Mfma Report 2021-22 Final - 31 May 2023

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INTRODUCTION STATE OF LOCAL CONTINUED SPOTLIGHT ON CALL TO ACTION PROVINCES AUDIT FACT SHEET
GOVERNMENT DISCLAIMED MUNICIPALITIES
CONSOLIDATED GENERAL REPORT ON

LOCAL GOVERNMENT AUDIT OUTCOMES
MFMA 2021-22
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CONSOLIDATED GENERAL REPORT ON LOCAL GOVERNMENT AUDIT OUTCOMES MFMA 2021-22
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AUDITOR-GENERAL OF SOUTH AFRICA
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CONTENTS
Foreword from the auditor-general................................................2
Executive summary..........................................................................4
SECTION 1......................................................................... 10
Introduction
SECTION 2 ........................................................................ 14
State of local government
Audit outcomes .............................................................................................................................. 14
Material irregularities...................................................................................................................... 19
Financial planning and reporting................................................................................................. 28
Information technology................................................................................................................. 36
Pressure on local government finances....................................................................................... 39
Service delivery planning, reporting and achievement........................................................... 48
Infrastructure for service delivery................................................................................................. 62
SECTION 3 ........................................................................ 76
Continued spotlight on disclaimed municipalities
SECTION 4 ........................................................................ 88
Call to action
SECTION 5 ........................................................................ 98
Provinces
Overview........................................................................................................................................... 98
Eastern Cape ................................................................................................................................. 106
Free State........................................................................................................................................ 111
Gauteng ........................................................................................................................................ 114
KwaZulu-Natal ............................................................................................................................... 117
Limpopo ......................................................................................................................................... 121
Mpumalanga................................................................................................................................. 124
Northern Cape .............................................................................................................................. 127
North West ...................................................................................................................................... 130
Western Cape ............................................................................................................................... 133
SECTION 6 ...................................................................... 136

Audit fact sheet
1
FOREWORD
FROM THE AUDITOR-GENERAL
Local government represents citizens

across South Africa and carries the hopes
and aspirations of communities to improve
their lives and living conditions
Local government faces greater demands than ever before to regain the
trust of South Africans and to provide essential services such as clean water,
sanitation, electricity, waste management and well-maintained roads and
infrastructure in a prompt and financially responsible manner.
However, for years local government has been characterised by deteriorating

standards of living, service delivery failures, dysfunctional municipalities,
council and administrative instability, financial mismanagement, service
delivery protests and crumbling municipal infrastructure. Citizens continue
to express their dissatisfaction and frustration through the media and other
platforms, calling for urgent attention to address their plight.
My teams and I are determined to execute our constitutional mandate to instil

a culture of performance, accountability, transparency and integrity in local
government, which will ultimately result in a better life for the people of South
Africa. We are using our enhanced powers to demand action where there is
inaction and no accountability. We do this through our audits of municipalities
and their entities, which give us unique insights into the successes, failures and
challenges in local government, and into those that support them in national
and provincial government. Armed with this information, we aim to contribute
to the much-needed improvement in local government by sharing our insights
widely, making recommendations, and advocating for leadership at
all levels of government to play their part.
My previous general report was aimed at the new administration – the

new mayors, speakers and council members elected to represent their
communities. I called on them to provide courageous, ethical, accountable
and citizen-centric leadership to overhaul a local government characterised
by accountability and service delivery failures, poor governance, weak
institutional capacity and instability.
The new administration was in place for only part of the 2021-22 financial year
and there was inevitable instability in the transition, which worsened ongoing
failures in accountability and performance at municipalities. However,
there have been pockets of improvement and continued excellence at
municipalities that maintained their clean audit status. There was also a strong
showing of support to municipalities by provincial government, including the
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premier and the members of the executive I firmly believe that service delivery improvements
councils responsible for local government and will be enabled by stable, capable, cooperative,
finance, which gives me hope for a better future. accountable and responsive municipalities
With the leaders in place and the tone being set delivering on their mandates to improve the lives
for significant improvements and increased of ordinary South Africans. Thus, the theme of
clean audits in local government, my call is this general report is ‘A culture of accountability
for urgent action. will improve service delivery’.
With the information and insights presented in I invite all South Africans to be active participants
this report, I aim to empower leaders and all in improving local government and holding those
roleplayers in the accountability ecosystem to responsible to account. All roleplayers in the
focus on key issues that will enable good financial accountability ecosystem must actively make
and performance management, compliance local government their priority if improvement is
with legislation and, ultimately, enhanced service to be realised.
delivery by municipalities. My objective is to provide
Lastly, I wish to thank the audit teams from my
insights that can lead to corrective action and
office and the audit firms that assisted with the
consequence management. My teams have also
local government audits for their diligent efforts in
sharpened their focus on the very important aspect
helping us fulfil our constitutional mandate, and for
of planning for and reporting on service delivery
the way they continue to strengthen cooperation
and the actual service delivery experiences of
with government leadership. I also wish to thank the
ordinary South Africans.
leadership of all municipalities and provinces for
This report further highlights the progress we have working with us during the audit process.
made in implementing the enhanced mandate
granted to my office in terms of the Public Audit
Act. We report on the material irregularities that
we have identified as well as the progress made
in enhancing and enforcing accountability and Tsakani Maluleke
demanding action to address material failures. Auditor-General
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EXECUTIVE SUMMARY
A culture of accountability will improve service delivery
Our previous general report showed that the local government audit outcomes were in
a poor state when the previous administration took over in 2016-17 and did not improve
over its term. The administration was characterised by accountability and service
delivery failures, poor governance, weak institutional capacity and instability.
The behaviour and conduct of leaders and officials led to a local government culture
that was largely devoid of performance, accountability, transparency and integrity.
The report provided insights on deteriorating financial health, ineffective financial

reporting practices, procurement and payment transgressions, inefficient use of
information technology systems, and a lack of consequences for wrongdoing. We also
shared our observations on the status and impact of the material irregularity process.
In addition, we showed how poor planning and reporting on basic services, failing
municipal infrastructure and municipalities with disclaimed audit opinions negatively
affected service delivery.
We reminded the newly elected political leaders about the renewed hope that
communities had that they would address the pressing need for services, economic
opportunities, and a safe and healthy living environment. Courageous, ethical,
accountable, capable and citizen-centric leadership was needed. We called on all
roleplayers in the accountability ecosystem (particularly the coordinating institutions
made up of national and provincial cooperative governance departments and
treasuries) to step in to support failing municipalities and focus specifically on improving
service delivery, eradicating disclaimed audit opinions, effectively dealing with material
irregularities, and stabilising and empowering the administration.
This general report builds on our previous messages with further insights on the first year of
the new administration. The new administration was in power for only part of the
2021-22 financial year and instability resulting from the change in leadership was
apparent – as had also been the case in the past when administrations changed. The
new administration thus has had little impact on the audit outcomes and the state of
local government. Overall, there has been little change, but in this report we highlight
the pockets of improvement and the actions government has initiated to drive change
as a message of hope for better outcomes and the resulting impact on the lived realities
of all South Africans. We also continue to urge elected representatives to intensify their
actions towards instilling a culture of performance, transparency and integrity and to be
accountable to the communities they serve.
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Summary of key messages
» Audit outcomes showed little improvement consultants, the underlying causes and
overall and the number of clean audits financial impact of disclaimed audit opinions,
decreased. On the positive side, there were and to strengthen internal controls.
also fewer municipalities with disclaimed audit Most municipal managers are taking action
opinions. We saw the biggest improvements to resolve material irregularities, but where
in KwaZulu-Natal and the Eastern Cape, and the material irregularities were not dealt with
the highest net regressions in Gauteng and the swiftly or with the required seriousness, we
Western Cape. While two metros improved their included recommendations in audit reports,
audit outcomes, this was offset by two other issued remedial action and referred matters to
metros that regressed. relevant public bodies for investigation, where
» Municipalities with clean audits are appropriate. With the support of all roleplayers,
characterised by sound financial and including councils, this process could have an
performance management disciplines and even greater impact.
perform their functions in accordance with » We saw little improvement in the quality of
applicable legislation. They plan adequately, financial reporting, continued overreliance
implement effectively and report on on the audit process to identify and correct
performance in a credible manner. They misstatements, and the ineffective use of
further manage projects effectively so that consultants. Unfunded budgets and rising
deficiencies are identified and rectified unauthorised expenditure clearly show the
promptly and so that timelines, budgets and weaknesses in financial planning. However, we
quality standards are adhered to. The well- did note improvements where the treasuries
functioning control environment and good and/or cooperative governance departments
systems present at these municipalities form assisted struggling municipalities. Without
a solid foundation from which councils can investing in skills and capacity to ensure proper
prioritise improving their performance and financial planning, controls and reporting,
service delivery further. The municipalities that municipalities cannot deliver services and
maintained their clean audit status continue responsibly use and transparently account for
to be an example of what is possible. taxpayers’ money.
» The material irregularity process is making an » Municipalities should be using information
impact. Financial losses of an estimated technology systems to help them deliver
R479,56 million have been recovered, are efficient and effective services and to maintain
in the process of recovery or have been accurate financial records. However, this is not
prevented because of this process. We used what is happening, mainly because they are
this enforcement tool to spur municipal unable to design, implement and maintain key
managers into action to address the non- systems and controls. Ineffective information
submission of financial statements, the pollution technology governance processes led to
caused by neglected wastewater treatment control environments that were vulnerable to
plants, the non-payment of Eskom and water abuse or misuse and to municipalities being
boards, the ineffective use of financial reporting
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exposed to cyberattacks. We did not see a However, municipalities with clean audits
return on investment for the substantial amounts demonstrated sound project management
that metros and large municipalities spent disciplines through the effective use of grant
on new and advanced systems. Information funding and spent most of their infrastructure
technology projects were delayed, budgets grants. Crumbling municipal infrastructure
were exceeded and projects did not always severely affects service delivery and causes
meet business expectations. Municipalities also harm to the public, who are exposed to
paid for software licences they did not need safety and environmental hazards. Municipal
or use, resulting in expenditure that could have infrastructure was severely damaged during the
been avoided. floods in April and May 2022 and the effects of
» The financial health of municipalities the flooding were worsened by the lack of well-
continued to deteriorate, partly because maintained infrastructure such as stormwater
increased economic pressures meant that drainage. The challenges relating to
consumers were not paying their bills, but infrastructure call for greater intergovernmental
also because of poor financial management. coordination.
Municipalities are losing money because they » When a municipality receives a disclaimed
are not billing and collecting revenue, are audit opinion (the worst audit opinion possible),
using unfair and uncompetitive procurement this does not only mean it does not have
practices, and are paying for goods and accounting records to support its financial
services that they either do not receive or do statements, it often also reflects a culture
not use. Poorly managed local government of very little accountability, transparency,
finances directly affect municipalities’ ability performance or integrity. This is apparent in
to deliver the promised services to their poor financial management practices, failing
communities and place further pressure on the infrastructure, neglected wastewater treatment
already constrained public purse. plants and poor waste disposal management,
Creditors are not paid within legislated which cause harm to the public. While we
timelines. Specifically, the debt owed to Eskom have seen some improvements and increased
and water boards remains high and continues support provided by provincial government to
to increase due to interest and penalties these municipalities, more needs to be done.
incurred on late payments. If these debts are Eradicating disclaimed audit opinions will help to
not paid, communities are left without access improve the lived experience of communities.
to basic services such as electricity and water. » Service delivery must be planned based on
This also makes it difficult for businesses to the needs of communities, and on the budgets
operate optimally, which further affects the and resources municipalities have available.
struggling economy. National and provincial It must also be managed throughout the year
government are increasing their interventions and the achievements (or lack thereof) should
at financially distressed municipalities to help be reported in a credible and transparent
them deal with the challenges they are facing manner. We continued to see municipalities
and get on the road to recovery. that do not adequately plan for delivering key
» Municipalities continue to neglect municipal basic services and do not report credibly on
infrastructure because of their reactive that delivery, with many also not achieving their
approach to planning and maintenance. planned targets. In addition, accountability
They do not ensure that infrastructure projects is hampered as there is little transparency on
(mostly funded by grants) are delivered on the true state of local government’s delivery
time, within budget and at the right quality; of key basic services such as water, sanitation,
and they do not maintain existing electricity and housing.
infrastructure either.
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Municipalities’ inability to deliver basic » Lack of accountability and consequences:
services contributes to the deteriorating living Equally important as appointing skilled officials
conditions of communities and erodes trust in is the need to ensure that they are disciplined
government’s ability to deliver on its promises. and held accountable for their performance
These continuing failures in the most critical to create a culture that values excellence and
part of municipal operations are not receiving supports continuous improvement. Limited, or
the necessary attention from councils, national even no action was taken against municipal
and provincial government, and oversight officials and leadership for wrongdoing and
structures. It is crucial for councils to have robust poor performance. This can be seen most
systems in place to plan, monitor and report on clearly where councils did not deal effectively
performance to enable them to prioritise and with unauthorised, irregular, and fruitless and
allocate resources to efficiently and effectively wasteful expenditure; and where municipal
deliver services and build trust within their managers and senior management took
communities. limited action in response to our findings and to
allegations by other parties of possible fraud,
Root causes of problems non-performance and the abuse of the supply
chain management system.
underlying key messages
» Inadequate skills and capacity: Limited What should be done?
skills and capacity in finance, information
technology and technical units (which are Service delivery improvements and the responsible
responsible for infrastructure projects) led to use of the limited funds available will only be
municipalities relying heavily on consultants. enabled when municipalities are capable,
Vacancies and instability in key positions such cooperative, accountable and responsive, and
as those of municipal manager and chief when they deliver on their mandates. Municipal
financial officer contributed to the limited leadership, councils and mayors in particular, play a
improvement in audit outcomes and delays in critical role in setting the tone for ethical behaviour,
dealing with material irregularities and other good governance and accountability; and in
transgressions. creating a culture that fosters trust and confidence
in local government.
» Governance failures: A lack of institutionalised
financial and performance management We provided municipal managers and senior
controls continued to leave municipalities ill- management with recommendations on how to
prepared to operate optimally during times of improve their specific audit outcomes during our
change and instability. Instability and disruption audits. The call to action in this report is aimed
in councils, along with ineffective municipal at the broader accountability ecosystem and, in
public accounts committees, continued to limit particular, councils (including mayors), legislatures,
the effectiveness of governance processes. provincial leadership and coordinating institutions
Internal audit units and audit committees did and their executive authorities.
not have the required impact, mostly because
their recommendations were not implemented.
The interventions and support initiatives
provided by some coordinating institutions, and
the reporting by the members of the executive
council for local government to provincial
legislatures, also had limited impact.
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In short, it calls for the following: Accountability and consequences
» Properly monitor internal controls to enable
Skills and capacity
early detection of financial and performance
» Support the professionalisation of local management failures.
government, in line with the newly adopted
» Improve the implementation of the
professionalisation framework.
National Treasury guidance on dealing with
» Fill vacant positions with competent people, unauthorised, irregular, and fruitless and
swiftly complete the appointment of municipal wasteful expenditure; and adopt the National
managers, continue to upskill municipal officials Treasury’s Consequence Management and
and council members, and develop and Accountability Framework.
implement plans to reduce the high reliance on
» Strengthen municipal public accounts
consultants and to ensure the transfer of skills.
committees, disciplinary boards and
Governance investigation processes.
» Strengthen and institutionalise financial and » Councils, municipal public accounts
performance management disciplines and committees and provincial leadership
information technology governance; and and legislatures to monitor and support
continue to invest in preventative controls. the resolution of material irregularities by
» Ensure stable and well-functioning councils accounting officers.
and municipal public accounts committees The leadership in national and provincial
as well as improved oversight and monitoring government made commitments in response to
by mayors. our previous general report, as well as during our
» Derive full value from the expertise in engagements with them in the build-up to tabling
internal audit units and audit committees this report, to improve accountability and service
by implementing their recommendations. delivery in local government. Various initiatives
Municipal managers to play a vital role in are being implemented such as increased
creating an environment where the roles of interventions, support and financial recovery
internal audit units and audit committees are plans for dysfunctional and financially distressed
effective and their recommendations are municipalities, and the implementation of the
implemented. district development model. We will continue to
» Coordinating institutions to continue to monitor and report on these developments.
collaborate and intensify efforts to assist
We appreciate that it is not always easy to deal
struggling municipalities and tailor support to
with the challenges in the local government space,
their specific needs.
and we are encouraged by the strides being
» Members of the executive council for local made to improve municipalities’ performance,
government to improve the quality and timing most notably the decrease in the number of
of their reports to provincial legislatures on municipalities with disclaimed audit opinions.
municipalities’ action plans and performance.
Provincial legislatures to issue prompt resolutions
in response to the reports and track the
implementation of these resolutions.
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Where we did see improvements in either audit
outcomes or action taken to resolve long-standing
issues, it was often due to the deliberate steps that
municipalities took to improve and strengthen
their internal control environments, and through
the support and interventions of coordinating
institutions. The material irregularity process also
triggered actions, such as the submission of
long-outstanding financial statements, traction
on dealing with poor-quality infrastructure and
wastewater treatment works, and interventions from
coordinating institutions that enabled municipalities
to improve their internal control environments.
We remain committed to partnering with and

supporting the local government accountability
ecosystem through insights from our audits, the
material irregularity process, and regular and
impactful engagements with all roleplayers.
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SECTION 1
INTRODUCTION
1
This report reflects on the audit outcomes of local
government and presents our observations and insights
from the audits of the financial year ended 30 June 2022,
which covers the first year of the new administration
Local government is the sphere of government that is are directly involved in local government matters
closest to ordinary South Africans because it provides through public participation processes.
the basic services that have a direct impact on
their lives. It is meant to be an inclusive, democratic In 2021-22, local government had an estimated
and accountable system, with communities and expenditure budget of R539,13 billion to operate
community organisations acting as shareholders who and deliver services.
Local government budget and system
Metropolitan municipalities commonly Local municipalities can be large towns,

10% known as ‘metros’, are large urban small towns or rural areas. Just like
complexes with populations of more intermediate cities, they are responsible
than one million people. They account for all municipal functions not assigned
15% for the largest portion of municipal to the district, particularly service delivery
48% expenditure and serve the highest to the residents in their designated
number of households and thus most geographical area. These municipal
7%
of the people in the country. functions include water and sanitation
services, electricity supply, refuse removal
20% Intermediate cities are municipalities and road maintenance.
with large budgets that also serve a
substantial number of households. Municipal entities are independent
They are responsible for all municipal entities that perform municipal services
functions not assigned to the district – on behalf of a municipality. Their financial
R262,92 billion in particular, local service delivery. statements are consolidated into those
Metropolitan municipalities (MM) of their parent municipalities. Their audit
District municipalities perform outcomes are also important as they
R105,39 billion certain functions on behalf of local are responsible for a significant portion
Intermediate cities (ICM) of municipal expenditure and service
municipalities, such as integrated
planning, infrastructure development, delivery programmes.
R35,60 billion
electricity provision and public
District municipalities (DM)
transport. A district municipality may
be a water services authority and may
R83,21 billion
also provide financial, technical and
Local municipalities (LM)
administrative support services to
R52,01 billion a local municipality within its area
Municipal entities (ME) as far as it can.
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Low levels of trust and public frustration at the Against this background, this report shows serious
lack of service delivery and financial management accountability failures and signs of collapse.
are continuing and are getting worse in many However, it also highlights some of the positive strides
places. Some municipalities are unable to address made that resulted in pockets of improvement,
the basic needs of communities, such as access showing that if those responsible put in the required
to clean drinking water. Over the past year, the effort, positive change can be achieved.
number of municipalities that the Department
of Cooperative Governance reported as Local government
dysfunctional has increased from 64 to 66, while the accountability ecosystem
National Treasury reported that 43 municipalities
are in financial and service delivery crisis because In this report, we again refer to the accountability
of political infighting, weak oversight by councils, ecosystem that we reflected on in our previous
serious financial problems and general service general reports. The accountability ecosystem is
delivery failures. While the country is in the midst of made up of all the roleplayers in national, provincial
an electricity crisis, municipalities’ debt to Eskom and local government that have a part to play in
has increased from R25,74 billion to R36,36 billion. enabling a culture of performance, accountability,
This has led to court orders to attach or seize transparency and integrity. This includes the
municipal assets because of non-payment of Auditor-General of South Africa as the country’s
electricity bills. supreme audit institution, as well as the people of
South Africa.
Accountability ecosystem for local government

Internal audit unit Treasuries
Municipal Municipal public
council accounts committee
Cooperative governance
Audit committee
Parliament/ provincial
Mayor legislatures and Offices of the premier
and speaker oversight committees
Accounting
officer Coordinating
Senior institutions
management
Provincial
Officials leadership
INFLUENCE
Leadership and Support and oversight

decision makers INSIGHT ENFORCEMENT
Active citizenry
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The different roleplayers in the accountability role played by coordinating institutions, which
ecosystem all have a mandate and/or comprise the legislatures, led by the speakers,
responsibility, whether legislative or moral, to drive, national and provincial cooperative governance
deepen and insist on public sector accountability. departments and treasuries, the ministers and
members of the executive council responsible for
Mayors have a monitoring and oversight role at both those departments, and the provincial premiers
municipalities and municipal entities. They have and their offices.
specific oversight responsibilities in terms of legislation
and can bring about improvement by being Failure by any part of the ecosystem to effectively
actively involved in key governance matters and by play its unique role, has a detrimental impact on
managing the performance of municipal managers. the effectiveness of the ecosystem as a whole.
It also tends to undermine the ability of other
Councils need to make strategic decisions, monitor stakeholders to effectively play their roles given the
the implementation of these decisions, and guide additional burden of responsibility they are required
and support municipalities towards reaching their to carry over and above that which falls within their
objectives. For the council to effectively perform particular scope and mandate.
its oversight and monitoring role, the municipal
manager and senior managers must provide them This report is therefore directed to all these
with regular reports on the financial and service roleplayers and summarises the insights and
delivery performance of the municipality. recommendations that we have already shared
with them for further action.
Municipal managers, supported by senior
management, are responsible and accountable
Our audits
for ensuring that municipalities use their finances
for the benefit of all their residents. They also play Our role is to audit every municipality and municipal
a significant role in setting an ethical tone for entity in the country and report on what we have
municipal officials and ensuring accountability and found. Through our reports, we inform councils of
consequences. Audit committees and internal the quality of auditees’ financial statements and
audit units play an important role in providing an performance reports, the status of their compliance
independent view of how effective municipal with key legislation, and whether we have identified
controls and processes are. any material irregularities.
A municipality does not function in isolation – We specifically report to the councils as they
it is part of a bigger system of government. are responsible for approving the municipalities’
The Constitution requires national and provincial budget and performance plans; for monitoring
government to support and strengthen the their performance throughout the year (in-year
capacity of local government. In our previous monitoring); and for using the financial statements
general report, we highlighted the important and performance reports to determine whether
the municipalities achieved their service delivery
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objectives, used their budget as intended and Content of the report

are in a good financial position. The council also
plays a significant role in investigating and dealing This report summarises our key messages in the
with unauthorised, irregular, and fruitless and following areas:
wasteful expenditure; fraud and corruption; and 1. The state of local government in the fifth
any transgressions and non-performance by the administration, dealing with:
municipal manager and senior management. The » Audit outcomes
accountability processes for municipal administration » Material irregularities
lie squarely within the domain of the council.
» Financial planning and reporting
Through our audits, we also look at areas that » Information technology
can contribute significantly to a municipality’s » Pressure on local government finances
success, such as financial health, infrastructure
» Service delivery planning, reporting and
development and maintenance, the control
achievement
environment (including information technology
controls), procurement and contract management, » Infrastructure for service delivery
consequence management, and aspects of
2. A continued spotlight on the state of
environmental management.
disclaimed municipalities.
We continued to audit the funds used to provide
3. A call to action for all roleplayers in the
relief to communities in flood-ravaged areas of
accountability ecosystem to address the root
KwaZulu-Natal and the Eastern Cape. We report on
causes of municipal failures, including our
the follow-up work we have done since August 2022
recommendations and the commitments made
in their overviews in the section on the provinces.
in response.
Through our expanded mandate, and the ensuing
4. The state of local government in each of the
material irregularity process, we have enriched our
nine provinces.
insights and strengthened our ability to influence
and enforce performance, accountability, 5. An audit fact sheet that provides information on
transparency and integrity in local government. the audits we performed and an explanation of
In response to the material irregularities we raised, the numbers used in this report.
municipalities are taking action to recover losses,
prevent further losses and harm by strengthening In support of greater transparency that will
internal controls, and implement consequences enable accountability, our report website
for wrongdoing. We will table a detailed report on (mfma-2022.agsareports.co.za) also includes the
material irregularities in local government after the following information, covering each municipality,
tabling of this general report. district and province in the country:
» Audit outcomes and information per
municipality
» Key information on audit outcomes per district
» Overview of audit outcomes and commitments
per province
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SECTION 2
STATE OF LOCAL
GOVERNMENT
2
Little change overall but pockets of improvement
offer hope
Audit outcomes
Audit outcomes are based on our audits of the financial statements and performance
reports of municipalities, as well as their compliance with key legislation.
The audit outcomes were in a bad state at the end of the previous administration’s term,
and this state did not improve in 2021-22. Overall, 33 municipalities now have a better
audit outcome than they did in 2020-21, while 29 have a worse outcome.
Audit outcomes – municipalities
Unqualified Unqualified Qualified Adverse Disclaimed Outstanding

with no findings with findings with findings with findings with findings audits
(clean)
41 100 83 4 26 3
2020-21
257
Last year of previous
administration
38 104 78 6 15 16
2021-22
257
15% 40% 30% 2% 6% 7%
2021-22
Percentage of budget 29% 35% 21% 10% 3% 2%
for municipalities
(R487,12 billion)
Clean audits
Municipalities with a clean audit status managed 29% of the expenditure budget of
local government. Two metros fall in this category, namely City of Cape Town in the
Western Cape and City of Ekurhuleni in Gauteng. The total number of municipalities
with clean audit opinions decreased slightly, as more municipalities lost their clean audit
status than improved to a clean audit status. The regressions were due to instability
as well as inadequate monitoring and review of controls relating to compliance. The
Western Cape continued to lead with the most municipalities with clean audit opinions.
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Movement in clean audit status – municipalities
Improved to clean Sustained clean Lost clean Outstanding

5 audit status 33 audit status 7 audit status 1 audit
The municipalities that maintained their clean audit status continue to be an example of what is possible.
Municipalities that sustained clean audit status and number of years clean
Eastern Cape (2) Northern Cape (4)

Joe Gqabi DM (2 years) Frances Baard DM (3 years)
Winnie Madikizela-Mandela LM (2 years) Hantam LM (2 years)
Namakwa DM (2 years)
ZF Mgcawu DM (3 years)
Gauteng (2)
City of Ekurhuleni MM (3 years)
Western Cape (19)
Midvaal LM (9 years)
Bergriver LM (7 years)
Breede Valley LM (3 years)
Cape Agulhas LM (9 years)
KwaZulu-Natal (3)
Cape Winelands DM (9 years)
King Cetshwayo DM (2 years) Drakenstein LM (4 years)
Okhahlamba LM (8 years) Garden Route DM (2 years)
uMhlathuze LM (3 years) George LM (2 years)
Hessequa LM (9 years)
Langeberg LM (4 years)
Mossel Bay LM (3 years)
Limpopo (1)
Overberg DM (3 years)
Waterberg DM (2 years) Overstrand LM (10 years)
Saldanha Bay LM (4 years)
Stellenbosch LM (3 years)
Swartland LM (3 years)
Mpumalanga (2) Swellendam LM (3 years)
Ehlanzeni DM (3 years) Theewaterskloof LM (4 years)
Nkangala DM (4 years) West Coast DM (12 years)
Witzenberg LM (10 years)
When a municipality receives a clean audit enables the council and everyone with an interest
opinion, it means that its financial statements in the municipality – particularly communities,
and performance report give a transparent and community organisations, and those in national
credible account of both its finances and its and provincial government who need to oversee
performance against service delivery targets. the municipality’s performance and provide the
In other words, these accountability reports support it needs to succeed – to judge how
present a reliable picture of that municipality’s the municipality is doing and to take action
performance – whether good or bad. This where necessary.
15
A clean audit opinion also means that the demonstrate sound project management disciplines
municipality complied with the important legislation and effectively use infrastructure grant funding.
that applies to it and, where transgressions did
occur, they were rare or not material. When this is the case, municipalities can focus on
ensuring that they deliver quality services to all
A clean audit is not always an indicator of their residents. We provide further insights on how
good service delivery and does not always municipalities with clean audits have managed
correlate directly to the lived experience of all service delivery in the section on service delivery
the communities in a municipal area. However, planning, reporting and achievement.
a clean audit opinion positions a municipality
to transparently communicate to communities
on whether and when their needs will be met Submission of financial statements
through accurate records, which also enables The number of municipalities that submitted
informed decisions by the different roleplayers in the their financial statements by the legislated date
accountability ecosystem. We have further seen improved from 81% in the previous year to 91%
that municipalities with institutionalised controls and in 2021-22. This was largely due to provincial
systems to plan, measure, monitor and account government’s concerted efforts to support
for their finances and performance, and to stay municipalities as well as the impact of our
within the rules, often also have a solid foundation enforcement mandate.
for service delivery. These municipalities further
Status of previous year’s outstanding audits (2020-21) due to financial statements

submitted late or not submitted
Status
Audits outstanding Audits

Submitted Not at date of 2020-21 subsequently Audits not yet
Province late submitted general report finalised finalised
Eastern Cape 2 0 0 0 0
Free State 10 2 7 4 3
Gauteng 1 0 0 0 0
KwaZulu-Natal 3 0 0 0 0
Limpopo 2 0 0 0 0
Mpumalanga 1 0 0 0 0
Northern Cape 11 0 2 2 0
North West 12 0 0 0 0
Western Cape 4 0 0 0 0
Total 46 2 9 6 3
We issued material irregularity notifications to the have completed the audits of six of these. The audit
municipal managers of the nine municipalities of Kopanong Local Municipality in the Free State
whose financial statements were outstanding, as has not been finalised yet due to delays caused
the resultant delays in the accountability processes by the municipality. We have not yet received the
caused substantial harm to these municipalities. financial statements of Masilonyana and Maluti-a-
In response, seven municipalities submitted their Phofung local municipalities in the Free State.
outstanding 2020-21 financial statements and we
16
1 2 3 4 5 6
2021-22 audits not yet finalised due to financial statements submitted late or not
submitted
Status
Audits outstanding due to

Province Submitted late Not submitted late/no submission
Eastern Cape 2 0 2
Free State 6 3 8
Gauteng 0 0 0
KwaZulu-Natal 1 0 1
Limpopo 1 0 0
Mpumalanga 0 0 0
Northern Cape 5 0 2
North West 4 1 2
Western Cape 0 0 0
Total 19 4 15
By 17 February 2023 (the cut-off date to be Disclaimed and adverse opinions

included in this report), the 2021-22 audits of
Overall, the number of municipalities with
16 municipalities had not been completed. One
disclaimed audit opinions decreased. If the
audit from the Eastern Cape was delayed due to
municipalities with outstanding audits also receive
disputes on technical audit matters. The audits of
disclaimed audit opinions, the improvement in
the other 15 municipalities were not completed
this area will be less significant, but should still be
because the municipal managers had not
acknowledged. We provide further detail on the
submitted the financial statements for auditing by
municipalities that improved as well as those that
the legislated submission date. Where financial
either moved into or remained within this worst
statements remained outstanding, we continued to
possible category of audit opinion in the section
reach out to all key roleplayers in the accountability
on disclaimed municipalities.
ecosystem to intervene and we again used our
enforcement mandate for the non-submission If a municipality receives an adverse audit opinion,
of the 2021-22 financial statements at this means that it submitted financial statements
15 municipalities. that are so unreliable that they cannot be used for
oversight and decision-making. Six municipalities
In response, we received the financial statements
received adverse audit opinions in 2021-22.
of 12 of these municipalities, including three in
Emakhazeni Local Municipality in Mpumalanga and
2023 which we are busy auditing. Both the 2020-21
Ngaka Modiri Molema District Municipality in North
and 2021-22 financial statements of Masilonyana
West have been in this position for four consecutive
and Maluti-a-Phofung local municipalities in the
years, while three municipalities regressed to this
Free State, and the 2021-22 financial statements
position: City of Tshwane Metro (Gauteng) from
of Ditsobotla Local Municipality in North West and
an unqualified opinion with findings and both
Kopanong Local Municipality in the Free State,
uMzinyathi District Municipality (KwaZulu-Natal) and
were still outstanding by the date of this report.
Laingsburg Local Municipality (Western Cape) from
a qualified opinion. Walter Sisulu Local Municipality
in the Eastern Cape had a disclaimed opinion in
the previous year.
17
There is little transparency and accountability Outcomes per category
on how these municipalities use their funds.
As is the case with municipalities that receive The different categories of auditees show different
disclaimed audit opinions, national and provincial levels of performance.
leadership and coordinating institutions should offer
In the next graphic, the percentage allocation
support and, where necessary, intervene. Of the
is based on the total local government budget
municipalities that received adverse audit opinions,
of R539,13 billion. The number of households has
only uMzinyathi District Municipality in KwaZulu-
been taken from the National Treasury’s local
Natal is under provincial intervention. Despite this
government equitable share data and formula
intervention having begun in October 2016,
for 2021-22. The household total for district
it has had little impact.
municipalities comprises the households under
intermediate cities and local municipalities, while
the total for municipal entities is included under
metropolitan municipalities.
Audit outcomes, budget and households – municipalities and entities

Unqualified Movement
with no Unqualified Qualified Adverse Disclaimed from last year
findings with with with with Outstanding of previous
(clean) findings findings findings findings audits administration
Metropolitan municipalities 2 3 2 1 0 0
8 2 2
Percentage of budget: 48%

Households: 8 361 167
Intermediate cities 5 16 15 0 2 1
39 5 6
District municipalities 13 16 10 2 1 2
44 3 5
Local municipalities 18 69 51 3 12 13
166 23 16
Municipal entities 0 15 1 0 1 0
17 1 2
Improvement Regression
18
1 2 3 4 5 6
Metros and intermediate cities manage just over The audit outcomes of district municipalities
two-thirds of the local government expenditure regressed from last year. Since these municipalities
budget and are responsible for delivering services should lead by example and support local
to 72% of South Africa’s households. As such, they municipalities, they must perform better. Local
have access to greater resources than their smaller municipalities have the highest concentration of
counterparts. Since they typically have greater disclaimed audit opinions and outstanding financial
capacity and bigger budgets and can more easily statements. More local municipalities regressed
attract suitably skilled and competent professionals, than improved, which reflects poorly on the
one would expect their audit outcomes to be much support district municipalities provide to their local
better than those of the smaller and more remote municipalities. The audit outcomes of municipal
municipalities, but this is not the case. Although entities have also worsened overall, similarly
seven of these municipalities improved their reflecting inadequate support and oversight from
audit outcomes over the last year of the previous parent municipalities (mostly metros).
administration, eight are now in a worse position.
Material irregularities (MIs)
The audit outcomes, along with non-compliance years, our audits have highlighted that not only
with legislation and the insights from our audits as are irregularities – and the resulting impact – not
detailed in this report, reflect the concerning state prevented from happening; when they do happen,
of financial and performance management in they are not properly dealt with.
local government. This situation resulted in some
municipalities suffering material financial losses, This state of affairs led to amendments to the Public
while others caused substantial harm to people Audit Act in April 2019, which gave us the mandate
because they could not fulfil their mandates to report on MIs and to take action if accounting
and deliver services to the public. For many officers and authorities do not deal with them
appropriately.
Definition of material irregularity and expanded powers
If the accounting officer/authority does not appropriately deal with

Any non-compliance with, or material irregularities, our expanded mandate allows us to:
contravention of, legislation, fraud,
theft or a breach of a fiduciary
duty identified during an audit
performed under the Public Audit
1 Refer material irregularities to relevant
public bodies for further investigations
Act that resulted in or is likely to

