In less than two weeks’ time, South Africans will be going to the polls to elect public representatives to sit in the 257 municipal councils across the country.

 

The latest (2019/20) audit findings as presented by Auditor-General Tsakani Maluleke in June this year painted a gloomy picture on the financial state and administration of municipalities.

 

Audit outcomes at a glance

In 2019/20, only 11% municipalities received clean audits. As illustrated in the chart below, 37% received unqualified audits, 31% received qualified audits, 3% received adverse opinions and 9% disclaimed opinions. **We explain the different audit opinions below

 

 

The trend of audit outcomes since the last municipal elections in 2016 shows a lack of any significant improvement.

When presenting her report, AG Maluleke said: “Local government finances continued to be under severe pressure as a result of non-payment by municipal debtors, poor budgeting practices and ineffective financial management. The financial position of just over a quarter of municipalities is so dire that there is significant doubt that they will be able to continue meeting their obligations in the near future. Almost half of the municipalities are exhibiting indicators of financial strain, including low debt recovery, an inability to pay creditors and operating deficits.”  

Other notable findings were:

• The 22 councils countrywide with disclaimed audit outcomes — the worst possible — went through almost R5.5-billion without being able to say where the money went. Put differently: of the R6.45-billion taxpayers contributed via the national purse to those municipalities through equitable share and conditional grant allocations, only R980-million could be accounted for by municipal financial year-end. 
• For both 2018/19 and 2019/20, the Free State and North West were the only provinces that did not have any of its municipalities achieve a clean audit.
• Irrecoverable debt averaged around 59% in 2018/19 and increased to 63% in 2019/20. This means councils owe suppliers such as Eskom and water boards more money than is in the kitty.
• Unauthorised expenditure increased by R2.6 billion or 22% from the R11.98 billion recorded in 2018/19 to R14.61 billion in 2019/20.
• Money used to pay consultants in municipalities amounted to R1.02 billion. Most municipalities appoint consultants for financial reporting as their own finance employees lack the skills required to prepare financial statements and schedules in support of those financial statements. The inability of these municipalities to master credible financial reporting means that they appoint consultants year after year, without ensuring that skills are transferred to municipal staff – and so the cycle never ends. This over-reliance on consultants leads to a high total cost of financial reporting. In 2019-20, 156 municipalities (78%) appointed financial reporting consultants – an increase from 62% in previous year; Consultants are also not rotated, as shown by the same consultants used in the previous year being re-appointed at 74% of the municipalities.

 

Further, in late August, the Department of Cooperative Governance and Traditional Affairs (COGTA) presented a report to the Portfolio Committee on COGTA showing that the vast majority of municipalities are in dire financial straits. The Department categorised the country’s major municipalities into four main categories: High-risk dysfunctional; Medium risk; Low risk; Stable. These categories were further considered alongside a number of indicators including their political situation, the state of their governance, their financial management and the level of service delivery.

 

Using these metrics, 64 municipalities (24.9%) were considered high-risk and dysfunctional, while 111 municipalities were considered medium-risk (43%). By comparison, only 16 municipalities (5.45%) were considered stable – with the vast majority of these municipalities located in the Western Cape. Other concerning data from the report showed that:

• 163 municipalities were under financial distress
• 108 municipalities had unfunded budgets
• 29 municipalities had been placed under administration.

 

What MPs had to say on the state of municipalities.

Upon presentation of the audit outcomes by the AG in June, MPs pointed out the report revealed grand theft, grand corruption and grand mismanagement. Members said that lack of accountability for mismanagement of public funds was the single biggest problem in government. They indicated unless something significant was done as a matter of urgency about financial management, the country was finished.

MPs proposed a roadmap to deal with the challenges in municipalities and emphasised that institutions from the legislative, executive and accounting spheres needed to work collaboratively to improve the administration within municipalities as well as examine the political forces at play.

Chairperson of the Standing Committee on Public Accounts, Mr Mkhuleko Hlengwa (IFP), said the legislative sector needed to take a fair amount of responsibility and accountability on the failures and collapse of the necessary framework by the municipalities in their audit action plans. These repeat findings were happening on Members’ watch. Parliament needed to respond to these matters in a far more constructive and sustainable manner as opposed to shot-gun interventions and oversight. He proposed a roadmap wherein parliamentary committees would meet to target the interventions and be more specific in how MPs wanted these done. There was a necessity, particularly in the worst performing provinces, that Parliament engage with the provincial legislature SCOPA. Ordinarily those Committees were the first point of call for oversight. If the province was instituting a Section 139 intervention then the provincial legislature committee responsible for COGTA should be hands-on. Parliament needed to relook at the legislative oversight modalities which were currently at play to turn this situation around. In the roadmap, moving forward, the reporting that the Committee would require from the AG on this needed to run parallel with the matters referred to law enforcement agencies. Those agencies need to indicate to the Committees how they are processing these matters. Otherwise, the AG would not be empowered if the referrals were not processed. The law enforcement agencies were key to this as well. The Fusion Centre and Anti-Corruption Task Team needed to provide the Committees with updates on the local government space. Operation modalities need to be developed. This was a matter SCOPA had raised with COGTA as well.

 

** AGSA can express one of the following audit opinions:

Clean audit outcome: the financial statements are free from material misstatements and there are no material findings on reporting on performance objectives or non-compliance with legislation.

Unqualified audit with findings: the financial statements contain no material misstatements but findings have been raised on either reporting on predetermined objectives or non-compliance with legislation, or both these aspects.

Qualified audit opinion: the financial statements contain material misstatements in specific amounts, or there is insufficient evidence for AGSA to conclude that specific amounts included in the financial statements are not materially misstated.

Adverse audit opinion: the financial statements contain material misstatements that are not confined to specific amounts, or the misstatements represent a substantial portion of the financial statements.

Disclaimer of audit opinion: the department provided insufficient evidence in the form of documentation on which to base an audit opinion. The lack of sufficient evidence is not confined to specific amounts, or represents a substantial portion of the information contained in the financial statements.