Municipal Act should leave no room for creative accounting

Loopholes to circumvent procurement processes should be plugged, and discretionary regulations changed to prescriptive

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30/11/2020 07:00:55

                                                                                                                                                                                                                    Municipal Act should leave no room for creative accounting

                                                                                                                                                                                                                    OUTA recently submitted comments to National Treasury on the Supply Chain Management Regulations relating to municipal procurement policies as contained in the Local Government: Municipal Finance Management Act of 2003. The regulations of this act, also known as the MFMA, create a loophole for municipalities to circumvent competitive bidding processes where the bidding price falls below a certain threshold.

                                                                                                                                                                                                                    As such, the regulations fail to safeguard against the abuse of municipal funds where multiple service providers perform the same job or split certain elements of a contract. Brendan Slade, senior legal project manager at OUTA, calls the regulations “superficial and arbitrary”, and in contrast with creating a transparent procurement system for bidding below certain thresholds. “No explanation is given why a particular threshold should be applicable in certain categories of municipalities.”

                                                                                                                                                                                                                    While the regulations are supposedly aimed at outlawing the practice of invoice splitting, it leaves the accounting officer with a discretion to decide whether procurement below the threshold should conform to a competitive bidding process.

                                                                                                                                                                                                                    OUTA is of the opinion that these regulations should not be left to officials’ discretion but rather be prescriptive. “It will create certainty and a principle to apply across all municipalities. If not, accounting officers can abuse the regulations by choosing not to impose competitive bidding for amounts below the threshold, leaving ample opportunity for ‘creative bookkeeping’, something we have often seen in struggling municipalities. It is practically impossible to regulate without proper oversight.”  

                                                                                                                                                                                                                    OUTA is advocating for stricter oversight mechanisms and accountability for contraventions of MFMA regulations. “It is in the interest of transparency and the current state of our municipalities,” says Adv Stefanie Fick, Executive Director of OUTA’s Accountability Division. “Although the MFMA itself aims to hold accounting officers to account for fruitless and wasteful expenditure, splitting of invoices does not always reflect on municipal audits and as such is not picked up as irregular expenditure. Accounting officers can simply get off the hook if they make use of this creative bookkeeping.

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                                                                                                                                                                                                                    Picture: OUTA

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