PROVINCIAL OVERVIEWS - AGSA

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PROVINCIAL OVERVIEWS                                                06

110           Consolidated general report on the local government audit outcomes • MFMA 2019-20
PROVINCIAL OVERVIEWS                                                                                                       06

 In this section, we provide an overview of the results and reflections per province with a
 focus on the current state of financial health as well as the financial and performance
 management of municipalities.

 We include the following:

 •   Overall audit outcomes per province
 •   Status of outstanding audits and outcomes of those audits finalised after the cut-off date of 23 April 2021 up
     to 4 June 2021
 •   High-level summary of each province’s performance, including audit outcomes per district

 Every province has a unique set of circumstances and diverse solutions to their problems, but the need for
 leadership – also at provincial level – to step up and turn the tide, remains transversal.

AUDIT OUTCOMES PER PROVINCE

                                         LP                                        Unqualified                Adverse
                                                                                   with no findings           with findings
                         NW          GP MP
                                                                                   Unqualified                Disclaimed
                             FS               KZN                                  with findings              with findings
                  NC

                                                                                   Qualified                  Outstanding
                             EC                                                    with findings              audits
              WC

EASTERN CAPE (EC)            2                      15                                 14             2   4        2

FREE STATE (FS)                  4                  11                     8

GAUTENG (GP)             2               7              11                 8

KWAZULU-NATAL (KZN) 2                                             32                                          14              1 3   2

LIMPOPO (LP)             1                          13                 7           1    5

MPUMALANGA (MP)              3       2        3     2 1           9                1

NORTHERN CAPE (NC)           3            6                  10                1            11

NORTH WEST (NW)          1           6              3             12

WESTERN CAPE (WC)                             14                           9                     7

 SECTION 6: PROVINCIAL OVERVIEWS
                                                                                   4
                                                                                                                                    111
OUTSTANDING AUDITS

               Cut-off date for inclusion of the audit outcomes in this report is 23 April 2021

 REASONS FOR 25 OUTSTANDING AUDITS

 Financial statements submitted late - 9 (36%)                                 Auditee delays - 10 (40%)

 Financial statements outstanding - 5 (20%)                                    Audit delays - 1 (4%)

 RESULTS OF 32 AUDITS SUBSEQUENTLY FINALISED AS AT 4 JUNE 2021

        7                  14            1           10                                                         6       4

                                                                                              2019-20
                                                                                          AUDIT OUTCOMES
      AUDITS SUBSEQUENTLY FINALISED
                                                   MOVEMENT                                                  Compliance
            AS AT 4 JUNE 2021                                                   Audit        Performance
                                                                                                                 with
                                                                               opinion           report
                                                                                                              legislation
EASTERN CAPE
Great Kei                                                 
FREE STATE
Mangaung Metro                                            
Mantsopa                                                   
GAUTENG
Emfuleni                                                   
KWAZULU-NATAL
Ugu District                                               
Nquthu                                                    
LIMPOPO
Mopani District                                            
Greater Tzaneen                                           
Lepelle Nkumpi                                            
MPUMALANGA
Gert Sibande District                                     
Dipaleseng                                                 
Emalahleni                                                 
Lekwa                                                      
Nkomazi                                                    
Dr Pixley Ka Isaka Seme                                    
City of Mbombela                                          

                                     Improved            Unchanged        Regressed

  Unqualified           Unqualified      Qualified             Adverse            Disclaimed      Outstanding
                                                                                                                     Findings
  with no findings      with findings    with findings         with findings      with findings   audits

112                                          Consolidated general report on the local government audit outcomes • MFMA 2019-20
2019-20
                                                                                      AUDIT OUTCOMES
     AUDITS SUBSEQUENTLY FINALISED
                                                MOVEMENT                                                Compliance
           AS AT 4 JUNE 2021                                                Audit        Performance
                                                                                                            with
                                                                           opinion           report
                                                                                                         legislation
NORTHERN CAPE
Magareng                                               
Richtersveld                                           
Ubuntu                                                 
Umsobomvu                                              
Kgatelopele                                            
!Kheis                                                 
NORTH WEST
Ngaka Modiri Molema District                           
Matlosana                                              
Lekwa Teemane                                          
Madibeng                                               
Mamusa                                                 
Ramotshere Moiloa                                      
WESTERN CAPE
Beaufort West                                          
Kannaland                                              
Laingsburg                                             
Matzikama                                              

                                   Improved        Unchanged          Regressed

   Unqualified         Unqualified     Qualified           Adverse             Disclaimed      Outstanding
                                                                                                              Findings
   with no findings    with findings   with findings       with findings       with findings   audits

SECTION 6: PROVINCIAL OVERVIEWS                                                                                  113
6.1 EASTERN CAPE
PERFORMANCE SNAPSHOT
The snapshot shows the audit outcomes of 37 municipalities in the province. With the exception of unauthorised,
irregular and fruitless and wasteful expenditure, the outcomes of the outstanding audits are not included in the snapshot.

                 Overall audit outcomes                                                   2              15                           14        2      4   2
                                                                                          1                           12
                                                                                  7                             6
                                                     MOVEMENT                   FROM 2018-19                  OVER 4 YEARS

         CHRIS HANI                                                   JOE GQABI                                            ALFRED NZO
          3            2           1        1                          2              1         1                                 4             1

         Chris Hani DM                                              Joe Gqabi DM                                       Alfred Nzo DM 
         Emalahleni LM                                              Elundini LM                                       Matatiele LM 
         Engcobo LM                                                 Senqu LM                                          Winnie Madikizela-
         Enoch Mgijima LM                                           Walter Sisulu LM                                  Mandela (Mbizana) LM 
         Intsika Yethu LM                                                                                              Ntabankulu LM 
         Inxuba Yethemba LM                                                                                            Umzimvubu LM 
         Sakhisizwe LM 

         AMATHOLE
         3         2           1    1

        Amathole DM 
        Amahlati LM 
        Great Kei LM
        Mbhashe LM 
        Mnquma LM 
        Ngqushwa LM 
        Raymond Mhlaba LM 

         SARAH BAARTMAN
             4             2            2

        Sarah Baartman DM 
        Blue Crane Route LM                                      NELSON MANDELA                                                 OR TAMBO
        Dr Beyers Naudé LM                                       METRO                                                     1             4           1
        Kou Kamma LM 
                                                                            1
        Kouga LM                                                                                                                OR Tambo DM 
        Makana LM                                                                                                               Ingquza Hill LM 
        Ndlambe LM                                               BUFFALO CITY                                                   King Sabata
        Sundays River Valley LM                                  METRO                                                         Dalindyebo LM 
                                                                                                                                 Mhlontlo LM 
                                                                            1
                                                                                                                                 Nyandeni LM 
                                                                                                                                 Port St. Johns LM 
   Metropolitan                                    District            Local
                               District         DM municipality     LM municipality
   municipality                                                                                Improved               Unchanged           Regressed
   Unqualified                         Unqualified                Qualified                   Adverse                   Disclaimed             Outstanding
   with no findings                    with findings              with findings               with findings             with findings          audits

