Original Research

Promoting financial management in local municipalities through accountability

Sazi W. Gcabashe, Sareesha Pillay

Received: 30 Sept. 2024; Accepted: 14 Mar. 2025; Published: 27 Aug. 2025

Copyright: © 2025. The Author(s). Licensee: AOSIS.
This is an Open Access article distributed under the terms of the Creative Commons Attribution License, which permits unrestricted use, distribution, and reproduction in any medium, provided the original work is properly cited.

Abstract

Background: Local municipalities in South Africa are plagued with issues of accountability that affect their financial management. The Senqu Local Municipality has however contrasted this trend by achieving unqualified audit outcomes for consecutive years. This has prompted interest in how the municipality has maintained its accountability and financial management.

Aim: This article reviewed the MFMA Audit Outcome of the Senqu Local Municipality to generate insights into the municipality’s accountability ecosystem and financial management practices.

Methods: The study was conducted through an analysis of the 2019/2020 General Report on Local Government Audit Outcomes. The study further utilised desktop sources as well as digital media and internet sources. Thematic analysis was used for data analysis.

Results: The accountability measures in the Senqu Local Municipality are enabled by planning, oversight from legislative and administrative authorities, effective internal controls and an effective political and administrative interface. These measures initiate financial management practices and embed accountability into the organisational culture of the municipality.

Conclusion: Strong accountability institutions can provide a solid basis for sound financial management in local municipalities. The study recognises the need to enforce responsibility on internal institutions to mitigate the risk of financial irregularities. The study further emphasises the necessity for municipal stakeholders to implement regulations that foster accountability and sound financial management into the organisational culture.

Contribution: This study highlights the relationship between accountability and financial management in local municipalities and locates accountability practices with reference to municipal audits in local municipalities.

Keywords: Eastern Cape; accountability; municipal financial management; audit outcomes; local municipality; rural municipality; ethics.

Introduction

Local municipalities in South Africa are marred by financial management issues that affect their financial sustainability and controls (Department of National Treasury 2021b). The financial plights faced by local municipalities nationally have progressively regressed signalling the poor state of financial management in municipalities. For instance, corruption and fraudulent activities by municipalities led to irregular expenditure of approximately R21.9 billion in the 2020/2021 (Department of National Treasury 2021b). Studies have found that the regressing state of financial management in municipalities is because of their lack of accountability (Maropo 2018; Munzhedzi 2016; Thornhill 2015). Key accountability issues in this regard vary from political interference (Fagbadebo 2019; Maropo 2018), inadequate financial reporting (Ngoepe, Motubatse & Molate 2023) and a lack of effective monitoring and evaluation (Nini 2022).

As a core principle of sound financial management in local municipalities, accountability supports the Municipal Financial Management Act 56 of 2003 (MFMA) to ‘… secure sound and sustainable management of the fiscal and financial affairs of municipalities and municipal entities by establishing norms and standards …’ for financial management (Republic of South Africa 2003). To assess compliance with these guidelines, the Auditor-General of South Africa (AGSA) (2020) conducts the MFMA Audit annually to evaluate the financial reporting, internal controls and accountability ecosystems of municipalities and municipal entities. The MFMA audit reports derives outcomes based on four interrelated components namely, ‘…planning and budgeting, revenue and expenditure management, reporting and oversight’ (Department of National Treasurer 2008). These components provide an indication of the state of accountability in municipal entities as they objectively determine the financial and operational practices in relation to transparency, compliance, internal controls and performance evaluation in the municipality (Mnguni & Subban 2022:150; Motubatse, Ngwakwe & Sebola 2017). The outcomes therefore provide a good indicator of a municipality’s administration; specifically, the effectiveness of the operational units, systems and processes that manage its financial administrative activities (Motubatse et al. 2017).

The General Reports on Local Government Audit Outcomes preceding the 2019/2020 report have attributed unqualified audits to accountability ecosystems that enhance the quality of financial reporting and effectiveness of oversight mechanisms. Despite this, municipalities that produce unqualified audit outcomes are not well explored in literature as case studies to understand accountability and its permutations on financial management. Related studies have focussed on the failure characteristics of municipalities that achieve poor audit outcomes (Shozi 2023; Wessels et al. 2021), the correlation between audit outcomes and municipal service delivery on a macro scale (Aadnesgaard & Willows 2016; Motubatse et al. 2017), and urban, district and metropolitan municipalities (Mnguni & Subban 2022:151).

Research methods and design

This study followed a case study design of the Senqu Local Municipality. According to Hancock, Algozzine and Lim (2021), a case study design is used to generate understanding of a phenomenon that is not well explored in its real-world context. In this article, the case study sought to assess the municipality’s accountability ecosystem and financial management with reference to its 2019/2020 municipal audit outcome (as contained in the 2019/2020 General Report on Local Government Audit Outcomes). The analysis of this report was supported by a qualitative literature review in which the researchers explored multiple digital sources to uncover the accountability factors that led to the municipality’s effective financial management practices and subsequent unqualified audit outcome.

