The Organisation Undoing Tax Abuse (OUTA) expresses grave concern over the Auditor-General’s report on the 2022/23 audit outcomes for local government, which reveals a continuing decline in financial management, accountability, and service delivery across municipalities.

"The decline in clean audits is a clear indication of systemic failures within our municipalities, weak political oversight and a lack of consequence management. This not only compromises service delivery but also erodes the trust that communities place in their local governments. It is unacceptable that so many municipalities continue to fail in their fundamental duty to manage public resources responsibly and provide basic services to the people," says Julius Kleynhans, OUTA’s Executive Manager for Local Government.

The AG’s report paints a distressing picture of local government’s ability to manage public funds effectively, with only 13% of municipalities (34) receiving clean audits (unqualified with no findings) – a significant decrease from previous years. This troubling trend highlights the urgent need for reform, increased oversight, and improved financial controls to restore public trust in local governance. 

The AG’s report shows that 43% (110) received unqualified audits with findings, 33% (85) qualified with findings, 2% (6) adverse with findings, and 5% (12) disclaimed findings.

Key findings include:

• Weak performance planning and reporting processes: Non-compliance with legislation on strategic planning and performance management at 45% of all municipalities, and at 91% of municipalities with disclaimed audit opinions. 

• Poor project and contract management: Money lost due to poor contract management, delays in project delivery, budget overruns and limited maintenance.

• Inadequate internal controls: The majority of municipalities lack effective internal controls, resulting in poor record-keeping, insufficient financial oversight, and a lack of accountability for public funds.

• Persistent issues with unauthorised and wasteful expenditure: Unauthorised expenditure (R21.12bn) and fruitless and wasteful expenditure (R7.41bn) remain alarmingly high, with little to no consequence management in place to address these issues.

• Deterioration in service delivery: The mismanagement of funds has a direct impact on service delivery, with many municipalities struggling to provide basic services such as water, sanitation, and waste management.

The AG reported that the performance plans of 19% of municipalities, including five metros, excluded indicators that measure performance on their core mandated functions.

Furthermore, in auditing a sample of municipal projects, of the 75 projects visited, the office identified deficiencies in 54 cases (72%). Reasons for this included projects being delayed, cost escalation, poor quality of work and new infrastructure projects not being used. The AG also found that existing infrastructure continues to deteriorate because it is “not properly maintained and safeguarded”.

Other key poor practices identified included poor payment practices, uncompetitive and uneconomical procurement practices, limited value and benefit received for money spent, and weaknesses in project management and underspending on grants. The AG noted that the basic disciplines of sound financial management were not integrated in the culture of many municipalities with obvious material misstatements only being corrected once the audit commenced.

“The high non-compliance with legislation and the requirements of sound financial management, supply chain management, cost controls and standard project management is deeply concerning. While the AG has identified green shoots in the municipal ecosystem much more needs to be done to correct the path of this key sphere of government. Decisive leadership is needed. Failure to transform local government soon will be catastrophic for South Africa,” says Kleynhans.

Kleynhans says OUTA supports the AG’s call for the professionalisation of municipalities.

“Intergovernmental support and the culture of ethics and accountability must be cultivated within local government. Furthermore, local government reform and consequence management is crucial if we want to see real change,” says Kleynhans.

OUTA is encouraged by the hard work done by the AG and her team as well as the transparency and good reporting and believes it sets an example on how other government institutions are supposed to function and perform.

OUTA urges communities to hold their local governments accountable and to demand transparency and accountability in the management of public funds.

"Local government is the closest sphere of government to the people, and it is essential that it functions effectively. We cannot allow the continued mismanagement of public funds to go unchecked. OUTA will continue to advocate for improved governance and accountability at the local level, ensuring that our municipalities serve the best interests of their communities," says Kleynhans.

OUTA remains committed to working with all stakeholders to drive positive change in local government and to ensure that the people of South Africa receive the services and governance they deserve.

OUTA is concerned that more than 42% of municipalities had budgets that were unfunded. “Passing an unfunded budget violates the Municipal Finance Management Act (MFMA) and can lead to significant consequences, including intervention by the provincial treasury under Section 139 of the Constitution, disciplinary action against municipal officials, and the withholding of funds by the National Treasury. The municipality may be required to revise its budget to ensure it is fully funded, failing which it risks further intervention, such as the dissolution of the council or the appointment of an administrator,” says Kleynhans.