114                                                          Consolidated general report on the local government audit outcomes • MFMA 2019-20
2018-19:
         Financially unqualified financial statements                                      46% (17)               41% (15)
          Financial statements submitted without material misstatements                    16% (6)
                                                                                                                  2018-19:
         No material findings on performance report                                        35% (13)               16% (6)
         Reported achievement reliable                                                     51% (19)

         No material findings on compliance with legislation                               5% (2)                 2018-19:
                                                                                                                  3% (1)
         No findings on compliance with supply chain management legislation                14% (5)
         Material irregularities (MIs)
         Notified by 11 June 2021
                                                                   NATURE
         6 MIs with estimated financial loss of                    Payment for goods not received
         R188,7 m at 4 municipalities and                          Interest due to late payment
                                                                   Not billing for services rendered
         likely substantial harm to public sector institution at   Full and proper records not kept (repeat disclaimer)
         3 municipalities with repeat disclaimers

         Unauthorised & fruitless and wasteful expenditure
         Unauthorised expenditure        R1 752 m                      Fruitless and wasteful expenditure      R241 m
         Irregular expenditure
         R3 550 m                                                  TOP THREE CONTRIBUTORS
         2018-19: R6 684 m
                                                                   Nelson Mandela Bay Metro                       R1 372 m
         Closing balance                                           OR Tambo District                                R696 m
         R27 747 m                                                 Buffalo City Metro                               R302 m
         2018-19: R28 110 m

         Use of financial reporting consultants
         R132 m – 30 municipalities                                TOP THREE SERVICES
         2018-19: R111 m – 33 MUNICIPALITIES                       Financial statements review/preparation          R46,6 m
         Recurring use of consultants at 76%                       Tax services                                     R45,2 m
         of municipalities                                         Asset management                                 R30,9 m

         Financial health indicators
          Going concern uncertainty                                                                                 27% (10)
          Deficit                                                                                               R1 020 (12)
          Average creditor-payment period                                                                           172 days
          Eskom and water boards’ debt in arrears                                                            R1 037 m (11)
          Creditors > cash available at year-end                                                                    45% (14)
          Average municipal debt not recoverable                                                                    70% (31)
          Average debt-recovery period                                                                              154 days

SECTION 6: PROVINCIAL OVERVIEWS                                                                                              115
PROVINCIAL OVERVIEW
                                                                                   EC
Each province has a unique story...

      Improvement in outcomes, but this might not be sustainable due to poor control
      environments

In our previous general report, the key message we              consultants when there were municipal staff who
communicated was the widespread lack of financial               should have performed some of these functions.
controls and project management within the                      We identified material errors in the financial
province. This contributed to the deteriorating state           statements at most of the municipalities where
of financial affairs and accountability failures in local       consultants were used. This was mainly due to
government. We recommended that leadership be                   ineffectiveness as municipalities had inadequate
accountable for their actions to create a culture               internal controls during the year, supplied unreliable
of zero tolerance for transgressions and non-                   information to the consultants, and did not monitor
compliance with legislation. We also stressed the               the deliverables of the consultants.
importance of audit action plans, emphasising that
these should provide a road map to address the root             The contravention of legislative requirements that
causes of audit findings and prevent the situation              we reported in prior years continued to persist as
from spiralling further out of control.                         material non-compliance was reported at 95% of
                                                                the municipalities. Irregular expenditure incurred
During the current year, we followed up on the                  also remained high at R3,6 billion. This amount may
prior year recommendations. While there were a                  not be complete as 15 municipalities (41%) were
number of improved audit outcomes, we identified                qualified on the completeness of this disclosure. The
that this might not be sustainable as most of these             vast majority of irregular expenditure stems from
municipalities had not embedded the necessary                   non-compliance with supply chain management
preventative and detective controls. The majority               prescripts. Municipalities have not sufficiently dealt
of municipalities, including most of those with                 with the escalating irregular expenditure, as only
improved audit outcomes, submitted financial                    R3,7 billion of the prior year closing balance of
statements containing material misstatements,                   R28,1 billion had been investigated and written
which required adjustments to achieve better                    off by the council. Nelson Mandela Bay Metro
outcomes. Management did not adequately                         reported the highest closing balance for irregular
implement and monitor action plans to improve                   expenditure at R17,7 billion.
the control environments and therefore the lack of
standardised processes, poor record management                  The province’s irregular expenditure continues
and inadequate review and reconciliation of                     to increase as investigations are not always
financial and performance reports persisted.                    conducted to determine if any person is liable,
                                                                which results in consequences not being enforced.
A large number of municipalities did not apply                  The municipal public accounts committee has
strong financial disciplines and then used                      an oversight responsibility within the executive

116                                         Consolidated general report on the local government audit outcomes • MFMA 2019-20
functionaries of the council and must ensure good       internal audit unit and the audit committee, which
governance within the municipality. The inability       strengthened controls and improved oversight.
to deal with the escalating irregular expenditure is
a clear indication that these role players are not      The financial health of municipalities continued
playing their part in strengthening oversight and       to deteriorate, with an increase in the number
accountability.                                         of municipalities facing financial difficulties.
                                                        Municipalities’ inability to recover money from
The poor control environments and leadership’s          consumers for services rendered compounded
inability to take action against transgressors led to   these financial difficulties and resulted in delays
material irregularities, which resulted in financial    in paying their creditors. At 14 municipalities, the
losses. These financial losses arose from not billing   creditors due at year-end exceeded the cash in
consumers for services rendered, making payments        the bank, which meant that some of the revenue
for goods that were not received, and incurring         they will receive in the next year will first have to
interest due to late payments to Eskom and the          be used to settle outstanding creditor accounts
South African Revenue Service. Accounting               before being used for initiatives planned for that
officers should ensure that controls and oversight      year. Amathole District, which is currently under
mechanisms are in place to proactively prevent or       administration, is an example of a municipality
detect instances of non-compliance before they          facing financial difficulties. The municipality spent
can lead to financial losses.                           R761 million on employee remuneration in the
                                                        current year, which exceeded the equitable share
The accountability failures also had a negative         of R462 million. Revenue of R372 million was billed
impact on service delivery. Poor project                for services rendered, but this could not fund the
management was particularly evident at                  shortfall as most of the debt was impaired. The
OR Tambo District, where advance payments were          municipality was unable to pay its creditors of
made to implementing agents and other service           R563 million as their debt fell due because it only
providers for goods and services, but projects were     had R192 million in the bank at year-end.
not adequately monitored to ensure that value was
derived from the payments made and that service         We had numerous interactions with municipal
delivery was achieved. The lack of monitoring           leadership, at ‘MuniMecs’ (technical and political
these projects resulted in delays in the completion     provincial interactions between municipalities
of some, while costs exceeded the initial contract      and members of the executive council), with the
price at others. Projects were also completed but       South African Local Government Association, and
not functional. We saw an example of this at a          through various oversight engagements where we
water supply scheme project where a project is          provided recommendations for improvement. We
now complete but no water is available to the           presented guidelines for strengthening the control
community.                                              environment to the provincial legislature, which
                                                        included the member of the executive council for
Elundini improved to a clean audit from an              cooperative governance, and discussed these
unqualified opinion with findings, as basic internal    in our regular engagements with the oversight
control disciplines were entrenched in the daily        departments and municipalities. We also held
and monthly activities, and reinforced by a strong      regular technical committee meetings with the
tone set by leadership through holding officials        provincial treasury and the provincial cooperative
liable for their transgressions. Senqu continued to     governance department to escalate audit
maintain its clean audit due the strong tone set by     challenges and disputes in order to resolve them
leadership in addressing reported deficiencies and      as soon as possible. Despite these interventions,
holding officials accountable for non-performance       we continued to identify poor-quality financial
and transgressions. The stability at municipal          statements, unreliable performance reports and
manager and chief financial officer level, coupled      transgressions of legislation.
with their vast experience in the local government
sphere, further contributed to the strong control       The provincial treasury and the provincial
environment. The implementation of preventative         cooperative governance department provided
controls in procurement and other compliance            guidance to the municipalities under administration
processes assisted in them again not having             in order to address the financial difficulties and
any findings on non-compliance with legislation.        the root causes of poor audit outcomes. This
Senior management also worked well with the             contributed to the improvement in the audit
                                                        outcome of Enoch Mgijima. Makana, however,

