Municipalities cannot continue to operate and provide services if their financial health problems persist, the Office of the Auditor General (AG) said.
The AG’s office released its 2020/2021 municipal audit results last week, which revealed that only 41 municipalities in South Africa had received correct audits. Its conclusions were based on the financial statements of 230 municipalities and 18 municipal entities.
The AG report states that municipalities “cannot operate and provide services if financial health problems persist. Yet, local government finances remain under severe pressure due to non-payment of municipal debtors, poor budgetary practices and inefficient financial management.
The AG’s assessment of the financial health of 230 municipalities and 18 entities based on their financial statements showed “increasing indicators of collapse” in local government finances and “continued deterioration during the government’s tenure.” ‘previous administration’.
“In 22 municipalities and one municipal entity, the financial statements were not sufficiently reliable for us to analyze them due to rejected or unfavorable audit conclusions,” the report said.
The AG’s office says the financial situation of 28% of South African municipalities is so dire that there is ‘significant doubt’ about their ability to continue operating as operating businesses in the near future .
“This effectively means that these municipalities do not have enough revenue to cover their expenses and that they owe more money than they have,” reads the AG’s report.
In addition, many municipalities found themselves in these dire financial situations several times during the tenure of the previous administration, the report concludes.
Municipalities that have ongoing concerns include:
- Gauteng: Sedibeng, Rand West City, Emfuleni, West Rand and Tshwane City
- Limpopo: Mopani, Thabazimbi, Modimolle-Mookgophong, Musina and Ba-Phalaborwa
- Mpumalanga: Emalahleni, Lekwa, Msukaligwa, Town of Mbombela, Dipaleseng, Thaba Chweu and Govan Mbeki
- North West: Town of Matlosana, Mahikeng, Maquassi Hills, Tswaing, Mamusa, Naledi, Kgetlengrivier, Moses Kotane and Rustenburg
- North Cape: Dikgatlong, Magareng, Gamagara, Ga-Segonyana, Kamiesberg, Khai-Ma, Thembelihle, Ubuntu, Emthanjeni, Richtersveld and Siyathemba
- KwaZulu Natal: Mpofana, Ulundi, uThukela, Ugu, Msunduzi, uMkhanyakude and Newcastle
- Eastern Cape: Amathole, King Sabata Dalindyebo, Kou Kamma, Makana, Raymond Mhlaba, Amahlati, Enoch Mgijima, Inxuba Yethemba and Dr Beyers Naudé
- Free State: Xhariep, Letsemeng, Mangaung, Tswelopele, Matjhabeng, Dihlabeng, Phumela, Moqhaka, Ngwathe and Setsoto
- Western Cloak: Cederberg
According to the AG, some municipalities have already been placed under provincial administration or intervention.
At the GA briefing last week to present the findings of the audit, his office pointed out that no municipality in the Free State had received a positive audit, while 22 of the 41 municipalities in the Western Cape had received a positive audit.
The metros are “particularly worrying”
The AG report says the financial health of metros is “particularly concerning” because they serve the largest segment of the population and account for more than half of local government expenditure budgets.
The city of Tshwane, the city of Johannesburg and the town of Ekurhuleni in Gauteng, Cape Town in the Western Cape and Nelson Mandela Bay in the Eastern Cape were all downgraded below investment grade as of June 30. 2021.
“The downgrades put pressure on some of the metros to raise funds for capital expenditures, and they had to use internal savings from operating budgets to fund deficits,” the AG said.
Most metros, the report warns, have been under review for further downgrades by credit rating agencies, which could push them “deeper into underinvestment territory if economic conditions deteriorate”.
The AG also says cash-strapped consumers are falling further behind on municipal rates and taxes. In turn, credit rating agencies are reporting growing concerns that metros may not be able to repay debt or raise cash in capital markets to meet future obligations due to of declining income.
“Subway debt that is unlikely to be fully recovered ranged from 53% to 88%,” the report said.
In response to the report, the South African Local Government Association (Salga) said it painted a “gloomy picture” of lack of accountability in the management of municipal finances. The agency called for a new approach to enforcing accountability.
Although Salga says he is disappointed with the GA’s findings, he says he “welcomes the report as it provides key lessons on what works, identifies areas for improvement and municipalities that require serious and urgent intervention. “.
The “deteriorating quality of governance and accountability, fueled by the lack of consequence management in municipalities,” is a serious concern for Salga.
Salga says his national executive meeting in June decided to “urge all municipalities that received negative audit results to focus on improving their control environment, implementing their audit action plans with [the AG’s] recommendations and to do so with due seriousness in the coming year”. DM