Local government elections and the state of our municipalities

Over the next couple of months, as politicians campaign for votes in the local government elections set to take place on 4 November, an important process relating to municipalities will be happening in parallel.

Municipalities were required to submit annual financial statements to the Auditor-General (AG) on 31 July. The audit cycle will be completed in the coming weeks, and the AG will issue its report on the state of SA’s municipalities.

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Judging by the reports of recent years (some might say judging by all reports since the current government configuration was adopted), the picture is not expected to be a pleasant one.

In the past Municipal Finance Management Act (MFMA) cycle – MFMA Audit outcomes 2024/25 – just 15% of municipalities managed to achieve clean audits.

The spectrum used by the AG in grading audit outcomes ranges from the proverbial clean audit down to qualified audits and adverse opinions where chaos is pervasive enough for the auditors to determine that what they see has little to do with the idea of fair presentation.

In instances where nothing can be assessed substantively at all, a disclaimer is issued, which is as dire as it can get.

Over the past cycle, of the country’s 257 municipalities, just eight (3%) received disclaimers – which was a major improvement on the 29 that received disclaimers in the last year of the previous municipal administrations in 2021.

Municipalities that receive disclaimers require an inquiry of sorts to figure out how that can ever materialise.

It is however in the remainder of the municipalities across the audit outcomes spectrum where opportunities lie.

It’s not just about the financials

Given the association of audit language with finance, a common error is to assume that the AG merely focuses on the financial information and issues opinions based on assessments of financial stewardship only.

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Only 39 municipalities receive clean audits – AG report
Auditor-General posts another miserable scorecard for municipalities

The premise for that is that in all other companies where profits and financial sustainability are the primary litmus test, the focus tends to be on the financial stewardship component.

For state entities however, the focus is not that myopic.

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Government institutions – and especially local government which forms the primary interface of citizens with the state – cannot merely be measured on the financial indicators.

Rather, the focus is on a broader set of indicators and outcomes, with financial stewardship being one of the key ones – and perhaps one most easily understood by the public.

It is essentially much easier to answer the question of whether money was spent efficiently or not.

If an unfunded budget is adopted and deficits accrue, calculating and reporting on that is a linear process.

Determining whether the investment into future infrastructure is adequate for the population of the time and of the future is much less linear.

Critical aspect: performance outcomes

But as governments and government institutions exist to serve the public, is it critical to pay attention to the commitments made and the progress on such commitments which form the social contract between the electorate and the elected.

In this case the audit of performance outcomes is for some people just as critical, if not more critical, than the audit of financial outcomes.

The obvious reality is that commitments have to be funded and, anecdotally, municipalities that have poor financial stewardship are going to struggle to meet all performance targets. In other words, municipalities with poor financial audit outcomes are unlikely to continuously achieve all performance outcomes.

Troubling view

Earlier this year, an opinion piece by a senior staffer at National Treasury intimated that the audit processes applied by the AG in assessing government entities had become so rigid it created the risk of decision paralysis – where managers and executors live in constant fear of breaking the rules the entities end up with undesirable audit outcomes.

They may then retreat to inaction in order to preserve good audits.

A thesis of that nature may give the impression that audit processes have become so myopic and monolithic they have created a default position of guilty until proven otherwise.

The opinion piece even claimed that “senior officials talk about audit careers being built on the graveyard of ruined departmental reputations” and an AG “that has created and oversees an auditing regime that disincentivises civil servants from acting, let alone responding to crises”.

It also claimed that “in some cases negative audit findings appear to have been leaked as part of coordinated processes to get rid of officials known for their tough anticorruption stances”.

Such allegations – even when cited anecdotally – are serious, and if left unaddressed may result in a view that rather than being an enabling instrument that ensures accountability in the public service ecosystem, the AG has become the great impediment.

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Regrettably, the article offered little in the way of substantive explanation or evidence for the anecdotes cited.

The proposition that auditors take pride in signing off adverse or qualified reports and ruining departmental reputations suggests a bigger ethical crisis that, in the absence of evidence, is difficult to address.

If indeed the processes of the AG have created an execution chill where managers prefer retreating to omission rather than risk the sins of commission, that would indeed defeat the entire purpose of giving the responsibility of managing public resources to those elected to do so.

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Failing to spend allocated budgets and implement agreed programmes would mean that performance outcomes are never achieved, to the detriment of citizens.

An ideal scenario

Perhaps the bigger problem lies in the understanding of what the interaction between auditors and auditees needs to be.

In an ideal scenario, those given the responsibility to manage public resources should have the latitude to determine what processes enable them to best execute and what rules are appropriate for their own organisations.

Once such protocols are documented and adhered to, the scope for adverse audit outcomes should be minimised.

Given the vast nature of government, it is clear that primary guiding instruments like the MFMA and the Public Finance Management Act (PFMA) are, for some institutions, required as the baseline for setting rules.

Of course, complying with relevant laws is necessary as violations create new headaches.

Consequently, the audit process must pay due attention to these various dimensions so we do not end up with a perfect financial audit simply because an institution refused to do anything and left citizens in service limbo.

Compliance outcomes

In National Treasury’s MFMA compliance report for 2024/25 it is emphasised that each municipality is actually supposed to maintain signed-off systems of delegation which would ensure accountability and operational efficiency.

Such discretion lies with municipalities themselves and, if properly executed, should avoid many of the common pitfalls that municipalities find themselves in from time to time.

Regrettably, National Treasury reports that compliance with this measure remains uneven and only a minority of municipalities (127) reported signed systems of delegation in 2025.

In National Treasury’s view, such low compliance rates signal administrative disengagement and raise concerns about enforcing accountability.

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When so many municipal structures miss this important instrument of fiscal and performance discipline, it should not be surprising that audit processes create friction points.

The underlying problem is the poor capacitation across many municipalities.

In situations where high vacancy levels exist or a high number of acting appointments are made, weak controls, higher levels of irregular expenditure and poor audit outcomes are a common feature. This is according to National Treasury itself.

When you pair that with the low rate of adoption of systems of delegation, an accountability vacuum is inevitable and condemns many municipalities to poor outcomes even before the first rand is spent.

Over many years, recommendations on how to address the range of issues affecting municipalities have been made with little capacity for implementation.

Simple expectation …

The last AG report narrowed the call to action to areas that were summarised as follows:

Building capable institutions with coordinated intergovernmental support;
Professionalisation and capacitation of local government; and
Instilling a culture of ethics and accountability.

Getting anywhere close to these requires collaboration and coordination across all government and must frankly confront the reality of the uneven distribution of skills and capabilities across different municipalities.

It must also confront the reality of historical backlogs and practices that have kept professionals away from serving in the public sector.

An even more difficult question relates to the very configuration of local government structures across 257 discrete entities of varying capabilities and unique funding needs.

What political party leadership needs to pay attention to

For the politicians currently on the campaign trail, the AG’s call to action refers to prioritisation of the capability and integrity of candidates being put forward for political office, high-quality inductions of councillors, and administrative stability.

These recommendations probably echo what anyone who wishes to see a more functional local government would agree with.

And perhaps as citizens engage with politicians on the campaign trail, the interrogation of their plans should reflect on the state of affairs as they are – and their plan for addressing such issues at whichever municipality they seek to serve.

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