Data collection

Data were sourced from online repositories accessed through Google Scholar. The researchers sourced and retrieved multiple academic and policy sources by using keywords from the research topic and research objective of the study. The retrieved sources were then analysed to determine their relevance to the study. To do this, the researchers perused through the abstract, preface, introduction and findings of the retrieved sources. Sources deemed to be relevant were kept for further data analysis while irrelevant sources were excluded from the analysis. At an advanced stage of the data collection process, the researchers found that there was limited academic literature on the Senqu Local Municipality that investigated its accountability ecosystem and MFMA audits. Therefore, to critically engage on the factors that have led to the positive audit performance and their relationship with accountability and financial management in the municipality, the researchers searched and manually reviewed digital media and internet sources. The manual review of these sources was carried out to assess any biases that could not be triangulated with literature.

Data analysis

Data were analysed through thematic analysis to identify patterns and generate meaning from those patterns. The researchers followed Lochmiller’s (2021) approach to thematic analysis by firstly reading through the selected textual documentation and digital media and internet sources in order to gain a holistic understanding of the data. Secondly, the researchers organised the data and identified patterns of the data. Thirdly, the identified patterns were further evaluated to broaden the scope of the themes and explore their correlations. This step allowed the researchers to identify redundant themes, which were either merged or discarded if they did not add contextual relevance to the findings. The various research methods employed in this study produced data that generated perspectives that accentuated the municipality’s audit outcomes and rationalised postulations on the effectiveness of accountability in financial management.

Conceptualising accountability in the public sector

Accountability is regarded as an obligation that arises within a relationship of responsibility where a body is responsible to another for the performance of a particular function (Grossi & Argento 2022). In this relationship, firstly, there are obligations imposed to account for resource usage and secondly, to accept the imposition of sanctions and oversight. Accountability in the public sector is premised on enforcing the effectiveness and efficiency in public service in order to enhance public trust and legitimise the politico-administrative system (Aziz et al. 2015). In other words, the presence of accountability promotes characteristics of good governance that advance ethical political leadership and integrity in the administration (Wessels, Kwaza & Ijeoma 2021).

Accountability is related to sub-themes such as transparency, liability, controllability, responsibility and responsiveness (Williams et al. 2022). These aspects provide a comprehensive conceptualisation and scope of accountability. In practice, this approach involves the imposition of oversight sanctions on local municipalities that are responsible for delivering services to society. The process is governed by a basic constitutional relationship in which Municipal Councils via Proportional Representation (PR) Councillors, hold political office bearers accountable, and in turn, political office bearers hold public administrators accountable for their performance in their delivery of services (Constitution of the Republic of South Africa 1996). This suggest that accountability is linked to the responsibility that obliges public officials to be answerable for their use of public funds (Williams et al. 2022).

According to Addink (2019), effective public accountability is made possible by a direct relationship and chain of responsibility that exists between two entities where the authority has direct control or power over the subordinate’s performance (Laebens & Lührmann 2021:908). Laebens and Lührmann (2021:908) refer to this form of accountability as vertical accountability. However, accountability in local municipalities is not confined to a direct relationship. Rather, vertical accountability is also laterally applied because of the wide framework of democratic societies where public officials must account to the citizenry because they are the ‘servants of the people’. Likewise, political office bearers as the public’s trustees must act in the interest of the public. In a practical example, a member of the mayoral executive, for example, must budget, plan and present a 3-year Medium Term Strategic Framework that contains the capital and operating budget, which must be linked to the municipality’s Integrated Development Plan (IDP) (Van Rouge 2020). The Municipal Council must, at its discretion, approve the aforementioned budget and oversee how municipal finances are managed by the political and administrative executive authorities (Republic of South Africa 1998). The municipal manager, as the head of the administrative executive and the accounting officer (as determined by the MFMA), must maintain sound financial management and administration as the incumbent responsible for all expenditures and incomes of the municipality (Republic of South Africa 2000). In other words, the incumbent must ensure that municipal finances are managed in compliance with legislation (mainly MFMA). The enforcement of this accountability is undertaken by public representatives who have been elected by citizens to serve in municipal councils and executive committees. This key property of representative democracy translates to delegated accountability power that is transferred by the public to political representatives who are obliged to act in the best interest of the people.

While municipalities exercise the PR system that subjects political and administrative executives to oversight within municipal internal controls, it is important for communities to be involved in the process directly. This is to emphasise that officials must be accountable to the communities they serve (Maropo 2018) especially when it comes to financial management. Section 152 of the Constitution highlights this when it states that being accountable to the communities they serve is a necessary feature of financial management for all public institutions (Republic of South Africa 1996). Local municipalities can facilitate this by using information and communications technology (ICT) processes to post annual budgets and expenditure records on publicly accessible municipal websites (Shava & Vyas-Doorgarpersad 2022). This can also be reinforced through public participation forums that enable communities to hold public officials accountable directly.

