Municipal finance failure: Commission urges defaulting national departments to cough up funds owed to councils

A look at the documentation from National Treasury and the Auditor-General will show hundreds of workshops on financial management and audit training at councils across South Africa. Not just this year, but in 2018, 2017 and previous years. The government publicly makes much of how most, if not all councils have audit committees to oversee expenditure and to ensure statutory and regulatory compliance.

And yet on 26 June Auditor-General Kimi Makwetu, again, delivered a devastating verdict of flailing municipal audit outcomes for the 2017/18 financial year ending 31 March 2018. Lack of ethical leadership, lack of consequences for contraventions and lack of political will emerged as key factors — again.

Only 18 of the country’s 257 municipalities — none in the North West, Free State or Limpopo — had unqualified audits without findings, while the performance reports of 65% of councils were so flawed they were “not credible enough for the council or the public to use”.

Previous audit findings had been ignored, according to the consolidated audit outcomes reports, as the Auditor-General found “material non-compliance with legislation on implementing consequences at 60% of the municipalities — an increase from 54% the previous year” and 74% of councils failed to adequately follow up allegations of financial and procurement misconduct and fraud.

That wasn’t quite the case in several councils in June.

In response to the most recent audit outcomes, Co-operative Governance Minister Nkosazana Dlamini Zuma expressed concern and, in a statement on 27 June, outlined action underway such as building a dashboard for early intervention and training for councillors.

Fixing municipal finances goes back as far as Project Consolidate, launched in March 2007 by then provincial and local government minister Sydney Mufamadi. In 2019 public finances at local level remain troubled.

The Financial and Fiscal Commission (FFC) is only too aware of this. At its Monday briefing, several examples of financial shenanigans emerged, such as the disappearance of the allocation for a stadium at Potchefstroom in the North West that was never built. Or the R3-billion Rustenburg rapid transport system where phase one was meant to be completed by 2016, but by 2017 only 40% of the project phase was complete, “with no records of the total costs incurred”, according to the commission report.

The FFC notes that up to 75% of local government revenue is self-generated through rates, taxes and utility tariffs for water and electricity.

The commission’s recommendations include the Co-operative Governance and Finance ministries stepping in to help develop appropriate credit, billing and collection systems for councils — billing and collection were identified as key weaknesses — while support should also be made available for infrastructure planning alongside reforms of the currently available grants. The Finance ministry should allow for additional taxes to be collected by councils — from tourism levies, fire levies to development charges — to bolster revenue.

The top three defaulting national departments are the holder of government departments’ leases, Public Works, at R2.7-billion owing to councils, according to the FCC report, followed by Basic Education and Rural Development that jointly owed councils R120-million during the 2017/18 financial year.

The leading provincial department defaulter is Public Works, Roads and Transport at R2.5-billion or 69% of the total provincial departmental debt to councils.

Salga, in its 28 June statement, put the total intergovernmental debt at R72.4-billion. What is more often expressed is that councils’ debt to Eskom and the water boards stood at R30-billion in late 2018.

The FFC says it needs others to actually push for change.

Whether ministers take up its recommendations remains unclear, given indications that the tendency is to stick with what’s already being done. That’s on the back of a White Paper on Local Government — the policy document — that is 20 years old. Or given its constitutional responsibility of oversight and ability to initiate legislation, Parliament could step into the space.