An assessment of the relationship between clean audits and

service delivery - A study of the Amathole District Municipality in

the Eastern Cape province, for the 2013/2014 financial year

School of Public Administration

(SPA)

Faculty of Management and Commerce

Mini-dissertation in partial fulfilment of the programme for Masters in

Public Administration

Bongiwe Mashalaba

200508982

Supervisor: Dr. T. Jonas

2

Declaration

I, Bongiwe Mashalaba, hereby declare that this dissertation entitled “An assessment of

the relationship between clean audits and service delivery - A study of Amathole District

Municipality in the Eastern Cape Province, for the 2013/2014 financial year, submitted

to the University of Fort Hare, in partial fulfilment of the requirements of the degree of

Masters in Public Administration, is a presentation of my original research work and that

it has not been submitted anywhere for any award. Wherever external contribution and

other sources were implied, every attempt was made to emphasise this clearly by

indicating references to the literature.

-------------------------------------- ---------------------------

Signature Date

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ACKNOWLEDGEMENTS

In my pursuit of this Master’s degree, I am entirely indebted to the invaluable

support which has been extended to me by many people in my life. First and

foremost, I wish to thank Jehovah for the wisdom, gift of good health, and

strength which He has constantly given me throughout my entire life. I owe the

deepest gratitude to my supervisors, Professor Ijeoma and Dr. Jonas. Despite

their numerous academic commitments, they took me in and ensured that I

finished my degree. Secondly, I wish to express my heartfelt gratitude to Ms

Pumza Foko, for all the support which she gave me during the conducting of my

study. To Mr. Andile Mhahlo, for his guidance and assurance, which inspired and

encouraged me: thank you for your support and experience, which enabled me

to complete this study successfully. Throughout this endeavour, I have been

fortunate to have received the invaluable support of my friends and family, who

continuously encouraged me to push on, which enabled me to come this far. I

owe all of you the deepest gratitude.

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DEDICATION

This work is dedicated to my entire family, who have been a continuous source of

support and reassurance all my life, particularly during the period of this study. It

has been a long and demanding undertaking, but you have always supported me,

from the very beginning. To my late grandparents, Christopher and Buyiswa

Mashalaba, I am sure that I have arrived at this point in my career as a result of

their influence. They loved me unconditionally, and taught me to work hard

towards whatever goals to which I may aspire and wish to achieve.

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ABSTRACT

The purpose of this study was to investigate the relationship between the concept

of clean audit reports in relation to service delivery. The study was conducted in

the Amathole District Municipality in the Eastern Cape Province and centred on

the audit outcome of the municipality for the 2013/2014 financial year. A

qualitative research design was adopted in order to conduct the study and the

data was collected through the conducting of semi-structured interviews. The

research sample comprised officers who were employed by the Amathole District

Municipality and one manager from the office of the Auditor-General.

The key findings of the study revealed that, at present, the concept of a clean

audit outcome is used by municipal officers to imply that the performance of an

organisation is to be assessed mainly on the basis of evidence which is provided

by financial indicators, to the exclusion of non-financial benchmarks. This

assumption tends to encourage municipal officers to strive towards impressing

auditors, rather than serving their communities through the providing of adequate

service delivery. In addition, the auditing of municipalities does not assess their

performance in relation to service delivery and the ways in which communities at

the local level are affected by it. At present it appears to be beyond the remit of

auditors to investigate the validity of the protests which erupt in communities in

response to poor service delivery or whether the members of communities and

other affected stakeholders are satisfied or dissatisfied with the manner in which

services are rendered by their municipalities. Consequently, those who are

tasked with the making of decisions in municipalities act upon the

recommendations which are made in their audit outcomes and formulate plans in

relation to service delivery or projects which do not necessarily accord with the

needs of the communities which they are intended to serve.

Consequently, on the basis of the findings of this study, it is proposed that

assessments of the performance of organisations should incorporate non-

financial indicators into the auditing process. Adopting this approach would

minimise incidences of municipalities receiving clean audit outcomes while the

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members of the communities which they serve take to the streets to express their

anger and frustration as a result of poor service delivery.

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ABBREVIATIONS

ADM: Amathole District Municipality AG: Auditor General DORA: Division of Revenue Act FMG: Financial Management Grant GRAP: Generally Recognised Accounting Practice GAAP: General Accepted Accounting Principles IDP: Integrated Development Plan MFMA: Municipal Finance Management Act MIG: Municipal Infrastructure Grant

TABLE OF CONTENTS

ACKNOWLEDGEMENTS .............................................................................................. III

DEDICATION ................................................................................................................. IV

ABSTRACT .................................................................................................................... V

ABBREVIATIONS ........................................................................................................ VII

TABLE OF FIGURES .................................................................................................... VI

CHAPTER ONE: INTRODUCTION AND BACKGROUND TO THE STUDY .................. 1

1.1 INTRODUCTION ........................................................................................................ 1

