Auditor-General Kimi Makwetu on Wednesday emphasised that “accountability continues to fail in local government” as there was an overall deterioration in the audit results of South Africa’s municipalities for the 2016/17 financial year.
The Auditor-General South Africa (AGSA) audited 257 municipalities and 21 municipal entities in the period, with the audit outcomes of 45 municipalities having regressed.
Only 33 municipalities managed to produce quality financial statements and performance reports and comply with key legislation, thereby receiving a clean audit.
Makwetu warned that credible financial statements and performance reports are crucial to enable accountability and transparency, but said municipalities are failing in these areas.
“Not only did the unqualified opinions on the financial statements decrease from 68% to 61% but the financial statements provided to us for auditing were even worse than in the previous year.”
Only 22% of municipalities were able to provide financial statements without material misstatements, he lamented.
In addition, the performance reports of 62% of the municipalities that produced reports had material flaws and were not credible enough for the council or public use, Makwetu pointed out.
The AGSA further reported material noncompliance with key legislation at 86% of the municipalities. This is the highest percentage of noncompliance since 2012/13.
Municipalities with material compliance findings on supply chain management increased from 63% to 73%.
A 75% increase in municipal irregular expenditure, from R16.2-billion in the previous year to R28.3-billion in the year under review, was also noted.
However, some municipalities made a “significant effort” in 2016/17 to identify and transparently report on irregular expenditure incurred. This, Makwetu said, accounts for just over R15-billion of the total.
The remaining R13.3-billion relates to payments or expenses incurred in the year under review by the new local government administration, which represented about 4% of the local government expenditure budget.
Makwetu also revealed an “increasingly difficult environment for auditing”, with increased contestation of audit findings and pushbacks during which audit processes and motives were questioned.
In addition, the AGSA highlighted that municipalities struggle to balance their books owing to a widespread inability to collect debt from municipal consumers. Thirty-one per cent of municipalities disclosed a deficit, which amounts to R5.6-billion in total.
The trend of improvements in the past few years in the Eastern Cape did not continue, with only six municipalities having improved their outcomes, while seven regressed.
Irregular expenditure of R13.5-billion, which represents 35% of the provincial local government expenditure and 48% of the total irregular expenditure, was incurred by municipalities in the province.
Further, a continued lack of accountability and leadership failures in the Free State were the main causes of government failures in that province, which led to a significant regression in audit outcomes from the prior year, Makwetu lamented.
Seven municipalities regressed, while no auditees were able to improve.
Gauteng, however, held steady with all municipalities maintaining their outcomes from the previous year.
“This was the only province that had 100% unqualified audit opinions.”
However, noncompliance with legislation remains the major obstacle preventing most municipalities in the province from attaining a clean audit, Makwetu said.
KwaZulu-Natal, unfortunately, continued on a downward path that started in 2015/16, with 13 municipalities regressing.
Makwetu noted that, at these municipalities, complacency and a lack of follow-through on the previous administration’s commitments had an effect.
“Leadership did not decisively deal with the weaknesses we reported and warned them about. If these lapses in accountability are not dealt with, the regressions will continue,” he warned on Wednesday.
Limpopo, which is “characterised by complacency with unqualified financial statements and underperformance”, had five municipalities that regressed during the year under review.
On a brighter note, Mpumalanga saw an improvement in the overall 2016/17 audit outcomes.
This, Makwetu said, is a continuation of the slow trend of steady improvements over the past few years.
“A lot of work is still needed to ensure that the improvements are sustainable, to curb irregular expenditure, which amounted to 10% of the provincial local government expenditure budget and to address delays in infrastructure and basic service delivery”.
In the Northern Cape, the overall outcomes remained the same, with two municipalities having improved and two having regressed.
In terms of irregular expenditure, the North West stood out by contributing 15% of the total irregular expenditure in 2016/17, Makwetu said.
“We are also particularly concerned about infrastructure delivery and maintenance, as well as the use of grants in the North West”.
The Western Cape still had the largest concentration of municipalities with clean audits, but the audit results of six municipalities regressed in the year under review.
Twenty-one of 30 municipalities in the province received clean audits for the 2016/17 financial year.
Changes after the local government elections caused some instability at council level and in key senior positions, but Makwetu noted that regressions in the province can most likely be attributed to the AGSA’s messages on risks and recommendations not receiving the attention it warranted.
Western Cape Minister of Local Government, Environmental Affairs and Development Planning Anton Bredell welcomed the announcement, stating that the “outcomes are only made possible through an ongoing massive team effort by local, district and provincial officers.”
Efficiently run municipalities remain key to delivering the services needed to make the province a better place for all who live in it, he added.
Unfortunately, this seems to not be the case for the majority of municipalities, as local governments continue to fail in accountability, the AGSA said.