Clean up your act and prosper
Honest municipalities are profitable municipalities
● The 2018/2019 auditor-general’s report on local government is a sorry tale of regression, a deterioration of accountability and a lapse in good governance. Municipalities receiving unqualified audits declined from 147 in 2016/2017 to 123 in 2017/2018 and 111 in 2018/2019.
However, the glass is half full. There are pockets of excellence. Of 229 municipalities that had finalised audits, about half (111) received unqualified audits, of which 20 received clean audits. These pockets must be used to draw lessons to turn the tide.
The secret of their success lies in the stability of leadership and strong control. Almost all pockets of excellence have had stable leaderships at political and administrative levels for years.
Strong controls and oversight are the bulwark against poor governance. Municipal public accounts committees and audit committees need to function effectively for accountability to be strong. Of the 229 municipalities that have been audited, 177 had functioning audit committees while 55 were dysfunctional. Of the 220 public accounts committees assessed, 67.7% (149) were functioning effectively while 32.3% (71) were nonfunctional. Evidently, the 111 municipalities that received unqualified reports had functioning audit and accounts committees.
The auditor-general’s report notes that irregular spending has increased from R25.2bn in 2016/2017 to R32.06bn in the 2018/2019 financial year. Local governments’ irregular spending is less than the R58.13bn at national level, but still a concern.
When the amounts are put in context it becomes even clearer that the glass is half full.
Of the R487bn allocated to local government, 60.4% is with municipalities that received unqualified audits. Those with qualified audits got 18.4%. The large portion is in good hands. Hence the glass is half full.
Yet a rand stolen or irregularly spent is a rand too many.
According to Stats SA, “substantial progress has been made in service delivery over the years”. More than 89% of households have access to drinking water, 84.7% to electricity, and 83% have improved sanitation. Refuse removal lags at 66.4%.
One of local government’s biggest challenges over the past 20 years is municipal consumer debt. The auditor-general noted that “almost 60% of the revenue shown in the books will never find its way into the bank accounts of the municipalities” because businesses and individuals fail to pay for services.
The National Treasury, in its March report, said municipal consumer debt stood at R181.3bn. About 70.5% (R127.7bn) was owed by households, 10% by government departments and the rest by businesses. This underscores the call by the South African Local Government Association to review financing models.
A system-wide overhaul is overdue. The current model that places municipalities in six categories on the basis of population and budget is flawed. It favours bigger municipalities. The municipalities in the low categories are mainly rural and small, and have limited budgets to attract and retain critical skills.
A new model to incentivise municipal employees and councillors and that links performance and audit outcomes should be introduced. This should be designed so that the performance and audit results of the previous year determine remuneration levels. A municipality that gets a clean audit becomes the bestpaying, and vice versa. This will incentivise good governance and ensure that councillors and employees take collective responsibility.
Reform is also required in the national and provincial departments that provide support and exercise oversight over local government. Only by example can national and provincial departments enjoy the legitimacy and confidence to crack the whip at local government level. How can we expect them to provide guidance and support to municipalities that are limping when they themselves need help?
Another worrying trend is the use of consultants by municipalities for financial reporting. About R1.2bn was spent on this. An amount of R497m was spent in the 28 municipalities where audits were not finalised. Even hired consultants failed to finalise financial statements. Consultants who rob municipalities must be reported to professional bodies, blacklisted and pay back the money.
Law enforcement agencies must enforce consequence management. As of March 2020, 34 senior managers were suspended for misconduct, 21 of them municipal managers. By February 2020 the National Prosecuting Authority had 86 cases of fraud and corruption in court, involving about R1.3bn.
The Special Investigating Unit is investigating 66 cases of fraud, corruption and maladministration in local government. This shows commitment in local government to hold people to account.
Safeguards must be implemented to prevent employees and councillors found guilty of financial misconduct from being employed elsewhere in the system. By the end of March 2019, municipalities had listed 290 employees dismissed for financial misconduct.
The auditor-general has identified six cases of material irregularity, involving R24.4m. The local government association has called on the municipalities of Ngaka Modiri Molema (Mahikeng), Ga Segonyana (Kuruman) and Tshwane to act.
The auditor-general’s report said some municipalities have been guilty of repeated irregularities and consistently received bad audits. Of the 33 municipalities that received audit disclaimers (insufficient evidence or documentation on which to base an audit), six had audit disclaimers four times over the past five years, five had received disclaimers three times while six more had received disclaimers twice in a row.
An audit disclaimer is the worst performance verdict the auditor-general can deliver. The fact that this kind of poor performance has been consistent even up to four times in succession suggests these too have become hopeless cases.