Municipal review: poor audit outcomes

Metro municipalities' finances are in a very sorry state

Auditor-General Tsakani Maluleke did not hide her disappointment in the poor financial health of local government. Last week, in her Foreword to the MFMA Report 2023/24 she wrote that “[t]hree years into the administrative term, metros still struggle to take the lead in ensuring service delivery to all their residents in a financially responsible manner.”

In her local government report to Parliament last week, she questioned the competence of the financial officers and consultants employed by the municipalities, emphasising a lack of discipline and understanding of fundamental financial management and reporting principles.

The poor performance of the metros was starkly laid out: most suffered from overspending, poor financial controls, weak leadership, and inadequate revenue collection. Most are also serial offenders and have not implemented any of the Auditor-General’s recommendations.

The three Gauteng metros (Johannesburg, Tshwane and Ekurhuleni) performed particularly poorly, submitting unfunded budgets, underspending on maintenance, and generally relying on the Auditor-General’s office to obtain unqualified audit outcomes. For the three richest and most-resourced metros in South Africa this is an admission of failure and should be a source of embarrassment.

It was a particularly bad year for the metro municipalities, with four of the eight receiving qualified audits - the largest number ever. Three of the four metros are repeat offenders: Mangaung and Buffalo city have received six qualified audits in the last eight years, while Nelson Mandela Bay has received seven. Tshwane received its second qualified audit in two years, following on from an adverse audit in 2021/22.

Johannesburg and eThekwini received their eighth consecutive unqualified audit with findings and Ekurhuleni received its second consecutive unqualified audit with findings, a regression after three straight years of clean audits. Only Cape Town received a clean audit in 2023/24, its third consecutive clean audit.

The last three years of municipal audits cover the new governments that took office after the November 2021 local government election, although there has been a change in coalitions in Johannesburg, Ekurhuleni and Nelson Mandela Bay over this period. The decline in Ekurhuleni’s audit outcomes coincides with an ANC-led coalition taking over the metro, but Tshwane’s particularly poor audit outcomes since 2021/22 are a question for the DA, which controlled the metro from October 2020 until September 2024.

The final audits outcomes don’t tell the full story of the decline in financial discipline in the metros. A few audits weren’t finalised by the deadlines given over the last eight years and had to be concluded after the deadlines had passed.

The more important, general weakness in metro finance is just how much the Auditor-General’s office has had to assist, cajole and threaten the metros to complete their audits to a minimum standard, and how long most of the metros have ignored the Audit-General’s recommendations and repeated warnings. Johannesburg has the dubious honour of being the only metro that has relied on the audit process to receive unqualified audits for the last three years.

In other words, the Auditor-General’s office has had to do the remedial work of helping the metro repair their poor-quality financial statements and push Johannesburg over the line - doing the work that the metro’s financial department should have been doing throughout the financial year.

This fact highlights the gulf between an ordinary ‘unqualified’ audit and the actual clean audits that Cape Town receives and that Ekurhuleni used to receive. It also confirms that many municipalities, metros included, would receive worse audit outcomes if the Auditor-General’s office was not babysitting them.

Johannesburg initially tabled an unfunded 2023/24 budget and had to be supported by the Treasury in order to table a funded budget. Tshwane and Ekurhuleni adopted unfunded adjustment budgets in February 2024 - this was the third unfunded adjustment budget for Tshwane.

Tshwane’s poor revenue collection is the biggest reason for its poor budgeting: the metro wrote down 72% of its debt and had an average credit payment of 243 days - a full eight months.

Johannesburg was also the biggest source of unauthorised expenditure at R2.8 billion, with Tshwane at R2.2 billion and Nelson Mandela Bay at R1.4 billion. Johannesburg also had the largest water and electricity revenue losses, at over R7.8 billion, largely due to its decaying infrastructure. This was confirmed by Johannesburg’s record low spending on repairs and maintenance, at less than 1% of the value of assets (against Treasury’s norm of 8%). Tshwane and Buffalo City spent less than 2% of the value of assets.

Ekurhuleni had over R4.0 billion in water and electricity losses while Tshwane had over R3.8 billion in water and electricity losses. Tshwane was also responsible for the lion’s share of fruitless and wasteful expenditure: at R793 million it accounted for almost 85% of all fruitless and wasteful expenditure in the metros.

Johannesburg was also flagged by the Audit-General as having poor governance and financial controls, and was mentioned along with Ekurhuleni and Mangaung as the three metros with poor integrated planning, highlighting the lack of coordination between the metro and its municipal entities.

Tshwane and Mangaung have a question mark over their ability to continue operating as going concerns. This condition has persisted for four years in Tshwane and for over five years in Mangaung.

All the metros were flagged for having ‘concerning’ information technology controls, except for Mangaung whose controls were ‘poor’. Johannesburg improved from poor controls in 2022/23 to concerning in 2023/24.

Most metros did very poorly at combatting unauthorised, irregular, fruitless and wasteful expenditure. Johannesburg, Mangaung and Nelson Mandela Bay had not investigated any of this expenditure for three years, while Tshwane and Buffalo City had not investigated irregular expenditure for three years. The disciplinary boards in Johannesburg, Buffalo City and Nelson Mandela Bay did not investigate financial misconduct allegations, while Johannesburg’s board did not even monitor disciplinary proceedings.

The senior management in the metros failed to lead from the front. Mayors in Johannesburg, Tshwane, eThekwini and Mangaung did not address the issues that the Auditor-General raised in her reports.

Audit outcomes should have improved by now in the metros. The Auditor-General has been very clear about the path to financial health and stability, but her words have been largely ignored. The problems are not related to capacity but to a lack of political will: the Auditor-General noted that the provincial governments in Gauteng, Eastern Cape and Free State did not deal with their metros’ annual reports. If there is no desire at the provincial level to fix things or hold those responsible accountable, what incentive is there for delinquent local government officials to do the right thing?