These are the best and worst municipalities in South Africa

The office of the Auditor General of South Africa (AGSA) has published its annual review of local municipalities, covering audit results for the 2021/22 financial year.

The report shows a continued decline in the financial health of South Africa’s municipalities, with the vast majority not receiving a clean audit.

In fact, only 38 municipalities managed to get a clean audit for the period in review, down from 41 municipalities in 2020/21.

The number of unqualified audits with findings decreased from 104 to 100, while qualified audits increased from 78 to 83.

“The financial health of municipalities continued to deteriorate, partly because increased economic pressures meant that consumers were not paying their bills, but also because of poor financial management,” the AGSA said.

“Municipalities are losing money because they are not billing and collecting revenue, are using unfair and uncompetitive procurement practices, and are paying for goods and services that they either do not receive or do not use.”

The office uses the following guidelines for audit outcomes:

• Clean audit: The financial statements are free from material misstatements (in other words, a financially unqualified audit opinion) and there are no material findings on reporting on performance objectives or non-compliance with legislation.

• Unqualified audit: The financial statements contain no material misstatements. Unless AGSA expresses a clean audit outcome, findings have been raised on either reporting on predetermined objectives or non-compliance with legislation, or both of these aspects.

• Qualified audit: The financial statements contain material misstatements in specific amounts, or there is insufficient evidence for the AGSA to conclude that specific amounts included in the financial statements are not materially misstated.

• Adverse audit: The financial statements contain material misstatements not confined to specific amounts, or the misstatements represent a substantial portion of the financial statements.

• Disclaimed audit: The auditee provided insufficient evidence in the form of documentation on which to base an audit opinion. The lack of sufficient evidence is not confined to specific amounts or represents a substantial portion of the information contained in the financial statements.

Broadly speaking, all municipalities should strive for clean audits, with unqualified audits being more positive. Qualified, adverse or disclaimed audits are black marks against a municipality.

Best municipalities

According to AGSA, municipalities with clean audits are characterised by sound financial and performance management disciplines and perform their functions in accordance with applicable legislation. These municipalities show what can be in South Africa and serve as a shining example to others.

The AGSA lists 33 municipalities in the country that have managed to achieve consecutive clean audits. Most of these municipalities are in the Western Cape, which accounts for 19 – more than all the other provinces combined (14).

The North-West and Free State have no municipalities ranked.

The best-run municipality in the country is the West Coast District Municipality, which has achieved a clean audit for 12 years in a row.

Worst municipalities

Conversely, when a municipality receives a disclaimed audit opinion – the worst audit opinion possible – this does not only mean it does not have accounting records to support its financial statements, it often also reflects a culture of very little accountability, transparency, performance or integrity.

This is apparent in poor financial management practices, failing infrastructure, neglected wastewater treatment plants and poor waste disposal management, which cause harm to the public.

In 2021-22, 15 municipalities, or almost 6% of all municipalities, received disclaimed audit opinions. This number could still increase once all audits have been completed.

Most of the municipalities that repeatedly received disclaimed audit opinions were in the Northern Cape and North West. The worst municipalities are Joe Morolong in the Northern Cape and Madibeng in North-West, which received disclaimed audits for seven years in a row.

Municipalities at risk

The AGSA also lists 70 municipalities that are in a concerning financial position which need urgent attention lest they fall into a position that can no longer operate. Of these 70 municipalities, 41 have been in this position for five consecutive years or more.

“When we analysed the financial statements of the 217 municipalities with audit opinions other than disclaimed or adverse, we found 56% of them to have indicators of financial strain,” the AGSA said.

“If not attended to, this can result in significant doubt about their ability to continue operating.”

The AGSA noted that, by year-end, just over half of all municipalities (52%) owed their creditors more money than they had available in the bank as they continued to spend money they did not have.

The total deficit in local government for the year amounted to R11.9 billion, while 79 municipalities (36%) had spent more money than they had generated. As a result, municipalities were using their budget for the next year to cover their spending in the current year.

Read: Is this the worst run municipality in South Africa?