Finance minister Enoch Godongwana’s report that over half of the municipalities in SA are bankrupt is cause for concern. The writing has been on the wall that municipalities are facing collapse.
The signs manifested themselves through many service delivery protests in the country, which were ignored by the leadership. Over the years, the office of the auditor-general warned municipalities through its general reports, but these too were ignored, hence we find ourselves in this situation today.
An analysis of historical trends set out in AG reports indicates that there have been marginal improvements in clean audit opinions for both the Municipal Finance Management Act and the Public Finance Management Act. For example, MFMA clean audit opinions increased from 0% to 2% over four financial years (2005/06 to 2008/09).
The improvements at municipalities have been moving at a snail’s pace – as reflected in this year’s audits. Where improved audit outcomes have been achieved, this was largely due to the implementation and monitoring of action plans by the leadership, increased leadership involvement and the deployment of appropriate skills in preparing annual financial statements.
The opposite is also true in that the individual audit outcomes which had deteriorated were generally due to a lack of leadership stability, involvement, monitoring, and oversight. This requires municipalities that are dysfunctional to implement concrete action plans to address issues raised in the audit reports.
While national and provincial governments face similar challenges with regard to audit qualifications, the number of challenges at local government level are far higher. It is generally recognised that public sector service delivery essentially rests on the shoulders of local government as it is the coalface of service delivery. These municipalities are continuing to receive disclaimer opinions and the consequences are dire. According to the auditor-general, one of the important contributing factors in the realisation of clean audit reports is the quality of interaction between leadership and stakeholders.
Municipalities can overcome challenges and obtain clean audits by focusing on three underlying issues: strengthening governance arrangements, including risk management; internal audits and audit committees; and to promote their independent accountability to the executive authority on all matters of risk to financial management and service delivery.
This is possible if leadership and other role players take charge and drive the turnaround strategy towards positive results. Perusal of the AG reports reveals that the municipalities that achieved positive review have a common thread: the commitment and single-minded intention of their leadership to lead and set the right tone from the top; basic internal controls are in place; the municipalities perform daily, monthly, and quarterly reconciliations of financial records and there is a working partnership between leadership and audit committees to ensure effective oversight.
Achieving a clean audit does not require the wielding of a magic wand. It is not beyond the municipalities to address the issue of disclaimer opinions, but as long as leadership operates like an unguided missile, it would be a challenge to attain and sustain clean audit results, as has been the case with the 2014 Clean Audit Project which never materialised.
For municipalities to achieve clean audit opinions, all internal controls should be in place. It will require leadership (mayors, ministers, municipal managers, and heads of departments) to take the lead in working towards a clean audit. Failure to transform this pattern will lead to municipalities continuing to obtain disclaimer opinions. Strong decisive action is particularly required for those municipalities that continue to receive disclaimers and adverse opinions.
• Prof Ngoepe is an archivist, author and academic at Unisa
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