Another form of horizontal or external accountability is practised by state institutions established to strengthen democracy (Republic of South Africa 1996). According to Carino (2008), horizontal accountability allows an external institution to monitor the conduct of another institution in order to hold them accountable for their actions. In local municipalities, external institutions conduct oversight through audits and investigations to ensure that public funds are used properly and public resources are not mismanaged by public officials. Chapter 9 of the Constitution sets the empowering provisions for these institutions (Auditor-General, Commission for Gender Equality, Commission for the Promotion and Protection of the Rights of Cultural, Religious and Linguistic Communities, Independent Electoral Commission, Public Protector and South African Human Rights Commission) (Republic of South Africa 1996). Chapter 9 further enables these institutions to cover a wide range of state affairs to investigate the abuse of power and resources. For instance, the AGSA audits financial records to identify financial mismanagement in order to promote accountability in the utilisation of municipal funds. The Public Protector investigates cases of maladministration and the abuse of power by public officials in order to promote accountability in the utilisation of public resources and the exercise of the discretionary power by public officials (Republic of South Africa 1996). The South African Human Rights Commission investigates human rights violations that are caused by the negligence of public institutions in their delivery of basic service delivery (Republic of South Africa 1996). In the fulfilment of these roles, these institutions seek to hold public officials accountable for their actions and promote transparency and good governance.

Deductively, accountability takes several forms and is partaken by multiple entities in the democratic framework of the country. Naturally, the entities involved in public accountability hold diverse involvements in the municipal financial management process. Arguably, the application of vertical accountability (executive) and horizontal (external) accountability is meant to keep municipal administrators and political office bearers in check over how they manage public funds and resources when they exercise their discretionary power. From this perspective, accountability is imposed to promote ethical behaviour. Ultimately, how these responsibilities are executed determines the quality, efficiency, economy and effectiveness of the service delivery.

Legislative basis for accountability in municipal finance

The legislative prescriptions that are designed to direct financial management in municipalities provide stakeholders including municipal managers, municipal councils and municipal officials (political and administrative) the authority to allocate, use and oversee municipal. Important legal requirements are found in the Constitution of the Republic of South Act 108 of 1996, the Local Government: Municipal System Act 32 of 2000, the Local Government Municipal Structures Act 117 of 1998, the Public Audit Act 25 of 2004 and the Local Government: Municipal Finance Management Act 56 of 2003.

The Constitution, as the highest law in the land, sets the standard for all conduct including that of all municipalities. Section 216 prescribes measures that promote accountability, resource utilisation controls and oversight (Republic of South Africa 1996). These prescribed measures are further contained in: section 32 which empowers citizens to demand accountability from their municipality; section 139 which empowers provincial government to perform oversight on municipalities; and section 181, which empowers the AGSA to expose corruption and financial irregularities in municipalities. These provisions provide clear guidelines for financial accountability in municipalities that must be consistently upheld.

In terms of financial management, municipalities must apply principles of value for money (efficiency, economy and effectiveness) in the use of state resources (Republic of South Africa 1996). This is a primary feature of the MFMA, which seeks to enable ‘…secure sound and sustainable management of the fiscal and financial affairs of municipalities and municipal entities by establishing norms and standards’ for local governments (Republic of South Africa 2003). Section 153 of the Constitution empowers municipalities to ‘…structure and manage their administration, budgeting and planning processes to give priority to the basic needs of the community and promote the social and economic development of the community’ (Republic of South Africa 1996). This autonomy empowers municipalities to formulate internal controls that are consistent with the MFMA’s regulation of value for money. The measures contained in section 153 of the constitution can be achieved through the introduction of ‘… generally recognized accounting practice; uniform expenditure classifications; and uniform treasury norms and standards’ (Republic of South Africa 1996). The Public Audit Act extends the basis of accountability on the MFMA by assigning authority to the AGSA to audit municipalities relative to their implementation of constitutional and legislative obligations (Mnguni & Subban 2022:145). However, the implementation of these regulations requires municipalities to have staff with the proficiency to apply Generally Accepted Municipal Accounting Practices (GAMAP) and Generally Recognised Accounting Practices (GRAP) (Ngoepe et al. 2023). Staff with these proficiencies can support planning and budgeting processes that strengthen internal financial controls and identify instances of fraud and corruption (Aziz et al. 2015). Regrettably, the implementation of this statute is challenged by the lack of competencies among municipal administrative officials. The AGSA (2022) found that the accounting competencies of administrators in many municipalities is insufficient. As a result, municipalities are forced to rely on consultants for some advanced accounting tasks. This represents a significant shortcoming in the implementation of legislation for local municipalities and renders these entities vulnerable to a mismanagement of public resources.

