Municipalities lack accountability for finances - AG

Auditor general Kimi Makwetu. (Netwerk24)
Auditor general Kimi Makwetu. (Netwerk24)

Pretoria – Financial mismanagement will persist if there were no consequences for perpetrators, the auditor general warned on Wednesday.

Auditor general Kimi Makwetu was speaking at a briefing in Pretoria, where the audit outcomes for local government were released.

The findings show only marginal improvements from the previous year. Just 49 municipalities achieved clean audits, with 14 municipalities losing their clean audit status.  Only nine municipalities managed to pull themselves up from last year's unqualified finding against them.  

An alarming 122 municipalities‘ audit outcomes were unqualified with findings. In addition 25 municipalities received disclaimed opinions as their financial statements were not satisfactory, explained Makwetu.

READ: Only nine new municipalities out of 263 achieved clean audits - AG report

Over the past five years there has been a trend of a lack of accountability and consequences by municipalities. “What we see in the five years is a need for consequences to be elevated,” he said.

Makwetu explained that accountability will not only ensure better audit outcomes but ensure that municipalities improved their service to their citizens. “Accountability should trigger better service delivery.”

If money is adequately controlled and managed and used for purposes intended, it will ensure that more resources could then be channeled towards better service delivery, explained Makwetu.

Internal controls

There should be better enforcement of internal controls and monitoring by leadership. “We believe with adequate leadership and monitoring of these councils, we are likely to see an improvement in the forecast of financial management.”

The report indicated that it is uncertain that 27% of the 263 municipalities assessed will be financially viable in the future. Over the past two years, municipalities have been spending more than the resources available to them, with liabilities exceeding assets. Debtors are taking long to pay off debt, impacting the municipalities’ ability to pay their credit on time.

A lack of discipline when it comes to internal controls is adding pressure to finances, he said. Irregular expenditure ballooned more than 50% - to R16.81bn - due to a lack of internal controls.

Makwetu said that plans should not only be developed but implemented. The report also shows the importance of better record keeping of transactions. A lack of accountability in the spending of finance creates room for abuse, explained Makwetu.

But despite having been alerted to weaknesses that pose financial risks, some municipalities have not responded to the recommendations, said Makwetu.

Inconsistent leadership

The auditor general also recommended consistency in leadership positions such as municipal managers, chief financial officers, heads of supply chain management and chief information officers. The longer the time these positions are held by the same individuals, the greater the prospects are that recommendations and solutions will be implemented, said Makwetu.  “There is a better chance these recommendations will be sustained over time."

If positions are held for only nine months at a time, then it creates systematic weaknesses. “By the time we look back after five years, nothing will be achieved but all the money will be spent. That’s the danger.”

Andries Nel, Deputy Minister of Cooperative Governance and Traditional Affairs, welcomed the findings, especially because the system of local government was fairly young. However there are three areas of concern for the department, he said.

He was concerned that within the 25 disclaimed municipalities, a group of 21 municipalities persistently maintained its poor performance. “They have had disclaimers for more than five years in a row … those are the municipalities we want to hone in on and make it clear there must be leadership. In the absence of leadership and results, there must be consequences.”

Nel said in several municipalities, mayors have been removed for non-performance.

Another concern is irregular expenditure in the area of supply chain management. The department will work with National Treasury, provincial treasuries and the South African Local Government Association to help fix this.

The financial health of municipalities are also concerning, Nel believed. He said both the amounts owed to municipalities and amounts owed by municipalities caused the government headaches.

“We are working on increasing the capacity of our municipalities to generate revenue,” he said.

SUBSCRIBE FOR FREE UPDATE: Get Fin24's top morning business news and opinions in your inbox

Read Fin24's top stories trending on Twitter:

Brent Crude
All Share
Top 40
Financial 15
Industrial 25
Resource 10
All JSE data delayed by at least 15 minutes morningstar logo
Company Snapshot
Voting Booth
Do you think it was a good idea for the government to approach the IMF for a $4.3 billion loan to fight Covid-19?
Please select an option Oops! Something went wrong, please try again later.
Yes. We need the money.
11% - 1352 votes
It depends on how the funds are used.
73% - 8802 votes
No. We should have gotten the loan elsewhere.
16% - 1941 votes