MUNICIPAL FINANCES - Auditor-general appalled by widespread non-compliance with legislation

• Published date: 01 July 2021
• Publication title: Business Day (Johannesburg, South Africa)

Parliamentary WriterThe financial position of just over a quarter of the 257 municipalities in the country is so dire that there is doubt that they will be able to continue meeting their obligations in the near future, the auditor-general says.

Tsakani Maluleke was commenting on Wednesday after tabling the consolidated general report on the local government audit outcomes for the 2019/ 2020 financial year in parliament. The report showed a deterioration in the audit results of local government with the number of clean audits declining.

"Almost half of the municipalities are exhibiting indicators of financial strain, including low debt recovery, an inability to pay creditors and operating deficits. The impact of municipal creditors not being paid is well known — it severely affects Eskom and the water boards, but is even more devastating for smaller suppliers," Maluleke said in a statement.

"The progressive and sustainable improvements required to prevent accountability failures, or to deal with them appropriately when they do occur, do not exist."

Also putting pressure on local government finances were nonpayment by municipal debtors, poor budgeting practices and ineffective financial management.

The number of clean municipal audits declined from 33 to 27, while fruitless and wasteful expenditure amounted to R3.47bn, a part of which was the loss of billions of rand because of interest and penalties.

Irregular expenditure amounted to R26bn with widespread non-compliance with supply chain management legislation being a contributor.

The actual amount of irregular expenditure is likely to be even higher, Maluleke noted, as the financial statements of more than a third of municipalities were qualified because of the incompleteness of their disclosure of irregular expenditure or because they were still investigating the full extent of it.

The auditor-general was also unable to audit contracts worth R1.43bn as municipalities did not provide the required documentation and evidence to support the procurement processes.

Maluleke noted that municipalities had done nothing to implement the auditor-general’s recommendations in the previous year’s report, such as introducing preventive controls.

She expressed concern that after all the years of the auditor-general reporting shortcomings and making recommendations, "municipalities have still not mastered the basics of financial reporting, with only 28% being able to submit quality financial statements for audit...