Municipal mess: Billions wasted
Johannesburg - Nearly half of the country’s 257 municipalities are in poor financial health and struggling to deliver services to residents, collect revenue and pay their debt.
These were the shocking findings made in a new hard hard-hitting National Treasury report titled “The State of Local Government Finances and Financial Management as at June 30, 2017”.
It was released this week.
The report emerged as Auditor-General Kimi Makwetu on Wednesday identified a 75% increase in irregular expenditure in municipalities - from over R16.2 billion in 2015/16 to nearly R28.4bn in 2016/17.
The Treasury report states that at the heart of the problems at the municipalities were municipal managers getting involved in fights in their political parties, which led to political instability, poor administrative governance and weak financial management, among others.
In Gauteng, eight of the 11 municipalities - including the nation’s capital, Tshwane - are in financial distress, unable to maintain positive cash flows and struggling to collect revenue.
Tshwane, alongside local municipalities Emfuleni, Mogale City, Lesedi, Rand West City and Merafong, as well as district municipalities Sedibeng and West Rand, have been identified by the Treasury as having liquidity challenges and are failing to deliver adequate services.
Only Joburg, Ekurhuleni and Midvaal are not in financial distress.
The report describes municipalities in distress as “those that have liquidity challenges; are failing to effectively deliver services; billing for services; and collecting their revenue”.
This leads to increasing outstanding debtors, while they are unable to maintain positive cash flows to pay their creditors within the 30 days time-frame prescribed by legislation.
On Wednesday, Makwetu, who released the 2016/17 consolidated general report on the local government audit outcomes on Wednesday, revealed that there had been non-compliance with key legislation at 86% of the municipalities, which is the highest since 2012/13.
He found that sufficient steps were not taken to recover, write off, approve or condone unauthorised, irregular, fruitless and wasteful expenditure, as required by the legislation.
This has resulted in the year-end balance of irregular expenditure accumulated over many years and not dealt with of over R65.3bn, unauthorised expenditure totalling R43.5bn and R4.24bn in fruitless and wasteful expenditure.
The Treasury report states that senior municipal officials fail in their jobs, largely due to their aligning themselves with political party factions. It also found that the senior managers aligning themselves with political factions was an indicator of managerial failure.
The Treasury also observed that studies, initiatives and engagements with municipalities highlighted that political instability, poor administrative governance and weak financial management were the common denominators and were at the heart of the problem impacting municipalities’ ability to deliver services.
”If the political economy issues, which consist of the lack of leadership, political will and decisive decision-making capability, are not addressed as a matter of urgency, the interface between executive and administrative functions within a municipality will continue to translate into financial distress and service delivery failures,” the report warns.
The Treasury also found that in municipalities in financial distress, expenditure cuts often start with repairs and maintenance budgets because these are less politically sensitive than cutting capital expenditure set aside to deliver new infrastructure and services.
In municipalities where the municipal manager position is vacant, the Treasury observed that accountability was weak.
By the end of June last year, 104 municipalities (40%) had acting municipal managers and 88 (32%) had acting chief financial officers.
”Accountability is weaker at municipalities where the position of municipal manager is vacant or occupied by an acting incumbent, as an acting municipal manager is less inclined to take decisions,” the report notes.
SA Municipal Workers’ Union (Samwu) general secretary Simon Mathe blamed the lack of political will to ensure that officials responsible were disciplined.
Unauthorised, irregular, fruitless and wasteful expenditure should not be allowed to skyrocket without consequences, he said.
”For these officials it’s just business as usual,” he pointed out.
Mathe said Samwu was hopeful that in the next financial year there would be improvements.
Independent Municipal and Allied Trade Union president Stanley Khoza said the biggest challenge facing municipalities was that senior management did not follow processes and policies, including procurement approved.
“They break policies approved by the council and they should be dealt with. Municipalities are placed under administration but no one is ever charged,” he said.
The SA Local Government Association (Salga) expressed concern at Makwetu’s findings that show regression in the quality of financial statements, quality of performance reporting, financial health of municipalities and increases in unauthorised, irregular, fruitless and wasteful spending. Salga said it would be identifying appropriate capacity-building interventions.