AG Tables Local Government Outcome Reports for 2024-2025

Auditor General Tsakani Maluleke recently tabled the local government audit outcomes for the 2024-2025 financial year, revealing a landscape of limited progress despite some discernible "green shoots." While there was a notable reduction in repeat disclaimed audit opinions and an increase in unqualified audit opinions, only 15% of municipalities achieved clean audits. The report highlighted persistent challenges, including deteriorating financial health in many municipalities, significant irregular expenditure, and declining performance in key metropolitan areas. The findings underscore a continued struggle with governance, financial management, and service delivery, necessitating urgent and robust interventions to enhance accountability and ensure compliance with statutory obligations.

The Auditor General of South Africa (AGSA), Ms. Tsakani Maluleke, recently presented the consolidated general report on local government audit outcomes for the 2024-2025 financial year to Parliament, casting a critical eye on the state of municipal financial health and governance. The report, a crucial barometer of accountability in the local sphere, indicates that while there are some positive developments, municipalities have, on the whole, made limited progress in improving their audit outcomes over the past four years. This persistent challenge in financial management and compliance has profound implications for service delivery and public trust, directly impacting the daily lives of millions of South Africans.

This article delves into the key findings of the AG's 2024-2025 report, examining the underlying legal and regulatory framework that governs municipal finance and accountability. It will analyse the nature of the audit outcomes, the identified root causes of non-compliance, and the legal ramifications for municipal officials and councils. For legal practitioners, understanding these dynamics is essential for advising municipalities, provincial and national government entities, and affected communities on compliance, governance, and the enforcement of accountability measures.

The framework for financial governance and accountability in South African local government is primarily established by Chapter 9 of the Constitution, which mandates the Auditor-General (AG) as an independent institution supporting constitutional democracy. The AG's functions are further elaborated in the Public Audit Act 25 of 2004 (PAA), which empowers the AGSA to audit all national and provincial state departments, municipalities, and other public entities, and to report on their financial statements, performance information, and compliance with legislation.

Complementing the PAA are two cornerstone pieces of legislation: the Local Government: Municipal Finance Management Act 56 of 2003 (MFMA) and the Local Government: Municipal Systems Act 32 of 2000 (MSA). The MFMA aims to secure sound and sustainable management of municipal financial affairs, establishing treasury norms and standards, and clarifying the roles and responsibilities of councils, mayors, and officials in financial governance. It is the primary instrument for promoting fiscal discipline, accountability, and transparency in municipal budgeting and expenditure. The MSA, on the other hand, provides the core principles for developmental local government, including performance management, community participation, and the provision of basic services, linking financial health directly to service delivery capabilities. Collectively, these statutes create a robust, albeit often challenged, legal architecture designed to ensure that public funds at the local level are managed efficiently, effectively, and in the public interest.

The 2024-2025 audit outcomes presented by the Auditor General reveal a mixed but largely concerning picture. Only 39 municipalities, representing a mere 15% of the total, achieved clean audits. While there was a significant increase in unqualified audit opinions to 61% and a substantial reduction in repeat disclaimed audit opinions, the AG cautioned against complacency. Many municipalities remain in the "unqualified with findings" category for years, indicating persistent weaknesses in governance, compliance, financial management, or performance reporting that are not being adequately addressed.

A particularly alarming finding is the deteriorating financial health of municipalities, with 51% facing severe liquidity and cash flow problems, indicating insufficient current assets to cover current liabilities. This often results in service providers being unpaid, with devastating effects on local economies. The audit outcomes for the eight metropolitan municipalities, which account for 54% of total local government expenditure, continue to decline, with not a single metro achieving a clean audit. This regression directly impacts millions of residents who experience unreliable service delivery, environmental hazards, and deteriorating infrastructure.

The root causes of these poor outcomes are multifaceted and deeply entrenched. The AG's report highlights weak governance, a lack of accountability, and insufficient internal controls as primary drivers. Specific issues include the approval of unfunded budgets (45% of municipalities, committing R288 billion in expenditure without means to finance it), irregular expenditure amounting to R40.14 billion in 2024-2025, and substantial water and electricity losses. Furthermore, many municipalities rely heavily on consultants to compile financial statements, often due to a lack of internal skills and high vacancy rates in key financial positions, yet even with this costly intervention, material errors persist.

From a legal perspective, the MFMA imposes strict accountability. Section 32 of the MFMA holds municipal officials personally liable for unauthorised, irregular, fruitless, and wasteful expenditure. The Supreme Court of Appeal, in cases such as *Mbambisa v The Speaker of the National Assembly and Others*, has reinforced this, clarifying that Section 176(1) of the MFMA, which protects officials acting in good faith, does not shield them from recovery actions initiated by the municipality itself under Section 32. This judgment underscores that adherence to financial procedures is non-negotiable, irrespective of intent. The Public Audit Amendment Act 5 of 2018 has further empowered the AGSA to refer undesirable audit outcomes to appropriate investigating bodies and to recover money lost to unauthorised, irregular, or fruitless and wasteful expenditure, strengthening the AG's enforcement capabilities. The Municipal Regulations on Financial Misconduct Procedures and Criminal Proceedings also provide a framework for addressing financial misconduct.

The Auditor General's 2024-2025 local government audit outcomes paint a stark picture of persistent financial mismanagement and governance failures across South African municipalities. While the "green shoots" of improved financial statement submission and reduced disclaimers offer a glimmer of hope, the pervasive issues of deteriorating financial health, rampant irregular expenditure, and declining service delivery in metros demand urgent and decisive action. The legal framework, particularly the MFMA and PAA, provides robust mechanisms for accountability, yet their effective implementation remains a significant challenge.

For legal practitioners, these findings highlight critical areas for engagement. Attorneys advising municipalities must ensure strict adherence to the MFMA's provisions, particularly regarding budgeting, procurement, and consequence management. There is a clear need to strengthen internal controls, address skill shortages, and enforce personal liability for financial misconduct, as affirmed by judicial pronouncements. Furthermore, legal professionals representing communities or other spheres of government will find ample grounds for intervention to compel municipalities to fulfil their constitutional and statutory obligations. The upcoming local government elections present a crucial opportunity for citizens to demand greater accountability, and for new councils to prioritise sound financial governance as the bedrock of effective service delivery.