SECTION 6: PROVINCIAL OVERVIEWS                                                                          117
retained its disclaimed audit opinion as the                a proactive approach to identify risks affecting
municipality continued to battle with its                   their municipalities and ensure that these risks are
dysfunctional internal control environment. There           mitigated by implementing preventative controls.
is also an ongoing court case by the citizens of            This will have a positive impact in strengthening
Makana requesting that the council be dissolved             their control environment. Audit action plans must
due to poor service delivery and the lack of                be developed, based on our recommendations,
infrastructure maintenance. The provincial treasury         and then be diligently implemented and
and the provincial cooperative governance                   monitored to address poor financial and
department also provided support to all                     performance management controls. Leadership
municipalities with adverse and disclaimed audit            must promote a culture of zero tolerance
opinions by monitoring their action plans, providing        for transgressions and non-compliance with
technical assistance and assessing their readiness          legislation, and must continuously monitor the
to submit financial statements before the due date.         control environment. Municipal councils and
These interventions contributed to the improvement          municipal public accounts committees must be
in audit outcomes at Dr Beyers Naudé, Walter Sisulu,        effective and instil order, institute investigations
and Amathole District. Despite these interventions,         to determine if anyone is liable for irregular
Chris Hani District, Ingquza Hill and Sundays River         expenditure incurred, and take the necessary
Valley were again disclaimed, as adhering to                corrective action against transgressors. It is
controls on a daily and monthly basis was not               imperative that political and administrative
ingrained in the culture of these municipalities due        leaders support each other and play their roles
to the vacancies in the municipal manager and               in creating an environment that is conducive to
chief financial officer positions.                          effectively accounting for the funds allocated to
                                                            municipalities to ensure that the required services
Our key message to municipal managers and                   are delivered to citizens.
senior management is that they should implement

               Improve and focus on controls for sustainable outcomes

118                                     Consolidated general report on the local government audit outcomes • MFMA 2019-20
6.2 FREE STATE
PERFORMANCE SNAPSHOT
The snapshot shows the audit outcomes of 15 municipalities in the province. With the exception of unauthorised,
irregular and fruitless and wasteful expenditure, the outcomes of the outstanding audits are not included in the snapshot.

               Overall audit outcomes                                                  4                         11                   8

                                                                      1                              7
                                                                3                       3
                                     MOVEMENT                 FROM 2018-19            OVER 4 YEARS

                                     LEJWELEPUTSWA                                                   FEZILE DABI
                                    2          2          2                                                  4                1

                                                                                                     Fezile Dabi DM 
                                     Lejweleputswa DM 
                                                                                                     Mafube LM
                                     Masilonyana LM
                                                                                                     Metsimaholo LM 
                                     Matjhabeng LM 
                                                                                                     Moqhaka LM 
                                     Nala LM 
                                                                                                     Ngwathe LM 
                                     Tokologo LM
                                     Tswelopele LM 

                                                                                                     THABO MOFUTSANYANA
                                                                                             1           3                3

                                                                                                 Thabo Mofutsanyana DM 
                                                                                                 Dihlabeng LM 
                                                                                                 Maluti-A-Phofung LM
                                                                                                 Mantsopa LM
                                                                                                 Nketoana LM
                                                                                                 Phumelela LM 
                                                                                                 Setsoto LM 

                                                                                                     XHARIEP
                                                                                                 1                2           1

                                                                                                 Xhariep DM 
                                                                                                 Kopanong LM
                                     MANGAUNG METRO                                              Letsemeng LM 
                                               1                                                 Mohokare LM 

   Metropolitan                       District            Local
                        District   DM municipality     LM municipality
   municipality                                                               Improved                   Unchanged               Regressed
   Unqualified                Unqualified            Qualified               Adverse                      Disclaimed                 Outstanding
   with no findings           with findings          with findings           with findings                with findings              audits

SECTION 6: PROVINCIAL OVERVIEWS                                                                                                             119
Financially unqualified financial statements                                            27% (4) 2018-19:
                                                                                                      27% (4)
      Financial statements submitted without material misstatements                           7% (1)

      No material findings on performance report                                              29% (4) 2018-19:
                                                                                                      13% (2)
      Reported achievement reliable                                                           29% (4)

      No material findings on compliance with legislation                                     0% (0)            2018-19:
                                                                                                                0% (0)
      No findings on compliance with supply chain management legislation                      0% (0)

      Material irregularities (MIs)
      Notified by 11 June 2021
                                                                 NATURE
      14 MIs with estimated financial loss                       Interest and penalties payable to South African
      of R304 m at 5 municipalities and
                                                                 Revenue Service                                           5
                                                                 Interest on Eskom account                                 4
      likely substantial harm to public sector institution       Full and proper records not kept (repeat disclaimer)      4
      at   4 municipalities with repeat disclaimers              Payments for infrastructure assets not received           1

      Unauthorised & fruitless and wasteful expenditure
      Unauthorised expenditure        R4 392 m                       Fruitless and wasteful expenditure      R603 m
      Irregular expenditure
      R3 089 m                                                  TOP THREE CONTRIBUTORS
      2018-19: R2 201 m
                                                                Matjhabeng                                          R340 m
      Closing balance                                           Setsoto                                             R184 m
      R7 319 m                                                  Mohokare                                            R183 m
      2018-19: R5 602 m

      Use of financial reporting consultants
      R47 m – 14 municipalities                                 TOP THREE SERVICES
      2018-19: R31 m – 13 MUNICIPALITIES                        Financial statements review/preparation                 R32 m
      Recurring use of consultants at 79%                       Asset management                                         R7 m
      of municipalities                                         Tax services                                             R6 m

      Financial health indicators
      Going concern uncertainty                                                                                  73% (11)
      Deficit                                                                                             R2 020 m (11)
      Average creditor-payment period                                                                            507 days
      Eskom and water boards’ debt in arrears                                                           R10 027 m (10)
      Creditors > cash available at year-end                                                                     67% (10)
      Average municipal debt not recoverable                                                                     71% (15)
      Average debt-recovery period                                                                               558 days

120                                         Consolidated general report on the local government audit outcomes • MFMA 2019-20
PROVINCIAL OVERVIEW
                                                                        FS
Each province has a unique story...

