The National Treasury has rejected the Nelson Mandela Bay municipality’s proposed blanket write-off of R23bn in unauthorised, irregular, fruitless and wasteful expenditure, warning that the process is legally defective.
In a strongly worded letter to the municipality, the Treasury said it could not support the metro’s conclusion that all the flagged expenditure incurred up to June 30 2021 had prescribed, insisting that each item must first be assessed on its own facts.
The Treasury’s intergovernmental relations deputy director-general, Ogalaletseng Gaarekwe, addressed the letter to acting city manager Lonwabo Ngoqo on August 19.
ACDP councillor Lance Grootboom was included as a recipient of the email.
Municipal spokesperson Sithembiso Soyaya said the city was dealing with the flagged historical expenditure.
“The approximately R23.08bn refers to historical UIFWE reflected on the municipality’s register, covering expenditure accumulated over many years from 2009,” he said.
“It is not an amount that has simply been removed from the municipality’s books.
“A UIFWE register balance, a determination that expenditure is legally irrecoverable, certification of irrecoverability and a final write-off are separate stages in the statutory process.”
He said that since 2024, the municipality had done extensive cleansing and reconciliation of its expenditure register to establish the accuracy of the historical record, determine what remained legally recoverable, address prescription where applicable and identify outstanding accountability matters.
“The municipality has taken note of the National Treasury’s concerns and has responded to them.
“The correspondence will form part of the information considered through the appropriate municipal governance processes.
“The municipality does not accept that the process amounts to an abandonment of good governance or accountability.”
He said recovery remained the starting point under Section 32 of the Municipal Finance Management Act (MFMA).
“At the same time, the law of prescription must be applied where recovery rights have become legally unenforceable.
“The municipality’s position is not that UIFWE prescribes simply because it is old.
“The legal status of historical expenditure must be established from the relevant records, dates, recovery action and applicable legal principles.
“There is equally no basis for suggesting that a lawful determination of irrecoverability would amount to protecting anyone from accountability.
“Accounting treatment and consequence management are separate matters.
“Where the evidence supports disciplinary, civil, criminal or other action against officials, political office bearers, suppliers or any other responsible parties, the appropriate processes must follow.
“The acting city manager has prepared documentation arising from the UIFWE cleansing exercise for purposes of an appropriate criminal referral where the evidence warrants such action.
“The municipality will not compromise a potential law enforcement process by releasing incomplete or premature operational information.”
Meanwhile, Gaarekwe said the municipality must examine each invoice, payment, transaction or purchase order to establish who might be liable, when the relevant facts became known, what recovery steps were taken and whether the expenditure had actually prescribed.
She warned that any decision by the municipal public accounts committee (Mpac) or council based on the current process would be unlawful and could expose the responsible officials and councillors to misconduct proceedings.
Her letter came amid moves to approve the write-off in council, which would be in breach of the MFMA.
Mpac first approved the write-off earlier in August.
However, the meeting descended into a bitter showdown.
Opposition councillors accused Mpac chair Luxolo Namette of being railroaded into approving the huge write-off without first scrutinising supporting documents to see what the amount was spent on and assess whether the metro had received value for money.
According to a report, Ngoqo sought legal advice to help the municipality investigate and address the flagged expenditure.
The Bay metro has the highest unauthorised, irregular, fruitless and wasteful expenditure of any SA municipality, totalling nearly R30bn.
Ngoqo told councillors he had prepared an affidavit, which he still needed to sign, and intended using it to report matters to the police against people implicated in the flagged expenditure.
The legal opinion makes it clear that the municipality cannot simply assume that the historical expenditure has prescribed.
Instead, it must assess each item individually to determine if it remains legally recoverable.
Under the Prescription Act, legal claims and debts are subject to time limits.
If a creditor fails to take legal action within the prescribed period, the debt may become prescribed, meaning it is extinguished and can no longer be recovered through the courts.
After the meeting, the ACDP and DA wrote to the National Treasury.
Meanwhile, Gaarekwe ordered Ngoqo to withdraw the unsigned affidavit underpinning the proposed write-off.
She said the statutory starting point for unauthorised, irregular, fruitless and wasteful expenditure was recovery.
“A write-off occurs only after a proper investigation establishes that recovery is no longer legally possible.
“For avoidance of doubt, an item-by-item assessment means that UIFWE recoverability must be considered at the level at which the UIFWE was actually incurred.
“It does not mean a single assessment for an entire financial year, directorate, contract or aggregated register balance.
“For each such amount, the municipality must determine the person potentially liable, the basis of liability, the date on which the municipality knew or reasonably ought to have known the relevant facts and identity of that person, and the recovery steps taken.”
However, she said Ngoqo had appeared to divert from that in his affidavit.
“For the 2022 and 2023 financial years, the affidavit states that irrecoverability should only be determined after an item-by-item assessment.
“No clear legal basis is provided for applying an individual assessment from 2022 onwards while applying a broad financial-year approach to earlier expenditure.
“The same legal test should apply to each claim.
“The National Treasury cannot support a blanket conclusion or recommendation that all UIFWE up to 30 June 2021 has prescribed.
“The age of the UIFWE incurred may justify an urgent investigation, but it does not, on its own, establish prescription.
“Each item should be assessed against the identity of the liable person, the facts giving rise to liability, the date those facts became known or could reasonably have become known, the recovery action taken and any event affecting prescription.
“The unsigned affidavit is legally defective [as it] seeks a broad write-off of UIFWE up to June 30 2021, amounting to R23,085,242,601.33, without first completing the item-by-item assessment required.
“Any decision by Mpac or council based on this defective process will be unlawful and expose responsible officials and councillors to misconduct proceedings.
“The affidavit, whether unsigned or signed, should therefore not be served before Mpac or council in its present form.
“The National Treasury requires written confirmation ... that the unsigned affidavit has been withdrawn and that the legal concerns have been reported to Mpac and council.”
Grootboom said the ACDP had serious concerns regarding the legality, accountability and oversight implications of attempting to deal with such a substantial amount of expenditure through a blanket write-off.
“Following the ACDP’s urgent intervention, the National Treasury has engaged with the municipality regarding the proposed write-off and the applicable legal and financial management requirements.
“The ACDP welcomes this intervention and the further scrutiny of a matter involving billions of rand in public money,” he said.
“The ACDP is particularly concerned that any process involving the potential write-off of R23bn must be transparent, properly motivated and subject to rigorous oversight by Mpac and council.
“The ACDP refused to sit back while an attempt was being made to process a blanket write-off involving more than R23bn in historic municipal expenditure.
“We raised our concerns through the appropriate oversight channels and urgently brought the matter to the attention of the National Treasury and the auditor-general.”
DA councillor Gert Engelbrecht said the money belonged to residents and could not simply disappear from the books.
“We specifically asked the National Treasury to intervene and provide clarity on the process being followed, the legal basis for the proposed write-off and whether the municipality had properly considered the individual transactions making up this enormous amount.
“The National Treasury has now responded to those concerns and has made it clear that the municipality cannot simply take a blanket approach to writing off R23bn on the basis that the expenditure has prescribed.
“The National Treasury has also raised serious concerns about the affidavit supporting the proposed R23bn write-off, including deficiencies in the process followed.
“This raises further serious questions about any decision taken by Mpac or the council if the necessary legal advice and information has not been properly considered.”
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