Municipalities splurge R1bn to mend council books
In the past financial year South Africa’s municipalities collectively outdid themselves (even in relation to their previous shocking record) by spending almost R1-billion on financial consultants with little to show for it.
These costly consultants were not paid to help the councils with their core service delivery mandate, but simply to get them to the point where they could accurately report on their (almost universally dismal) financial status.
But even accurate reporting, which could lead to improved financial management that would in turn help with the delivery of services, was beyond most municipalities.
Even more alarming was that at least six municipalities showed regression in their financial reporting, despite paying for the assistance of consultants.
On Wednesday, auditor general Kimi Makwetu delivered the results of the audit of local government financials for 2014-2015, highlighting the fact that municipalities are far too reliant on consultants in preparing their financial statements.
He said this practice could not continue: of the R3.3-billion that councils spent on consultants last year, R892-million went to pay for outside help with their financial reporting.
Even so, the consultants did little to improve matters materially. Last year, 66 of the municipalities that hired consultants remained at the same level of reporting, with six doing worse and only 25 showing any improvement.
The average cost per municipality for such resultless help has more than doubled since 2010-2011, from R1.4-million to R3.5-million.
Close to 20 of the municipalities that received an adverse or disclaimed audit opinion have been using consultants since at least 2010.
This is not the first time the auditor general has highlighted the trend of overreliance on consultants. Last year Makwetu revealed that at least 80% of the municipal financial statements his office had audited, which had been prepared by consultants, needed to be corrected.
At the time, the then co-operative governance and traditional affairs minister, Pravin Gordhan, said measures would be put in place to wean municipalities off using consultants.
He was concerned that limping municipalities were paying handsomely, yet not getting much in return.
The previous year, Gordhan warned that consultants who did not improve the financial health of municipalities would be penalised. His department would centralise the procurement of financial management consultants to enforce a vetting process, he promised.
By contrast, during the announcement of this year’s audit review Gordhan’s successor Des van Rooyen, who served briefly as finance minister last year, focused on what he said was a lack of patriotism among journalists asking questions about municipal expenditure.
Financial consultants had a role to play, Makwetu said, but the money was currently not worth it.
“There is a space for it [the hiring of financial consultants], but not to the degree we are observing. Municipalities need to take diligent steps to control this kind of expenditure because it is growing disproportionate to the amount to provide services elsewhere in certain municipalities. We cannot be spending these amounts of money while some of those who are taking advantage of these services are not showing any forward improvement,” said Makwetu.
The auditor general also found that there was little the consultants could do even when they were brought on board, because they were appointed too late to have any real effect.
When this was not the case, there was often poor project management at council level. In one metric, at least 33 of the municipalities that were unable to wean themselves off consultants had the consultants’ work monitored by staff who were themselves neither sufficiently experienced nor senior enough to ensure effective contract management.
“We identified weaknesses in the management of consultants at 177 of the municipalities that used consultancy services (not limited to financial reporting services). This is a slight regression compared to 169 municipalities in 2013-2014,” said Makwetu.
Despite municipalities spending almost R3-billion (R2 966-million) for financial consultancy services in the past five years, the auditor general has painted a grim picture of their financial health. Makwetu stated that 92% of them are either a cause for concern or need intervention.
“The most concerning indicators over the past three years were municipalities spending more than the resources that they had available,” Makwetu said.
A bleak outlook for municipalities
The auditor general’s report started out on a positive note regarding the significant increase in the number of municipalities that received clean audits.
But that didn’t detract from the bigger picture: 92% of municipalities are either in need of an intervention or their financial health is of serious concern. Auditor general Kimi Makwetu put this down to poor revenue management practices, including debt collection.
A dismal picture begins to form.
According to Statistics South Africa, Maluti-A-Phofung is the most poverty-stricken area in the Free State, with about 60% of households earning less than R1 650 a month. It clocked up R958-million in unauthorised expenditure last year.
The picture is similar in Thaba Chweu in Mpumalanga, which garnered one of the most damning audit opinions – a “disclaimed audit outcome” – with fruitless and wasteful spend of R36-million.
The report also slapped the Ngaka Modiri Molema district in the North West with a disclaimed audit outcome. The area racked up R406-million in unauthorised expenditure and R3.4-million in fruitless and wasteful expenditure.
It’s the very same district whose council was dissolved two years ago because of a severe lack of service delivery – and it now faces allegations of not keeping proper financial records.
These municipalities are representative of the numerous municipalities that have been battling to account for their finances.
But the issues plaguing many of the regions aren’t purely a result of financial mismanagement. The provinces with the poorest audit outcomes, based on the number of municipalities with disclaimed and adverse opinions, are the North West, Northern Cape and Limpopo.
Yet, according to the most recent household survey, more than a third of the households in these provinces receive a social grant. This number is increasing, with fewer people working and more unable to pay their municipal bills.
According to Statistics SA, most people in the Northern Cape live in formal dwellings, yet a third rely on social grants for a steady income. – Athandiwe Saba