    Lack of accountability creates a perpetual disrespect for regulations, resulting in
    mismanagement of resources and lack of service delivery

Overall, the audit outcomes have regressed since        or misconduct – especially to curb pervasive
2016-17, and the province has not achieved a            non-compliance with legislation. We engaged
clean audit since Fezile Dabi District’s clean audit    with the collective management and municipal
in 2015-16. Some municipalities fluctuated between      leadership, including their audit committees, in
audit outcomes, improving one year, but then            various platforms, with the aim of supporting local
regressing the next, confirming that when audit         government leadership to establish sustainable
outcomes improved, it was not sustainable or            good governance practices. This we did by
due to an improvement in the underlying control         sharing audit outcomes and the root causes that
environment. It is also concerning that a number        prevented municipalities from attaining the desired
of municipalities had stagnated on qualified            outcomes, providing practical recommendations
opinions for three consecutive years. Reporting on      to improve the control environment, as well as
performance information had not been prioritised,       focusing on preventative controls. We further
as most municipalities were still not able to report    engaged the management and leadership of
reliably on the achievement of their service delivery   individual municipalities on the progress of their
goals. Municipalities’ unwillingness to comply          audit action plans and the key risks identified
with legislation is confirmed by the fact that since    through our status-of-records reviews, thereby
2016-17, we have raised material findings on non-       providing them with an early warning system.
compliance with legislation at all 15 municipalities    Sessions were held with chief financial officers and
of which the audits had been completed – mostly         supply chain managers focusing on supply chain
relating to supply chain management. This clearly       management matters, including the weaknesses
indicates a deliberate lack of accountability by        we identified in procurement and contract
political and administrative leadership to address      management.
the root causes of findings.
                                                        In spite of all these efforts, the political and
Since 2016-17, we have recommended that                 administrative leadership’s inaction created a
leadership set the correct tone from the top.           deliberate obstruction to the effective functioning
We advocated that leadership implement and              of municipalities. Our assessment since 2016-17
adhere to good governance practices, enforce a          has shown that there had been a regression in the
culture of ethical behaviour to strengthen systems      assurance provided by political and administrative
and processes, implement preventative controls,         leadership. None of the assurance providers offered
and effect consequences for poor performance

SECTION 6: PROVINCIAL OVERVIEWS                                                                         121
the required level of assurance and the majority              The provincial treasury supported municipalities
of them provided limited or no assurance at all.              in clearing audit findings by deploying officials to
There was a lack of responsiveness to implement               attend audit steering committee meetings. This
and monitor the audit action plans to enable                  support did not yield visible results, however, due
the implementation of effective accountability.               to it being reactive in nature instead of coming
These outcomes were due to no one being held                  in the form of proactive support to improve the
accountable for their actions by those they report            control environment. Nine of the 23 municipalities
to. Mayors did not hold councils accountable                  (39%) did not submit their financial statements within
for the lack of improvement at poorly operating               the legislated deadline, as opposed to 10 in the
municipalities, with the lack of accountability               previous year; yet neither the provincial cooperative
cascading to all municipal levels as councils did not         governance department nor the provincial treasury
hold municipal managers and the senior managers               intervened to ensure timely submissions.
that report to them accountable for not fulfilling
their duties.                                                 Since 2016-17, five municipalities have been
                                                              placed under administration. We were unable to
Also worth mentioning are the municipal public                confirm that administrators had developed and
accounts committees. There had been a visible                 implemented sustainable systems and preventative
regression in their effectiveness since 2016-17,              controls to ensure the effective functioning of these
notwithstanding the investment we made through                municipalities once they left. Consequently, audit
facilitating training during the member inductions            outcomes did not improve and stability was not
as well as additional on-the-job training by the              created even though three of them were under
provincial treasury and the South African Local               administration for at least three years (by the cut-
Government Association. These committees                      off date of this report, these three municipalities
conducted limited or no investigations. Where                 were no longer under administration). They were
investigations were conducted, they were not                  not able to submit all the outstanding financial
properly performed to enable the council to hold              statements – even for the period of administration.
the responsible officials accountable. Ineffective            These municipalities all received a disclaimed audit
internal audit units and audit committees,                    opinion on their last submitted financial statements,
combined with the disregard of their contributions            and experienced service delivery challenges over a
by management, also contributed to the poor                   prolonged period.
control environment. Furthermore, the councils
did not adequately assess the required legislative            The lack of leadership tone for accountability
reports to set the right tone for prudent financial           contributed to an environment that was vulnerable
management and clearly articulate the strategic               to misappropriation, wastage and the abuse of
priorities to improve service delivery.                       state funds. The continued transgression of supply
                                                              chain management prescripts was reflected in the
Municipalities continued to implement ineffective,            significant amount of irregular expenditure incurred
short-term solutions to address shortcomings in their         of R3,09 billion (2018-19: R2,2 billion). The closing
underlying controls, through the use of consultants           balance of irregular expenditure stood at
– with a limited transfer of skills. Other than Thabo         R7,32 billion (2018-19: R5,79 billion), clearly indicating
Mofutsanyana District, all municipalities appointed           that the practice of incurring irregular expenditure
consultants for financial reporting at an aggregate           was rising. Another contributing factor to the
cost of R46,83 million (2018-19: R30,88 million).             significant amounts of irregular expenditure was
These consultants performed tasks such as monthly             the seven municipalities (47%) that either had a
reconciliations, asset verifications and updating             vacancy in the head of supply chain position or
irregular and fruitless and wasteful expenditure              did not have such a position on their organogram.
registers. This situation is even more concerning as          Municipalities should ensure that these positions
there were already people employed to perform                 are filled with people who have the required
such tasks. The chief financial officers relied on            skills, respect the rule of law, are ethical, and can
the consultants to provide audit support and to               implement controls that would prevent irregular
assist with the responses to audit findings, even on          expenditure.
non-technical matters, instead of municipal staff
– in spite of paying R280,28 million in finance unit          The poor state of financial management
salaries.                                                     contributed to the continued deterioration in

