JOHANNESBURG - The financial records of many of South Africa's municipalities are in such a poor state that the Auditor General's Office is unable to express an opinion on them. This emerges from the results of the audits by the AG of 247 out of 283 municipalities in South Africa.

According to data provided by the AG [see here] just under half of the financial accounts of municipalities for the 2006/2007 financial year have received the worst audit opinions possible. 8.9% of all municipalities received adverse opinions, 40,9% received disclaimers of opinion, while 27,5% received qualified opinions, and just 21,9% received unqualified opinions.

The best performers were, in order, the municipalities of the Western Cape, then Gauteng, KwaZulu-Natal, and Mpumalanga. The most poorly performing provinces were the Eastern Cape, Limpopo, Northern Cape, and North West. In every one of these provinces at least three-quarters of the municipalities received an adverse opinion or disclaimer of opinion on their financial accounts. The Free State municipalities sat in the middle with just over half receiving disclaimers of opinion from the AG. See Table 1.

The Auditor General, Terence Nombembe, identified the municipalities of the Eastern Cape, North West, Northern Cape, and Free State as having a "high level of qualifications relating to expenditure" something which "poses a high risk of misappropriation of funds."

Of the six metropolitan municipalities in South Africa, Cape Town, Ethekwini (Durban), and Johannesburg, received unqualified audit opinions. The audit opinions of Nelson Mandela (Port Elizabeth), Ekurhuleni (East Rand) and Tshwane were all qualified. There have been delays in the auditing of the other 36 municipalities due either to late submission of financial statements or constraints in the AG's office itself. However, all audits should be complete by August this year.

In an interview with Politicsweb Nombembe explained that underlying this high percentage of disclaimers of opinion "is a consistent unavailability of source documents, particularly at the low capacity municipalities which are in the rural areas. That is also exacerbated by the weak to non-existent internal control systems needed to define a disciplined way of maintaining source documents."

Nombembe said that while such municipalities were now able to hire consultants to prepare their accounts, they often did not do so on the basis of source documentation. As a result his office could not trace the documents needed to substantiate figures or transactions. The priority then was to correct this basic problem, something which did not "require an inordinate amount of financial skill."

Nombembe emphasised that such basic measures had to be put in place before his office could do proper audits of service delivery or start uncovering corruption. The problem of a lack of paper trail "may be camouflaging more complicated problems, which are not visible because the financial statements are just not credible."

In his reports on the worst performing provinces Nombembe highlighted the challenge of "dealing with lack of adequate internal controls, lack of capacity and skills to fully comply with the prescribed accounting framework."

Nombembe told Politicsweb that there was "direct correlation" between the audit findings and the absence or lack of competency of the Chief Financial Officer in these municipalities.

The more rural municipalities had problems attracting skilled people to work for them, while longer serving CFO's sometimes struggled with the new accounting standards. However, there was also a problem of people being appointed to the position of CFO on the basis of political connections, without the necessary skills to do the work, Nombembe said.