BusinessTech 1 July 2020
Auditor-general of South Africa, Kimi Makwetu has published his local government audit outcomes for 2018-2019, showing the results for 257 municipalities and 21 municipal entities countrywide.
In its annual audits, the Auditor-General South Africa (AGSA) examines the following aspects:
- Fair presentation and absence of material misstatements in financial statements;
- Reliable and credible performance information for purposes of reporting on predetermined performance objectives;
- Compliance with key legislation governing financial matters The audited institution achieves a clean audit when its financial statements are unqualified, with no findings in respect of reporting on predetermined objectives and compliance with legislation.
The report shows that there was again a regression in the audit outcomes under the current local government administration, now in its third year.
Over the three-year period, the audit outcomes of 76 municipalities regressed, while only 31 improved.
Makwetu said the level of fruitless expenditure remains high at R2.07 billion.
“When looking across the board and after carefully analysing the financial statements we audited, we can safely conclude that local government does have sufficient money and assets to fulfil most of the basic needs and aspirations of its citizens,” the AG said.
“But a lot of work is needed to make sure that this is realised. Proper administration and superintendence over the financial affairs of local government were not exercised and were found, through this audit examination, to be seriously lacking with some devastating consequences already evident in certain identified areas.”
The graph below provides a breakdown of audit outcomes per province.
Below is a summary of the audit outcomes from all nine provinces. The provinces are listed in alphabetical order.
You can find a more detailed breakdown of the province’s financial data here.
The report highlighted 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 Eastern Cape.
It noted that improvements were rare and the general trend over the past three years remained negative.
The report indicates irregular expenditure of R2.5 billion incurred during the year under review. A further R4.2 billion was flagged for audits finalised subsequent to the report’s cut-off date.
The report shows that the audit outcomes in the Free State continued to regress for the third consecutive year.
Ten municipalities did not submit financial statements on time – even more than in prior years, which resulted in eight audits not having been completed by the time of the AG’s general report.
The province’s irregular expenditure totalled R1.4 billion for the year under review. A further R341.6 million in irregular expenditure was identified in audits finalised subsequent to the cut-off date for this report.
The report shows that Gauteng has ‘held steady’ with all municipalities again maintaining their good audit outcomes.
This was the only province in which all the municipalities had unqualified audit opinions, but as in prior years only Midvaal obtained a clean audit opinion.
Irregular expenditure in this province amounted to R1.7 billion for municipalities.
A further R3.3 billion was reported for audits finalised subsequent to the cut-off date for this report, with the City of Tshwane Metro, accounting for R2.9 billion of this amount and Emfuleni R358 million.
There was little change in the audit outcomes of the province, accountability was not adequately practised and enforced by leadership, and the failure of key controls continued, the AG said.
Most district municipalities continued to struggle with basic financial and performance management processes, displayed a lack of responsiveness to implement and monitor action plans, and had weak governance structures that did not enable effective accountability.
The impact of this is evident in the increasing irregular expenditure, reported at R6.5 billion for the period under review, with eThekwini Metro incurring R2.34 billion of this amount.
A further R17.2 million in irregular expenditure can be attributed to audits finalised after the cut-off date for this report.
Six municipalities in the province improved their audit outcomes and three regressed.
The improvements were mostly consultant-driven, but despite the province having spent a total of R249 million on consultants for financial reporting purposes, many municipalities continued to receive qualified opinions. Of this, R127 million was spent by municipalities whose audits had not been finalised by the cut-off date of the report.
The report also highlighted that the impact of the R1.2 billion loss following the liquidation of VBS Mutual Bank is still being felt by the municipalities concerned, where service delivery has been affected.
The province’s irregular expenditure totalled R1.5 billion for the year under review. Another R594 million in irregular expenditure was reported for audits finalised after the cut-off date for this report.
Deteriorating accountability and financial management coupled with weakened oversight is at the centre of the significant regressions in audit outcomes in the province – six municipalities regressed and only two improved.
There was a breakdown in internal control across various municipalities, which included basic financial disciplines such as record keeping, reconciliations and verifications.
The province’s irregular expenditure totalled R1.09 billion for the year under review. A further R358 million was flagged for audits finalised subsequent to the cut-off date for this report.
The province is in a prolonged state of undesirable audit outcomes, with yet another overall regression – six municipalities regressed and only three improved.
For the year under review, the municipalities in the province incurred irregular expenditure totalling R390 million.
The province spent a total of R47 million on consultantcy costs for financial reporting. Of this amount, R12 million related to audits finalised after the cut-off date for the report.
Despite the overall poor performance of municipalities in the province, a handful of municipalities continued to deliver good audit results, including the John Taolo Gaetsewe district municipality which achieved a clean audit outcome.
The regression in audit outcomes completes a three-year downward trajectory in the province: nine municipalities received disclaimed opinions and eight received qualified opinions.
The inability of the province to reverse the trend of negative audit outcomes points to a culture that is not proactive in dealing with control weaknesses flagged in prior years, the AG said.
For the year under review, the municipalities in the province incurred irregular expenditure totalling R3.7 billion, with a further R1.8 billion relating to audits finalised after the cut-off date for this report.
The largest concentration of clean audits remain in the Western Cape (45%), with 93% of the province’s municipalities receiving unqualified opinions on their financial statements.
Eight municipalities retained their clean audit status – six of which have maintained this status for the past five years, or longer.
For the year under review, the municipalities in the province incurred irregular expenditure totalling R2.7 billion.