The Real Cost of Failed Municipal Audits

31 Mar 2025

South Africa's municipal finances are in troubled waters. The latest audit report paints a concerning picture, only 34 out of 257 municipalities (a mere 13.2%) received clean audits for 2022/23, down from 38 the previous year, but what does this mean for everyday South Africans?

When municipalities fail to achieve clean audits, the consequences extend far beyond paperwork and compliance issues. They directly impact service delivery, infrastructure development, and ultimately, quality of life.

The Auditor-General's report reveals concerning trends in municipal financial management. Clean audits have declined by 17.1%, showing a significant regression in financial accountability. The number of municipalities with unqualified audits but notable financial issues has increased by 10%, indicating that while basic accounting principles are being followed, substantial management problems persist. Perhaps most troubling is the dramatic increase in municipalities with outstanding audits, which jumped from just one municipality to ten, representing a staggering 900% increase. This suggests that some local governments have completely failed to meet their legal reporting obligations, creating a dangerous lack of transparency.

While the Western Cape stands out with 20 municipalities achieving clean audits, three provinces, Free State, North West, and Limpopo, couldn't produce a single clean audit among them.

Poor audit outcomes typically signal deeper problems:

1. Vanishing Public Funds: Without proper financial controls, money intended for essential services often disappears or gets misallocated.

2. Deteriorating Infrastructure: Municipalities with poor financial management typically struggle with basics like road maintenance, water supply, and electricity distribution.

3. Higher Costs for Residents: Financial mismanagement often leads to unexpected tax increases or service fees as municipalities scramble to cover shortfalls.

4. Reduced Investment: Businesses avoid investing in areas with unstable municipal finances, further limiting job creation and economic growth.

The Auditor-General identified several key issues driving these poor results which include ineffective revenue collection mechanisms that failed to secure adequate funding. Additionally, the report revealed that unchecked water and electricity losses contributed significantly to resource wastage. Poor record-keeping practices further complicated accountability efforts, while weak procurement policies allowed for questionable contracting decisions. Finally, persistent non-compliance with relevant legislation undermined governance standards throughout the organisation.

The connection between failed municipal audits and security risks is clear but often overlooked. When municipalities cannot account for public funds, essential services deteriorate or disappear entirely. Communities facing water shortages, electricity outages, and crumbling infrastructure often respond with service delivery protests.

These protests, born of legitimate grievances, can escalate into broader civil unrest. In recent years, South Africa has witnessed how service delivery failures directly translate into public demonstrations, road blockades, and in some cases, destruction of property. This escalation creates immediate security challenges for both residents and businesses.

Moreover, areas with failing municipal services often experience increased crime rates. Dysfunctional street lighting, reduced police presence due to budget constraints, and deteriorating public spaces create environments where criminal activity increases.

The path forward requires stronger governance frameworks, stricter enforcement of compliance measures, and urgent attention to the alarming increase in outstanding audits. Only through addressing these fundamental issues can municipalities improve service delivery, rebuild public trust, and create safer communities for all South Africans.

Source: Centre for Risk Analysis