Missing documents hamper Nelson Mandela Bay’s bid to write off R350m in disputed expenditure

A move to write off R350-million in expenditure under “limitation of scope” from Nelson Mandela Bay’s financial statements fell flat at a Municipal Public Accounts Committee (Mpac) meeting this week.

Of the total, R172-million comes from the Budget and Treasury Directorate, and R178-million from corporate services.

Limitation of scope is a finding by the Auditor-General that arises when auditors cannot obtain sufficient evidence — due to missing documents, system restrictions or other barriers — to form a full opinion on a government entity’s financial statements.

The R350‑million is part of more than R30-billion in unauthorised, irregular, fruitless and wasteful expenditure (UIFWE) that the metro is rushing to clear by the first week of December, to avoid the Treasury withholding its equitable share tranche under section 216(2) of the Constitution. The R30‑billion figure includes historic spending dating back to 2004.

The city’s financial watchdog reduced the fluctuating UIFWE on Wednesday by writing off R1.8-billion, a move that still has to get the final nod from the council on 4 December.

Mpac members questioned the reliance on affidavits, which offered limited detail on efforts to recover missing files linked to the proposed write-offs. Many documents were lost when the city moved from its old centralised system to a decentralised filing system. Missing files were compounded by office renovations and poor document control during the transition.

During the Mpac meeting, reference was made to an affidavit by the municipality’s chief executive officer, Jackson Ngcelwane, that formed part of the supporting documents to justify the proposed write-off.

In the affidavit, dated September 19, Ngcelwane said they had exhausted all efforts to find the missing documents.

Misfiled or destroyed

“While no definitive reason has been identified, it is speculated that some procurement files and documentation were either misfiled, lost and/or destroyed at a time when the filing was decentralised or during the time when the filing was centralised, either in the move to the supply chain unit or when the renovations were undertaken to the offices.”

Ngcelwane said this resulted in certain supporting documentation not being available during the applicable financial years, leading to the classification of such expenditure as a limitation of scope.

“I have reviewed the report forming the basis of the [Auditor-General] findings and confirm that the transactions in question are historic in nature, spanning more than 10 years, with the majority [approximately R161-million or 94%] relating to the 2014/2015 financial year.

“Despite ... exhaustive and diligent attempts and searches by both me and several other officials within the Budget and Treasury Directorate, the documentation could either not be reconstructed or located,” reads the affidavit.

The efforts have also been frustrated by the fact that most of the officials who were involved in the affected tenders and contracts have left the employ of the municipality or died.

“As such, internal consequence management is not feasible as the availability of the documents is a primary requirement for successful consequence management,” said Ngcelwane.

A report tabled at Mpac states that the city applied the same approach in 2018 when it wrote off R7-billion worth of historic limitation of scope expenditure, which was later adjusted to R6.1-billion by the Auditor-General.

“This report proposes the same treatment for the budget and treasury’s [and other directorates’] portion identified and disclosed on the 2023/ 2024 annual financial statements,” states the report.

Reasons provided for the write-off of the limitation of scope include:

• The files in question are no longer active and originate from a decentralised era with poor document control;
• Attempts to reconstruct or locate supporting documentation have been exhausted;
• Affected officials have since left the institution, or the matters have been prescribed, making consequence management impractical and legally fraught;
• Pursuit of cases without evidence may result in costly litigation and demoralisation of remaining staff; and
• Internal controls have since been strengthened through SCM centralisation, automation of certain processes, and leadership appointments.

Affidavits

On Thursday, the Mpac chair, Luxolo Namette, said the executive directors of all the directorates were required to produce affidavits for their portion of the limitation of scope.

“We resolved on this due to the issue of the missing files and the old system that was used by the metro,” said Namette.

“We said at least there must be some form of a document as a means to account for why we don’t have the files.

“The CFO [Ngcelwane] made an example of an Indian company that ran a programme in the municipality and he can’t reach them. So, because we can’t find them, we will use the affidavit to cover all the expenditure items we can’t account for.”

Namette said they consulted with the Treasury twice this month regarding the affidavits and were given the green light.

“As the committee, we are mandated to ensure clean governance and to make sure that every cent is spent in line with legislation and approved processes," said Namette.

“While some of these UIFWE matters date back to 2008, those who are required to account must still do so. We will not support blanket write-offs without sufficient, correct and legitimate information.

“While progress is being made in addressing UIFWE, our urgency must never compromise the principles of accountability and transparency.”

A letter from the Treasury to the acting city manager, Lonwabo Ngoqo, dated November 11, indicates that the city misinterpreted the use of limitation of scope.

“As discussed with officials from your municipality, the proposal to treat the R2.6-billion in expenditure under limitation of scope as a category distinct from UIFWE is not consistent with the MFMA [Municipal Finance Management Act].

“The current policy approach risks writing off billions in expenditure without any determination of liability, which is contrary to the MFMA,” reads the letter by the Treasury’s deputy director-general for intergovernmental relations, Ogalaletseng Gaarekwe.

ACDP councillor Lance Grootboom said the party would be against the Treasury’s directive for them to approve the write-off without any investigation and scrutiny from Mpac as the watchdog.

“We have been tasked to investigate the UIFWE, and this affidavit does not state what efforts were made to find those files and what the funds were spent on.” DM