- Auditor-General Tsakani Maluleke has released her annual report on the audit outcomes of SA's 257 municipalities.
- The report makes makes for grim reading, with the AG warning that a quarter of SA's municipalities do not make enough revenue to cover their expenses.
- Maluleke said that half of municipalities were not investigating reports of possible wrongdoing, as irregular expenditure reached R26 billion.
There are "indications of a collapse" of the financial health of South Africa's municipalities that provide residents with electricity, water and vital basic services, according to a new report by Auditor-General Tsakani Maluleke.
Maluleke released her annual report on the audit outcomes of SA's 257 municipalities for the 2019/20 financial year on Wednesday.
She said "drastic changes" were needed to ensure that the "dwindling funds available to deliver services to citizens" are used effectively.
Here are seven key takeaways from her 150-page report.
1. One in four municipalities face financial ruin
The AG found that the financial position of just over a quarter of municipalities was so dire that there is "significant doubt that they will be able to continue operating as a going concern in the near future".
"This effectively means that such a municipality does not have enough revenue to cover its expenditure and owes more money than it has."
Roughly half of the country's other municipalities exhibited indicators of financial strain, such as "low debt recovery, an inability to pay creditors, and deficits".
2. Irregular expenditure reached R26 billion and is not being investigated
While municipalities racked up R26 billion irregular expenditure, the true amount is expected to be higher as investigations are still ongoing, the report noted.
As concerning to the office of the AG was the fact that half of SA's municipalities were not investigating irregular expenditure of previous years, contributing to a cycle of non-accountability.
"Municipalities' disregard for effecting consequences is also clearly shown in their lack of investigations and actions in response to our findings on potential fraud and abuse of the supply chain management system."
As Fin24 reported last week when the AG briefed Parliament, Maluleke also couldn't say what happened to about R5.5 billion in funds that flowed through 22 municipalities that received disclaimed audit opinions.
"Nobody's reporting, nobody's accounting, and nobody really knows for sure what has happened to this money," she said to the shock of MPs.
3. 'Serious health risks' from lack of maintenance
The AG found that only 2% of the budget of municipalities was being used for maintenance, far lower than the norm of 8%. Meanwhile, salaries and wages made up 46% of the revenue.
The lack of proactive maintenance was degrading vital assets, including wastewater treatment plants.
For example, in the Madibeng municipality in the North West, "poor or non-existent" maintenance of wastewater infrastructure had lead to overflows and spillages, posing "serious health risks to the receiving communities".
4. Some municipalities do not pay over tax to SARS
The report noted that some municipalities were in such as poor state that they did not pay taxes such as PAYE and VAT to the South African Revenue Service (SARS), or transfer contributions to the pension funds of their employees.
5. Overuse of consultants
Maluleke slammed the overuse of consultants, particularly by the financial units of municipalities which are mean to compile audit reports.
Over R1 billion was spent on consultants in the 2019/20 financial year, ostensibly to help local government officials compile financial statements.
Of particular concern to the AG was the trend of municipalities relying on consultants to do work that should be done by staff.
"Financial reporting consultants have become permanent features in the financial reporting processes of municipalities – 74% of municipalities that had used consultants in 2018/19 again used them in 2019/20."
6. Disclaimed audit opinions and non-reportage
The AG said that despite a concerted effort to help municipalities better manage their finances, 22 municipalities still received a "disclaimer of audit opinion".
The true number of disclaimed audits will be higher, she said, as audits for 25 municipalities could not be completed, mainly because they had not submitted documents.
According to the AG, disclaimed opinions are given when municipalities cannot account for "most amounts and disclosures in their financial statements".
7. Govt employees are still trying to do business with the state
The AG found that despite the fact that it was illegal for the state employees to do business with the government, around a quarter of municipalities were still caught out by state employees making "false declarations".
Many contacts were still being awarded without the "necessary declarations of interest", she said.
At 16% of municipalities, meanwhile, the AG found evidence that suppliers owned or managed by close family members of employees of municipality had made false declarations.