Recommend actions in the audit report
result in a material financial loss,
2
Material to resolve the material irregularity
the misuse or loss of a material
irregularity Take binding remedial action for failure
public resource, or substantial to implement recommendations
harm to a public sector institution
or the general public Issue certificate of debt for failure to
3 implement remedial action if financial
loss was involved
19
The amendments established a complementary We have found that issuing an MI notification to an
enforcement mechanism to strengthen public accounting officer often jolts them into acting to
sector financial and performance management so address irregularities and transgressions that they
that irregularities such as non-compliance, fraud, should have dealt with previously – until we issued
theft and breaches of fiduciary duties, and the notifications, nothing was being done to address
resulting impact, can be either prevented or dealt 87% of the irregularities we identified.
with appropriately.
When accounting officers respond to our
The overall aim of our expanded mandate is: notifications with commitment and workable plans
for how they will take appropriate action to resolve
» to promote better accountability
the MI, the intended impact of the Public Audit Act
» to improve the protection of resources amendments is achieved. The main objective of
» to enhance public sector performance and these amendments was to enable those responsible
encourage an ethical culture to take corrective action to resolve the identified MIs
» ultimately, to strengthen public sector institutions and to prevent similar ones from occurring in future.
to better serve the people of South Africa. An MI is resolved when all necessary steps have
been taken to recover financial losses or to recover
We issue notifications of MIs to accounting
from substantial harm, when internal controls have
officers and authorities so that they can correct
been strengthened to prevent further losses and
deficiencies, protect public finances and improve
harm, when there are consequences (including
the performance of the institutions for which they
disciplinary processes) for any wrongdoing and,
are responsible. If auditees protect and recover
if applicable, when the matter has been handed
resources, they can redirect the money saved or
over to a law-enforcement agency.
recovered to delivering much-needed services
to communities. Through the MI process, accounting officers have
taken action to prevent or recover financial losses
This year, we expanded our work significantly
of R479,56 million, with some of this amount still in
by implementing the MI process at 170 auditees –
the process of being recovered. These actions have
up from 94 last year. We plan to increase this
included:
number to 276 auditees next year.
» addressing incorrect billing of municipal services,
The rest of this section reflects on the impact of the resulting in increased revenue
MI process, the nature and status of the MIs we » making payment arrangements or negotiating
identified, and the responsibilities for preventing and with suppliers that are charging interest and
resolving MIs. After tabling this report, we will also penalties on late payments
publish a separate report on the status of the MIs in
» improving systems, processes and controls, and
local government. The MI report will detail every MI
protecting assets to prevent any further financial
raised and its status, offer a comprehensive analysis
losses
with examples of the impact of the MI process, and
highlight the obstacles we encounter. » recovering financial losses from suppliers
» stopping supplier contracts where money was
being lost
Impact of material irregularity process
» implementing consequences against parties
Last year, we reported that we are starting to see a that caused the financial losses, including
shift at municipalities and municipal entities, which handing over matters to law-enforcement
have gone from responding slowly to our findings agencies, and identifying the officials responsible
and recommendations to now paying attention and starting disciplinary processes against them.
to the MIs we report and taking action to resolve
them. Over the past year, we continued to see Municipalities and their entities can now direct these
greater responsiveness from most municipalities. recovered funds towards service delivery, enabling
government to achieve its strategic priorities.
20
1 2 3 4 5 6
Actions taken to address financial loss
R310,16m 58 Responsible officials identified and

disciplinary process completed or in process
Financial loss in process

of recovery Internal controls improved to prevent
46
R150,55m
recurrence
Financial loss
recovered 14 Fraud/criminal investigations instituted
R18,85m
Financial loss prevented 1 Supplier contracts stopped where
money was being lost
We are also starting to see auditees pay attention in 2021, in local government. Our focus in this area
to matters we have been raising for years and has been on environmental pollution, and we give
which are causing substantial harm to a public more detail on the positive responses we have
sector institution (in this case, a municipality or already received on this type of MI in the sections
municipal entity) or the general public. In the on infrastructure for service delivery and disclaimed
sections on audit outcomes and disclaimed municipalities.
municipalities, we highlight the impact the
MI process has had on dealing with those
municipalities that did not submit their financial
Nature of material irregularities
statements on time or whose financial statements From 1 April 2019 (when the amendments to the
were repeatedly disclaimed because they did Public Audit Act became effective and we began
not keep proper records and maintain financial implementing the MI process) until 15 January 2023
discipline. (the cut-off date for MIs to be included in this
report), we identified 268 MIs, mostly relating to
In some instances, even if MIs have not been fully
non-compliance with legislation. We estimate the
resolved, issuing them has led municipalities to
total financial loss of the 194 MIs that involved
pay attention to matters that have negatively
a material financial loss to be R5,19 billion, with
affected the public for years. We raised the first MI
R1,6 billion of that being lost by municipalities
on significant harm caused to the general public
that invested in VBS Mutual Bank.
21
Nature of material irregularities
Procurement
and payment
9 3 38
Non-compliance in Uneconomical procurement Payment for goods or services
procurement processes resulting in overpricing of not received/of poor quality/
resulting in overpricing of goods and services procured not in line with contract or to
goods and services procured ineligible beneficiaries
or appointed supplier not
delivering
Resource
management
19 13 17
Assets not safeguarded Loss of investments Inefficient use of resources
resulting in loss resulting in no/limited benefit
derived for money spent
Revenue
management
22 2
Revenue not billed Debt not recovered
Interest and
penalties
49 18
Eskom, water boards, lenders Payroll and value-added
and suppliers not paid on tax returns not paid on time
time resulting in interest or incorrectly calculated
resulting in South African
Revenue Service interest
and penalties
Fraud and
compliance
3 1
Suspected fraud Non-compliance
resulting in loss resulting in penalties
Harm to
general public
24 5
Non-compliance with Landfill site mismanagement
environmental legislation resulting in harm to public
resulting in pollution of water
resources
Harm to public
sector institution
24 21
Full and proper records Non-submission of financial
not kept as evidenced by statements
repeat disclaimed opinions
resulting in substantial harm
to municipalities
22
1 2 3 4 5 6
These MIs do not relate to complex matters, but Resolved material irregularities
rather to the basic disciplines and processes that
We consider an MI resolved only when all possible
should be in place at auditees to:
steps have been taken to recover financial losses or
» procure at the best price remove or address any harm caused; to implement
» pay only for what was received consequences against those involved; and to
» make payments on time to avoid unnecessary prevent any further losses and harm.
interest or penalties
Of the 29 resolved MIs, 16 were resolved by
» recover revenue owed to the state the auditee submitting outstanding financial
» safeguard assets and investments statements, as detailed in the section on audit
» effectively and efficiently use the resources of outcomes. The other 13 MIs were resolved by
the state to get value for the money spent preventing or recovering financial losses and by
implementing consequences.
» prevent fraud
» comply with legislation.
Appropriate action
We have highlighted all these areas of vulnerability
Appropriate action means that we have assessed
for several years, including in previous general
the steps being taken to resolve the MI and are
reports and the special reports we tabled on the
comfortable that once these have been fully
management of government’s covid-19 and flood-
implemented, the MI will be resolved.
relief initiatives. Throughout this report, we include
examples of the MIs we have identified to show just Different MIs need different actions (and
how harmful their impact can be. sometimes a combination of actions) to resolve.
Some require financial losses to be recovered
while others also require further financial losses to
Status of material irregularities be prevented. Some require consequences to be
In this report, we cover the status of 182 of the implemented against responsible officials, while
268 MIs we had identified up to 15 February 2023. others also require fraud or criminal investigations,
the outcomes of which must be reported to the
Of the 86 MIs that we do not report on, six were South African Police Service.
resolved in prior years; 25 were recently identified
and, by 15 February 2023, the responses on the Although the 103 MIs where appropriate
notifications were not yet due; and for 55 the action is being taken have not yet been fully
responses to the notifications or the subsequent resolved, accounting officers have made some
actions taken by the accounting officers were progress in implementing their proposed actions.
being evaluated. By 15 February 2023, the average ‘age’ of these
103 MIs was 16 months from date of notification.
Status of 182 material irregularities
29 Resolved MI 103 Appropriate action being 50 No appropriate action

(16%) (57%) taken to resolve MI (27%) taken – invoked our powers
23
Status of material irregularities requiring specific actions to resolve
Responsible officials identified
Recovery of financial loss Prevention of further losses through investigation
67 MIs 61 MIs 64 MIs
18
24 24
25
37 28
12
6 16
Reporting officials or other parties to

Disciplinary process against South African Police Service in the
responsible officials Fraud/criminal investigation case of fraud/criminal activities
21 MIs 14 MIs 11 MIs
1
3 2
15
13 9
Completed In progress Partially completed Not completed/started
How long it takes to resolve an MI depends on Some MIs can be resolved relatively quickly,
how many delays there are in taking the necessary while others require municipalities to correct
action. Generally, it takes longer to recover deep-rooted issues or quantify financial loss that
financial loss than to implement other actions, as occurred across multiple years, which will take a lot
the matter first needs to be investigated, suppliers longer. For example, in the case of the MIs issued
might have been liquidated, and it takes time to to municipalities that have repeatedly received
establish liability and submit civil claims. disclaimed audit opinions, these municipalities
24
1 2 3 4 5 6
need to address long-standing problems of poor » We often see delays when it comes to
record keeping and internal controls, as well as disciplining the officials responsible for MIs.
the resulting financial instability. Municipalities Either the investigation to identify the
with severely neglected infrastructure might also responsible officials takes too long, or the
need several financial years to conduct repairs, disciplinary processes against implicated
depending on the funds they have available and officials are delayed. Often, officials resign
the assistance they get from national and provincial before they can be disciplined.
government.
Accounting officers, with the support of their
Not all of these delays are avoidable, and where councils, must focus on shortening the resolution
we assessed them to be reasonable, we did period of MIs. They should prioritise addressing these
not invoke our powers. However, the delayed matters to prevent further losses or harm, especially
resolution of MIs highlights the following challenges since any delays make it less likely that funds will be
in local government: recovered. Swift consequences are also needed to
» Some MIs can only be resolved once external instil a culture of accountability.
parties have completed their investigations and
processes. Prolonged investigations or delays Invoking our powers
by public bodies make it difficult for accounting
We are fully committed to implementing the
officers to act swiftly to recover financial losses
enhanced powers given to our office – without
and to implement consequence management
fear, favour or prejudice. If accounting officers,
processes and criminal proceedings.
supported by their political leadership, meet their
» The speedy recovery of lost funds is often legislated responsibilities and commit to taking
hampered by suppliers being liquidated or the swift action when we notify them of an MI, there
loss-recovery processes taking a long time to is no need for us to use our remedial and referral
complete. For example, in our previous general powers. If, however, they do not deal with MIs with
report we highlighted the slow recovery of the the required seriousness, we do not hesitate to use
money lost by municipalities that invested in these powers.
VBS Mutual Bank in 2018.
» Instability at accounting officer level continues In the 50 cases where accounting officers did not
to affect how quickly MIs can be resolved. If appropriately address the MIs we reported to
the original person is no longer in the position them, we used our expanded mandate to include
or an administrator takes on the accounting recommendations in the audit reports or the
officer role after we have issued an MI auditor-general invoked her additional powers of
notification, we often have to reissue the referral and remedial action. We have also taken
notification or the progress of resolving the MI the first steps towards issuing a certificate of debt.
comes to a halt. In our previous general report, The municipalities where we took further action, are
we shared the examples of continued delays also those that are typically slow to respond to our
caused by the instability at Mangaung Metro findings and to improve the control environment.
in the Free State and uMkhanyakude District
Municipality in KwaZulu-Natal.
25
Further action taken
Recommendations Remedial action Notice of Referral to public

in audit report issued as our certificate-of-debt bodies for further
as accounting officer recommendations were process investigation
took little or no action to not implemented
address MI
• Beaufort West LM (WC) • City of Tshwane MM • Ngaka Modiri Molema • Chris Hani DM (EC)
• City of Matlosana LM (GP) – 3 DM (NW) – 2 • Emalahleni LM (MP)
(NW) – 2 • JB Marks LM (NW) • Matjhabeng LM (FS)
• City of Mbombela LM • Msunduzi LM (KZN)
(MP) – 2 • Ngaka Modiri Molema
• Dr Ruth Segomotsi Mompati DM (NW) – 4
DM (NW)
• Emalahleni LM (MP) – 2
• Inxuba Yethemba LM (EC)
• Matjhabeng LM (FS) Recommendations in audit report and referral to public bodies
• Ngaka Modiri Molema DM
(NW) – 2
• Raymond Mhlaba LM (EC) • Amajuba DM (KZN)
• uMkhanyakude LM (KZN) – 6 • Ngaka Modiri Molema DM (NW) – 2
• Various municipalities with
disclaimed opinions – 14
The recommendations we include in the audit reports state, the remedial action also includes a directive
are not the usual recommendations that we provide to calculate and recover the financial loss.
as part of our audits. Instead, they deal with the
Last year, we reported on the remedial action
actions that accounting officers should take to resolve
issued for three MIs at Ngaka Modiri Molema District
a specific MI. They typically deal with the following:
Municipality in North West and that further actions
» Recovery: Steps that should be taken to
would be taken if the municipality did not take
recover financial and public resource losses or
appropriate action. One of these MIs is still at the
to recover from harm.
remedial action stage, as the accounting officer
» Prevention: Steps that should be taken to completed an investigation and started to recover
strengthen internal controls to prevent further the loss through a legal process. However, the
losses and harm. accounting officer did not take appropriate action
» Consequences: Steps that should be taken to implement the remedial action and directive
to impose consequences for wrongdoing, for the other two MIs, where the financial losses
including disciplinary processes and, if stemmed from a construction contract that was not
applicable, handing the matter over to properly monitored and from assets that were lost
a law-enforcement agency. because they were not properly protected.
In October 2022, the auditor-general notified

We included recommendations on 36 MIs in the
the accounting officer of her intention to pursue
audit reports of 24 municipalities.
certificates of debt and requested a written
If an accounting officer does not implement our response, in line with the MI regulations that give
recommendations, we issue remedial action that accounting officers an opportunity to respond
covers the same areas of recovery, prevention officially. At the time of this report, we were
and consequences. Remedial action is a binding deciding on the next steps based on the final
(obligatory) instruction issued by the auditor- written responses and information we received.
general. If the MI caused a financial loss for the
26
1 2 3 4 5 6
For six MIs at five auditees, we took the decision to the accounting officer, but also means that other
refer the matters to public bodies for investigation, players in the accountability value chain have
namely the Special Investigating Unit, the failed to fulfil their responsibilities.
Directorate for Priority Crime Investigation
Our expanded mandate did not change the roles
(the Hawks) and the Public Protector.
and responsibilities of accounting officers, or the
oversight and monitoring roles of the mayor and the
Conclusion council, to prevent and deal with irregularities such
as non-compliance, fraud, theft, and breaches
When the auditor-general invokes her powers
of fiduciary duty. Through the MI process, we
of referral, remedial action and, in future, issuing
strengthen them in this role.
certificates of debt, it not only reflects poorly on
Roles and responsibilities in material irregularity process
To strengthen accountability mechanisms in public sector
Accounting officers Oversight and executive authorities

Have legal obligation to prevent all irregularities Oversight and monitoring roles of councils, mayors,
and take action when they occur provincial legislatures and national and provincial
government remain unchanged
AGSA AGSA
• Identify irregularities that could have By reporting MIs, we highlight most material
significant impact on auditee’s finances, matters and provide information to assist
resources and delivery oversight and monitoring roles
• Notify accounting officer so they can take

appropriate steps in terms of legislation
timeously
• Give space to accounting officer to take

required actions to deal with MIs before using
our additional powers
Success is: swift action by accounting officer to resolve MIs and prevent recurrence
Everyone in the accountability ecosystem has a and should seize the opportunity to contribute
crucial role to play in the MI process. Our role is to improving local government through this
to notify accounting officers of MIs and to report mechanism.
on their status, and to use our expanded powers
We include our call to action to these roleplayers
where needed, as we are doing. Accounting
in the section on activating the accountability
officers are responsible for preventing and resolving
ecosystem.
MIs. Councils, provincial leadership, legislatures
and national government also have a role to play
27
Financial planning and reporting
Most municipalities need to generate their revenue addressed, and that consultants continued to
from the rates and taxes paid by property owners be used ineffectively. We also look at the impact
and consumers of municipal services. National of vacancies and instability on the financial
government also provides funding through an management of municipalities.
equitable share and various conditional grants.
Municipalities must budget and carefully plan how
they will use these limited funds to operate and
Poor financial planning
deliver services. The municipal manager should Municipalities must manage their budgets
account for both how the municipality uses its effectively to ensure they have the necessary
budget and the financial management decisions financial resources to continue operating and
it makes. deliver services. The National Treasury assessed
that 112 municipalities (44%) are operating
The council uses financial statements to hold the
with an unfunded budget, which means that
municipal manager to account and to make
while the approved budget shows that there
decisions related to financial management and
is enough revenue to fund its spending for the
service delivery. Creditors, banks and rating
year, the revenue projections are overstated and
agencies use them to determine how much
the revenue will not be collected. As a result,
risk there is in lending money to a municipality,
these municipalities cannot pay their creditors
and the public uses them to see how well the
because they spend more money than they
municipality is applying the rates and taxes
can generate. Even though the amount owed
collected to provide services. It is clear that
to these municipalities is increasing while the
financial statements are a key instrument for
amount they collect is decreasing, they continue
accountability.
to spend based on the initially overstated revenue
Financial reporting does not only happen at projections.
the end of the year; it also takes place during
The National Treasury found that one of the
the year. This in-year reporting takes the form of
triggers of financial distress in a municipality is an
quarterly reports, which councils and provincial
unfunded budget. Most municipalities with such
treasuries use to make decisions and to monitor
budgets are now experiencing varying degrees of
how municipalities are spending their budgets,
financial problems.
generating revenue and using conditional grants.
The National Treasury and its provincial
Municipal managers are responsible for providing
counterparts have institutionalised processes to
credible and reliable in-year financial reports and
assist municipalities, including assessing municipal
good-quality year-end financial statements that
budgets during March and May each year and
users can rely on. They are supported by finance
advising correction before adoption. Those that
units, led by chief financial officers, as well as
ignore this advice and adopt unfunded budgets
by internal audit units and audit committees,
are requested to correct this position during the
consultants and coordinating institutions. In our
adjustments budget period in February of the
previous general report, we reported significant
following year. If this is also not done, the National
weaknesses in financial planning and reporting
Treasury may withhold the second instalment of
by municipalities over the term of the previous
the equitable share allocation in December to
administration.
ensure compliance with the Municipal Finance
In the remainder of this section, we report that Management Act. If a municipality does not
weaknesses in the areas of financial planning, achieve a funded budget position within a year or
controls and reporting have not been adequately two due to the extent of the problem, such as high
28
1 2 3 4 5 6
Eskom debt, the National Treasury has created an other spheres of government, guided by good
opportunity for municipalities to adopt a credible public participation, to improve the quality of
funding plan to ensure an improvement in its life for all their residents. However, because
funding position. The National Treasury monitors the municipalities do not always adequately budget
implementation of these plans through quarterly for infrastructure projects meant to enable
reports submitted by municipalities. service delivery, these plans do not address
their intended purpose. Consequently, spending
Municipalities are also spending funds they have needed to deliver services, such as maintaining
not budgeted for, which results in unauthorised ageing infrastructure assets, is also compromised.
expenditure. In 2021-22, 68% of municipalities We discuss examples of this in the section on
incurred a combined R25,47 billion in unauthorised infrastructure for service delivery.
expenditure, with R13,03 billion being for non-
cash items. This means that municipalities spent
money that the council had not provided for in the Inadequate financial controls and
approved budget, or that the spending did not unreliable reporting
meet the conditions of a particular grant.
Internal controls help municipalities to achieve
Municipalities’ budgets provide for items that do their objectives by mitigating the risks of human
not involve actual cash flowing in or out. These error, incorrect decisions, fraud, abuse and loss.
‘non-cash items’ include accounting entries such These controls also prevent financial losses,
as reducing the value at which assets are reflected wastage and transgressions; and significantly
in the financial statements (asset impairments) improve financial and performance management
and providing for other types of potential and reporting. Despite the resources and support
financial losses. This is not actual expenditure, municipalities had available to enable sound
but rather an accounting requirement that lets financial management and reporting, their
municipalities assess the true value of their assets processes and controls were not adequate to
such as equipment or debtors. Municipalities prevent material misstatements in the financial
must correctly budget for these non-cash items statements.
to show their true financial state and to plan for
Investing in and progressively building a disciplined
the replacement of assets that have reached
control culture is the sustainable solution local
the end of their useful life.
government needs to transparently report on its
When municipalities adopt unfunded budgets financial status and to do more with the limited
or overspend their budgets, this shows that funds at its disposal.
they are unable to budget properly and stay
Over the years, we have consistently said that
within that budget. These practices not only
municipalities must institutionalise a culture of
pose an imminent threat to the sustainability of
compliance and controls. For example, they
municipalities, but also perpetuate the spiral of
should implement standardised, effective
non-delivery. Often, the mayor and municipal
accounting processes for daily and monthly
manager submit a budget for spending that
accounting disciplines; ensure proper record
cannot be funded or force-balance a budget
keeping and document control; perform
to appease the residents by showing that the
independent reviews and reconciliations of
projects and services they are asking for will be
accounting records; and ensure that in-year
delivered. In such cases, the council must ensure
reporting and monitoring take place. However,
financial discipline by carefully reviewing and
we can see from the status of these key financial
assessing the proposed budget to determine
management controls that this solution is not
whether it is financially viable and sustainable.
receiving the necessary attention.
Municipalities should use the integrated
development plan to coordinate their work with
29
Status of key financial management controls
Proper record
keeping
61 (25%) 96 (40%) 84 (35%)
Daily and monthly

controls
55 (23%) 88 (37%) 98 (40%)
In-year and year-

end reporting
31 (13%) 100 (41%) 110 (46%)
Review and monitor

compliance
29 (12%) 74 (31%) 138 (57%)
Good Concerning Intervention required
The information systems that municipalities use to Over the years, we have not seen much
manage their finances and to enable financial improvement in the status of key financial
reporting and monitoring also have significant management controls, and thus in the quality
control weaknesses, making them vulnerable to of financial reporting, despite us reporting
intentional and unintentional manual override and shortcomings and providing recommendations,
manipulation. We discuss these deficiencies in more many costly national and provincial initiatives and
detail in the section on information technology. interventions, and increasing amounts paid to
consultants for financial reporting.
Quality of financial statements before and after auditing
Before audit adjustments After audit adjustments
58
(24%)
142
(59%)
99
(41%)
183
(76%)
Modified Unmodified Modified Unmodified
30
1 2 3 4 5 6
If we had not allowed municipalities to correct the The poor quality of the financial statements
identified material misstatements, only a quarter submitted for auditing does not bode well for
would have produced financial statements that the credibility of municipalities’ in-year financial
were reliable enough for the council and other reporting, as it means that decisions, analyses and
decision makers to use. In total, 84 municipalities monitoring on key matters such as service delivery
(35%) relied on the audit process to identify could be based on unreliable information, which
misstatements that they then corrected to obtain would have a negative impact on communities.
an unqualified audit opinion. Accounting officers have responded positively to
the material irregularities we issued on the non-
The main areas that were misstated in the financial submission of financial statements, but increased
statements of municipalities that received modified effort is still needed to improve the quality of the
audit opinions (in other words, those with qualified, submitted financial statements.
adverse or disclaimed opinions) were:
» Revenue: 40% of municipalities did not have The poor financial management controls and
adequate documentation to support the the practice of municipalities relying on the
revenue they billed; and they had not billed audit process to identify misstatements are
all the revenue they should have for services unsustainable and result in delays in finalising the
rendered. In some cases, amounts billed for audit process. To make managers and leadership
services rendered were recorded incorrectly. more accountable, we have adopted a stricter
approach when considering adjustments to the
» Receivables: 28% of municipalities did not
financial statements after submission for auditing
know the correct amount owed to them and
and in response to our findings.
whether they were still entitled to receive those
amounts. In some cases, the amounts recorded
were not accurate. Ineffective use of consultants for
» Property, infrastructure and equipment: 24% of financial reporting
municipalities could not properly account for
The National Treasury circular on cost containment
their assets because they had not updated
recommends that municipal managers only hire
their asset registers with assets that they had
consultants if a gap analysis shows that they
bought, were busy building or had disposed
lack the skills or resources they need. Municipal
of, or that had been stolen or vandalised.
managers should therefore be aware of their
In some cases, the value of the assets
legal obligation to closely monitor both consultant
recorded was incorrect despite consultants
contracts and skills transfer.
being used to assist.
» Irregular expenditure: 24% of municipalities In 2021-22, 220 municipalities used financial
did not report all the irregular expenditure reporting consultants. More than half of these
they should have in their financial statements. municipalities (53%) used consultants to provide
In some cases, the amount of the irregular skills that their finance units did not have. Overall,
expenditure reported was incorrect. 40% hired consultants for specific skills and to bridge
» Expenditure: 23% of municipalities did not a vacancy gap, while 7% used consultants purely to
have adequate documentation to support compensate for vacancies.
the expenditure they reported. In some cases,
Because these municipalities cannot master credible
they did not record all the expenditure they
financial reporting, they appoint consultants year
should have.
after year without ensuring that skills are transferred
to municipal staff, and what was intended to be a
short-term solution, continues indefinitely. In total,
81% of municipalities reappointed the consultants
used in the previous year, slightly more than the
78% that did so in 2020-21.
31
In 2021-22, municipalities spent R1,61 billion on consultants to help with financial reporting – an increase by
almost a fifth from R1,36 billion in 2020-21. Consultants were mostly used for asset management services (34%),
tax services (29%), and the preparation or review of financial statements (26%).
Next we break down consultant cost per audit outcome and per province.
Consultant cost per audit outcome category
4%
8%
R58,52m R176,41m
(31 municipalities) (6 municipalities)
11%
36% R580,96m R128,76m
(94 municipalities) (15 municipalities)
41% R665,04m
(74 municipalities)
Unqualified with no Unqualified Qualified with Adverse with Disclaimed

findings (clean) with findings findings findings with findings
Consultant cost per province

(number of municipalities using consultants shown in brackets)
R154,88m (33)
Eastern Cape
R137,27m (31)
R32,29m (13)
Free State
R35,03m (13)
R150,19m (7)
Gauteng
R148,67m (5)
R309,26m (48)
KwaZulu-Natal
R205,60m (46)
R263,18m (26)
Limpopo
R279,68m (26)
R245,37m (20)
Mpumalanga
R156,63m (17)
R126,95m (26)
Northern Cape
R110,05m (24)
R282,33m (20)
North West
R249,08m (20)
R45,25m (27)
Western Cape
R42,67m (27)
2021-22 2020-21
32
1 2 3 4 5 6
Despite the amount spent on consultants to ensure disclaimed opinions in the section spotlighting those
good-quality financial statements, we could not municipalities.
always see the expected benefits. The financial
While asset management services can include
statements submitted for auditing by 137 of the
complex accounting matters, consultants
municipalities that used consultants (62%) had
appointed in this area were rarely used for such
material misstatements in the areas in which
matters, but rather for basic services such as
the consultants did work. Even after we allowed
recording and determining the value of assets.
for corrections, nearly two-thirds (64%) of these
These are fundamental skills needed for good
municipalities received modified audit opinions –
asset management and should already have
66 received qualified opinions, six received adverse
been embedded in the control environments of
opinions and 15 received disclaimed opinions.
municipalities.
We share further observations on the use of
financial reporting consultants at municipalities with
Examples of municipalities not using consultants effectively

» City of Tshwane Metro (Gauteng) spent R114,19 million (2020-21: R121 million) on
consultants to compile the metro’s fixed asset register by identifying assets not previously
recorded as well as valuating assets. Despite the large budget and size of the metro, it did
not have sufficient staff within its asset management unit with skills to carry out valuations
on infrastructure assets or the capacity to perform verifications of the entire asset base.
Material misstatements were identified in the work performed by the consultants while
delays in the project also resulted in the consultants’ contracts being extended.
» Inkosi Langalibalele Local Municipality (KwaZulu-Natal) spent R12,09 million (2020-21:
R12,57 million) on consultants to update the fixed asset register and valuate assets due
to a lack of skills. While there was some improvement in ensuring that municipal assets
were recorded, the valuation of these assets remained problematic. We could not
confirm that a proper needs assessment had been conducted to support the areas in
which consultants were appointed and we identified material misstatements in the work
for which the consultants were responsible. An evaluation was also not performed to
determine whether skills had been transferred to municipal staff to reduce future reliance
on consultants.
Example of effective use of consultants

» Witzenberg Local Municipality in the Western Cape is a good example of a municipality
effectively using consultants. The municipality has a well-capacitated and competent
finance unit that works together with technical units (including engineers) to account
and componentise infrastructure projects when they are completed. The use of
consultants is only considered if skills are not found in the municipality. The municipality
also recently appointed a staff member as part of planning ahead for when senior
finance officials retire.
33
Reasons consultants were not effective In only 7% of the cases, consultants did not deliver
as required. This was the case at 10 municipalities
(four in Mpumalanga, two in Gauteng, two in
Limpopo, one in the Northern Cape and one in
North West). Municipalities paid these consultants
11% a total of R225,60 million. In the other 93% of
27% cases, the municipalities did not use consultants
effectively. When the municipal manager
appoints consultants late or when records and
28% documentation are not available to enable
financial reporting – and the municipality will thus
get no benefit from the appointment – they are
7%
27% not performing their legal duty of ensuring that the
municipality’s limited funds are used effectively and
economically. Through poor project management
and a lack of review and monitoring, the
municipal manager and chief financial officer are
37
Work of consultants not adequately reviewed effectively outsourcing their financial management
responsibilities.
37
Inadequate or lack of records and documentation
In our previous general report, we indicated
10 that we would be pursuing material irregularities
Consultants did not deliver
where the ineffective use of consultants resulted
39 in material financial losses. By 15 February 2023,
Poor project management
we had notified the municipal managers of
14 11 municipalities of such material irregularities,
Consultants appointed too late
and had already started to see the first signs of
positive impact at some municipalities.
Examples of material irregularities due to inefficient use of consultants

MI
» In May 2019, Joe Morolong Local Municipality (Northern Cape) appointed consultants to
compile financial statements despite not having proper records for the consultants to work
with, resulting in an estimated financial loss of R2,7 million. The municipality continued to
receive a disclaimed audit opinion for the 2018-19 to 2020-21 financial years. In response
to the material irregularity, the municipal manager developed a plan to reduce the use of
consultants, filled some key positions in the finance unit and started an investigation into
the MI.
» In July 2020, Bushbuckridge Local Municipality (Mpumalanga) appointed consultants
to provide value-added tax recovery and review services for 24 months. The consultants
were not appointed on time, or on a cost basis, but rather on a contingency basis of 11%
commission on the value-added tax refund. This type of appointment is likely to result in
an estimated financial loss of over R9 million as the municipality did not assess whether the
commission-based contingency basis would be the most cost-effective method to use.
We recently notified the municipal manager that the arrangement used in the
appointment of the consultants constitutes a material irregularity.
34
1 2 3 4 5 6
Consultants continued to accept appointments in-house without using consultants, which helped to
even when it was unlikely that they would be able reduce the municipality’s overall consultant costs
to add value to municipalities. The International by R8,74 million.
Code of Ethics for Professional Accountants requires
While we commend municipalities for the steps
that, before accepting any engagements, they
they have already taken to reduce the reliance on
evaluate threats such as questionable financial
consultants, some of these measures are only short
reporting practices that might influence ethical
term in nature and they should now start focusing
principles. We have met and continue to engage
on building their capacity as a sustainable solution
with representatives of various professional bodies
to the problem.
and accountancy firms about the widespread
use of consultants. During these engagements,
we highlight the importance of observing the Impact of vacancies and instability
relevant ethical codes. We also make them
aware of our intention to continue using our Municipal managers, chief financial officers,
enforcement powers to encourage auditees senior managers and municipal officials are
to use consultants responsibly. responsible for implementing and maintaining
effective and efficient systems of internal control.
The national and provincial treasuries and Positions must be filled with people who have the
cooperative governance departments committed required competencies. Municipalities should have
to help municipalities reduce their reliance on capacitated and competent finance units led
consultants in the Eastern Cape, Limpopo, the by experienced chief financial officers who can
Northern Cape and North West. We monitored provide stability and direction.
these commitments throughout the year and
found that some of the coordinating institutions At year-end, municipal finance units had an
met with the mayors, speakers and chief whips average vacancy rate of 18%. Overall, 22%
of municipalities to discuss their reliance on of municipalities (2020-21: 15%) had a vacant
consultants as well as to share the lessons learnt chief financial officer position, with the rate rising
from using consultants in the past. to 47% at municipalities with disclaimed audit
opinions. Chief financial officers held their positions
Some provincial treasuries (such as in the for an average of 49 months, or 32 months at
Northern Cape) developed a plan to reduce municipalities with disclaimed audit opinions. The
municipalities’ use of consultants by deploying municipal manager position was vacant at 32% of
officials at various municipalities to assist with municipalities, significantly higher than the 17% in
daily financial management functions such as 2020-21. These vacancies were most common in
performing reconciliations and managing records. KwaZulu-Natal, the Northern Cape and Limpopo.
Provincial treasuries also planned to strengthen Municipalities found it difficult to recruit and retain
their departmental capacity by appointing senior qualified individuals in some rural provinces such as
managers and other officials who would be the Northern Cape, while instability in councils and
responsible for each district and could provide political interference also played a role in the high
support to municipalities within that district. vacancy rates.
The premier’s office in Limpopo was unsuccessful in Councils are responsible for approving
reducing the cost of consultants at municipalities by municipalities’ budgets, conducting in-year
60% as envisaged, because finance officials lacked monitoring, and using the financial statements
skills and were not capacitated to address internal to determine whether municipalities used their
control deficiencies, which would be crucial for budgets as intended and are in a good financial
reducing the reliance on consultants. position. However, in many cases the councils could
not adequately fulfil their oversight role because of
Some municipalities, such as Matjhabeng Local
a lack of stability and political uncertainty, resulting
Municipality in the Free State, appointed qualified
in delayed consequence management processes.
financial staff to prepare financial statements
35
For example, at City of Johannesburg Metro in misstatements and the ongoing dependency on
Gauteng, instability at council and mayoral level consultants for financial reporting are unsustainable
resulted in the late tabling of investigation reports and only short-term solutions. The impact of
because of delayed council sittings – in turn, vacancies and instability on financial planning
delaying the accountability processes as well. and reporting needs urgent attention to ensure that
Instability at council level also hampered council the required skills and capacity are in place.
approval and decision-making on important
strategic and operational matters. The weaknesses highlighted in this section result in
residents not being provided with assurance that
public funds are being accounted for correctly,
Conclusion indicating a lack of accountability, transparency
and integrity.
Poor financial management controls, municipalities
continuing to rely on the audit process to identify
Information technology (IT)
We live in an age of digital transformation. Local Although the situation has improved since last year,
government should thus be looking at how it can almost three-quarters of the 79 municipalities that
deliver services in smarter, more efficient ways. we selected for IT audits (57 municipalities, or 72%)
To provide reliable and accurate information still had ineffective IT governance processes
and services, municipalities need to invest in IT that were concerning or required intervention.
systems that will adequately meet the needs of Without an effective IT governance framework,
the communities they serve and increase the control environments will be vulnerable to abuse
efficiency of their operations. or misuse. An ineffective framework also increases
the risk of runaway IT projects that take longer
Over the years, we have identified significant and are more costly than planned.
control weaknesses in local government’s IT
environment, which compromise the accuracy of While we are seeing some municipalities take
local government’s financial records and interrupt steps towards improving IT governance, a lot more
service delivery. needs to be done to make the processes effective.
We noticed that IT governance frameworks were
In this section, we report on the ongoing well defined, but still needed to be implemented
shortcomings in the areas IT governance, or were not operating as effectively as they
information security, and IT projects and contracts. should. Although IT steering committees had been
established, they were not yet effective due to a
Information technology governance lack of representation. Most concerning, however,
is that accounting officers, senior managers and
for a good control environment
councils did not fulfil their responsibilities to ensure
The goal of IT governance is to improve the overall that municipalities improve in this area.
management of the investment in information and
technology, and to make sure that value is derived
from such investment. If done correctly, this will
help local government to effectively manage its
IT risks and ensure that IT-associated activities are
aligned with overall business objectives.
36
1 2 3 4 5 6
As a result of these shortcomings: The main reasons for a lack of basic security
» municipal IT budgets were not properly controls were that management did not:
monitored to ensure that expected business » periodically review firewall activities, violations
value and benefits were delivered and rules
» municipalities relied too much on vendors » enforce implementation of internal controls
to provide IT services and spent more on » monitor access and audit logs
consultants due to vacancies or a lack of skilled
» enforce appropriate IT risk management
IT staff
practices and standards of good practice,
» management did not get the assurance it such as network and operating system security
needs because the internal audit functions did and firewall configuration
not have enough IT resources, skills or capacity
» have appropriate tools to respond to
to evaluate the internal IT control environment,
cybersecurity risks.
perform IT risk management and evaluate
governance processes
Management of information
» most of the 79 municipalities (71 municipalities,
technology projects and contracts
or 90%) lacked appropriate controls despite
some having implemented expensive enterprise At 40% of the municipalities that we audited,
resource planning systems that can automate ineffective project management and an inability
controls in their financial management, human to determine key requirements resulted in IT
resource and procurement processes. projects (on which R45,2 million had been spent
since they began) failing to meet time, cost,
Information security for safe systems quality or business expectations. IT contracts were
also not always concluded in the best interest
Information security governance is a component of the municipalities that we audited, with the
of IT governance and is therefore prone to contracts selected at 33% of municipalities not
the same shortcomings highlighted above. delivering the intended value.
We pay special attention to weaknesses in this
area because of the risk of cyberattacks on As with most of the projects that we describe in
municipalities. the section on infrastructure for service delivery,
the IT projects and contracts that we audited
As we reported in our previous general report, were plagued by poor project and consequence
hackers successfully exploited the security management, with accounting officers not fulfilling
weaknesses at some of the municipalities that their responsibilities to oversee these areas.
we rated as weak over the past few years.
This resulted in key local government services In addition, we identified the following causes of
not being available for some time, hackers failing IT projects and contracts:
demanding ransom and significant fraud being » In many cases, system implementation projects
perpetuated. were delegated to IT management without
adequate project governance and oversight.
Currently, 56 of the 79 municipalities (71%) still have
ineffective information security controls. Although » There were no proper consequences for
this is an improvement from last year, most of South failed or delayed projects.
Africa’s municipalities continue to be at serious risk. » There were no valid or feasible business
cases for projects or contracts.
» Projects were not adequately governed
and overseen.
37
» Contracts were either not signed or not » Municipalities did not always have service-level
available to us for auditing due to a lack of agreements in place with third parties; or where
management intervention and involvement. they did exist, services were not monitored in
» Municipalities contracted for more software line with the agreements.
licences than they required because service
providers offered bulk discounts for procuring
many licences at a time.
Examples of IT project and contract management failures

