IT’s that time of the year when the auditor-general (AG) has to report on the outcomes of audits for municipalities. The fact that the AG has raised the bar in terms of the depth and scope of issues that are probed has over the past few years caused the accounting officers of municipalities to be anxious during this time.
In much the same way as pupils have to show the results of the work they undertook during the school calendar year in the form of a report card, municipalities face a similar outcome when the AG produces the audit-management letter.
The year that was is now in the spotlight for municipalities. The 2015/16 financial year was a tough one for local government in general, due to a number of internal and external factors.
The slowing economy of South Africa and globally has had an impact on the revenue base of municipalities. The conversion of billing to cash cycle is now longer due to late and partial payments or even worse – consumers have simply stopped paying their municipal accounts. This has steered municipalities into a bumpy road of low-cash balance as the municipal account payment-level declines. Overall cash collection of the smallest and largest municipalities has fallen significantly below targets and customer debt has increased.
On August 3, local government elections were held to end the five-year term of erstwhile political administration and usher in a new administration.
The outcome of the local government elections has produced a new landscape where the largest municipalities in the country have shifted from the administration of the ANC to the DA.
Despite all the activities that are taking place in the local government sphere, municipalities are expected to weather all the challenges and put their best foot forward. In fact, the local government system has been tested rigorously, it has proved to be resilient and is not about to falter due to any endogenous or exogenous factors.
The reality is that section 188 of the constitution has cast in stone that the AG must perform audits on “all national and provincial state departments and administrations and all municipalities”.
Audits are necessary to bring out the challenges within municipalities and to raise areas of improvement. In the terminology of the AG, a performance audit “is an independent auditing process to evaluate the measures instituted by management to ensure that allocated resources are procured economically and utilised efficiently and effectively and, if necessary, to report thereon”.
Municipalities have to face this evaluation annually to ascertain where they are in relation to where they should be in the state of the financials, set objectives and compliance with legislation.
The current AG, Kimi Makwetu, has noted that there has been a general improvement in the audit outcomes of municipalities over the 2010/11 to 2014/15 period. Having entered a new five-year term and the new administration having settled into office, the audit outcomes of 2015/16 will be released under their watch.
Effectively, the new administration of the municipality shall inherit a report card which they are not responsible for but will have to account for. Given the improvements in local government over the past five years, can we expect that this momentum shall carry through to this year or even beyond the current term of office? This is what everyone is waiting for with baited breath.
It would be fair to expect that municipalities which have managed to establish a sound base of good performance should continue to show good outcomes. Municipalities that are showing signs of emerging from their challenges should display further signs of shaking off the issues that are pulling them back.The municipalities which are riddled with challenges should equally turn out glimmers of improvement.
This is perhaps a perfect picture and should be expected since municipalities have been running for just under over a decade-and-a-half. On a national level, the performance of municipalities shows a picture of acceptable performance. When measured in expenditure terms, the AG found that those municipalities that wield 39% (R139 billion) of the total buying power of R347bn have achieved a clean audit, 41% (R143bn have notched up unqualified opinions with findings, 14% (R49bn) have qualified audit opinions and 6% (R20bn) have been found to have adverse and disclaimed opinions.
When drilling down to the provinces, districts and local level, the picture changes significantly to being deplorable.
The Western Cape leads Gauteng and KwaZulu-Natal with 73% of municipalities with a clean audit, with Gauteng at 33% and KZN 30%. Municipalities in the Eastern Cape, Free State and Mpumalanga generally seem to have their star on the rise while Limpopo, Northern Cape and North West are still stuck in the mud to varying degrees.
Perhaps to sum up the picture of the performance of municipalities, it can be said that there is a category of the municipalities that are “good”, those that are not “bad” and those that display the “ugly” picture of local government.
The pertinent question that must also be answered is: “Which category does your municipality fall into?”
The good in this categorisation is a clean audit, the “not bad” is the financially unqualified audit opinion and the ugly ducklings being the qualified audit opinion, adverse audit opinion and disclaimer of audit opinion.
This pattern above seems set to repeat itself a number of times; each showing marginal improvements in the audit outcomes on the one hand, and devastating deterioration on the other. The good performance of municipalities can be ascribed to good leadership and proper management practice. The failure is a combination of the former and the latter, with other factors that are technical in nature and have to do with management skills and knowledge of subject area coupled with experience in that area. The truth is that over the years, municipalities through the AG receive a report card that details their areas of failure yet they continue to fail in the same areas. The new administrations must accept that between August 3 when they were voted into office and now, there is very little that they can do to change the outcomes of this year.
However, there is a lot that new administrations can do to alter the direction of their municipalities to reach a clean audit status.
As the word “clean” suggests the administration and service delivery follows the definition which states “free from marks, blemishes or stains”.
In local government terms, this means that the municipality is collectively serving the people and consumers in the right way by managing the finances of the municipality, spending the money productively.