Failing State: Only 16% of SA’s municipalities get clean audit

Only 16% of South Africa’s 257 municipalities have been given a clean audit by the auditor general for the 2020-21 financial year, with the overall standard of financial management having regressed in the past five years.

Presenting the consolidated general report on local government audit outcomes in Pretoria on Wednesday, auditor general Tsakani Maluleke said most municipalities were in a financial shambles.

Forty-one municipalities received a clean audit with no findings, while 100 received unqualified audits with findings, with 25 municipalities receiving disclaimers, meaning that their financial statements cannot be relied upon.

Maluleke said: “Audit outcomes were in a bad state when the previous administration took over in 2016-17 and this state had not improved since then.”

A total of 33 municipalities had been placed under administration after being declared dysfunctional, predominantly because of their failure to meet their financial obligations and provide essential services during this period.

Only 61 municipalities achieved a better audit outcome than in 2016-17, while 56 had a worse outcome, Maluleke said.

There has been a slight increase in the number of clean audits, with 27 maintaining this status while a further 14 achieved it for the first time, which was “encouraging”, but six municipalities that had previously received clean audits had lost this status during the five-year period.

More municipalities submitted their financial results late, which not only delayed the auditing process but also hindered the implementation of accountability processes.

Nine municipalities — seven from the Free State and two in the Northern Cape — had still not been audited because their municipal managers did not submit financial statements by the legislated submission date. 

The financial  statements of Kopanong, Maluti-A-Phofung and Masilonyana in the Free State and Phokwane in the Northern Cape were still outstanding by the date of the report, while the 2019-20 financial statements of Maluti-A-Phofung were also still outstanding.

Maluleke said there were no clean audits in the Free State, where there “worrying” trends regarding financial management and accounting practices.

She said the Eastern Cape had “gone backwards” over the past five years.

Limpopo had made great improvements over the past five years, a situation Maluleke attributed to the “tone” set by Premier Stanley Mathabatha, whose administration had made a “coordinate effort”, along with provincial treasury, to ensure that municipalities no longer received disclaimers.

But she urged “caution”, because this improvement had been the result of an increasing dependence on consultants. 

Maluleke said municipalities now needed to focus on building the internal audit and financial management capacity, rather than outsourcing this job.

In KwaZulu-Natal only three municipalities received clean audits; four achieved this status in the Eastern Cape.

She said there had been “no improvement” in accountability and transparency by municipal governments across the country, with the auditor general’s office now using its powers to “propel people to act” by issuing material irregularities to municipalities with repeat disclaimers.

Certificates of debt had been issued to municipalities that had repeatedly ignored intervention from the auditor general.

Maluleke said a number of cases had been referred to the Financial Information Centre (FIC) and the Hawks for investigation in six of 10 municipalities with disclaimers that had been subjected to post-audit investigations aimed at identifying “where the money has gone.”

Only 25% of the cash payments totalling R11-billion, made by municipalities, had credible paperwork, while a total of R3.9-billion in material irregularities had been identified at 94 municipalities, Maluleke said.

Municipal manager faces ‘certificate of debt’ as auditor general uses new powers

The Ngaka Modiri Molema district municipality in the North West may become the first in which the auditor general issues a certificate of debt against its top management, holding them personally responsible for millions of rands in irregular expenditure on failed water and water treatment works.

The troubled municipality, which is responsible for water supply to the Ditsobotla, Mahikeng, Ramotshere Moiloa, Ratlou and Tswaing local municipalities, received an adverse audit with findings from the auditor general in the annual consolidated audit report on municipalities.

Three material irregularities (MIs) were issued against the district municipality’s management for failed water supply and sewage projects, including the Lichtenburg/Blydeville waste water works, which had been identified for remedial action in the previous financial year.

If the remedial action is not taken, the auditor general can issue a certificate of debt, which could see the municipal manager, Allan Losaba, held responsible for the district’s losses as a result of his inaction.

The issuing of material irregularities is among new powers given to the auditor general in terms of the Public Audit Act, which allows the body to make recommendations for remedial action that can lead to the issuing of the certificate of debt after an appeal process.

According to the report, no action appeared to have been taken to repair the water and sewage works, which were “not functional because of poor management, inadequate security [leading to vandalism and theft], and equipment not being repaired and maintained”. 

“This resulted in raw sewage overflowing from manholes before reaching the plant due to blocked pipes. The wastewater received at the plant was discharged into the nearby wetlands and river without being treated first. This state of affairs was unchanged from previous site visits … Other plants in the district are in a similar state of disrepair,” auditor general Tsakani Maluleke said in the report.

“[I]f the three MIs of Ngaka Modiri Molema currently in the remedial phase are not appropriately dealt with, the auditor general can invoke the certificate of debt process,” she said in the report.

In total, nine North West municipalities received qualified opinions and another nine received disclaimed opinions. Only 45% of municipalities submitted their financial statements on time.

Maluleke said her office continued to “urge” the province’s political leadership and oversight structures to “hold municipal managers and officials accountable for poor audit outcomes and to implement consequences promptly where required”.

This downward spiral showed a “worsening culture of accountability” in the province over the past five years. Every municipality in the province had transgressions regarding compliance with finance management.

The province had racked up irregular expenditure of R28.7-billion, with unauthorised spending increasing to the point where 42% of all procurement in the province’s municipalities was irregular.

“Municipalities’ financial health was dire. Most municipalities could not pay critical supplies, such as Eskom and water boards, on time. These financially distressed municipalities depended on equitable share allocations, most of which went towards paying salaries and leaving little available for service delivery,” Maluleke said.

Despite their financial difficulties, the municipalities spent R238-million on financial reporting consultants, bringing the total spent on such services since 2016-17 to R989-million.

“Consultants were brought in to capacitate finance units with weak internal control environments, making it very difficult for the consultants to be effective. Despite using consultants, the quality of financial statements remained poor, with not a single municipality submitting a credible set of financial statements for auditing.”

Maluleke said the lack of consequences for those who neglected their duties had created uncommitted and unaccountable officials.”

Provincial government interventions were needed to ensure budgets were prepared properly and finances properly managed. Interventions needed to be monitored to ensure that they worked.

“The lives and experiences of the citizens of North West were negatively affected by instability in political and administrative leadership, which had a detrimental effect on service delivery. All role players in the province should thoroughly and honestly reflect on the initiatives implemented during the term of the previous administration,” Maluleke said.

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Paddy Harper
Paddy Harper

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