The auditor-general’s (AG) latest report on the financial performance of municipalities, released last week, shows a marginal improvement for 2015/16, but overall the local government had failed to maintain the promising five-year momentum – gained in the years 2010/11 to 2014/15 – that he reported on last year.

At a briefing on 21 June, AG Kimi Makwethu called for leadership accountability in the management of municipal affairs. He suggested that this take the form of appropriate planning focused on the needs of citizens, and instituting appropriate internal controls and supervision that will ensure proper financial and performance management. He also spoke of respect for the law in the running of municipalities, monitoring by all political and administrative leadership that budget and performance targets are appropriately achieved, and consequences for mismanagement and non-performance.

Makwetu said that if these basic principles of accountability are in place, municipalities should live up to the expectations of the communities that they serve. Accountability was a key component of his report this year. While there are municipalities that work with the AG’s office and go out of their way to correct mistakes that were picked up during the auditing process, there were others where officials provided no records to show how they were spending taxpayers’ money.

The AG has approached Parliament to ask for more powers in pursuing consequences for municipalities that consistently under-perform. Makwethu wants his office to have stronger remedial powers, and has proposed amendments to the Public Audit Act to ensure that there are consequences for players in the private and public sector who do wrong.

Download the report.

Mixed bag for irregular expenditure

In terms of irregular, fruitless and wasteful, and unauthorised expenditure, Makwethu noted both positive and negative results.

The amount of irregular expenditure increased by just over 50%, rising from R11.1-billion in the previous report to R16.8-billion in 2015/16. This is the highest recorded amount since the AG started tracking the numbers. But it could be even higher, Makwethu said, because a third of municipalities did not know the full amount and 24% were qualified as the amount they disclosed was incomplete.

However, fruitless and wasteful expenditure was calculated to be R901m in 2015/16 – this is a 21% decrease from the previous year’s result of R1.14-billion.

Unauthorised expenditure was almost the same as last year, at R12.8-billion.

Corruption formula

Municipalities with poor consequence management practices are often prone to corruption or fraud, as a result of municipal officials not being held accountable.

From 1 July 2017, municipalities will have to work according to the municipal Standard Charter of Accounts, introduced in 2016. This means they will have to capture all their financial transactions against a predefined classification framework, which yield “uniformity of line items in terms of revenue, expenditure, assets and liabilities.”

The charter’s primary objective is to improve governance, accountability, transparency and the management of public funds. Andries Nel, the deputy minister of Co-operative Governance and Traditional Affairs, said this, together with the work of the National Treasury, would go a long way to address the problem of irregular expenditure.

 Demanding higher standards of accountability and governance

“We want to ensure that we bring our municipalities, that sphere of government that is closest to the people and that is directly involved in the delivery of basic services, to the required levels of accountability and financial management,” said Nel.

He added that, compared to audit outcomes from 2008/9, the latest report reflects an overall trend of improvement in terms of financial accountability, where 62.6% are getting either clean or unqualified audits. “We are within reach of two-thirds of our municipalities getting unqualified audits. In 2008/9 we had 104 municipalities getting disclaimers, where the AG was not even able to express an opinion, but today that number is about 25. At the same time there was only one municipality that was able to get a so-called clean audit – unqualified with no findings – and now there are 49.”

Within those 25 municipalities there is a group that has received a qualified audit result for more than five years in a row. “Those are the municipalities that we want to home in on, where we want to insist on leadership and in the absence of that, on consequences.”

Nel also mentioned that out of every rand of public money, about 75 cents is spent in a municipality with an unqualified audit.

Poor performance has been linked to frequent staff turnover, especially that of the municipal manager and CFO, said Makwethu. “If you have made audit recommendations … the longer those people are around the better the chance that those recommendations will be sustained over time. If the person is in their job for nine or 18 months, then the next person may have other ideas. If you start the same thing three times in one financial year you will find that after five years nothing has been achieved but all the money has been spent.”

He said that many municipalities don’t change their bad procurement habits because they don’t consider it necessary. “Some stay the same when nothing happens to them after they deviate from supply chain management procedures. If I have the ability to issue contracts through a deviation, as long as I have an unqualified audit I’m okay. Because there is no consequence – why change it when nobody is going to make me change it, because I benefit from doing it this way.”

This is another reason that the AG needs the power to focus on the entities with years of deviation from supply chain management procedures, and approach those that have the instruments to look below the surface – including the Hawks, the Special Investigating Unit and the Public Protector – to investigate those transactions. “There is a common trend of, for example, using an ’emergency’ as an excuse for deviating from procedures. One or two contracts may be issued on the basis of emergency, but each contract issued cannot be an emergency over the years.”

Municipalities with poor consequence management practices are often prone to corruption or fraud, as a result of municipal officials not being held accountable.