‘Inaction by political and administrative leadership [in the Free State] continued to be a deliberate obstruction to municipalities’ effective functioning. The provincial leadership should be very concerned about this state of affairs,” said Auditor-General (AG) Tsakani Maluleke.

The AG made this finding in the 2020-2021 consolidated general report on the local government audit outcomes.

“Poor financial management disciplines and in-year financial reporting processes meant that none of the municipalities could prepare credible financial statements in 2020-21,” said Maluleke.

Outstanding audits

There were also seven municipalities in the province where audits were not completed “as a result of the late or non-submission of financial statements” by the submission date.

These municipalities are: Mafube, Masilonyana, Tokologo, Maluti-A-Phofung, Mantsopa, Nketoana and Kopanong.

While the AG’s office eventually received the financial statements of Mafube, Mantsopa, Nketoana and Tokologo municipalities between March and May 2022, and is busy with their audits, the financial statements of Kopanong, Maluti-A-Phofung and Masilonyana were still outstanding.

The 2019-20 financial statements of Maluti-A-Phofung are also still outstanding, according to the report.

“Municipalities did not have the discipline to submit their financial statements by the legislated date,” said Maluleke, adding that only 52% of municipalities submitted their financial statements on time, compared with 80% in the 2016-17 reporting period.

The AG said her office had to seek help from the relevant councils and the provincial leadership over the seven non-submissions, “but their response was ineffective”.

“We notified the responsible accounting officers and authority that the non-submission of financial statements constitutes a material irregularity, as delays in the accountability processes are causing substantial harm to these municipalities.

“The lack of transparency for the finances and performance of these auditees should not be tolerated by councils, provincial leadership or oversight,” Maluleke said.

Daily Maverick has published stories on the municipal audit outcomes of several provinces:

• Levels of financial stress — The best and worst municipal performers in KwaZulu-Natal
• Gauteng municipalities rack up R6.6bn in irregular expenditure in a single year
• Laingsburg, Kannaland and Beaufort West still identified as troubled Western Cape municipalities
• Northern Cape municipalities are in dire financial health and face collapse from unresponsive leadership
• Audits in North West reflect ‘a worsening culture of (un)accountability in the province’

‘History of disclaimed opinions’

According to the AG’s report, “Four municipalities have a history of disclaimed opinions and their 2020-21 financial statements were not submitted or only recently submitted for auditing.”

A disclaimed opinion means that the AG’s office could not determine if public funds were appropriately accounted for due to a lack of adequate record-keeping and credible financial reporting.

“This state of affairs has systematically destroyed these institutions, contributing to their poor financial health and negatively affecting their ability to deliver basic services,” read the report.

As a result, the AG’s office issued material irregularity notifications to the respective municipal managers, “based on the substantial harm caused to these municipalities”.

The AG’s office performed additional audit work on the infrastructure and payment profiles of Masilonyana, Maluti-A-Phofung and Tokologo municipalities, and determined that only Masilonyana had a plan and budget for the routine maintenance of its infrastructure assets, while Maluti-A-Phofung and Tokologo had no plan to ensure that their infrastructure assets were properly maintained.

“The municipalities were not fulfilling their service delivery mandates,” the AG found.

Maluleke said all seven wastewater treatment works at Maluti-A-Phofung had collapsed and the plants were not operational “due to a combination of poor management, theft and vandalism”.

“This resulted in raw sewage being discharged into the environment. We issued notifications of material irregularities for four of these plants due to the likely substantial harm to the public,” she added.

The provision of basic services such as water in Intabazwe and Harrismith, which fall within Maluti-a-Phofung local municipality, has deteriorated steadily over the past few years, fuelled by political instability, municipal debt and the collapse of administration within the municipality.

Under administration for the last two years, the Maluti-a-Phofung Municipality is unable to provide basic services. How are the #Harrismith Water Heroes fighting for their town’s survival, one basic service at a time? @DerekWatts finds out. #CarteBlanche pic.twitter.com/xDUshAWtJY

— Carte Blanche (@carteblanchetv) January 19, 2020

Free State municipalities’ state of financial health

According to the AG, “financial health continued to deteriorate across the province”.

