Municipal audit results continue to decline — irregular, wasteful expenditure balloons to R7.4bn

27 Aug 2024

Auditor-General Tsakani Maluleke’s 164-page report on the local government audit outcomes for the 2022/23 financial year indicates a lack of meaningful improvement in audit results, with evidence of regression and persistent weaknesses.

Of the country’s 257 municipalities, just 34 received a clean audit outcome in the 2022/23 financial year, a decrease from 38 in the previous year. This reduction highlights the challenges that municipalities continue to grapple with, including inadequate skills, cash flow problems, governance failures and a lack of accountability and consequence management.

This stark revelation was made by Auditor-General Tsakani Maluleke on Tuesday, 27 August 2024, while briefing Parliament. She remarked that no meaningful improvement had occurred over the first two years of the current term.

Most of the clean audits are found within the DA-led Western Cape, which has been the case for several years. Last year, it had 18, and this year it achieved 20.

The Eastern Cape, which had the second-largest number of clean audits last year, was able to achieve only four in 2022/23. KwaZulu-Natal, which had nine last year, also achieved just four clean audit outcomes in 2022/23.

North West, which previously had nine clean audits, achieved none in 2022/23. Gauteng achieved one, the Eastern Cape four, the Northern Cape three, and Mpumalanga two.

Overall, 36 municipalities have regressed since the 2020/21 audit cycle, while just 45 showed some level of improvement, revealed the AG.

In terms of financial losses, the report indicates that local government is losing billions of rands each year due to poor decisions, negligence or inefficiencies.

Fruitless and wasteful expenditure rose significantly, increasing from R4.89-billion in 2021/22 to R7.41-billion in 2022/23.

“This amount could be even higher as 15 municipalities (including 50% of municipalities with disclaimed audit opinions) did not report all the fruitless and wasteful expenditure they should have reported in their financial statements. In other cases, the amount of fruitless and wasteful expenditure reported was incorrect,” the AG said.

Maluleke emphasised the importance of all stakeholders working together towards a culture of performance, accountability, transparency and institutional integrity, which she said would ultimately result in a better life for South Africans.

While a handful of municipalities had maintained clean audits over the years, pointing to sound financial and performance management practices, a clean audit was not necessarily an indicator of good service delivery and did not always correlate directly to the lived experience of all the communities in a municipal area.

“However, a clean audit positions a municipality to transparently communicate to communities about whether and when their needs will be met through accurate records, which also enables the different roleplayers in the accountability ecosystem to make informed decisions,” Maluleke said.

‘Outcomes of metros worsen’

The country’s economic hub, Gauteng, with three metros, achieved only one clean audit outcome – Midvaal. None of its metros achieved a clean audit. Ekurhuleni had achieved a clean audit outcome in recent financial years, which it lost last year due to lapsed procurement and contract management controls.

Read more: Ekurhuleni loses clean audit status after attempt to oust mayor stalls again

Meanwhile, Tshwane improved its outcome from an adverse audit opinion to a qualified opinion by taking steps to implement prior-year audit recommendations. Johannesburg retained last year’s outcome of an unqualified audit opinion with findings.

“The overall audit outcomes of metros worsened since the last year of the previous administration,” said Maluleke.

In the Eastern Cape, the Buffalo City Metro regressed from an unqualified audit opinion with findings to a qualified audit opinion due to internal control deficiencies.

In the Free State, the Mangaung Metro again received a qualified audit opinion due to audit action plans that were not effectively implemented to address prior-year qualifications and poor record keeping.

“The regressions were largely due to vacancies in key positions, a slow response to implementing recommendations to sustain the outcomes, and inadequate monitoring and review of controls relating to compliance,” she said.

Worst offenders

Six municipalities received adverse opinions in 2022/23. This is the worst possible audit outcome as it means a municipality’s financial statements “are so unreliable that they cannot be used for oversight and decision-making”.

Emakhazeni Local Municipality in Mpumalanga has been in this category for five consecutive years. uMzinyathi District Municipality in KwaZulu-Natal and Laingsburg Local Municipality in the Western Cape have received adverse opinions for two consecutive years. Modimolle-Mookgophong Local Municipality in Limpopo regressed to an adverse opinion from a qualified opinion.

Madibeng and Naledi local municipalities, both in North West, moved to an adverse opinion after receiving a disclaimed opinion in the previous year.

“There is little transparency or accountability in how these municipalities use their funds. As with municipalities that receive disclaimed audit opinions, national and provincial leadership and coordinating institutions should offer support and, where necessary, intervene,” said Maluleke.

Financial statements

The report is not all gloomy – the AG indicated that the number of municipalities that submitted their financial statements for auditing by the legislated date continued to increase: from 81% in the last year of the previous administration to 91% in 2021-22 and 94% in 2022-23.

“Although late and non-submissions are still most prevalent in the Free State, the Northern Cape and North West, the situation has improved,” she said.

Maluleke partly attributed municipalities’ poor performance or regression to a lack of skills in people employed, lack of reliable information systems, political instability, lack of consequence management and poor management of cash flows.

“If you have a CFO in place, there is no reason why you should not be able to compile a set of financial statements that are credible. They have a team around them, there is absolutely no reason why, and if you set a culture where they continue to get away with that, then you will not be able to build an institution of strength and integrity,” she said.

On the issue of using consultants inappropriately, which had become prevalent across municipalities, Maluleke said it was often because of the lack of attention paid to building institutional capability.

“The issue can only be resolved by political will and a decision to invest in capability for the institution. And this takes time,” she said.

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The South African Government Association (Salga) called for interventions to have more municipalities achieve a clean audit instead of the current regression, which it said had been concerning.

“More efforts must be made to assist municipalities in achieving unqualified audit outcomes. The national and provincial governments, through legislative and other measures, must support and strengthen the capacity of municipalities to manage their affairs, exercise their powers and perform their functions.”

Salga said municipalities ought to adopt practices from municipalities with clean audit outcomes and consider “institutionalising controls through digital innovations and stringent performance management, and also cascading it to all officials lower than senior management”.

DA Western Cape spokesperson on Local Government, Environmental Affairs and Development Planning Dave Bryant expressed his satisfaction with the outcomes.

“The Democratic Alliance proudly congratulates the Western Cape municipalities who received clean audits for once again demonstrating that public funds are best utilised when the needs of residents come first. Unfortunately, this level of accountability and excellence is absent in non-DA-run municipalities, which continue to lag behind in local government audit outcomes,” he said.

Bryant also urged people to hold accountable those who mismanaged their hard-earned tax money.

Julius Kleynhans from the Organisation Undoing Tax Abuse expressed concern at the regression in terms of clean audit outcomes, which eroded public confidence.

“The decline in clean audits is a clear indication of systemic failures within our municipalities, weak political oversight and a lack of consequence management. This not only compromises service delivery, but also erodes the trust that communities place in their local governments.

“It is unacceptable that so many municipalities continue to fail in their fundamental duty to manage public resources responsibly and provide basic services to the people,” said Kleynhans.

He suggested that local government reform and consequence management were crucial if the country wanted to see real change. DM

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