Municipal audits: ‘No magic recipe’

By Greg Nicolson 1 August 2014

Once again the Auditor General’s report on the outcomes of the audits on local government is out. Once again the figures are expectedly shocking. But there are slight signs of improvement. The challenge is turning the few successes into the many. By GREG NICOLSON.

There’s no magic recipe,” says Knysna municipal manager Lauren Waring. “From our side, we started it upfront, ‘This year we’re going to get a clean audit.’”

Knysna was one of a number of municipalities that newly achieved a clean audit from the Auditor General this year, one of far too few. Municipalities in Western Cape and KwaZulu-Natal did better than most other provinces in achieving new unqualified audits, but the figure is still woeful across the country. Of 319 audits completed, only 30 municipalities and municipal entities received an unqualified audit with no findings for 2012-2013, Auditor General Kimi Makwetu announced on Wednesday, an increase from 5% to 9% over the previous year. Cape Town is the only metropolitan municipality to have made the jump, with no other metros getting a ‘clean audit’ grade.

In business, no one talks about a ‘clean audit’, qualifies Waring – that came from former Cooperative Governance and Traditional Affairs Minister Sicelo Siceka, who announced his ‘clean audit’ drive in 2009. The key thing is to achieve an audit without matters of emphasis, and only 22 of 278 municipalities got there, according to the latest announcements.

Waring has some hints. Good staff have to be ready for the challenge and everyone, from the managers and local politicians down to labourers working for the municipality, need to be on board. If an inspector comes to a building site, the labourers have to be wearing the right boots. There needs to be good corporate governance, which is the cornerstone of the audits, and sound financial management is a must. Elected representatives need to ask the municipality the right questions and leaders need to be clear with staff on what’s acceptable and what is not.

And it’s important to remember that audits are a bit like a sporting match, just because you’ve done well once it doesn’t mean you’re going to do well again. According to Waring, municipalities that get unqualified audits must have the “realisation that it’s not a once off every year. You’ve got to do the thing and you’ve got to do better.”

The consequences of municipalities not getting unqualified audits without findings are dire. Of, qualified audits with findings, Makwetu said, “When these basic control deficiencies persist, they fester into the environment until there is no way to account for transactions and activities. When auditees start to conduct public business according to their own defined rules rather than those generally accepted and approved, poor governance becomes inevitable. This is usually prominent in environments where there is lack of transparency and consequences.

“It is our considered view that, when government business is conducted outside the controlled environment, in all likelihood it becomes a free for all where any transaction is capable of being executed without the related accountability. As a result, opportunities for realisation of service delivery objectives are lost and recovery becomes almost a nightmare. It is desirable that the leadership of municipalities take this issue seriously as it is a condition prevalent in all categories of audit outcomes outside of the clean audit environment.”

There were 138 auditees with unqualified audits with findings. Another 84 entities scored qualified audits.

At the bottom of the table are adverse opinions, of which eight municipalities achieved. “Here, all business cycles of the institution have deficient controls. This state of affairs increases the levels of financial exposure and multiplies the prospects for significant losses that could result in most service delivery and programme objectives not being achieved,” explained Makwetu.

In a joint statement, Minister of Finance Nhanhla Nene and Cooperative Governance and Traditional Affairs Minister Pravin Gordhan welcomed the report. “The journey towards excellence will be difficult. We will use both incentives and disincentives to enforce accountability both administratively and in political leadership. We will work with all partners to respond decisively to non-performance,” they said. The new administration wants a back to basics approach. Five areas will be prioritised: providing basic services, transparent governance, competent senior managers, sound financial management, and community engagement and participation.

Gordhan is realistic about the challenges his ministry faces. Turning local government around is crucial to both the country’s transformation and the ANC’s future election chances. So far, the former finance minister has been rather quiet in his new role, but the challenges are as abundant as the pressure he faces.

The ANC welcomed the new figures. “According to the report 15 more municipalities and an additional two municipal entities got clean audits. There is also an overall total of 63 improvements across various categories of audit opinions recorded,” said party spokesperson Zizi Kodwa. The ANC recently resolved to appoint technically competent and qualified people to local government as well as deploy senior, experienced party members to lead government at local level.

The Democratic Alliance however called for an inquiry into the “glaring failures” the report suggested the department of cooperative governance and traditional affairs had committed. “Indeed, according to the AG, a staggering increase of R542 million in fruitless and wasteful expenditure by municipalities was recorded between 2011/12 and 2012/13. Moreover, during the same period, ‘irregular and wasteful expenditure’ increased to R11.6 billion, up from R6.7 billion in 2011/12,” said the party’s Kevin Mileham.

For any municipalities hoping to get a clean audit next year, the Auditor General’s report reads like a how to clean up government guide. If they are to follow municipalities like Knysna and other newly clean local government entities, the first step is being upfront, saying next year we’ll get a clean audit and we’ll keep it. DM

Photo: A picture dated 13 February 2008 shows South African pedestrians walking past M.J Unisex Hair Salon run out of a transformed shipping container by Hair Dressers from the Democratic Republic of Congo (DRC) in Masiphumelele township in Cape Town, South Africa. EPA/NIC BOTHMA

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