In a bid to improve the running of municipalities in the province, the North West provincial treasury is rolling out financial recovery plans for 14 particularly troubled entities. 

Finance MEC Motlalepula Rosho announced the move in June 2021, while tabling the 2021/22 provincial budget. The targeted municipalities all have serious financial management and capacity challenges.  

Municipalities all over the country have been strained by the Covid-19 pandemic, which negatively affected their ability to deliver critical basic services – water, sanitation, electricity, roads and refuse removal. This was something of a death knell for those municipalities that were already struggling, and in extreme cases, necessitated provincial intervention under section 139(5) of the Constitution, read together with chapter 13 of the Municipal Finance Management Act (MFMA). 

“There is no contestation,” Rosho said. “Our municipalities are operating under severe financial crisis and this calls for urgent and intensified action to be taken to avoid a total collapse.” 

Material governance shortcomings in the North West local government have resulted in municipalities not being able to “appreciate, embrace, absorb and internalise” the support and capacity building measures provided by the provincial treasury, she added. “This has further dampened the state of municipal financial health, resulting in the current negative audit outcomes and poor financial management that we continue to experience and witness.” 

Rosho said that some of the challenges provincial municipalities face include bloated structures and an organogram not fit for purpose, the appointment of incompetent people, the failure to raise and collect own revenue, and the adoption of unfunded budgets. 

She said employing people who are not skilled and trainable has brought municipalities to untenable situations, and that the Budget and Treasury Office particularly needs people who can deliver what is expected of them. Rosho was also scathing of the ongoing lack of accountability for employees and managers who fail in their duties. 

Five-year assessment yields action plan 

The process kicked off in July with an analysis of a five-year assessment conducted between 2015 and 2020 on municipalities found to be in trouble.  

“Continued tolerance for chronic and serious financial problems undermines the confidence of the public and of investors alike. It also compromises the ability of the municipality to perform its basic functions and deliver services to residents and firms,” Rosho said at that event. 

The treasury’s intervention comes not a moment too soon, and probably very late. In its latest MFMA audit report for 2019/20, the Auditor-General of South Africa (Agsa) did not find a single North West municipality to which it could give a clean audit outcome. The provincial treasury, on the other hand, recently received a clean audit opinion for the seventh year in succession. 

Seven of the 22 municipalities were singled out as having a history of disclaimed audit opinions, meaning that they repeatedly could not provide Agsa with evidence for most amounts and disclosures in their financial statements, and therefore could not receive an opinion on the credibility of those statements. The seven are Dr Ruth S Mompati District Municipality, Lekwa Teemane, Mamusa, Madibeng, Maquassi Hills, Ratlou, and Ramotshere Moiloa. 

While at least five of the disclaimed municipalities had been under administration for the past two years, noted Agsa, “we see a prolonged state of poor performance and therefore remain concerned about the effectiveness of the administration process. A further concern is that just over 77% of the disclaimed municipalities have shown a regression in their audit outcomes since 2016-17.”  

In addition, the province racked up R2.6-billion in unauthorised and fruitless and wasteful expenditure for 2019/20, as well as R4.1-billion in irregular expenditure. The Agsa described the provincial performance as a “total neglect of internal control disciplines, resulting in financial and operational collapse, weakened governance and lack of accountability”. 

To date, the following steps have already been taken in the North West: 

  • A financial health assessment was conducted between 2015 and 2020, on identified municipalities operating under financial crisis; 
  • Consultative sessions were held with mayors of municipalities, the national and provincial departments of co-operative governance, and National Treasury, focusing on these struggling municipalities; 
  • The finance minister is supporting the implementation of mandatory interventions through the National Treasury’s municipal finance recovery services (MFRS); 
  • Participation in the National Treasury’s MFRS, where the deputy ministers of finance and co-operative governance presented the implementation of mandatory interventions to the provincial executive council. 

The intervention, said the provincial treasury, will include budget management, contract management, municipal standard charts of accounts, and standards of generally recognised accounting practice.