By Tsakani Maluleke
The recently released Municipal Finance Management Act (MFMA) audit outcomes once again evoked in our citizens waves of shock, unhappiness and deep disappointment. At the same time, it affirmed what citizens in the majority of municipalities experience daily.
This is the state of affairs that cannot be allowed to continue. Our message continues to be unheeded and institutions are left vulnerable and communities worse off. Admittedly, even for us, despite the annual reports, and in the face of a dwindling public purse coupled with rising levels of anger and frustration among our citizens, deteriorating audit outcomes are very disappointing.
Let me contextualise the picture, of the 257 municipalities audited, only 41 received clean audits. While this number has increased from the 33 clean audits issued five years ago, our report actually reveals that the audit outcomes have regressed in real terms. Overall, only 61 municipalities had a better audit outcome in 2020-21 than in 2016-17, with 56 now having a worse audit outcome.
Twenty-seven (27) municipalities were able to maintain their clean audit status throughout the administration, while 14 achieved a clean audit for the first time and six lost their clean audit status. A substantial number of municipalities with clean audits are district municipalities, rather than the metros and local municipalities that carry significant budgets and have the greatest impact on services delivery.
In the 2020-21 year, irregular expenditure not addressed amounted to R119,07 billion, unauthorised expenditure stood at R86,46 billion, while fruitless and wasteful expenditure amounted to R11,04 billion.
Firstly, clean audit outcomes continue to represent less than a fifth of the local government budget of an estimated R509 billion in 2020-21. Our audit outcomes are increasingly evaluated against the service delivery in a particular area. We know that a clean audit outcome is not always a confirmation of good service delivery and does not always directly correlate to the lived experience of all the communities in a municipal area; however, it does suggest that basic management disciplines are in place to deliver the services that our citizens are entitled to.
We have seen that municipalities that have introduced the controls and systems to plan, measure, monitor and account for their finances and performance, and to operate within the rules, often also have a solid foundation for service delivery that will benefit their communities. This provides these municipalities with opportunities to shift their focus to ensuring the delivery of services for the benefit of all their residents.
Had public officials, either elected or appointed, been doing their jobs consistently and effectively, these monies could have made so much difference in the lives of ordinary people.
Perhaps some of these funds could have been channelled toward building houses so that the number of people living in informal settlements could have been reduced and access to electricity, water and sanitation services could have improved.
As the country’s supreme audit office, we have been issuing consistent messages for many years, while also providing some possible solutions. Chief among these have been the role of leadership, the introduction of preventive controls and effective consequence management.
While as a Chapter 9 institution, we are mandated by the Constitution to provide independent assurance on the use of public funds, the most important thing for us as the national audit office is to see an improvement in the governance, accountability and leadership of our auditees so that citizens can indeed enjoy the better life that leaders have committed to deliver.
The watchdog role with which we have been bestowed should translate into a benefit for the people of our country, if we are to make the contribution envisaged by the Constitution.
The improvements that we advocate for are not impossible to achieve. Our work has demonstrated that where we see improvements in the capability and stability of leadership, we do see better audit outcomes and ultimately better service delivery.
In fact, a particularly good story from the report is the province of Limpopo, where the premier set an uncompromising tone and expectation that public office bearers had to do better on audit outcomes. This affirms something else that we have identified as a critical success factor. Audit outcomes cannot be improved by the Auditor-General of South Africa (AGSA) on our own. We are part of an accountability ecosystem and it is incumbent upon each role-player to support and complement the process.
The province of Limpopo is now an excellent case study in highlighting how to reverse the trend of deteriorating audit outcomes. Now that the foundation has been laid, the province must strive for consistency and further improvement in the capacity of municipalities and move away from over-reliance on expensive consultants as was the case in the previous year.
Another set of case studies has emerged from our sample of 10 municipalities that have, year on year, obtained repeat disclaimers. Through this process we have, among others, established clear correlations between bad financial management and service delivery.
In most of these municipalities we also observed leadership instability (both at political and administrative levels), poor oversight by councils, significant financial health problems, protests and strikes, a lack of consequences and ineffective interventions.
What is to be done?
As the audit office we have made a crucial call to action to municipalities for key areas to focus on to improve their outcomes and for the entire ecosystem to support them to realise this objective. These measures included:
recruit, retain and continually develop appropriately skilled and experienced officials in key positions of municipal manager, chief financial officer and head of supply chain management;
implement process, controls and systems that enable credible financial and performance
reporting for in-year monitoring and decision-making as well as transparency and
accountability on the finances and performance at year-end;
build and maintain a robust financial management culture that includes ensuring effective revenue collection, prudent spending as well as prevention and speedy recovery of financial loss and wastage. This is a culture that must be informed by strong leadership and strong tone.
there must be consequences for accountability failures - effected swiftly, bravely and consistently;
and partner with those in the accountability ecosystem that support the municipality and
implement their recommendations – this includes internal audit and audit committees, the AGSA and co-ordinating departments.
As we work towards encouraging the strengthening of the entire accountability ecosystem, which necessarily requires each of us to show up, we will be paying special attention to whether employees are doing their jobs and whether leaders in various entities are managing performance effectively so that citizens receive value for money.
The material irregularity mechanism remains an important tool that we use to convince accounting officers of the need to introduce, and more importantly, enforce preventative controls.
We notified 24 municipalities with repeat disclaimer audit opinions of material irregularities arising from the failure to maintain financial records as required by the law. Most failed to determine and articulate why they were unable to maintain proper records. More worrying is that only 21% of the municipal managers are taking appropriate action to address this material irregularity.
We have issued recommendations to the 14 municipalities that failed to provide adequate and appropriate responses to our material irregularities. We will monitor the implementation of our recommendations very closely going forward. If these recommendations are not implemented within the stipulated period, we will issue binding remedial action.
I am hopeful that despite the trends we have consistently seen in deteriorating audit outcomes, the time has arrived where leaders at all levels are cognisant that corrective actions must be taken to reverse this tide.
* Tsakani Maluleke is the Auditor-General.