122                                       Consolidated general report on the local government audit outcomes • MFMA 2019-20
financial health. Eleven municipalities (73%) were        The municipality owed Eskom and Sedibeng Water
assessed as having a material uncertainty relating        R3,34 billion and R3,68 billion, respectively. In
to their going concern. The 15 municipalities of          addition, the municipality lost R462,84 million (76%)
which the audits had been completed, had a net            of the water purchased from Sedibeng Water due
current liability position of R8,57 billion               to leakages, burst pipes, line losses, tampering
(2018-19: R6,73 billion). This means that their current   and theft. The water lost added to the significant
liabilities exceeded their current assets. Local          amounts payable to the water boards but could
municipalities were in arrears of R10,03 billion          not be billed to consumers to earn revenue. This
(2018-19: R7,70 billion) with Eskom and the water         contributed to the vicious cycle of poor cash flows,
boards. Some municipalities also failed to pay over       leading to further delays in the municipality’s ability
contributions deducted from employees’ salaries           to render quality services to the community. Also at
to third parties, such as medical aids and pension        Matjhabeng, a material irregularity was identified
funds. We confirmed nine material irregularities          relating to the construction of the Nyakallong
at five municipalities relating to the late payment       storm-water system. The contract of R13,74 million
of Eskom and South African Revenue Service                was awarded in April 2017 and the project was to
accounts, mainly due to municipalities’ inability to      be completed by May 2018. However, the project
pay their creditors on time, which resulted in interest   was found to be incomplete during a site visit, with
and penalties of R296,82 million.                         the contractor abandoning the project site and the
                                                          work performed not being of the required quality.
Municipalities continued to suffer extensive              Estimated payments of R7,21 million were made for
distribution losses, which were due to dilapidating       an attenuation dam to contain and manage storm
infrastructure, unmetered consumption and theft.          water but the dam had not been constructed. This
Municipalities also incurred deficits totalling           material irregularity was in the process of being
R2,02 billion due to overspending of their approved       referred to a public body for investigation.
budgets, while unauthorised expenditure of
R4,39 billion (2018-19: R4,95 billion) was incurred.      Accountability can be realised through a
Poor budgeting practices and overspending                 decisive leadership tone. To create sustainable
hamper service delivery as municipalities are             improvements in the control environment and audit
unable to build up reserves that would help them          outcomes, political and administrative leaders
continue to provide services in future, such as           should therefore adopt a zero-tolerance approach
maintaining or replacing infrastructure assets.           when it comes to non-compliance with legislation
                                                          and poor performance by implementing timely
Matjhabeng serves as an example where the                 consequences, including disciplinary action. This
continued disregard for supply chain management           will change the current culture and set an ethical
prescripts and poor financial disciplines have led to     and service-orientated tone for an enabling
the municipality being in a dire financial position,      environment.
which in turn negatively affected service delivery.

                Accountability can be realised through decisive leadership tone

SECTION 6: PROVINCIAL OVERVIEWS                                                                             123
6.3 GAUTENG
PERFORMANCE SNAPSHOT
The snapshot shows the audit outcomes of 10 municipalities and 14 municipal entities in the province. The audit outcomes of
municipal entities are included due to the significance thereof in the province. The figures for unauthorised, irregular and fruitless
and wasteful expenditure include Emfuleni, which is an outstanding audit.

               Overall audit outcomes
               MUNICIPALITIES               2       7         11              MUNICIPAL ENTITIES                        13               1
                                        1                    1                                               1                       5
                            1                        1                                               0                         0
   MOVEMENT             FROM 2018-19               OVER 4 YEARS               MOVEMENT             FROM 2018-19              OVER 4 YEARS

           JOHANNESBURG                                                                TSHWANE
                       13                                                                           3

           City of Johannesburg Metro                                                  City of Tshwane Metro 
           Johannesburg City Parks                                                     Housing Company Tshwane *
           City Power Johannesburg                                                     Tshwane Economic Development Agency *
           Joburg City Theatre *
           Johannesburg Development Agency 
           Joburg Market 
           Joburg Property Company 
           Johannesburg Roads Agency 
           Johannesburg Social Housing Company 
           Johannesburg Water 
           Johannesburg Metropolitan Bus Services 
           Metropolitan Trading Company 
           Pikitup Johannesburg 

           WEST RAND
       1                3                   1

           West Rand DM 
           Mogale City LM 
           Merafong City LM 
           Rand West City LM 
           West Rand Development Agency *
                                                                                       EKURHULENI
                                                                                   1           2              1
           SEDIBENG
                                                                                       City of Ekurhuleni Metro 
       1           2                1
                                                                                       Brakpan Bus Company 
        Sedibeng District                                                             East Rand Water Care Company 
        Emfuleni LM                                                                    Germiston Phase II Housing Company 
        Lesedi LM 
        Midvaal LM 
                                    * These represent small auditees that are excluded from this report
   Metropolitan                            District            Local
                         District       DM municipality     LM municipality
   municipality                                                                  Improved           Unchanged          Regressed
   Unqualified                  Unqualified               Qualified            Adverse                  Disclaimed             Outstanding
   with no findings             with findings             with findings        with findings            with findings          audits

124                                                  Consolidated general report on the local government audit outcomes • MFMA 2019-20
2018-19:                        2018-19:
          Financially unqualified financial statements                                 90% (9) 100% (10) 93% (13)                93% (13)
          Financial statements submitted without material misstatements                50% (5)           29% (4)
                                                                                                 2018-19:                        2018-19:
          No material findings on performance report                                   80% (8) 20% (2)      71% (10)             57% (8)
          Reported achievement reliable                                                80% (8)              93% (13)
                                                                                                 2018-19:                        2018-19:
          No material findings on compliance with legislation                          20% (2) 10% (1)      0% (0)               7% (1)
          No findings on compliance with supply chain management legislation           10% (1)              0% (0)

          Material irregularities (MIs) Notified by 8 June 2021

          9 MIs with estimated financial loss of R208,45 m at 2 municipalities
            NATURE
            Assets – 2 prior year MIs (R9,43 m estimated loss)
            Interest and penalties – 2 MIs (R22,59 m estimated loss)
            Revenue management (interest not charged on outstanding consumer debt) – 1 MI (R9,99 m estimated loss)
            Payments – 4 MIs (R166,44 m estimated loss)

          Unauthorised & fruitless and wasteful expenditure
          Unauthorised expenditure        R4,24 bn                  Fruitless and wasteful expenditure      R756,93 m
                                          2018-19: R2,25 bn                                                 2018-19: R749,90 m

          Irregular expenditure                                                                      Closing balance
             R4,31 bn            +        R2,96 bn            =    R7,27 bn                          R21,16 bn
             2018-19: R4,98 bn            2018-19: R1,76 bn        2018-19: R6,74 bn                 2018-19: R16,28 bn

            TOP THREE CONTRIBUTORS                                         TOP THREE CONTRIBUTORS
            City of Tshwane Metro                       R2,53 bn           City Power                                R1,40 bn
            City of Johannesburg Metro                  R1,05 bn           Johannesburg Water                       R735,13 m
            Emfuleni (outstanding)                     R309,61 m           Johannesburg Roads Agency                R316,04 m

          Use of financial reporting consultants
          R230,21 m – 6 municipalities
                                                                    TOP THREE SERVICES
          2018-19: R242,42 m – 6 MUNICIPALITIES                     Asset management                        R224,88 m
          Recurring use of consultants at 83%                       Tax services                              R4,47 m
          of municipalities                                         Financial statements review/preparation   R0,86 m

          Financial health indicators
          Going concern uncertainty                                                           30% (3)                          –
          Deficit                                                                         R3,21 bn (4)              R83,56 m (2)
          Average creditor-payment period                                                    300 days                  191 days
          Eskom and water boards’ debt in arrears                                         R2,77 bn (5)                         –
          Creditors > cash available at year-end                                              80% (8)                   69% (9)
          Average municipal debt not recoverable                                             65% (10)                  46% (13)
          Average debt-recovery period                                                       119 days                  215 days

   Municipalities        Municipal entities

SECTION 6: PROVINCIAL OVERVIEWS                                                                                                     125
PROVINCIAL OVERVIEW
                                                                                  GP
Each province has a unique story...

