Dear Corruption Watch,
I heard that the auditor-general recently released a report on the annual audit of local government entities. Why do we have these audits and what can the report tell us about corruption in our municipalities? Is there any good news?
The annual financial audits of local government entities play a vital role in combating corruption in our municipalities by ensuring accountability of public sector officials and enhancing good governance.
The Auditor-General of South Africa is an independent institution established by the constitution. The current auditor-general is Kimi Makwetu. The auditor-general annually produces audit reports on all government departments, public entities, municipalities and public institutions.
Each year the auditor-general examines the financial statements of each municipality. It looks at whether the statements are a fair presentation of the municipality's financial position or whether there are any material errors or misstatements. The audit also ensures that all performance information is reliable and credible, and checks compliance with the laws and regulations governing financial matters.
There are eight metropolitan municipalities, 44 district municipalities, 226 local municipalities and 62 municipal entities that fall within the local government sphere. In the 2012-13 financial year all municipalities and 41 municipal entities were audited. Together the municipalities and entities have a combined total expenditure of R268-billion, made up of R62-billion for employment costs, R166-billion for goods and services and R40-billion in capital expenditure. This is the taxpayer's money – and it is the auditor-general's task to ensure that the responsible officials can account for every cent.
The auditor-general announced last month that out of the 319 audits completed, 22 municipalities and eight municipal entities achieved clean audits. This constitutes an overall 9% as compared to the 5% obtained in 2012. There were 63 improvements and only 25 regressions. This is a positive improvement – but there is much work to be done.
In a press statement, the auditor-general commented that there were common factors in the municipalities that achieved clean audits. Officials at these municipalities ensure that any departure from proper procedures or systems could be easily detected and corrected timeously. Managers and leaders are accountable and are able to provide explanations and additional evidence for the transactions and financial statements. These municipalities also have the support of strong oversight by mayors, and councils that back the efforts of municipal managers and chief financial officers.
About 40% of municipalities received financially unqualified opinions with findings. This means that they passed the critical test of fair presentation of financial statements, but that there were instances where they did not follow required processes or lacked transparency. These deviations were largely in supply chain management.
The auditor-general noted with concern the high levels of irregular expenditure – a total of R11.6-billion for the period under review. This was mainly due to the lack of basic controls and the failure to impose appropriate consequences on poorly performing or problematic officials.
The auditor-general warned that these unwanted practices can permeate the environment if not rooted out.
It is difficult to know whether the high levels of wasteful expenditure is a direct result of corruption or caused by a lack of skills and experience. It may be a combination of the two. It is clear that proper financial controls and systems are an important mechanism to shut down opportunities for the abuse of public resources. Not only do the audits root out corruption and expose the responsible officials, but they encourage and facilitate good governance in municipalities.
• This article was first published in Sunday Times: Business Times