» Sekhukhune District Municipality (Limpopo) planned to implement a payroll system by
November 2022, but did not have an approved business case or establish a formal project
management committee to monitor the implementation of the project. We identified
several weaknesses related to poor project governance that can negatively affect the
success of the project in terms of timelines, budget and deliverables. As this project was still
ongoing at the time of our audit, we will evaluate the possible impact of the weaknesses
during the next audit cycle.
» Buffalo City Metro (Eastern Cape) planned and started a system implementation project
valued at R7 million. Although the metro had drawn up and specified the business
requirements, there was no approved business case and the metro had already spent
R552 198 on the project during the year. In addition, the metro did not have any monitoring
tools to monitor the use of software licences it paid for, resulting in payments of an estimated
R2,6 million for licences it did not use.
» In 2019, City of Johannesburg Metro (Gauteng) procured software licences with the goal of
implementing the Municipal Standard Chart of Accounts and doing an overall upgrade of
its financial system. Although the implementation was delayed, the metro continued to pay
for these software licences despite not using all of them. We notified the municipal manager
of this material irregularity in November 2022.
» Nelson Mandela Bay Metro (Eastern Cape) procured more licences for its operating
system software than it needed and paid an estimated R50 million for licences and products
that it did not use. The metro disclosed the spending on unused licences as fruitless and
wasteful expenditure. We notified the municipal manager of this material irregularity in
November 2022.
» Emfuleni Local Municipality (Gauteng) spent R35 million on supporting and maintaining
the system it uses for billing revenue and generating statements without having a signed
contract with the vendor, which resulted in irregular expenditure.
Conclusion
Local government should be using information with inadequate governance disciplines, weak
and technology to deliver services efficiently and security controls, poor project and consequence
effectively to the people of South Africa, and to management, and insufficient oversight, which
maintain accurate financial records. However, could lead to information being compromised and
local government’s information systems are fraught service delivery being interrupted.
38
1 2 3 4 5 6
Pressure on local government finances
In our previous general report, we reported on the If, based on this assessment, they have serious
financial deterioration in local government over the concerns about their ability to perform their
term of the previous administration. This downward functions and honour their financial and
trend continued in the first year of the new performance commitments in future with the funds
administration, putting further pressure on the ability they have (or can get), they must disclose this in
of municipalities to operate and provide services. their financial statements.
This section shows that local government is The financial position of 70 (29%) of the
financially distressed due to reduced revenue 241 municipalities where we completed our audits
and funding and because municipalities are not was so dire that they had to disclose significant
prudently spending the limited funds available. doubt about their ability to fully operate in future.
These municipalities included City of Tshwane and
Mangaung metros in Gauteng and the Free State,
Local government is respectively, which together were responsible for
financially distressed 10% of the total local government budget and
Municipalities must assess their financial position at for service delivery to 9% of the households in
year-end using criteria included in the accounting the country.
standards. They do this by analysing their financial
Many of these municipalities made this disclosure
information and making calculations to conclude
multiple times over the term of the previous
on whether their revenue is more than their
administration. It means that they were not
expenditure (in other words, if they made a profit),
fully operational for many years because of
they have more assets than liabilities, there is
their financial position. Typically these are the
enough money in the bank to pay their debt, and
municipalities that do not pay Eskom and water
they foresee sufficient funding in future to cover
boards on time and do not deliver services at the
what it will cost to deliver services.
required level.
39
Municipalities in concerning financial position and consecutive years in this position
Eastern Cape (10) Limpopo (5)
Amahlati LM 5 Bela-Bela LM 1
Blue Crane Route LM 1 Greater Letaba LM 1
Dr Beyers Naudé LM 3 Modimolle-Mookgophong LM >5
Enoch Mgijima LM 5 Musina LM 3
Inxuba Yethemba LM 5 Thabazimbi LM >5
King Sabata Dalindyebo LM >5
Kou-Kamma LM >5
Makana LM >5 Mpumalanga (5)
Raymond Mhlaba LM >5
Walter Sisulu LM 1 City of Mbombela LM >5
Emalahleni LM >5
Govan Mbeki LM 3
Lekwa LM >5
Free State (11)
Thaba Chweu LM 5
Dihlabeng LM >5
Letsemeng LM >5
Mangaung MM >5 Northern Cape (14)
Matjhabeng LM >5
Moqhaka LM >5 !Kheis LM >5
Nala LM >5 Dikgatlong LM >5
Ngwathe LM >5 Emthanjeni LM 5
Phumelela LM 5 Hantam LM 1
Setsoto LM >5 Gamagara LM >5
Tswelopele LM >5 Kamiesberg LM >5
Xhariep DM >5 Khâi-Ma LM >5
Magareng LM >5
Nama Khoi LM >5
Gauteng (6) Renosterberg LM 1
Siyathemba LM 3
City of Tshwane MM 2 Thembelihle LM >5
Emfuleni LM 3 Ubuntu LM >5
Merafong City LM 1 ZF Mgcawu DM 1
Rand West City LM >5
Sedibeng DM >5
West Rand DM 5 North West (7)
City of Matlosana LM >5
KwaZulu-Natal (9) Kgetlengrivier LM 4
Lekwa-Teemane LM >5
Impendle LM 1 Maquassi Hills LM >5
Mpofana LM >5 Naledi LM 4
Msunduzi LM 4 Ramotshere Moiloa LM 4
Newcastle LM 4 Tswaing LM >5
Nkandla LM 1
Ugu DM 5
Ulundi LM >5 Western Cape (3)
uMzinyathi DM 1
uThukela DM >5 Beaufort West LM >5
Cederberg LM 2
Kannaland LM 4
40
1 2 3 4 5 6
When we analysed the financial statements of the Reduced revenue and funding
217 municipalities with audit opinions other than
The main source of revenue for most municipalities
disclaimed or adverse, we found 56% of them to
is the rates and taxes paid by property owners and
have indicators of financial strain. If not attended
consumers of municipal services (what we call
to, this can result in significant doubt about their
‘own revenue’). The problem with own revenue is
ability to continue operating.
that municipal consumers (including government
By year-end, just over half of all municipalities (52%) institutions) are not paying municipalities what they
owed their creditors more money than they had owe – this has been a trend for many years and
available in the bank as they continued to spend has been made even worse by the continuing
money they did not have. The total deficit in economic downturn. This means that while a
local government for the year amounted to municipality’s revenue might look healthy on paper,
R11,87 billion, while 79 municipalities (36%) had the money does not reach the bank.
spent more money than they had generated.
We estimate that municipalities will be able to
As a result, municipalities were using their budget recover only 34% (R112,88 billion) of own revenue.
for the next year to cover their spending in Municipalities took an average of 231 days to
the current year. At 32% of municipalities, their collect the amounts they were owed. In 2021-22
current liabilities were more than 50% of their alone, municipalities wrote off R39,63 billion in debt
next year’s revenue budget. This means that the that was not paid to them. Municipalities therefore
2022-23 budget will pay for spending that had often depend on the money they receive from
already taken place, either in 2021-22 or in prior national government in the form of an equitable
financial years. This cycle is likely to continue unless share to stay afloat. In 2021-22, this amounted
municipalities reduce expenditure and generate to R77,84 billion.
additional revenue, which is highly doubtful given
While the economic downturn does affect revenue
the prevailing economic conditions and overall
collection, municipalities do not always play
economic outlook.
their part either – they do not always bill all the
revenue they are owed and poor debt-collection
practices are common. 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.
Examples of material irregularities because of poor

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revenue management
» Vhembe District Municipality (Limpopo) did not bill a significant number of consumers
for the water they used because meters were not read monthly. This unbilled revenue
resulted in an estimated financial loss of R92 million. The non-billing continued in 2021-22.
» uMkhanyakude District Municipality (KwaZulu-Natal) did not take any steps to collect
long-outstanding debt for services provided, resulting in an estimated financial loss of
R115,89 million.
» From June 2020 to July 2021, Buffalo City Metro (Eastern Cape) did not calculate revenue
for refuse removal services for several properties that should have been billed, resulting in
a likely financial loss of R23,73 million.
41
Although municipalities continue to lose money Lack of prudence in spending
because they do not bill revenue, when we notified limited funds
them of material irregularities, they improved their
systems and revenue management practices Local government is losing billions of rand each
to prevent further financial losses. We provide year because of poor decisions, neglect or
more details on this in the section on material inefficiencies. Fruitless and wasteful expenditure
irregularities. has continued to increase. In 2021-22, it more than
doubled, rising from R2,15 billion to R4,74 billion.
Every year, municipalities lose significant revenue Since 2019, we have also identified non-
because of the water and electricity distribution compliance and fraud through our material
losses that they suffer due to ageing infrastructure irregularity process, resulting in an estimated
and poor maintenance, as detailed in the section R5,19 billion in financial loss.
on infrastructure for service delivery. These losses
put even more pressure on municipal finances. The main reasons municipalities are losing
money include:
An acceptable norm for water distribution losses is » poor payment practices when paying suppliers
between 15% and 30%, with anything above 30% of goods and services
indicating that water infrastructure is not being
» unfair or uncompetitive procurement practices
managed well. More than half of the municipalities
when procuring goods and services
across the country (53%) recorded an average
water loss above the norm. In total, 93% of the » no or limited benefit received for money spent
139 municipalities that are water service providers » fraud committed by officials.
incurred water distribution losses of R11,91 billion,
although some municipalities disclosed their Poor payment practices
water losses in kilolitres rather than in rands. We With limited cash in the bank, municipalities prioritise
elaborate further on infrastructure management paying salaries and councillor remuneration,
and maintenance in the section on infrastructure which came to R121,47 billion in 2021-22, or 64% of
for service delivery. municipalities’ estimated recoverable own revenue
and the equitable share allocation they receive
Rating agencies use financial statements as an
from national government. They then use what is
instrument to help them determine how much
left to pay municipal suppliers, including Eskom
risk there is in lending money to a municipality.
and the water boards, which are essential for the
The credit rating assigned to a municipality can
supply of basic services.
affect both its ability to borrow money and the
cost of doing so. Poor credit ratings lead to higher Contracts awarded to suppliers must be actively
borrowing costs, which place more pressure on the managed to ensure that the suppliers deliver at the
public purse. By 30 June 2022, at least one rating right time, price and quality before municipalities
agency had downgraded the credit ratings of make any payments. Municipalities must also pay
four metros – Nelson Mandela Bay (Eastern Cape), their bills on time to avoid interest and penalties.
City of Johannesburg (Gauteng), City of Ekurhuleni Not only is it standard financial management
(Gauteng) and City of Cape Town (Western practice to implement controls and processes
Cape). If economic conditions get worse, more to manage payments, it is also required by the
metros could be downgraded, which could lead Municipal Finance Management Act.
to reduced funding or increased borrowing costs,
especially for key infrastructure projects needed
to deliver services to the public. As cash-strapped
consumers fall behind on paying municipal rates
and taxes, credit-rating agencies are increasingly
concerned that because of falling revenue, metros
may not be able to repay their debt or source cash
from capital markets to meet future obligations.
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1 2 3 4 5 6
Examples of material irregularities on goods and services not received

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or because of overpayments
» From July 2019 to June 2022, employees at King Sabata Dalindyebo Local Municipality
(Eastern Cape) received both housing and rental allowances of R1,41 million in
contravention of municipal policy. The accounting officer has taken action by
investigating the matter, updating the payroll system to prevent further losses from taking
place and instituting disciplinary processes against officials in response to the notification
we issued in November 2022.
» In April 2019, Intsika Yethu Local Municipality (Eastern Cape) paid R18 million to a service
provider for road construction materials that were not delivered and for construction work
that was not performed. The accounting officer has taken action by investigating the
matter to determine the disciplinary processes that should take place in response to the
notification we issued in November 2021.
» During June 2020, uMkhanyakude District Municipality (KwaZulu-Natal) paid suppliers
R1,75 million based on invoices relating to covid-19 infrastructure projects without
confirming whether the goods had been received before the payment was made.
Instability in the accounting officer position resulted in action not being taken to address
this matter in response to the notification we issued in April 2021.
Although municipalities are required to pay their wasteful expenditure resulting from this came to
creditors within 30 days, most (84%) took longer than R3,58 billion. Where municipalities were suffering
this to pay their creditors. On average, material financial losses because of such interest and
it took municipalities 258 days to pay their creditors, penalties, we issued material irregularity notifications.
up from 249 days in the previous year. The late
While we acknowledge that many municipalities
payments affect the cash flow of local government
are in financial distress, they do collect money for
suppliers, which is in sharp contrast to the objectives
electricity services and receive funding from national
of stimulating the economy and supporting
government to subsidise electricity to those unable
smaller businesses in particular. Due to these late
to pay for basic services. However, the Eskom
payments, suppliers and contractors stop delivering
and water boards accounts go unpaid because
to municipalities, which results in projects not being
municipalities use these funds for other purposes.
completed and performance objectives not
being achieved. Some municipalities, such as Setsoto Local
Municipality (Free State), Ugu District Municipality
Eskom and the water boards are in the difficult
(KwaZulu-Natal), Dr Beyers Naudé Local Municipality
situation of being required to continue delivering
(Eastern Cape) and Merafong City Local
services despite not being paid. By year-end,
Municipality (Gauteng), improved their processes
municipalities owed Eskom and the water boards
for addressing arrears by entering into debt and
R36,36 billion and R14,34 billion (including interest),
repayment agreements with essential service
respectively.
providers. This has resulted in a decrease in future
Adding to these financial woes, local government is interest charges as well as improved controls to
losing billions of rand each year because of interest prioritise paying essential service providers.
and penalties. In 2021-22 alone, the fruitless and
43
Examples of material irregularities because of interest and penalties
MI
» In 2019-20, City of Mbombela Local Municipality (Mpumalanga) racked up R31,31 million
in interest because it did not pay Eskom on time.
» From July 2019 to April 2020, Raymond Mhlaba Local Municipality (Eastern Cape) was
charged interest and penalties because it did not pay over tax of R1,73 million deducted
from employees to the South African Revenue Service within seven days of the month in
which it had been deducted.
Unfair or uncompetitive procurement practices

Local government needs fair and competitive performing, suppliers are providing poor-quality
procurement processes to get the best value goods, and municipalities are losing money due to
for its limited funds and to give suppliers fair and overpricing. The procurement process is also where
equitable access to government business. the risk of fraud is highest, which is why we pay
particular attention to this area during our audits.
In local government, failures in these areas often
affect communities directly if contractors are not
Status of compliance with supply chain management legislation
8%
Movement from
163 last year of previous
Municipalities with material findings administration
24%
58
Municipalities with findings Improvement 22
68% 20
Municipalities with no findings Regression 35
We continued to identify and report shortcomings procurement processes resulted in (or are likely to
because of municipalities not complying with result in) financial losses because the goods and
procurement and contract management services procured could have been obtained
legislation, which in some cases resulted in at a lower price or because a contractor was
irregular expenditure. appointed that could not deliver. We notified the
municipal managers of these material irregularities.
Uncompetitive and unfair procurement processes
and inadequate contract management remained The aim of preferential procurement legislation is to
widespread. We reported findings (62% of which support socioeconomic transformation. The public
were material) on uncompetitive and unfair sector should lead by example to achieve this goal,
procurement processes at 83% of municipalities, and but we again found that some municipalities are
contract management findings (39% of which were failing in this area. At 71 municipalities (29%), the
material) at nearly half of all municipalities (47%). preference point system was either not applied
At some municipalities, uncompetitive and unfair or not applied correctly. Municipalities are also
44
1 2 3 4 5 6
supposed to procure certain commodities from This amount could be even higher, as 31% of
local producers as per the Preferential Procurement municipalities did not report all the irregular
Regulations. Municipalities failed in this area as well, expenditure they should have reported in their
with 92 of the 181 municipalities (51%) at which financial statements. In other cases, the amount of
we audited local content not complying with the irregular expenditure reported was incorrect. We
regulation on promoting local producers for awards also could not audit contracts worth R2,42 billion
totalling R4,5 billion. because of missing or incomplete information. City
of Tshwane Metro (Gauteng) was the municipality
Legislation prohibits municipalities from awarding with the most missing information – the metro
contracts to, and accepting quotations from, could not provide supporting documents for the
employees, councillors or other state officials, award of four tenders (mostly for public lighting
or entities owned or managed by them, if they infrastructure and professional engineering services
are in the service of the municipality or any other on construction projects) worth R0,89 billion
state institution. This is intended to prevent conflicts because it did not have proper document
of interest. We identified these prohibited awards management in place.
throughout the term of the previous administration,
and this practice continued in 2021-22. We As part of our audits, and to point oversight and
identified that awards totalling R250,15 million municipal public accounts committees in the
had been made to employees and councillors direction of areas where they should focus their
at 19 municipalities, and that awards totalling attention, we assessed the impact of the irregular
R2,49 billion had been made to other state officials expenditure incurred. We found that R26,57 billion
at 134 municipalities. arose from breaches of legislation. In cases where
procurement was not fair, transparent, competitive
While municipalities are not prohibited from and cost effective, municipalities acquired goods
making awards to close family members of and services worth R21,79 billion at prices that
employees and councillors, legislation does require may have been higher than necessary because
the municipality to disclose any such awards of they either did not adequately test market prices
more than R2 000 in its financial statements for or choose the most cost-effective options. Unfair
the sake of transparency, as they could create procurement could also lead to municipalities
conflicts of interest for employees or councillors. being exposed to litigation due to breaches of
We identified R920,02 million in awards to close procurement processes and, as a result, funds
family members at 68 municipalities, while intended for service delivery might be diverted
18 municipalities did not disclose awards to close to pay legal fees. The remaining R4,78 billion
family members valued at R218,49 million in their related to procurement that was not equitable; for
financial statements as required. example, municipalities did not advance previously
This and other forms of non-compliance with disadvantaged individuals and small businesses.
supply chain management legislation remained We also assessed whether municipalities got
the biggest contributor to the irregular expenditure value for the money they spent in cases where
municipalities incurred in 2021-22. they incurred irregular expenditure. We identified
Municipalities disclosed a total of R30,34 billion goods and services worth a total of R43,44 million
in irregular expenditure in 2021-22 – significantly that were of poor quality or for which the prices
more than the R22,40 billion in the previous year. charged were above market value. Where
The biggest contributors to this huge increase were these instances resulted in a material financial
Buffalo City Metro in the Eastern Cape (R6,21 billion loss, we notified municipal managers of material
increase), uMkhanyakude District Municipality irregularities or were busy assessing the matters as
in KwaZulu-Natal (R1,33 billion increase) and potential material irregularities.
King Sabata Dalindyebo Local Municipality in
the Eastern Cape (R1,30 billion increase), mainly
because they disclosed irregular expenditure
incurred in prior years.
45
Examples of material irregularities due to higher prices paid
MI
» In February 2020, Emalahleni Local Municipality (Mpumalanga) awarded a contract for
updating and maintaining its immovable asset register to a bidder that did not score the
most points in the evaluation process. The municipality ended up paying higher prices
than it should have, which resulted in an estimated financial loss of R6,78 million. The
accounting officer did not appropriately address the material irregularity in response to
the notification we issued in December 2021 and we referred the matter to the Public
Protector in November 2022.
» In January 2020, Amajuba District Municipality (KwaZulu-Natal) awarded a contract for
the construction of a reservoir and associated infrastructure. However, the municipality
did not evaluate a bidder that submitted a lower price and did not provide any objective
reasons for having done so. The discarded bidder’s price was R2,46 million lower than
the price of the bidder that was awarded the contract. Although the accounting
officer committed to investigate the matter in response to the notification we issued in
February 2022, the material irregularity was not appropriately addressed due to delays
in completing the investigation as well as in implementing the actions stemming from
the investigation. We included recommendations on the next steps to be taken in the
municipality’s 2021-22 audit report.
No or limited benefit received for money spent

For municipalities to get the most from their services. We notified municipal managers of these
contracts with suppliers, they must make decisions material irregularities.
that are economical and in their own best interest.
Some of these material irregularities related to the
Some municipalities received limited benefit for
use of financial reporting consultants, as covered in
the money they spent, which resulted in (or is likely
the section on financial planning and reporting.
to result in) financial losses because they did not
We give some other examples next.
need and should not have acquired the goods and
Examples of material irregularities as no or limited benefit was

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derived from cost
» Amajuba District Municipality (KwaZulu-Natal) terminated the construction of a disaster
management centre that began in 2014 based on the contractor’s poor performance.
The municipality then appointed a service provider and started installing information
and communication technology equipment in the building. Due to the construction
delays, the equipment could not be used in 2019-20, resulting in a likely financial loss
of R2,8 million.
» From July 2020 to June 2021, Chris Hani District Municipality (Eastern Cape) paid a
contractor R20 million for an extension-of-time claim even though the contractor had
caused the delays.
» In May 2020, Ngaka Modiri Molema District Municipality (North West) acquired four
generators at prices that were not market related, resulting in an estimated financial loss
of R1,17 million.
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Fraud
One of the key responsibilities of municipal payment approvals and information technology
managers, chief executive officers, senior managers systems, created an environment in which it was
and municipal officials is to implement and maintain easy to commit fraud – which then resulted in
effective and efficient systems of internal control. (or is likely to result in) financial losses. We notified
At some municipalities, the lack of basic controls, municipal managers of these material irregularities.
including those relating to good record keeping,
Example of material irregularity because of losses due to fraud

MI
» Between May 2018 and January 2020, eThekwini Metro (KwaZulu-Natal) paid R21 million
to a service provider for consultation services without any evidence that the services had
been received.
Interventions
The Department of Corporate Governance The National Treasury and the Department of
identified 66 municipalities as dysfunctional in Cooperative Governance have implemented
2021-22, at which interventions are ongoing. various initiatives to assist these municipalities, such
According to the National Treasury’s 2021 report as placing them under intervention and rolling out
on the state of local government finances and the municipal finance improvement programme,
financial management, the High Court directed which includes support and capacity-building
national government to intervene in Lekwa Local initiatives. National Treasury intervention is also now
Municipality in Mpumalanga because of an taking place at two more municipalities – Mangaung
ongoing financial and service delivery crisis. Metro in the Free State and Enoch Mgijima Local
Municipality in the Eastern Cape. However, often
The president then directed the National Treasury to interventions come far too late. The problems at
identify municipalities that are in a similar situation. municipalities that are in a financial and service
To ensure that municipal failures are addressed delivery crisis did not happen overnight but are the
consistently, the National Treasury in consultation result of a steady breakdown in basic services over
with the Department of Cooperative Governance several years. Without proper maintenance, coupled
prepared an assessment that considered four pillars with inadequate oversight, these municipalities
of sustainability – financial health, service delivery, deteriorated to a state of complete crisis.
institutional arrangements and governance.
They identified 43 municipalities that were in
a state of financial and service delivery crisis,
thus requiring immediate attention.
47
Examples of municipalities under intervention
» At Lekwa Local Municipality (Mpumalanga), the National Treasury prepared a credible
financial recovery plan that was approved by the finance minister in October 2021 and
is still in place. Every month, the municipality submits the progress it has made against this
plan to the National Treasury. Based on our assessment, the implementation process is
slow as the municipality is still busy implementing the rescue phase, which is the first phase
of the plan.
» Mangaung Metro (Free State) was placed under provincial intervention from
January 2020 to April 2022, without achieving the desired effect. In April 2022, the finance
minister placed the metro under national intervention. The National Treasury determined
that the financial recovery plan prepared during the provincial intervention was outdated
and a new plan was developed. Although several interventions are still underway, the
situation at the metro is unlikely to improve in the short term due to instability in the
council, which has resulted in the city manager’s position remaining vacant from July 2021
and an overall high vacancy rate across the metro.
» The finance minister placed Enoch Mgijima Local Municipality (Eastern Cape) under
national intervention in April 2022. The intervention team ensured that the council adopt
a financial recovery plan in January 2023, while the provincial treasury has confirmed that
the municipality’s budget is funded.
Conclusion
National and provincial government are starting lack of political will, insufficient capacity, and
to intervene to address the financial and service resistance to change. If these matters are not
delivery crisis within local government. However, addressed, local government will not be able to
credible turnaround plans and strategies are successfully manage financial pressures. Not only
only successful if they focus on addressing the will municipalities find themselves in an untenable
underlying root causes, namely the slow response financial position, but service delivery will also be
when it comes to implementing intervention plans, compromised.
Service delivery planning, reporting and achievement
Public frustration at the lack of service delivery This is not unexpected when one considers
is high, as reported by various civil society municipalities’ poor financial management and
organisations and as can be seen from the weak financial health and the failing state of their
frequent service delivery protests. Businesses are infrastructure. A key contributing factor is also
closing because of persistent challenges with municipalities’ inability to plan for, monitor and
water, electricity and road infrastructure, further report on their performance. These continuing
hampering economic development. weaknesses in the most critical part of municipal
operations are not receiving the necessary
attention.
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Planning, budgeting, monitoring and reporting process
2013 2030
National Development Plan (NDP) 2030
sets out long-term goals to improve wellbeing of country and citizens
Medium-Term Strategic Framework (MTSF)

2019 outlines government’s strategic 5-year plan for administration 2024
and reflects commitments to implement NDP through planned
actions and targets; intended outcomes inform strategic
and annual plans and budgets of auditees
Oversight
Parliament, provincial legislatures and councils
Policy development
Five-year integrated Identify desired

development plan impact
Strategic Sp
ec
planning i
in fy
jus nd
pe ato
di
adss a
c
t
r fo rs
rm
se
As
ACT PLAN
an
ce
Annual End-year
Institution Operational
Service delivery
and budget
Municipality planning and
report reporting implementation
budgeting plan
Municipal entity
allo et ta
tak n
e
ndactio
CHECK DO
S
ca rg
te e
r e
ito tiv
a
res ts a
onrrec
ou n
c
r
coM d es
Implementation and
in-year reporting
Quarterly
reports
49
Some of the specific roles in this process are: and budget implementation plan to ensure that the
» Municipal managers: Responsible for planning integrated development plan and the budget are
and budgeting for service delivery and ensuring properly aligned. They then record how well they
that internal controls are in place to account have achieved their targets in their performance
for performance through credible reporting report so that the council can hold municipal
(sections 62, 69 and 72 of Municipal Finance managers responsible and the public can hold
Management Act and section 55 of Municipal council accountable when comparing the progress
Systems Act). they have made against their commitments. Good
planning, in-year performance management,
» Mayors: Responsible for approving planned
consistent monitoring, and useful and reliable
service delivery and budget implementation
reporting, are crucial for the administration to
and holding the municipal manager
achieve its service delivery commitments.
accountable through performance
management processes (sections 52, 53 and Even though there are well-designed processes
54 of Municipal Finance Management Act and with defined responsibilities for planning, achieving
section 30 of Municipal Systems Act). and reporting on how municipalities deliver on their
» Councils: Responsible for approving the mandates and their integrated development
budget, adopting planned service delivery plans, these processes are neglected and
and budget implementation and monitoring poorly implemented and the public continues
quarterly performance reports (section 16 of to experience a lack of delivery across all
Municipal Finance Management Act and municipal categories.
section 4 of Municipal Systems Act).
In the rest of this section, we focus on the areas
» Audit and/or performance audit committees:
where this poor implementation is most visible –
Responsible for assisting council with its in-
inadequate annual planning, poor in-year
year monitoring responsibilities (section 166
monitoring, unreliable reporting, and service
of Municipal Finance Management Act
delivery failures.
and Municipal Planning and Performance
Management Regulation 14).
» Members of executive councils for local Inadequate planning
government: May assist municipalities with A key part of the performance planning process
monitoring and support during the preparation in local government is public participation in
of planning documents and must submit the development of integrated development
reports on the performance of municipalities plans, which gives communities an opportunity to
to the provincial legislature and cooperative influence the strategic direction of a municipality to
governance minister (sections 31 and 47 of ultimately benefit the people it serves.
Municipal Systems Act).
We assessed the public participation at all eight
At the start of each new administration’s term, metros and eight selected municipalities across the
municipalities establish an integrated development country that received clean audits in the previous
plan to inform all their planning, budgeting, year to confirm whether such participation took
management and decision-making, which can place and how successful these municipalities were
be revised every year if needed. Unique to local in collating the needs of citizens as a mechanism to
government is that the public participates in the enable service delivery. The eight municipalities we
process as a way of ensuring that their needs selected were Winnie Madikizela-Mandela (Eastern
will be met over the five-year term. Cape), Midvaal (Gauteng), Okhahlamba (KwaZulu-
Natal), Steve Tshwete (Mpumalanga), Hantam
Municipalities must also plan in detail for what they
(Northern Cape), Drakenstein and Overstrand
have to deliver every year and over the term of the
(Western Cape) local municipalities as well as
administration. They do this in their service delivery
Waterberg District Municipality (Limpopo).
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While we observed that the public took part in Our main findings on planning for service
the process to develop the plans, the intent of delivery follow.
public participation was not always achieved. For
example, municipalities did not always distinguish Incomplete annual service delivery plans
between formal and informal households in their
performance indicators and budgets, which In our audits, we assess the completeness of the
prevented them from effectively addressing performance indicators municipalities include in
the service delivery challenges within informal their service delivery and budget implementation
communities and from ensuring that resources plans to determine if all municipalities are planning
were equitably distributed. to deliver on their core functions (such as providing
water and sanitation, electricity and waste
Integrated development plans cannot on their own management services and enabling local and
address all the concerns of the people of South economic development).
Africa – municipalities need to prioritise services
based on the available budget. Community In total, 26 municipalities did not include all the
needs do not always fall within the municipalities’ performance indicators in their plans that were
mandate, such as in areas where Eskom provides relevant to their core function. A target that is
electricity directly. This often leads to dissatisfaction not measured is not funded and is unlikely to be
with municipalities if they do not provide adequate delivered, further contributing to service delivery
feedback on service delivery expectations. backlogs.
The Public Audit Act requires us to annually We report the findings on incomplete planning
audit the performance reports of every municipality to municipal managers and do not include them
and municipal entity in the country to provide in the audit report as material findings, which
the user of the reports with some assurance that means that it does not have an impact on a
the information in the report is a true reflection municipality’s audit outcome. We plan to elevate
of the institution’s performance against its planned these findings to the audit report in future to further
objectives. This mandate given to us by Parliament compel municipalities to address the significant
is testament to the importance of performance shortcomings in the planning process.
reporting – placing it at the same level as In response to the challenge of inconsistent
financial statements. planning and reporting, as well as a lack of focus
Every year, we audit specific service delivery on outcomes, the National Treasury reviewed,
information to determine whether the information in rationalised and streamlined the planning and
the performance reports is useful enough to enable reporting requirements for metros, introducing
the council, the public and other users of the common performance indicators in 2018-19, which
reports to assess the municipality’s performance. metros had to use for planning and reporting. But
When we raise material findings on municipalities’ implementation has been slow and significant
performance reports, this means they generally inconsistencies remain. Some metros did not
struggled to: include the common performance indicators in
their planning documents, while others included
» align their performance reports to the
only selected performance indicators. The
predetermined objectives they had committed
implementation challenges were mainly because
to in their integrated development plan
of a lack of budget, capacity, supporting systems
and their service delivery and budget
and processes. The benefits of this initiative have
implementation plan
therefore not yet been realised.
» set clear performance indicators and targets
to measure their performance against the
reported objectives.
51
Only Nelson Mandela Bay (Eastern Cape), all the performance indicators in its plan and
Mangaung (Free State) and City of Tshwane performance report, despite reporting to the
(Gauteng) included all common performance National Treasury quarterly and annually on these
indicators in their service delivery and budget indicators. Where metros did not include these
implementation plans, while the other five indicators in their performance report, the reliability
metros are phasing in these indicators. City of of the reported achievements was not audited,
Cape Town (Western Cape) did not include which limits transparency and accountability.
Examples of core functions not included in service delivery and budget implementation plans
Metro Basic services Performance indicator
Buffalo City (Eastern Cape) Frequency of unplanned water service

City of Ekurhuleni (Gauteng) interruptions
City of Cape Town (Western Cape) Water and
sanitation
Buffalo City (Eastern Cape) Percentage of wastewater samples
City of Cape Town (Western Cape) compliant with water use licence conditions
City of Cape Town (Western Cape) Percentage of unplanned outages that are
Energy and
restored to supply within industry standard
electricity
timeframes
City of Johannesburg (Gauteng)
Percentage of households living in
City of Ekurhuleni (Gauteng) Housing and adequate housing
City of Cape Town (Western Cape) community
City of Ekurhuleni (Gauteng) facilities Number of informal settlements assessed
City of Cape Town (Western Cape) (enumerated and classified)
Fully adopting the common performance indicators that the required performance can be easily
will help metros to plan and report uniformly and understood, and consistently and accurately
credibly on key areas relevant to communities and reported. These indicators should also be relevant
will also improve accountability for performance, so that municipalities can be held accountable
which will contribute to improved service delivery. for achieving the outcomes for which they are
While there are still challenges when it comes to responsible. The targets for these indicators should
implementing the planning and reporting reforms, be informed by the desired level of performance
metros (through government intervention) are and the allocated budget and should be directed
responding to the challenge of inconsistent towards achieving the municipality’s integrated
planning by using sector technical working groups development plan.
more to discuss the relationship and impact of
performance indicators on service delivery and In total, 45% of municipalities included performance
by benchmarking their own performance against indicators in their service delivery and budget
those of their peers. implementation plans that were not measurable
or for which they did not have systems to collect
the data needed for reporting, creating an
Performance indicators not measurable or
opportunity for unreliable reporting. In addition, the
relevant, and annual targets set at zero
performance indicators and targets included did
The performance indicators that municipalities not always relate logically to each other.
include in their plans should be measurable so
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Examples of performance indicators that are not measurable
Municipality Performance indicator What we found
Enoch Mgijima Percentage of complaints/callouts There were no systems in place to record

