Auditor-General releases municipal audit results under the theme - “not much to go around, yet not the right hands at the till”
Auditor-General (AG) Kimi Makwetu today released the audit outcomes for local government for the period 2018-19. He titled this report Not much to go around, yet not the right hands at the till to reflect the state of financial management in local government.
In his latest local government general report the AG paints an undesirable picture of billions of rand in funds allocated to municipalities being managed “in ways that are contrary to the prescripts and recognised accounting disciplines”. He strongly cautions that these administrative and governance lapses “make for very weak accountability and the consequent exposure to abuse of the public purse”.
This is Makwetu’s last municipal audit report as his fixed seven-year term as the country’s AG comes to an end on 30 November 2020.
The safe and clean hands that can be relied upon to look after the public’s finances in local government are few and far between
In the report Makwetu elaborates on the theme for his report. He explains that services are rendered and goods are delivered to consumers in all municipalities with the expectation that they will pay for them. Yet there has been a growing trend of established businesses across the chain showing signs of a diminishing ability to pay for these services, or completely refusing to pay.
Individuals and households also feel the same pressures and are not forthcoming with payments for these consumed goods and services. To illustrate the prevalence and pervasiveness of this across the country, on average almost 60% of the revenue shown in the books will never find its way into the bank accounts of the municipality. The accounts covered in this report already take into account the extent of this impairment. The system has generally been unsuccessful in converting debt into cash over a number of years, as evidenced by the age of the debt. However, this does not mean that the constant pursuit of this money should cease.
In the meantime, those that render services on behalf of the municipality or provide administrative and other functions continue to receive their income, largely and almost exclusively in some cases from the income that is raised from the national purse. This area of municipal finances is compounded by the fact that not all those that are part of the payroll were brought along with the intention to directly deliver the services that are part of the municipality’s plans. This leaves the municipality with little else to do but to seek external help – even in areas where they already have warm bodies in employment. This comes at a significant cost paid to consultants. The common consequence of this is that those that provide goods and services with a promise to be paid in the future have to wait for new money to be allocated for future spending before they can be paid for past deliverables. The ultimate outcome of this is an inevitable downward spiral to a financial cul-de-sac that many of the local municipalities and districts have already reached across the whole country, with a few and limited exceptions.
Fundamentally, this is what characterises the outcomes of the audit of financial statements of local government across the country. Makwetu notes that it should be appreciated that there are some exceptions - a large number of which are concentrated in the Western Cape (although there are dotted areas of concern in the Central Karoo and Garden Route districts of this province).
When the different audit conclusions are analysed in this report, the above context must always be kept in mind. It is no longer about an accelerated drive to achieve a particular audit conclusion, but whether the municipality is investing in qualitative and preventative controls to avert this systematic decline in financial fortunes within a sphere where all matters. Makwetu warns that the value of this report should therefore not be about a clever, intelligent analysis of concepts where the temptation is to rationalise the problem as if to soften the blow or divert attention from the core issues. It should rather be about “how firm steps are going to be taken to restore the integrity of these institutions and place them in a position to manage their finances towards the achievement of citizens’ needs”.
Since taking over as the head of the country’s supreme audit institution in 2013, Makwetu has persistently called on those charged with administration and oversight to look at basic systems and controls as the foundation for proper accountability to the citizens of the country, to ensure that taxpayers’ monies are spent in a disciplined manner in line with the prescripts set out in the many pieces of legislation governing the proper running of municipalities and that citizens can derive the expected benefits from this spending.
However, in his final local government report, the AG tells a disturbing story of most municipalities “crippled by debt and being unable to pay for water and electricity; inaccurate and lacklustre revenue collection; expenditure that is unauthorised, irregular, fruitless and wasteful; and a high dependence on grants and assistance from national government”.
The few municipalities whose diligence reflects the desirable story
Makwetu acknowledges the efforts of those municipalities that have worked hard to ensure that they not only received or maintained clean audits, but also tell a positive story of how they run their municipalities.
“The financial statements of a municipality tell the story of how well a municipality is managed. As is the case with these few municipalities, it can be a good story of disciplined spending that achieves value for money; meticulous billing and collecting practices; assets that are maintained and safeguarded; careful investments and savings for emergencies and future projects; and commitments to creditors and the community being honoured,” he noted.
Thirteen of these municipalities are in the Western Cape and included Cape Winelands and West Coast district municipalities, Bergriver, Cape Agulhas, Cederberg, Drakenstein, Hessequa, Langeberg, Overstrand, Prince Albert, Saldanha Bay, Theewaterskloof and Witzenberg. Other municipalities that consistently perform well are Senqu (Eastern Cape), Midvaal (Gauteng), Okhahlamba (KwaZulu-Natal), Capricorn district municipality (Limpopo), Gert Sibanda and Nkangala district municipalities (Mpumalanga), and John Taolo Gaetsewe district municipality (Northern Cape).
The best practices at these municipalities included a stable leadership that is committed to a strong control environment and effective governance. Continuous monitoring of audit action plans in order to timeously address any audit findings and a proactive approach to dealing with emerging risks were also common features at these municipalities.
The 2018-19 report narrates a story of how the efforts of these diligent municipalities had been overshadowed by the overall regression in audit outcomes.
