South Africa: Audit Outcomes for Municipalities Worsening

A large majority of the country's municipalities continue to disregard Auditor-General Kimi Makwethu's recommendations, resulting in worsening financial positions, he has announced.

Makwethu made the revelation while releasing the 2017/18 Consolidated General Report on the Local Government Audit Outcomes in Pretoria on Wednesday. The AG audited 257 municipalities and 21 municipal entities during this financial year.

The report reveals that of the country's 257 municipalities, only 18 (8%) received clean audits - a decline from the previous year's 14%. About 12 of these municipalities were in the Western Cape, while KwaZulu-Natal, Gauteng and Eastern Cape each had one municipality with a clean audit.

Addressing reporters, Makwethu said: "Since the current local government administration took office, the governance issues affecting municipalities have consistently been flagged with them in various formats, including individualised meetings with the leadership and through the AG's 2016/17 general report, but the latest set of results indicates that this constant advice has largely been ignored."

According to the report, municipalities recorded a decreased irregular expenditure of R25 billion, compared to R29 billion in the previous year.

In the report, Makwethu notes that accountability in local government continues to decline.

"Of the audited municipalities, the audit outcomes of the 63 regressed while those of 22 improved. Only 18 municipalities managed to produce quality financial statements and performance reports, as well as complied with all key legislation ... This is a regress from the 33 municipalities that received clean audits in the previous year," Makwethu said.

The AG in his address also bemoaned the poor quality of submitted financial statements and performance reports, saying these were crucial to enabling accountability and transparency.

Unqualified opinions on financial statements decreased 51% from the previous year's 61%. The AG reported that 92% of the municipalities recorded non-compliance with key legislation, an 85% increase from the 2016/17 financial year.

"Municipalities with material compliance findings on supply chain management increased from 72% to 81%. Both these are the highest percentages of non-compliance the AGSA has reported since 2011/12," he said.

Although irregular expenditure had decreased, Makwethu said the figure could be much higher as R4 billion was of those municipalities whose audits had not been completed by the cut-off date of the report.

"In total, R17.3 billion (81%) of the irregular expenditure related to expenses incurred in 2017/18 - representing 5% of local government expenditure budget.

"This total includes R6.4 billion in payments made on contracts irregularly awarded in previous years - if the non-compliance was not investigated and condoned, the payments on these multi-year contracts continue to be viewed and disclosed as irregular," he said.

Makwethu bemoaned the continued lack of consequences for transgressions and irregularities, saying there continued to be a failure to investigate findings.

The AG said 74% of municipalities did not adequately follow up allegations of financial and supply chain management misconduct and fraud, while 45% of councils did not have the required mechanisms for reporting and investigating.

The AG said the governance lapses in local government could only be turned around if leadership takes the lead in the drive towards clean administration in the public sector.

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