Cape Argus E-dition

State of municipalities can’t be judged on audit outcomes alone

MICHAEL SUTCLIFFE AND SUE BANNISTER Dr Sutcliffe and Bannister are from the City Insight (Pty) Ltd

THE recently released auditorgeneral’s consolidated report has again received widespread attention.

Unfortunately however, media reports on the consolidated audit opinions have often not fairly covered the work done by AuditorGeneral Tsakani Maluleke and her colleagues in their assessment of the failings in financial management, including their assessment of financial best practices.

The auditor-general’s focus on material irregularities is excellent, and while some municipalities have followed up on these, many have not. This is scandalous. Municipal managers and chief financial officers who have not done so should be placed on notice if they fail to adequately set in motion an action plan to address the irregularities and the financial findings contained in the reports.

The auditor-general’s focus on financial management and the use of financial consultants who add no value, is important too, as is the role that the auditor-general plays in reporting municipalities to investigative bodies.

However, presenting audit opinions as percentages does not sufficiently contextualise the findings, particularly as there is significant differentiation across municipalities. The devil is in the detail, and if one reads the auditorgeneral’s reports, the complexity of what has been found is often different from the way that the report gets publicised. Most importantly, too, by not contextualising statements, the impression is gained that all local governments have worsened their audits since 2016/17. In fact, while around 65 municipalities have regressed in terms of audit opinions since 2016/17, only Buffalo City, out of the largest 20 municipalities, regressed. These 19 top which did not regress represent 70% of all the municipal budgets. Municipalities that regressed were generally those that, on average, had budgets less than 50% of those which had audits that improved or stayed the same.

The 19 municipalities that did not regress have 50% of South Africa’s population and once we add the populations of the other 164 municipalities that did not regress, we find most of the population live in municipalities where audits did not regress.

This does not, of course, mean that all municipalities face financial and other challenges, but we should not fall into a trap of over generalisation. At the outset, we must say that having worked at a municipal level, audits and

particularly the management reports generated in the process, are invaluable to any municipal political and administrative leadership committed to good governance. But audits are specific processes of most value to the institutions being audited and care must be taken in generalising the results across municipalities.

It must be noted that considering the challenges in capacity and the newness of our municipal system, there has been a significant reduction in disclaimers or adverse audits from 111 municipalities 13 years ago, to 34 municipalities in the 2020/21 auditorgeneral’s report.

At the other end of the audit spectrum, we have introduced the concept of “clean audits” to distinguish between two groups of unqualified audits. Maluleke correctly notes that “a clean audit outcome is not always an indicator of good service delivery and does not always directly correlate to the lived experience of all the communities in a municipal area”. A “clean audit” is one where the

unqualified audit is free from material mis-statements, there are no material findings on the annual performance report and last, there are no material findings on non-compliance with key legislation.

It is the latter two aspects of clean audits that are problematic: first, annual performance measures are defined at an entity level, so if the bar is set low enough, it is easy to achieve. Many officials spend their time ensuring they craft their performance frameworks in ways that will achieve good audit outcomes instead of solid developmental outcomes.

Second, non-compliance with legislation can also be subjective: in eThekwini we engaged in heated debate, for almost 18 months, with auditors who believed that before we prepared for the 2010 World Cup and built the Moses Mabhida Stadium, we should have undertaken a feasibility study. We directed them to the Cabinet decision to which the municipality was complying. Only eventually did the auditors relent and not qualify our

audit for a decision the Cabinet took.

Also, clean audits are relatively easy to achieve if a municipality does not deliver much or does not spend money in areas that are developmentally complex. Few people realise that given the complex legislative frameworks, large municipal tenders often taken more than nine months to conclude, yet the financial year is only 12 months.

Unfortunately, this results in an untenable situation where, as a country, we put more emphasis on “clean” audits than on developmental service delivery, instead of striving for a balance between the two. Through making our major aim that of achieving a clean audit, we work against our objective of creating a developmental state, where our goal should be that of providing higher levels of basic services, addressing poverty and inequality. This must be done while complying to rules which ensure that development is done in a fair, transparent and corruption-free manner, but we must not lose track of our broader developmental objectives.

In an overly compliant environment, the political and administrative leadership of municipalities are faced with a delivery-compliance conundrum. With ever-increasing compliance requirements the pace and scale of delivery declines, ironically often allowing those who are corrupt to steal from the coffers. In considering audit results, it is important to compare like with like. Our metropolitan municipalities have, on average, more than 17 000 staff members and budgets of more than R32 billion compared with category C1 District municipalities (non-Water Authorities) which have an average staff component of 242 and total budgets of around R240 million.

At the same time, we should also not automatically conflate irregular expenditure with corruption. Irregular expenditure simply means that there has been expenditure occurring outside an approved budget or conditions of a grant. In our experience, irregular expenditure is often incurred for legitimate reasons. This could be as a result of emergencies, disasters, urgent needs, and the like. Once this has happened though, a process needs to be conducted to condone such expenditure, which involves the Audit Committee and Council.

Overall, audits are one of many indices of governance at a municipal level which should be read, understood and contextualised. Instead of focusing only on audit outcome reports, we should also look at the rich body of reports contained in National Treasury MFMA Section 71 reports and the reporting by the Department of Cooperative Governance and Traditional Affairs, which provide a more current insight into municipal affairs.

We must increasingly and transparently hold municipal leadership to account in-year and we should equally report on cases where such leadership is responding well to identified challenges. At the same time, we must revisit the situation where performance auditing is compliance and not developmentally driven.

Ideally, we should de-link financial auditing from developmental/performance auditing and develop a mechanism where professional development and administration experts deal with the performance audits.

This would allow us to ensure we focus on how our developmental goals can be achieved within a fair, transparent and non-corrupt process.

INSIDER

en-za

2022-06-26T07:00:00.0000000Z

2022-06-26T07:00:00.0000000Z

http://capeargus.pressreader.com/article/281861532187002

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