Local government’s unclean financial reports in a spin cycle

The reports are a monumental embarrassment to local government as a whole. Yet the head of the South African Local Government Association, the body constitutionally mandated to represent municipalities, insists that "the management of local government finances is by no means bleak" and that "almost half of our municipalities – 128 in total – received unqualified audits … [13] received completely unqualified audits … less than 20% received qualified audits" and "only 2% … received adverse audit reports … and the number of municipalities whose audit reports have disclaimers has dropped from 77 … to 35".

But the association fails to point out that the combined total of financially unqualified ("clean") reports with and without findings has decreased from 129 to 128 since 2009/10. Of the seven municipalities to receive such clean reports in 2009/10, only three made it back into the hall of fame for 2010/11. How many of the current crop of 13 "cleans" will be back this time next year? And, though the association is right when it says less than 20% obtained qualified reports, it fails to point out that more than 55% obtained worse, that is, they got adverse reports, disclaimers or, perhaps most shocking, 40 municipalities failed to submit their financial statements in time to be audited. The assertion that disclaimers have dropped to 35 is nonsensical; it is 55 and that number will grow when the 40 that failed to submit on time get audited. Experience shows that most late submissions end in the "disclaimer" and "adverse" categories.

The optimistic interpretation is that there has been an improvement of sorts. But this must be seen in the context of government's plans to turn local government around. It has made "operation clean audit" a flagship project, with one of its goals being that "between 2010 and 2011, no municipality [should get] adverse and disclaimer audit opinions". The ultimate target is to "assist all the municipalities" to get clean audits by 2014. So one goal has been missed by a long way and it can be confidently predicted that this project will not even come close to its ultimate target. The really alarming thing is that audit outcomes reveal only a very small part of the picture of municipal dysfunction. Many other aspects (compliance, service delivery, performance of functions, basic management issues) are not subject to audit. Research shows this to be disastrous. Poor audit reports are just a symptom of a far, far deeper malaise.

The solutions proposed by the auditor general's office rely un-realistically on performance-based approaches, appeals to leadership, demands for compliance, alignment of organisational structures, the magical improvement of skills and competences, and so on. Solutions of this kind simply will not cut it for most of the municipalities in the qualified and lower categories.

Complex local government framework
The sincerity of these ideals is not doubted, but they fail to recognise a basic issue in local government: South Africa is inarguably a less- developed country, which simply lacks the technocratic skills to meet the demands on municipalities made by our complex local government framework. This is reflected in the shocking audit outcomes. But good financial management is just one such demand; there are many more.

Combine this complex framework with factors such as inept political leadership, corruption, elite capture and clientelism, which prevail in local government. Add to this mix the peculiar inability of the political corrective usually provided by the democratic process to change things (councils with poor audit outcomes get voted in again and again) and we have the makings of the perfect storm now wreaking havoc.

We urgently need to consider the drastic restructuring of the framework to take account of many municipalities' inability to achieve the goals expected of them. If, in some cases, that means limiting their functions, handing over responsibilities such as financial management to other agencies and reducing their autonomy, then so be it.

Getting to grips with this reality is going to be difficult. We have to contend with the denialism of the kind evident in the association and the fact that, frankly, many politicians and officials in all spheres of government simply do not give a damn. Just a few weeks have passed since the audit reports were released and already the dust raised by them has settled, leaving most of the municipalities in the qualified categories to continue in their dysfunctional way for another year.

Dr Andrew Siddle is co-author with Tom Koelble of The Failure of ­Decentralisation in South African Local Government: Complexity and Unanticipated Consequences, ­published by UCT Press

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