AGSA: A MIXED PICTURE

LOCAL GOVERNMENT AUDIT OUTCOMES 2022/23

In the wake of the Auditor-General of South Africa (AGSA) Tsakani Maluleke’s 2022/23 report on local government audit outcomes, South Africa finds itself at a crossroads. With only 34 out of 257 municipalities achieving clean audits, the report has sparked both concern and a renewed call to action for the country’s governance ecosystem. The latest results reveal a deeply mixed picture, where pockets of success are overshadowed by stagnation, regression, and financial mismanagement.

Despite some municipalities demonstrating high levels of financial governance, many others continue to struggle with deep-rooted challenges that hinder effective service delivery. The AGSA’s findings reveal a clear divide between top-performing municipalities and those still trapped in cycles of financial mismanagement and governance failures.

The Context of Audit Outcomes

Municipalities play a vital role in service delivery, managing essential infrastructure such as water, electricity, sanitation, and waste management. However, the audit outcomes indicate that many municipalities are struggling to meet these demands due to weak financial management, governance lapses, and a lack of accountability.

The 2022/23 financial year results show a significant decline in clean audits from previous years, with only 13% of municipalities achieving clean audits. This concerning statistic was highlighted by Cooperative Governance and Traditional Affairs (CoGTA) Minister Velenkosini Hlabisa, who acknowledged the need for urgent intervention to improve these outcomes.

Despite the overall regression, there were some positive developments. The Auditor-General noted improvements in timely submissions of financial statements, and fewer municipalities received disclaimed audit opinions - the worst possible outcome. While 45 municipalities improved their audit outcomes compared to previous years, 36 regressed, underscoring the uneven nature of progress across the country.

"Poor financial management leads to wasted resources, limiting funding for essential services and ultimately placing a greater burden on communities." – Auditor General, Tsakani Maluleke

Top Performers: Municipalities Leading the Way

Among the 34 municipalities that achieved clean audits, a few stand out for their consistent performance. These top performers are predominantly found in the Western Cape, which has emerged as a beacon of sound governance. The municipalities of Cape Agulhas, Bergrivier, and Swellendam are among those that consistently demonstrate a commitment to financial transparency, project management, and service delivery. These municipalities adhere to budgets, meet timelines, and ensure that their projects are managed efficiently, thereby setting a high standard for others to follow.

The Western Cape’s success can be attributed to its strong control environments and effective financial management systems. Municipalities in the province have embraced a culture of accountability and ethical governance, which has allowed them to maintain clean audits year after year. According to Maluleke, these municipalities manage their operations well, identifying and rectifying deficiencies promptly. Their performance serves as a model for the rest of the country, illustrating what is possible when governance frameworks are respected and adhered to.

The Worst Performers: Municipalities in Crisis

On the other end of the spectrum are municipalities that have failed to meet even the most basic financial management standards. Notably, the Eastern Cape, Limpopo, and North West provinces house several municipalities that continue to struggle with disclaimed audit opinions and adverse findings. Among the worst performers are municipalities like Nquthu in KwaZulu-Natal and Ditsobotla in North West, both of which have consistently received poor audit outcomes.

These municipalities have been plagued by financial mismanagement, unauthorized expenditure, and a lack of credible performance reporting. Infrastructure neglect, delayed projects, and poor service delivery are common issues, exacerbating the already challenging living conditions for residents. In some cases, poor procurement practices and the mismanagement of resources have led to a complete breakdown in service delivery, leaving communities without access to basic services like water and electricity.

In her report, the AG emphasized that poor financial management directly impacts a municipality’s ability to deliver essential services, placing additional pressure on already fragile local economies. The continued failure of these municipalities to address governance lapses has eroded public trust and confidence in local government.

The Significance of Clean Audits

Achieving a clean audit is not merely a symbolic win; it represents a municipality’s commitment to sound financial management, effective governance, and accountability. Maluleke emphasized that municipalities with clean audits generally manage their projects efficiently, rectifying deficiencies promptly, and adhering to budgets and timelines.

