IThe Auditor-General South Africa (AGSA) recently released the 2020/21 Municipal Finance Management Act (MFMA) audit outcomes. While some green shoots are visible in these audit outcomes, the situation remains dire.
Overall, only 61 municipalities had a better audit outcome in 2020/21 than in the first year of administration (2016/17), with 56 now having a worse audit outcome. Of the 257 municipalities, only 41 received clean audits. While this number has increased from the 33 clean audits issued five years ago, the substantive nature of audit findings evidenced a regression. Twenty-seven municipalities were able to maintain their clean audit status throughout the administration, while 14 achieved a clean audit for the first time and six lost their clean audit status.
Importantly, clean audits continue to represent less than a fifth of the local government budget of an estimated R509 billion in 2020/21. Just over R100 billion of the estimated budget is used properly.
Clean audits are important because they demonstrate an ability of public representatives to present a reliable picture of how they have managed, and accurately accounted for, the scarce resources meant to serve the people of our country. We have seen that municipalities with clean audits tend to have institutionalised controls and systems to plan, measure, monitor and account for their finances and performance. Through their compliance with legislation and other regulations, they also demonstrate a solid foundation for service delivery. With these elements in place, municipalities can focus on delivering quality services to all of their residents.
We therefore encourage provinces like North West and Free State that have not achieved a single clean audit opinion over the past five years to continue to strive to build a clean administration that can meet the needs of the country’s citizens. It is possible if we begin to put the basics in place.
In order to achieve this, among other things, the leadership of municipalities must recruit and retain the right skills so as to help achieve better audit outcomes and clean governance.
We are concerned that 11% (or R1,26 billion) of just over R11,67 billion of the estimated budget for financial reporting was spent solely on finance units and consultants in the 2020/21 period. Despite these costs, we are not seeing better audit outcomes and there is little return on investment.
The financial statements submitted by 121 municipalities − 59% of the total number that used consultants − contained material errors. Even after corrections, 41% received modified audit opinions. This shows that despite the resources and support municipalities have, the key financial management controls were not adequate to prevent material misstatements or major mistakes in the financial statements submitted for auditing.
Had we not identified material misstatements and allowed for corrections, only a quarter of municipalities would have received unqualified audit opinions. There would have been far fewer than the 141 unqualified opinions.
In this context, it is our view that consultants should only be used in favourable control environments where adequate support is provided by public representatives, while skills are also transferred to ensure that public funds are spent effectively and responsibly. Their role should be to help restore basic financial discipline as building blocks to enable institutions to report adequately and transparently while embedding a culture of accountability. Consultants should not be a replacement for staff hired to do this work.
When salaries are being paid to public officials who are not delivering on their mandate as well as fees to consultants, and we still see poor audit outcomes and inadequate service delivery, we have to ask: Where are the officials: the municipal managers, the chief financial officers, the supply chain officers − those in charge of the administrative processes; the mayors, the audit committees, the internal auditors, the mayoral committees, councils and others in charge of oversight?
The undesirable audit outcomes that are once again before us call on each of us in the accountability ecosystem to introspect and ask: Where was I when this was happening? Did I wilfully look away?
As the AGSA, we have decided it is not sufficient to continue to ask these questions or to report these dire audit outcomes on an annual basis. We have to admit that, collectively, we are not making sufficient progress to change the lived reality of our citizens.
While our audits focus on numbers, we are also acutely aware that behind all of these numbers are people − people who are not being served and who continue to feel forsaken by the government they have elected to deliver on their basic needs.
To this end, we have just introduced our new organisational strategy #cultureshift2030 which aims to encourage all moving parts of the accountability ecosystem to do their part to comply with legislation and policies, to identify incorrect actions and activities and, most importantly, to correct these immediately!
Essentially, as the audit office we have called on municipalities to focus on key service delivery areas, as well as to improve their audit outcomes. The entire ecosystem must coalesce around supporting municipalities to improve the correlation between good governance, accountability and service delivery. With such an ethos throughout the ecosystem, we can turn around the ongoing reality of poor audit outcomes and equally poor service delivery.
As part of #cultureshift2030, we have identified a few key elements which can provide some insight into how we can achieve the results we seek.
These measures include:
- The recruitment, retention and continuous development of appropriately skilled and experienced officials in the key positions of municipal manager, chief financial officer and head of supply chain management
- The implementation process, controls and systems that enable credible financial and performance reporting for in-year monitoring and decision-making as well as transparency and accountability on the finances and performance at year-end
- The building and maintenance of a robust financial management culture that includes ensuring effective revenue collection, prudent spending as well as prevention and speedy recovery of financial loss and wastage. This is a culture that must be informed by strong leadership strong tone and posture
- Consequence management for accountability failures − implemented swiftly, bravely and consistently
- Support/interventions such as consultant work that seeks to sustainably capacitate financial units through transfer of skills, and
- Partnerships with those in the accountability ecosystem that support municipalities and public officials to implement the recommendations of the AGSA, internal audit and audit committees, and coordinating departments to deliver better audit outcomes
I am confident that SAICA can be an excellent partner on the journey towards strengthening the accountability ecosystem, particularly with its focus on making a difference to its members and the profession.
I was inspired when I read in SAICA’s annual report, the sentiments articulated about making a difference:
Making a difference is about making a mental shift, from where we are today to where we hope to be. From doing things the way they have always been done, to a way that is intentional, inspirational and geared towards the greater good of everyone. Making a difference means moving away from decisions that will lead to immediate gain for a few to prosperity for many. It is about building influential leaders, who go out to develop and lead the communities they live in. It is about building trust in CAs(SA) and the chartered accountancy profession. It is about holding ourselves and others accountable and to the highest levels of integrity.
This is the spirit that will drive clean governance, stronger accountability and better audit outcomes. Most importantly, better audit outcomes will help us create better lived experiences for the vast majority of our country, many of whom have been, and continue to be, underserved. With one of the AGSA’s biggest challenges being the professionalisation of local government, accredited SAICA members can play an invaluable role not only in strengthening the accountability ecosystem, but in infusing a cohort that will do so responsibly and always observing ethical requirements.
Doing the right thing is urgent! The public purse is shrinking; the citizens’ dissatisfaction, lack of trust and anger are increasing and together with this, poverty and inequality.
While the accounting and auditing professions cannot fix all the problems in the country, they can certainly ensure that public funds are used efficiently and effectively. I call on each of you in the ecosystem, as well as those preparing to enter it, to execute your responsibilities without fear or favour. This is an important role we can play for our country and our people.
Author
Mabatho Sedikela, Head of Audit: Provincial at the Auditor-General South Africa
