Financial Mail

MUNICIPAL MONEY MAYHEM

More and more municipali­ties are plunging into such financial disarray that their future operations are in doubt, auditor-general says

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Auditor-general Tsakani Maluleke has a knack for packaging bad news. Her latest report on local government audits, released this week, is clearly expressed, unemotiona­lly describing the financial mess at the core of the country’s chaotic service delivery.

The water and sanitation crisis, the cholera deaths, the potholed roads — the reasons for them are neatly contained in her 144-page report.

It is a mind-bending paradox — the language is so plain and simple, yet the contents are so hard to digest.

Her message is dry and to the point: municipal finances across the country continue to worsen. Nearly three in four of the country’s 257 municipali­ties do not have good financial controls in place; instabilit­y in councils disrupts governance; irregular spending grew to R136bn across all provinces; and municipali­ties plunged deeper into arrears on their bills from Eskom and the water boards. In 70 municipali­ties, things are in such a bad way there is “significan­t doubt” they will be able to continue operating much longer.

It’s pretty bleak.

Overall, 33 municipali­ties across the country had a better audit outcome than last year, but 29 municipali­ties regressed. Only two of the eight metros received clean audits — the City of Cape Town and Ekurhuleni. The Western Cape continued to lead with the most clean audits.

“The total number of municipali­ties with clean audit opinions decreased slightly, as more municipali­ties lost their clean audit status than improved to a clean audit status. The regression­s were due to instabilit­y as well as inadequate monitoring and review of controls relating to compliance,” Maluleke says.

It also appears that political instabilit­y due to the number of hung councils after the 2021 local elections has had an impact.

“For example, at the City of Joburg, instabilit­y at council and mayoral level resulted in the late tabling of investigat­ion reports because of delayed council sittings — in turn, delaying the accountabi­lity processes. Instabilit­y at council level also hampered council approval and decision-making on important strategic and operationa­l matters.”

Nationwide, fruitless and wasteful expenditur­e more than doubled in

2021-2022, from R2.15bn the previous year to R4.74bn. Since 2019, R5.19bn has been lost because of noncomplia­nce and fraud.

“Local government­s are losing billions of rand each year because of poor decisions, neglect or inefficien­cies,” she says.

For the sixth consecutiv­e year not a single Free State municipali­ty received a clean audit. The Eastern Cape leads again in irregular spending it rose 28% to R34.9bn in 20212022.

Municipali­ties in Gauteng fared worse than in the previous audit, disrupted by political instabilit­y caused by shifting allegiance­s and chaotic coalition government­s.

Maluleke says of the province: “The financial health of all municipali­ties continued to deteriorat­e, as revenue collection remained poor and metros continued to rely on loans and municipali­ties on grants to fund their operations and capital infrastruc­ture projects.

“Moody’s downgraded the Tshwane metro’s credit rating, which affected its ability to raise funding for capital expenditur­e. Due to their poor financial state, most municipali­ties did not spend enough on either new capital projects or repairs and maintenanc­e, and did not pay suppliers within the prescribed 30 days.”

Only four municipali­ties of the 54 in KwaZulu-Natal submitted credible financial statements for auditing. Even the Western Cape’s usually admirable performanc­e faltered, with three municipali­ties losing their clean audit status.

A ray of light was provided by Mnquma local municipali­ty in the Eastern Cape, which went from a disclaimer five years ago to a clean audit this year.

The alarming thread running through Maluleke’s report is that most municipali­ties are in financial ruin and their ability to function properly is in doubt including two metros: Tshwane and Mangaung. Together they make up 10% of the country’s local government budget and provide services to 9% of the country’s population, about 4-million people.

“When we analysed the financial statements of the 217 municipali­ties with audit opinions other than disclaimed or adverse, we found 56% of them to have indicators of financial strain. If not attended to, this can result in significan­t doubt about their ability to continue operating,” her report says. By the end of this year liabilitie­s will exceed assets in more than half the country’s municipali­ties; 36% have spent beyond their means and as a result are using next year’s budget to cover current expenditur­e. It is likely to have a knock-on effect on service delivery

and given economic conditions, things are unlikely to improve.

Maluleke’s office is a shining beacon of efficiency in the general morass. It is doing what it can to address the dire state of municipal finances, but it is clear that South Africa needs a drastic political and economic reset. There seems to be none in sight.

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