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The South African Government Association (SALGA) notes that the 2021/2022 Auditor General’s Municipal Financial Management Act (MFMA) Audit Outcomes indicate that 142 municipalities, representing 55% of all municipalities, provided credible financial statements and received clean and unqualified audits in the 2021/2022 financial year. These municipalities were responsible for more than R351 billion, or 66% of the overall Local Government budget of R530 billion. Put simply, this means that for every R100-00 under the management of local government, local government has produced trustworthy financial statements for R66-00 of this R100-00. 

Furthermore, SALGA calls on the 45% of municipalities that received poor audit outcomes to work hard to turn around municipal financial management and governance to achieve the same outcomes that have been achieved by the majority of municipalities.

While these results represent stagnation in financial management and governance over a 5-year period, it is encouraging that the municipal audit results reflect no noticeable regression in the first year of the local government term under the cohort of leadership ushered in since the November 2021 municipal elections. 

However, the fact that local government could not produce credible financial statements for about a third of the finances under its control is a cause for concern. The Municipal Finance Management Act (MFMA) audit outcomes are an important indicator of the state of municipal finances and promote transparency and accountability about municipality service delivery and finances.

SALGA welcomes the limited improvements, including the reduction in the number of municipalities that failed to submit financial statements for auditing on time.  SALGA has noted green shoots of improvements in the MFMA consolidated general reports but remains deeply concerned about the lack of accountability and consequence management in dealing with breakdowns in municipal financial management controls and non-compliance  with MFMA regulations, as pointed out by the AGSA. 

This calls for a renewed approach to enforce accountability and consequence management. A carrot and a stick approach – where excellence is rewarded while mediocrity and maladministration are punished – is what is needed to turn local government around. 

In respect of accountability and consequence management, SALGA calls upon municipalities to take stern actions towards non-submission of financial statements and eliminating and recovering monies lost through irregular, fruitless, and wasteful expenditure. Municipal leadership must set targets for achieving this outcome during their term of office. No previous irregular, fruitless, and wasteful expenditure amount should remain unactioned at the end of the 2023/24 financial year. Equally there must be a significant reduction and eventually elimination of irregular, fruitless, and wasteful expenditure in the remaining financial years of this term. Non-submission or late submission of financial statements for audit purposes must be a thing of the past. 

SALGA appreciates the Auditor General of South Africa (AGSA) report as it highlights areas that need special attention and congratulates all the municipalities who achieved positive audit outcomes, especially those who have maintained this over time.  These pockets of excellence, who have consistently, without fail, achieved clean audits since the 2016/17 financial year to date, must be acknowledged for their exemplary work. These are the municipalities whose control systems must be studied and used to draw lessons for others to emulate. 

These pockets of excellence are:   

• Midvaal Local Municipality (GP)
• Okhahlamba Local Municipality (KZN)
• Cape Winelands District Municipality (WC)
• Overstrand Local Municipality (WC)
• Witzenberg Local Municipality (WC)
• Cape Agulhas Local Municipality (WC)

Drivers of excellence

SALGA echoes the sentiments expressed by AGSA in highlighting the positive correlation between the tone of leadership and audit outcomes. Stable leadership in key positions like that of the Municipal Manager (MM) and Chief Financial Officer (CFO) is key to attaining positive audit outcomes. 

Among the actions required are for Councils to fill all vacant MM and CFO positions as a matter of urgency by employing ethical people who are technically skilled in the duties they are required to perform. Mayors and Speakers must always act in the public interest, hold the administration accountable, and enforce consequence management without fear or favour.

Consumer debt throttles municipalities

As of 31 December 2022, municipalities were owed R306 billion, for services consumed. This situation affects the ability of municipalities to honour obligations to creditors like Eskom and Water Boards. SALGA reiterates its call made at its National Conference held on 2 – 4 March 2022 for municipalities to be consistent in implementing their credit control policies to tackle the increasing debtors’ book and a call to municipal consumers to honour their municipal bills.

The impact of the inability to collect debts has resulted in a gradual but steady regression in the financial health of Local Government overall and has seen a marked deterioration in certain municipalities. The current trajectory needs to be arrested urgently, or it will result in a further deterioration of financial health and negatively impact service delivery, financial management, and governance.

Local Government Fiscal Framework

The country’s fiscal framework perpetuates the structural factors that continue to impede or weaken municipalities in realising their constitutional mandate. For instance, municipalities are allocated a meagre 9.1% of nationally raised revenue meanwhile they are assigned responsibilities and mandates of approximately 46% of the functions outlined in the Constitution. On the other hand, their ability to raise local revenue is also severely eroded by the attitudes and actions of government institutions such as Eskom who refuse to support municipal credit control measures in their areas of supply and by failure to pay for rates and municipal services by government departments. This is while other spheres of government continue to make municipalities perform numerous unfunded mandates.

SALGA Response & Support 

In its report, the AGSA also focuses on performance planning, monitoring, and reporting. The report indicates that an overwhelming majority of municipalities are not doing well in this respect. This is another critical area of concern for SALGA, as it directly relates to service delivery by municipalities. The organisation will build on work done during its councilor induction to deepen the building of capacity of mayors, members of mayoral committees, mayoral executives, and chairpersons of council committees, empowering them to be more effective in their oversight roles. 

The national and provincial SALGA leadership will interact more with its member municipalities to advise and support them in this regard. SALGA will also mobilise additional capacity to provide support to municipalities, including experienced former councilors and mayors who left good records of leadership in the municipalities they led, to assist in  the support and empowerment of councilors to effectively perform their oversight and leadership roles. 

SALGA aims to assist municipalities in a multidisciplinary and multi-stakeholder approach focusing on 4 pillars or areas, namely: 

• Leadership, 
• Governance, 
• Financial Management and 

Institutional Capacity with the aim of gradually and sustainably improving the audit outcomes of municipalities over time.

SALGA reaffirms its commitment to the AGSA to continue working with them in an effort towards improving the state of financial management and governance in local government and also applauds the AGSA’s continued efforts to highlight the state of local government in managing the public purse as per MFMA prescripts and recommended improvements.

Issued by The South African Local Government Association