Scholars have progressively challenged the implementation of the legislative framework governing accountability and financial management because of systemic issues that characterise local municipalities. Among others, Enwereji and Uzwizeyimana (2019) assert that there is a lack of political will to implement statutes at a local level in some local municipalities. In addition, the rural orientation of many local municipalities often results in limited communal awareness of the constitutional right to demand oversight and accountability (Manamela 2021; Maropo 2018). Lastly, factional ties impede the enforcement of consequence management by the provincial government in its exercise of section 139 and based on the recommendation of the AGSA (Hosoi 2023). These challenges suggest that inadequacies exist in legislative frameworks governing accountability and financial management. Primarily, the context of some prescriptions fails to conform to the social and political realities of local municipalities.

Accountability and financial management in local municipalities

The culture of a lack of accountability leads to municipalities exhibiting:

[…D]ysfunctional control environments, an extensive disorder in accounting records, prolonged vacancies in key positions and instability in councils, poor procurement processes, no consequences for poor performance and transgressions, unreliable reporting on municipal finances and programs, and accumulated irregular expenditure. (AGSA 2020:9)

Furthermore, financial indicators such as cash-flow constraints and deficits paint a bleak image of the financial status of municipalities. In the Eastern Cape, the AGSA (2020) found that 83% of municipalities experienced cash-flow constraints and 38% of municipalities had shortfalls or deficits in their accounts. The effect of these financial constraints means that the revenue of some municipalities is insufficient to cover their expenses in the financial year. As a result, municipalities fail to pay their creditors and cover their salary bills on time (AGSA 2020).

It is imperative for the financial standing of municipalities to be enough to cover expenses because this avoids operational delays that carry negative effects on service delivery. The Public Financial Management Act 1 of 1999 (PFMA) supports municipalities that do not have the structural mechanisms to generate sustainable revenue sources by provisioning state grants through the National Treasury. The most significant grant in the scope of municipal operations is the equitable share grant, which is paid to municipalities annually. According to the Department of National Treasury (1998), the equitable share grant provides municipalities with the financial resources to deliver services and maintain the administrative operations that facilitate service delivery. Importantly, the equitable share grant is not a conditional grant that confines municipal spending to specific areas. Rather, usage of the grant is left to the discretion of municipal authorities provided they follow the prescriptive protocols set out in the PFMA and MFMA. The rural orientation of most local municipalities and the adverse implications of that characterisation on revenue-generating sources compels local municipalities to mainly rely on this grant (and various other grants) to meet their service provision functions (Ncube & Monnakgotla 2016:75; Winnie Madikizela-Mandela Local Municipality 2022). Unfortunately, even with the provision of these grants, some local municipalities are unable to meet their expenses including their salary bills (AGSA 2020). Ncube and Monnakgotla (2016:76) contend that the inability of municipalities to meet their expenses even with the financial assistance of national grants is an indication of the financial unviability of local municipalities.

The impacts of poor financial controls considerably deteriorate strained finances of municipalities and undercut the service delivery capacities of these municipalities. Why do local municipalities suffer such a negative financial outlook and what can be made of the general internal financial controls of local municipalities? According to the AGSA (2020), municipalities with compromised financial controls face wasteful, fruitless and irregular expenditure. As an attempt to remediate these conditions, the MFMA instructs municipal councils to investigate instances of unauthorised, irregular, fruitless and wasteful expenditure to ensure that no losses have been incurred during transgressions. However, municipal councils and accountability officers often do not take considerable steps to recover the loss of these expenditures (AGSA 2020; Enwereji & Uzwizeyimana 2019). This represents a downward trajectory trend of accountability in local municipalities that is fuelled by a lack of consequence management and leniency on transgressors whose punishment is often without any real legal consequences.

Mofolo (2020) explains that a lack of consequence management leads to impunity and ultimately results in the failure of municipalities. This is precisely the case in local municipalities. The relationship between accountability and financial management is critical for various reasons. Firstly, accountability promotes transparency by informing municipal stakeholders of the financial decisions taken by public officials (Adil 2022). This stimulates budgeting and planning that assists authorities with financial decision-making. Secondly, accountability reinforces oversight and public trust, and offers a basis for performance evaluation (Hattingh 2020:43). These properties stimulate ‘accountability ecosystems’ that are characterised by effective and sustainable processes and institutions in local municipalities. For context, an ‘accountability ecosystem’ describes a system that encompasses units, mechanisms and processes that work systematically to ensure that the obligation of transparency, financial reporting and proper usage of public funds is maintained (AGSA 2020; Wessels et al. 2021). In this regard, effective accountability ecosystems promote the economic and efficient utilisation of resources meant for public services (Wessels et al. 2021).

