PwC proposes a solution to a sustainable turnaround for local government and in achieving a clean audit

Municipal officials need to relook their management and governance structures to turn the tables on the increasing number of difficulties and challenges they face, says Professional Services Firm PwC.
While the audit outcomes report for 2011/12 issued last week by the Auditor-General Terence Nombembe paints a dismal picture of the country’s state of municipalities, Kalane Rampai, PwC Leader for Local Government for Southern Africa, believes that many of the issues which are giving rise to these challenges cannot be isolated in a vacuum – “the whole system must be reviewed and a comprehensive turnaround plan be executed.” Therefore the focus should be broader than fixing the financial management practices.

PwC supports the findings contained in the Auditor-General’s reports, which PwC also picked-up during its dealings with local government as auditor and adviser. These include the poor quality of Integrated Development Plans (IDPs) and the poor supply chain and contract management practices. “These tend to be big problems in local government,” says Rampai. “There are also internal control deficiencies with too many loopholes where people can get away with doing the wrong things.”

Johan Leibbrandt, a Local Government Specialist Adviser at PwC, says that another difficulty is that the current legal framework is too onerous and costly for local government. “Municipalities spend a lot of time and money on complying with these laws and less focus on service delivery. Some of the audit qualifications are also as a result of the complexity of the requirements from these regulations which small municipalities find difficult to comply with. The compliance process needs to be simplified. There needs to be a balance between service delivery imperatives and compliance with the laws and auditing standards,” says Leibbrandt.

However, South Africa does have some very efficient and sustainable municipalities in place, he says. The findings of the Auditor-General’s report bear testimony to this, with 13 municipalities receiving a clean audit and 115 receiving financially unqualified audit. “This is an indication that the Government’s initiatives, such as the building of skills and good governance practices are beginning to have an effect.” The Government has also rolled out a number of other initiatives to improve a sustainable and accountable local government. However, the difficulty with some of these initiatives is that there are usually insufficient skills and resources to sustain the action plans beyond the intervention period, explains Leibbrandt.

“PwC believes that there is a solution towards a sustainable turnaround for local government and in achieving clean audit. PwC is committed to working closely and in partnership with local government to assist them in overcoming their difficulties,” says Leibbrandt.

Rampai suggest several solutions: “Firstly, a credible IDP plan linked to the SDBIP (Service Delivery and Budget Implementation Plan), budget and Performance Management System will drive the conduct of people in the right direction. Currently, the IDPs of most municipalities are prepared purely for compliance with legislation, and if linked to budget and scorecards of senior executives, such a linkage can be quantified to be below 30%. Further, the plans should be supported by adequate governance and management structures, and optimal oversight systems.”

Secondly, the right performance enablers should be put in place, such as facilities, infrastructure, technology, processes and people. “Local government needs to recruit and retain the best available talent, particularly the best possible leadership. It also needs to implement the right value system at the top. An organisation cannot confine values to a document, such as a Code of Conduct. Leaders need to set, define and live out values in order for others in the organisation to follow them.”

Thirdly, management needs to reward employees for good performance and there must be consequences for poor performance.

Rampai says that the right partners must be brought on board to assist in the delivery and execution of these IDPs. “Service delivery is the cornerstone of local government and is currently by and large impeded by internal constraints and the silo effect. Sector departments, SOEs and private sector all have a role to play. Municipalities should ensure that a space is created for meaningful partnerships to be developed with these social partners.

A clean audit should not be the outcome we seek to achieve, but should be the only outcome possible. This can only happen if municipalities do the right things daily and not at year-end in preparation for the audit.

As the largest professional services firm in the country, we pledge to government that we are available to assist and to share our research, thought leadership publications and best practices with those charged with finding solutions to these challenges. The importance of local government in the prosperity of South Africa cannot be overemphasised. Even private sector, needs effective and efficient local government to be successful and globally competitive.