Local municipalities near total collapse, says AG

With an expenditure budget of R719-billion in the 2019-20 financial year, most of the 257 municipalities in the country have regressed, squandered money, or have not been able to account for or report on how their budgets have been spent.

Incoming auditor general Tsakani Maluleke said that the situation is so dire that there is doubt whether the municipalities will continue operating as a going concern in the near future.

“Local government finances continue to be under severe pressure as a result of nonpayment by municipal debtors, poor budgeting practices and ineffective financial management,” she said.

Maluleke said that audit results had demonstrated little sign of improvement, and instead, her team had observed a deterioration.

“When it took over, the administration inherited 33 clean audits. Unfortunately, it has now regressed to only 27 clean audits,” she said.

In the 2018-19 report, titled Not Much To Go Around, Yet Not The Right Hands At The Till, the late former auditor general, Kimi Makwetu, warned that leaders needed to take steps to curb the rampant mismanagement of finances, and that local government finances were under severe pressure. He presented solutions, including investing in preventative controls; improving monitoring, review and oversight; using the auditor general’s reports, briefings and engagements to identify critical areas that need attention; and strict consequence management.

“We have not seen evidence of these messages being taken to heart. Poor audit outcomes remain prevalent. The continued calls for change we make to leadership are based on the overall state of financial and performance management, the material irregularities we identified and our observations in the provinces,” said Maluleke.

An analysis of the financial health of 199 municipalities based on their financial statements shows increasing indicators of a collapse in local government finances. Eighteen of the municipalities had financial statements that were not reliable enough for analysis due to disclaimed or adverse opinions, while five municipalities did not submit financial statements for auditing.

The Eastern Cape was one of the provinces with the most regressions over the four years of the current administration, closely followed by the Free State, then Kwazulu-natal and the Northern Cape.

Municipalities’ reporting on their service delivery performance was even worse than their financial reporting, the auditor general found.

This reporting is vital for the council or the public to hold municipalities accountable for the service delivery promises they make in their strategic planning documents.

However, most municipalities had inadequate systems to collate and report on their performance information, and officials did not understand or could not apply the performance management and reporting requirements. Four municipalities did not submit performance reports for auditing, and only 24% of municipalities submitted performance reports without material misstatements or limitations.

Unauthorised, irregular as well as fruitless and wasteful expenditures thrive in an environment where officials do not follow the supply chain management legislation.

“As in prior years, noncompliance with supply chain management legislation was prevalent, significantly contributing to the irregular expenditure of R26-billion. This amount is likely to be even higher, as just over a third of municipalities were qualified on the completeness of their disclosure or were still investigating the full extent of the irregular expenditure,” reads the report.

In 2019-20 alone, the resulting fruitless and wasteful expenditure totalled R3.47-billion.

The top contributors to unauthorised expenditure included:

• City of Tshwane: R2.25-billion • ethekwini Metro: R1.78-billion • Emfuleni: R1.65-billion • Matjhabeng: R1.5-billion • Mangaung Metro: R1.17-billion • Vhembe District: R0.73-billion • Msunduzi: R0.56-billion

• Govan Mbeki: R0.55-billion • Enoch Mgijima: R0.48-billion • Matlosana: R0.48-billion Maluleke said that an absence of consequences and ineffective interventions contributed to these poor audit outcomes.