Primarily, the AGSA evaluates the quality of financial reporting and internal controls in municipalities and municipal entities. The MFMA audit produces one of five outcomes (Mnguni & Subban 2022:150). The first outcome is a clean audit (hereinafter referred to as an unqualified audit), which is given to a municipality that produces financial statements that do not contain material errors. In this outcome, the performance information of the municipality must not contain any material findings. Lastly, the municipality has to comply with the appropriate legislation and accounting principles. The second outcome is a financially unqualified audit opinion, which is given to a municipality that produces financial statements that do not contain material errors. However, the municipality has to default on the reporting of predetermined objectives and/or has to fail to comply with legislation with accounting principles in its financial reporting. The third outcome is a qualified audit opinion, which is given to a municipality that produces financial statements that contain material errors in specific amounts or produces insufficient evidence to substantiate the validity of the financial statements submitted. The fourth outcome is an adverse audit opinion, which is given to a municipality that produces financial statements that contain material errors that are a substantial portion of the financial statement or are not confined to specific amounts. The fifth outcome is a disclaimer of audit opinion, which is given to a municipality that produces insufficient evidence on which to base an audit opinion. The lack of sufficient evidence must be a substantial portion of the financial statement or not be confined to specific amounts.

A study performed by Mofolo (2020) did investigate the MFMA Audit outcomes of a local municipality in the Free State province to uncover the characteristics that led to its negative audit outcome. This focus fell short in investigating the accountability mechanisms that produce positive MFMA Audit outcomes for local municipalities. A research gap therefore exists for a case study of a local municipality and its accountability and financial management practices with reference to the MFMA Audit outcomes.

Mechanisms for accountability and sound financial management in municipalities

In the accountability ecosystem of local government, the relationship between the political executive, administration and legislative divisions is essential. This relationship is facilitated by internal mechanisms that must be formulated from regulated practices and norms in the local government environment. Within internal control processes of local municipalities are stakeholders that hold various internal and external accountability powers and responsibilities. The roles of stakeholders are highlighted in the mechanisms of accountability and financial management. Some of the pertinent mechanisms are discussed in the next section.

Financial reporting

The executive administration or administrative public officials is responsible for the utilisation of municipal financial resources. As such, they are obligated to maintain:

[… S]ound financial management and administration by accepting responsibility and accountability for all income and expenditure, asset management, the discharging of all liabilities, and proper diligent compliance with legislation governing local government. (Republic of South Africa 1999)

Thus, the accounting officer of the municipality (Municipal Manager) must regularly report the municipality’s financial position to the municipal council so that the council ‘… can mediate any potential financial problems…’ with legislation or a revision of the municipal budget (Republic of South Africa 1999).

Financial reporting is regarded as a critical tool in promoting financial stability because it fosters internal and external accountability. According to Grossi and Argento (2022), through financial reporting government officials can be held to account for the use of municipal funds. In other words, they become answerable for how funds are collected, budgeted, allocated and spent. The process of financial reporting is supported by detailed financial statements that outline how municipal resources are managed (Department of National Treasury 2021a). This enables the municipal council to conduct legislative oversight that holds public officials to account for how they manage municipal funds. Furthermore, financial reporting further allows communities to determine whether or not the municipality has acted in their best interest. Hattingh (2020:43) argues that such transparency builds trust and maintains a high level of public participation. Public trust and public participation can be argued to be one of the enabling factors to public satisfaction.

According to the MFMA, financial reporting must be accurate and conducted as regularly as possible because it provides the basis for sound financial management and good governance in the municipality (Republic of South Africa 2003). As the cornerstone of accountability and transparency in municipal finance, financial reporting facilitates direct and indirect accountability in municipalities, firstly in the form of municipal council holding administrators accountable for their utilisation of public funds, and secondly, in exposing the financial position of the municipality (Grant & Devas 2003 in Aasnwsgaard & Willows 2016:547). These important features ensure that the financial position of municipality is subject to public scrutiny from communities (Grant & Devas 2003 in Aasnwsgaard & Willows 2016:547).

With regular and accurate financial reporting, the financial health of the municipality can be assessed. This is important for several reasons. Firstly, it enables municipal stakeholders to identify inefficiencies in the use of public funds (Ross 2017). Secondly, it allows officials to formulate realistic and sustainable budgets that can be reallocated to areas of strategic importance in an organisation (Jorge, Pinto & Nogueira 2017:136). Thirdly, it affords internal accountability mechanisms the opportunity to identify non-compliances with financial regulations. Fourthly, it enables the AGSA to evaluate the financial integrity of the municipality by detecting financial irregularities from financial statements.

Regrettably, the AGSA (2022) observes that if financial reporting is inaccurate or incomplete, it is ineffective to prevent mismanagement of public funds. For example, the Ngquza Hill Local Municipality reported financial records that contained omissions and errors. This suggested spending irregularities, financial mismanagement and weaknesses in the internal controls of the municipality (AGSA 2022). This context highlights that financial reporting does not assure the prevention of the mismanagement of public funds especially if it is not performed in accordance with GAMAP and GRAP. Municipalities must therefore invest in employing skilled and qualified personnel to enhance the quality of financial reporting. The Matjhabeng Local Municipality in the Free State province followed this recommendation by the AGSA in the 2021–2022 MFMA Audit and produced an unqualified audit outcome in the 2022–2023 MFMA Audit (AGSA 2023).