Local Municipality responded to within 24 hours – complaints received to determine whether
(Eastern Cape) sanitation/wastewater the callouts were responded to within
Percentage of complaints/callouts 24 hours.
responded to within 24 hours – water
City of Tshwane Number of informal settlements with Indicators were not well defined as it was
Metro (Gauteng) access to rudimentary water not clear what constitutes access to water/
water services delivered. The systems in
place could only confirm that water was
paid for. The municipality indicated that it
measured access based on the number of
times water was provided daily, but this was
not evident. There were also no systems
in place to collect data to report on the
indicator.
Rustenburg Local Percentage of drinking water samples The method of calculating the percentage
Municipality complying with SANS 241 was not clear as it did not specify the
(North West) number of samples collected, the dates
they were collected and the number of
reports received from the laboratory.
Examples of targets that are not relevant (i.e. there is no logical link between indicators and targets)
Municipality Performance indicator Target
Newcastle Local To finalise and submit the environmental Discussion with estate agent
Municipality impact assessment report to the Department
(KwaZulu-Natal) of Economic Development, Tourism and
Environmental Affairs for approval of the
landfill site
Richmond Local Collection of planned refuse removal Number of signed weekly schedules
Municipality
(KwaZulu-Natal)
53
Some metros set targets of zero so that they could claim compliance with the requirement to include the
common performance indicators.
Examples of metro targets set at zero

» eThekwini Metro (KwaZulu-Natal) set targets of zero for seven performance indicators and
then reported a zero achievement against these targets. These included three targets to
provide housing, community facilities and local economic development, and one target
related to the environment and waste management.
» Nelson Mandela Bay Metro (Eastern Cape) set targets of zero for five performance
indicators for which an achievement of zero was then also reported. These included
hectares of land acquired for human settlements in priority housing development areas
and the number of informal settlements assessed.
Limited support and

intergovernmental coordination
Municipalities do not plan in isolation, as Another example is Richmond Local Municipality in
government was intended to work together KwaZulu-Natal, which requested support from the
across the national, provincial and local spheres. cooperative governance department to review
Planning is done within municipalities, provincial its performance management system processes,
departments and other transferring departments. including reviewing its service delivery and budget
Little impact has been achieved through the implementation plans and quarterly reports.
support that provincial departments provide to However, the support was provided too late to
local government to ensure that municipalities have an impact.
improve their planning and reporting so that they
It is expected that once the district development
can achieve their service delivery targets.
model has been implemented, all three spheres
For example, the member of the executive council of government will coordinate and integrate
responsible for local government in the Northern development plans and budgets and mobilise the
Cape committed to review the service delivery capacity and resources of government.
and budget implementation plans of municipalities
in the province. However, because the provincial
department did not properly understand what had
been committed to, it reviewed the performance
agreements of senior managers instead.
54
1 2 3 4 5 6
Reporting on delivery not credible

Every year, we audit specific service delivery The situation at Renosterberg is particularly dire:
information to determine whether the information the municipality has not prepared a performance
in the performance reports is useful and reliable report for the past 13 years. It also did not have an
enough to enable the council, the public and approved integrated development plan or a service
other users of the reports to assess the municipality’s delivery and budget implementation plan. The
performance. When we raise material findings on municipality has been dysfunctional for many years
municipalities’ performance reports, this means they with a 100% vacancy rate at senior manager level,
generally struggled to report reliably on whether they a weak control environment, and most employees
have achieved their performance targets. lacking appropriate skills and competencies.
Performance management responsibilities have also
Renosterberg, Siyancuma, Siyathemba and Ubuntu not been allocated to any official.
local municipalities in the Northern Cape did not
prepare performance reports, which meant that It does not bode well for service delivery that over
there was no transparency on, or accountability three-quarters (76%) of the 237 municipalities that
for, their performance – to the detriment of their prepared performance reports submitted poor-
residents. quality reports for auditing.
Quality of performance reports before and after auditing – municipalities
Before audit adjustments After audit adjustments
58
(24%)
100
(42%)
137
179 (58%)
(76%)
With findings With no findings With findings With no findings
Although there are performance management The poorly prepared performance reports and
and reporting frameworks that clarify definitions significant activity to make corrections in response
and standards for performance information, to the audit also raise questions about the
including the requirements for integrated structures, credibility and effectiveness of in-year performance
systems and processes to manage performance reporting. Poor monitoring and corrective action
information, most municipalities did not have throughout the year contribute to municipalities
adequate systems to collect and report on their being unable to achieve their performance targets
performance information and did not properly or reliably report on their performance. Councils
apply performance management and reporting and oversight bodies (such as municipal public
requirements. accounts committees) also use in-year reporting for
monitoring purposes; without reliable information,
their monitoring process will not be effective.
55
Opinions on performance reports – overall and breakdown per municipal category
Movement from last year

Unqualified Qualified Adverse Disclaimed of previous administration
104 93 11 36
244 28 40
Overall
42% 38% 5% 15%
2 2 2 2
8 0 1
Metropolitan
municipalities 25% 25% 25% 25%
11 22 0 5
38 4 5
Intermediate
cities 29% 58% 0% 13%
21 11 1 4
37 1 5
District
60 53 8 23
144 23 26
Local
10 5 0 2
17 0 3
Municipal
entities 59% 29% 0% 12%
56
1 2 3 4 5 6
The declining quality of performance reporting When municipalities do not have credible data
was due to management’s slow response to and information, it reduces their ability to plan for
address weaknesses raised in the previous service delivery, to respond to any challenges that
year, performance plans and reports not being could arise, and to make decisions. For example,
adequately reviewed, and vacancies in key if a municipality cannot reliably measure the
positions. This mainly occurred at district and local percentage of complaints or callouts responded
municipalities and at municipal entities and was to within 24 hours for sanitation and wastewater,
most prevalent in Gauteng, North West, KwaZulu- it may end up with either too few or too many
Natal, Mpumalanga and the Eastern Cape. staff members or standby teams to respond to
complaints and callouts.
The main reason for the unreliable performance
reports was that municipalities were using manual We also found inconsistencies between the
processes to gather data, and these processes are performance indicators and targets municipalities
prone to human error that may not be detected included in their service delivery and budget
and corrected in time. The required levels of review implementation plans and what they reported in
did also not take place, including those by audit their performance reports.
committees and internal audit units. We saw little
evidence that senior officials, municipal leadership
and oversight were supervising and monitoring
quarterly reporting, which resulted in inadequate
monitoring and management throughout the year.
Examples of inconsistency between planning and reporting
Planned performance Reported performance

Municipality indicator and target indicator and target
City of Johannesburg Total water losses – 27% Total water losses – to be determined
Metro (Gauteng)
Rustenburg Local Percentage of known informal Percentage of weekly solid waste
Municipality settlements receiving basic removal by 30 June 2022 – 83%
(North West) refuse removal services by
30 June 2022 – 83%
!Kheis Local Number of single residential Number of single residential properties
Municipality properties with access to with access to basic level of sanitation –
(Northern Cape) basic level of sanitation – 183 households
2 800 residential properties
57
We could not always obtain evidence for the support the achievement reported. This means that
achievements municipalities reported because municipalities could have achieved less than they
of a lack of complete and accurate information. reported, or even that the reported achievements
Where evidence was provided, it did not always might not have taken place at all.
Examples of achievements reported without sufficient evidence
Reported
Municipality Performance indicator Target achievement*
Nelson Mandela Bay Percentage of complaints/callouts responded 100% 23,78%

Metro (Eastern Cape) to within 24 hours – sanitation/wastewater
Mangaung Metro Percentage of total water connections 100% 81,1%
(Free State) metered
City of Tshwane Metro Percentage of known informal settlements 86% 92%
(Gauteng) receiving basic refuse removal services
Percentage of valid customer applications for 50% 46%
eThekwini Metro
new electricity connections processed in terms
(KwaZulu-Natal)
of municipal service delivery standards
* We could not audit the reported achievements due to a lack of credible information and/or processes
The development of the municipal performance While most internal audit units and audit
module of the District Development Model committees performed their legislated functions,
Information Management System is an ongoing including evaluating the reliability of performance
initiative of the Department of Cooperative information, this was not effective as the quality of
Governance to support provincial cooperative the performance reports we received for auditing
governance departments. When completed, the remained poor.
system is expected to automate the performance
reporting of standardised local government
performance indicators at both municipalities and
provincial cooperative governance departments
to enable consistent and credible reporting.
58
1 2 3 4 5 6
Services not delivered

Municipalities did not achieve the targets set for the year, resulting in the expected services not
being delivered. The non-achievement of planned targets should serve as basis for accountability
conversations by the different roleplayers in the accountability ecosystem.
Examples of zero achievements of planned targets

» Mangaung Metro (Free State) achieved only 13% of the planned targets for the key
performance area related to basic service delivery. It reported an achievement of zero
for seven performance indicators relating to the provision of water and sanitation. One
of these indicators was the percentage of wastewater treatment capacity unused. The
wastewater treatment works of the metro were not functional because of inadequate
and poorly maintained infrastructure. The planned upgrades at Sterkwater had not been
started and the new treatment works at Maselspoort had not been completed due to
excessive delays. This means that the wastewater treatment works could not increase their
capacity, improve wastewater quality and reduce foul odours, creating a hazard to the
environment and the surrounding communities.
» City of Tshwane Metro (Gauteng) reported a zero achievement for the percentage
of households it provided with basic refuse removal services. The metro also did not
achieve planned targets related to key service delivery performance indicators on water,
sanitation and electricity.
Examples of underachievement of planned targets
Reported Percentage
Municipality Performance indicator Target achievement underachieved
Buffalo City Metro Number of dwellings provided 780 643* 17,56%

(Eastern Cape) with connections to the mains
electricity supply
Nelson Mandela Number of dwellings provided with 1 260 590 53,17%
Bay Metro connections to the mains electricity
(Eastern Cape) supply by the municipality
City of Ekurhuleni Percentage of callouts resolved 85% 18% 79,76%
Metro (Gauteng) within 24 hours – water
eThekwini Metro Electricity losses (technical and ≤8,5% 11,28% 32,71%
(KwaZulu-Natal) non-technical) as a percentage
of electricity purchases
City of Cape Number of human settlements 1 940 1 423 26,65%
Town Metro opportunities provided
(Western Cape) (formal sites serviced)
* The underachievement should be considered in the context of the reported achievement also not being reliable
59
Some municipalities are responsible for providing Similarly, municipalities are responsible for a
water, either directly as water services authorities range of environmental functions, including
or by managing water service provision through waste management, pollution control and
local municipalities that operate as water service the management of natural resources such as
providers. In 2022, the Department of Water and land and water. The National Environmental
Sanitation reported in the national Blue Drop risk Management Act and the National Water Act
rating that just over a third (34%) of the country’s require municipalities to take reasonable measures
water supply systems were in the high risk or critical to prevent, minimise and rectify pollution.
risk category, raising potential health concerns for
the consumers who receive water from these
supply systems.
Examples of underachievement against planned waste management and water quality targets
Reported Percentage
Municipality Performance indicator Target achievement underachieved
Richtersveld Local Percentage of water 95% 0% – No monthly 100%

Municipality quality level obtained as reports done
(Northern Cape) per SANS 241 physical and
micro parameters as
at 31 December 2021
and 30 June 2022
Blue Crane Route Number of bacteriological 96 87 9,38%

Local Municipality water samples and bacteriological bacteriological (bacteriological
(Eastern Cape) chemical water water samples water samples water samples)
samples taken and 4 chemical and 3 chemical
25% (chemical
water samples water samples
water samples)
taken taken
Bela-Bela Local Percentage of 86% 67% 22,09%

Municipality work completed for
(Limpopo) the construction of
sewer outfall from
Aventura pump
station to wastewater
treatment works
Municipal managers do not ensure that in-year swiftly to resolve any faults reported. For example,
monitoring controls and project management at Hantam Local Municipality in the Northern Cape,
disciplines are in place so that planned service most complaints were resolved on the same day or
delivery targets can be achieved on time, within within a day or two at most.
budget and at the right quality. We discuss this
Next we share examples of some of the practices
in more detail in the section on infrastructure for
we observed at municipalities with clean audit
service delivery.
outcomes. There is not always a direct correlation
Where municipalities are getting service delivery between a clean audit outcome and good
right, the impact is also felt by the community. service delivery, but a clean audit allowed
We found that the common denominators across these municipalities to focus on also improving
these municipalities were that they had invested their service delivery planning, reporting and
in complaint management systems that are achievement.
accessible and user friendly and that they acted
60
1 2 3 4 5 6
Examples of service delivery practices and delivery at municipalities

with clean audits
» Midvaal Local Municipality (Gauteng) sustained a clean audit outcome for the ninth
consecutive year and achieved 89% of its basic service delivery targets. The municipality
has embedded strong internal controls and has linked good financial and operational
practices to constantly improve service delivery. The municipality has rigorous community
participation in the drafting of its performance plans and community needs are
considered. Funding is directed appropriately due to sound budgeting principles and
basic service delivery targets are met. Its municipal area is characterised by proper road
infrastructure, clean sidewalks and safe walkways, a clean community pool, and well-
maintained water and sanitation infrastructure. The municipality is largely able to collect
its consumer debt as residents are willing to pay their municipal bills in recognition of the
services they receive.
» Hantam Local Municipality (Northern Cape) maintained a clean audit status for the
second year and achieved 79% of its basic service delivery targets due to strong financial
controls and senior management driving a culture of accountability, governance and
performance. The municipality is able to provide quality services to the surrounding
communities despite its limited resources. Road infrastructure is maintained and informal
settlements are provided with water and sanitation services. The municipality has a robust
public participation process that affords residents the opportunity to provide inputs into
the municipality’s performance plans. Budgets are aligned to the strategic objectives of
the municipality, which also considers informal households.
» City of Ekurhuleni Metro (Gauteng) received a clean audit for the third year in a row
and achieved 77% of its basic service delivery targets. The metro prioritises problems
highlighted during public participation processes. For example, in response to the
community raising concerns relating to flooding caused by dilapidated infrastructure,
the metro included this matter in its performance plan and delivered on its commitments
by building 26 stormwater systems against the target of 17.
Conclusion
Councils, national and provincial government We recommend the following to enable complete
and oversight structures are not paying enough annual service delivery planning and reporting,
attention to addressing the continuing failures in accountability for effective reporting and the
municipalities’ service delivery planning, reporting achievement of planned service delivery:
and achievement. If those responsible continue » Municipal managers should ensure that
to neglect these challenges, this will severely service delivery plans include all the required
affect local government’s ability to deliver basic performance indicators and insist on in-year
services, which will further erode public trust. In monitoring controls and project management
the next section, we focus on the importance of disciplines so that planned service delivery is
infrastructure, and infrastructure maintenance, as achieved on time, within budget and at the
a key enabler for improved service delivery. required quality.
61
» Mayors and councils should be more persuasive provincial legislatures and the cooperative
in their quest for good-quality and credible governance minister on time so that these
service delivery plans and performance reports. reports can be used to facilitate the necessary
They should also hold municipal managers and interventions to address any shortcomings in
senior managers accountable for failing to fulfil service delivery.
their responsibilities. » National and provincial departments of
» Councils should ensure that budgets and cooperative governance should support
service delivery plans are responsive to the municipalities to improve their planning and
needs of the community. They should further reporting of key performance indicators
use in-year monitoring to confirm whether the through capacitation and monitoring.
mayor and municipal manager are taking » Municipalities must have policies, procedures
corrective steps to address poor performance. and monitoring mechanisms in place for
» Audit and/or performance audit committees proper record keeping and a sound control
should interrogate the planning documents environment to ensure that complete, relevant
and quarterly performance reports of and accurate information is accessible and
municipalities with the necessary vigour to available to support performance reporting
effectively fulfil their oversight role – thereby and to enable senior management to hold staff
assisting councils to make informed decisions. accountable for their actions.
» The members of the executive council for
local government should ensure that good-
quality section 47 reports are submitted to the
Infrastructure for service delivery
Municipal infrastructure plays a key role in the existing infrastructure has not kept pace with
supporting service delivery. During the floods the growing demands in the country and there is
in the Eastern Cape and KwaZulu-Natal in April a backlog in both building new infrastructure and
and May 2022, lives were lost, livelihoods were maintaining the existing infrastructure needed to
destroyed and service delivery infrastructure was provide basic services.
severely damaged. The effects of the flooding
Government has responded to these needs with
were worsened by the lack of well-maintained
aggressive infrastructure investment programmes.
infrastructure such as stormwater drains and water
Infrastructure investment is also a key component
services development plans, which also reduced
of the Economic Reconstruction and Recovery Plan
government’s ability to help people with basic
that was introduced in 2020 to improve economic
services and restoration.
growth. According to the National Treasury’s 2022
The basic services that the people of South Africa budget review report, government budgeted
are entitled to receive – access to clean water, R62,1 billion in 2021-22 for infrastructure spending
sanitation, electricity, refuse removal services, in local government.
public transport and good roads – cannot be
Every year, we audit infrastructure and report to
delivered without infrastructure. The country’s
municipal managers on the status of selected
existing infrastructure must also be properly
infrastructure projects, as well as on deficiencies
maintained to ensure that it remains in a workable
and inadequate infrastructure maintenance.
and safe condition throughout its lifespan. However,
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1 2 3 4 5 6
We focus on critical infrastructure such as water, Although municipalities sorely need these grants to
wastewater treatment, electricity, housing, public finance their infrastructure projects, they often do
transport and roads, as failure to deliver on the not spend all the grant funding, and in 2021-22
promised new infrastructure in these areas directly they did not spend a total of R2,91 billion (9%).
affects the public and deprives them of the basic Municipalities can apply to roll over any unspent
services they are entitled to receive. Despite this, funds, but if this is not approved, the unspent
we have seen little change and we continue to grant funding is returned to the department that
identify the same issues every year. provided the grant.
In the remainder of this section, we share the In 2021-22, metros had to return a total of
findings, insights and root causes from our audits of R0,65 billion in unspent urban settlements
grant management, infrastructure project delivery development and public transport network grant
and infrastructure maintenance. funding to the National Treasury, more than double
the R0,24 billion they returned in the previous year.
The underspending contributed to projects being
Grant management delayed or not implemented, and to planned
National government provides municipalities completion milestones not being achieved.
with grants for infrastructure development and
maintenance.
Management of infrastructure grants
Total grant income: R33,31bn

2021-22
Total grant expenditure: R30,41bn (91% spent)
Metropolitan Intermediate Local District

municipalities cities municipalities municipalities
Budget R11,82bn R6,05bn R7,38bn R8,06bn

Spent R10,95bn R5,26bn R6,65bn R7,54bn
(93%) (87%) (90%) (94%)
Total grant income: R35,45bn

2020-21
Total grant expenditure: R33,00bn (93% spent)
Metropolitan Intermediate Local District

municipalities cities municipalities municipalities
Budget R15,42bn R5,79bn R6,91bn R7,34bn

Spent R14,71bn R5,26bn R6,22bn R6,81bn
(95%) (91%) (90%) (93%)
63
Underspending on infrastructure grants
Underspent by
Grant Spent Unspent more than 10%
Municipal infrastructure grant (190 municipalities)
Purpose of grant: Fund projects to build and upgrade municipal infrastructure
Transferring national department: Cooperative Governance
Clean municipalities R1,11 billion R1,10 billion 1%
Disclaimed municipalities R0,64 billion R0,57 billion 11% 42

municipalities
Other municipalities R12,61 billion R11,77 billion 7% (22%)
Total R14,37 billion R13,44 billion 6%
Municipalities with highest underspending
Emthanjeni Local Municipality (NC) 70% Caused by: Delays in appointing contractors,
poor project and contract management,
Nama Khoi Local Municipality (NC) 68%
and project delays due to contractors not
Matjhabeng Local Municipality (FS) 57% being paid
Urban settlements development grant (8 metros)
Purpose of grant: Fund projects to assist in improving households’ access to basic services through providing bulk and
reticulation infrastructure as well as urban land production to support broader urban development and integration
Transferring national department: Human Settlements
Clean metros R2,12 billion R2,08 billion 2%

1
Other metros R5,40 billion R5,07 billion 6% metro
(13%)
Metro with highest underspending
Mangaung Metro (FS) 34% Caused by: Planned projects funded

from other sources, and no other projects
selected
64
1 2 3 4 5 6
Underspending on infrastructure grants (continued)
Underspent by
Public transport network infrastructure grant (11 municipalities)
Purpose of grant: Fund accelerated construction and improvement of public and non-motorised transport infrastructure
Transferring national department: Transport

5
Other municipalities R3,22 billion R2,49 billion 23% municipalities
(45%)
City of Mbombela Local Municipality (MP) 75% Caused by: Delays in projects, funds being
received late, delayed approval processes
Mangaung Metro (FS) 41%
for work to start, and termination of
Polokwane Local Municipality (LP) 40% contract for poor performance
Regional bulk infrastructure grant (36 municipalities)
Purpose of grant: Fund projects to develop new – and refurbish, upgrade and replace ageing – water and wastewater
infrastructure of regional significance, which connects water resources to infrastructure serving extensive areas across
municipal boundaries, or large regional bulk infrastructure serving numerous communities
Transferring national department: Water and Sanitation
Disclaimed municipalities R0,06 billion – 100% 9

municipalities
Municipality with highest underspending
Kgatelopele (NC) 100% Caused by: Poor planning processes,

which contributed to delays in appointing
contractor
65
Underspending on infrastructure grants (continued)
Underspent by
Water services infrastrucutre grant (96 municipalities)
Purpose of grant: Facilitate the planning and implementation of various water and sanitation projects to
accelerate backlog reduction and improve the sustainability of services, especially in rural municipalities
Transferring national department: Cooperative Governance
Disclaimed municipalities R0,11 billion R0,09 billion 18% 39

municipalities
Siyancuma Local Municipality (NC) 94%

Caused by: Delays in appointing
Govan Mbeki Local Municipality (MP) 92% contractors, and poor project and
contract management
Rustenburg Local Municipality (NW) 84%
Overall, the main reasons for underspending on recipients). Collectively, grant funding was not
infrastructure grants were poor planning, delays in spent for its intended purpose at three disclaimed
appointing contractors and inadequate contract municipalities. Some municipalities, such as
management. The underspending of these key the Ngwathe, Dihlabeng and Letsemeng local
infrastructure grants shows that the affected municipalities in the Free State and Dikgatlong
municipalities have failed to deliver on the promises Local Municipality in the Northern Cape, used
they made to their residents. To better understand grant money to fund their operations because of
the root causes behind this underspending, we their cash-flow constraints. Some municipalities,
unpack the results from our site visits to infrastructure such as the Kgatelopele and Khâi-Ma local
projects later in this section. municipalities in the Northern Cape, did not have
sufficient controls in place when making payments
Money was also not always spent in accordance using grant funding, such as evidence to support
with the grant framework. For example, the payments made.
14 municipalities that received municipal
infrastructure grant funding (7% of recipients) The inappropriate spending and underspending
did not use the funds for their intended purpose. of these grants contributed to the delays in
The same was true for three municipalities receiving completing infrastructure projects that would have
regional bulk infrastructure grant funding (8% of improved service delivery to residents, such as
recipients) and 12 municipalities receiving water access to water, housing and public transport.
services infrastructure grant funding (13% of
66
1 2 3 4 5 6
Infrastructure project delivery

Municipal infrastructure projects are financed We reported findings on more than half (55%) of
through a combination of the conditional grants the projects we visited. We found that, all too often,
mentioned above and municipalities’ own funds. infrastructure delivery projects have been delayed,
To determine how these funds were used, our audit are costing more than planned or are of poor
work included site visits to 249 infrastructure projects quality, while newly built infrastructure is not put into
with a combined value of R18,8 billion located use as quickly as it should be.
across 81 municipalities (including all eight metros)
and three municipal entities. Twenty of the projects Delays in projects
were funded through municipal revenue, while
the rest were funded by the infrastructure grants. Of the projects we selected for auditing, 31% were
We focused on critical water, sanitation, housing, completed late or were still under construction after
transport and electricity infrastructure needed to the contractual completion dates. The average
deliver basis services to the public. delay on these projects was 15 months.
Average delay in completion of projects

(period between planned and actual completion date, or project is still ongoing)
26 Public transport network grant 10 Water services infrastructure grant

months months
17 Regional bulk infrastructure grant 8 Urban settlements development grant

months months
15 Municipal infrastructure grant

months
67
Examples of project delays
» Harry Gwala District Municipality (KwaZulu-Natal) was charged standing time in March 2020
by a contractor for delays incurred during the construction of the Gala bulk pipeline,
which resulted in a financial loss of R8,09 million. The delays were because the supplier
responsible for supplying the pipes required for the project delivered them six months
later than planned. We issued a notification of a material irregularity on this matter to the
municipal manager, who is taking appropriate action in response.
» The rapid transport project of Rustenburg Local Municipality (North West) aimed to
provide a reliable public transport system by 2020, but by September 2022 the project
still had not been completed, with multiple contractors having been appointed
because previous contracts were terminated. During our site visit, we observed that
some of the partly completed construction work had deteriorated and had been
vandalised. By year-end, the municipality had spent R3,51 billion on the project since
it started. The municipality had also paid contractors more than it should have for the
work done and had not recovered the funds after the contracts were terminated. The
quantity surveyor calculated that the first and second contracts were overpaid by
R8,10 million and R25,12 million, respectively. We recently notified the municipal
manager that the overpayment constitutes a material irregularity.
» In September 2009, City of Johannesburg Metro (Gauteng) appointed an implementing
agent for the Lehae housing development project, which was to be completed within
three years. However, at the time of our site visit 13 years later, only 1 420 (70%) of the
2 023 planned houses had been completed and handed over to beneficiaries. The
remaining 552 serviced stands and 51 houses that were still under construction were
illegally occupied. The metro could not confirm whether the remaining houses had been
completed and we could not get confirmation on whether and when houses would be
allocated to the 603 qualifying beneficiaries (from informal settlements such as Dlamini
Camp, Mshenguville, Old Vista, Thembelihle, Kapok, Orlando Coal Yard and Eikenhoff),
who have been waiting for their houses since the project began in 2010. Because the
metro had never finalised the memorandum of agreement with the implementing agent,
project costs nearly doubled from the initial R636,87 million to R1,21 billion. We are busy
assessing the matter as a possible material irregularity.
Infrastructure projects are often completed behind cover construction costs. This results in the projects
schedule because municipalities do not allocate being stopped or delayed until the municipalities
enough capital expenditure in their budgets to can secure additional funding.
68
1 2 3 4 5 6
Examples of infrastructure projects delayed or stopped because of insufficient budgeting
Metro Project name Contract value Impact on service delivery
City of Tshwane Metro Flooding backlog: network R10 million The area is vulnerable to flooding and
(Gauteng) 3A, Kudube unit 9 the delay will have an impact when
there are heavy rains
City of Johannesburg Construction of roads in R21 million Daily public commuting and movement
Metro (Gauteng) Braamfontein as part of of goods and services will be affected
nodal regeneration
Cost overruns
Delays and poor contract management often cause project costs to increase, as can be seen in the
examples on project delays. Contractors did not always make adequate progress during the term of their
contract; and replacing them resulted in significant project delays and escalating project costs.
Example of cost overruns

» In February 2021, Emakhazeni Local Municipality (Mpumalanga) started a project to
refurbish and upgrade the Machadodorp water treatment works at a cost of
R35,37 million. By the end of the 2021-22 financial year, the municipality had already
spent R31,37 million and the project was not yet complete. In July 2022, the municipality
terminated the contractor’s services. Because of poor contract management, the
council did not approve an increase of R0,75 million in the contract amount for the
services of a consulting engineer. The municipality did also not put in any claims against
the contractor’s retention and sureties for R3,9 million spent on services that were not
rendered, penalties that were not charged despite an eight-month delay, construction
materials that were bought on behalf of the contractor and not claimed back, storm
damage that was not claimed from the contractor’s insurer, and poor build quality (such
as the incorrect size of the concrete wall and exposed reinforcement bars). Because of
these issues, the municipality did not receive value for the money it spent and its residents
do not have access to clean drinking water, even from its own taps, posing a health risk.
We will follow up and report on this matter in future reports and will consider the possibility
of material irregularities.
Poor build quality

Municipalities appoint contractors to carry out did identify such defects, they did not hold the
work in line with quality standards and to ensure contractors accountable. The construction work at
that infrastructure is safe, functional and will last. 34 of the projects we audited (14%) was not at the
However, municipalities did not always identify required level of quality.
quality defects during construction; or, if they
69
Examples of poor build quality
» Buffalo City Metro (Eastern Cape) awarded a contract of R87,64 million that was due to
begin in April 2022 to develop a 275-unit township in Cambridge West. This amount included
the construction of bulk earthworks for building platforms, roads, water supply, sanitation
and storm water infrastructure. During our October 2022 site visit, we saw various quality
issues, such as the following:
» Poor-quality sewer trench backfills and oversized materials, which could lead to pipes
being damaged during compaction and leaks in the trenches
» Substandard compaction along sewer trench backfills, which could lead to leaks
caused by pipes opening at joints
» Open sewer trenches that were not barricaded, increasing the safety hazard to the public
Excess oversized materials not Substandard compaction

per specifications
» The Giyani water works has two water treatment streams that are supposed to serve about
55 villages in Greater Giyani Local Municipality (Limpopo). The first water treatment stream,
which supplies 30 megalitres of raw water per day, is currently experiencing major water
losses due to technical issues, such as 11 of the 16 rapid sand filters not working. Work on
refurbishing the treatment plant began in January 2023 and is planned to be completed
in December 2023, at a total cost of R40,17 million. Construction on the second water
treatment stream was completed in 2014 with a total spend of R17,46 million (including
spending by the Department of Water and Sanitation). The stream, which supplies six
megalitres of raw water per day, is currently not working because the structural integrity of
the reinforced concrete filters and the clear water pumphouse building are compromised.
This has led to villages in Giyani experiencing shortages of clean drinking water. The
municipality is currently investigating the matter and we will follow up and report progress in
subsequent reports. We will also consider the possibility of material irregularities.
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1 2 3 4 5 6
Commissioning
Commissioning is the final phase in completing not aware of these requirements. This resulted in
a project. Infrastructure can often not be used municipalities having to redesign or change the
as intended because of a lack of coordination scope of infrastructure during the construction phase.
and collaboration between municipalities and
Similarly, other government entities did not always
various levels of government. Often, municipalities
complete the requested work within acceptable
did not request assistance in time, or waited too
timelines due to their own constraints and priorities,
long to apply for the required permits or licences
and did not issue permits or licences in time for
for infrastructure projects, or only requested input
infrastructure projects to start as planned, to
on the scope of infrastructure projects from other
continue or to be commissioned, which led to
contributing roleplayers in government after the
inefficiencies.
projects had already begun because they were
Examples of delayed commissioning of projects

» Mopani District Municipality (Limpopo) paid R12,99 million to the original contractor
appointed for the Mametja-Skororo regional water scheme project. This contractor’s
services were later terminated and a second contractor was appointed. During our
November 2022 site visit, we found that the pump station and motor control centre building
that the original contractor had completed were not being used, and cables at the motor
control centre building had been stolen. This meant that none of the works completed by
the original contractor were being used and the municipality did not get any value for the
money it had paid to the original contractor. The municipality had also paid R48,96 million
for designs to be used on the project, but because the replacement contractor did not use
the original designs, the municipality did not receive full value for its payments to the original
consultant. We recently notified the municipal manager that the overpayment constitutes a
material irregularity.
Motor control
centre panels not
in use
71
Examples of delayed commissioning of projects (continued)
» eThekwini Metro (KwaZulu-Natal) has spent R125,59 million on standing costs on the
contract for the integrated rapid public transport network. Route 3 of the project (Bridge
City to Pinetown and New Germany), which has a total contract value of R3,48 million,
commenced in 2014 and was scheduled to be completed in 2018 but encountered major
delays and remains incomplete four years later. This was because of disputes with the taxi
association and community disruptions. A total of 26,13 kilometres of the planned
27,5 kilometres and 10 stations have been completed but are not being used because
of a deadlock with the taxi association in resolving ownership of the metro’s city fleet. The
22 buses that were modified and branded at a cost of R4,52 million are also not being used,
resulting in an approximate annual revenue loss of R4,62 million. We will follow up and report
on this matter in future reports and are considering the possibility of material irregularities.
Causes of infrastructure project failures

The failures in infrastructure project delivery are due The lack of appropriate skills resulted in project
2.
to the following four matters which we have raised managers at municipalities not effectively
before, and which need urgent attention: discharging their responsibilities, such as
continuous project monitoring and contract
Leadership shortcomings, which included:
1. administration.
» Leadership was not engaged in the » Project managers did not perform the
infrastructure delivery process and was necessary project management and
thus not aware of project progress to monitoring activities, including checking
determine whether officials executed their whether contractors delivered the items
responsibilities and to act if they had not. paid for and whether the payment
» Standard operating procedures were not certificates contractors submitted
in place to guide officials and consultants contained a full breakdown of the work
and to hold them accountable for project done. The municipality needs these checks
failures. to be done so that it can reconcile the work
» Resource planning was not done effectively done onsite to the invoices submitted.
to ensure technical personnel such as » Municipal project managers relied on
engineers and project managers had the appointed consultants to monitor and report
required skills and capacity to manage the on the quality and progress of projects
infrastructure delivery process. without regularly reviewing the work done
» Financial management processes were to ensure that contractors and consultants
lacking and so municipalities did not always complied with contract conditions and
confirm that funding was available to pay service-level agreements.
contractors on time, which contributed to
3. A lack of accountability resulted in contractors
delays in project completion.
performing poorly and delivering projects
» The appointment of officials and the that were late and of poor quality. Due
availability of completed infrastructure and to the leadership shortcomings detailed
services were not properly coordinated to in point 1, municipalities did not enforce
ensure that projects could be commissioned consequence management processes such
on time.
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1 2 3 4 5 6
as placing contractors on notice to address City of Cape Town and eThekwini being the only
poor performance according to the contract two spending within the norm, at 8% and 9%,
conditions. Action plans to address poor respectively. eThekwini reprioritised funding to
contractor performance were not properly maintain infrastructure previously neglected as a
implemented and concerns were thus not temporary measure in response to the floods during
addressed through appropriate interventions April and May 2022.
and actions. Municipalities accepted or
Municipalities do not prioritise maintenance during
tolerated poor contractor performance until
their budget process. As we explain in the section
the point where they replaced the contractor,
on pressure on local government finances, many
leading to significant additional costs
municipalities in financial distress use the revenue
and delays.
they generate and their equitable share allocations
A collaborative approach was not followed
4.
to pay salaries and administration expenses. They
for infrastructure projects due to limited
also use grants to fund capital projects rather than
intergovernmental coordination.
maintain existing infrastructure assets.
Infrastructure management and Preventative maintenance can only be effective

maintenance if municipalities have maintenance plans in place
that are funded and updated, but this is often not
Infrastructure assets is one of the financial statement the case and these assets are left to deteriorate
items that is most often misstated. Even though without defects being rectified swiftly. When
municipalities spent more on consultants for municipalities do not maintain their infrastructure
asset management services than on any other assets, this results in lower service level standards
financial service, they did not have credible and affecting water quality and increased water
reliable data for reporting on and managing their losses, excessive costs for replacing or upgrading
infrastructure assets. They also did not always derive infrastructure and equipment, and an increased risk
the expected benefits from using the consultants, of mechanical breakdowns. It also poses a risk to
as explained in detail in the section on financial the health of communities and of potential harm
planning and reporting. to the environment.
Overall, the value of infrastructure assets that local As a water-scarce country, South Africa must
government should maintain and protect totalled protect its water resources, both by managing
R494,35 billion. Municipalities need to budget for pollution at the source and by preventing
repairing and maintaining these assets based on avoidable water losses due to ageing infrastructure
their annual asset maintenance plan, and the that is not properly maintained – as we detail next.
National Treasury recommends that they budget
at least 8% of the value of their infrastructure assets
Environmental impact of infrastructure
for this purpose. However, many municipalities
neglect on service delivery
allocated less than this in their budgets because
of limited financial resources and poor financial Our environmental inspections of wastewater
management. treatment plants reported findings at 14 of the
16 selected municipalities, including two
In total, the 257 municipalities spent R18,26 billion municipalities with disclaimed audit opinions.
on repairing and maintaining infrastructure assets, The inspections also confirmed that neglected
which is roughly 4% of the total value of these municipal infrastructure and ineffective
assets (the same as in the last financial year). It is environmental management polluted water
particularly concerning that 39% of all municipalities sources, including underground water, and
spent 1% or less of the value of their infrastructure revealed an unacceptable state of wastewater
on repairing and maintaining these assets. This treatment works.
situation was also prevalent at most metros, with
73
At nine (56%) of the municipalities we selected These shortcomings harmed the communities using
for our inspections, we found that wastewater the water every day for drinking and washing
discharged at wastewater treatment works did and the farmers using the water for irrigation
not comply with waste standards and practices and for their livestock. The situation at some of
(per the Department of Water and Sanitation’s these municipalities is well known and has been
Green Drop report of April 2022). Reasonable the subject of investigations by the South African
measures were also not taken to prevent pollution Human Rights Commission and of court cases,
or degradation of the adjacent environment but little has been done to rectify the problems.
or water resources at 11 (69%) of the selected The likely substantial harm to the general public
municipalities. These are Mangaung Metro and caused by contaminated water sources meets the
Ngwathe, Metsimaholo, Moqhaka and Matjhabeng definition of a material irregularity.
local municipalities in the Free State; Ugu District
In our previous general report, we reported that we
Municipality and eThekwini Metro in KwaZulu-Natal;
had notified the municipal manager of Maluti-a-
Mopani District Municipality and Bela-Bela Local
Phofung Local Municipality (Free State) of material
Municipality in Limpopo; Thaba Chweu Local
irregularities at four of its sites, and the municipal
Municipality in Mpumalanga; and Kgatelopele
manager of Ngaka Modiri Molema District
Local Municipality in the Northern Cape. More
Municipality (North West) of material irregularities
information and examples on the environmental
at three sites. By 15 February 2023, we had issued
impact at disclaimed municipalities are included in
notifications to various municipal managers of
the section dealing with those municipalities.
24 material irregularities related to their wastewater
treatment plants, with more to follow.
Examples of material irregularities on wastewater management

