AG warns of collapse of Municipal finances

Auditor-General (AG) Kimi Makwetu has released the audit outcomes for local government for the period 2018-19.

He titled this report “Not much to go around, yet not the right hands at the till ” to reflect the state of financial management in local government. 

In his report the AG paints an undesirable picture of billions of rand in funds allocated to municipalities being managed “in ways that are contrary to the prescripts and recognised accounting disciplines”.

He strongly cautions that these administrative and governance lapses “make for very weak accountability and the consequent exposure to abuse of the public purse”.

The Auditor-General said there was again a regression in the audit outcomes.

Makwetu said countrywide, 32 municipalities submitted their financial statements late and the financial statements of six were outstanding by 25 March.

“Not only did the unqualified opinions on the financial statements continue to show a steady decrease from 47% to only 43% (and a significant drop from 58% in 2016-17), but the quality of the financial statements provided to us for auditing again showed no improvement from the previous year.”

Makwetu also said that municipalities spent R1.26 billion on consultants for financial reporting services, of which only 7% was as a result of vacancies in municipal finance units.

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This amount includes R522 million for consultant costs at municipalities with outstanding audits where financial statements were received.

He said that the financial statements show increasing indicators of a collapse in local government finances – “we assessed 79% of the municipalities as having a financial health status that was either concerning or requiring urgent intervention.

Just under a third of the municipalities were in a particularly vulnerable financial position”.

In the Eastern Cape, the AG’s report tells a story of a widespread lack of financial controls and project monitoring, an ongoing culture of a lack of accountability as well as a tolerance of transgressions, which resulted in a further regression in audit outcomes in the province – improvements were rare and the general trend over the past three years remained negative.

Eight municipalities were unable to adequately support the information reported in their financial statements and received disclaimed opinions .

Instead of the responsible and diligent financial management of the limited resources available, there were dysfunctional control environments; extensive disorder in accounting records; prolonged vacancies in key positions and instability in councils; poor procurement processes; no consequences for poor performance and transgressions; and unreliable reporting on municipal finances and programmes.

Kouga Municipality received an unqualified audit report with performance management issues preventing a clean audit.