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