MI
» JB Marks Local Municipality (North West) is responsible for the Ventersdorp wastewater
treatment works and related pump stations, which have not functioned properly for more
than three years. The Tshing extension 8 pump station has been completely vandalised,
causing untreated wastewater to flow into the environment next to the wastewater
treatment works and pump station. The Ventersdorp town pump station also remains
dilapidated, and sewage has been overflowing into the adjacent Schoonspruit since 2016
with no evidence of any steps being taken to rectify the situation.
» Mangaung Metro (Free State) is responsible for the Botshabelo wastewater treatment works,
which does not operate effectively because mechanical and operational equipment
is either malfunctioning or not operational. This has resulted in raw, untreated sewage
being discharged into the neighbouring environment, including the groundwater and
the Klein Modder River and its extended watercourse. The metro did not take reasonable
measures to prevent pollution or the degradation of the environment and water sources
from occurring, continuing or recurring, which is likely to cause substantial harm to the
communities that are exposed to and depend on the contaminated water sources.
74
1 2 3 4 5 6
To resolve these material irregularities, municipalities March and April 2022. At the department’s request,
will need to stop the pollution, repair or rebuild we also provided information on all material
the plants, put measures in place to ensure the irregularities relating to wastewater treatment so
infrastructure is maintained, and compensate the that it can take action to intervene and/or support
people affected by the pollution where applicable. municipalities where needed.
We acknowledge that municipalities might not to
be able to implement these actions within a short
period, but some of the municipal managers have
Conclusion
not taken any action or have taken only limited Inadequate maintenance, ineffective planning and
action. We are considering the most appropriate poor execution of infrastructure projects over many
public bodies to refer these matters to for years have not only affected government’s ability
investigation. to deliver services to the public, but also have
significant cost implications, placing further strain on
Where municipalities take action, we are beginning
both government finances and the environment.
to see the impact of the material irregularities
Investing in preventative controls to address the
we had issued. One example is the Coligny
causes of infrastructure project failures is more
wastewater treatment plant and pump station,
effective than dealing with the consequences of
which are now operating after electricity was
such failures, which include lengthy delays, poor
restored and backup generators were installed.
build quality, financial loss, and harm to the public
Ngaka Modiri Molema District Municipality (North
and the environment.
West) is responsible for this plant and pump station,
which were not working for 18 months in 2020 and Over the past few years, we have identified
2021, contributing to the continued spillage of significant deficiencies that led to repeat findings
raw sewage into the Taaibosspruit and extended on the economical, efficient and effective use of
watercourses, and polluting the groundwater. resources in delivering the infrastructure projects
that are key measures of success in implementing
In our previous general report, we called on the
the Economic Reconstruction and Recovery
Department of Water and Sanitation to urgently
Plan. Municipalities did not always monitor and
intervene where water services are in a state of
ensure compliance with legislative requirements
total collapse. We are encouraged by the actions
for environmental management. Our findings on
the department is taking, such as the minister
infrastructure projects are not receiving enough
issuing a directive for the board of Bloem Water to
attention, and the related challenges continue
take over some of the wastewater management
to affect service delivery, limiting communities’
functions of Maluti-a-Phofung Local Municipality
access to water, sanitation, electricity, refuse
in the Free State. We raised material irregularities
removal, public transport and road infrastructure
on the state of the Phuthaditjhaba, Harrismith,
and services.
Kestel and Tshiame plants and pump stations in
75
SECTION 3
CONTINUED SPOTLIGHT ON
DISCLAIMED MUNICIPALITIES
3
Over the past few years, we have been devoting
specific attention to municipalities with disclaimed audit
opinions as this is the worst possible audit outcome
A disclaimed audit opinion means that the municipality could not provide us with
evidence for most of the information in its financial statements and we could therefore
not express an opinion on whether its financial statements were credible or determine
what it had done with the funds it received for the year. These municipalities are further
typically unable to provide supporting documentation for the achievements they report
in their performance reports and do not comply with key legislation.
The lack of transparency in how these municipalities use public funds and deliver
services significantly weakens accountability, which in turn leads to their residents being
deprived of service delivery and harmed by their actions or inaction.
Our previous general reports and engagements specifically focused on the

urgent intervention and support needed from national and provincial government
to municipalities with a history of disclaimed opinions. We placed the spotlight on
the serious financial management failures at these municipalities and the impact of
poor administration on the community, particularly the widespread neglect of
infrastructure. We further used our enforcement mandate to accelerate change at
these municipalities by issuing material irregularities. Government responded positively
by committing to eradicating disclaimed opinions and we are seeing encouraging
trends in a short space of time.
In 2021-22, we expanded the work we did on infrastructure and environmental

management at repeatedly disclaimed municipalities and delved further into their
financial management.
In the rest of this section, we look at the status of municipalities that received disclaimed
audit opinions and the impact that material irregularities has had at these municipalities,
our findings on financial and human resource management, and our insights on
infrastructure neglect and its impact on communities.
76
1 2 3 4 5 6
Improved status of disclaimed municipalities

In 2021-22, 15 municipalities, or almost 6% of all municipalities, received disclaimed audit opinions. This number
could still increase once all audits have been completed. Most of the municipalities that repeatedly received
disclaimed audit opinions were in the Northern Cape and North West.
Status of municipalities with disclaimed audit opinions, number of years disclaimed

and material irregularities issued
Eastern Cape Mpumalanga

Amathole DM Dipaleseng LM MI
Chris Hani DM Dr JS Moroka LM MI
Makana LM (4 years) MI Lekwa LM (4 years) MI
Sundays River Valley LM

Walter Sisulu LM
Northern Cape
!Kheis LM (5 years) MI
Free State
Joe Morolong LM (7 years) MI
Maluti-a-Phofung LM MI Kgatelopele LM (2 years)
Nketoana LM MI Renosterberg LM (5 years) MI
Tokologo LM MI
North West
Gauteng
Ditsobotla LM MI
Merafong City LM Greater Taung LM

Kgetlengrivier LM (5 years) MI
Lekwa-Teemane LM MI
KwaZulu-Natal Madibeng LM (7 years) MI
Mamusa LM MI
Inkosi Langalibalele LM
Maquassi Hills LM (5 years) MI
Nquthu LM
Naledi LM (5 years) MI
uMkhanyakude DM
Ramotshere Moiloa LM MI
Ratlou LM (4 years)
Limpopo
Bela-Bela LM Western Cape
Mopani DM (2 years) Kannaland LM
12 3 8 9
Repeat disclaimed Regressed to disclaimed Outstanding in Improved from disclaimed
opinion opinion in 2021-22 2021-22 opinion in 2021-22
MI
Material irregularity
notification issued
77
The good news is that nine municipalities improved by coordinating institutions also played a positive
from previously disclaimed audit opinions because role. By strengthening their financial reporting
they put in place better internal controls and record and accountability, these municipalities can now
keeping, promptly implemented audit action plans shift their focus towards service delivery to their
and filled key positions. Monitoring and intervention communities.
Examples of improvement from disclaimed audit opinions

» The appointment of a new chief financial officer and the timely appointment of
consultants at Chris Hani District Municipality (Eastern Cape) were key factors in improving
the audit outcome. The chief financial officer brought stability to the finance unit and the
consultants assisted in resolving the prior-year limitations on infrastructure assets, revenue
and receivables, which contributed to the improvement in internal controls.
» The mayor’s involvement in the audit process at Bela-Bela Local Municipality (Limpopo),
coupled with the premier’s message of zero tolerance towards negative audit outcomes,
helped to drive the municipality’s improvement in its audit outcome. This increased
attention and pressure on the municipality to improve created a sense of urgency for
management to follow a more focused and diligent approach to improving financial
management practices and internal controls.
» The audit outcome of Greater Taung Local Municipality (North West) improved because
the municipality effectively used the consultants appointed for asset management
through knowledge sharing and continuity.
» As part of the financial recovery intervention process, and to lessen the financial burden
consultant costs place on municipalities, the provincial treasury appointed consultants
that were used effectively to assist Ramotshere Moiloa Local Municipality (North West) with
its financial statements and to address prior-year shortcomings in asset management.
Twelve municipalities remained disclaimed, 10 of Legislation provides for national and provincial
which have received disclaimed audit opinions government to step in when municipalities do
for more than four years. At these municipalities, not meet their constitutional obligations. The
interventions did not focus on improving the control Department of Cooperative Governance can
environment by ensuring that action plans address also classify municipalities as dysfunctional based
the root causes of the matters reported and by on poor governance, weak institutional capacity,
strengthening record management. There was poor financial management, corruption and
also instability in key positions and the council and political instability.
little cooperation with administrators or provincial
National and provincial government are using these
representatives. It takes time to address the
mechanisms at eight of the repeatedly disclaimed
underlying root causes and implement sustainable
municipalities: two have been classified as
solutions at disclaimed municipalities, which requires
dysfunctional; one has been subjected to provincial
all roleplayers in the accountability ecosystem to
intervention; and five have both been classified as
work together.
dysfunctional and placed under administration or
Three municipalities also regressed to disclaimed subjected to provincial intervention.
audit opinions in 2021-22.
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1 2 3 4 5 6
Examples of successful provincial intervention and support

The provincial government in KwaZulu-Natal took our messages seriously and helped two
municipalities with disclaimed audit opinions to improve:
» The provincial cooperative governance department deployed a financial expert to help

Inkosi Langalibalele Local Municipality to draft financial statements, implement an action
plan in response to prior-year findings and assist during the audit process. The commitment
of the new administrator to the audit process and the early appointment of consultants
also contributed to the improvement.
» Nquthu Local Municipality implemented and monitored the audit action plan in good
time, improved its internal controls and appointed consultants early on, all of which were
supported by a financial expert deployed by the provincial cooperative governance
department.
Despite their history of disclaimed audit opinions, Material irregularities at

Maquassi Hills Local Municipality in North West,
disclaimed municipalities
Mopani District Municipality in Limpopo and !Kheis
and Kgatelopele local municipalities in the Northern The high number of municipalities that received
Cape had neither been classified as dysfunctional disclaimed opinions compelled us to consider the
nor placed under administration or subjected to impact of full and proper records not being kept
provincial intervention. We continue to advocate and the lack of credible financial reporting, which
for formalised interventions at these municipalities constitutes non-compliance with the Municipal
to restore governance, financial management and Finance Management Act. These lapses in
service delivery. accountability caused substantial harm to most
of these municipalities, as their financial position
The Municipal Finance Management Act provides was so poor that they disclosed in their financial
for municipal support improvement plans at statements that they were uncertain whether they
municipalities whose financial affairs are in crisis. could continue operating. In other words, they
However, because of instability in the administration were unable to demonstrate that they would be
(mostly at senior management level) and in the able to ensure that their communities had access
council, implementing these plans has not yet to basic services in a financially sustainable manner.
had a significant impact. As the national and This constitutes a material irregularity in terms of the
provincial cooperative governance departments Public Audit Act.
did not monitor progress each quarter, there were
limited consequences when these plans were not From 2021 to 15 January 2023, we issued such
implemented. Leadership, mayors and councils are material irregularity notifications to the municipal
responsible for setting the correct tone from the top managers of 24 municipalities. Seven of the
and instilling a culture of accountability and good municipal managers (29%) are taking appropriate
governance. By taking proactive steps to promote action to address the material irregularities.
these values, mayors can help to ensure that their At 14 municipalities (59%), we took further action
municipalities operate responsibly and effectively. and included recommendations in the 2020-21
and 2021-22 audit reports. We are considering
The instability that is hampering interventions and recommendations for the other three
support by national and provincial government is municipalities (12%). Our recommendations
also contributing towards the slow implementation urged the municipal managers to investigate
of our recommendations where we issued material what or who caused the non-compliance and
irregularities.
79
to establish credible action plans to address the In response to our previous concerns around the
lack of full and proper records and improve the lack of proper records at disclaimed municipalities,
municipality’s financial position. In most cases, we performed payment profile data analytics in
municipal managers did not fully implement our 2020-21 at 10 disclaimed municipalities to highlight
recommendations within the stipulated period and this risk. We did this by matching the actual
we will now assess the most appropriate further payments in the bank statements to the payments
action to ensure that these material irregularities recorded in the municipality’s financial system
are addressed, including remedial action where (which is the basis for the financial statements).
appropriate. However, we could not perform payment profiling
at four of these municipalities due to data
The slow progress is not unexpected, as the material limitations and a lack of unique identifiers such
irregularities at repeatedly disclaimed municipalities as payment descriptions or detailed references.
require the municipalities to address long-standing This would make it difficult for these municipalities
problems of poor record keeping and internal to perform bank reconciliations, which is an
controls, as well as the resultant financial instability. important internal control. In 2021-22, we could
Provincial treasuries and cooperative governance again not perform these procedures at four
departments can assist with financial turnaround local municipalities, namely Maluti-a-Phofung,
plans to improve record management at these Masilonyana and Tokologo in the Free State where
municipalities. These processes must be sustainable the audits were still in progress at the cut-off date
in the long term, even after the intervention teams of this report; and !Kheis in the Northern Cape
are no longer around. This is where mayors should where we then performed alternative procedures
play a crucial role to make certain that operations by manually matching the actual payments in the
continue to run smoothly and efficiently. To ensure bank statements to the payments recorded on the
sustainability, mayors must work on embedding the municipality’s financial system.
financial management practices and processes
developed during the intervention into the We found significant control weaknesses in
municipality’s daily operations. the bank reconciliation process and detected
unauthorised debit orders and duplicate payments
Poor financial management at two municipalities in North West. Madibeng
Local Municipality had unauthorised debit orders
The users of disclaimed financial statements cannot
and duplicate payments totalling R22 million and
rely on the reported information for decision-
R5 million, respectively, while Kgetlengrivier Local
making or accountability processes – not only
Municipality had unallocated cash withdrawals
at year-end but also throughout the year. Such
of R12 million. We are considering material
users include councils, the public, coordinating
irregularities on these matters.
institutions and those that provide funding such
as equitable share allocations and conditional Although we flagged payments to service providers
grants (for example, the National Treasury and as a risk in our previous general report, some
the Department of Cooperative Governance), as municipalities could again not provide evidence
well as provincial leadership and the legislatures. of basic controls and records to indicate that
They are therefore unable to determine what has services had, in fact, been provided. This could
been spent because funds cannot be accounted mean that payments were made for goods and
for. It is uncertain whether these municipalities will services not received. For example, Madibeng
be able to continue providing services in the near Local Municipality in North West paid information
future, fraudulent activities could go undetected, technology companies R34 million without any
and funds meant for service delivery could be documents (such as delivery notes or invoices
misappropriated without being detected.
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1 2 3 4 5 6
signed by delegated officials) to support these These regulations consider the size and scope
payments. We are considering material irregularities of municipalities and cover proficiency in
on these matters. competency areas, higher education qualifications
and work-related experience. Only two municipal
The mayors and councils of these municipalities managers (29%) and one chief financial officer (13%)
have a responsibility to address continued failures met the required specifications.
by setting clear expectations for performance
standards and holding municipal officials Close to three-quarters (73%) of the disclaimed
accountable for meeting them. Mayors and council municipalities had poor human resource practices
members, together with municipal managers, must and non-compliance at senior management
demonstrate accountability for funds spent by level. This included a lack of signed performance
playing an active role in the financial management agreements, appointments being made in positions
of their municipalities and ensuring that public funds with no job descriptions, and a lack of policies and
are used effectively, efficiently and economically. procedures to measure staff performance.
In addition, the municipalities continued to rely too

Effect of weak human
much on consultants and had still not implemented
resource practices proper needs assessments and plans to use
The consequences of poor human resource consultants effectively and transfer skills.
management practices can be seen clearly at the
In 2021-22, the 15 disclaimed municipalities paid
15 municipalities with disclaimed audit opinions.
consultants R128,76 million – either using them to
We found widespread instability and vacancies in bridge vacancy gaps or because their finance units
key positions, with an average vacancy rate of 36% lacked technical skills. Ten of these municipalities
at senior management level and 18% in finance derived little benefit from using consultants due to
units. At seven municipalities (47%), the chief poor project management and a lack of proper
financial officer position was vacant, while eight record keeping. Where applicable, we notified
(53%) did not have a municipal manager at year- municipal managers of material irregularities
end. Where these positions were filled, the average relating to this, as detailed in the section on
occupancy rate of municipal managers was financial planning and reporting. An example
31 months and that of chief financial officers was of such a material irregularity at a disclaimed
32 months. To put this into perspective, municipal municipality follows.
manager and chief financial officer positions at
Although coordinating institutions have
municipalities with clean audit outcomes were
implemented initiatives in some provinces to reduce
occupied for an average of 52 and 60 months,
the overreliance on consultants, Mpumalanga has
respectively.
not implemented any initiatives. Where initiatives
In most cases, the officials in key positions also are being implemented, these should be intensified
did not meet the requirements of the Municipal for them to be effective.
Regulations on Minimum Competency Levels.
81
Infrastructure neglect and To illustrate, Lekwa-Teemane Local Municipality
in North West had a technical unit vacancy rate
impact on communities
of 46%. This compelled them to use consulting
The basic services that the people of South Africa engineers on all capital projects (such as the
are entitled to – including access to clean water refurbishment of the Christiana pump station), but
and sanitation and an environment that is not they then did not monitor the performance of
harmful to their health and wellbeing –– cannot consultants and contractors.
be delivered without sufficient and functioning
infrastructure. It should come as no surprise that Poor project management also resulted in:
infrastructure neglect, combined with poor financial » delays in delivering on intended project
and human resource management and general deliverables; such as Kgetlengrivier Local
governance and accountability failures, negatively Municipality (North West) building only
affects residents’ quality of life at disclaimed 320 toilets for R4,40 million instead of the
municipalities. planned 1 800 toilets with the allocated
budget of R4,81 million
Municipal infrastructure should be properly
» poor build quality in the execution of projects;
maintained to ensure that it remains in a workable
for example, Madibeng Local Municipality
and safe condition throughout its lifespan. Except
(North West) installed taps that did not meet
for Kannaland Local Municipality in the Western
required specifications.
Cape, none of the 15 municipalities disclaimed
in 2021-22 budgeted for, or spent close to, the Assets need to be maintained to prevent
National Treasury norm of 8% of their infrastructure infrastructure from deteriorating to the point where
asset value on maintenance and repairs, with it can no longer support service delivery and can
10 municipalities (67%) spending less than 1%. cause harm to communities. Five of the 10 selected
municipalities (50%) did not have maintenance
We selected 10 repeatedly disclaimed
plans to plan and budget for routine asset
municipalities to further assess their water and
maintenance, including for infrastructure assets. For
sanitation, wastewater and solid waste projects.
example, Makana Local Municipality in the Eastern
Overall we found that they struggled to:
Cape has still not developed a water and sanitation
» maintain assets infrastructure maintenance plan, which has led
» prepare and report on the implementation of to the infrastructure degrading over several years
water services development plans and water and multiple tenders for maintenance and repairs
infrastructure maintenance plans having to be awarded. The Municipal Infrastructure
» comply with wastewater quality standards and Support Agent is assisting the municipality to now
practices develop such a plan.
» establish action plans or implement remedial Access to safe, affordable and reliable drinking
action to address wastewater quality issues water and sanitation services is a basic human right.
» prepare and carry out condition assessments Yet, three of the selected municipalities (30%)
» manage and deliver wastewater and solid did not plan for the delivery of basic water and
waste services and run landfill sites. sanitation services and consider the financial and
budget implications of delivering such services.
These challenges were largely due to vacancies For example, !Kheis Local Municipality in the
and a lack of skills in technical units. Over half Northern Cape did not compile a water services
of the municipalities had high vacancy rates in development plan as part of its integrated
their technical units and lacked engineering skills development plan, as required by the Water
and competent employees to conduct condition Services Act and the Strategic Framework for Water
assessments and oversee infrastructure projects.
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Services. It also did not determine the need for new We identified poor or ineffective environmental
infrastructure projects and compile and approve a management, limited environmental monitoring
list of new water infrastructure projects in response and enforcement as well as defective
to this need. management and delivery of wastewater and solid
waste services at all the municipalities. Wastewater
Some municipalities have started to reduce treatment and operations were severely affected
the backlog in providing functioning water and by serious and ongoing vandalism and theft, as
sanitation services. However, progress is being sites lacked proper access controls, signage and
hampered by a lack of proper planning to address fencing. This resulted in new parts having to be
the backlogs, inadequate planning for routine purchased to replace stolen ones. Sites exposed to
infrastructure maintenance and dilapidated theft, vandalism and a lack of maintenance were
infrastructure. To illustrate, backlogs at Kgetlengrivier often left non-operational for years before being
Local Municipality in North West were caused by attended to, which then cost even more because
a lack of sufficient water infrastructure to provide of the impact of the ongoing neglect.
water to households, weak water infrastructure in
need of repair, and funding for water infrastructure The situation at landfill sites was not any better.
being used for other purposes. Municipalities continued to contravene, or fail
to comply with, all the norms and standards of
Where planning was done, municipalities landfill operation, monitoring and rehabilitation.
did not achieve the planned performance Uncoordinated and illegal refuse dumping was rife
targets or the reported achievements were not and waste was not properly treated, compacted
supported by reliable evidence. Maquassi Hills and disposed of at designated landfill sites.
Local Municipality in North West, for example,
reported an achievement of 88% against the These poor management practices not only hamper
total planned targets for basic service delivery service delivery but can also cause significant harm
(water and sanitation), but our audit found that it to the environment and the wellbeing of surrounding
had achieved only 13%. We could also not audit communities. For example, if untreated sewage is
how many households had access to basic levels disposed directly into the immediate environment
of water and sanitation because there was no and water sources, this exposes people, animals
evidence to support the achievements reported. and land to harmful chemicals and spreads disease.
The lack of water at this municipality resulted in Illegally dumping solid waste, or not treating it
community unrest. properly, causes rodent infestations, increases
pollution and creates fire hazards.
When municipalities either do not plan or do not
achieve what was planned, the basic water and The National Environmental Management Act and
sanitation needs of communities are not met and the National Water Act require municipalities to
progress in addressing service backlogs is delayed take reasonable measures to prevent, minimise
even more. and rectify pollution. The substantial harm
being – or likely to be – caused to the general
Managing wastewater and solid waste is crucial public by pollution meets the definition of a
for the health and safety of communities. Our material irregularity, as detailed in the section on
environmental specialists therefore inspected the infrastructure for service delivery.
wastewater treatment works and landfill sites for
which the selected municipalities are responsible.
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Examples of infrastructure neglect and its impact
» We notified the municipal manager of Madibeng Local Municipality (North West) of
material irregularities at the Mothotlung and Lethabile sites due to pollution stemming from
the wastewater treatment works. The municipality has not taken reasonable measures to
minimise the pollution or rectify the situation since our notification. This means that sewage
inflows continue to be discharged without being treated, making drinking water unsafe as
harmful wastewater is disposed into the water sources.
» Makana Local Municipality (Eastern Cape) did not protect and maintain the Belmont
and Mayfield wastewater treatment works, which resulted in depleted and vandalised
infrastructure and theft and, ultimately, the plant not operating as intended. These
problems had already been flagged in the 2012 Green Drop report (which reports on the
state of affairs of wastewater infrastructure and management every year). The 2022 report
highlighted that the quality of the wastewater discharged at these sites still did not comply
with the waste standards or management practices set by the National Water Act.
We are busy assessing possible material irregularities associated with environmental
matters arising from poor wastewater management.
Damage to Belmont wastewater treatment works
In addition, the municipality did not have an approved integrated waste management
plan for 2021-22, nor did it appoint a waste control officer in accordance with the
National Environmental Management Waste Act. It also did not implement processes
to control and curb the illegal dumping of waste. Although the municipality identified
illegal dumping sites, it did not monitor or regulate such sites.
We found the following during our site visits to illegal dumping sites:
» Access to the site was not restricted (such as by a fence) to prevent the community
from illegally dumping their waste. There was also no signage to indicate that this was
a no dumping zone.
» Waste was not covered or collected to prevent further pollution.
» There was no groundwater drainage system or proper stormwater management.
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Examples of infrastructure neglect and its impact (continued)
Illegal waste dumping sites in ward 6
» Lekwa-Teemane Local Municipality (North West) did not regulate and monitor the illegal
dumping of waste. The Christiana and Bloemhof waste landfill sites did not comply
with standard licence conditions and the National Norms and Standards for Disposal
of Waste to Landfill. The sites were poorly managed, solid waste was not treated and
correctly disposed of, and the municipality could not submit the sites’ operating licences
for auditing. Vast areas surrounding the disposal sites were polluted with solid waste
and windblown litter. Because the solid waste was not covered or compacted, it also
affected the nearby wastewater treatment works. We will follow up and report on this
matter in future reports. We will also consider the possibility of material irregularities
because of harm to the public and the environment.
Uncontrolled dumping at Christiana waste landfill site
85
Based on previously reported findings and material irregularity notifications, we have seen some improvement in
the management of wastewater treatment works.
Example of impact of material irregularity process

» In December 2021, we notified the municipal manager of Ngaka Modiri Molema District
Municipality (North West) of a material irregularity because it had not prevented pollution of
water resources at the Coligny wastewater treatment works. The plant was not operational
for 18 months during 2020 and 2021 due to a lack of electricity supply. During follow-up visits
in March 2022 and September 2022, we found that electricity had been restored. The plant is
now operational and the main pump station is functioning again. Both the pump station and
the plant have backup generators. The municipality still needs to address some remaining
issues, such as the low quality of inflow to the plant, overflows and blocked sewer lines.
Conclusion
We strongly believe that eradicating disclaimed » There were no signed performance
audit opinions will strengthen these municipalities agreements or performance management
and, in turn, improve the lives of their communities. policies and procedures. Appointments were
We will continue to gather insights to enhance our also made in positions that had no job
messages and improve accountability at these descriptions.
municipalities. » Not all disclaimed municipalities received
the necessary support and intervention from
The main reasons for the failing state of disclaimed
provincial government, especially those with
municipalities are as follows:
a history of disclaimed audit opinions. In some
» Vacancies, inadequate skills and instability
cases where assistance had been provided,
(especially at senior management level)
the impact was not yet evident because
affected the effectiveness of management
the interventions had only recently been
functions and managers’ ability to carry out
implemented or were not adequate.
their responsibilities.
» Municipal support improvement plans
» Councils did not exercise adequate oversight of
that were not monitored hampered the
the administration and hold them accountable
implementation of consequences for failure to
for failing to fulfil their obligations.
carry out planned actions.
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All roleplayers in the accountability ecosystem should that it has the capacity to do so. Opportunities
work together to improve accountability and service for district municipalities to support these
delivery at disclaimed municipalities. We share some struggling municipalities should be explored.
recommendations below; for further insights and Where applicable, service delivery agreements
reflections on what can be done, refer to our section between district and local municipalities should
on activating the accountability ecosystem. be implemented to ensure that deliberate steps
» Councils and municipal managers, with are taken to activate the required support.
oversight from the provincial cooperative » Coordinating institutions need to continue
governance departments, should ensure their assistance and support to municipalities
vacancies in key senior management positions that have moved out of the disclaimed
are filled. Municipalities continue to struggle to space to ensure that these improvements are
attract and retain competent officials, which sustainable. In addition, currently disclaimed
is key to consistent performance and a strong municipalities must receive greater support
control environment. to institutionalise financial, performance,
» As encouraged by legislation, a district infrastructure and environmental management
municipality may provide financial, technical principles and accountability.
and administrative support to a local
municipality within its area and to the extent
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SECTION 4
CALL TO ACTION
4
Activating the accountability ecosystem
In our previous general report, and through our engagements with national, provincial
and municipal leadership across the country, we made a call to action to three key
groups in the accountability ecosystem.
First, we called on the newly formed councils to pay attention during their term
to financial management, material irregularities, credible financial statements
and performance reports, consequence management, and the stabilisation and
capacitation of the administration. Second, we called on the coordinating institutions to
monitor, support and strengthen the capacity of municipalities and to intervene where
necessary. We highlighted the importance of eradicating disclaimed audit opinions at
municipalities as a main priority. Third, and finally, we called for active citizenry.
As detailed in this report, the improvement in local government by newly elected

leaders was not yet apparent in 2021-22, mostly because it was a transitional year.
But our focus on the more stable national and provincial leadership has borne fruit
and contributed to pockets of improvement. Our engagements with civil society
organisations over the past year have also enabled us to share information and risks,
which contributed to the work we do on municipal service delivery.
Our report paints a bleak picture of poor financial and performance planning,
management and reporting, financially strained municipalities, crumbling municipal
infrastructure, wasted money and opportunities, and communities that are not only
deprived of service delivery, but also harmed by the action – or inaction – of their
municipalities.
While it might seem like a daunting task to turn around local government, the leaders
are in place and the tone is being set for significant improvements by systematically
addressing the root causes of financial and service delivery failures through sustainable
solutions. The three root causes that come through strongly in this report are:
1. Inadequate skills and capacity
2. Governance failures
3. Lack of accountability and consequences
Over the years, we have consistently championed the need to address these three
matters, which correlate with the areas national and provincial government have
identified as key areas for change. We offer our insights on these root causes and our
recommendations for how they could be addressed below.
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Inadequate skills and capacity

