Municipalities across South Africa run into the ground

Municipalities across South Africa are suffering from a cash crunch, with significant financial mismanagement of taxpayer funds.

These issues stem from inadequate financial controls, unreliable reporting, and poor procurement practices. This leads to significant financial losses and threatens service delivery.

According to the Auditor General’s (AG’s) 2022/23 report on local government, municipalities had:

• R24.12 billion in unauthorised expenditure.
• R7.41 billion in fruitless and wasteful expenditures.
• R13.89 billion in water distribution losses.
• R19.12 billion in electricity losses.
• An estimated R52.32 billion in debt was written off or impaired due to non-payment.

Ultimately, this mismanagement results in a decline in basic service delivery, which is eating away at the quality of life of residents and businesses.

“In many cities and towns across the country, roads are not maintained, water and electricity supply is often disrupted, refuse is not collected and sewage runs in the streets,” said President Cyril Ramaphosa at the 2025 State of the Nation Address.

Broadly, the mandate of local government is to provide essential services that meet the basic needs and contribute directly to the quality of life of South Africans.

These services include access to clean water, sanitation, electricity, waste management, and well-maintained infrastructure.

This must ensure a healthy and safe environment while promoting community development, economic growth, and social cohesion.

However, the essential services people are entitled to cannot be delivered without adequately maintained infrastructure.

The AG report states that the existing infrastructure has not kept pace with the country’s growing demands.

There is a backlog in constructing new infrastructure and maintaining the existing infrastructure needed to provide basic services.

Public frustration at poor service delivery continues to grow. A recent road trip by BusinessTech showed the on-the-ground reality of the impact of local government financial mismanagement.

Across municipalities we travelled to, access to reliable and clean water is scarce, electricity is intermittent, and sanitation services and road infrastructure are crumbling.

Not only is this impacting residents’ quality of life, but businesses are closing because of persistent challenges with water, electricity and road infrastructure.

Interview with a resident of a municipality plagued by financial mismanagement

Financial mismanagement

AG Tsakani Maluleke said the failures in local government are not unexpected. “For many years, we have reported on municipalities’ poor financial management and worsening financial health,” he said.

“Their inability to plan, monitor and report on their performance; deteriorating municipal infrastructure; and the lack of consequences for poor performance and transgressions.”

The report highlights numerous material irregularities and the lack of accountability among officials.

Ultimately, the AG identifies inadequate skills, governance failures, and a lack of consequences as the root causes of these persistent problems.

Many municipalities are failing to budget and manage their finances effectively.

According to the 2022/23 AG report, 108 municipalities (42%) adopted unfunded budgets despite advice from the National Treasury and provincial treasuries.

This only slightly improved from 111 (45%) in the previous year, with the practice particularly prevalent in municipalities with disclaimed audit opinions.

The total deficit in local government amounted to R13.14 billion, with 84 municipalities (37%) having spent more money than they had generated.

Many municipalities are using their budget for the next year to cover current spending, with some current liabilities being more than half of their next year’s revenue budget

Poor revenue collection

The primary revenue sources for local governments are property rates and taxes from consumers of municipal services.

However, municipalities also face significant challenges in collecting debt owed to them. The problem with revenue management in local government is three-fold:

• Revenue is lost through water and electricity distribution losses.
• Consumers are not billed or receive free basic services they are not entitled to.
• Debt is not collected.

“So, while a municipality’s revenue might look healthy on paper, the money does not reach the bank,” said the AG.

The report projected that municipalities would only recover 35% of the revenue owed to them, with R52.32 billion in debt being written off or impaired.

Looking at losses, in 2022/23, 128 of the 143 water service providers incurred losses estimated at R13.89 billion, while 148 out of 163 electricity providers lost a combined R19.12 billion.

The AG highlighted that 28% of municipalities misreported their revenue due to incorrect billing or lack of proper audit evidence.

Additionally, many municipalities do not effectively use equitable share allocations from the National Treasury to fund free basic services for poor households.

Many municipalities do not have proper processes to register indigent households or ensure they receive the support they are entitled to. Some registered indigent people are deceased or no longer meet the criteria for assistance.

Mismanagement, consultants and corruption

The mismanagement of funds across the country continues to worsen, with wasteful expenditure increasing from R4.89 billion in 2021/22 to R7.41 billion in 2022/23.

The Auditor-General (AG) pointed out that many municipalities fail to report all instances of wasteful spending.

This stems from poor payment practices, ineffective procurement processes, misuse of consultants, and inadequate project management.

Municipalities sometimes prioritise salaries and payments to councillors over crucial suppliers, like Eskom and water boards, which are essential for basic services.

Additionally, non-compliance with the requirement to pay suppliers within 30 days is widespread, putting further strain on business cash flows.

Many municipalities also flout supply chain management regulations, with uncompetitive and unfair procurement practices being all too common.

As a result, municipalities often pay for goods and services that are either never delivered or are of substandard quality.

Even more troubling is that contracts are still being awarded to employees, councillors, or other state officials despite clear legal prohibitions against such practices.

Alongside mismanagement, fraud and weak internal controls have worsened the financial challenges of municipalities.

The AG highlighted that many municipalities lack basic controls, making it easier for fraud to take root.

In some cases, allegations of fraud go uninvestigated, with municipalities failing to take necessary actions like initiating forensic investigations or reporting incidents to the South African Police Service.

As such, approximately two-thirds of municipalities (67%) spent R24.12 billion in an unauthorised manner.

The AG noted that this indicates a significant lack of adherence to approved budgets and grant conditions.

Municipalities spent R1.35 billion on consultants for financial reporting, but the expected benefits were not always seen, with many financial statements having material misstatements.

The lack of effective governance, compounded by unstable political environments, further undermines oversight within councils.

According to the AG, many councils fail to make tough decisions, such as adopting only funded budgets or enforcing debt collection policies.

Still, there are often no significant consequences for providing unreliable financial information, allowing financial mismanagement to persist.

Fixing the problem

For local government to successfully deliver on its service delivery mandate and infrastructure programmes, drastic changes are needed.

Municipal administration, political leadership, and national and provincial government must systematically and purposefully plan and work together. This includes:

• Strengthening financial management and procurement processes;
• Filling critical vacancies, improving skills;
• Enhancing governance structures and oversight; and
• Ensuring accountability and consequences for those responsible for financial mismanagement and poor governance.

The major challenge is implementing these interventions. The same problems have been present for years without any consequences to those responsible.

Unless there is swift and decisive action against those in power, the same will happen in municipalities for years to come.

In the President’s SONA, Ramaphosa said that starting this year, national government will establish professionally managed, ring-fenced utilities for water and electricity.

They are also consulting on a new White Paper for a “modern local government system”, review funding models, and expand support for municipalities in need.