The Auditor-General released its audit report for the 2015/16 financial year last week and although it is still very critical of underperforming municipalities, the situation is not all doom and gloom.
Auditor-General Kimi Makweta minced no words in his report summary, especially regarding the marginal improvement shown by municipalities in their audit outcomes in comparison to the previous year. "The key drivers of internal control, being leadership, financial and performance management as well as governance, had shown minimal improvement since the previous year. This slow response by the leadership to our consistent messages over the years to improve internal controls and address risks, was the main root cause of poor audit outcomes. Continued vacancies and instability in key positions as well as inadequate consequences for poor performance and transgressions further contributed to these outcomes.
"As a result of these root causes not being addressed, there was limited improvement in the audit outcomes of municipalities, with 15% improving, 13% regressing and 67% remaining unchanged. The number of municipalities with clean audit opinions decreased, which included two metros that lost their clean audit status. Clean audit opinions represented only 19% of the total local government expenditure budget," said Makweta.
Regarding the above, no single municipality in Limpopo could achieve a clean audit. The only other province to find themselves in the same boat was North West. Having said this, Makweta did point out in his summary that municipalities in Limpopo, along with those in the Eastern Cape and Mpumalanga, showed momentum in the right direction, with the Eastern Cape showing the greatest improvement.
The local government in Limpopo consists of 33 auditees, made up of five district municipalities, three municipal entities and 25 local municipalities. The 2014/15 financial reporting period was concluded with a stern warning by the premier to all mayors, municipal managers and CFOs that disclaimed and adverse audit opinions would not be tolerated. He made it clear that drastic action would be taken against municipalities that continued to receive such audit opinions. The premier further insisted that an addendum be attached to the performance contracts of all municipal managers to include audit outcomes as a performance indicator in order to ensure accountability. A number of resolutions were also made, which included commitments by the coordinating departments (provincial treasury, provincial Cogta and premier's office) to provide assistance to municipalities where skills and capacity constraints remained a challenge.
"Following the warning issued by the premier, we noted an increased focus by municipalities to resolve audit findings that had led to qualifications. Our office held a number of engagements to explain the root causes of audit findings and to develop strategies to resolve these findings. As a result, we saw an improvement in the number of auditees that received unqualified audit opinions with findings from 12 to 16 and a decrease in disclaimers from four to two (excluding the outstanding audits of Mogalakwena and Thabazimbi that had been disclaimed in the prior year). Improvements at most municipalities were consultant-driven, rather than as a result of a concerted effort by the leadership to address internal control deficiencies. The continued reliance on consultants is unsustainable due to the continued instability in leadership positions," said Makweta in his report.
Makweta said that instability, highlighted by the number of vacancies at administrative leadership level at the 2015/16 year-end, particularly at the level of municipal manager (five vacancies) and CFO (nine vacancies), was a serious concern that contributed to a poor internal control environment. "We noted that a number of positions were vacant for most of the year and were only filled at year-end. At a number of municipalities with vacancies at municipal manager and/or CFO level, we also noted a trend of appointing senior managers to act in these positions on a rotation basis (every three months to avoid compliance findings on acting positions). Such acting positions are not normally accompanied by the required commitment and accountability that constitute good governance," said Makweta. He added that they further observed that, during acting periods, non-compliance with legislation increased, particularly in the area of supply-chain management. "For example, at Vhembe District, most of the officials at senior manager level were acting in their positions, while the posts of municipal manager and CFO had been vacant for 18 and 14 months, respectively. This instability contributed to the irregular expenditure of R181 million incurred by the municipality in the year under review," said Makweta.
This instability in leadership, explained Makweta, also had an impact where municipalities implemented water projects without conducting proper feasibility studies, resulting in large infrastructure assets not being used after commissioning and being left idle, increasing the risk of vandalism. Some of the contributing factors, said Makweta, were poor planning, a lack of accountability and very limited or no consequence management. "In the Mopani and Vhembe districts, for example, boreholes were sunk and completed, but on commissioning, the infrastructure could not operate as there was no underground water or electricity," said Makweta.
It was also noted in the AG's report that the accumulated amounts of unauthorised, irregular as well as fruitless and wasteful expenditure totalled R2 billion, R4 billion and R135 million respectively. These amounts, explained Makweta, have been accumulating over a number of years. He said, however, that it was likely that information relating to the nature or cause of this expenditure might be lost due to poor record management and loss of institutional knowledge due to staff turnover or changes in the political landscape. "The problem was made even worse by the instability at administrative leadership level, which could make it almost impossible to hold officials accountable. We identified poor planning resulting in ad hoc decisions, with no consideration of legislation, as a root cause in this regard. This was made even worse by a weak internal control environment, because the administrative leadership failed to set the right tone of enforcing adherence to legislation and holding officials accountable," said Makweta. He continued to say that at the root of this was the delay by councils to conduct and conclude their investigations, together with a lack of adequately capacitated oversight structures (such as MPACs), which play a critical role in the accountability cycle.
(Over the next couple of weeks, the Zoutpansberger will give readers a breakdown of each local municipality's audit report for the 2015/16 financial year, namely that of Makhado, Musina, Thulamela and Vhembe).