Financial audits

It is standard for municipalities to conduct financial audits as an internal financial control. Financial audits are internal audits conducted to spot and flag problems in the internal controls of the municipality (Erasmus & Matsimela 2020:22). The purpose of these audits is to give Accounting Officers and Municipal Councils reliable and accurate information on the financial state of municipalities. The financial audits are specifically designed to detect problems ‘… linked with accounting principles and standards or with the reporting requirements set out by the central or provincial government, and misappropriations of funds’ (Department of National Treasury 2021a). As such, they facilitate accountability and transparency in the administrative and financial operations of municipalities.

Financial audits must be conducted effectively because they influence the financial control environment of the municipality. Despite their importance in the accountability ecosystem of local municipalities, financial audits face several challenges that affect their effectiveness. Among others, municipalities face a shortage of skilled internal auditors with adequate proficiency in municipal finance. As outlined earlier in the discussion, the skills deficit in local municipalities have forced these entities to rely on consultants to perform internal auditing and other accounting functions. As such, these municipalities are susceptible to corruption and fraud. Another challenge is the resistance to oversight from public officials who perceive audits as an intrusive practice (Kim 2009; Moji, Nhede & Masiya 2022). In such case, public officials lack the political will to act upon the recommendations provided to strengthen financial controls and internal processes (Enwereji & Uzwizeyimana 2019; Fagbadebo 2019). Lastly, many local municipalities have insufficient funding to conduct regular audits (Moji et al. 2022). Irrespective of these challenges, financial audits offer an effective tool to assess operational and financial risks, internal controls and compliance with legislation, and play an advisory role to strengthen a municipality’s accountability ecosystem and financial management. The City of Cape Town has been exemplary in highlighting the importance of internal financial audits given its continuous unqualified audit in the MFMA Audits (City of Cape Town 2023). Interestingly, the unqualified audits have correlated with positive governance metrics. For instance, Good Governance Africa ranked the municipality first among metropolitan municipalities in its Governance Performance Index (GPI). Ratings Afrika and Knights Sustainable Cities Index ranked the municipality the most financially sustainable municipality in the country (City of Cape Town 2023). This suggests that positive financial management practices propel good governance and better service delivery.

Discussion

Audit outcomes of the Senqu local municipality in the 2019/2020 financial year

The audit outcomes of local municipalities have reflected negatively on the local sphere. Whether it is corruption or irregular and fruitless expenditure of municipal funds, municipalities are characterised by weak internal oversight (Nkosi 2021). Between 2016 and 2021, however, the Senqu Local Municipality was one of the few municipalities in the Eastern Cape province to receive an unqualified audit outcome. The implications of this achievement cannot be understated as the audit outcome reflects a municipality’s financial reporting, control and management (Mabelane et al. 2022:1). Therefore, it is worth analysing what the municipality is doing differently from its counterparts to draw lessons that can be adopted by other local municipalities particularly those with a rural orientation.

Senqu Local Municipality financial performance

The Senqu Local Municipality’s clean audit opinions reflect the municipality’s all-around financial standing. As far as the municipality’s cash balance is concerned, the audit reported that the municipality has been on an upward trajectory since 2016. Municipal balances refer to the gross capital that a municipality has in its coffers. Positive cash balances indicate proper financial management. Between 2016 and 2019, the municipality’s cash balance increased by over R92 million to reach an amount of R313 095 400 at the end of the 2018–2019 financial year (AGSA 2020). For a municipality to maintain a positive cash balance indicates that it can afford to cover monthly expenses.

The Senqu Local Municipality’s cash coverage is a good indication of the municipality’s continual ability to maintain its administrative and functional operations. Cash coverage measures the duration (in months) that the municipality can pay for its daily operational expenses with its cash reserves (AGSA 2020). According to its 2019/2020 audit report, the Senqu Local Municipality exceeded the minimum 3 months of cash cover by recording a cash coverage of 16 months. A high cash coverage means that the municipality can rely on its cash reserves to pay off its debt over a long period.

Other key financial indicators include the municipality’s current ratio, liquidity ratio and current debtors’ collection. The current ratio was recorded at 14.21%, which is greater than the recommended minimum of 1.5% (AGSA 2020). This measure compares the value of a municipality’s short-term assets such as liquid cash and bank deposits, compared with its short-term liabilities such as creditors and loans among others (Viljoen 2010:18). The AGSA (2020) found that the liquidity ratio was recorded at 13.46%, which indicates that the municipality is effectively managing its current and long-term liabilities. The municipality’s current debtors’ collection rate of 159.1% highlights that the municipality is quite broad in the new revenue it collects despite its rural municipality classification. The current debtor’s collection looks at the percentage of new revenue that a municipality collects (Viljoen 2010:18). Anything less than 95.0% is considered negative in an audit by the AGSA (Yanto, Christy & Cakranegara 2021:300).