We highlight the extent and impact of inadequate Government has identified the professionalisation of
skills and capacity in local government in the the public service as an important objective and,
sections on financial planning and reporting, in October 2022, Cabinet approved a national
information technology, infrastructure for implementation framework for national, provincial
service delivery, and disclaimed municipalities. and local government. The framework is intended
The shortage of technical skills in finance units, as the basis for building state capacity by ensuring
information and technology units, as well as that the public service is staffed with qualified and
units responsible for implementing infrastructure competent individuals who are fully equipped to
projects, resulted in municipalities struggling to perform their public function conscientiously and
implement basic financial management disciplines with a strong sense of public service and ethical
and preventative controls, and to properly plan, disposition. It deals with five pillars that need to be
budget for and monitor projects. In many instances, strengthened in the public sector: recruitment and
municipalities used consultants to bridge the selection, induction and on-boarding, planning
vacancy and skills gaps but did not realise the and performance management, continuous
expected benefits from their use. learning and professional development, and career
progression and succession planning. Although
Instability in the municipal manager position also the framework is only a policy document, work on
affected municipalities’ ability to implement action drafting its implementation plan together with local
plans and ensure consequence management government was expected to commence in
which, in turn, hampered their ability to resolve April 2023. We will report on its progress in next
material irregularities, as detailed in that section. year’s general report.
While political leadership in municipalities changes Government has also implemented various
every five years, the leadership and officials in initiatives to professionalise local government,
a municipality’s administration should continue including minimum competency requirements
with little disruption. A stable, well-resourced for municipal managers, senior managers and
and competent municipal administration is an financial officials. The national and provincial
essential foundation for success. This can be treasuries, together with various local government
seen most clearly at the municipalities with clean organisations, provide training; and the treasuries
audit outcomes, which had the lowest level of and cooperative governance departments
vacancies and turnover in key municipal positions. assign experts and trainees to assist struggling
On average, municipal managers remained in their municipalities. Where municipalities implement the
positions for 52 months and chief financial officers initiatives and embrace the training and support,
for 60 months. we are starting to see a positive impact,
as described throughout this report.
89
To ensure effective service delivery and » Municipalities should implement plans to
responsible governance, municipalities must reduce the high reliance on consultants and
invest in developing skills, building capacity ensure that where consultants are used, skills
and retaining qualified staff, and we therefore are transferred, across all provinces; and
recommend the following: councils and coordinating institutions should
» Councils, with the concurrence of the provincial regularly monitor the progress made against
cooperative governance departments, these plans.
should expedite the process of appointing » We encourage treasuries, cooperative
new municipal managers or renewing the governance departments and the South
contracts of current incumbents. They should African Local Government Association to
also take care to appoint experienced, ethical continue providing training to municipal
and citizen-centric municipal managers who officials and members of councils. Training
meet the minimum competency requirements interventions should be specific and intended
and will support the councils in their pursuit of to bridge the skills gaps within municipalities.
improving service delivery and setting a tone of
integrity, transparency, accountability and high Governance failures
performance for municipal officials.
The local government system and the ecosystem
» Municipal managers should fill key vacant
that supports it are well designed and embedded
positions such as those of the chief financial
in legislation, which should enable good
officer and head of supply chain management,
governance. However, as is often the case, it fails at
as well financial and engineering positions.
implementation. Municipalities with institutionalised
Where necessary, the provincial cooperative
controls and robust financial and performance
governance departments should support
management disciplines and processes would not
municipal managers to find the right calibre
be affected by instability and changes in leadership
of people.
and councils. However, 73% of municipalities do not
» Professionals want to work in a professional have good controls in place.
and ethical environment where their
expertise can be fully applied with limited Instability and disruptions in councils continued to
disruptions and interference. They need good affect the governance of municipalities in 2021-22.
salaries, developmental opportunities and Similarly, mayors did not always exercise their
prospects for career progression. In pursuing monitoring and oversight responsibilities. Councils
professionalisation, municipal managers, need to make strategic decisions, monitor how
councils and provincial leadership should strive these decisions are implemented and guide and
towards a future where local government is support municipalities towards reaching their
a career of choice for professionals and objectives. They also play a significant role in setting
where scarce skills are retained. an ethical tone for municipal officials and ensuring
» Local government leaders, the South African accountability and consequences. All these
Local Government Association and the important responsibilities suffer when a council is
coordinating institutions should work closely with embroiled in political infighting and power struggles.
national government and the National School
The municipal public accounts committees
of Government (which plays a critical role in
were introduced as a committee of council
ensuring that the implementation plan for the
to promote good governance, transparency
professionalisation framework is fit for purpose
and accountability in the use of municipal
for local government) to begin the change
resources and to evaluate the extent to which
management needed to implement – and reap
our recommendations and those of the audit
the rewards of implementing – the framework at
committees have been implemented. These
municipalities and municipal entities.
committees also play a key role in investigating
unauthorised, irregular, and fruitless and wasteful
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expenditure and in implementing consequences members of the committees usually come at a

for wrongdoing. There is tremendous potential premium. In our experience, most of them are
for improved audit outcomes and accountability competent and committed to serving municipalities
processes if these committees are functioning well well with their skills. To derive the intended value
and are supported by the council. Unfortunately, from these investments, municipalities should ensure
this potential has not yet been realised – we that they implement and monitor the committees’
assessed only 33% of these committees. recommendations on financial and performance
management, and hold the responsible officials to
Internal audit units should provide independent account where this is not done.
assurance to the municipal managers on the
implementation of controls and the mitigation of The municipal managers and chief executive
risk. The units work under the oversight of the audit officers of municipal entities know what must be
committee, which includes independent experts done – they have received our messages and
who can advise the municipal manager and the recommendations for many years. We gave them
council. In our assessment, internal audit units reports, notified them of material irregularities and
and audit committees had been established and regularly engaged with them to share risks that
were operating at almost all the municipalities we need to be addressed and good controls that
assessed and most performed all the functions need to be implemented. One of the common
required by legislation, including evaluating the root causes of poor audit outcomes is that they
reliability of financial and performance information have not implemented our recommendations.
and compliance with legislation. The municipal We encourage the municipal managers and senior
manager should play a critical role in supporting management to use our recommendations to
the internal audit unit and the audit committee by assist them with improving controls and addressing
working closely with them to identify areas of risk risk areas.
and to develop strategies to mitigate those risks.
Municipalities should pay specific attention to
However, the audit outcomes showed that the strengthening information technology governance
work of these governance structures has not so that they can manage their information
had much of an impact, as the quality of the technology risks effectively and align their
financial statements and performance reports information and technology activities to their
we received for auditing remained poor. In our overall business objectives.
assessment, the internal audit units at just under
Last year, we highlighted the importance of
half of municipalities (45%) were having at least
coordinating institutions when it comes to
some impact on financial and performance
monitoring, supporting and strengthening the
management and compliance with legislation.
capacity of municipalities, including intervening
However, they had little to no impact at the other
and enforcing legislative requirements. In 2021-22,
55%, mainly (34%) because management was
we looked further into the important role played
just not implementing their recommendations.
by these institutions and we are already starting
The internal auditors experienced the same
to see the effect of their renewed focus in some
frustrations we have as external auditors in this
provinces. Although there was not much time in the
regard. The rest of the internal audit units were not
2021-22 financial year for them to make the impact
adequately capacitated and/or not effective.
they aimed for, the interventions and support they
Audit committees were slightly more effective, with
provided to municipalities, and their efforts to
51% having some impact and 34% experiencing
provide it in a more coordinated manner, show
that management did not implement their
promise. We provide more detail in the section on
recommendations.
the provinces on how these coordinating institutions
Internal audit units and audit committees are a have stepped up in the provinces and the
big investment for municipalities – the professionals commitments they made when the auditor-general
employed as internal auditors or who serve as engaged with them before tabling this report.
91
Overall, we have seen the greater impact these in progress for many years, but the support
key roleplayers in the accountability ecosystem provided to municipalities is still not tailored
can have on local government when they perform to their needs, resulting in some initiatives
better and in a more coordinated manner. We having limited impact. We recommend that
continue to advocate for the full implementation these institutions pay urgent attention to
of their mandates and legal obligations. finalising their formal agreement to improve
coordination, oversight and accountability
Last year, we made several recommendations and that municipal support intervention plans
to help provincial leadership and coordinating are informed by a root cause analysis. It is
institutions to perform better. Below we provide an encouraging to note that certain provinces
update on the status of implementation of these have already entered into agreements to
recommendations, along with some additional clarify roles and responsibilities to avoid any
recommendations: duplication.
» The members of the executive council » We also recommended that the provincial
responsible for local government have a legal cooperative governance departments monitor
obligation to report to the provincial legislature how municipalities use consultants, including
on whether municipalities have adequately understanding the needs analyses performed
addressed our audit report findings (through and creating plans to reduce overreliance
audit action plans) and on how municipalities on consultants and ensure that they get
have performed, including any remedial value for the money spent on consultants.
action taken to address underperformance. In 2021-22, we found that only a few provinces
In 2020-21, we asked them to improve the had not committed to reducing the reliance on
quality and effectiveness of these reports by consultants. Where commitments were made –
providing a thorough diagnostic analysis along in some cases, by both provincial cooperative
with an annual reflection on what municipalities governance departments and treasuries,
had done in the previous year. We also asked and in one case by the office of the premier –
the provincial legislatures to strengthen the many of them were still in progress and could
process of engaging on these reports, including therefore not yet be assessed for impact. We
formulating and following up on resolutions. recommend that those provinces that have not
While we did see some improvements in yet committed to reducing their overreliance
2021-22, we still identified several issues relating on consultants should do so and that provincial
to the quality of reports across the provinces cooperative governance departments should
that require priority attention from the members regularly monitor the commitments made to
of the executive council. Most provinces did ensure they are implemented successfully.
implement our recommendation to provincial » The coordinating institutions, along with
legislatures, with the exceptions being due to national and provincial leadership and
either reports not being tabled or hearings on oversight, either are already implementing
resolutions taking place too late in the year to initiatives to address the challenges in local
properly track and report on time. government or have committed to do so.
» Last year, we recommended that the Our reflections and recommendations
Department of Cooperative Governance on these initiatives are as follows:
and the National Treasury monitor the
The Department of Cooperative Governance
implementation of existing support initiatives
and the national and provincial treasuries have
as part of a multi-stakeholder approach,
shared proposed action plans to address the
and that they ensure that municipal support
financial sustainability challenges that were
intervention plans are specific and that
presented at the Technical Committee on
interventions are tailored for each municipality.
Finances lekgotla in June 2022. These plans
By 2021-22, the implementation of a multi-
include strengthening ethics and introducing
stakeholder approach and efforts to conclude
performance accountability in municipalities by:
a memorandum of agreement between
the National Treasury and the Department • introducing vetting systems for chief
of Cooperative Governance have been financial officers and municipal managers
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• finalising the code of conduct for should adequately monitor planned actions to
councillors and regulations to support ensure they have the desired impact.
investigations of financial misconduct » In previous general reports, we reflected on
• ensuring treasuries lead and own the the district development model, which aims
intervention process to facilitate integrated planning, delivery and
monitoring of government’s development
• strengthen the in-year monitoring, reporting
programmes through a joint ‘one plan’ for
and enforcement of financial recovery plans.
52 district hubs across the three spheres of
Treasuries should also strengthen their monitoring government. In the three years since Cabinet
of monthly and quarterly performance reports approved the model, three pilot sites were
to ensure that they comply with legislated launched in the districts of OR Tambo (Eastern
requirements and should take steps against Cape) and Waterberg (Limpopo) as well as at
municipalities for any breaches. When eThekwini Metro (KwaZulu-Natal). In 2021-22,
implemented, these initiatives should contribute most of the performance indicators in the model
greatly to improving the local government were still being developed and 49 district hubs
culture. We will continue to track and report on had not yet been established due to a lack
their implementation. of funding. There are also delays in aligning
the ‘one plan’ to the integrated development
» In 2021-22, the National Treasury provided
plans and critical information systems. Where
training, guidance and support to municipalities
the district development model had not been
through technical advisors and financial
implemented because of the lack of integrated
recovery plans, although it could not provide
planning and budgeting to enable adequate
advisors to all municipalities due to capacity
support to local municipalities, municipalities
constraints and procurement delays. At two
continued to operate in silos.
municipalities, the National Treasury was unable
We are concerned that the Department of
to produce the financial recovery plans within
Cooperative Governance has adjusted and
90 days due to delays in required consultations
re-tabled planned initiatives and targets in its
with the mayors. We recommend that the
performance plans during the year to align
National Treasury plan to ensure adequate
to the progress made at that point. This has
capacity of technical advisors and that
resulted in some initiatives being reported as
municipalities prioritise engagements with
achieved at year-end, making it difficult to
the National Treasury to ensure that financial
determine if actual progress has been made.
recovery plans are implemented swiftly and
We recommend that the department focus on
successfully.
achieving its planned targets by addressing the
» In our previous general report, we shared that
root causes that are hampering the model’s
Cabinet was monitoring the success of the
implementation.
municipal support intervention plans at the
64 dysfunctional municipalities, while provincial
leadership was responsible for doing so at Lack of accountability
the remaining municipalities. In 2021-22, and consequences
the number of dysfunctional municipalities
identified by the Department of Cooperative Over the past few years, we have made
Governance increased to 66. Municipalities continued calls for accountability. Accountability
previously assessed as dysfunctional retained is a twofold concept:
this status in 2021-22 except for AbaQulusi Local » First, officials should account for how they
Municipality in KwaZulu-Natal and Matjhabeng performed and must take responsibility for
and Metsimaholo local municipalities in the their actions and decisions.
Free State. Despite their improved status, these » Second, those who do wrong (transgress),
municipalities still require close monitoring do nothing (fail to act) or perform poorly
and support. We reiterate our previous should face the consequences.
recommendation that the relevant roleplayers
93
A lack of accountability and consequences As a result, the year-end balances of these types
remains one of the key root causes of poor audit of unwanted expenditure continue to grow.
outcomes at 64% of municipalities. We continue to At the 2021-22 year-end, the balance of irregular
advocate for municipal leadership to implement expenditure that had accumulated over many
adequate consequences swiftly, bravely and years and had not been dealt with totalled
consistently. R136 billion, while unauthorised expenditure
stood at R107,38 billion, and fruitless and wasteful
When officials face consequences for their actions, expenditure amounted to R14,65 billion.
this helps municipalities to both recover the losses
caused by those officials and deter others from The Municipal Finance Management Act requires
disregarding legislation and perpetuating a culture councils to objectively and diligently investigate
where they get paid their salaries without fulfilling such expenditure. Neither councils (through
their responsibilities. Despite how important these their municipal public accounts committees)
consequences are, 59% of municipalities had nor treasuries should write off or condone such
material findings because they did not comply with expenditure without making sure that no losses had
legislation on implementing consequences. been suffered or that any losses suffered cannot be
recovered.
Our most common findings involved municipalities
not investigating unauthorised, irregular, and Taking irregular expenditure as an example, by the
fruitless and wasteful expenditure. This means that end of the 2021-22 financial year, very little had
they did not take sufficient steps to recover, write been done about the 2020-21 year-end balance
off, approve or condone such expenditure. In total, of R119,10 billion. We have raised concerns about
53% of municipalities did not investigate the the delays and the manner in which irregular
previous year’s irregular expenditure, 47% failed to expenditure is dealt with for many years but despite
do so for fruitless and wasteful expenditure, and these warnings, it remains one of the biggest reasons
47% did not do so for unauthorised expenditure. for the material irregularity notifications we issue.
How councils dealt with prior-year irregular expenditure
2020-21 closing How was 2020-21 closing Closing balance continued

balance balance dealt with? to grow in 2021-22
<1%
<1%
10%
R119,10bn R136,00bn
2020-21 2021-22
90%
R0,003bn R0,11bn
Money recovered Condoned
or in process of
recovery
R11,36bn R107,63bn
Written off Not dealt with
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Where councils did take action, it was mostly to Accountability should also come into play where
write off the irregular expenditure, which means allegations have been made of financial and
that the council considered the matter to be supply chain misconduct and fraud. We audited
resolved. However, we identified instances where 79 municipalities to see whether this was the
these investigations were not properly performed case and found that 24% did not investigate the
and in most instances no officials were found liable. allegations at all, while at 44%, the investigations
took longer than three months to complete.
If these matters continue to be ignored, or
such expenditure is written off without proper We see the same pattern in how municipal
consideration, the accountability process managers respond to the indicators of possible
envisaged in the Municipal Finance Management fraud or improper conduct in supply chain
Act (through identifying and disclosing management processes that we report to them for
unauthorised, irregular, and fruitless and wasteful investigation every year. In 2020-21, we reported
expenditure) is not functioning as intended. such indicators at 120 municipalities for follow-up.
Status of investigations into fraud and improper conduct in supply chain

management processes reported in previous year
43 Of these, 39 (70%) satisfactorily

Auditees investigated resolved the findings, while
all of the findings
17 (30%) did not (e.g. municipality
36% reported
56 did not implement investigation’s
13 recommendation to cancel
Auditees investigated
contracts in which employees failed
53% some of the findings
reported to declare their interest)
64
11% Auditees investigated
none of the findings
reported
Instances of alleged fraud or improper conduct in supply chain management
Supplier submitted false

declaration of interest 94 34 (36%) 5 (5%) 55 (59%)
Employee failed to
disclose interest in supplier
50 16 (32%) 1 (2%) 33 (66%)
Other supply chain

management allegations
39 15 (38%) 3 (8%) 21 (54%)
Payment despite poor

delivery by supplier
5 1 (20%) 1 (20%) 3 (60%)
Payment to possible
fictitious supplier
3 3 (100%)
All investigated Some investigated None investigated
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We recommend that municipal managers within municipalities to effectively, fairly and
complete these investigations swiftly so that consistently implement policies and procedures
potentially fraudulent activities can be stopped relating to consequence management and
and the necessary criminal investigations can accountability. The framework expands on
start – as well as to prevent further transgressions the key roles and responsibilities of relevant
and to recover any financial losses. roleplayers as set out in legislation and provides
guidance on standard operating procedures
When it comes to irregularities, we play an integral for reporting, discipline, prosecution, recovery
part in the accountability process – even more so and monitoring. It also deals with matters that
in recent years through the powers granted to us hamper disciplinary processes.
as part of our expanded mandate. As detailed
» Councils, with the help of coordinating
in the section on material irregularities, some
institutions, should strengthen structures such
municipalities take little action in response to our
as disciplinary boards and municipal public
findings, which resulted in us implementing the
accounts committees, as well as processes
enhanced powers given to our office to ensure
relating to investigations conducted by both
municipal managers deal with material irregularities
these structures and the council itself.
with the required seriousness.
» Councils and municipal public accounts
Municipalities should create an environment committees should support, monitor and
where officials who transgress applicable oversee the resolution of material irregularities
legislation, continuously underperform, are by requesting quarterly reports on the progress
negligent, or cause financial losses, are dealt with municipal managers make in resolving them
appropriately to set the standard for the public and, where there are any unreasonable delays,
service and act as a deterrent to wrongdoing. hold them to account. Provincial leadership and
We recommend the following: legislatures must request regular reports from
» Municipal managers, audit committees and public bodies on the status of investigations and,
municipal public accounts committees should where there are unreasonable delays, hold the
properly monitor that internal controls are public bodies to account.
adhered to, risks are managed and outcomes
are achieved. Early detection will allow for swift Commitments and conclusion
and timely correction and prevent financial
We made municipality-specific recommendations
and performance management failures.
to the mayors and municipal managers and we
» Municipal managers and councils should
are encouraged by their responsiveness to our
adopt and implement National Treasury
findings and their commitments to take action.
frameworks and circulars on the treatment,
These commitments are important to ensure that
recovery and quantification of unauthorised,
steady progress is made to improve municipal
irregular, and fruitless and wasteful expenditure
performance. We will continue to track and monitor
to help municipalities comply with legislative
these commitments closely as part of the audit
requirements and to curb the growing and
process. If the findings and risks we reported are not
extremely high balances of these types of
addressed, we will continue to issue notifications of
unwanted spending.
material irregularities where appropriate.
» Municipal managers and councils should
adopt and implement the National
Treasury’s Consequence Management and
Accountability Framework to empower
the political and administrative leadership
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We are encouraged by the commitments filling vacancies, strengthening consequence

made by national and provincial government management, improving intergovernmental
leaders in driving positive change and fostering coordination and prioritising service delivery.
accountability to improve the state of local Further details on commitments per province
government. We will continue to monitor and are included on our report website
report on the implementation and impact of (mfma-2022.agsareports.co.za).
these commitments.
Finally, a key roleplayer in the accountability
We obtained the following specific commitments ecosystem is an active citizenry, which is crucial
from national roleplayers in response to our to ensure that the needs of the public are heard
call to action: and acted on and that municipal leaders are held
accountable for any wrongdoing. We encourage
» The cooperative governance minister the public to use the public participation processes,
committed to evaluate issues raised, find joint ward committees and available channels to
solutions to help municipalities resolve the report any indicators of abuse, mismanagement,
matters keeping them from moving from an fraud and service delivery failures.
unqualified audit opinion with findings to a
clean outcome and evaluate the reasons for A culture of performance, accountability,
the excessive use of consultants. Furthermore, transparency and integrity should be a shared
a plan will be developed to identify and vision for all involved in the public sector and we
respond to structural, systemic, institutional urge all roleplayers in the accountability ecosystem
and capacity issues preventing improvements to fulfil their designated roles and to play their
in outcomes. part effectively, without fear or favour, to ensure
» The finance minister committed to conduct an accountability for government spending and
in-depth self-reflection on the impact of their improvement in the lives of all South Africans.
interventions and make the necessary changes
We remain committed to partnering with and
to support initiatives to improve the status quo.
supporting local government through our audits,
» The South Africa Local Government Association the material irregularity process and the many
committed to develop a plan to respond to initiatives we have implemented to assist and
outcomes. guide all roleplayers. We trust that the insights and
recommendations included in this report will be of
The provincial leadership provided various
value in this pursuit.
commitments to enhance the support provided
to municipalities, including assistance with
By working together and leveraging the strengths of all stakeholders,

we can build resilient, responsive municipalities that deliver quality
services and improve the lives of all our people
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SECTION 5
PROVINCES
5
Every province has a unique story and the audit
outcomes often reflect what the people in the province
experience from their local government
Overview
In this section, we provide a provincial view of the key results from our audits, followed by
an overview of the state of local government in each of the nine provinces.
The province-specific overviews summarise our main insights on financial, performance

and infrastructure management, and look at how we have used our enhanced
mandate in that province. They also reflect on what should be done to improve the
situation, and by whom; and the commitments made by those with whom we engage.
The overviews for KwaZulu-Natal and the Eastern Cape further include information and
results from our audit of the funds used to provide relief to communities in flood-ravaged
areas in the provinces.
For more details on each municipality and district, rolled up to each province in the
country, visit our report website (mfma-2022.agsareports.co.za).
Audit outcomes show little improvement overall and there are fewer clean audits,
although there were also fewer municipalities with disclaimed audit opinions. We saw
the biggest improvements in KwaZulu-Natal and the Eastern Cape, and the highest
net regressions in Gauteng and the Western Cape, which was also the province with
most clean audits (55%). Most of the municipalities with disclaimed audit opinions are
concentrated in North West.
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Provincial audit outcomes, budget and households
Eastern Cape 8 4 Mpumalanga 3 3
Budget: R50,70bn (10%) Households: 1 836 538 Budget: R27,97bn (6%) Households: 1 365 645
Unqualified with no findings (clean) 3 Unqualified with no findings (clean) 2

Unqualified with findings 18 Unqualified with findings 9
Qualified with findings 13 Qualified with findings 7
Adverse with findings 1 Adverse with findings 1
Disclaimed with findings 1 Disclaimed with findings 1
Outstanding audits 3 Outstanding audits 0
Free State 2 1 Northern Cape 1 2
Budget: R22,29bn (5%) Households: 1 003 109 Budget: R10,48bn (2%) Households: 379 439

Gauteng 1 4 North West 3 2

KwaZulu-Natal 9 4 Western Cape 2 5

Limpopo 4 4
Budget: R27,62bn (6%) Households: 1 725 220
Unqualified with no findings (clean) 2

Unqualified with findings 13 Movement from last year of previous administration
Qualified with findings 11
Adverse with findings 0
Disclaimed with findings 1 Improvement Regression
Outstanding audits 0
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Municipalities continued to struggle to prepare statements and 76% submitted poor-quality
credible financial statements and performance performance reports for auditing. Next we show
reports. This limits the effectiveness of monitoring the quality improvement resulting from adjustments
and oversight processes and compromises service made to the initially submitted documents in
delivery in local government. In total, 76% of response to our audits.
municipalities submitted poor-quality financial
Quality of financial statements and performance reports before and after auditing
Financial statements Performance reports
58% 44% 14% Eastern Cape 17% 25% 42%
47% 47% Free State 7% 20% 27%
64% 46% 18% Gauteng 18% 18% 36%
77% 54% 23% KwaZulu-Natal 19% 24% 43%
56% 41% 15% Limpopo 15% 15% 30%
55% 45% 10% Mpumalanga 20% 10% 30%
34% 10% 24% Northern Cape 24% 16% 40%
5%
15% 15% North West 10% 15%
90% 3% 87% Western Cape 77% 13% 90%
Quality before audit adjustment Quality after audit adjustment
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The municipalities in some provinces continued along with other indicators of poor financial health
to show signs of significant financial difficulty, with such as deficits, excessive creditor-payment days
70 municipalities being in such a dire position that and irrecoverable debt, affected municipalities’
there is significant doubt about whether they will be ability to deliver services and honour their
able to continue operating in the near future. This, commitments.
Number of municipalities showing signs of poor financial health
Indicators*
Going Deficit Creditor-payment >10% of debt

Province concern issues period >30days Irrecoverable
Eastern Cape 10 (28%) R1,05bn 29 (85%) 34 (100%)
Free State 11 (73%) R2,73bn 14 (93%) 14 (93%)
Gauteng 6 (55%) R2,02bn 9 (100%) 8 (89%)
KwaZulu-Natal 9 (17%) R1,42bn 35 (69%) 51 (100%)
Limpopo 5 (19%) R0,53bn 23 (88%) 25 (96%)
Mpumalanga 5 (25%) R2,65bn 18 (100%) 16 (89%)
North West 7 (35%) R0,88bn 10 (91%) 10 (91%)
Northern Cape 14 (48%) R0,43bn 23 (92%) 22 (88%)
Western Cape 3 (10%) R0,16bn 22 (79%) 24 (86%)
Total 70 (29%) R11,87bn 183 (84%) 204 (94%)
* Excluding municipalities with disclaimed/adverse opinions
Adding to these woes, is the fact that We break down these amounts per province on the
municipalities continued to incur irregular, following pages, before delving into the state of
unauthorised, and fruitless and wasteful local government in each of the nine provinces.
expenditure and that the debt they owed Eskom
and the water boards increased further.
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Local government irregular expenditure (IE)
Total budget, IE disclosed and IE closing balance in each province (ordered from most to least IE incurred in 2021-22)
Total budget across all Total IE disclosed across all Total IE closing balance across
provinces in 2021-22: R487,12bn provinces in 2021-22: R30,34bn all provinces in 2021-22: R136,00bn
Eastern Cape
Total budget for province:
R50,57bn IE disclosed for province: R10,62bn IE closing balance for province: R34,91bn
(35% of IE disclosed across (26% of IE closing balance across
IE disclosed for all provinces) all provinces)
province: R10,62bn
(21% of province increase in closing balance
28% from previous year
budget)
KwaZulu-Natal
province: R5,92bn
budget) 19% from previous year
Gauteng
province: R3,56bn
North West
province: R3,29bn
Mpumalanga
province: R2,08bn
(7% of province 0%
no movement in closing
budget) balance from previous year
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Total budget across all Total IE disclosed across all Total IE closing balance across
provinces in 2021-22: R487,12bn provinces in 2021-22: R30,34bn all provinces in 2021-22: R136,00bn
Limpopo
province: R1,68bn
(6% of province decrease in closing balance
2% from previous year
budget)
Free State
province: R1,57bn
(7% of province 14%
increase in closing balance
budget) from previous year
Northern Cape
province: R1,12bn
(11% of province 20%
increase in closing balance
Western Cape
province: R0,49bn
(1% of province 19%
decrease in closing balance
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Unauthorised expenditure (UE) and fruitless and wasteful expenditure (FWE) in 2021-22
R1,80bn R5,57bn
Eastern UE Free UE
Cape State
R0,22bn R0,63bn
FWE FWE
R5,18bn R2,46bn
UE UE
KwaZulu-
Gauteng
Natal
R2,21bn R0,12bn
FWE FWE
R2,57bn R3,08bn
UE UE
Limpopo Mpumalanga
R0,16bn R0,84bn
FWE FWE
R1,11bn R2,40bn
Northern UE North UE
Cape West
R0,21bn R0,32bn
FWE FWE
R1,30bn R25,47bn
Western UE UE
Total
Cape
R0,03bn R4,74bn
FWE FWE
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Arrears at 2021-22 year-end
R2,07bn R8,56bn
Eskom Free Eskom
Eastern
Cape R0,12bn State R5,53bn
Water boards Water boards
R5,78bn R0,82bn
Eskom KwaZulu- Eskom
Gauteng
R1,34bn Natal R1,11bn
R1,21bn R13,46bn
Eskom Eskom
Limpopo Mpumalanga
R1,67bn R1,40bn
R2,11bn R2,22bn
Eskom Eskom
Northern North
Cape R0,59bn West R2,58bn
R0,13bn R36,36bn
Eskom Eskom
Western
Total
Cape R0 R14,34bn
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EASTERN CAPE
Overall outcomes improved, but weak control environments persist

Last year, we urged provincial leadership to take service delivery and budget implementation plan
swift action to strengthen the control environments to the budget and actual costs for each related
and instil accountability to ensure that service performance indicator, the municipality was able
delivery objectives within the province are met. to track its progress across all areas of service
delivery and make informed decisions about
In response to our call, 21 municipalities (58%) resource allocation. Amathole District Municipality
received unqualified opinions, up from 19 (53%) and Sundays River Valley Local Municipality did not
in the previous year. However, the quality of submit their financial statements by the legislated
reported performance slightly decreased, with date, and their audits were in progress at the
only 15 municipalities (42%) not having any findings, time of this report, while the audit for Senqu Local
compared to 16 (44%) in the previous year. The Municipality has not yet been finalised because the
number of municipalities that did not have any municipality lodged a dispute on its potential audit
findings on compliance with legislation remained outcome, which caused a delay.
unchanged at three.
There would have been greater improvement in
We are particularly encouraged by the significant audit outcomes had municipal political leadership
improvement in the audit opinion of Mnquma acted swiftly to institutionalise the internal controls
Local Municipality, from a disclaimed opinion five that are necessary to promote transparency and
years ago to a clean audit in 2021-22. This is a accountability and to protect the public purse.
testament to the municipality’s good administrative Since our previous general report, we have notified
and political leadership, as well as its commitment municipal managers of 16 material irregularities
to implementing strong internal controls and with an estimated financial loss of R303 million,
consequence management measures. Joe bringing the total number of material irregularities
Gqabi District Municipality and Winnie Madikizela- we have issued since our expanded powers came
Mandela Local Municipality maintained their clean into effect to 43 and the total estimated financial
audit opinions due to the stability in their senior loss to R633 million. Some municipal managers have
management and political leadership, which has responded positively to the material irregularities.
strengthened their accountability ecosystem. For example, OR Tambo District Municipality paid
Winnie Madikizela-Mandela’ss approach to an implementing agent for work that was not done.
ensuring adequate budgeting for service delivery is After we notified management of the material
noteworthy – by linking its performance report and irregularity, management has recovered
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R46 million from the agent and reported the matter The number of municipalities that received
to the Directorate for Priority Crime Investigation disclaimed audit opinions decreased from last
(the Hawks). We have used our powers to act year, as Chris Hani District Municipality and
against three municipalities that failed to address Walter Sisulu Local Municipality improved from a
reported material irregularities. At Chris Hani disclaimed audit opinion to a qualified and an
District Municipality, the municipal manager did adverse opinion, respectively. Walter Sisulu has
not act on a material irregularity relating to an been operating a landfill site without a valid licence
unjustifiable R20 million payment for a variation or permit since 2010, and the site has not been
order. We have referred the matter to the Special properly managed for over eight years, leading
Investigating Unit for further investigation. We also us to notify the municipal manager of a material
included recommendations in the audit reports irregularity due to the substantial harm this could
for Inxuba Yethemba and Raymond Mhlaba local cause to the public. Makana Local Municipality
municipalities, as the municipal managers did not again received a disclaimed audit opinion
take appropriate action on material irregularities because it struggled to prepare credible financial
related to interest incurred due to late payments statements. The municipality achieved only
to Eskom. 33% of its basic service delivery and infrastructure
development targets, which contributed to the
Buffalo City Metro improved from a qualified to continued water shortages it has faced for several
an unqualified audit opinion with findings, but years. The municipality spent only R8,7 million
this improvement might not be sustainable as the on repairing and maintaining its infrastructure –
metro continued to rely on the audit processes to a mere 1,5% of the value of this infrastructure.
identify misstatements in its financial statements, This has severely affected the community, as
rather than improving its internal controls. The inadequate maintenance leads to regular
metro also struggled to meet its service delivery infrastructure breakdowns and further delays
targets; for example, only 68% of the connected in service delivery.
city programme targets and 46% of the spatially
transformed city programme targets were met. We Information technology costs in the province have
further found that one of the metro’s wastewater been on the rise, but this increase has not resulted
pump stations spilled sewage into the Nahoon in any significant improvement in the functioning or
River and its estuary, posing health risks to the service delivery offerings of municipalities. At Nelson
community due to the elevated levels of E.coli and Mandela Bay Metro, we notified the municipal
bacteria. We are considering issuing a material manager of a material irregularity relating to the
irregularity on this matter. Nelson Mandela Bay metro’s purchase of more software licences than
Metro sustained its qualified audit opinion and even it needed for the number of users, leaving many to
though the metro has made efforts to reduce the go unused. Some municipalities did not align their
number of qualifications in the audit report, political information technology strategies to their business
and administrative instability continued to hinder strategies, leading to an overreliance on human
integration between directorates and to lessen intervention and to automated controls being
accountability. This has affected the metro’s ability circumvented, which calls for an urgent review
to effectively deliver services, and it met only 53% of these strategies to optimise the investment in
of its basic service delivery programme targets. information and technology.
These challenges indicate that the metro still has
significant work to do to improve service delivery
and strengthen accountability.
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Overall, 33 municipalities (92%) appointed with interest and penalties – mainly due to late
consultants to assist in financial reporting, at payments – accounting for most of the R174 million
a cost of R155 million. However, 22 of these wasted in 2021-22. Municipalities continued to
municipalities (67%) had material misstatements experience significant water losses, with R630 million
in their submitted financial statements due to the (37% of all water purified) lost due to theft and
poor internal control environments, consultants a lack of maintenance. Some municipalities did
being appointed too late, and a lack of not bill consumers for services rendered, and we
records and documents. Although consultants notified three municipalities of material irregularities
can provide short-term solutions, they cannot relating to this in the current year (Chris Hani District
replace senior management’s responsibility to Municipality, Nelson Mandela Bay Metro and
institutionalise financial reporting disciplines. We Buffalo City Metro).
issued notifications of material irregularities to
Chris Hani and Amathole district municipalities The quality of performance reporting was poor
relating to their ineffective and inefficient use of at 58% of municipalities, which means that their
consultants to prepare value-added tax returns reports were not a true reflection of the service
for which they paid R37,1 million and R9,4 million, delivery promised to communities. Municipalities
respectively. They appointed these consultants on only achieved an average of 62% of their targets
a contingency fee basis based on a percentage for basic service delivery programmes due to poor
of the refunds received by the municipality, rather project management, slow procurement processes
than on the basis of time and costs spent on the and weak intergovernmental cooperation. Port
affairs of the municipality as required by cost- St Johns Local Municipality did not achieve some
containment regulations. This resulted in them of its targets relating to building access roads,
paying significantly more for the services. paving roads and maintaining gravel roads, despite
spending 96% of its infrastructure grant. We also
Ten municipalities disclosed doubt about their identified that the municipality paid R17,5 million
ability to continue operating, and 10 adopted for a guest house with a market value of
unfunded budgets for the financial year (including R6,9 million, with the intention of converting it into
five that disclosed doubt about their ability office buildings, and we notified the municipal
to continue operating). Municipalities used a manager of a material irregularity for suspected
significant portion of the R9,46 billion equitable fraud relating to this matter. OR Tambo District
share and R19,6 billion revenue from rates and Municipality failed to spend R379 million of its
services (only 27% of which can be recovered) infrastructure grant – of which it had to return
to pay salaries and wages of R12,7 billion. Only a R191 million to the National Treasury – and
small portion of these funds were then left over for consequently only achieved 59% of its planned
service delivery purposes, such as infrastructure basic service delivery targets. Enoch Mgijima
projects, repairs and maintenance, and subsidies Local Municipality underspent its infrastructure
to residents who cannot afford basic services. grant by R23,4 million (39% of the total grant)
Fruitless and wasteful expenditure is also a concern, and achieved only 65% of its planned basic
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service delivery targets, which led to service inadequate infrastructure project planning,
delivery protests in January 2023. The challenges and project delays caused by bad weather.
with delivering infrastructure projects continued, Only Winnie Madikizela-Mandela, Nyandeni
primarily due to inadequate procurement and Ntabankulu had spent all their funds by
processes and poor project management. 31 March 2023. At two municipalities, we identified
Buffalo City Metro’s wastewater treatment works irregular expenditure: Ntabankulu incurred
project has experienced significant cost increases R2,7 million in irregular expenditure because
(from R298 million to R386,9 million) because of it did not follow procurement processes when
procurement irregularities that led to litigation and appointing service providers, while OR Tambo
delayed the project’s completion. The project is incurred R7 million in irregular expenditure
currently at a standstill because the metro has not because it awarded contracts to three bidders
paid the contractor, and the equipment on site whose tax matters were not declared to be in
is deteriorating due to vandalism and the lack of order by the South African Revenue Service
maintenance. at the time of award.
In January 2022, heavy rains disrupted the Most municipalities did not investigate irregular
province, with the OR Tambo district bearing expenditure, and thus consequence management
the brunt of the damage. Settlements, roads, was very slow. This resulted in R24,29 billion of last
healthcare facilities, schools and agriculture year’s irregular expenditure closing balance of
infrastructure were severely affected. The National R27,20 billion not being dealt with (written off or
Disaster Management Centre paid out funds recovered) and no action being taken against
to eight qualifying municipalities (Port St Johns, the responsible officials. Municipalities incurred
Ingquza Hill, Ntabankulu, Nyandeni, Umzimvubu, R10,6 billion in irregular expenditure in the current
Winnie Madikizela-Mandela and Mbhashe local year as they did not follow prescribed procurement
municipalities, and OR Tambo District Municipality). processes. Buffalo City Metro was the highest
All these municipalities used the funds to repair contributor to this amount, accounting for
and replace road infrastructure, except for OR R6,5 billion (61%) of the total. This included R5 billion
Tambo, which used the funds to refurbish water that the metro incurred in prior years but reported in
treatment plants, and Nyandeni, which used them the current year to resolve last year’s qualification
to rebuild a bridge. Although most municipalities on completeness of irregular expenditure.
received the funds in August 2022, many had not
spent all the funds within six calendar months, as The provincial cooperative governance
provided for in the conditions of the grant. They department and treasury supported municipalities
requested an extension from the National Disaster with budget reforms; financial recovery plans;
Management Centre – through the Provincial and strategies to manage unauthorised, irregular,
Disaster Management Centre – to 30 June 2023. and fruitless and wasteful expenditure. However,
The delay in spending was due to the slow these interventions have had a limited impact
approval of municipal implementation plans, because municipalities are slow to implement
109
the recommendations. Provincial or national The province needs capable leadership to
interventions are ongoing at three municipalities enhance transparency and accountability,
(Makana and Enoch Mgijima local municipalities, prioritise the fundamental needs of communities,
and Amathole District Municipality), but these and promote social and economic development
municipalities are still facing financial sustainability as mandated by the Constitution. To achieve
challenges. The provincial legislature, in this, political leadership, supported by the
collaboration with political and administrative coordinating institutions, should provide adequate
leaders, conducted outreach programmes to oversight and monitor the financial reporting
identify and implement corrective measures, process throughout the year to improve the
and the coordinating institutions are now working quality of financial statements. Both political and
together to roll out initiatives at municipalities. administrative leadership must further foster a
During our interactions with Troika (made up culture of accountability by enforcing effective
of the provincial premier’s office, cooperative consequences for wrongdoing, strengthening
governance department and treasury), we governance structures, and ensuring that basic
encouraged them to further enhance the controls are implemented and maintained
coordinating institutions’ integrated approach throughout the year. This will enable local
by strengthening the accountability ecosystem, government to fulfil its developmental mandate
elevating the roles of internal audit units and audit and improve the welfare of all the people of
committees, and ensuring that legislature receives the Eastern Cape.
reports that address the real issues at hand.
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FREE STATE
Current leadership tone should continue to shift the culture