      Despite pockets of improvements, inadequate monitoring of preventative controls
      resulted in stagnant outcomes and increasing levels of unauthorised, irregular and
      fruitless and wasteful expenditure

Reflecting on the previous year, Gauteng                        addition, material errors on assets were identified
municipalities had held steady with good audit                  and corrected, despite the metro spending
outcomes sustained in 2018-19 as a result of a                  R198,43 million (2018-19: R213,14 million) on
stable control environment. We had urged the                    consultants to verify and correct the fixed asset
provincial leadership to enhance good financial                 register. While the province used public funds
discipline, preventative controls and the effecting             efficiently by using mostly internal staff to prepare
of consequences. In response, municipal audit                   financial statements, care should be taken to ensure
outcomes were sustained in 2019-20, with the                    that the limited available public funds are spent in
significant achievement of the City of Ekurhuleni               an effective manner in all instances.
Metro improving to a clean audit outcome due to
addressing material procurement findings, thereby               While compliance outcomes improved, the current
joining Midvaal that maintained its clean audit                 level of non-compliance remains high, particularly
outcome for the seventh consecutive year.                       in relation to procurement management and the
                                                                prevention of unauthorised, irregular and fruitless
Gauteng municipalities had generally produced                   and wasteful expenditure. We remain concerned
good-quality published financial statements in the              about the high levels of irregular expenditure
preceding three years and was the only province                 incurred, especially at City of Tshwane and City
without negative financial outcomes. However, the               of Johannesburg metros (which contributed a
emergence of qualifications requires attention, with            combined R3,58 billion (83%) at municipal level), and
Rand West City regressing in the current year to a              the increased closing balances not yet dealt with
qualified opinion from an unqualified opinion with              due to the slow pace of investigations.
findings, due to various material errors in its financial
statements. Municipalities should work towards                  Outcomes on performance reporting improved
strengthening preventative controls to avoid reliance           significantly with the majority of municipalities
on the audit process to identify and correct errors,            reporting accurately on service delivery information.
particularly in relation to accounting for assets.              This was due to an improvement in the consistent
                                                                implementation of controls relating to performance
The quality of financials at metros improved overall            information. Municipalities should build on this, and
except at the City of Tshwane Metro, which relied               use it as an opportunity to improve the achievement
on the audit process to support revenue disclosed               of performance targets and – in turn – service
in the financials. This was due to the practice of              delivery. This is especially significant in the context of
estimating service charges for excessive periods. In            the covid-19 pandemic, as the period of lockdown

126                                         Consolidated general report on the local government audit outcomes • MFMA 2019-20
as well as budget constraints had a negative impact      Gauteng’s service delivery model is fairly unique
on the achievement of planned performance                in the country, with a number of specialised
targets in the province. Municipalities should also      municipal entities administered by municipal
ensure that controls implemented around the              boards and responsible for a significant portion of
key service delivery programmes audited are              the province’s municipal expenditure and service
replicated across all programmes to sustain positive     delivery programmes. The overall negative trend
performance information outcomes going forward           in municipal entity outcomes, primarily due to
and, most importantly, ensure that citizens receive      non-compliance with legislation, continued in the
quality services.                                        current year as the Johannesburg Development
                                                         Agency regressed from a clean audit outcome,
Despite efforts made, the financial health of            which it had sustained for three years, to an
municipalities, including the metros as the              unqualified opinion with findings. This was due
economic hubs of the country, remained                   to material errors in the submitted financials
concerning and fell under further strain due             (which were subsequently corrected), caused by
to covid-19. The pandemic worsened existing              inadequate reviews of the financial statements
difficulties relating to poor revenue collection, debt   and supporting schedules. In addition, the Brakpan
write-offs and credit downgrades. The deteriorating      Bus Company remained disclaimed for the second
financial position poses a risk towards municipalities   year, due to instability in the accounting officer and
achieving their planned service delivery targets. This   financial manager positions, inadequate record-
calls for greater financial prudence over the limited    management controls, and a lack of basic financial
funds available and the elimination of wasteful          disciplines. All other municipal entities sustained
expenditure and other losses. This will ensure that      their outcomes of unqualified with material
municipalities are able to provide adequate              findings, including the four largest municipal entities
                                                         by budget, namely City Power Johannesburg,
services to the expanding Gauteng population.
                                                         Johannesburg Water, Pikitup Johannesburg
While efforts were made to stabilise municipalities,
                                                         and Johannesburg Roads Agency, which were
including provincial intervention at West Rand
                                                         responsible for a combined R36,13 billion of the
District and Emfuleni, the implementation of
                                                         total municipal entity budget of R42,8 billion. In
financial improvement strategies remains in
                                                         the context of the municipal entity administrative
progress and should be accelerated.
                                                         model, we reiterate our previous year’s
                                                         recommendation that the municipal leadership
Notwithstanding some improvements, the
                                                         and oversight structures pay closer attention to the
combined assurance model is still not as effective
                                                         governance of entities under their control to reverse
as it should be. We encourage all role players –
                                                         the negative trend in audit outcomes.
especially accounting officers, senior management
(together with internal audit units and audit
                                                         We expanded our implementation of the amended
committees) and executive authorities – to ensure
                                                         Public Audit Act to four auditees, and identified
that they contribute positively towards providing
                                                         nine material irregularities at two metros, namely
assurance regarding the control environment. These
                                                         City of Tshwane and City of Johannesburg.
controls include regular and accurate reviews
                                                         The material irregularities related to the current
of financial and performance reports, proper             and prior years, indicating that municipalities
procurement planning and contract management,            should prioritise monitoring the implementation
and the use of compliance checklists.                    of stringent controls over expenditure to ensure
                                                         that payments are made only when goods and
In addition, increased oversight by councils and         services are received, and that municipal assets
municipal public accounts committees would               are adequately safeguarded. Accounting officers
be instrumental in holding municipal leaders             have been responsive towards the process and are
accountable, including ensuring that investigations      taking corrective steps to address the irregularities
into unauthorised, irregular and fruitless and           identified. However, oversight and executive
wasteful expenditure are done timeously. We also         authorities should also continue to monitor the
continue to encourage the provincial cooperative         progress made to both address and prevent such
governance department, the provincial treasury           material irregularities, thereby ensuring that public
and the premier to intensify the level of support        funds are only spent for their intended purpose.
provided to municipalities going forward, especially
in the area of compliance with legislation and the
quality of published financial statements.

