Take a closer look at the cash

2012-07-28 09:19

Municipal audit findings need more careful examination and less exaggeration

The initial public response to this week’s auditor-general (AG) report on municipal finances was something of a horror story – a picture of virtual collapse of financial management in many local governments, including the major cities.

But a closer examination of the AG’s findings – and a better understanding of the nature of these audits – paints a different picture.

First, we need to address the misnomer that there is somehow a meaningful difference between a “clean audit” and an “unqualified audit”.

The reality is that there is not – and in any event, the concept of clean audits is a national government initiative and not necessarily an international accounting standard.

At the same time, we have to acknowledge that there are indeed problems, and some municipalities have a long way to go before they can reassure citizens that public money is being properly managed.

But the management of local government finances is by no means bleak.

There are some significant improvements which we believe should be celebrated.

These include:
» Almost half our municipalities – 128 in total – received unqualified audits, where their financial statements contain no material misstatements and there was full compliance with the law. 13 of these municipalities received completely unqualified audits, while 115 had unqualified audits with findings.

» Fewer than 20% of municipalities received qualified audits – that is, there were material misstatements or insufficient evidence for the AG to conclude that specific amounts are not overstated or understated. This does not automatically translate into financial mismanagement – rather, it suggests shortcomings in applying financial procedures.

» Only 2% of municipalities (seven municipalities in total) received adverse audit reports.

» The number of municipalities whose audit reports have disclaimers dropped from 77 in the
last financial year to 35.

» Unauthorised expenditure decreased from R6.3 billion to R4.3 billion thanks to new systems, controls and better financial management.

Of particular significance is the fact that 53 of the 61 KwaZulu-Natal municipalities (87%) received financially unqualified audits. This is a dramatic increase from the 38 municipalities (62%), which received unqualified audits in 2007/08.

Municipalities in other provinces have also improved.

Blue Crane Route in Eastern Cape, for example, received a disclaimer in 2004/05 but, six years later, received an unqualified opinion.

Richtersveld in Northern Cape improved its audit opinion from an adverse one in 2004/05 to an unqualified one in 2010/11.

Granted, there are problem areas – particularly in Eastern Cape, Free State and North West, which received the majority of disclaimers.

The South African Local Government Association (Salga) and its stakeholders will focus on support initiatives to help municipalities in these provinces improve their audit findings.

We will also focus on the seven municipalities that received an adverse audit opinion, particularly those which regressed from a qualified opinion to an adverse opinion.

So what are the key focus areas going forward?

The AG’s report is specific in this regard, and has Salga’s support.

It includes tightening supply chain management processes and ensuring better knowledge of good governance among officials and political leadership.

At the same time, we have to acknowledge that the regulatory environment is constantly changing, and municipalities need time to adapt and fully comply with these new financial regimes.

Underpinning all this, as Finance Minister Pravin Gordhan highlighted this week, is the need for municipal officials to be held accountable, and for action to be taken against those who violate financial management regulations.

There is a long way to go before citizens feel a complete sense of trust in the people who manage the public purse.

But it is completely wrong to suggest all is lost. We would all benefit from a more detailed examination of the situation and a lot less from exaggeration.

» George is the Salga chief executive

Join the conversation!

24.com encourages commentary submitted via MyNews24. Contributions of 200 words or more will be considered for publication.

We reserve editorial discretion to decide what will be published.
Read our comments policy for guidelines on contributions.

24.com publishes all comments posted on articles provided that they adhere to our Comments Policy. Should you wish to report a comment for editorial review, please do so by clicking the 'Report Comment' button to the right of each comment.

Comment on this story
Comments have been closed for this article.

Inside News24

Traffic Alerts
There are new stories on the homepage. Click here to see them.


Create Profile

Creating your profile will enable you to submit photos and stories to get published on News24.

Please provide a username for your profile page:

This username must be unique, cannot be edited and will be used in the URL to your profile page across the entire 24.com network.


Location Settings

News24 allows you to edit the display of certain components based on a location. If you wish to personalise the page based on your preferences, please select a location for each component and click "Submit" in order for the changes to take affect.

Facebook Sign-In

Hi News addict,

Join the News24 Community to be involved in breaking the news.

Log in with Facebook to comment and personalise news, weather and listings.