‘Hold municipal managers to account’ after decline in audit outcomes for Gauteng municipalities

Preventative controls and fast consequence management are needed in Gauteng municipalities because it is not at a level where it would improve their audit outcomes.

The province’s municipalities have been characterised by a decline in audit outcomes compared to the first two years of the previous administration’s term.

The Auditor-General of South Africa’s acting business unit leader for Gauteng, Dorothy Rampopo, says the institutionalising of these controls and enforcement of timeous consequence management in municipalities should be improved.

She was speaking at a briefing where she unpacked the Gauteng Municipal Finance Management Act No. 56 of 2003 (MFMA) audit outcomes. Only two municipalities obtained and sustained clean audit opinions. Audit outcomes initially saw municipalities produce good quality financial statements with Gauteng the only province without negative financial outcomes.

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Managers in Gauteng municipalities must be accountable

“We urge councils and municipal public accounts committees to hold municipal managers accountable so that funds are used to enable quality basic service delivery. Going forward, we will closely track the commitments from key provincial leaders.

“This includes the premier’s commitments to provide greater oversight of municipalities through the provincial cooperative governance and local government department, and the provincial treasury, to establish a war room focusing on improving municipal outcomes and use the premier’s coordinating council to drive consequence management and accountability with the goal of having a sustained impact on service delivery.”

The provincial treasury has also committed to conducting internal audit reviews at municipalities, training supply chain management officials and municipal public accounts committee members, and intensifying support to struggling municipalities.

She said over the past three years, municipalities saw qualifications emerging, with Rand West City receiving a qualified opinion for the second consecutive year in 2020-21, while Merafong City did not submit financial statements by the legislated date and regressed to an adverse opinion.

“It is commendable that the City of Ekurhuleni sustained a clean audit outcome for two years in a row and Midvaal for the past eight, as this indicates sound governance practices, institutionalised disciplines and effective preventative controls.”

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Everyone must be vigilant

Rampopo said to realise significant improvement in outcomes, all role players in the local government accountability ecosystem should diligently play their part to ensure accountability for government spending and improving service delivery as well as the quality of life for South Africa’s citizens.

“Councils and municipal public accounts committees must hold municipal managers accountable so that funds are used to enable quality basic service delivery.”

Rampopo noted that there is a significant reliance on the audit process to produce quality financial statements, despite the fact that Gauteng has access to an abundance of skilled personnel, especially at metro level.

Of the 11 statements submitted for municipalities, six needed to be corrected through the audit process, with an additional two municipalities receiving qualified and adverse opinions, respectively. “If the audit process did not provide this opportunity, the province would only have been able to produce three unmodified opinions.”

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Money spent on consultants in Gauteng municipalities

Gauteng spent R919,11 million on consultants for certain elements of financial reporting since 2016-17, with the City of Tshwane Metro spending most of this amount to produce a compliant fixed asset register.

“It is of great concern that material corrections on fixed assets had to be made in the submitted financial statements. Our call is that municipalities need to ensure that expenditure on consultants is done prudently with adequate monitoring, including ensuring that there are adequate skills transfer from consultants to officials.”

Rampopo added that they should not be introduced late in the process, but to institutionalise the disciplines throughout the year to ensure the process is effective and adequate value is derived.

“We have seen a regression in performance reporting, as eight municipalities (City of Johannesburg, City of Tshwane, Sedibeng, West Rand District, Emfuleni, Lesedi, Mogale City and Rand West City) did not publish credible performance reports, which negatively affected the ability of both municipalities and residents to properly assess services promised to by the administration.”

The City of Johannesburg and the City of Tshwane incurred a combined R3,82 billion (85% of the total at municipal level) in irregular expenditure, while City Power incurred R1,03 billion (50% of the total at municipal entity level). These amounts represent 5%, 19% and 20% respectively of these auditees’ adjusted total capital and operational budgets (excludes expenditure on salaries and bulk purchases).

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Irregular expenditure

“Irregular expenditure increases the risk of funds meant for service delivery being misused. We again call on oversight structures to ensure that they promote a culture of accountability and consequences by fast-tracking investigations into unauthorised, irregular, and fruitless and wasteful expenditure and holding those who are liable to account,” Rampopo says.

“We remain concerned about non-compliance with legislation in the province, with little improvement year-on-year. Consequently, the closing balances of unauthorised, irregular, and fruitless and wasteful expenditure continued to increase, mainly due to additional amounts being incurred and the previous balances not being investigated promptly and resolved.”

The financial health of all municipalities in the province remained concerning, she pointed out, as revenue collection remained poor, despite post-covid-19 recovery measures being implemented. “In recent years, the three metros, which are responsible for 88% (R120,54 billion) of the provincial local government budget and service approximately 4,82 million households, have used listed bonds as part of their funding model.”

Rampopo warned that the recent downgrade by ratings agencies will make it more difficult and costly for them to obtain the capital they need for key infrastructure projects.

The poor financial position of some municipalities also contributed to low levels of spending on maintenance of infrastructure assets with most nearing and/or exceeding their useful lives, which negatively affected the quality of services received by citizens.