Auditor-general's report paints bleak picture at most councils

Service delivery is at risk of collapsing in more than half the country’s municipalities due to cash-flow crises.

Auditor-general Tsakani Maluleke issued this warning in the Consolidated General Report on Local Government Audit Outcomes for the 2021-2022 financial year released on Wednesday.

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

“The financial position of 70 (29%) of the 241 municipalities where we completed our audits was so dire they had to disclose significant doubt about their ability to fully operate in future.

“These municipalities included the City of Tshwane and Mangaung metros, in Gauteng and the Free State respectively, which together were responsible for 10% of the total local government budget and for service delivery to 9% of households in the country.”

The report paints a bleak picture of municipalities which spent many months failing to bill their customers for services rendered.

Maluleke said the economic downturn was another factor that had a negative effect on revenue collection, though municipalities do not always play their part.

“The main source of revenue for most municipalities is the rates and taxes paid by property owners and consumers of municipal services. The problem with own revenue is municipal consumers (including government institutions) are not paying municipalities what they owe — this has been a trend for many years and has been made worse by the continuing economic downturn.”

The report said municipalities were also to blame for poor revenue collection as they do not always bill all revenue they are owed and poor debt collection practices were common.

“This means that while a municipality’s revenue might look healthy on paper, the money does not reach the bank. We estimate municipalities will be able to recover only 34% (R112.88bn) of own revenue.

“Municipalities took an average of 231 days to collect the amounts they were owed. In 2021-2022, municipalities wrote off R39.63bn in debt not paid to them,” she said.

“In addition to highlighting these concerns through our audit findings, we also issued material irregularity notifications where municipalities were suffering material financial losses because of these practices.”

The AG also found service delivery was negatively being affected by the failure of more than half of municipalities to pay service providers within a month.

“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 R11.87bn, while 79 municipalities (36%) spent more money than they generated.

“The late payments affect the cash flow of local government suppliers”

The report also found there were public servants who continued sidestepping the law by doing business with government, with contracts worth R3bn having being awarded to companies owned by public servants.

“We identified that awards totalling R250m had been made to employees and councillors at 19 municipalities and awards totalling R2.49bn had been made to other state officials at 134 municipalities.”

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