in local government
In our previous message, we underlined that and notified accounting officers of 14 material
leadership should strengthen controls and irregularities for not submitting financial statements
emphasised that all roleplayers should dedicate on time. The accounting officers, with continued
themselves to rebuilding strong and credible support from the provincial treasury, responded
municipalities with high levels of transparency, positively to clear most of the backlog, with only
integrity and accountability. the financial statements for Kopanong (2021-22)
and Masilonyana (2020-21 and 2021-22) local
We also recommended that the provincial treasury municipalities still outstanding. We also escalated
and cooperative governance department increase Masilonyana’s non-submission for intervention by
their support and strengthen the capacity of the member of the executive council for local
municipalities and incoming councils to set the government. Leadership has since cleared the
correct tone at the top and ensure stability in backlog and the focus should now shift from a
administrative leadership by filling vacancies and compliance culture to submitting improved quality
capacitating key officials. We acknowledge that financial statements and performance reports to
the first year of an administration is a transitional rebuild these institutions.
period and are hopeful in that the implementation
of our call to action has been positively received For the sixth consecutive year, the province had
and is receiving attention. While local government no clean audits. Overall, most audit outcomes
is still characterised by a weak control environment, remained unchanged from the previous year, with
poor financial health, and a lack of financial two municipalities improving and one regressing.
oversight and consequences, we have seen a shift The audit outcomes for Moqhaka and Setsoto
by the provincial executive leadership through the local municipalities improved from a qualified audit
work of the coordinating institutions, from inaction opinion to an unqualified opinion with findings,
to increased support to municipalities. This current mainly due to the tone set by the municipal
leadership tone should filter down to the municipal managers and the support provided by the audit
leadership to shift the culture in local government committees. These municipalities implemented their
and bring about improvement in the lives of action plans to improve audit outcomes and they
provincial communities. were responsive to the audit process. The audit
outcome for Mangaung Metro regressed from an
Last year, we reported that almost half (48%) of the unqualified audit opinion with findings to a qualified
municipalities did not have the discipline to submit opinion because the council did not prioritise filling
their financial statements by the legislated date, vacancies in the critical leadership positions of city
and we cautioned against tolerating the lack of manager and department heads, which lessened
transparency on their finances and performance. accountability within the metro, contributed to the
Furthermore, we used our extended powers lack of cooperation from employees in providing
111
supporting documents for audit purposes, and struggled to collect all their outstanding revenue,
enabled a continuing culture of impunity. The metro which resulted in a continued lack of cash reserves
also did not effectively implement its audit action to pay contractors and third-party contributors to
plan to address internal control deficiencies and ensure basic services are provided. The amounts
poor record keeping. Because of political instability, owed to Eskom and the water boards continued
the provincial and national interventions in terms of to increase, reaching R14,1 billion. Municipalities
the Constitution did not have the desired outcome also reported water losses of R900 million (49% of all
as they were not supported by both the council water that flowed through municipal infrastructure).
and municipal officials. To address their financial health challenges,
municipalities (supported by the provincial treasury)
The lack of financial management discipline need to implement realistic budget processes and
and skilled resources, coupled with weak control a revenue-enhancement strategy.
environments, resulted in the financial statements
of all the municipalities submitted for auditing Once again, municipalities did not pay attention
requiring material corrections. Only 47% of to performance planning, reporting and
municipalities could improve their outcome after achievements to ensure they were reporting
making these corrections. Financial reporting transparently on service delivery and accountability
remained a year-end effort with most municipalities for performance information. Only Moqhaka and
relying on consultants to prepare and review Phumelela local municipalities and Lejweleputswa
financial statements. They also used consultants and Xhariep district municipalities were able
to perform verifications, condition assessments to credibly report on their performance, and
and revaluations of assets because they did not only Lejweleputswa did not need to make
have sufficient internal capacity and skills. Some material corrections to the initial submission of its
municipalities, with support from the provincial performance report. Most municipalities (73%)
treasury, started to use their own officials to published poor-quality performance reports that
prepare financial statements, and consultant were not always supported by full and proper
costs for financial reporting services have thus records. The councils must consult on, and prioritise,
decreased from R43,77 million in the previous year the needs of communities and should not tolerate
to R32,29 million. The mayor of Matjhabeng Local a lack of transparency in reporting on performance
Municipality, for example, played a role in reducing against planned targets.
the reliance on consultants by R8,74 million, as the
municipality appointed qualified officials to prepare Although municipalities planned for basic service
its financial statements. delivery, they did not achieve most of their planned
targets for electricity, water and sanitation because
Municipalities’ financial health continued to of poor financial and project management –
deteriorate and 11 municipalities (73%) disclosed with a resultant impact on the quality of services
a material uncertainty about whether they would delivered to communities. Mangaung Metro held
be able to meet their financial obligations as they public participation sessions with communities and
become due. Councils did not follow credible considered their concerns, but did not prioritise
budgeting processes and approved unfunded all these concerns due to financial constraints.
and unachievable budgets, which contributed to We found that while the metro planned for all
the unauthorised expenditure of R5,57 billion and a 35 standardised performance indicators prescribed
deficit of R2,73 billion where expenditure exceeded by the National Treasury on outcomes related
revenue. The province’s financial situation was to its core functions (electricity, housing, roads,
also negatively affected by inadequate basic water and sanitation), there was no visible
controls and financial mismanagement. The current impact on service delivery, as the metro reported
financial constraints are likely to be felt beyond achievements of zero in relation to planned services
2022-23, as 80% of municipalities will need to use for seven of these indicators and excluded a
at least half of the 2022-23 budget to pay for further 12 from its performance report.
spending in the current year. These municipalities
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Municipalities did not deliver on the infrastructure and implementing additional controls to prevent
projects needed to reduce the significant service the irregularity from recurring. Some municipal
delivery backlogs and improve the community’s managers are taking appropriate steps to address
access to basic service delivery. We identified the material irregularities we have raised. For
shortcomings in water and sanitation projects example, the municipal manager of Maluti-a-
at 11 municipalities, including poor project Phofung Local Municipality is taking appropriate
management, delays in project completion, steps to address four material irregularities
quality defects and increased project costs. relating to inadequate wastewater treatment
Insufficient preventative maintenance was and disposal. The water and sanitation minister
prevalent, as municipalities spent only 2% of the has responded positively to the municipality’s
value of assets on repairing and maintaining said wastewater problems, and has issued a directive
assets. For example, at a wastewater treatment to Bloem Water to intervene and perform certain
plant in Metsimaholo Local Municipality, the lack functions relating to upgrading and managing
of maintenance over several years left the existing the municipality’s wastewater treatment plants for
plant so dilapidated that a new plant had to be three years.
built. Yet, more than three years after the planned
completion date, the new plant has still not been All roleplayers in the accountability ecosystem must
completed. Despite the municipality having paid instil a sense of urgency to shift the culture in local
a contractor to repair the existing plant, it government to achieve the desired outcomes and
continued to dispose untreated wastewater restore the confidence of the province’s people
into the Vaal Dam. We notified the municipal in their government. A culture of accountability
manager of a material irregularity due to the likely and transparency involves clear expectations,
substantial harm this would cause to the public. specific goals and strong leaders with a clear
direction to pave the way for better service delivery
We reported material findings on compliance and continuous reporting on achievements.
with legislation at all municipalities. A lack of Municipal administration can achieve this culture
consequences for wrongdoing continued to create by implementing and maintaining basic controls
a culture of impunity and complete disregard throughout the year to ensure they can submit
for the rule of law at all levels; transgressions of good-quality financial statements within the
procurement legislation; and a widespread failure legislated deadlines. This will allow the provincial
to prevent unauthorised, irregular, and fruitless cooperative governance department to strengthen
and wasteful expenditure. Municipal public the processes of compiling reports, as required by
accounts committees again did not investigate legislation, on the performance of municipalities
these expenditures; for example, less than 1% of and the recommendations to be implemented,
last year’s irregular expenditure closing balance and to ensure that these reports are tabled on
of R9,34 billion was appropriately dealt with. Nine time in the provincial legislature. Local government
municipalities have recently established disciplinary should enhance skills and capacity to ensure
boards; coordinating institutions should continue it has a competent and skilled workforce. The
to work with municipalities to establish such council, through the municipal public accounts
boards and enable them to fulfil their roles and committee, should investigate unauthorised,
responsibilities. irregular, and fruitless and wasteful expenditure,
and should implement consequences against
By 15 January 2023, we had notified accounting the responsible officials. Coordinating institutions
officers in the province of 50 material irregularities – should strengthen their role in the local government
an additional 26 since our previous general report. sphere through effective interventions that will
In total, 11 of these material irregularities have been support municipalities to strengthen their control
resolved by auditees submitting their outstanding environments and enforce legislative requirements.
financial statements, and three auditees each
resolved a material irregularity by reducing losses
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GAUTENG
Lack of financial discipline and consequence management with

ineffective oversight resulting in inadequate service delivery
In our previous general report, we recommended submitted good-quality financial statements that
that in order to improve the overall audit outcomes, did not require corrections, while the remaining
provincial leadership and oversight must instil a nine municipalities and seven municipal entities
culture of good governance, monitor preventative continued to rely on the audit process to produce
controls that will strengthen daily financial good-quality financial statements despite having
disciplines, and ensure swift implementation sufficiently skilled resources in their finance units, as
of consequence management for effective well as functioning internal audit units and audit
accountability. committees. The auditees that could not produce
good-quality financial statements lacked basic
The new administration has been in office for financial disciplines and good financial governance
less than a year and we continue to encourage due to an absence of effective oversight to
leadership to entrench such a culture with the goal ensure that officials are held accountable for not
of attaining and sustaining clean audits, as they will implementing basic controls.
serve as a good basis for basic service delivery to
the people of Gauteng. Adequate information technology infrastructure
and controls are key for supporting proper financial
We commend City of Ekurhuleni Metro and management and driving service delivery.
Midvaal Local Municipality for sustaining their clean Municipalities made significant investments to
audit opinions through continued good financial implement enterprise resource planning systems
disciplines and sound governance practices, which to manage day-to-day business activities, but
had a positive impact on service delivery; and these projects continued to fail due to ineffective
Rand West City Local Municipality for improving project and licence management. As a result,
its audit outcome from qualified to unqualified municipalities spent money on software licences
with findings. However, the increasing number they did not use, and we notified the municipal
of regressions in audit outcomes is concerning. managers of City of Tshwane and City of
Emfuleni and Mogale City local municipalities Johannesburg metros of material irregularities
regressed to qualified audit opinions, while City on this matter.
of Tshwane Metro and Merafong City Local
Municipality regressed to adverse and disclaimed Municipalities continued to engage residents
audit opinions, respectively. through public participation processes as part of
planning for service delivery; and most considered
The municipal entities that received the highest the concerns raised by the public in their service
budget allocation sustained their unqualified delivery plans. Although all three metros adopted
audit opinions with findings; however, two other the common performance indicators set out by
municipal entities regressed from the previous year. the National Treasury relating to basic services,
Only two municipalities and six municipal entities the credibility of performance reports remains
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a challenge as seven municipalities and five We remain concerned about non-compliance

municipal entities could not publish credible reports, with legislation as we did not see an improvement
as they did not prioritise performance information from the previous year. There were fewer
monitoring and reporting. This has an impact on instances of non-compliance relating to supply
the effectiveness of in-year reporting, monitoring chain management legislation, with a slight
and decision-making by the leadership. Simply decrease in the irregular expenditure incurred
put, when planned targets are not achieved, (from R6,59 billion to R6,46 billion). However, the
communities do not receive adequate services. closing balance of irregular expenditure remains
high, at R29,41 billion. Municipal public accounts
We visited key projects and found that they were committees did not investigate identified
not adequately monitored to ensure they stayed instances of non-compliance as a matter of
within the timelines and amounts outlined in the urgency to ensure that the irregular expenditure
contracts. Projects were significantly delayed by closing balance was dealt with in line with
poor planning, unfunded budgets and a lack of legislation, and that consequence management
contract management disciplines. For example, was swiftly implemented where appropriate.
the Johannesburg Development Agency paid a While councils at metros have adopted
contractor for poor-quality work on the integrated resolutions to establish disciplinary boards to assist
rapid public transport network project. At City of with investigations and disciplinary processes,
Tshwane and City of Johannesburg metros, the these are not functioning as intended. We call
delivery of housing projects in Fort West and Lehae on oversight structures to ensure that disciplinary
was delayed, resulting in the illegal occupation boards are established and functional. In
of completed units. Internal audit units and addition, municipal public accounts committees,
governance structures must play a bigger role to with the assistance of internal audit units, must
ensure that the quality of performance reports prioritise investigations into irregular expenditure.
improves and that project reports are promptly
reviewed so that progress can be properly tracked. Since 2018-19, we have issued 21 material
irregularities linked to various instances of non-
The lack of proper project management and compliance, with an estimated financial loss of
monitoring has also led to ageing infrastructure not R575,10 million. The material irregularity process
being adequately maintained. Most municipalities continues to gain traction as most accounting
did not carry out proper preventative repairs and officers are busy taking corrective steps, including
maintenance on infrastructure, and spent an improving internal controls, upgrading and
average of only 5% of the value of the infrastructure maintaining infrastructure, instituting disciplinary
on repairing and maintaining assets – compared processes, and recovering funds. For example,
to the National Treasury’s suggested norm of 8%. the municipal manager at City of Tshwane
This lack of maintenance significantly affected Metro committed to provide communities in
the operations of wastewater treatment works at Hammanskraal with clean water from water
City of Tshwane Metro and Rand West City Local tankers while the metro worked on maintaining and
Municipality, resulting in untreated wastewater upgrading the wastewater treatment plant. We
being discharged into water sources such as rivers. urge governance structures and councils to closely
This had a negative effect on the municipalities’ monitor the progress municipal managers make in
ability to provide clean water to communities implementing the actions they have committed
and to preserve the environment. We notified to take so that these material irregularities can be
the municipal managers of both municipalities of quickly resolved. This includes the remedial action
material irregularities because the discharge of issued for three material irregularities at City of
untreated wastewater is likely to cause harm to the Tshwane Metro, as the municipal manager failed
general public. to implement the recommendations we had
previously issued.
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The financial health of all municipalities continued results. The province is busy implementing previous
to deteriorate, as revenue collection remained commitments, has established a war room to
poor and metros continued to rely on loans and serve as a structured committee to come up
municipalities on grants to fund their operations with practical solutions on how to improve audit
and capital infrastructure projects. Moody’s outcomes and governance, and is providing
downgraded City of Tshwane Metro’s credit rating, training to supply chain management officials
which affected its ability to raise funding for capital and municipal public accounts committee
expenditure. Due to their poor financial state, most members. While we found that all municipalities
municipalities did not spend enough on either new had established audit committees and internal
capital projects or repairs and maintenance, and audit structures, the impact of these structures and
did not pay suppliers within the prescribed 30 days. related processes should be strengthened.
To make the situation even worse, municipalities
The premier, through service-level agreements,
with cash-flow shortages adopted unfunded
has an opportunity to hold the members of
budgets that could not fully support service delivery
the executive council for local government
performance plans. Despite having cash shortages,
and finance accountable for implementing
some municipalities did also not spend all their
planned initiatives to improve the effectiveness
grant allocations.
of local government. The provincial cooperative
In addition, seven municipalities and four municipal governance department has an opportunity
entities spent a total of R163,72 million on financial to comprehensively assess the effectiveness of
reporting consultants. Some received limited action plans to address the matters we report in
benefit and value for the money they spent, the audit reports and to ensure that the various
leading us to issue material irregularity notifications initiatives intended to improve audit outcomes
to the municipal managers of Merafong City are implemented. The National Treasury and its
Local Municipality and City of Tshwane Metro. provincial counterpart should thoroughly assess
We also find it concerning that fruitless and municipalities’ budgets and quarterly reports,
wasteful expenditure is increasing, thereby wasting and, when needed, intervene in time to support
funds and thus delaying capital projects. The municipalities with financial recovery plans and
deteriorating financial health of municipalities and skills. Councils must hold municipal managers
municipal entities affects their ability to deliver accountable for delivering basic services and
much-needed basic services to communities implementing their budgets. Effective oversight
because projects are delayed and suppliers are should result in improved financial disciplines and
not paid on time. Accounting officers should ensure a culture of accountability that will improve overall
that funds are spent efficiently, effectively and audit outcomes and service delivery to the people
economically to avoid any wastage. of Gauteng.
Although the tone set by the provincial leadership

in restoring Gauteng to clean governance has
been positive, it is not yet yielding the desired
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KWAZULU-NATAL
Some improvement in audit outcomes while a lack of

accountability persists
Last year, we engaged the province’s expenditure; prepare financial statements; and
administrative leaders and recommended that they coordinate the audit process. The provincial
institutionalise preventative controls and implement treasury’s support in conducting audit readiness
consequence management and accountability. and pre-audit assessments, reviewing financial
statements and monitoring the implementation of
We also advocated for them to pay closer audit action plans also had a positive impact on
attention to transparent, good-quality reporting on the audit outcomes.
service delivery to ensure that public funds are used
in a way that will improve the experience and lived Ray Nkonyeni Local Municipality improved from an
reality of communities. The improvement of the unqualified audit opinion with findings to a clean
audit outcomes in the current year is an indication audit opinion because management implemented
that the administrative leaders and management and continuously monitored the audit action plan.
are starting to pay attention to this call. King Cetshwayo District Municipality and the City of
uMhlathuze and Okhahlamba local municipalities
Overall, the province’s audit outcomes have sustained their clean audit outcomes because
improved since last year, with nine municipalities of the level of commitment municipal managers
(Ugu District Municipality, and AbaQulusi, and senior management showed to address the
Dannhauser, eDumbe, Inkosi Langalibalele, Nquthu, deficiencies identified by internal audit and risk
Ray Nkonyeni, uMngeni, and uMshwathi local units, to institutionalise internal controls, and to
municipalities) improving their audit outcomes, fill key positions with suitably qualified officials.
while four municipalities (uMzinyathi and Harry Msunduzi Local Municipality regressed from an
Gwala district municipalities, and Msunduzi and unqualified audit opinion with findings to a qualified
Ulundi local municipalities) regressed. At the cut-off opinion. We identified significant internal control
date of this report, we had not completed the audit deficiencies in the municipality’s billing system,
of uMkhanyakude District Municipality because it where revenue from the sale of water did not
had submitted its financial statements late. Nquthu match internal meter-reading reports. uMzinyathi
and Inkosi Langalibalele both improved from a District Municipality regressed from a qualified to an
disclaimed to a qualified audit opinion, thanks to adverse opinion, mainly because it did not properly
the assistance of financial experts assigned by the reconcile or review financial information, did not
provincial cooperative governance department effectively manage its records, and was slow to fill
to help develop and implement an action plan to key management positions.
address prior-year audit findings; compile registers
for unauthorised, irregular, and fruitless and wasteful
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The poor quality of financial statements submitted effort to investigate and deal with the irregular
for auditing remains concerning, as more than half expenditure closing balance of R14,46 billion, their
of the municipalities (56%) obtained unqualified progress was slow and they managed to reduce
audit opinions only after we allowed them to the closing balance by only R2,64 billion. Municipal
correct material misstatements identified during the public accounts committees and disciplinary
audit process. The quality of financial statements is boards should ensure that robust and timely
unlikely to improve if municipalities continue to rely investigations take place and that consequences
on the audit process to identify misstatements, do are implemented where applicable.
not implement proper financial discipline, and have
While municipalities might not always have
inadequately resourced finance units and instability
effective consequence management in place, the
or vacancies in critical positions. Additionally,
material irregularity process is shifting the culture
because of weak information technology controls,
in the right direction, as municipal leadership
we could not rely on the transactions and data
is responding positively to our notifications.
processed by the systems at uMzinyathi, Amajuba,
We have issued notifications for 45 material
Harry Gwala and uThukela district municipalities,
irregularities with a total estimated financial loss
and Endumeni and Msunduzi local municipalities,
of R553,74 million. Most municipal managers are
which all received either adverse or qualified
taking appropriate action to address these, such
audit opinions.
as improving internal controls to prevent the
The amount municipalities spend on consultants irregularities from recurring and starting disciplinary
increases every year, and most municipalities (48) processes against responsible officials. A notable
relied on consultants to prepare and/or review example of the improvement in controls relates
their financial statements, even though in most to a material irregularity we raised at AbaQulusi
instances they had appointed officials to perform Local Municipality on the non-billing of service
these functions. Despite municipalities spending charges. The management of the municipality
R309 million on financial reporting consultants, now reconciles the valuation roll to the levy report
this investment has not had the desired impact. every quarter and ensures that all properties are
At 25 municipalities (52%), we identified material billed for the different services they receive.
misstatements in the areas where consultants were
Where no or limited action was taken to address
used. The reasons behind this included poor project
material irregularities, we invoked our extended
management, inadequate record management,
powers. At uMkhanyakude District Municipality, we
and delays in appointing consultants. We notified
issued recommendations for material irregularities
the municipal manager of Harry Gwala District
on interest, revenue management and asset
Municipality of a material irregularity for not
management; and at Amajuba District Municipality,
complying with contract management legislation
we referred one on overpricing of procured goods
and consequently overpaying a consultant to do a
and services to the Special Investigating Unit for
conditional assessment of water infrastructure.
investigation. Msunduzi Local Municipality was
We reported material findings on compliance with slow to resolve material irregularities because of
legislation at most municipalities (93%). The failure to instability at municipal manager level and delays
institute appropriate consequence management in completing investigations and disciplinary
has created an environment characterised processes, prompting us to issue remedial action for
by a lack of discipline and accountability for a material irregularity relating to revenue not billed
wrongdoing. Non-compliance with supply chain at the landfill site.
management legislation contributed to more than
90% of the total irregular expenditure of R5,93 billion
for the year. Although municipalities made some
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Poor economic conditions and financial losses repairing and maintaining these assets. eThekwini
placed further strain on the financial health of most Metro did not have maintenance plans to inform
municipalities. Municipalities struggled to collect the actual budget needed to maintain its assets,
the money they are owed because of ineffective and thus faced major water and electricity
financial management practices over revenue and supply challenges due to failing infrastructure.
debt collection. On average, they will find it difficult The crumbling municipal infrastructure has not only
to recover 66% of their debt. They have also failed affected service delivery but has also increased the
to implement credit-control and debt-collection risk of harm to communities and the environment.
policies, and we issued notifications for material This was evident at the wastewater works of Ugu
irregularities relating to writing off debts without District Municipality, where the lack of maintenance
attempting to recover them, and thus failing to resulted in the plants not operating and disposing
raise revenue. Because of cash-flow constraints, untreated wastewater into rivers. Similarly, the water
municipalities also struggled to promptly pay off in Amajuba District Municipality failed to meet the
their debts. At year-end, they owed Eskom a total quality standard for drinking water and contained
of R820,5 million that was past due, and the water traces of E.coli, posing potential health risks
boards a combined R1,1 billion that was in arrears. to residents.
Msunduzi Local Municipality is responsible for 42%
The floods that occurred in the province during
(R341,7 million) of the arrears owed to Eskom and
April and May of 2022 had a devastating impact
75% (R829,15 million) of the arrears owed to the
on the province and its communities. Not only did
water boards. Nine municipalities reported doubt
it leave people destitute, with homes, schools and
about their ability to continue operating, with six
other vital infrastructure being destroyed, but it
of these having reported such challenges for at
also shed light on what can happen if road and
least the last four years. The lack of sound financial
water infrastructure is not adequately maintained.
management practices within municipalities has
We conducted a real-time audit of the flood relief
a negative impact on crucial expenses such as
initiatives at iLembe, Ugu and Zululand district
infrastructure repairs and maintenance, further
municipalities, KwaDukuza Local Municipality,
hampering the delivery of services.
and eThekwini Metro, focusing specifically on
Most municipalities did not fully achieve their water supply; infrastructure related to water,
planned service delivery targets for the year. sanitation and roads; and the provision of building
Certain municipalities did not include or prioritise materials to beneficiaries whose dwellings had
key performance indicators in their service delivery been destroyed – and reported our findings in a
and budget implementation plans, including special report issued in August 2022. We followed
indicators relating to the quality of water and up on the implementation of eThekwini Metro’s
wastewater disposal, and those addressing the action plan to address our findings on its water
backlog in water and sanitation services, waste supply initiative and noted that slow progress has
removal and road infrastructure. If a municipality been made to implement our recommendations
does not include key performance indicators in its and we continued to identify similar deficiencies.
performance report, the report will not provide a The Disaster Management Act and the Disaster
fair reflection of how it has performed against its Management Policy Framework provide for
mandate to provide basic services to communities. an integrated and coordinated disaster risk
management process that focuses on preventing
Ageing infrastructure and a lack of maintenance or reducing the risk of disasters and mitigating
made it difficult for municipalities to fulfil their its severity. However, iLembe, KwaDukuza and
service delivery commitments to the public, and eThekwini did not comply fully with legislative
contributed to the high water distribution losses requirements because they did not have – or did
of R3,42 billion (45,21% of all water that flowed not revise – formal disaster management plans
through municipal infrastructure). Although or the required baseline funding designated for
the province has infrastructure assets worth activities to reduce disaster-related risks.
R89,66 billion, only 3,6% of its spending was on
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Due to inadequate needs assessments and a all stakeholders in the accountability ecosystem.
lack of formalised procedures and controls, These challenges, particularly those relating to
municipalities could not supply enough clean infrastructure and flood relief, also call for greater
drinking water to areas in need. Although Tongaat intergovernmental coordination. We urge the
water treatment works in eThekwini Metro is coordinating institutions to continue collaborating
operating again, it is still not producing the required with senior management and with each other to
amount of water because the bulk supply pipelines proactively respond to our recommendations and
on which it relies were not assessed or repaired to use the insights we provide to craft a turnaround
before operations were restored, despite having plan that will intensify support to struggling
been visibly damaged. This situation highlights municipalities. They should also continue to tailor
the lack of coordination between the various initiatives to support each municipality and both
custodians of the infrastructure, which caused implement planned initiatives as swiftly as possible
further delays in providing water. We also found that and continuously assess their impact.
the controls over the metro’s management and
The province’s audit outcomes highlight the
supply of building materials to beneficiaries were
need to institutionalise internal controls, rigorous
inadequate or ineffective. The list of beneficiaries
reviews and continuous monitoring to ensure
contained inaccuracies such as duplicated and
credible and reliable reporting of financial and
deceased beneficiaries, as well as beneficiaries
performance information and to strengthen
who had not been approved to receive support.
compliance with legislation. Effective financial
Controls for storing, protecting and issuing building
management practices, competent personnel
materials were also poor or inadequate, which left
and decisive action to address wrongdoing and
supplies exposed to the risks of theft, damage and
poor performance are essential to improve service
loss. The road infrastructure projects we audited at
delivery. The councils (including mayors) and their
the metro also highlighted various shortcomings.
committees should be more robust and persuasive
The metro did not conduct site assessments for
in their quest for good-quality and credible
183 road projects to verify the needs assessments
information, conducting investigations where
used to prioritise projects, which led to resources
necessary and holding municipal managers and
being allocated inefficiently. The metro’s supply
senior managers accountable for failing to fulfil their
chain management processes were also not
responsibilities consistently. By putting into place
responsive to the flood disaster initiatives, as we
these building blocks of a sound system of internal
found delays in securing contracts for the resources
control, enforcing accountability and planning
and equipment needed to repair roads.
effectively, local government can address the
The challenges across local government are vast challenges it faces and improve its credibility and
and must be approached from a comprehensive service delivery to the people of KwaZulu-Natal.
and sustainable perspective, which requires a
commitment of time, resources and effort from
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LIMPOPO
Inadequate financial management disciplines and oversight

In our previous general report, we reported Capricorn District Municipality improved to a clean
an improvement in the audit outcomes of the audit opinion. Waterberg District Municipality
province, although municipalities continued to rely sustained its clean audit opinion for the second
too heavily on consultants and audit adjustments consecutive year through retaining capable
and made few to no improvements in their control financial staff, sound business processes and
environments. effective key controls. It also embedded basic
financial disciplines such as adequate and
This year, inadequate financial management timely reviews, which continued to enhance the
disciplines and oversight led to audit outcomes internal control environment. Bela-Bela Local
remaining largely unchanged and delays in service Municipality improved from a disclaimed audit
delivery. At some municipalities, audit outcomes opinion to a qualified opinion with findings, due
either did not improve or regressed because of the to enhanced document management controls
worsening state of documentation controls; asset and intervention by the provincial treasury and
protection; revenue management; and reviews of cooperative governance department. Polokwane
financial, compliance and performance reports. and Greater Giyani local municipalities improved
The province spent R1,13 billion on financial from a qualified to an unqualified audit opinion
reporting, including R874,99 million on salaries for with findings, mainly because of effective senior
finance officials and R263,18 million for financial management reviews of financial information and
reporting consultants, mainly because finance audit action plans driven by municipal managers.
units lacked the staff and skills to prepare credible Four municipalities regressed from an unqualified
financial statements. Despite this, only four audit opinion with findings to a qualified opinion
municipalities (15%) were able to submit credible because they did not adequately monitor and
financial statements for auditing. Municipalities review their internal controls to ensure that these
did not always realise the predicted benefits of were operating effectively. The system of internal
using financial reporting consultants for reasons control continues to be plagued by deficiencies
that included not providing them with the records arising from a lack of standard daily and monthly
needed to prepare credible financial statements, control disciplines.
inadequate reviews of consultant work, overall The financial health of municipalities remains
poor project management, and a lack of skills under pressure, with six municipalities disclosing
transfer from the consultants. We notified the uncertainty about their ability to continue
municipal manager of Mopani District Municipality operating in the foreseeable future (Mopani District
of a material irregularity relating to the ineffective Municipality, and Modimolle-Mookgophong,
use of consultants, as the municipality appointed Thabazimbi, Greater Letaba, Bela-Bela and
consultants to help prepare its financial statements Musina local municipalities. Mopani, Thabazimbi
despite not having the proper records and and Modimolle-Mookgophong have been in this
supporting documents to enable the preparation.
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state for the last five years, due to poor budgetary The poor service delivery experienced by residents
and financial management disciplines, showing is most evident in the concerning state of municipal
that the provincial interventions deployed at the infrastructure and water provision. Municipalities
municipalities have not yet had the desired impact. spent a combined R606,14 million on repairs
Municipalities suffered unnecessary revenue losses and maintenance to infrastructure assets, which
due to poor financial management practices, such represents 1,8% of the value of total infrastructure
as ineffective revenue processes, which then led assets and is far below the National Treasury
us to issue material irregularity notifications. Eight norm of 8%. Vhembe District Municipality did not
municipalities adopted unfunded budgets, despite fully address our findings and recommendations
the provincial treasury’s efforts to curb this practice. from the previous year relating to the Vondo and
These unfunded budgets result in municipalities Phiphidi water projects, even after we engaged
committing to more than they can achieve and with municipal leadership. In Greater Giyani Local
delivering less than they have promised on service Municipality, the Nsami water treatment works
delivery. Municipalities also had to return unspent is not being used and has been earmarked for
funds earmarked for infrastructure development, demolition or significant refurbishment because
which further hindered the delivery of services. of structural issues. In Mopani District Municipality,
the Giyani bulk water project is still incomplete due
Up to 15 January 2023, we had notified municipal to inadequate intergovernmental coordination
managers of 21 material irregularities in the between the municipality and the Department
province, with a total likely financial loss of of Water and Sanitation. As a result, residents of
R1,37 billion. Even though not all the material Greater Giyani and the surrounding areas are
irregularities have been resolved yet, we are still not receiving water services. We are busy
encouraged that municipal managers were evaluating these projects for likely financial losses,
responsive and took appropriate action to ensure which may result in potential material irregularities.
that no further financial losses were incurred by At Mogalakwena Local Municipality, we could not
enhancing the internal control environments, obtain evidence that payments to water tankering
performing investigations and holding responsible service providers were for water delivered to
officials accountable. communities, resulting in a likely financial loss of
Unauthorised, irregular, and fruitless and wasteful R11,36 million. We notified the municipal manager
expenditure remained high, increasing the risk of a material irregularity on this matter.
that funds intended for service delivery might Mopani District Municipality reported an
be misused. The most common findings on overachievement on the number of households
irregular expenditure related to non-compliance with access to water but did not have reliable
with legislation on procurement and contract and credible supporting evidence to verify this
management. The five municipalities that achievement, while Vhembe and Sekhukhune
contributed most to the R1,68 billion in irregular district municipalities, and Thabazimbi Local
expenditure were Mopani and Vhembe district Municipality, did not report the target for the
municipalities, and Polokwane, Mogalakwena and number of households with access to water in
Maruleng local municipalities. Also concerning are their performance reports. Delays in municipal
the delays in consequence management due to infrastructure delivery and poor performance
slow or no investigations into irregular expenditure, planning and reporting compromise service delivery
and this has led to an irregular expenditure closing and result in communities not having sufficient
balance of R7,11 billion. We also saw no deliberate access to basic services, as well as increased
drive from municipal public accounts committees project-related costs and financial losses. We are
to clear the backlog in swiftly investigating these busy evaluating the extent of potential financial
matters so that those who allowed the irregular losses and possible harm to the public because
expenditure could face consequences. of these matters with a view to identify potential
material irregularities.
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The provincial cooperative governance Last year, we were encouraged by the premier’s
department planned to support municipalities commitment to reduce the use of consultants
with poor audit outcomes. To this effect, the by 60% in the 2021-22 financial year. While this
department directed Mopani District Municipality commitment was not realised, we urge the
to report on specific items relating to its financial premier to continue prioritising this initiative and to
viability, including supporting and strengthening the enforce and monitor tactical reduction plans at all
municipality’s internal capacity and performance municipalities with the guidance of the provincial
in line with section 139(1)(a) of the Municipal cooperative governance department and treasury.
Finance Management Act, since it received a
The member of the executive council for local
disclaimed audit opinion for two consecutive years.
government must strengthen the processes for
We will assess the impact of this intervention during
compiling reports to the provincial legislature
the 2022-23 audit cycle. The department should
so that these reports effectively address the
continue to intensify its role in monitoring, supporting
challenges faced by municipalities. These reports
and capacitating municipalities, which includes
should cover audit action plans that address the
intervening and enforcing legislative requirements
root causes of audit findings, as well as remedial
where necessary.
action to prevent repeat findings. The provincial
Considering the poor quality of financial and legislature must strengthen the process of engaging
performance records, the department and the on these reports, including formulating and
provincial treasury must focus on enabling and following up on resolutions. Councils should ensure
insisting on credible financial and performance that these reports are adequately interrogated
reports for in-year monitoring and decision-making, to encourage the discipline of financial reporting
as well as transparency and accountability and transparency. Municipal public accounts
on municipalities’ finances and performance. committees should ensure prompt investigations
They should further continue to investigate the and swift corrective action, where necessary,
root causes of disclaimed opinions and build so that consequences are implemented to
capacity within municipal finance units. Provincial curb unauthorised, irregular, and fruitless and
intervention and assistance from consultants at wasteful expenditure. Even better would be the
Bela-Bela Local Municipality contributed to an implementation of preventative controls as they
improved audit outcome but did not have an promote transparency, strengthen accountability
impact at Mopani District Municipality which and are predictable, with known, expected
remained stagnant on a disclaimed opinion. The outcomes. Creating a strong system of preventative
provincial cooperative governance department controls requires a strong tone at council and senior
should take action against municipalities that management level, led by the municipal manager,
resist support initiatives as well as those that do and an ethical culture on which to build strong
not implement the recommendations of the financial management discipline.
coordinating institutions. This disregard towards
Capricorn and Waterberg district municipalities
assistance was also evident at some municipalities
are proof that where internal control systems are
where management did not respond to the
implemented and there is stability at management
recommendations of internal audit units,
level, a clean audit outcome is within reach, and
thus decreasing the level of assurance these
should inspire other municipalities to strive to attain
governance structures could provide on financial
this goal. The biggest responsibility lies with the
reporting. The coordinating institutions must further
leadership – mayors and councillors, municipal
insist on action plans to change the culture of laxity
managers, senior managers and provincial
when it comes to compliance with legislation and
leadership – who all need to take charge and
service delivery, and must continuously monitor how
develop the huge potential of Limpopo.
these plans are implemented.
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MPUMALANGA
Weak control environment and lack of leadership accountability

