5.26m. Again, the acting CFO advises against payment, flagging earlier issues. Instead, the payment is duly authorised.
Never mind that R6m cap – the company is subsequently paid a further R1.39m and then another R984,000 or so.
So you’re now sitting with a R3.6m contract that has cost the metro a princely R7,638,159. And 10 cents.
It may not surprise you to learn that a subsequent Deloitte investigation finds gross overinflation: by its calculations, the work that was billed at R5.2m is worth just R2m. Which means someone, somewhere, is getting R3.2m pasella. Nice gig if you can get it.
Just deserts
Sadly, there’s nothing unique about this story. If anything, South Africans’ eyes glaze over at the sheer profligacy of local governments. At the rot.
Only, this story ends slightly differently – with a glimmer of hope, if you like.
Earlier this month, the Supreme Court of Appeal (SCA) upheld a high court order that the municipal officials at the centre of this scandal must personally pay back the money.
In short, the court found that section 32 of the MFMA makes it clear that officials are responsible for unauthorised, irregular, and fruitless and wasteful expenditure incurred deliberately or through negligence. Moreover, municipalities must recover this expenditure unless it’s subsequently authorised in an adjustment budget, or is certified as irrecoverable and written off.
The SCA also found that it’s neither here nor there whether the municipality received any value from its expenditure. And it is entitled to recoup that expenditure regardless of whether it incurred any loss or damage. It is a crucial judgment.
The result? The errant officials and company are now on the hook for that R7.64m, plus interest, plus the costs of two counsel. Try contain your schadenfreude.
A tale of woe
Now, unauthorised, irregular, and fruitless and wasteful expenditure may not register highly as a proportion of overall budgets, but on a straight-number basis, it’s not to be sneezed at.
Total negligent spending at municipalities in just 2022/23 amounted to an eyewatering R59bn-odd, according the most recent local government report by the auditor-general. That’s R27.59bn from irregular expenditure, R24.12bn in unauthorised expenditure, and a princely R7.41 in fruitless and wasteful expenditure. As an indication, Gauteng’s irregular expenditure alone would settle that province’s debt to Eskom, with change.
Suffice to say, this is an amount the Guptas would probably get out of bed for.
Only, municipalities seem to squander every opportunity to claw back this money, leaving the ratepayer holding the bag.
As auditor-general Tsakani Maluleke noted in her 2022/23 local government report, half of South Africa’s municipalities don’t comply with legislation around implementing consequences for things like negligent expenditure. A full half of municipalities, she previously found, don’t even bother investigating it.
Where they do take action, they take the easy route out: they write off the expenditure and consider the case closed. Little surprise then that, as Maluleke says: “Investigations were not properly performed and losses not recoverable from those liable.”
This is not only an issue of consequence management; this kind of irregular expenditure speaks to poor governance controls and capacity issues in municipalities. And a lack of political will. And, almost certainly, political interference.
Most important though is the warning bell it sounds about the financial health and capacity of municipalities, and of the responsible use of ratepayer funds. On both those aspects, South Africa’s municipalities have been found deeply wanting, repeatedly, and for many years.
This is made all the more salient when you consider how important municipalities are for our society to function. They must ensure you get power, water piped to your home, roads maintained, working public transport, and a health, education and security apparatus that functions for those who can’t afford to go private. Properly run municipalities are the backbone of any functioning state.
And yet, back in 2022, finance minister Enoch Godongwana bemoaned the fact that more than half of South Africa’s 257 municipalities were bankrupt or insolvent. That same year, 112 municipalities adopted unfunded budgets – living beyond their means, in other words, and last year, Maluleke raised the uncertain fate of 30% of audited municipalities as going concerns. In Gauteng, the country’s economic powerhouse, that number rises to 55%; in the Free State – the worst offender – it is 68%.
Which makes it all the worse that so little effort is spent to claw back mountains of ratepayers’ cash wasted by negligent or corrupt officials.
The Nelson Mandela Bay legal case is a victory for justice – and for ratepayers who watch municipalities fritter their money away. With luck, it will make at least some officials think twice about their fiduciary responsibilities.
But ultimately it remains in the hands of municipalities to investigate this expenditure – and to take action on it. Maluleke’s reports suggest we’re still a long way from a culture of accountability on that count.
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