Auditor-General's findings on 2009/10 municipal audit outcomes highlight widespread failure to respect Constitution and deliver on basic human rights:

- Municipalities could not account for more than R10 billion in the year, with much of it potentially lost through fraud and corruption

- Failure to comply with public finance legislation and regulations is widespread

- 89% of municipalities did not comply with legislation on service delivery performance reporting and 24% of municipalities did not report at all

In the last week there has been much controversy regarding a report on municipal audit outcomes, with particular focus having been placed on allegations in the press that the report was returned to the National Treasury for it to be "repackaged" and not released in the run-up to the local government elections on 18 May 2011.  This has been strongly denied by government.  Whatever the truth, SECTION27 takes the view that this largely distracting sideshow has masked the real underlying issues.

If accurate, the media reports on Cabinet's response to the report dealing with or drafted by the Auditor-General (AG) - on the outcomes of municipal audits for the 2009/10 financial year - are troubling. 

We believe that what is necessary is an open and honest assessment on service delivery by local government, as it has a major impact on the lives of all people in South Africa in areas such as health, education, safety and secu rity.  In our view the full report should be made widely available, particularly in the days before the local government elections take place.

The focus on the dispute has drawn attention away from the damning findings of the AG.  Amongst other things they reveal that - 

• Of the 237 municipal audits reports currently available, only 57 showed some improvement; 164 remained unchanged and 16 had actually regressed; and
• The number of audit outcomes that show no improvement - or have regressed - will undoubtedly increase once the 46 outstanding audit reports are made available.  

Summary of the AG's findings

The AG's findings show that of the audit outcomes currently available, 22% of all municipalities received audit disclaimers in 2009/10.  An audit disclaimer is the worst possible audit outcome and shows that nearly a quarter of all municipalities cannot account for their expenditure at all. While this is an improvement on 2008/09, where 37% of municipalities received audit disclaimers, it is still an alarmingly high number.

In addition, 24% of all municipalities received either adverse or qualified audit opinions, which means that there were a number of significant problems with their financial management processes and their reporting on expenditure.

The AG found that there was widespread unauthorised, irregular, fruitless and wasteful expenditure; most municipalities were unable to monitor expenditure and revenue adequately; and many could not adequately account for capital assets su ch as machinery and equipment. A particularly troubling finding was that approximately R5 billion of expenditure was unauthorised and R4.1 billion was irregular. This means that nearly R10 billion of public funds could not be properly accounted for, with much of it potentially being lost through fraud and corruption.

In terms of compliance with municipal finance management legislation such as the Municipal Finance Management Act, the AG found - amongst other things - that - 

• 188 municipalities did not correctly assess revenue and expenditure;
• Officials such as the mayor and the accounting officer in 138 municipalities did not adhere to their statutory responsibilities;
• A failure to adhere to supply chain management regulations in 137 municipalities resulted in irregular expenditure;
• Audit Committees had not been established or were not functioning properly in 125 municipalities; and
• The internal audit unit was not established properly or functioning properly in 93 municipalities.

The failure of many municipalities to comply with public finance management legislation is symptomatic of broader failures at a national and provincial level to appropriately manage public resources and ensure that these resources are used to fulfil the state's constitutional obligations to deliver basic services.

The AG's findings also show that municipalities that received disclaimers, adverse or qualified audit opinions also failed adequately to report on service delivery performance.  The report reveals that 89% of municipalities did not comply with legislation and regulations on the service delivery reporting requirements and 24% of municipalities audited did not submit performance reports at all.

The AG also found that of those municipalities that did submit performance reports, 69% of all these reports contained information that was not useful and 48% of all reports contained information that was not reliable. This mean s that many municipalities have little knowledge of the services they are delivering, what the unmet need is and what must be done to expand and improve the delivery of basic services within their borders.

According to the AG's findings, leadership, governance and finance and performance management are key determinants in the quality of audit outcomes. In each of these respective areas, urgent intervention was necessary in more than 30% of all municipalities; in only about a third of municipalities were these key areas in fact contributing to the improvement of financial and performance management. Put differently, problems of leadership and administration are at the core of many of the municipalities' failure to account for the use of public resources and their ability deal with shortcomings.  

Conclusions

The AG's findings on the consolidated municipal audit outcomes reveal that while there is some im provement in financial management and reporting, the number of municipalities that cannot account for their revenue, expenditure and performance remains unacceptably high.  While there is little doubt that resources are scarce, the fact remains that dysfunctional municipal systems, administration and leadership prevent many municipalities from achieving the highest possible level of service delivery within available resources.

Local government is a crucial area of government service delivery and is closely governed by the Constitution and an array of laws.  It needs to be more closely monitored; provincial and national government must intervene where necessary. Claims to not know about the crises are not to be believed and can no longer be tolerated.  For these reasons, SECTION27 and several partners will be publishing an Activists Guide to Local Government in June 2011, which aims to empower communities to ensure that local government acts within the law.

Footnote:

[1] The Auditor-General's presentation on the report to the Select Committee on Cooperative Governance and Traditional Affairs is available at http://www.pmg.org.za/report/20110413-department-objects-local-government-municipal-systems-amendment-bill-

Statement issued by Daygan Eagar, Section27, May 17 2011

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