Over the term of the previous administration, the prepared financial statements, while the
we identified several key areas that required provincial cooperative governance department
immediate action to improve accountability and and treasury deployed experts to support some
service delivery at municipalities, including an finance units. Despite these resources and support,
effective control environment, sustainable financial key financial management controls were not
health, proper infrastructure project planning and adequate to prevent material misstatements in
management, and compliance with legislation financial statements, as only two municipalities
especially as it relates to procurement and (Nkangala and Ehlanzeni district municipalities),
consequences. which managed 3% of the province’s local
government budget, produced credible financial
Despite our strong call for action, progress has been and performance reports and complied with
slow, leading to stagnant audit outcomes (three key legislation. Dr JS Moroka and Dipaleseng
improvements were matched by three regressions) local municipalities improved from disclaimed to
and continuing gaps in service delivery. The reality qualified audit opinions because they addressed
is that while 90% of the municipalities are still significant deficiencies in their internal controls,
struggling to get the basic financial disciplines right, with the combined assistance of the provincial
communities’ social and economic demands are cooperative governance department and treasury.
rapidly evolving. Consequently, these municipalities
must act swiftly on shifting the status quo and The financial crisis in municipalities is caused by
responding to the ever-growing needs of the poor budgeting practices, ineffective financial
people of Mpumalanga. management and a lack of sustainable revenue
strategies. This has led to a situation where five
We firmly believe that change is possible if both municipalities (25%) reported significant doubt
local government and provincial leadership about their ability to continue operating, while
take decisive actions, including stabilising local 10 municipalities (50%) approved unfunded
government by filling vacancies and capacitating budgets, resulting in unauthorised expenditure
staff as well as implementing consequences for of R2,54 billion. The municipalities with unfunded
poor performance. The lack of skills and capacity budgets will need to use R9,44 billion from next
at most municipalities resulted in consultants year’s budget to settle their obligations for this
becoming a permanent feature in financial year – and for some, this will still not be enough.
reporting processes. We issued three material This has had a negative impact on service delivery
irregularities on the ineffective use of consultants at performance indicators and targets, directly
three municipalities. The total investment in financial affecting communities’ quality of life. Municipalities
reporting, including salaries of finance officials and also struggled to collect revenue for basic services,
consultant costs, was R941,3 million, compared with poor debt collection leading to limited cash
to R832 million in the previous year. Internal flow, making it difficult for them to finance their
audit units and audit committees also reviewed operations and settle supplier accounts. The Eskom
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debt has grown from R9,51 billion to R13,45 billion, Msukaligwa local municipalities each reporting
with municipalities taking an average of 456 days to water losses of 76% – the highest in the province.
pay their suppliers – earning interest and penalties
of R835 million. We have notified municipal One example of the effect of such underspending
managers of four material irregularities relating to can be found at Lekwa Local Municipality, which
this matter – three for paying suppliers late and one only spent 0,1% of the value of its infrastructure
for not submitting value-added tax returns to the assets on repairs and maintenance due to
South African Revenue Service on time. serious cash-flow challenges. (The National
Treasury did intervene last year to assist with
Most municipalities (70%) did not have effective financial rescue, but the impact of this support is
systems for collating and reporting performance not yet visible as it takes time to address deep-
information, leading to unreliable reporting, rooted challenges such as debt recovery). The
compromised accountability and poor service Standerton wastewater treatment plant suffered
delivery. These deficiencies hinder the ability of infrastructural and mechanical decay due to
councils and other structures to carry out their the lack of maintenance, with some parts of the
oversight responsibilities. Most municipalities also plant becoming completely non-functional. This
failed to meet their targets and some overspent on negatively affected operational processes and
their budgets despite not achieving all their goals. caused sewage to overflow into the Vaal River,
For example, Thaba Chweu Local Municipality which the community uses as a water source.
spent 104% of its budget but achieved only 29% of The heavy rains in February 2023 also left a trail of
its basic services and infrastructure development destruction across the Ehlanzeni district, highlighting
targets. Some municipalities further excluded critical the issue of inadequate infrastructure maintenance.
performance indicators from their performance
reports, such as Msukaligwa Local Municipality, We reported compliance transgressions at
which did not include an indicator on the quality of 18 municipalities (90%) due to weak control
drinking water and did thus not plan any resources environments and a lack of consequences.
to meet community needs in this regard. This has created a culture of impunity and blatant
disregard for the rule of law, especially when
Municipalities spent most of the grants they it comes to procurement, and we notified one
received without delivering the required municipal manager of a material irregularity for
infrastructure on time and at the correct quality not following procurement regulations. Because
due to project deficiencies, such as poor planning, of this, irregular expenditure has continued to
monitoring, and budget control. This resulted rise, with municipalities racking up R2,08 billion in
in municipalities paying for work that was not 2021-22, compared to R1,26 billion last year. This
done, projects being delayed, and projects amount could be even higher as 10 municipalities
being delivered with defects. Some municipalities (50%) were either qualified on their irregular
underspent their grant funding significantly, expenditure disclosure or were still investigating
depriving residents of services for which funds had such expenditure to determine its full extent.
been earmarked, such as clean drinking water. The irregular expenditure closing balance also
remains high at R6,44 billion because of significant
Municipalities also struggled to maintain their delays by councils and municipal public accounts
infrastructure assets as they only spent an average committees when it comes to investigating and
of 1% of the value of these assets on repairs and dealing with prior-year irregular expenditure.
maintenance – far below the norm of 8%. And Training and support from the provincial
leaks due to unmaintained and deteriorating cooperative governance department and treasury
infrastructure, unmetered consumption and illegal to strengthen internal controls and compliance had
connections added to the financial health crisis little impact because municipalities either lacked
and resulted in municipalities suffering significant internal capacity or had indifferent employees,
water and electricity losses, with Dipaleseng and resulting in the limited transfer of skills. The lack
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of consequences has created a culture of poor including the office of the premier and the provincial
performance by some municipal officials who still coordinating institutions, must perform their roles
get paid their salaries without fulfilling their roles. effectively by implementing the following:
» Municipalities, driven by administrative
We have implemented the material irregularity leadership with the support of coordinating
process at 17 municipalities, and by 15 January 2023, institutions, must implement effective
we had notified municipal managers of 19 material preventative controls – including building
irregularities with a combined estimated financial internal capacity, using consultants effectively,
loss of R554,21 million. Municipalities took little to no and properly planning and monitoring projects
action on some of these material irregularities, and – to build stronger control environments.
we included recommendations in the audit reports » Councils, supported by provincial leadership,
for five of them and referred one to a public body should prioritise strengthening municipalities’
for investigation. The responses we receive to our financial health. A robust financial management
material irregularity notifications are not always culture, which includes ensuring all revenue due
adequate or sufficiently supported by credible is collected, prudent spending, and preventing
information to allow the swift conclusion of actions and swiftly recovering financial loss and
taken or planned, resulting in delays in the material wastage, will help to improve service delivery.
irregularity process. Mayors and councils should
» Adherence to legislation, especially
exercise their oversight and monitoring roles by
procurement legislation, should be a top
insisting on regular progress updates to ensure that
priority. Municipal public accounts committees
municipal managers are appropriately responding
and disciplinary boards should be capacitated
to material irregularities.
to deal with the high balances of unauthorised,
Neither the leadership of various municipalities, irregular, and fruitless and wasteful expenditure.
nor the premier and the speaker of the provincial » Political and administrative leadership, together
legislature, fully honoured commitments made last with provincial leadership and oversight, must
year, and so we saw little to no impact on the audit foster a culture of accountability, implement
outcomes. The integrated municipal support plan will effective consequences for transgressions
not be effective unless it is constantly monitored and and poor performance, and strengthen
improved upon. The provincial legislature needs to governance structures.
enhance its monitoring of the legislative reports that
outline municipal performance and remedial action We believe that with a deliberate focus on
for improvement, and ensure that the members implementing these recommendations as
of the executive council for finance and local permanent solutions, all our municipalities will shift to
government comply with their statutory responsibility a public sector culture that is performance driven,
over municipalities. To improve audit outcomes ethical, transparent and accountable. This shift will
and the quality of service delivery, all roleplayers in ultimately result in an enhanced lived experience
the local government accountability ecosystem, for all of Mpumalanga’s people.
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NORTHERN CAPE
Leadership should act to improve audit outcomes

In our previous general report, we stated that municipality. The John Taolo Gaetsewe District
the weak control environment at municipalities Municipality lost its clean audit status because it did
contributed to the poor audit outcomes over the not properly monitor its internal controls, resulting in
term of the previous administration, which also a material finding on compliance with legislation.
negatively affected service delivery. In contrast, Hantam Local Municipality retained its
clean audit opinion despite its financial constraints
The slow response by both political and because its good internal control system enabled
administrative leadership to our findings and accurate accounting for financial transactions
recommendations to improve this situation and performance information, forming a solid
continued into 2021-22, resulting in the overall foundation for sound governance with a focus
audit outcomes regressing even further. on service delivery.
This year, four of the 31 municipalities managed to We remain concerned by the quality of financial
achieve clean audit opinions, while four received reporting, as 76% of municipalities submitted poor-
disclaimed opinions and two audits are still quality financial statements for auditing. In 2021-22,
outstanding because the municipalities submitted municipalities spent R126,95 million on financial
their financial statements late and the audits are reporting consultants, up from R110,08 million in
still in progress. We commend the 26 municipalities the previous year, mainly because they lacked
(84%) that submitted their financial statements for the required skills. Since municipalities generally
auditing by the legislated date – an improvement had adequate staff, with a vacancy rate of only
from the 20 municipalities (65%) that did so last 15% in the finance units, they need to focus on
year. For the first time, all financial statements ensuring that the officials they appoint have the
in the province were submitted by the end of right skills. Joe Morolong Local Municipality spent
December, largely because we issued material R14,64 million on financial reporting consultants that
irregularities in this area and oversight followed up focused on areas where there were limitations in
with further interventions. the previous year, but this did not have a positive
Only Gamagara Local Municipality improved its impact because the municipality again failed
audit outcome (from a qualified audit opinion to implement proper record-keeping controls in
to an unqualified opinion with findings) by filling 2021-22. We notified municipal managers of three
vacancies and addressing audit findings raised material irregularities stemming from municipalities
in the previous year. Ga-Segonyana Local using consultants when they did not have the
Municipality regressed from an unqualified audit documents needed to support the financial
opinion with findings to a qualified opinion because statements, and reappointing consultants with
management did not monitor and adequately no plan to become less dependent on them.
review the financial statements prepared by The desired impact of these material irregularities is
consultants. We are considering issuing a material to create a culture where the use of consultants is
irregularity on the use of consultants at the properly planned and managed.
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Financial practices such as poor revenue prevented R3,42 million in financial losses and are
management and inadequate debt collection in the process of recovering a further R15,65 million.
continued to plague municipalities. More We still face challenges where municipal managers
than half of the municipalities were financially are slow to respond to material irregularities or where
distressed, with 16 municipalities disclosing material there is instability in the municipal manager position
uncertainty about their financial sustainability. Most resulting in constant requests for extensions or further
municipalities depended on equitable share funds information. To ensure the material irregularity
to continue operating, as 68% of municipal debt process is effective, we encourage councils to
was not recoverable mainly due to a lack of credit- follow up regularly with municipal managers on
control policies. Together with poor budgeting, the material irregularities issued to them.
this contributed to most municipalities preparing
The quality of performance information remains
unfunded budgets and using the cash they do
concerning, with 76% of municipalities unable
have to pay salaries, leaving very little for service
to submit good-quality performance reports
delivery, maintenance, and paying their suppliers
because they could not accurately report on their
such as Eskom and water boards on time.
performance in terms of priorities set, making it
Non-compliance with legislation remained very difficult to know in which areas they needed
prevalent at 86% of municipalities, with non- to focus their efforts. Municipalities did not invest
adherence to supply chain management the required resources in this area, often because
legislation being the main contributor to the high they do not see performance information as a
irregular expenditure. The R1,11 billion in irregular priority. Four local municipalities (Renosterberg,
expenditure for 2021-22 represented 11% of Siyancuma, Siyathemba and Ubuntu) did
the province’s total local government budget not submit performance reports at all. Where
for the year. And this is not the full amount, as municipalities did submit performance reports,
17 municipalities were either qualified on the they met their planned targets for only 55% of
disclosure of their irregular expenditure or were the performance indicators we tested (most of
still investigating the full extent of their irregular which related to basic service delivery). We found
expenditure. The irregular expenditure closing that poor planning and project management,
balance also increased – from R3,22 billion in the unsupervised staff and delays in paying suppliers
previous year to R3,88 billion – and only 14% of due to cash-flow constraints contributed to the low
the previous year’s balance was dealt with. This achievement. Overall, this dire position means that
points to a lack of consequences, and municipal municipalities are not delivering much-needed
public accounts committees need to ensure they services to their communities. The support provided
have the skills required to investigate unwanted to municipalities in this area has been limited and
expenditure effectively. There are currently we urge the provincial cooperative governance
24 disciplinary boards in the province, but only four department to get much more involved in
are considered effective, confirming the need not supporting municipalities with their performance
only for councils to focus on these boards, but also information. The provincial treasury also needs to
for the provincial treasury to provide further training train councillors to understand both the importance
to municipal public accounts committees. of performance information and their oversight role
in this process.
Since we started using our expanded powers in
2019, we have identified 15 material irregularities at In 2021-22, we enhanced our audit work on three
four municipalities, resulting in a combined material local municipalities that had repeatedly received
financial loss of R34,17 million. In responding to disclaimed audit opinions (Joe Morolong, !Kheis
these material irregularities, municipalities have and Renosterberg). During the audits, we noted
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that these municipalities had made little to no The lack of infrastructure maintenance led
progress on infrastructure projects due to cash- municipalities to rack up water distribution losses
flow difficulties and poor project management, of R210,03 million, representing 43% of all water
as well as transferring departments withholding purchased. The failing infrastructure, as evident
funds because the municipalities did not comply in pothole-riddled roads across the province and
with the requirements of the Division of Revenue dilapidated water and sanitation treatment plants,
Act. These municipalities either did not set or did is likely to result in significant harm to the general
not achieve key service delivery targets relating to public. An example of this is the spillage of sewage
infrastructure maintenance. Their infrastructure was due to pumps that are not working at the Gogga
also not properly secured, resulting in vandalism pump station in Sol Plaatje Local Municipality.
and theft. These municipalities spent less than We are currently exploring a potential material
1% of the value of their infrastructure assets on irregularity on this matter.
repairs and maintenance. To effectively deliver
The lives of the people of the Northern Cape are
services to communities, these municipalities need
negatively affected by municipalities’ inability
to prioritise protecting municipal infrastructure,
to properly manage the resources under their
developing maintenance plans, and adequately
control, and only a concerted effort will take
budgeting for and spending on maintenance in
local government forward. All roleplayers in the
line with accepted norms. Replacing dilapidated
province should thoroughly and honestly reflect
or vandalised infrastructure is expensive, putting
on the initiatives implemented, as well as the effort
further pressure on municipal resources, and can
they have put in to improve the current state of
be avoided if municipalities take reasonable steps
municipalities. It is vital that municipalities appoint
to protect and maintain their assets. To properly
skilled personnel and establish preventative
respond to this risk, the municipalities will need
controls. Municipal leadership and oversight
to cooperate with other spheres of government,
structures will need to be exemplary in the
such as the provincial roads and public works
accountability value chain, and to implement
department and the South African Police Service,
consequences for accountability failures swiftly
as well as non-government bodies such as
and consistently.
community forums and neighbourhood watches.
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NORTH WEST
Enforcing accountability to drive the required change

Last year, we urged municipal leadership and continued to disregard the legislated requirements
all oversight structures to set an example in for procuring goods and services, resulting in a
the accountability value chain, and to swiftly staggering R30,99 billion irregular expenditure
and consistently implement consequences for closing balance at the end of 2021-22. Since
accountability failures. senior manager positions are changing from
being five-year fixed-term contracts to permanent
Executive leadership at municipalities should appointments, councils should focus on ensuring
continue to focus on addressing the instability in that these positions are filled with capable and
administrative leadership, weaknesses in financial competent individuals to ensure a long-lasting
governance, lack of institutionalised preventative solution and effective consequence management.
controls, compromised accountability and
general poor performance. In doing so, they We continued to enforce accountability
will improve service delivery and the lives of the through our expanded mandate by notifying
people in the province. municipal managers of material irregularities so
that municipalities can implement the required
We are encouraged that 18 municipalities (82%) changes. We have issued 21 material irregularities
submitted financial statements in the first year on non-compliance with legislation resulting
of the new administration, compared to only in financial losses of R83,74 million, as well as
10 municipalities (45%) in the previous year. The on substantial harm to the general public and
slight reduction in the number of disclaimed municipalities. While we do see some traction,
audit opinions is also encouraging, as it reflects we are concerned that some municipalities are
a willingness to change the status quo. However, taking too long to implement corrective action to
the overall status of the audit outcomes remains resolve material irregularities. We ask councils and
undesirable, with 10 municipalities (45%) receiving governance structures such as municipal public
qualified audit opinions, six (27%) receiving accounts committees and audit committees to
disclaimed opinions, one (5%) receiving an monitor municipal managers’ initiatives aimed at
adverse opinion, and the audits of two responding to material irregularities. The material
municipalities still outstanding. The overall quality irregularity process is starting to have a positive
of performance reporting also remains a concern, impact and we have seen some wins, including
as 17 municipalities (85%) did not prepare and wastewater treatment plants being upgraded, a
publish credible performance reports. The lack of couple of municipalities reducing the amount they
credible in-year reporting negatively affects the spend on consultants, improved audit outcomes at
decisions that must be made during the year. previously disclaimed municipalities, and provincial
We identified compliance transgressions at all interventions to assist municipalities.
20 of the municipalities we audited. Municipalities
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We performed additional audit work at seven Despite the financial distress, all 20 audited
municipalities that had repeatedly received municipalities continued to spend money on
disclaimed audit opinions. We found that some financial reporting consultants without seeing any
of these municipalities overspent on infrastructure significant benefit from their use. The total cost
projects, and projects were delayed due to for financial reporting consultants increased from
vacancies and a lack of skills in some of the R238,48 million in the previous year to R282,32 million.
technical units. We analysed the payments We issued five material irregularities at four
made by these municipalities directly from municipalities where no equivalent value was
their bank statements. At some, we found received for money paid to consultants or where
continued unauthorised debit orders against consultants were overpaid. We are encouraged
a municipal bank account and payments that that six municipalities started responding to our call
were not supported by proper records. As a result, and managed to reduce their spending on financial
the affected municipalities were not able to reporting consultants from the previous year by a
demonstrate value to communities for the money total of R27,47 million. We again urge municipal
spent. The biggest stumbling block to improving leadership to improve the internal capacity
audit outcomes and meaningfully resolving of finance units by filling vacancies with skilled
material irregularities continues to be instability people to reduce this expenditure even further.
in administrative leadership and a lack
We continued to see that some key infrastructure
of accountability for poor performance.
projects were significantly behind schedule, had
We identified significant weaknesses relating to their budgets overspent and did not display
information technology security management, the desired quality of work. For example, the
cybersecurity policies and disaster recovery plans, Rustenburg rapid transport project continued
which increased the risk of unauthorised access to experience delays and poor quality of work,
to information technology systems and the loss despite an investment of R3,51 billion. After
of information. Councils should develop and 15 February 2023, we notified the municipal
implement strategies to protect these systems from manager of Rustenburg Local Municipality of a
cyberattacks and all other risks of data loss. material irregularity for overpaying contractors on
this project, which resulted in a material financial
Municipalities’ financial health has continued to loss. At City of Matlosana Local Municipality,
deteriorate since our previous general report. construction costs for a new sports complex
Already cash-strapped municipalities owe in Khuma increased because the project was
Eskom and the water boards R2,44 billion and significantly delayed. Most municipalities,
R2,85 billion, respectively. This poor financial state including those with disclaimed audit opinions,
is worsened by a lack of prudent spending, which struggled to budget for and perform preventative
can be seen from the increase in unauthorised, maintenance on their infrastructure assets. On
and fruitless and wasteful expenditure. Seven average, they spent only 3% of the value of their
municipalities disclosed their inability to continue infrastructure assets on repairs and maintenance,
operating in the foreseeable future, which is a compared to the National Treasury norm of 8%.
further indication of the level of financial distress in This is because the municipalities did not prepare
the province. Revenue collection also remains a maintenance plans to properly inform the repairs
concern, contributing to municipalities’ worsening and maintenance budgets due to vacancies
financial health. Overall, 79% of municipal debt and a lack of skills in some of the technical units.
was not recoverable at 10 municipalities, and Poor performance reporting and infrastructure
11 municipalities will need to use next year’s budget project failures have negatively affected the lived
to pay for their spending this year, resulting in serious experiences of the people of the province. For
cash-flow challenges and leaving even less funds example, the lack of adequate planning and
available for service delivery.
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monitoring of the implementation of the Klipgat that tools are available to hold them accountable
sanitation project in Madibeng Local Municipality for non-performance and poor performance.
resulted in a 12-month delay from the original
Section 131 of the Municipal Finance Management
completion date. This had a negative impact on
Act requires the provincial cooperative
the municipality’s ability to provide an adequate
governance department to assess if municipalities
sewerage system meant to improve the hygiene,
are addressing findings raised by the auditor-
health and living environment of residents.
general, while section 47 of the Municipal
Heavy rainfall and flooding affected Deelpan – Systems Act requires the department to identify
a village in the Ngaka Modiri Molema district – underperforming municipalities and propose
leaving residents destitute and displaced. The remedial action to address the underperformance.
floods resulted in damaged houses and roads and The department should perform the diagnostic
led to the evacuation of people for their safety. analysis as required by the above legislation to
The district and local municipalities assisted identify real municipal challenges, which should
with necessities such as tents, mobile toilets and enable the provincial legislature to exercise
food parcels. Despite this support, we remain oversight on these reports.
concerned about the people of Deelpan as the
The member of the executive council for local
area has been assessed as not suitable for human
government committed to improve interventions,
settlement because it is in a wetland. The province
including conducting skills audits at municipalities,
should develop a disaster response strategy to
seconding officials, and collaborating with the
ensure a timely and coordinated response to
University of North West and Infrastructure South
disasters. Furthermore, a permanent solution for
Africa to assist municipalities with technical skills.
the community of Deelpan and similar areas
The provincial treasury should continue to support
should be implemented as these communities
municipalities with budgeting and financial
remain at risk.
recovery plans. The premier has committed that
The premier’s previous commitment to be close to provincial government will prepare and approve a
the initiatives to improve local government yielded roadmap outlining the process for improving audit
results, as councils are now more welcoming outcomes and service delivery in the province.
of provincial initiatives. The provincial treasury The executive committee will frequently monitor
and cooperative governance department are the roadmap to ensure that issues facing local
strengthening their support to municipalities. government are being addressed.
This support should land within well-functioning
Where councils do not attend to governance
governance structures and performance systems.
and accountability issues, it further hampers
However, we found that internal audit units
the implementation and monitoring of projects
and audit committees were not as effective as
and service delivery initiatives. There is a need
expected. For example, the financial statements
for integrated planning between municipalities
of 12 municipalities had material misstatements
and districts. The councils should create a
that were not picked up by these governance
conducive environment for turnaround strategies
structures’ reviews. Most of the audited
and recovery plans to yield the desired results
municipalities did not have comprehensive
by enforcing accountability. All roleplayers in
performance management systems and
the accountability ecosystem should make
processes, which made it difficult to implement
incremental positive changes within their area of
consequences and enhance accountability.
responsibility to see a sustained improvement in
Councils should implement performance
audit outcomes and increased service delivery to
management systems for all employees to ensure
the people of North West.
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WESTERN CAPE
Ineffective monitoring of compliance by leadership affects

audit outcomes
Last year, we drew attention to the firm with a zero-tolerance culture towards non-
leadership tone and strong control environment compliance. The city manager also took
that contributed to the positive outcomes in appropriate actions to resolve the two material
the province. irregularities issued in 2021 – one for payments to
service providers for goods and services that were
Our interaction with the premier was positive, not received, and the other for paying external
as his focus was on the communities’ experience contractors for excessive standby hours. Based on
in relation to service delivery, which validated the outcome of investigations, the metro started
our service delivery insights on key projects and disciplinary action against responsible officials,
additional consideration of selected clean audits strengthened controls to prevent further losses,
for the current year. This year, we observed that and took court action against the contractors to
most of the municipal managers and their senior recover the financial losses.
management maintained this tone and continued
to implement and maintain good controls through We find it encouraging that municipalities
well-capacitated and competent staff. The impact implemented sound financial reporting controls
is clear, as 21 of the province’s 30 municipalities and that all submitted their financial statements
obtained a clean audit opinion. These by the legislated date, including Kannaland
municipalities account for 94% of the province’s and Laingsburg local municipalities that had a
R84,50 billion expenditure budget. Nineteen of history of not submitting on time. The provincial
these 21 municipalities sustained their clean audit treasury’s support initiatives, such as financial
opinion from last year, with the Cape Winelands statement consistency workshops, contributed to
and Overberg districts being the only regions in 26 municipalities (87%) submitting good-quality
which all municipalities sustained their clean financial statements that needed no material
audit outcomes. adjustments. Municipalities continued to use
consultants to review technical and complex
We commend Prince Albert Local Municipality disclosure requirements, and to assist with asset
and City of Cape Town Metro for improving valuations. In total, 27 municipalities (90%) spent
to a clean audit opinion. In the case of Prince a combined R45,25 million on consultants to assist
Albert, this improved outcome was due to with the financial reporting process. We assessed
the newly appointed chief financial officer the use of consultants to be ineffective at only four
improving the implementation and monitoring municipalities mainly because the municipalities
of sound internal controls. City of Cape Town did not give the consultants adequate supporting
Metro prevented material non-compliance with documents for reporting purposes. The provincial
contract management legislation from recurring by treasury should consider the nature of the
implementing a proactive system of accountability
133
support it provides to prevent the ineffective use The financial health indicators of municipalities
of consultants and to enable municipalities to were mostly good. However, six municipalities
enhance specific competencies to minimise the had unfunded budgets, which meant that their
continued use of consultants. budgeted expenditure was not adequately funded
by their budgeted revenue. There is also material
The improvement in audit outcomes over the uncertainty about the financial sustainability
last few years did not continue in 2021-22, as of Beaufort West, Cederberg and Kannaland
we reported material compliance findings at local municipalities (which were three of the
nine municipalities (30%), up from eight municipalities with unfunded budgets), due to
municipalities (27%) last year, mainly because their cash-flow challenges as they owed more to
leadership did not effectively monitor compliance their creditors than the cash they had in their bank
with legislation. As a result, three municipalities accounts. We notified the municipal manager
(10%) lost their clean audit status. Most of our of Beaufort West of two material irregularities on
findings were in the areas of non-compliance financial losses – one was for paying an employee
with supply chain management legislation and more than the remuneration policy allowed and the
the failure to prevent unauthorised, irregular, and other for under-billing retail and industrial properties
fruitless and wasteful expenditure. Leadership in for electricity. The municipal manager did not
these municipalities should strengthen its oversight take appropriate action to address these material
and monitoring of compliance with legislation to irregularities, and we included recommendations in
prevent findings from recurring. the audit report for the first instance and are in the
Beaufort West, Kannaland and Laingsburg local process of issuing recommendations for the second.
municipalities did not improve their poor audit Cederberg and Matzikama local municipalities also
outcomes, with Beaufort West again receiving a owed Eskom R130,80 million in arrears.
qualified audit opinion, while Kannaland regressed Performance reporting controls were largely
to a disclaimed opinion and Laingsburg to an effective, as only seven municipalities (23%)
adverse opinion. Last year, we encouraged the submitted performance reports that were not at
provincial leadership to assist these municipalities the required quality, and only three (10%) had
with their skills shortage challenges and to material findings after corrections. At all three
encourage leadership stability, but these of these municipalities, unreliable performance
challenges are still present and have further reporting – and in the instance of Kannaland Local
contributed to the unfavourable audit outcomes. Municipality, performance indicators that were
The province’s unauthorised expenditure increased not measurable – affected the decisions made
significantly, from R328,05 million in the previous on planning for service delivery and, ultimately,
year to R1,30 billion. The main contributor to this the level of services residents received.
increase was Bitou Local Municipality, which spent While the quality of performance reporting was
funds without having its budget approved by a good overall, there were still instances where
majority council decision. Irregular expenditure service delivery targets were not aligned to the
decreased from R1,23 billion to R494,95 million, needs of the public. For example, performance
largely because City of Cape Town Metro targets and the pace of delivering housing
addressed its contract management deficiencies. opportunities at City of Cape Town Metro were
The irregular expenditure closing balance also not aligned to increased demand. The metro
decreased, from R1,52 billion to R1,22 billion, but also received a reduced human settlements
we are still concerned that nearly half (48%) of development grant in 2021-22 because it had
the previous year’s balance has not been dealt significantly underspent the grant in prior years,
with through investigations by municipal public mainly because of project delays resulting from
accounts committees.
134
1 2 3 4 5 6
civil unrest and invasion of project sites. Another within the public participation process, where there
example is the Lamberts Bay desalination plant that needs to be an effective feedback mechanism to
the Cederberg Local Municipality built nine years the public when residents’ needs are not prioritised.
ago to alleviate water shortages in the community,
To improve and sustain the provincial outcomes,
as included in its integrated development plan.
we encourage the provincial government to
Although the municipality has spent R76,59 million
continue to lead by example and enforce the
on the plant since its inception, it is sitting idle and
strong tone of compliance, good governance
has deteriorated as a result. This has a significant
and controls that contributed to the clean
impact on the lives of the area’s residents, and
audit outcomes of 21 municipalities. To have a
the municipality should give urgent attention to
meaningful impact on the lives of the people of
completing the project and identifying alternate
the Western Cape, municipal leadership should
water sources.
consider enhancing its performance reporting
We performed additional work at Drakenstein so that it measures the output and quality of
and Overstrand local municipalities, which have services delivered. We continue to urge municipal
a history of clean audit outcomes and should public accounts committees to promptly
thus be better positioned to effectively discharge investigate the irregular expenditure not yet
and expand on their service delivery mandates. dealt with and to hold officials accountable for
Service delivery starts with appropriate planning, wrongdoing. Overall, the provincial treasury should
monitoring and reporting by oversight, which continue to support regular budget monitoring
informed our selection of five key areas to to prevent municipalities from operating with
examine: public participation, budget process, key unfunded budgets. We reiterate our call for local
projects, completeness of planned performance government and the treasury to make a more
information, and complaints management. We direct effort to address the challenge of attracting
noted that the municipalities did well across and retaining suitably skilled staff at poorly
these areas and have the foundation of good performing municipalities, specifically those within
governance – they are aware of the service the Central Karoo district, as well as Kannaland
delivery challenges they face and are working to Local Municipality in the Garden Route district.
address them. One area that could be improved is
135
SECTION 6
AUDIT FACT SHEET

6
What we cover in this report
Municipal
entities 63 Municipalities
320
LOCAL
GOVERNMENT
AUDITEES
257
9 17
Dormant Municipal entities
municipal
entities 46
AUDITS 274
Included in audit
outcomes, financial
NOT IN THIS health, and service
REPORT AUDITS delivery planning
IN THIS and reporting
37 REPORT
Small
municipal
entities
257 Municipalities
Audit results for
municipal entities are
consolidated with
parent municipalities;
these outcomes are
shown for consolidated
municipalities
How we compare movements

Where we indicate movement in outcomes and findings, we compare the results of completed audits for
2021-22 (first year of new administration) to their results in 2020-21 (last year of previous administration):
136
1 2 3 4 5 6
Numbers and percentages

are calculated and based 241
MUNICIPALITIES
except for:
on completed audits for
Unauthorised,
Infrastructure
irregular, Information
Financial development Assurance Internal audit Audit
Consultants and fruitless systems
health and providers units committees
and wasteful audits
maintenance
expenditure
220 257 238 79 241 228 226 224

Municipalities Municipalities Municipalities Municipalities Municipalities Municipalities, Municipalities Municipalities
that used (including assessed where that received excluding where internal with
consultants outstanding information those grants municipalities audit units established
audits) systems and were at which a had been audit
audits were audited unless reduced audit established, committees,
performed it relates approach was information information
to specific applied was gathered was gathered
infrastructure and and
grants as assessments assessments
follows: were done were done
Public Urban Water

Municipal Regional bulk
transport settlements services Water
infrastructure infrastructure
network development infrastructure losses
grant grant
grant grant grant
11 8 36
190 96 139
Municipalities
that were
water service
providers
137
What the different audit opinions mean
A financially unqualified opinion with no findings (clean audit) means the municipality:
» produced quality financial statements free of material misstatements (in other words,
errors or omissions that are so significant that they affect the credibility and reliability
of the financial statements)
» produced quality performance reports that measure and report on performance in
a manner that is useful and reliable
» complied with key legislation relating to financial and performance management.
A financially unqualified opinion with findings means the municipality was able to produce
quality financial statements, but struggled to produce quality performance reports and/or to
comply with all key legislation.
A financially qualified opinion with findings means the municipality produced financial statements
containing material misstatements that were not corrected before the financial statements
were published. The municipality also had challenges with the quality of the performance report
and/or compliance with key legislation.
The financial statements of municipality with an adverse opinion with findings means the
municipality included so many material misstatements that we disagreed with virtually all the
amounts and disclosures in the financial statements.
A municipality with a disclaimed opinion with findings could not provide us with evidence for most
of the amounts and disclosures in its financial statements. We were therefore unable to conclude
or express an opinion on the credibility of the financial statements. Municipalities with adverse and
disclaimed opinions are typically also unable to provide sufficient supporting documents for the
achievements they report in their performance reports, and do not comply with key legislation.
138
1 2 3 4 5 6
139
Notes
Physical Address:
4 Daventry Road, Lynnwood Manor, Pretoria, SA
Postal Address:
PO Box 446, Pretoria, 0001
Telephone:
012 426 8000
Fax to Email:
012 426 8257
Email:
[email protected]
www.agsa.co.za
Auditor-General of South Africa Auditor-General of South Africa @AuditorGen_SA

RP188/2023 ISBN: 978-0-621-51196-3
142

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CONSOLIDATED GENERAL REPORT ON

SECTION 6 ...................................................................... 136

Local government represents citizens

However, for years local government has been characterised by deteriorating

My teams and I are determined to execute our constitutional mandate to instil

My previous general report was aimed at the new administration – the

A culture of accountability will improve service delivery

The report provided insights on deteriorating financial health, ineffective financial

We remain committed to partnering with and

Local government budget and system

Metropolitan municipalities commonly Local municipalities can be large towns,

Accountability ecosystem for local government

Leadership and Support and oversight

objectives, used their budget as intended and Content of the report

Audit outcomes – municipalities

Unqualified Unqualified Qualified Adverse Disclaimed Outstanding

Movement in clean audit status – municipalities

Improved to clean Sustained clean Lost clean Outstanding

Eastern Cape (2) Northern Cape (4)

Status of previous year’s outstanding audits (2020-21) due to financial statements

Audits outstanding Audits

Audits outstanding due to

By 17 February 2023 (the cut-off date to be Disclaimed and adverse opinions

Audit outcomes, budget and households – municipalities and entities

Percentage of budget: 48%

Material irregularities (MIs)

Definition of material irregularity and expanded powers

If the accounting officer/authority does not appropriately deal with

Act that resulted in or is likely to

Actions taken to address financial loss

R310,16m 58 Responsible officials identified and

Financial loss in process

Status of 182 material irregularities

29 Resolved MI 103 Appropriate action being 50 No appropriate action

67 MIs 61 MIs 64 MIs

Reporting officials or other parties to

21 MIs 14 MIs 11 MIs

Completed In progress Partially completed Not completed/started

Recommendations Remedial action Notice of Referral to public

In October 2022, the auditor-general notified

Roles and responsibilities in material irregularity process

To strengthen accountability mechanisms in public sector

Accounting officers Oversight and executive authorities

• Notify accounting officer so they can take

• Give space to accounting officer to take

Daily and monthly

In-year and year-

Review and monitor

Good Concerning Intervention required

Quality of financial statements before and after auditing

Before audit adjustments After audit adjustments

Modified Unmodified Modified Unmodified

Consultant cost per audit outcome category

Unqualified with no Unqualified Qualified with Adverse with Disclaimed

Consultant cost per province

Examples of municipalities not using consultants effectively

Example of effective use of consultants

Examples of material irregularities due to inefficient use of consultants

Information technology (IT)

Examples of IT project and contract management failures

Pressure on local government finances

Eastern Cape (10) Limpopo (5)

Examples of material irregularities because of poor