These municipalities demonstrate a strong control environment, setting a foundation for improved service delivery and better governance. Clean audits are also an indicator of trust between municipalities and their communities, reinforcing public confidence in local government institutions.

On the flip side, municipalities that fail to manage their finances and projects efficiently often struggle to deliver basic services. Poor financial management leads to wasted resources, which, in turn, limits the funding available for essential services like water, electricity, and road maintenance. Communities served by these struggling municipalities experience deteriorating infrastructure, reduced service delivery, and, ultimately, a poorer quality of life.

A Call to Action for Municipal Leadership

The AG’s report underscores the crucial role that municipal leaders, councils, and mayors play in fostering an environment of accountability and good governance. The report is a clarion call for municipal leadership to step up and set the tone for ethical behavior, financial discipline, and responsible governance. As Maluleke put it, municipal leadership must instill a culture of performance and accountability to regain the trust of their communities and improve the lives of South Africans.

However, despite these calls for action, many municipalities remain trapped in cycles of financial instability. In the most concerning cases, the AG noted municipalities where poor procurement practices, unplanned spending, and weak revenue collection have become the norm. This financial mismanagement not only hampers the municipalities’ ability to deliver services but also increases the financial burden on already struggling communities.

The Challenge of Service Delivery

One of the most significant challenges highlighted in the report is the failing infrastructure in many municipalities. Infrastructure neglect, poor contract management, and delayed projects have resulted in wastage of grant funds and the return of unused funds to National Treasury.

According to the report, infrastructure deterioration directly impacts service delivery, especially in areas like water and sanitation, where communities are often left without basic services due to municipal mismanagement. The AG further stressed that municipalities’ inability to manage their infrastructure projects has led to a backlog in essential services. This, combined with rising debt owed to Eskom and water boards, leaves many municipalities in a precarious financial state, threatening not only service delivery but also economic growth

The path forward is clear: a collective effort is required to build a culture of accountability and strengthen governance frameworks across South Africa’s municipalities

The Role of Accountability Ecosystem

To combat these challenges, the AG called for a collective effort from all roleplayers in the accountability ecosystem, including national and provincial governments, municipal councils, and the broader public sector. There is a clear need for stronger oversight, better professionalization of local government, and a renewed focus on ethical governance.

One of the key initiatives is the implementation of the Framework Towards the Professionalisation of the Public Service, which mandates that senior managers across all spheres of government be appointed on merit. This framework aims to ensure that qualified, competent officials lead municipalities, ultimately improving financial management and service delivery

Positive Signs and Ongoing Challenges

While the report paints a largely bleak picture, there are some positive signs. The AG highlighted improvements in timely financial reporting, noting that 94% of municipalities submitted their financial statements on time in 2022/23, a significant increase from 81% two years prior.

Additionally, fewer municipalities received disclaimed audit opinions, with several provinces showing signs of progress, particularly KwaZuluNatal, Mpumalanga, and the North West.

However, these improvements are fragile and must be sustained through ongoing support from national and provincial governments. The AG called for continued use of the District Development Model (DDM), which aims to create a coordinated, multi-stakeholder approach to service delivery and local government governance.

Looking Forward: Building Sustainable Governance

Moving forward, it is clear that local government must undergo significant transformation to meet its service delivery mandates effectively. This requires a renewed commitment to good governance, financial discipline, and ethical leadership.Maluleke urged municipalities to take decisive action to address the weaknesses identified in the audit reports, warning that the failure to do so would continue to erode public trust and hinder progress.

The AG concluded her report with a call for stronger partnerships between municipalities, provincial governments, and the national treasury. She emphasized that while her office remains committed to supporting local governments through audits and guidance, meaningful change will only occur when municipalities become capable, accountable, and responsive to their communities.

In the face of these challenges, the path forward is clear: a collective effort is required to build a culture of accountability, strengthen governance frameworks, and improve the financial health of municipalities across South Africa. Only through such concerted efforts can municipalities deliver on their promises to the citizens and create a better future for all.