SALGA expresses its deep concern about the state of municipal finances detailed in the audit outcomes for local government for the period 2019/20

The South African Local Government Association (SALGA) wishes to express its profound sense of disappointment at what it sees as deteriorating levels of accountability in the recent audit outcomes of local government for the period 2019/20.  SALGA reiterates its calls made in the previous 2018/19 municipal audit outcomes for accountability and consequences for any malfeasance in the management of local government finances.

SALGA calls upon Mayors and Speakers to extract accountability and implement consequence management as empowered by the legislation, as well as National Treasury and Cooperative Governance and Traditional Affairs (COGTA) to exercise powers vested in them in terms of the Municipal Finance Management Act (MFMA).

It is SALGA’s position that where there are clear actions of fraud and criminality, it is the Mayor’s and the Speaker’s fiduciary duty to refer these matters to law enforcement agencies.

SALGA has in the past year succeeded in ensuring that the Municipal Structures Act as amended by Parliament gives powers to Municipal Public Accounts Committees (MPACs), similar to the Standing Committee on Public Accounts (SCOPA), to extract accountability and enforce consequence management. This should be done by instituting investigations on fraud and any other acts of criminality. SALGA welcomes the amendment and recommits itself in working closely with MPACs to extract accountability.

What must be done?

Councils must employ competent people and take appropriate steps where officials fail to carry out their responsibilities. Mayors and Speakers must hold the administration accountable and act decisively to implement consequence management and National Treasury and COGTA must implement measures as provided for in the Municipal Finance Management Act (MFMA) to extract accountability.

An analysis of the audit results paints a worrying picture about the state of municipal finances. The number of municipalities receiving unqualified audit outcomes has declined from 147 in 2016/17, 123 in 2017/18, 114 in 2018/19 to 116 in 2019/2020.  Although there is a slight improvement in the number of unqualified audits received by municipalities for the period 2019/20, the AG’s report, however, indicates an overall regression in comparison with the previous years, mainly due to the 57 audits which were not finalised by the cut-off date.

For audits which were finalised by the General Report cut-off date, there is a net improvement in audit outcomes of 30 municipalities with better audit outcomes compared to the prior year, with Limpopo (8 municipalities) and the Eastern Cape (6 municipalities) being the two provinces with the greatest net improvements in municipal audit outcomes compared to the prior year.

The magnitude and severity of the problem identified by the AG calls for decisive action and means that we as SALGA must persistently insist on municipalities to implement consequence management and enforce accountability.

Pockets of Excellence

However, beneath the surface of the gloomy picture there are pockets of excellence that should never be allowed to wither away under the weight of despair.  It is these pockets of excellence that must be used to draw lessons that can help us turn the tide of decline into a tide of progress.

The AG report shows that of the 200 municipalities that had finalized audits, about half (116) received unqualified audits, of which 27 of them received clean audits. These 27 municipalities are pockets of excellence whose success stories must be celebrated.  These 116 municipalities account for 77% of the overall local government expenditure budget. This is a clear reflection that even though there are challenges with financial management, Local Government is not completely dysfunctional in financial management if 77% of the Local Government sphere expenditure budget is under the control of Municipalities who have at the very least attained financially unqualified audit opinions.

SALGA would like to applaud and commend municipalities who have been exemplary in managing their finances and who have consistently achieved clean audit outcomes in the four audit cycles that have been completed in the current term of local government as well as those who have attained financially unqualified audit opinions.

Consumer debt throttles municipalities

One of the biggest challenges that has confronted local government over the past 20 years is that of municipal consumer debt.  The AG’s 2019/20 report continues to contextualize this problem and demonstrates how it affects municipal governments’ budgets, ability to render services and accounting processes. To illustrate the prevalence and pervasiveness of this across the country, on average almost 63% of the revenue shown in the books will never find its way into the bank accounts of the municipality.”  Hence 49% of municipalities have outstanding creditors that are greater than available cash at year-end.

Further to this National Treasury highlights that the aggregate municipal consumer debt stood at R230 billion as at 30 December 2020. This is the precarious financial environment in which municipalities find themselves, which contributes to the low collection rate, and thereby affecting their budgets. This underscores the call that SALGA has been making towards a review of the financing model for local government.

Consultants must pay back the money

Public money used must show return on investment and every cent must count. There is a worrying and growing trend of the use of consultants in municipalities for financial reporting purposes and yet some of the municipalities have nothing to show for it. The AG report has identified that “municipalities used consultants for financial reporting services at a cost of R1.02 billion” of public money. Yet, 59% (102) of financials submitted for auditing included material misstatements. This means that even when they hired consultants these municipalities could not finalise financial statements. This practice of using consultants for financial reporting must be stopped as it yields no results and seems to be used by officials and consultants to syphon money out of the vault.

SALGA will again be writing to all municipalities implicated to conduct investigations and act against any wrong doing found. Where nefarious intentions are found people must be held to account. Municipalities must name and shame those companies that are found to have robbed municipalities, report them to professional bodies like SAICA, black list them and demand refunds.

Demand accountability and enforce consequence management

The National Executive Committee (NEC) of SALGA at its meeting on the 24th June 2021 received a report on the 2019/20 MFMA Audit Outcomes from the Auditor-General and deliberated around the report and resolved on the following in terms of responding to the report:

  • To communicate directly with Mayors and Accounting Officers of Municipalities who have transgressed in terms of relevant legislation, in order to demand that Accountability and Consequence Management be extracted and actioned.
  • To communicate directly with Mayors and Accounting Officers of Municipalities to advise them not to unnecessarily or extensively utilise consultants but to rather capacitate their own internal staff to be able to undertake the work. SALGA to intensify financial management capacity building efforts so as to assist in reducing reliance on consultants.
  • To denounce and call out acts of blatant criminality such as was reported by the AGSA in their special audit on Covid19 funds. The AGSA to be formally requested to report back to NEC on cases involving criminality.
  • To publicly welcome and support the call of the AGSA for municipalities to apply preventative controls. SALGA should also highly encourage the application and use of the AGSA Preventative Control Guides.
  • A clear statement of intent be issued on the need for accountability and consequence management by Municipal Leadership and around extracting accountability from Municipal Leadership.
  • The SALGA President to meet with Ministers for CoGTA and Finance on issues raised and possible solutions.

Some of these NEC resolutions above are a re-affirmation of the prior year NEC resolutions. SALGA did communicate in writing to Municipal Managers who attained disclaimer audit opinions, adverse audit opinions and whose audits were not finalised after the prior year audit outcomes were released. The response by affected municipalities to SALGA’s communication directing them to exercise accountability and consequence management went largely unheeded and this was most disappointing. SALGA is therefore intensifying its resolve to extract accountability and consequence management from affected municipalities who do not exercise accountability and consequence management and will work with stakeholders who have the legislated powers to do so. In this regard. SALGA calls on National Treasury to invoke S216 of the Constitution against municipalities who do not exercise accountability and consequence management.

SALGA urges all municipalities which received negative audit outcomes to place emphasis on improving their control environment, to implement their audit action plans with AGSA recommendations and to do so with the requisite seriousness over the coming financial year.    SALGA also reaffirms its commitment to the AGSA to continue working with them in an effort towards improving the state of financial management and governance in local government and also applauds the Office’s continued efforts of highlighting the state of local government in managing the public purse as per MFMA prescripts and recommending improvements.

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