The auditor-general’s findings on the embattled local government sector speak to the magnitude of the task of turning around the country’s municipalities grappling with poor service, political instability, sheer incompetence and lack of consequence management.
The number of municipalities receiving clean audits continues to dwindle while fruitless and wasteful expenditure surged to R7.4bn in 2022/23 from R4.8bn in the previous year.
Local government’s worsening state has spurred the government to focus the second phase of Operation Vulindlela on fixing councils. Vulindlela is a joint initiative of the Treasury and President Cyril Ramaphosa’s office created in 2020.
Tabling the consolidated general report on local government audit outcomes for 2022/23 in parliament on Tuesday, auditor-general (AG) Tsakani Maluleke said only 34 municipalities received a clean audit — down from 38 in 2021/22 — with the DA-run City of Cape Town the only one of the eight metros to achieve the feat.
Fruitless and wasteful expenditure due to factors such as vacancies and lack of financial management skills, instability and political uncertainty accounted for R7.4bn, up from R4.8bn in 2021/22.
Local government, the coalface of service delivery, is grappling with fiscal pressures, entrenched corruption, maladministration, systemic looting and poor governance that resulted in deteriorating services in many municipalities.
Others struggle to pay salaries and employment benefits, deliver basic services such as refuse collection, or provide drinkable water and sanitation.
Of the 257 municipalities, more than 120 have cases of corruption under investigation by the Hawks.
In her presentation to the portfolio committee on co-operative governance and traditional affairs, Maluleke said that in the financial year ended June 30 2023, the number of municipalities that received unqualified audit opinions with findings rose from 105 to 110, while those with qualified opinions with findings rose from 84 to 85.
The number of adverse outcomes with findings remained steady at six while disclaimers went down from 22 to 12. The number of outstanding audit opinions rose from two to 10.
Maluleke said that seven audits from March to June brought the number of qualified opinions to 90 and the disclaimers to 14.
“Let me give you a sense of what these outcomes are telling us: if you look at the 34 clean audits you can see quite clearly we are going backwards in terms of the number of clean audits that are being delivered within the local government system. We are further behind than where we began this particular administration,” said Maluleke.
Three audits were still incomplete, she said, pointing out that in one council there was a delay in the audit process and then there were “two [local councils], specifically Maluti-a-Phofung and Ditsobotla that had not submitted their financial statements. Their financial statements have been outstanding for a number of years now”.
In 2021, dairy company Clover said that it was closing its cheese-processing plant at Lichtenburg in North West and moving it to Queensburgh in KwaZulu-Natal, due to the Ditsobotla municipality’s lack of service.
Maluleke said, however, that one of the big stories of the report was an improvement in the rate of submitting financial statements, which is now at 94% from 91% previously.
Provinces spent altogether R1.3bn on financial reporting consultants, down from R1.6bn in the previous year.
On the country’s eight metros which account for a combined budget of R279.8bn, the AG said that only the Cape Town metro received a clean audit. Ekurhuleni, after receiving a clean audit in the previous financial year, moved to having an unqualified audit with findings basket, joining the metros of Johannesburg, eThekwini, and Nelson Mandela Bay.
The Tshwane, Mangaung and Buffalo City metros received qualified audit opinions, with the former registering an improvement from its previous adverse audit finding.
The AG noted that 75% of metros were unable to produce reliable service delivery reports, and stressed that “metros need support to build capacity, as strange as that might sound”.
“We find that the political instability that often confronts the administration of metros has a direct impact of weakening those institutions. And weak institutions will always struggle to protect public resources.”
The Gauteng metros had been rocked by political instability, which resulted in a revolving door of mayors, speakers and executives.
The country’s 39 intermediate cities, accounting for a budget of R115.9bn, received four clean audits and one disclaimer, while the 44 district municipalities with a budget of R37.7bn received 11 clean audits and one disclaimer. The 166 local municipalities, with budgets totalling R88.1bn, received 18 clean audits and 10 disclaimers. Maluleke said the total estimated capital and operating budget for municipalities was R521.7bn.
It was important to highlight that of the 34 municipalities with clean audits, 30 were repeat clean auditees, said Maluleke.
“What that tells us is that these auditees, 30 that have got clean audits, had established the key disciplines, the key preventative controls, to prevent problems, to detect them quickly, and to act swiftly if they should identify them. It doesn’t mean things are perfect in those environments, but it does mean the basics are in place.”
The repeat clean auditees were well-positioned to deliver on their mandates: “At least they can show you where they have deployed public resources and to what end. We may argue whether they have delivered services to all the residents in a particular municipality. But at least you do have a credible and reliable service delivery report upon to assess and ultimately make a decision,” said Maluleke.
The 90 councils that received qualified audits struggled with credible reporting on how they used public funds, accounted for expenditure and irregular expenditure and managed their debtors’ book appropriately. They could not account for capital assets and their infrastructure, and they lacked skills, capacity and “discipline to look after assets in their hands”.
Regarding the six councils that received adverse findings, the AG said that this meant the financial statements “simply can’t be relied upon”.
She noted, however, that the number of disclaimers had been going down over the years, from 28 in 2020/21, to 14, saying: “What this tells us is that our messaging on why it is unacceptable, intolerable for a municipality to have a disclaimer audit opinion year on year, that message has been heeded.
“Our call for the provincial leadership to support municipalities in getting out of the space has actually been taken up.”
The AG called for professionalisation and capacitation of the local government sector, capable institutions with intergovernmental support and for a culture of ethics and accountability to be instilled.
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