Management of public finances, particularly in the local government sphere, is a potential weak link in the achievement of the growth objectives of South Africa’s National Development Plan (NDP). While President Jacob Zuma in his State of the Nation Address, and Finance Minister Pravin Gordhan in his budget speech largely avoided the subject, auditor-general (AG) Terence Nombembe highlighted the seriousness of the matter.
Nombembe earlier this month again painted a gloomy picture of the financial affairs and reporting by state departments and especially local governments. His concerns were widely echoed by a number of other organisations while the Treasury has finally started taking unprecedented action against recalcitrant municipalities.
A rapid deterioration in the state and management of public finances over the past five years was a key factor contributing to the country’s most recent downgrading by international credit rating agencies. While state departments at national and provincial level are part of this, it is particularly local government that has raised the alarm bells.
Gordhan mentioned the need for partnerships between local businesses, municipalities and civic associations to deal with rapid urbanisation, and the introduction of a new formula to give local government an equitable share that will facilitate better differentiation of assistance to different municipalities.
He also announced an allocation of R820 million to the Municipal Infrastructure Support Agency in the department of co-operative governance to provide technical assistance to rural and low-capacity municipalities. But there was no mention of the poor financial management and capacity of state departments or, in particular, municipalities.
Nombembe has been something of a voice in the wilderness in recent years, urging government to take tough action.
Earlier this month he told a public sector forum convened by the Institute of Internal Auditors that the quality of financial statements submitted to his office had "regressed" and that less than half of government departments are able to provide "credible and quality information" in their financial reports.
Only 43% of national departments and 18% of municipalities received clean audits. Furthermore, only 43% of national government departments and 22% of municipalities managed to abide by supply chain management rules. And only slightly more than half (58%) of national departments were able to manage their human resources efficiently.
To this grim picture, which severely affects the quality of governance in South Africa, accountant-general Freeman Nomvalo added the disconcerting fact that irregular expenditure by government departments during the past three years had doubled each year.
Although minister Gordhan made no mention of this in his budget speech, in late January, following repeated warnings to government departments and local government to get their affairs in order, he took the unprecedented step of invoking section 216 (2) of the Constitution. This allows National Treasury to withhold funds from a municipality in the event of a "serious or persistent and material breach" of public financial management.
All financial transfers to the troubled Nala Municipality in the Free State were suspended and Treasury warned eight other rogue municipalities that they would be next.
Nombembe has long pleaded with government to take strong action against municipalities.
The major issues identified by the office of the AG include: a high level of overall disregard for laws and regulations governing supply chain management; officials in key finance positions in some 70% of municipalities lacking the minimum competence and qualifications; the lack of political will to implement the necessary controls; a lack of penalising poor performance or transgressions by officials; and mayors and councillors not being responsive to issues identified by audits.
Government’s reluctance to act may stem from fear for potential unintended consequences, or simply because there are no easy solutions.
In fact, in the case of Nala Municipality, both Treasury director-general Lungisa Fuzile and the SA Local Government Association (Salga) expressed concern about the potential impact on service delivery to affected communities.
Section 139 of the Constitution, however, stipulates that when a municipality does not fulfil an executive obligation, relevant provincial authorities should intervene to ensure such obligations are fulfilled.
Salga nonetheless wants a ‘remedial programme’ to be implemented instead of withholding funds, to ensure service delivery is not negatively affected.
Despite the strong action against Nala, Treasury is not averse to Salga’s suggestion and has already stepped in with a number of improvement initiatives. These include training 1 500 interns in municipal financial management and a programme to improve the capacity of provincial treasuries to support and intervene in municipalities.
Local politics often exacerbates the situation. This has been clear from the shenanigans among councillors of different political parties competing for control in Swellendam and Tlokwe municipalities. Swellendam is one of the eight municipalities put on notice by the Treasury.
The biggest trade union in the local government sector, the South African Municipal Workers’ Union (Samwu), has also raised its concerns.
“Local government is the most corrupt sphere of government, with the least oversight – which requires national government’s urgent intervention. Most municipalities that have received negative audits over the past two years have experienced violent service delivery protests,” it said in a statement.
This all goes to show that this is indeed a very big problem that requires a very big and very speedy solution before irreparable damage and even collapse set in.