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Eastern Cape municipalities have registered a marginal improvement in their 2009/10 audit outcomes, Auditor-General (AG) Terence Nombembe announced today.

Nombembe was, however, quick to point out that while Amahlati, Gariep, Ingquza Hill, Joe Gqabi District, Mnquma, Ngqushwa, Nyandeni, Port St. Johns and Umzimvubu municipalities had registered improvements from a disclaimer or adverse opinion to a qualified opinion, a number of municipalities showed regressions in audit opinion, thus raising concerns about the capability of municipalities to sustain positive audit outcomes.

These include Lukhanji, regressing from financially unqualified with other matters to a disclaimer, while Buffalo City, Intsika Yethu and King Sabata Dalindyebo regressed from qualified to a disclaimer and Blue Crane Route regressed from financially unqualified with other matters to qualify. Municipalities such as Cacadu, Camdebo, Ikwezi, Matatiele, Senqu and Nelson Mandela Metropol have been able to maintain the unqualified financial audit opinion with other matters and thus need to be supported to move towards a clean audit opinion.

He also cautioned that the number of worst audit opinions, namely disclaimers of opinion and adverse opinions was “a reason for concern and indicative of leadership not taking ownership of and responsibility for sound financial and performance management”. This was the case in municipalities such as Chris Hani District, Emalahleni, Engcobo, Great Kei, Inkwanca, Kou Kamma, Makana, Maletswai, Mbhashe, Mbizana, Mhlontlo, Nkonkobe, Ntabankulu, Sakhisizwe and Sundays River Valley.

“The marginal improvements can be attributed to a leadership tone that portrays a willingness to accept accountability for the financial management of their municipalities throughout the financial year, creating a control environment that is conducive to accountability and oversight, and developing decisive action plans with clear time frames to address the root cause of qualifications and the continuous monitoring thereof. These success stories should be considered as best practices that the non-performing municipalities should emulate.”

The unfavourable audit outcomes, on the other hand, were mainly due to a volatile political climate within councils and inadequate leadership practices, which were not conducive to solid accountability, structured oversight and sound governance practices. This resulted in insufficient commitment to address deficiencies highlighted in the previous year’s audit outcomes.

Audit findings

Most municipalities with disclaimers had findings on almost all aspects of the financial statements, while those with qualified audit opinions predominantly had findings on capital assets. Generally all municipalities had material changes made to their financial statements at the time of the audit, thus pointing to weaknesses in financial controls and lack of adequate financial skills across the board.

All analysed municipalities lacked adequately skilled human resources with an understanding of the requirements of determining, managing, monitoring and reporting on predetermined objectives.

To emphasise the importance of managing and monitoring predetermined objectives and the benefits that a municipality can reap from monitoring service delivery if oversight is strengthened, the Auditor-General of South Africa (AGSA) has embarked on a number of initiatives aimed at improving leadership’s understanding of these skills.

The AG’s report also raises concern regarding the high prevalence of non-compliance with relevant laws and regulations, which resulted in excessive unauthorised, irregular and fruitless and wasteful expenditure at 32 municipalities. This was “due to disregard for policies, procedures, laws and regulations, which further hampered the drive for clean administration by the year 2014”.

Information technology (IT) governance, security and controls remain deficient across all municipalities in the province, which often points to an environment conducive to the risk of fraud and maladministration, especially in relation to supply chain management.

“Sound leadership principles, financial and performance management, and governance are the building blocks on which clean administration is built. It is evident that, despite sporadic improvements, the municipal sphere needs to intensify and accelerate initiatives to institutionalise these building blocks if they are to achieve clean administration in the foreseeable future.

To this end, the recruitment and retention of appropriately skilled financial staff should remain high on the agenda of the province. My office, as part of its contribution towards influencing clean administration and following up on commitments made by leadership, will intensify its regular interactions, including the provincial quarterly forum aimed at monitoring turnaround plans and other initiatives to address outcomes by those charged with governance. We expect leadership to show similar commitment if we are to improve the audit results,” says Nombembe.