Auditor-General Tsakani Maluleke on Wednesday revealed to Parliament that only 41 of South Africa’s 257 municipalities obtained clean audit outcomes in the latest Municipal Finance Management Act audit outcomes for the 2023/24 financial year – although this is an improvement from the previous reporting period’s 35 municipalities.
Furthermore, 99 municipalities obtained unqualified outcomes with findings, 71 of which had submitted financial statements of poor quality that had to be reviewed after the intervention of auditors.
Maluleke reported to the Portfolio Committee on Cooperative Governance and Local Government and Traditional Affairs, chaired by former health minister Zweli Mkhize. She highlighted to the committee the need for political leadership providing greater oversight of municipalities across the country, particularly those that have consistently performed poorly in the audit process, advocating for councils at local and provincial government level to take great care in investigating what is wrong with the municipalities in their provinces.
“The good news is that we are back to 41 clean audits, which is where we started back in 2021. So we are no longer at the 34 that I talked about last year. That [41] makes up 16% of the municipalities across the country, and tells you that only 19% of the municipal expenditure budget is being spent by municipalities that will predictably give you the outcomes you hope for, in that they have the disciplines and governance arrangements for you to trust that whatever money you send them will be spent in the way that you expect.”
The AG further said the poor performance of most of the country’s municipalities has at its root a number of issues such as lack of accountability and a culture of poor governance at both administration and political levels, and this will not improve unless something is done to address political leadership’s neglect of the work that municipalities must do to meet their basic service delivery mandates.
“I want to highlight that when you’ve got so many municipalities that do not yet have the capability to compile credible financial statements, it raises a number of critical questions around competence of the people in the administration, but equally competence and discipline around the people in the political leadership,” she said.
“There should be no mayor that allows the situation where year on year, qualified financial statements emerge from his or her administration. Most municipalities have CFOs that have got skills. It is still concerning that we have the expenditure budget of local government being handled by municipalities that can’t get the financial statements right.”
Responding to a question from committee member Pumelele Ndamase on whether policy reform would help address the challenges highlighted by the national audit office, Maluleke said: “I don’t think we should be changing the law. There ought to be better political consequences for people that hold political executive authority in these institutions.”
Committee members largely agreed with these sentiments, citing the need for urgent accountability from provincial authorities to address the poor state of municipalities.
Mkhize singled out the Free State and said he wanted provincial leadership to account to the committee as soon as possible on the regressing performance of several of their municipalities. The Maluti a Phofung, Mafube, and Thabachweu municipalities all failed to submit financial statements, resulting in their audit outcomes being omitted from the latest report.
Outsourcing at a cost
The excessive use of consultants in municipal operations once again featured largely in the committee meeting. Maluleke noted an increase of about R400-million in expenditure towards consultants. In the previous financial year municipalities spent R1.3-billion compared to R1.7-billion in the year under review.
In addition, according to the AG, there were few or no notable skills transfer processes to ensure that public officials in municipalities were trained to carry on the work previously done by consultants.
“We’ve been tracking this area for over 10 years now. I remember the then AG Terence Nombembe raising this, and it started in the Free State. We’ve been tracking it every year since then and what we see is that the ongoing reliance just continues … every single year there are very few municipalities that use a consultant for a year or two and then start to wean themselves off the trend.”
The continued use of consultants reveals no skills transfer, Maluleke said. “The part in this report about the use of consultants is the exact message we shared in 2013. There is no skills transfer … that is why there are still errors when you get the submissions, post the use of consultants. When people are not even bothering to review the work of consultants it tells us that they basically left their desks.”
A pervasive culture of impunity in many of the struggling municipalities meant that officials should be receiving training by way of set strategic programmes, but they simply abdicate their duties to consultants without even reviewing the work of these consultants.
The metros challenge
As for the eight metro municipalities, only one clean audit was achieved, by the City of Cape Town. The rest obtained a mix of qualified outcomes and unqualified outcomes with findings. Gauteng’s City of Ekurhuleni and City of Johannesburg and KwaZulu-Natal’s City of eThekwini achieved unqualified outcomes with findings, while the Eastern Cape’s Buffalo City Municipality and Nelson Mandela Bay, Mangaung Metro in the Free State, and City of Tshwane in Gauteng obtained qualified outcomes.
The metros service 46% of households across South Africa and are responsible for about half of the local government budget, but have not shown stellar performance for years. “Their budgets are quite significant, they sit in the centres of economic activity and so, given the scale of their operations … and also the resources that they manage and even their location, they should have no difficulty attracting the skills that they need to run their environments.”
eThekwini and City of Johannesburg struggled to provide performance information, while Ekurhuleni complied, reported Maluleke. “When somebody doesn’t give you a good performance report, it tells you that their ability to plan for performance monitoring and the execution of their plans on an ongoing basis is weak. The Municipal Systems Act provides a very clear set of prescripts around what should happen with municipal performance planning … when we don’t get good quality performance reports, it tells us that the process is quite broken.”
Issues of instability at council level at metro municipalities also come into play when performance is reviewed, said Maluleke.
Late and poor quality submissions
The AG further noted that the seven metro municipalities have displayed consistent problems with submitting financial statements in compliance with the legislated standards of her office. These municipalities are collectively responsible for a budget of about R6.85-billion.
On a positive note, the number of municipalities that received disclaimers is down from 28 in the previous financial year to 14 in the period under review.
“When we started our analysis there were 10 audits that had not yet been completed. Since then we’ve completed seven of those … sometimes municipalities do not submit their financial statements to us on time. The law says they should submit financials to us by end of August so that we can audit them and complete those audits by the end of November. Unfortunately, there is still a tendency amongst a number of municipalities to miss that submission deadline so there were a number of late submissions, but we were able to complete those.”
In terms of late submissions, Maluleke said, the matter has been raised before. There was some gradual improvement across several provinces, she added, especially in the North West where the provisional leadership played a big role in helping their municipalities to submit financial statements on time. “The one province where we are still struggling to get responses to submit financial statements on time is the Free State.”
Maluleke recommended an intervention from the provincial legislature and the provincial executive to ensure that the situation is addressed.
“It’s good that we’ve returned a few more clean audits. It’s great that we are reversing this trend around disclaimers of audit opinions. However, the state of financial and performance management disciplines in local government still leaves much to be desired.”
