Financial Mail and Business Day

Municipal audits: AG raises red flag

• Only 38 of the country’s 257 municipalities received a clean audit

Luyolo Mkentane Political Correspondent mkentanel@businesslive.co.za

Of the country’s 257 municipalities, only 38 received a clean audit, from 41 the previous year, highlighting the effect of instability in local government blighted by inadequate skills, cash flow challenges, governance failures and a lack of accountability and consequence management.

Of the country’s 257 municipalities, only 38 received a clean audit, from 41 the previous year, highlighting the effect of instability in local government blighted by inadequate skills, cash flow challenges, governance failures and a lack of accountability and consequence management.

Out of the mere 38 clean unqualified audits achieved in the entire country, the DA-run Western Cape led with 21, followed by Northern Cape four, KwaZulu-Natal four, Eastern Cape three, Gauteng two, Limpopo two and Mpumalanga two.

In SA’s economic hub of Gauteng, which contributes about 40% to national GDP, only the Ekurhuleni metro and Midvaal local municipality received clean audits.

Briefing parliament’s standing committee on the auditorgeneral (Scoag) on the local government audit outcomes for the 2021/22 financial year on Wednesday, auditor-general Tsakani Maluleke expressed concern about the decrease in the number of clean audits.

The regressions, she said, were due to instability in key positions, as well as inadequate monitoring and review of controls relating to compliance.

Municipalities with a clean audit status managed 29% of the expenditure budget of local government: “Two metros fall into this category, namely City of Ekurhuleni and City of Cape Town.”

For the year under review, the country’s 257 municipalities had an estimated expenditure budget of R487.12bn to operate and deliver services. Of the R487.12bn, R262.9bn was allocated to metros. Intermediate cities received R105.3bn, local municipalities R83.2bn and district municipalities R35.6bn. Municipal entities had a separate budget amounting to R52.01bn.

Maluleke said the municipalities racked up R4.74bn in fruitless and wasteful expenditure during the period under review. The estimated financial loss from noncompliance and fraud material irregularities (MIs) was R5.19bn, she said, stressing that local government was financially distressed.

Most of the municipalities have been run into the ground due to maladministration, looting and corruption, while others were dogged with cash-flow challenges and struggled to pay staff salaries and service providers, and deliver basic services.

COALITION FAILURES

As the local government elections of 2021 failed to produce clear winners in some councils, these municipalities were run by coalitions, on which political analysts and pundits blame the instability, arguing that coalitions were all about positions, not anchored on ideology, and had little to do with service delivery.

The auditor-general’s latest report is themed “A culture of accountability will improve service delivery”.

She noted that local government had been characterised by dysfunctional municipalities, financial mismanagement, council and administrative instability, and crumbling municipal infrastructure.

“This leads to deteriorating standards of living and service delivery failures, resulting in service delivery protests,” Maluleke said.

She said only 38 municipalities achieved clean audits, while unqualified audit opinions with findings increased from 100 to 104, and qualified audits with findings improved to 78 from 83. Six municipalities received adverse audit opinions during the period under review. An adverse audit opinion means a council submitted financial statements that are so unreliable that they cannot be used for oversight and decision-making.

Municipalities that received a disclaimed opinion with findings — the worst possible audit opinion — decreased from 26 to 15, while outstanding audits accounted for 16.

Maluleke said the material irregularity (MI) process continued to have an effect on holding auditees to account where accountability has failed. The MI process can ultimately result in accounting officers being held personally liable for financial losses due to irregularities in their departments.

The auditor-general is empowered by the amendments to the Public Audit Act, which took effect in April 2019 to refer a material irregularity to another public body for investigation and to take binding remedial action if recommendations in the audit report on what must be done to address the matter are not implemented.

If the remedial action is also not implemented within the prescribed period, the audit office can issue a certificate of debt to recover the lost money from the accounting officers or authorities.

“We have continued to see greater responsiveness from accounting officers to our MI process, and we noted that no action was being taken on 87% of irregularities until we issued MIs. The MIs we issued jolted them to desired action to address the irregularities and transgressions we raised,” Tsakane said.

“Through the MI process, accounting officers have taken action to prevent or recover financial losses of R479.56m. Of this, R150.55m in financial loss has been recovered, R18.85m has been prevented from being incurred, and R310.16m is in the process of being recovered.”

The auditor-general spoke out against the reliance on consultants for financial reporting, saying 220 municipalities paid R1.6bn (R1.3bn previously) to consultants in 2021/22. The reasons for appointing consultants pertained to a lack of skills, and vacancies, with the nature of work pertaining to asset management, tax services, preparation/review of financial statements and accounting services, among others.

KwaZulu-Natal spent R309.2m on consultants, North West spent R282.3m, Limpopo R263.1m, Mpumalanga R245.3m, the Eastern Cape R154.8m, Gauteng R150.1m, the Northern Cape R126.9m, the Western Cape R45.2m and the Free State R32.2m.

Tsakane said the debt owed to Eskom and water boards by municipalities remained high and continued to increase due to interest and penalties incurred on late payments. “If these debts are not paid, communities are left without access to basic services such as electricity and water. This also makes it difficult for businesses to operate optimally, which further affects the struggling economy,” she said.

Water and sanitation minister Senzo Mchunu recently said that municipalities owed water boards R16.7bn, while municipalities and the water boards owed the department (which has its own water trading entity) R17.4bn.

Business Day reported recently that municipalities will soon get respite from repaying billions of rand owed to Eskom after a decision by the Treasury to have some of the debt written off over three years. Municipalities owe Eskom about R57bn.

Maluleke noted that the salary bill of most municipalities was so significant that it “crowds out spending”. The municipalities spent R121.47bn on salaries and wages during the year under review: “Service delivery suffers when you spend so much money on salaries and wages.”

The auditor-general’s call to action was for municipalities to fill vacancies with competent people, upskill municipal officials and council members, reduce reliance on consultants, and strengthen financial and performance management disciplines, among others.

Kevin Allan, MD at Municipal IQ, a web-based data and intelligence service that monitors and assesses SA’s municipalities, could not be reached immediately for comment.

Standing committee on the auditor-general chair Sakhumzi Somyo said the auditor-general’s report was a mixed bag that presented a “sorrowful story for our local government”.

ANC MP Zoliswa KotaMpeko said the report was “scary”, adding: “Let’s dump this nonsense of doing what we like. The people want services and they want them now.”

IFP chief whip Narend Singh said President Cyril Ramaphosa and his cabinet needed to deliberate on the report for a week and come up with solutions, adding: “I have served in this committee for years, it’s the same déjà vu, déjà vu.”

DA Western Cape local government spokesperson Isaac Sileku said: “Rectifying SA’s issues begins at the local government level, and through the continuous provision of clean and reliable governance in the Western Cape, we will remain a shining example for the rest of the country.”

LET’S DUMP THIS NONSENSE OF DOING WHAT WE LIKE. THE PEOPLE WANT SERVICES AND THEY WANT THEM NOW

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2023-06-01T07:00:00.0000000Z

2023-06-01T07:00:00.0000000Z

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