Ineffective governance at centre of municipal dysfunction – IoDSA

Poor governance lies at the heart of municipalities’ lack of service delivery and president Cyril Ramaphosa also correctly identified governance failure as one of the reasons for the poor performance of the vast majority of South Africa’s municipalities in his State of the Nation (Sona) speech, Professor Parmi Natesan, CEO of the Institute of Directors in South Africa (IoDSA), says.

“The president indicated that moves are afoot to professionalise the civil service which, if they bear fruit, will go a long way to solve the service delivery crisis we face. The IoDSA has been calling for the professionalisation of the civil service for a while and as King IV clarifies, appointing the right calibre of leaders is the first prerequisite for a competent organisation,” Natesan said.

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King IV on municipal governance

King IV, or the King Report on Corporate Governance, is a voluntary set of principles and recommended practices for South African-based organisations to create an ethical culture, improve performance and increase value, ensure adequate and effective controls, build trust between stakeholders, ensure a good reputation and ensure legitimacy in the organisation.

Natesan says King IV’s supplement for municipalities urges councils to ensure they have access to “professional independent guidance on corporate governance and its legal duties” and that it appoints a competent municipal manager.

“As King IV emphasises, specialised and in-depth governance expertise is required to ensure that any entity’s governance fulfils its primary aim of ensuring the organisation operates ethically and effectively.”

She points out that Principle 7 of King IV states the governing body should include the appropriate balance of knowledge, skills, experience, diversity and independence for it to discharge its governance role and responsibilities objectively and effectively.

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AG report on material irregularities in local government

On Friday last week the Auditor General (AG), Tsakani Maluleke, submitted her Material Irregularities (MI) in Local Government report to the Portfolio Committee on the Auditor General in parliament and said that South African municipalities accrued almost R5.2 billion in material losses due to irregularities that include non-compliance with financial regulations and suspected fraud.

According to the report 268 material irregularities were flagged from 170 auditees in the 2021/2022 financial year that led to losses, harm to public sector institutions and the public. The AG defines material irregularities as any non-compliance with or contravention of legislation, fraud, theft or a breach of a fiduciary duty identified during an audit that resulted in or is likely to result in a material financial loss, the misuse or loss of a material public resource, or substantial harm to a public sector institution or the general public.

The AG found 194 instances where irregularities led to material financial losses, amounting to R5.19 billion. These irregularities include:

• payments for goods and services not received
• unfair, uncompetitive or uneconomical procurement
• ineffective use of consultants
• value for money not received
• revenue not billed or not recovered
• interest and penalties on late or non-payments and
• asset and investment losses.

The AG also found 44 instances where “substantial harm” was done to public sector institutions due to repeated disclaimers and not submitting financial statements.

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Clear example of ineffective governance

Natesan says this clearly shows how ineffective governance lies at the heart of municipal dysfunction. “Poor governance leads to defective financial reporting and, therefore, a lack of accountability.”

She points out that the AG has frequently noted that municipal audit committees lack the skills needed to oversee council finances properly.

“Inefficient use of information technology is also a problem. Given technology’s role in promoting efficiency and cost-effectiveness, its governance has become a key agenda item for governing bodies, including councils, as indicated in King IV. The governing body should govern technology and information in a way that supports the organisation setting and achieving its strategic objectives.”

One of the key problems faced by the public sector as a whole, including municipal councils and state-owned enterprises, is the appointment of unqualified individuals, Natesan says.

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People who are fit and proper to serve must be appointed

“The state has to adopt best practice and appoint individuals who are fit and proper to serve, but who also have the proper level of skills, including proper governance knowledge. Councils run complex operations and have massive responsibilities and must appoint councillors with that in mind.”

The IoDSA has constantly warned that appointments made on political or other improper grounds are the root cause of the challenges hamstringing the state at all levels.

“Therefore, we regard the professionalisation of the civil service as a priority to revitalise service delivery and return municipalities to financial and operational health. The important first step is to ensure that they are ethically and effectively led and that means appointing the right people to these boards,” she says.