NAME & SURNAME : AKONA GOXO

: BAYANDA MAY
: WANDILE ALFRED MLANJENI
: QINISELA DLAMINI
STUDENT NUMBER : 221257144
221539964
221422463
220165963
DEPARTMENT : MANAGEMENT AND GOVERNANCE
QUALIFICATION : DIPLOMA- LOCAL GOVERNMENT FINANCE
SUBJECT : LOCAL GOVERNMENT FINANCE III
SUBJECT CODE : LGF36W0 EXT
QUESTION 1

INTRODUCTION

Local government is the sphere of government that is closest to ordinary South Africans
because it provides the basic services that have a direct impact on their lives. It is
meant to be an inclusive, democratic and accountable system, with communities and
community organisations acting as shareholders who are directly involved in local
government matters through public participation processes. In 2021-22, local
government had an estimated expenditure budget of R539,13 billion to operate and
deliver services.

ROLES AND RESPONSIBILITIES OF THE AUDIT COMMITTEE IN MUNICIPALITIES

In South Africa, municipal audit committees play a crucial part in promoting good
governance, accountability, and effective management of public resources. These
committees operate within the context of the Municipal Finance Management Act
(MFMA), which defines standards and rules for financial management procedures in
municipalities. The committees have many major responsibilities:

OVERSEEING FINANCIAL REPORTING: The Audit Committee is in charge of

overseeing the financial reporting process, ensuring that financial statements are
accurate, complete, and in accordance with applicable accounting rules and regulations.

INTERNAL CONTROL AND RISK MANAGEMENT: The Committee assesses the

adequacy and efficacy of the municipality's internal control and risk management
systems. It analyses flaws or deficiencies and advises corrective actions to protect
municipal assets and avoid fraud, waste, and abuse.

EXTERNAL AUDIT OVERSIGHT: The Audit Committee communicates with the external
auditors hired to review the municipality's financial statements. It reviews the auditor's
findings, ensures that audit recommendations are carried out, and tracks the
implementation of corrective actions.
COMPLIANCES MONITORING : The Committee oversees the municipality's
commitment to applicable laws, regulations, policies, and contractual agreements. It
evaluates the effectiveness of compliance measures and offers enhancements to
address any non-compliance issues discovered.

ETHICAL GOVERNANCE : The Audit Committee encourages ethical behaviour and

good governance within the municipality. It examines the municipality's code of conduct,
ethics regulations, and conflict of interest disclosures to maintain ethical standards and
integrity in decision-making processes.

PERFORMANCE EVALUATION : The Committee monitors the internal audit function,

external auditors, and other stakeholders involved in financial reporting and governance
processes. It assures that audit activities are carried out objectively, independently, and
in compliance with professional guidelines.

REPORTING AND COMMUNICATION : The Audit Committee provides its findings,

observations, and recommendations to the municipal council, management, and other
stakeholders. It allows for open communication channels to address issues, reply to
concerns, and enhance openness in financial and governance topics.

QUESTION 2

• Financial auditing

The overall investment in financial reporting, including finance officials’ salaries and
consulting fees, was R941.3 million, up from R832 million the year before. Internal audit
units and audit committees also examined the submitted financial accounts, and the
province cooperative governance agency and treasury sent experts to assist some
finance units. Despite these resources and support, key financial management controls
were insufficient to prevent material misstatements in financial statements, as only two
municipalities (Nkangala and Ehlanzeni district municipalities), which managed 3% of
the province’s local government budget, produced credible financial and performance
reports and followed important legislation. Dr. JS Moroka and Dipaleseng local
municipalities improved from disclaimed to qualified audit opinions after addressing
severe shortcomings in their internal controls, with the joint cooperation of the provincial
cooperative governance department and the treasury.

The financial problem in municipalities is driven by bad budgeting methods, ineffective

financial management and a lack of sustainable revenue plans. This has resulted in five
municipalities (25%) reporting substantial doubt about their ability to continue
operations, while ten municipalities (50%) passed underfunded budgets, resulting in
R2,54 billion in unauthorized expenditure. Municipalities with unfilled budgets will have
to spend R9,44 billion from next year’s budget to meet their obligations for this year –
and for some, this will not be sufficient. This has had a significant influence on service
delivery performance measures and targets, which directly affects community quality of
life.

Municipalities also struggled to collect revenue for essential services, with poor debt
collection resulting in insufficient financial flow, making it difficult to fund operations and
settle supplier accounts. Eskom’s debt has increased from R9.51 billion to R13.45
billion, with municipalities taking an average of 456 days to pay their suppliers,
collecting R835 million in interest and penalties. We have advised municipal managers
of four substantial irregularities in this matter, including three late payments to vendors
and one failure to file value-added tax returns to the South African Revenue Service on
time.

