The worst-run municipalities in South Africa actively harming the people who live there

The latest report from the Auditor General shows that most of South Africa’s municipalities have poor financial management, with seven receiving the worst possible outcome for several years in a row.

The AG’s 2023-24 report on local government audit outcomes showed that only 41 municipalities (16%) obtained clean audits.

Although 59 municipalities were able to improve their audit outcomes from 2020-21, 40 have regressed.

The worst opinion a municipality can receive is a disclaimed audit opinion, which means that the AG could not find sufficient evidence for most of the information in the financial statements.

“The lack of transparency in how these municipalities use public funds and deliver services significantly weakens accountability,” said the AG.

“This often leads to residents being deprived of service delivery and harmed by the municipalities’ actions or inaction.”

Overall, 11 municipalities recorded disclaimed audit opinions, with four regressing into the territory in the 2023-24 year.

The auditor general noted that seven municipalities have repeatedly received disclaimed audit opinions for three to eight straight years.

Most repeat offenders are in the Eastern Cape and North West, with the AG highlighting the need for attention from senior government officials like the premier.

The seven worst performers, which are all local municipalities, are the following:

• Makana in the Eastern Cape;
• Sundays River Valley in the Eastern Cape;
• Nketoana in the Free State;
• Ditsobotla in the North West;
• Lekwa-Teemane in the North West;
• Ratlou in the North West;
• Kannaland in the Western Cape.

Hurting their communities

These seven municipalities managed an overall expenditure budget of R3.48 billion over the year, including R0.78 billion in equitable share and R0.42 billion in conditional grants.

The AG said they have not been properly accounting for these funds and making decisions based on unreliable financial and performance information.

It added that a lack of basic financial controls and proper records management was the main reason for continuing financial reporting failures.

These issues have not been addressed due to instability in key positions, high vacancy rates, and inappropriate audit action plans in addressing prior-year findings.

Control weaknesses were also evident in the management of IT systems, with the AG noting a lack of integration between financial and banking transactions at six municipalities, resulting in increased errors and fraud.

A lack of records and credible financial reporting results in six of these seven municipalities, excluding Ratlou, being classified as financially distressed.

The seven municipalities deliver services to over 180,000 households, with five water providers and six electricity providers.

The AG noted that the lack of records and poor management controls were prevalent in the service delivery planning, management and reporting.

Due to the poor financial and performance management practices, some of these municipalities even caused harm to their communities.

The AG issued six material irregularity notifications on harm to the public due to environmental pollution caused by poor wastewater treatment works and poorly managed landfill sites.

Makana, Sundays River Valley and Nketoana all recorded two of the six notifications.

Overall results

In one silver lining, the AG did note that the number of municipalities that received disclaimed audit opinions has decreased since 2020-2021.

Twenty municipalities have moved out of the category over the past three years due to improved internal controls and record-keeping, implementing proper action plans and appointing officials in key positions.

Nevertheless, the rate of improvement slowed down in 2023-24 as only three municipalities moved out of this category.

In 2023-24, the most common outcome was an unqualified audit opinion with fundings, which was 39% of the total municipalities at 99.

The AG noted that this performance should not be celebrated, as the material findings on performance mean that their performance reports are not credible. At the same time, issues on compliance indicate control lapses.

“These 99 municipalities could easily lose their unqualified status if they do not address the remaining challenges in their control environment,” said the AG.

“We also remain concerned that not enough attention is being paid to the significant weaknesses in meeting performance and compliance obligations and the resultant impact this has on the lives of South Africans.:

107 municipalities (43%), mainly in the Eastern Cape, Northern Cape and North West, received modified audit opinions due to material misstatements in their financial statements.

Non-compliance with legislation also remained high, with 206 municipalities (83%) materially not complying with key legislation.

A total of 201 municipalities (81%) received material compliance findings in all three years of the current administration, accounting for irregular expenditure of R87.04 billion over the period.