Factors responsible for the Senqu Local Municipality’s positive audit opinion

The Senqu municipality’s consistent audit performance has been comparatively impressive when compared to other local municipalities in the Eastern Cape in particular. However, this was not always the case as before 2015/2016, the municipality consistently recorded negative audit opinions (Ellis 2021; Senqu Local Municipality 2020). This article argues that the transformation of the municipality’s financial performance stems from maintaining a culture of accountability, a positive relationship between politicians and administration, and establishment of strong financial controls. The factors leading to the positive audit outcomes of the Senqu Local Municipality are not randomly present in the municipality. Rather, they are the results of the inculcation of steps that manifest into the practices that structure the culture of the municipality.

Leadership and proper municipal planning

According to Mayor Nomvuyo Mposelwa, the culture of accountability of the municipality starts with paying careful attention to the conduct of people and ensuring that it is based on laws and taking the work of the municipal council seriously (Feng 2019). Emphasis in this regard is placed on the Municipal Council holding political and administrative officials accountable for their decisions and use of public funds. Through the oversight of public funds, an effective municipal council is able to scrutinise the financial and expenditure records of the municipality. Mashashane (2022:58) states that a proactive municipal council is able to prevent irregular expenditure, corruption and fraud, and the mismanagement of public resources. This, according to Shava and Vyas-Doorgarpersad (2022), fosters better service delivery and public trust because it ensures that resources are used for what they were intended for.

The municipality further optimises proper planning for all its operations including those forecasted for the long term (AGSA 2020). Nzimande and Padayachee (2017:20) argue that proper planning not only allows the municipality to set out its goals and objectives, and work towards them but it also allows the municipality to formulate internal control measures based on the organising and implementation of those plans. In its findings, the AGSA (2020) commended the municipality on its comprehensive Strategic Budgeting Model, which aligns the municipality’s current planning, allocations and managing of financial resources with its long-term strategic objectives. However, the findings stressed the importance of prioritised planning and budgeting for road maintenance and storm water infrastructure, which was found to be inadequate in the municipality. This finding underscores the service delivery protest by residents who were unhappy about the state of the gravel roads in the municipality (Knoetze 2020). This finding is also consistent with a study by Viljoen et al. (2021) where the rural orientation of the municipality affected its ability to provide efficient waste disposal infrastructure in the Hantam Local Municipality. It is important to notice that as a local municipality situated in a rural area, municipalities rely mainly on the equitable share grant and municipal infrastructure grant. As indicated earlier in the discussion, local municipalities must allocate their limited resources towards the most immediate strategic objectives. Regrettably, this is often not enough to cover their expenses (Ncube & Monnakgotla 2016:76). As such, local municipalities utilise grants towards maintenance rather than large scale reconstructions. To support this assertion, Mayor Nomvuyo Mposelwa acknowledged in Feng (2019) that the R37.1m Municipal Infrastructure grant awarded to the municipality was insufficient to cover road and storm water infrastructure requirement. In addition, maintaining the gravel road was also becoming unsustainable. Evidently, this shortcoming of gravel roads and storm water infrastructure can be attributed to the insufficient grants and restricted revenue of the municipality. It further suggests that audit outcomes may not necessarily reflect the state of service delivery of a local municipality.

Effective internal oversight bodies

Consistent with the literature, the successes of the financial controls in the Senqu Local Municipality are predicated on the quality of the municipality’s internal control processes and structures. According to Mayor Nomvuyo Mposelwa, the municipality has effective oversight processes that provide immediate feedback on irregularities (Fengu 2019). Jorge et al. (2017) assert that immediate feedback from internal financial controls provides quick identification of any discrepancies, and alerts authorities of unauthorised transactions (financial malfeasance) and deliberate misuse of funds. This is important for several reasons. Firstly, it prevents the likelihood of fraud, corruption and mismanagement of public resources (Aasnwsgaard & Willows 2016). Secondly, it promotes accurate financial reporting by allowing rectifications to be carried out should there be mistakes in any of the financial statements. Correct financial reporting thus ensures that the financial records reflect the true financial position of the municipality (Department of National Treasury 2021a). Thirdly, it ensures that the financial transactions for the municipality comply with regulations. Fourthly, it encourages municipal officials to follow procedure or risk a review for their actions.

The effectiveness of internal controls is spurred by the Internal Audit Unit or Audit Committee. According to the Senqu Local Municipality, this unit is an internal institution that functions under the administrative executive to evaluate the effectiveness of internal controls and provides recommendations to strengthen financial controls (Senqu Local Municipality 2020). The unit is guided by an internal audit plan that outlines a risk-based approach meant to identify risks of non-compliance in financial management areas prescribed in the MFMA. The AGSA (2020) reported that the Internal Audit Committee of the municipality saw great improvements in the 2019/2020 financial year. Despite its staff capacity challenges, such as unfilled vacant posts, the committee was able to produce all four quarterly reports to ensure that all aspects of compliance were met.

