Auditor-General (AG), Kimi Makwetu published the municipal audit report for the 2017-2018 financial year and right on the onset, things did not look good.
The overall results showed a steady decline in compliance and implementation of the AG’s recommendations from the previous financial year (2016-2017).
Although it was noted that irregular expenditure had decreased, it was equally alarming that only 8% of the 257 municipalities in South Africa registered clean audits, compared to 2016-17’s 14%.
Municipal audits: A snapshot of how bad things are
Makwetu raised serious concerns with the current state of our metros. Compared to the previous financial year, the outcomes of 63 municipalities regressed, while only 22 improved.
Of the 257 observed, only 18 municipalities managed to come out with “quality financial statements and performance reports, as well as complied with all key legislation, thereby receiving a clean audit.”
Makwetu also raised, with great concern, most municipalities’ inability to produce credible financial statements and performance reports.
“Not only did the unqualified opinions on the financial statements decrease from 61% to only 51%, but the quality of the financial statements provided to us for auditing was even worse than in the previous year. Only 19% of the municipalities could give us financial statements without material misstatements,” Makwetu said.
The AG also raised concerns around the difficult environment most officials of his office were forced to work in. Makwetu noted that in some municipalities, officials used fearmongering tactics to try and sway auditors to produce changed outcomes.
“The audit environment became more hostile with increased contestation of audit findings and pushbacks whereby our audit processes and the motives of our audit teams were questioned.
“In some municipalities, pressure was placed on audit teams to change conclusions purely to avoid negative audit outcomes or the disclosure of irregular expenditure, without sufficient grounds. Instances of threats to and intimidation of our auditors were also experienced in most of the provinces,” he revealed.
Audit results for each province
This is how each province performed in the audit process:
76% of municipalities in this province showed concerning financial health indicators and required intervention, a 10% increase from the previous financial year.
Only 5% of the municipalities registered clean audits, while 53% of them submitted financially unqualified financial statements.
However, the silver lining is that 96% of the province’s municipalities used the funds set aside by conditional grants for its intended purpose — infrastructure development.
This province, Makwetu noted, worried him the most. There were no clean audits registered for Free State.
14% of the municipalities that did comply with the audit process submitted financially unqualified statements, and not a single metro was found to be in compliance with legislation.
“The Free State local government environment displayed a total breakdown in internal controls as the province’s political and administrative leadership, yet again, exhibited no response to improve its accountability for financial and performance management.
“The leadership did not implement our recommendation to ensure stability and the filling of vacancies in key positions, despite their commitment to do so. This resulted in the significant deterioration of municipal audit outcomes, service delivery and financial health,” he explained.
The outcomes of Gauteng excluded Emfuleni since unrest in the municipal area prevented auditors from screening their books.
Midvaal is the only metro in the province that has sustained a clean audit outcome for a consecutive five-year period.
While the province registered 9% of clean audits, it commendably maintained its status as one of the few areas to score a 100% financially unqualified opinion.
Even a revamped administration could do nothing to improve matters in KwaZulu-Natal. 14 municipalities regressed, while only five recorded improvements in their financial standing.
Only one metro registered a clean audit, and irregular expenditure increased from R2.3-million in the previous financial year, to R2.9-million.
A slight improvement was seen in Limpopo, although, for the most part, this improvement “was consultant-driven rather than as a result of a concerted effort by the leadership to address internal control deficiencies.”
Not a single metro registered a clean audit and only 31% of them resulted in financially unqualified opinions.
Clean audits in Mpumalanga regressed from 10 in 2016-2017 to 5% in the observed financial year. Only one municipality registered an improvement, while nine showed signs of regression.
“Despite our strong message in the previous years, calling on both the local government and the provincial leadership to deal decisively with the accountability failures by stabilising local government (i.e. filling vacancies and capacitating local government) and implementing consequences for those who transgress governance laws, the province did not heed this message, resulting in these regressed audit results,” the AG noted.
Not much has changed in the Northern Cape. Only 3% of the municipalities registered clean audits and even more shocking, irregular expenditure shot up from R283-million in 2016-2017 to R586-million.
This province is on a downward spiral. These were the sentiments shared by the AG who noted that none of the municipalities registered clean audits. Only 5% received financially unqualified opinions and irregular expenditure sat at a whopping R3.2-billion.
While the Western Cape registered the highest percentage of clean audits, it was a great concern that this decline by 30% compared to 2016-2017.
In this period, irregular expenditure shot up to R667-million, while only 43% of the metros were found to be in compliance with legislature.
“We have observed that the lapses in controls in certain municipalities in this province were largely non-adherence to statutory submission dates of financial statements for audit, non-adherence to supply chain requirements in confined areas already identified and actioned by management only after the audit,” the AG said.