The Auditor-General Report on local government audits: HR Challenges and Opportunities


The Auditor-General Report on local government audits:
HR Challenges and Opportunities
by Marius Meyer

Last month the Auditor-General, Kimi Makwetu released its consolidated report on the audit outcomes of local government.  The report covers an analysis of the MFMA 2014-2015 audits conducted by the Auditor-General.  The scope of the audits covered by the MFMA includes all municipalities as well as municipal entities such as the Johannesburg Roads Agency, Pikitup, Mandela Bay Development Agency and the Cape Town International Convention Centre.  While the report clearly outlines gaps exposed during audits, it is balanced from the perspective that it also recognises commitments that leaders have made to improve audit outcomes from previous audits.  While good audit performance mainly in provinces such as Gauteng and the Western Cape are highlighted, sadly in some provinces such as the Free State, Limpopo and North-West performance has been poor.

As the national and international leader in the area of Human Resource (HR) Management, the SA Board for People Practices (SABPP) has a particular interest in the outcomes of HR audits and our comments will mostly cover HR outcomes.  Having said that, and given the importance of sound HR and people management in municipalities and municipal entities, it is our view that good HR Management has a direct impact on other areas of audits, such as financial management, supply chain and service delivery.  It should also be born in mind that over the past five years (2010-2015), several municipalities in South Africa have reported a steady improvement in audit outcomes, with 53% having improved, while 13% regressed and 34% remained unchanged.  In particular, good improvement has been seen in six of the eight metro councils while about half of district municipalities and local municipalities have improved.

While the audit area that showed the greatest improvement was the audit opinions on financial statements, even within this area, problems were identified pertaining to material misstatements, competence gaps and concerns regarding the effective use of consultants.  Likewise, gaps pertaining to the management of consultants is not limited to financial reporting.  Also, weaknesses in the planning and appointment processes, performance management and monitoring and transferring of skills (all HR practices) were identified at 68% of the municipalities that used consultancy services.  Consistent with HR implications within financial management, HR factors were also prevalent within the supply chain of municipalities.  The Auditor-General identified a high prevalence of awards being made to suppliers in which employees, councillors and state officials have an interest.  The Report goes on to state that “little progress has been made in complying with legislation relating to awards made to close family members of employees and councillors.”

It is therefore also not surprising that the Auditor-General identified some key HR risks such as vacancies and instability in key positions of municipal manager, chief financial officer and head of supply chain management as risks affecting financial and performance management and thus also overall audit outcomes.  Hence, the report also flags the fact that competence levels of these key officials are a contributing factor to under-performance.  For instance, vacancy rates for CFOs stood at 20% and those for municipal managers at 17% by the end of 2015.   The practice of too many acting officials in these two key positions is of particular concern.  It is also evident that a lack of consequences for poor performance exacerbates the problem.  In addition, surely HR professionals were called in regarding disciplinary cases dealing with irregular, unauthorised and wasteful expenditure, and non-compliance with laws and policies. If not, this will once again point to a lack of consequences management.  In fact, the Auditor-General Report identified financial misconduct as one of the main problems.  In 45% of the municipalities, management failed to conduct the required investigations for all instances of unauthorised, irregular and fruitless and wasteful expenditure.  Clear incidents of conflict of interest, fraud and improper conduct have been highlighted in the report.

Regarding performance management, SABPP would like to commend the Auditor-General for allocating a full section on this important aspect of audit outcomes.   However, the report deals mostly with annual performance reports covering the overall performance of the municipality and not necessarily the performance management system affecting al managers and employees.  Be that as it may, it is good to see that there has been an improvement in municipalities’ reporting on the degree to which services are delivered in accordance with the planned targets as per their integrated development plans (IDPs) and the service delivery and budget implementation plans (SDBIPs).  Ultimately, service delivery is the most important function of any local government entity.  Whether reporting is reliable and accurate is of course, an entirely different question and perhaps requires closer scrutiny.

Interestingly, HR is included under section five covering root causes.  This section starts with the status of internal controls.  Three key drivers of internal controls are used, namely leadership, performance and financial management, and governance.  Although improvements in these areas were identified, a lack of documentation affected all areas of the audit outcomes.  It is worrying that the internal controls of most municipalities not only failed to prevent non-compliance with legislation, but also failed to timeously detect the deviations, some of which were only detected and responded to following the audits of the Auditor-General.