• Compliance auditing

Due to inadequate control systems and little repercussions, 18 municipalities (90%)

reported compliance violations. One municipal manager has been informed of a
significant irregularity for failing to observe procurement standards, and this has led to
the creation of a culture of impunity and flagrant disrespect for the law, particularly when
it comes to procurement. As a result, erratic spending has increased further, with
municipalities spending R2,08 billion in 2021–2022 as opposed to R1,26 billion in prior
years. This sum may have been much greater because 10 towns (or 50% of the total)
either disclosed unusual expenditures in a qualified manner or were still looking into the
full scope of those expenditures.
Due to considerable delays in the investigation and resolution of previous year’s
irregular expenditure by local public accounts committees and councils, the irregular
expenditure closing balance is still high at R6,44 billion. Municipalities had little effect
from the training and support provided by the provincial cooperative governance
department and treasury to increase internal controls and compliance since the
employees were either apathetic or lacked internal capacity, which hampered the
transfer of skills. Some municipal officials have developed a culture of poor performance
as a result of the absence of penalties; they continue to get their salary despite not
carrying out their duties.

• Performance auditing

The majority of municipalities (70%) lacked efficient methods for gathering and
disseminating performance data, which resulted in inaccurate reporting, weakened
accountability, and subpar service delivery. These shortcomings make it more difficult
for councils and other bodies to perform their oversight duties. The majority of
municipalities also fell short of their goals, and some even went over budget even if they
didn’t accomplish them all. For instance, Thaba Chweu Local Municipality only met 29%
of its targets for infrastructure development and basic services despite using 104% of its
budget for these purposes. Critical performance indicators were also left out of several
municipalities’ performance reports. Msukaligwa Local Municipality, for example, did not
plan any resources to address community needs in this area since it did not include an
indicator on the quality of drinking water.

Municipalities spent the majority of the money they got without delivering the necessary
infrastructure on time and in the acceptable quality due to project flaws such as poor
planning, monitoring, and budget control. This resulted in towns paying for work that
was not completed, projects being delayed, and projects being delivered with flaws.
Some municipalities underspent their grant monies greatly, depriving citizens of services
for which funds had been set aside, such as clean drinking water. Municipalities also
failed to maintain their infrastructure assets, spending just an average of 1% of their
value on repairs and maintenance, which is significantly lower than the industry average
of 8%. And leaks owing to unmaintained and failing infrastructure.

The National Treasury did intervene last year to aid with financial rescue, but the impact
of this intervention is yet to be seen because addressing deep-rooted issues such as
debt recovery takes time. The Standerton wastewater treatment plant deteriorated
structurally and mechanically due to a lack of maintenance, with some portions of the
plant being completely non-functional. This had a detrimental impact on operational
procedures and resulted in sewage overflowing into the Vaal River, which the population
relies on for water. The torrential rains in February 2023 also wreaked havoc in the
Ehlanzeni district, emphasizing the issue of inadequate infrastructure repair.

RECOMMENDATIONS

• implementing effective preventative controls

• strengthening the state of financial health
• effective project planning and management
• compliance with legislation, especially as it relates to procurement and
consequences.
• Despite their clear call to action, progress was slow, resulting in stagnant audit
results (three improvements and three regressions) and ongoing service delivery
gaps. The reality is that, although 90% of municipalities are still struggling to
master basic financial disciplines, communities’ social and economic
expectations are fast changing.
• Confident in that change is feasible if both local government and provincial
leadership take immediate action, such as stabilizing local government by filling
vacancies and training people, as well as enforcing repercussions for bad
performance.
CONCLUSION

In conclusion, the state of local government in South Africa, particularly in Mpumalanga

province, reveals significant challenges in financial management, compliance, and
service delivery. Despite efforts to address these issues, progress has been slow,
leading to stagnant audit outcomes and continuing gaps in service provision. It is
evident that urgent action is needed to stabilize local government by filling vacancies,
capacitating staff, and implementing consequences for poor performance. Additionally,
there is a pressing need to enhance financial discipline, strengthen internal controls,
and ensure compliance with legislation. Effective project planning and management are
crucial for delivering services efficiently and meeting community needs. Ultimately,
addressing these challenges requires concerted efforts from local government,
provincial leadership, and other stakeholders to improve the lives of ordinary South
Africans and build more inclusive, accountable, and effective municipal systems.
REFERENCE

1.Report of the Auditor-General to Mpumalanga Provincial Legislature. (2021-22).

MP312 Audit Report 2021-22

2.Consolidated General Report on Local Government Audit Outcomes. (2021-22).

MFMA Report 2021-22.”