Auditor-General, Tsakani Maluleke.
With an expenditure budget of R719-billion in the 2019-20 financial year, most of the 257 municipalities in the country have regressed, squandered money, or have not been able to account for or report on how billions have been spent.
Incoming auditor general Tsakani Maluleke said that the situation is so dire that there is significant doubt that the municipalities will continue operating as a going concern in the near future.
“Local government finances continue to be under severe pressure as a result of nonpayment by municipal debtors, poor budgeting practices and ineffective financial management,” she said.
In a statement, Maluleke said that audit results had demonstrated little sign of improvement, and instead, her team had observed the deteriorating state of local government.
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“When it took over, the administration inherited 33 clean audits. Unfortunately, it has now regressed to only 27 clean audits. We therefore call on leadership to embrace their responsibility to drive change if we are to make a difference,” she said.
In the 2018-19 report, titled Not Much To Go Around, Yet Not The Right Hands At The Till, the late former auditor general, Kimi Makwetu, warned that leaders needed to take steps to curb the rampant mismanagement of finances, and that local government finances were under severe pressure. He presented solutions, including investing in preventative controls; improving monitoring, review and oversight; using the auditor general’s reports, briefings and engagements to identify critical areas that need attention; and strict consequence management.
“Unfortunately, we have not seen evidence of these messages being taken to heart. Hence we are reporting that poor audit outcomes remain prevalent. The continued calls for change we make to leadership are based on the overall state of financial and performance management, the material irregularities we identified and our observations in the provinces,” said Maluleke.
For years the office of the auditor general has highlighted the shortcomings. Yet, this financial year, municipalities have not even mastered the basics of financial reporting, with only 28% being able to submit quality financial statements for audit purposes.
In the 2019-20 financial year, the cost of financial reporting amounted to more than R5-billion, based only on the salary cost of finance units and the cost of financial reporting consultants, which accounts for 18% of the total cost. However, according to the report released on Wednesday, only 2% of municipalities used consultants to bridge the vacancy gap, while others paid consultants even though their finance units are well capacitated.
The report states that an analysis of the financial health of 199 municipalities based on their financial statements shows increasing indicators of a collapse in local government finances. Eighteen of the municipalities had financial statements that were not even reliable enough for analysis due to disclaimed or adverse opinions, while five municipalities did not submit financial statements for auditing.
The Eastern Cape was highlighted as one of the provinces with the most regressions over the four years of the current administration, closely followed by the Free State, then KwaZulu-Natal and the Northern Cape. The auditor general urged the provincial leadership of these provinces to reverse this negative trajectory.
Municipalities’ reporting on their service delivery performance was even worse than their financial reporting, the auditor general found.
Maluleke’s damning findings continued: “It is not surprising that citizens experience poor service delivery from municipalities if not even a quarter of them could provide us with quality performance reports to audit. Even after addressing our findings, just under half of the municipalities still published performance information that was unreliable or had little relevance to what they had promised to do in their strategic planning documents.”
This reporting is vital for the council or the public to hold municipalities accountable for the service delivery promises they make in their strategic planning documents.
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However, most municipalities had inadequate systems to collate and report on their performance information, and officials did not understand or could not apply the performance management and reporting requirements. Four municipalities
did not submit performance reports for auditing, and only 24% of municipalities submitted performance reports without material misstatements or limitations.
Unauthorised, irregular as well as fruitless and wasteful expenditures thrive in an environment where officials do not follow the supply chain management legislation.
“As in prior years, noncompliance with supply chain management legislation was prevalent, significantly contributing to the irregular expenditure of R26-billion. This amount is likely to be even higher, as just over a third of municipalities were qualified on the completeness of their disclosure or were still investigating the full extent of the irregular expenditure,” reads the report.
In 2019-20 alone, the resulting fruitless and wasteful expenditure totalled R3.47-billion.
The top contributors to unauthorised expenditure included:
- City of Tshwane (Gauteng): R2.25-billion
- eThekwini Metro (KwaZulu-Natal): R1.78-billion
- Emfuleni (Gauteng): R1.65-billion
- Matjhabeng (Free State): R1.5-billion
- Mangaung Metro (Free State): R1.17-billion
- Vhembe District (Limpopo): R0.73-billion
- Msunduzi (KwaZulu-Natal): R0.56-billion
- Govan Mbeki (Mpumalanga): R0.55-billion
- Enoch Mgijima (Eastern Cape): R0.48-billion
- Matlosana (North West): R0.48-billion
These are some of the worst-performing municipalities:
- Maluti-a-Phofung with a population of 353 452 has received a disclaimed opinion in 14 of the last 15 years.
- Masilonyana in the Free State has a population of only about 62 770 people, and despite the municipality having been placed under administration for 31 months, its financial and performance reporting have not improved.
- Govan Mbeki has regressed over the years, and in 2019-20, the municipality received R428.21-million in equitable share funding and conditional grants, but only R202.4-million remained in its bank account. The auditor general could not confirm how the funds were used.
- !Kheis has regressed over the past few years. “The municipality’s financial health is in a dismal state,” with cash-flow challenges. On average the municipality took 643 days to pay creditors and 648 days to collect revenue. Its current liabilities exceed its current assets.
- Mamusa in the North West holds the unenviable record for the most consecutive disclaimed opinions in the province, which now stands at 12 years.
At most of these municipalities, the auditor general has seen instability at both political and administrative leadership level, weak oversight by councils, poor financial health, protests and strikes that disrupt and result in poor performance.
Maluleke said that an absence of consequences and ineffective interventions contributed to these poor audit outcomes.
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