Internal controls were equally inspired by the Municipal Public Accounts (MPAC). According to Enwereji and Uwizeyiimana (2019), the MPAC serves as a committee responsible for various oversight tasks. Comprising PR Councillors, the MPAC serves as an extension of the Municipal Council. However, it works together with the Audit Committee to ensure that recommendations are implemented substantially (AGSA 2020). The AGSA (2020) noticed that the MPAC conducted oversight as prescribed. This includes drafting and implementing an annual work plan and conducting four quarterly MPAC meetings.

The findings by the AGSA on the internal control systems and institutions provide a clear indication of the importance of internal controls in facilitating a functional accountability ecosystem. These findings further support Mayor Mposelwa’s argument on the significance of taking council business seriously in achieving financial sustainability, quality assurance and subsequently consistent unqualified audit opinions. Moreover, it emphasises that internal controls must operate systematically to continuously monitor manage financial risks.

Effective political-administrative interface

The political-administrative interface leads to several issues for municipalities that compromise financial stability and their ability to deliver services efficiently and effectively (Meyfroodt & Desmidt 2022:11). Political instabilities are problematic because they adversely affect top management and consequently weaken accountability often leading to its absence. This is because instabilities may lead to ambiguous decision-making and, fuel confusion and barriers to effective financial accountability. The Senqu Local Municipality has performed well in forging a good relationship between administrators and political office bearers to create stability in top management. This is highlighted by the municipality’s retaining of municipal management and senior directors occupying key strategic positions who have become long-serving servants of the municipality. For instance, the municipality has only had three mayors since 2001. During the same duration, the municipality has had the same Accounting Officer. Importantly, the Senior Managers who have supported the Accounting Officer have had tenures spanning a minimum of 15 years (Senqu Local Municipality 2020). Cho and Lewis (2012:5) state that this retainment of senior staff preserves the institution’s memory and thus pragmatically perpetuates a culture of accountability in a top-down approach.

It is important to note that retaining staff long-term presents the risk of complacency that may result in a resistance to change and a stagnation of skills. Shava and Vyas-Doorgapersad (2022) argue that the resistance to change hinders efforts to implement reforms. Meaning, innovations and the potential to deliver services more efficiently is restricted. The municipality does however subject all levels of management to accountability metrics and performance management targets to curb complacency (Senqu Local Municipality 2020). This provides a metric from which public administrators can be held to account for their performance. Performance management targets are critical because the performance of officials determine the efficiencies that services are delivered with (Mashashane 2022). It may be argued that the successes of performance management in the municipality are propelled by the municipality’s zero tolerance for non-compliances (Feng 2019).

The above-discussed factors provide a framework for local municipalities particularly those with a rural orientation to maintain accountability and financial management. Based on the legislative prescriptions outlined earlier in the discussion, these factors are mandated upon all local municipalities and may even be generic. However, factors such as the leniency towards non-compliances, skills shortages and political interference compromise internal financial controls. The Senqu Local Municipality’s entrenchment of an accountability culture that imposes responsibility on authorities to take their functions seriously is an important feature of its effective accountability ecosystem. Moreover, this feature allows the municipality to implement its zero-tolerance for non-compliance.

Conclusion

The regression of the financial performances of municipalities is a reflection of the state of accountability in the sphere. To have effective accountability ecosystems, municipalities must formulate processes, systems and units that promote transparency and mitigate the risk of irregular expenditure and mismanagement of public funds. This is exemplified by the Senqu Local Municipality, which has highlighted that ethical leadership, proper budgeting and planning, effective internal financial control and functional political-administrative interface can have positive implications on the accountability and financial management of a local municipality. As a performance means of analysis, the MFMA audit outcomes has provided an important correlation between accountability and financial management. However, it fell short in linking accountability and financial management to metrics such as service delivery performance and community well-being. Future research must develop statistical research on this research area. This will serve to develop a deeper understanding of the accountability ecosystem of local municipalities in relation to service delivery for municipal councils, and political and administrative officials.

Acknowledgements

The authors declare that they have no financial or personal relationships that may have inappropriately influenced them in writing this article.

S.W.G. was responsible for the conceptualisation of the study and formulated the methodology and original draft of the study. S.P. supervised the project and was responsible for project administration. S.W.G. and S.P. approved the final accepted version for publication.

This article followed all ethical standards for research without direct contact with human or animal subjects.

This research received no specific grant from any funding agency in the public, commercial or not-for-profit sectors.

Data sharing is not applicable to this article, as no new data were created or analysed in this study.

The views and opinions expressed in this article are those of the authors and are the product of professional research. The article does not necessarily reflect the official policy or position of any affiliated institution, funder, agency or that of the publisher. The authors are responsible for this article’s results, findings and content.

References