The latest audit report spanning over five years presents a “not to be missed” opportunity for the council elected last year to turn things around.
Auditor-General (AG) Tsakani Maluleke told reporters this at the release of the 2020/21 consolidated general report on local government audit outcomes.
Maluleke said the trends in the report had shown that the previous councils had left municipalities in a worse financial position in 2016/17.
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She mentioned that this had continued despite constant emphasis by the AG’s office that basic financial controls needed to be strengthened.
“The lack of improvement in municipal outcomes is an indictment on the entire local government accountability ecosystem, which failed to act and arrest the decline that continued to be characterised by service delivery challenges.”
Challenges faced by municipalities in the past included mismanagement, transgressions, non-performance, fraud and financial loss.
Calls to resolve these, she said, had been unheeded:
Maluleke said councils were elected in 2021 with new electoral mandates. All the role players, who include mayors, councillors, Treasury, provincial legislatures and Parliament, needed to play their roles.
“It is now time to activate the accountability ecosystem to shift the culture in local government towards performance, integrity, transparency and accountability.
This can be achieved through courageous, ethical, accountable, capable and citizen-centric leadership. Such a culture should be a shared vision for all involved in local government. We urge all role players to fulfil their designated roles.”
State of municipalities
Maluleke mentioned that some municipalities had improved their audit outcomes but regressed in later years. Overall, only 61 municipalities had better audit outcomes in 2020/21 than in 2016/17 and 56 achieved worse audit outcomes. However, it was encouraging that there was a slight increase in the number of clean audits.
At least 27 municipalities were able to maintain their clean status in 2020/21 while 14 achieved a clean audit for the first time.
Six municipalities had lost their clean audits, which continued to represent less than a fifth of the local government budget. The AG said:
“However, we have seen that municipalities that have the controls and systems in place to plan, measure, monitor and account for their finances and performance and stay within the rules often also have a solid foundation for service delivery that will benefit their communities.
This provides these municipalities with opportunities to shift their focus to ensuring the delivery of services for the benefit of all their residents.”
Senqu, a rural municipality in the Eastern Cape in the Joe Gqabi District, which services Rossouw, Rhodes, Barkly East, Sterkspruit and Lady Grey, was cited among those that received clean audits for five consecutive years.
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Others were Cape Winelands and West Coast in the Western Cape.
In the 2020/21 financial year, 25 municipalities received disclaimer audit opinions – the worst opinion. This almost amounts to 10% of the country’s municipalities.
Only Gauteng and Western Cape did not have municipalities which received disclaimer opinions. North West had the majority of such municipalities.
“Despite all our messages, as well as initiatives by the national and provincial government, and even municipalities being placed under administration or provincial intervention, there was little improvement over the term of the previous administration.
Only 18 municipalities improved from the previously disclaimed opinions, while 17 regressed to disclaimed outcomes over the period. Eight municipalities that received disclaimed opinions in the first year of administration are still disclaimed. Maluleke said:
“Rather than a technical audit matter, a disclaimed opinion is a confirmation of dysfunction in management of the municipality, with a devastating impact on the lives of the residents living in these municipal areas as they are robbed of service delivery.”
Finances under ‘severe’ pressure
Maluleke said municipal finances remained under severe pressure due to non-payment by municipal debtors, poor budgeting practices and ineffective financial management.
The AG reported that, given the financial position of 28% of the country’s municipalities, she doubted whether they would be able to continue operating in the future.
The AG assessed the financial health of 230 municipalities and 18 municipal entities, based on their financial statements, which revealed increased indicators of collapse and continued deterioration.
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Maluleke painted a picture of municipalities often depending on the money received from the national government in the form of an equitable share to stay afloat.
In 2020/21, this equitable share amounted to R80.26 billion, up from R67.83 billion in the previous financial year.
The financial health of metros, she said, was particularly concerning because this was where the largest segment of the population resided, and they accounted for over half of the local government expenditure budget.
The AG’s office said that three Gauteng metros – Tshwane, Johannesburg and Ekurhuleni – had been downgraded to below the investment grade by June 30 2021. It said:
“Most of the metros were put on review for further downgrades by the credit-rating agencies, meaning that they could plunge deeper into sub-investment territory if economic conditions worsened.”
While the economic downturn affected revenue collection, she said, municipalities did not always play their part. Not all revenue owed was billed and poor debt-collection practices were common.
Notices for material irregularities, the AG’s office indicated, were issued to municipalities that suffered financial losses as a result of revenue owed but not billed and debt not collected.
Material irregularities form part of the new AG’s powers to investigate matters relating to financial loss and possible substantial harm to municipalities, their councils and communities.