The key issues, according to Maluleke, are inaction by political and administrative leadership, lack of consequences which has created a “culture of impunity”, poor financial management disciplines and inability to meet project deadlines — resulting in a collapse in service delivery.

The municipalities of Letsemeng, Tswelopele, Matjhabeng, Dihlabeng, Phumelela, Moqhaka, Ngwathe, Setsoto, Xhariep district and Mangaung metro have been flagged as municipalities with ongoing concerns over a period of five years.

In 2019, Mangaung metro was placed under administration after service delivery fell flat.

Read more in Daily Maverick: “ ‘Gatvol’ in Mangaung: Empty promises fuelled deadly shutdown protest”

According to the AG’s report, on 1 January 2020, the provincial executive intervened at Mangaung “by imposing, and assuming responsibility for a recovery plan that aimed to secure the metro’s ability to provide basic services and meet its financial commitments”.

In the notes specific to Mangaung, the AG’s office explained that the metro had forfeited a R429-million grant from the National Treasury “due to underspending that resulted from delays in completing grant-funded projects”. This added to the dire financial position of the metro and had a negative impact on service delivery.

The Auditor-General found that, overall, municipalities in the province have gone backwards in meeting project deadlines for infrastructure projects.

“In 2016-17, only 10% did not meet project deadlines, but this had increased to 60% in 2020-21. For example, at Metsimaholo, the project for installing 4,000 sewer connections was delayed by almost two years due to poor planning,” read the report.

Mangaung spent less than 2% of its infrastructure budget on repairs and maintenance, resulting in the further deterioration of infrastructure such as roads and water networks, read the notes.

“Service delivery protests increased as residents grew increasingly dissatisfied with pothole-riddled roads, having to go for days without water, and refuse sometimes not being collected for weeks.

“Although the metro held public participation sessions where the needs of the community were received and planned for, many of the planned targets were not achieved because they were not prioritised and/or because of a lack of funding,” read the AG’s report.

Because projects were not completed, “the communities’ needs were not addressed, which negatively affected their lives”.

In April this year, the Cabinet approved an intervention by the national executive in the governance of Mangaung, aimed at helping improve the health of the metro, following the failure by the Free State provincial executive to implement a financial recovery plan in the metro.

In notes specific to the Free State, the AG’s office said it continued “to identify and report material findings on compliance with legislation at all auditees, including in the area of procurement and contract management”.

It added that irregular expenditure remained high among municipalities, with the closing balance increasing from R7.63-billion to R9.18-billion, because municipal public accounts committees failed to perform timeous investigations.

“In a province where there is such dire need for service delivery, continued waste, disregard for legislation and a lack of consequences are unacceptable. Every rand spent is a precious resource that should be used wisely,” read the report.

‘Urgent action required’

Making closing remarks, Maluleke said that “urgent action to strengthen controls is required to achieve the desired outcome”.

The AG said new councils that came into place after the 2021 municipal election should set the correct tone at the top.

“They have the opportunity to deal with years of impunity and lack of consequences and to champion improved audit outcomes,” read the AG’s report.

Read more in Daily Maverick: “Free State: ANC majorities slashed and hung councils quadruple” and “Free State: Mangaung makes its mark”

“All role players should be dedicated to rebuilding strong and credible municipalities with high levels of transparency, integrity and accountability.

“The provincial treasury, the MEC for local government and the provincial cooperative governance and traditional affairs department should intensify interventions to support and strengthen the capacity of municipalities,” the report continued.

Since the release of the AG’s report in June, Daily Maverick has been unpacking its contents. Find some of the articles here:

• Only 41 municipalities register clean audits, with Western Cape leading the pack — and Free State at the bottom
• More than quarter of SA’s municipalities are on brink of financial collapse, warns AG 
• The good, the bad and the shocking: A visual gauge of the financial state of South Africa’s municipalities
• Financial gauge: Auditor-General puts spotlight on state of South Africa’s eight metros DM