Auditor-General Terence Nombembe buoyed by local government leaders whose commitment has resulted in their entities' improved audit results

13 Aug 2013

Three municipalities and three municipal entities improved their previous year's audit outcomes to progress to clean audit opinions in the 2011/12 financial year, while the local government audit results generally regressed in the year under review, Auditor-General (AG) Terence Nombembe announced today.

Clean audit opinions are achieved when the financial statements are unqualified and there are no reported audit findings in respect of either reporting on predetermined objectives or compliance with laws and regulations.

Leadership commitment sets the right tone towards improved audit results

Releasing his last general report on local government before his fixed seven-year term as South Africa's AG ends in November, Nombembe said the exemplary results of the three municipalities - the Western Cape's local municipalities of George, Langeberg and Mossel Bay - and the municipal entities - Johannesburg Fresh Produce Market (Gauteng), Durban Marine Theme Park (Pty) Ltd and ICC and Durban (Pty) Ltd (both in KwaZulu-Natal) - are commendable, as they prove beyond doubt that clean administration is achievable where there is leadership commitment.

The winning formula of these auditees, the AG said, was that their leadership led by example and made concerted efforts to resolve audit matters raised in their previous year's audit reports, "and their results are a testimony that where political and administrative leadership set the right tone and work together to implement and constantly monitor basic internal controls, good governance is achievable".

He said the next step in the march towards wholesale clean administration was for these auditees to work hard to sustain their clean audit status as done by their eight counterparts - the three district municipalities of Waterberg (in Limpopo), Ehlanzeni (Mpumalanga) and West Coast (Western Cape); the three local municipalities of Umtshezi (KwaZulu-Natal), Steve Tshwete (Mpumalanga) and Swartland (Western Cape); and the two municipal entities Fezile Dabi District Municipality Trust (Free State) and Johannesburg Social Housing Company (Gauteng) - who maintained the clean audit results they had received in the previous year.

Unfortunately the overall municipal audit results regressed instead of emulating the exemplary tone

Regrettably, the rest of the country's local government audit results are not that exemplary. Overall, the municipal audit outcomes have regressed, with only 48% of the auditees being able to obtain financially unqualified audit opinions, most of whom did so by correcting the mistakes identified through the audit process.

Local government consists of eight metropolitan municipalities, 44 district municipalities and 226 local municipalities (totalling 278 municipalities) as well as 60 municipal entities. The AGSA completed the audits of 317 (94%) of the 338 auditees that had submitted financial statements by 31 August 2012 (or by 30 September 2012 in the case of consolidated financial statements) within the legislated time frame of three months from receipt of the financial statements.

The AG's latest report shows that the progress towards clean audits has been slow, with the number of clean audits remaining at the same low level of 5% for the past three years, and the overall audit outcomes regressed, as 41 auditees improved, but 50 auditees regressed.

Moreover, almost half of the auditees that obtained a clean audit opinion were municipal entities, rather than municipalities. In the Free State, Gauteng and KwaZulu-Natal, almost all the clean audits were achieved by municipal entities, while in Limpopo, Mpumalanga and the Western Cape, all the clean audits were achieved by municipalities.

Unfortunately, the metropolitan municipalities faltered in their crucial role of providing exemplary leadership to smaller municipalities, as none of the eight metros obtained a clean audit opinion.

Government implements remedial actions, but these are still to yield the desired positive outcomes

Nombembe said although his office was aware of efforts by the national, provincial and local spheres of government, as well as oversight structures, to implement actions to address the root causes and remove impediments to total clean administration, these initiatives have not yet had the desired effect on audit outcomes.

Chief among the root causes of the poor audit results, the AG cited the lack of capacity in local government, which affected its ability to account for the public resources it has to administer on behalf of society. At 73% of the auditees, vacancies in key positions and key officials without the minimum competencies and skills continued to make it difficult for these auditees to produce credible financial statements and performance reports.

In order to fill this gap, 71% of the auditees depended on consultants to assist with financial reporting. Although capacity building and the professionalisation of local government is an ongoing, multi-year project, Nombembe said he was concerned that municipalities are not using all the opportunities available for skills development.

The AG also called for decisive action against political leaders and municipal officials that deliberately or negligently ignore their duties and disobey legislation. Such transgressors, he said, "should be decisively dealt with through performance management and by enforcing the legislated consequences for transgressions."

At more than 70% of the auditees, the lack of consequences for poor performance and transgressions slowed down improvement in local government audit outcomes. To help local government deal with transgressions, the AG's office has compiled a booklet on the legislation to be used in dealing with the wrongdoers.

"I also call on the councillors of 76% of the auditees where I have encountered slow responses in addressing the poor audit outcomes to prioritise their pursuit of the knowledge and skills they need to perform their oversight duties and insist on support from national and provincial government for their continuous development.

If councillors do not feel equipped and enabled to effectively oversee municipal administration, they will not be able to hold municipal management to account and enforce consequences for poor performance and transgressions.

They must also effectively and ethically apply the leadership skills that earned them the trust of their communities and strengthen their resolve to oversee and steer their municipalities towards achieving developmental objectives, adhering to legislation and accounting for actions in a credible and transparent manner.

Furthermore, there is a critical need to strengthen the municipal public accounts committees and support the important role they play, as this will further bolster the oversight mechanisms."

Improved audit results are still within reach, all it takes is an ethical leadership tone driven by commitment and a sense of service to the country

The AG said although progress towards clean audits is slow, he was encouraged by examples across the country where the commitment of leaders and officials has resulted in improved audit outcomes.

"I am confident that similar results can be achieved, from the smallest local municipality to the biggest metro. Those who progressed to and maintained clean audits have done so by consistently taking ownership of their municipal performance practices and insisting on adequately qualified staff and effective performance management practices. These simple basics can work for any municipality or entity - all it takes to instil these disciplines is the right, ethical leadership tone driven by a sense of duty and service to South Africans who patiently wait for services in the respective municipalities," Nombembe cautioned.

He said his office would continue to work closely with all those charged with governance and oversight as part of the drive towards the realisation of clean administration in municipalities in the country.

Summary of audit outcomes for current and prior year    

Progress made in the provinces towards obtaining clean audits    

Statement issued by the Auditor-General South Africa, August 13 2013

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