Financial health of municipalities a big worry

(iStock)
(iStock)

Cape Town - Local government’s audit reporting standards have increased significantly in the past five years, but the financial health of 92% of municipalities is concerning, or require intervention.

The auditor-general’s annual report on municipalities’ performance indicated that 72 municipalities received unqualified audits in the 2014-’15 financial year, compared to only 13 five years ago.

But the picture of financial management in general is a sombre one: irregular expenditure has more than doubled since 2010-’11 to R14.75bn. Fruitless and wasteful expenditure was more than R1bn higher than in 2010’-11 at R1.34bn and unauthorised expenditure increased threefold from 2010-’11 to R15.32bn.

“The main reason for the unauthorised expenditure was because of the overspending of the budget,” said auditor-general Kimi Makwetu, “and more than 60% of the overspending relates to non-cash items not budgeted for.”

The most worrying factor, though was that a total of 26% of South African municipalities were in a particular poor financial position by the end of 2014-’15. “There is material uncertainty with regard to their ability to continue operating in the foreseeable future.”

Ten more municipalities have been added to the pool of extremely financially unsound local governments. 

Makwetu said it was worrying that municipalities rely so heavily on the use of consultants to prepare their financial statements. “The consultancy costs for financial reporting services increased over the past five years to R892m.”

In many instances the reliance on consultants are not justified as 68% of the municipalities that used consultants’ services had weaknesses in the financial reporting sphere.

The Western Cape was the province with the highest concentration of clean audits at 73%, followed by Gauteng (33%) and KwaZulu-Natal (30%). “However, there are still other internal control weaknesses and a lack of administrative and financial disciplines at certain municipalities in these provinces, namely the Central Karoo, West Rand in Gauteng and Umkhanyakude districts in KZN.”

Problem provinces are Limpopo, North West and the Northern Cape where the audit outcomes have been “disappointing at best”, Makwetu said. Focused political will and a huge investment in ensuring the basics are done right are required to restore good governance. 

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