SECTION 6: PROVINCIAL OVERVIEWS                                                                            127
Gauteng remains well positioned as a destination of              unauthorised, irregular and fruitless and wasteful
choice for individuals with professional skills seeking          expenditure; and the effecting of adequate
employment in the country, with municipalities that              consequences for poor performance and
have both attracted and retained staff with the                  transgressions.
right skills benefiting from this continuity. This has had
a positive impact on financial management and –                  While the covid-19 pandemic has brought new
in turn – audit outcomes. The province’s outcomes                challenges to the auditing sphere, we will continue
have also demonstrated that focused attention by                 to focus on supporting the public sector to provide
the political and administrative leadership to our               the tools to those responsible to strengthen the
messages has yielded some benefits, especially                   municipal control environment. This we will do
relating to compliance and performance reporting.                through our ongoing engagements with the
There remains a need for further improvement,                    political and administrative leadership of the
and we therefore urge oversight structures to                    province, including through our communication
monitor and hold accounting officers accountable,                of key recommendations and guidance on
particularly regarding the worrying emergence                    preventative controls.
of qualified financial outcomes; the high levels of

                Improve monitoring of preventative controls

128                                          Consolidated general report on the local government audit outcomes • MFMA 2019-20
6.4 KWAZULU-NATAL
PERFORMANCE SNAPSHOT
The snapshot shows the audit outcomes of 52 municipalities and 2 entities. With the exception of unauthorised, irregular and
fruitless and wasteful expenditure, the outcomes of the outstanding audits are not included in the snapshot.

         AMAJUBA                                            UMZINYATHI                                        ZULULAND
     1              2                1                      2           1      1       1                           3             3

         Amajuba DM                                       uMzinyathi DM                                     Zululand DM 
         Danhausser LM                                    Endumeni LM                                       Abaqulusi LM 
         Emadlangeni LM                                   Msinga LM                                         eDumbe LM 
         Newcastle LM                                     Nquthu LM                                          Nongoma LM 
                                                           Umvoti LM                                         Ulundi LM 
                                                                                                              uPhongolo LM 
         UTHUKELA
                                                                                                              UMKHANYAKUDE
     1          1       1            1
                                                                                                               2             2       1
     Uthukela DM 
                                                                                                              Umkhanyakude DM 
     Alfred Duma LM 
                                                                                                              Big 5 Hlabisa LM 
     Inkosi Langalibalele LM 
                                                                                                              Jozini LM 
     Okhahlamba LM 
                                                                                                              Mtubatuba LM 
                                                                                                              Umhlabuyalingana LM 

      UMGUNGUNDLOVU                                                                                           KING CETSHWAYO
            5                    3                                                                        1                  5

         Umgungundlovu DM                                                                                    King Cetshwayo DM 
         Impendle LM                                                                                         Mfolozi LM 
         Mkhambathini LM                                                                                     Mthonjaneni LM 
         Mpofana LM                                                                                          Nkandla LM 
         Msunduzi LM                                                                                         Umhlatuze LM 
         Richmond LM                                                                                         Umlalazi LM 
         Umngeni LM 
         uMshwathi LM                                                                                        ILEMBE
                                                                                                                         5

      HARRY GWALA                                         UGU                                              Ilembe DM 
                                                                                                           KwaDukuza LM 
                4                      1                        3             1       1
                                                                                                           Mandeni LM 
         Harry Gwala DM                                  Ugu DM                                           Maphumulo LM 
         Dr Nkosazana Dlamini Zuma LM                    Ray Nkonyeni LM                                 Ndwedwe LM 
         Greater Kokstad LM                              uMdoni LM 
         Ubuhlebezwe LM                                  Umuziwabantu LM 
                                                                                                              ETHEKWINI METRO 
         uMzimkhulu LM                                   Umzumbe LM                                                    1

         UThukela Water                                  Durban Marine Theme Park                  

   Metropolitan                            Municipal DM District               Local
   municipality             District                    municipality        LM municipality
                                           entity                                                  Improved Unchanged Regressed
   Unqualified                       Unqualified        Qualified                  Adverse               Disclaimed              Outstanding
   with no findings                  with findings      with findings              with findings         with findings           audits

SECTION 6: PROVINCIAL OVERVIEWS                                                                                                          129
MUNICIPALITIES
                                                                   2              32                              14          13 2
                                                                   MUNICIPAL ENTITIES
         Overall audit outcomes                                        1             1

                                                                   8                 17
                                                             8                  6
                                        MOVEMENT FROM 2018-19                OVER 4 YEARS
                                                                                                                    2018-19:
      Financially unqualified financial statements                                             65% (35)             63% (34)
      Financial statements submitted without material misstatements                            24% (13)
                                                                                                                    2018-19:
      No material findings on performance report                                               59% (32)             46% (25)
      Reported achievement reliable                                                            74% (40)
      No material findings on compliance with legislation                                      4% (2)                  2018-19:
                                                                                                                       4% (2)
      No findings on compliance with supply chain management legislation                       2% (1)
      Material irregularities (MIs)
      Notified by 7 June 2021
                                                                       NATURE
      18 MIs with estimated financial loss of                          Interest and penalties                      R18,03 m
                                                                                                                   R64,58 m
      R248,36 m at 5 municipalities                                    Assets not safeguarded
                                                                       Revenue not billed/collected               R161,24 m

      Unauthorised & fruitless and wasteful expenditure
      Unauthorised expenditure           R3 666,37 m                     Fruitless and wasteful expenditure    R138,94 m
      Irregular expenditure
      R4 861,81 m                                                   TOP THREE CONTRIBUTORS
      2018-19: R6 521,57 m
                                                                    eThekwini Metro                             R1 072,03 m
      Closing balance                                               Umkhanyakude                                 R476,42 m
      R13 511,10 m                                                  uMzinyathi                                   R298,37 m
      2018-19: R13 467,46 m

      Use of financial reporting consultants
      R109,88 m – 33 municipalities                                 TOP THREE SERVICES
      (excluding amounts paid by other institutions)
                                                                    Asset management                              R38,67 m
      2018-19: R93,37 m – 44 MUNICIPALITIES                         Financial statements preparation              R32,26 m
      Recurring use of consultants at 76% of                        Other financial reporting services            R18,95 m
      municipalities

      Financial health indicators
      Going concern uncertainty                                                                                        17% (9)
      Deficit                                                                                                 R660,41 m (10)
      Average creditor-payment period                                                                              136 days
      Eskom and water boards’ debt in arrears (municipalities only)                                      R1 098,94 m (16)
      Creditors > cash available at year-end                                                                       42% (21)
      Average municipal debt not recoverable                                                                       56% (50)
      Average debt-recovery period                                                                                 196 days

130                                             Consolidated general report on the local government audit outcomes • MFMA 2019-20
PROVINCIAL OVERVIEW
                                                                     KZN
Each province has a unique story...