The Auditor-General’s Report has a section on the status of HR Management controls.  It covers reporting on HR controls since 2010.  The bad news is that HR Management has improved only slightly since 2010-11 and the previous year (2013-2014).  Out of 272 municipalities included in the report, regarding the status of HR Management controls, 26% (72 municipalities) had audit findings, 43% (116) with findings, while 31% (84 municipalities) with material findings.   The improvement in 2013-2014 is mainly due to increased adherence to requirements relating to minimum competencies and qualifications, improve management of senior management performance, and a focus on leadership on filling vacancies.   One of the biggest challenges for municipalities is to attract and retain qualified and competent persons in all areas of administration.  The Auditor-General therefore focused on the management of vacancies and retention of key staff.  However, if the right calibre of staff is not appointed, developed and retained, even a 0% vacancy rate would be meaningless.  While a high vacancy rate is indeed a problem in key positions, a low vacancy in itself does not necessarily resolve the problem, especially if competence is neglected during appointments.   Furthermore, the Auditor-General is indeed correct in asserting that rural municipalities are at a bigger risk given the increased difficulty to attract qualified and competent managers and other specialists to rural municipalities.  In cases where municipalities were placed under administration, some CFOs resigned and this put even more strain on an underperforming municipality.   The report clearly showed that those municipalities with stability in their CFO positions produced better financial statements or audit outcomes.   It is also a reality that municipal managers are resigning in certain municipalities due to political pressure.  In addition, with local government elections around the corner, some municipalities may be reluctant to appoint new municipal managers going into the new election cycle.

Regarding the municipal regulations on minimum competency levels, municipalities were required to ensure that staff members meet these standards specified.  These regulations define the minimum competency levels, not only in terms of proficiency in competency areas, but also higher education qualifications and work-related experience.  While some improvements have already been implemented, more focused work is needed to ensure effective implementation.

Finally, it is also evident that broader governance structures play an enabling role to position HR Management as a key element of local government service delivery.  The South African Local Government Association (SALGA), the Department of Co-operative Governance and Traditional Affairs, as well as the Department of Planning, Monitoring and Evaluation have all identified HR Management as one of the key performance areas in improving local government.  Whether these initial efforts will be successful and sustainable, remains to be seen.

In conclusion, it is clear from the Auditor-General’s Report that the main root causes of municipalities’ continuing challenges are as follows:

  • Slow response in improving internal controls and addressing risk areas;
  • Instability or vacancies in key positions or key officials lacking appropriate competencies;
  • Inadequate consequences for poor performance and transgressions.

In the words of the Auditor-General:

“The low level of action in response to the high levels of non-compliance, poor audit outcomes, supply chain management transgressions and unauthorised, irregular as well as fruitless and wasteful expenditure demonstrate a lack of consequences in local government for poor performance and transgressions.  It is important that officials who deliberately or negligently ignore their duties and contravene legislation should be decisively dealt with through performance management and by enforcing legislated consequences for transgressions.  If they are not held accountable for their actions, the perception is created that such behaviour and its results are acceptable and tolerated.”

The Auditor-General also concedes that “their message on these three root causes has remained constant since 2011-12.”  All three root causes directly or indirectly have a strong HR link.   Given the fact that there has been “no improvement in the response to root causes over the past four years, while there has been a reduction in the municipalities where instability, vacancies, competency gaps and inadequate consequences were identified as the root causes of poor audit outcomes” strong action is needed to improve the situation.  While SABPP appreciates the Auditor-General’s focus on HR Management as part of its audits, we recommend a more all-encompassing approach to auditing the whole HR function, including strategic HR Management, talent management and HR risk management to enable local government to improve its HR strategy, system and processes.

Marius Meyer is CEO of SABPP. In 2014 he launched the world’s first National HR Audit Unit to audit organisations against the National HR Standards developed by SABPP. More information about the SABPP HR Standards is available on their website and their blog

The full report on local government audit outcomes is available on the website of the Auditor-General, you can download it from

  For daily updates on HR Standards and HR Audits, follow SABPP on Twitter @SABPP1 and Instagram sabpp_1


Leave a Reply

Fill in your details below or click an icon to log in: Logo

You are commenting using your account. Log Out /  Change )

Google photo

You are commenting using your Google account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s