Auditor-general exposes municipal meltdown

Mail & Guardian

2 days ago

Auditor general Tsakani Maluleke
This is despite an uptick in the number of clean audit reports for the 2023-24 financial year.
Maluleke painted a dire picture of the widespread poor quality of financial reporting and mismanagement in a briefing to parliament's cooperative governance portfolio committee on local government audit outcomes for the financial year.
'The good news is that we are back to 41 clean audits [out of 275 municipalities], which is where we started back in 2021. So we're no more at the 34 that I talked about last year. However, that makes up 15% of the municipalities across the country,' she said.
'It's great that we are reversing this trend around disclaimers of audit opinion. However, the state of financial and performance management disciplines in local government still leaves much to be desired, and so the story, in many ways, is similar to what I would have shared before. I worry … that I will sound like a stuck record.'
Her office's assessment underscored a profound crisis in municipal governance that extends far beyond mere administrative inefficiency.
She said 14 municipalities received
Ninety-nine municipalities had unqualified opinions and 41 municipalities achieved clean audits.
Maluleke said the metropolitan landscape was particularly alarming.
'The eight metros across the country look after half of the expenditure budget for local government. They look after service delivery that affects 46% of households across the country. Their budgets are quite significant,' she said.
'They sit in the centres of economic activity, and so, given the scale of their operations, the complexity thereof, but also the resources that they manage and even their location, they should have no difficulty attracting the skills that they need to run their environment.
'Unfortunately, out of the eight, we've got only one clean audit, which is the City of Cape Town. It was the only clean audit last year as well.'
Maluleke's office was also concerned about the quality of financial statements of the big metros and municipalities, noting that when the audit started only 63 out of 275 municipalities provided quality financial statements.
'By the time we finished, we managed to get 140 credible financial statements through corrections during the audit process,' she said.
'The City of Joburg didn't give us quality financial statements when we began our audit. Now that's a big city, the biggest in the country, the biggest on the continent. There should be no difficulty in ensuring that you've got the skills and the capability to do what you're supposed to do, just on compiling financial statements.'
The audit exposed shocking institutional decay across infrastructure projects.
'We selected projects mostly in the metros and in those that have disclaimers of audit opinion. We found that the majority of projects had problems — 77% of the projects we visited had problems. Either they were delayed, there was poor quality work and then we also identified matters around the inadequate maintenance of infrastructure,' she said.
'The reason this exists, in our view, is that even if performance agreements are done as a tick-box exercise, they are not monitored. Contractors are appointed poorly through a procurement process that is not in compliance with the law and one that does not lead to the best decision. So the contractor that's appointed is one that's not equal to the task, then they are not managed — contract management capability is not there.
'The municipality doesn't have employees within it that have a set of standard operating procedures, a set of disciplines and even a set of skills to monitor the performance of these contractors, and we're seeing even once they've seen problems with the performance of the contractor, they don't hold them accountable.
'Other than the municipalities that have got clean audits, you've got the majority of municipalities with material compliance findings, mostly in the area of procurement and contract management. In a nutshell, it tells us that we do not yet have a culture, a state of control, procedures and even accounting mechanisms.
'Metros are not any better. And given their significant budgets, one would have thought that this area of procurement would enjoy tremendous attention by the people that hold the purse.'
Buffalo City's engineering crisis epitomised municipal dysfunction, the auditor general said, telling MPs: 'They have had a vacancy for district engineer responsible for electricity for 80 months — that's six years and eight months.'
An identical vacancy for sanitation engineering had remained unfilled for 24 months.
Maluleke said the financial mismanagement is systemic and deeply entrenched.
'This year 219 municipalities spent together R1.47 billion on consultants purely for the purpose of helping them compile financial statements. Last year we reported R1.37 billion so the number is not really changing.
'This is when there are CFOs [chief financial officers] in place and there are finance functions that are populated with people that have been appointed. We also note that municipalities that get disclaimers of opinion also still spend on consultants on average R6 million.
'Municipalities with adverse findings also spend on consultants. The ones with qualified audits also spend on consultants. It tells us then that the key question is: why is it that even when there's consultants being appointed, we still get bad quality submissions?'
She said her office had been asking this question for the past 10 years.
'The answer is that in most instances, the work of the consultant is not being reviewed. They say, well, there's 2% [of cases] where the consultants didn't deliver. But much of the problem is either consultants are appointed late, the underlying documents are not available or that their work is not being managed properly by the people that appointed them,' she said.
'What it tells you is that you've got CFOs and finance staff in place. They appoint consultants every year, and then once the consultant is there, they basically leave their desks. And so the consultant must engage with the auditors, which, in our view, tells a story about the culture and discipline more than even skills.'
'There is an element where the people under the CFO, there are some who are appointed and don't have the skill to do the basics. However, much of the problem, we believe in local government, especially in this area of overusing consultants, relates to discipline.'
Municipal debt continues to spiral out of control as many municipalities approve unfunded budgets.
'We see unauthorised expenditure, meaning that where you've got expenditure levels approved, people are spending beyond that … And of course, that then compromises the financial health of those municipalities. Many ended up with a deficit situation, and many have got major creditors that they don't pay, such as
She said suppliers and creditors to municipalities were waiting 286 days on average to receive money due to them, because cash flow had become very tight across many municipalities. Many of the suppliers then charged interest and penalties, much of which ended up as fruitless and wasteful expenditure.
The treasury's Eskom debt relief programme aimed at helping municipalities enter into a settlement arrangement with the power utility had failed.
'It's not working — 84% of the municipalities that participate in that programme are not complying with the conditions that they subscribed to. Again, in many instances, that's a discipline issue,' Maluleke told members of parliament.
The auditor general's report noted that cooperative governance and traditional affairs (Cogta) MECs, the minister and provincial legislatures were not doing their jobs in overseeing municipalities.
'The Municipal Systems Act provides that the MEC of Cogta must compile a report that analyses the performance of each municipality and that report must include remedial action that the MEC or municipality is undertaking and provide a report to provincial legislature every year on how municipality is responding,' Maluleke said.
'We have found those reports are either not done or if they are done they are done late; they are also either not tabled in the legislature and if tabled they are not dealt with in the legislature.
'We believe wholeheartedly that if MEC did their part they would not be lurching from crisis to crisis and if the legislature played their part they wouldn't be waiting for the AG to say there is a disclaimer here, they would be monitoring these movements as a matter of course.'
She said the minister of cooperative governance and traditional affairs's compilation report was often not done or done late.
'We have to get every single player in the ecosystem of accountability doing their part otherwise we will not arrest the decline of local government,' Maluleke said.