    Stagnation in audit outcomes – effective accountability and consequences not
    consistently enforced

In 2018-19, we urged leadership to respond to our      The quality of the submitted financial statements
constant calls for the effective implementation        reflected an improvement at some municipalities
and monitoring of preventative controls and            due to leadership’s commitment to implement
recommendations to positively influence                and maintain robust transactional level controls.
accountability and basic control disciplines. The      However, there are still a large number of
overall stagnation in audit outcomes demonstrates      municipalities (76%) that submitted poor-quality
complacency from management and leadership             financial statements. Municipalities continued to
when it comes to effectively and decisively            rely on the audit process to identify misstatements,
addressing key matters of concern. Slow responses      as evident by the 41% of auditees that received an
by management, coupled with leadership’s lack of       unqualified audit opinion only because material
action in implementing action plans and failure to     audit adjustments were allowed.
implement consequences for poor performance,
remained the main factors that negatively affected     Many municipalities also continued to rely on
the audit outcomes.                                    consultants even though officials were appointed
                                                       to perform these functions. Despite the excessive
The City of Umhlatuze’s improvement to a clean         amounts spent on consultants for financial
audit was a step in the right direction, attributed    reporting, only seven (21%) of the 33 municipalities
to management implementing an action plan to           reflected improved audit outcomes, while we
address prior year audit recommendations and           identified material misstatements in the consultants’
to the internal audit unit performing risk-based       area of responsibilities at 17 municipalities (52%).
audits on supply chain management processes.           The poor quality of the underlying data, coupled
The finance team was sufficiently resourced and        with poor project management and monitoring
skilled, which allowed them to prepare the financial   of the consultants’ work, limited their impact and
statements in-house. In contrast, the financial        effectiveness on quality financial reporting.
statements of Umzinyathi, Amajuba and Inkosi
Langalibalele were not supported by sufficient audit   Fewer auditees had material findings on their
evidence, resulting in their disclaimed opinions.      reported performance information, although
This stemmed from senior management’s failure to       material adjustments had to be made to the
take accountability and institutionalise the basic     submitted performance reports. The improvement
disciplines of record management, reconciliations      could mainly be attributed to enhanced record-
and fundamental reviews of financial reporting.        keeping practices and detailed reviews and

SECTION 6: PROVINCIAL OVERVIEWS                                                                        131
oversight by the internal monitoring and                       The material irregularities we identified at five
evaluation units. Useful and reliable performance              municipalities demonstrate that, in addition to the
reporting provides communities with credible                   challenges faced by municipalities relating to poor
information that they can use to assess service                financial management practices, financial losses
delivery and hold municipalities accountable. It               were incurred largely as a result of payments for
also allows national and provincial government to              goods or services not received, failure to safeguard
track progress towards service delivery goals.                 assets, fruitless and wasteful expenditure incurred
                                                               in the form of interest and penalties, as well as the
Compliance with key legislation remained a                     non-billing and collection of revenue due.
challenge due to inadequate consequences
for transgressions and a failure to implement                  The provincial cooperative governance
supervisory checks and controls. Non-compliance                department swiftly intervened at municipalities with
with supply chain management prescripts                        maladministration by appointing administrators.
contributed to more than 90% of the total irregular            However, there were no significant improvements
expenditure incurred of R4,86 billion. Although                in audit outcomes, mainly due to the late
some efforts were made to deal with the prior year             appointment of the administrators, resistance
irregular expenditure closing balance of                       by municipal officials, and vacancies in key
R13,47 billion, progress in investigating this balance         positions. Of the seven municipalities that were
was slow. Irregular expenditure of R4,55 billion was           under administration in the previous year, only
written off as no officials were found to be liable            two reflected an improved audit outcome, while
for these transgressions. Municipal councils did not           two regressed and three remained unchanged
always ensure that investigations were adequately              on unfavourable audit outcomes. Through the
performed to determine if a person was liable                  municipal support programme, the premier’s office
before approving the write-off of irregular                    (in conjunction with the provincial cooperative
expenditure.                                                   governance department and the provincial
                                                               treasury) helped municipalities to reduce the
Financial sustainability remained under stress,                number of compliance findings and the amount
aggravated by economic pressures and austerity                 of irregular expenditure reported, and to improve
measures announced by government. Nine                         the quality of performance reporting. However, a
auditees reported going concern challenges. At                 detailed analysis of the impact of these initiatives,
some municipalities, the collection of debt was                together with the stringent monitoring of their
hampered by ineffective debt-collection systems                implementation (including the transfer of skills),
and processes. This was made even worse by the                 must be further intensified to trigger sustainable
impact of the covid-19 pandemic and resulted                   improvements.
in municipalities struggling to pay outstanding
creditors, such as Eskom and water boards, on                  As municipalities are at the forefront of service
a timely basis. Municipalities also struggled to               delivery and have a direct impact on the lives of
practise sound financial management and budget                 citizens, it is critical that they have sound internal
monitoring, as 20% of them reported deficits for the           control systems and effective governance structures
year. The poor financial management practices                  for them to achieve their goals. Management
affected some municipalities’ ability to provide               needs to ensure that the understanding and
adequate service delivery to citizens. Unauthorised            application of preventative controls is entrenched
expenditure amounted to R3,67 billion in the                   in day-to day activities through appropriate
current year, mostly due to overspending on                    reviews, monitoring, corrective action and
non-cash items. Non-cash items such as debt-                   credible reporting by appropriately skilled officials.
impairment provisions were higher because the                  Municipal managers must also promote a culture
covid-19 pandemic affected citizens’ ability to pay            of accountability by monitoring corrective action
for services rendered. There was also unplanned                based on our recommendations. Consequences
additional expenditure due to the pandemic.                    must be enforced for officials who fail to comply
On a positive note, the City of Umhlatuze (which               with applicable legislation, and strict corrective
obtained a clean audit) has, over a number                     action must be taken against transgressors.
of years, demonstrated the prudent financial
management of funds, which has contributed to
the achievement of service delivery initiatives.

132                                        Consolidated general report on the local government audit outcomes • MFMA 2019-20
We continue to encourage key role players               and use a collaborative approach when assessing
such as the provincial cooperative governance           and responding to the myriad of risks affecting local
department and the provincial treasury to intensify     government. To improve sustainably, leadership
the level of support provided to municipalities going   in local government should enforce a culture of
forward, especially in the areas of compliance          ethical behaviour and adhere to good governance
with legislation and financial management. These        practices in order to strengthen accountability and
coordinating departments need to work efficiently       transparency.

               Upscale implementation of preventative controls and drive consistent
               consequences

SECTION 6: PROVINCIAL OVERVIEWS                                                                         133
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