Auditor-general finds municipalities struggle to improve audit outcomes

Only 34 out of the 257 municipalities in the country have obtained clean audits, showing little to no improvement since the 2021 local government elections.

This represents a measly 13% of overall municipalities running their affairs adequately.

According to auditor-general Tsakani Maluleka’s findings in the consolidated general report on local government audit outcomes for 2022/23, despite the many commitments made by politicians and government officials, there has been no change in the poor state of financial affairs at the local level.

“While 45 municipalities have improved their audit outcomes since 2020-21 (the last year of the previous administration’s term), 36 have regressed,” said Maluleke.

She expressed concern that these municipalities had made little effort to move out of the “unqualified audit opinion with findings” category, with 77 remaining there since the end of the previous administration’s term.

Though millions of rand were still being spent on consultants, municipalities were still struggling to fulfil all the requirements of a sound financial statement. There was still no accountability in the poor-performing municipalities, which was at the expense of ordinary South Africans.

Municipalities spent a combined R1.3bn on consultants, down from R1.6bn the previous year, with KwaZulu-Natal, Limpopo, North West and Mpumalanga accounting for the most.

Gauteng municipalities have significantly decreased their spending on consultants from R150m in the previous year to R49m, while those in the Western Cape remain the lowest at R41m.

Ninety-nine municipalities nationwide still received unqualified audit opinions with findings despite spending more than R630m on consultants.

“We found noncompliance with legislation on strategic planning and performance management at 45% of all municipalities and at 91% of municipalities with disclaimed audit opinions,” she said.

Almost 50% of municipal performance reports were not credible as they included information that was not useful and/or not reliable.

“Of importance is that if we had not allowed municipalities to correct the misstatements that we identified in the submitted performance reports, even more would have published performance reports that were not credible,” she said.

Maluleke identified inadequate performance management systems and error-prone manual processes as among the reasons for this. She also said that there was lack of skills and capacity among not just of the staffers but councillors as well, who tolerated unreliable or incomplete reporting and underachievement.

The political instability in municipalities contributed to this while there was also a general lack of financial management skills.

There was also generally poor financial management, with a whooping 42% unfunded budget and more than R24bn in unauthorised expenditure.

There was R7.4bn in fruitless and wasteful expenditure, up from R4.9bn in 2021-2022.

Municipalities were prone to revenue losses due to customers not being billed and debt not being collected, among others. Maluleke attributed these financial losses to poor payment practices, unfair or uncompetitive procurement processes, weakness in management of projects as well as fraud committed by municipal officials.

Those who have been able to sustain clean audits over the years were generally characterised by “sound financial and performance management disciplines and perform their functions in accordance with applicable legislation”, she said.

“They generally manage projects well so that deficiencies are identified and rectified promptly and so that timelines, budgets and quality standards are adhered to. The well-functioning control environment and good systems present at these municipalities form a solid foundation from which councils can prioritise further improving the performance and service delivery of their municipalities,” said Maluleke.

The AG said that the inability to comply with legislation when conducting its operations remained the biggest obstacle for municipalities, with 86% receiving material compliance findings, regressing slightly from 85% in the previous year and 83% in 2020-21.

She, however, said that there were now fewer municipalities with disclaimed audit opinions, which is the worst possible audit outcome. And 18 municipalities, mostly in KwaZulu-Natal, Mpumalanga and North West, have moved out of this category, she said.

Fourteen municipalities received disclaimed opinions in 2022-23, including two municipalities whose audits were finalised after March 31 2024, which was the cut-off date for this report.

According to Maluleke’s office, since 2019, financial losses of almost R1bn have been recovered, are in the process of being recovered or have been prevented because of this process.

“Most accounting officers are taking action to resolve material irregularities, but where the material irregularities were not dealt with swiftly or with the required seriousness, we included recommendations in audit reports, took remedial action and referred matters to relevant public bodies for investigation (where appropriate),” said Maluleke.

The metropolitan municipalities have, however, worsened in their performances since the year before the elections despite metros typically having greater capacity and bigger budgets to more easily attract suitably skilled and competent professionals to improve their outcomes.

She said the financial health of the metros remains concerning, as they struggled to improve their revenue-collection despite implementing financial recovery plans and turnaround strategies.

“Infrastructure delivery and maintenance still do not receive enough attention at metros,” she said. “As can be seen in projects being delayed, grant funding having to be returned to the National Treasury, and a lack of consequences for poor performance.”

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