1.2 BACKGROUND CONCERNING THE AUDITING OF MUNICIPALITIES ................................... 1

1.3 STATEMENT OF THE RESEARCH PROBLEM ................................................................. 3

1.4 PURPOSE AND OBJECTIVES OF THE STUDY ................................................................ 4

1.5 THE PROPOSED RESEARCH QUESTIONS .................................................................... 5

1.6 SIGNIFICANCE OF THE STUDY ................................................................................... 5

1.7 OVERVIEW OF RESEARCH METHODOLOGY ................................................................. 5

1.7.1 Clarification of terms and concepts .................................................................. 6

1.8 OUTLINE OF THE STUDY ......................................................................................... 7

1.9 CONCLUSION ........................................................................................................... 8

CHAPTER TWO: LITERATURE REVIEW ...................................................................... 9

2.1 INTRODUCTION ........................................................................................................ 9

2.2 THE EMPIRICAL SECTION .......................................................................................... 9

2.2.1 The relationship between the concept of a clean audit and service delivery .... 9

2.2.2 Operation Clean Audit 2014 .......................................................................... 10

2.2.3 The legislative framework underpinning the process of auditing .................... 11

2.2.4 Effective performance management through committees in municipalities .. 13

2.3THEORETICAL SECTION: MULTIDIMENSIONAL PERFORMANCE MEASUREMENT .............. 14

2.3.1 Primary objectives: customer and financial perspectives ............................... 16

2.3.2 Secondary objectives: internal business processes ....................................... 16

2.3.3 Learning and growth ...................................................................................... 16

2.4 CONCLUSION ......................................................................................................... 17

CHAPTER THREE: RESEARCH METHODOLOGY ..................................................... 18

3.1 INTRODUCTION ...................................................................................................... 18

3.2 RESEARCH DESIGN ................................................................................................ 18

3.3 DATA COLLECTION METHODS .................................................................................. 19

3.4 STUDY POPULATION AND SAMPLING ........................................................................ 20

3.5 DATA ANALYSIS ..................................................................................................... 21

3.6 LIMITATIONS OF THE STUDY .................................................................................... 22

3.7 ETHICAL CONSIDERATIONS ..................................................................................... 22

3.8 CONCLUSION ......................................................................................................... 23

CHAPTER FOUR: PRESENTATION OF FINDINGS AND DISCUSSION ..................... 24

4.1 INTRODUCTION ...................................................................................................... 24

4.2 JOB POSITIONS ...................................................................................................... 24

4.3 UNDERSTANDING THE TERM ‘CLEAN AUDIT’ .............................................................. 25

4.4 ABOUT EXECUTING SERVICE DELIVERY ................................................................... 27

4.4.1 Experiences of about service delivery: a quantitative approach .................... 27

4.4.4.1 The absence of poor service delivery in the municipality ....................... 28

4.4.4.2 The existence of poor service delivery in the municipality ..................... 29

4.4.4.3 Experiences of about service delivery: a narrative approach .................. 30

4.4.CLEAN AUDIT REPORTS VERSUS SERVICE DELIVERY IN MUNICIPALITIES ..................... 41

4.5 FULFILLING THE AUDITOR GENERAL’S ESSENTIAL REQUIREMENTS ............................ 43

4.5.1 Fulfilling the AG’s essential requirements: a quantitative approach .............. 44

4.5.2Fulfilling the AG’s essential requirements: a narrative approach ................... 45

4.6PREVENTING SUSCEPTIBILITY TO LIMITATIONS AND FLAWS WHILE CONDUCTING AUDITS 49

4.7 CONCLUSION ......................................................................................................... 52

CHAPTER FIVE: CONCLUSION AND RECOMMENDATIONS ................................... 57

5.1 INTRODUCTION ...................................................................................................... 57

5.2CONCLUDING REMARKS .......................................................................................... 57

5.2.1 The impressing of auditing officers instead of beneficiaries or stakeholders .. 57

5.2.2The effect of excluding non-financial aspects in performance measurement .. 58

5.2.3 Adherence to the country’s laws and the constitution: service delivery .......... 61

5.3 RECOMMENDATIONS .............................................................................................. 63

5.4 CONCLUSION ......................................................................................................... 63

REFERENCE LIST ....................................................................................................... 65

APPENDIX 1: INTERVIEW GUIDE ............................................................................... 68

APPENDIX 2: PERMISSION LETTER TO CONDUCT THE STUDY ............................ 70

APPENDIX 3: AUDIT REPORT 2013 FOR AMATHOLE DISTRICT MUNICIPALITY ....... 71

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LIST OF TABLES

Table 4.1: Positions held by the participants ........................................................................... 25

Table 4.2: Perceptions of the participants of whether or not the ADM was adversely

affected by poor service delivery .............................................................................................. 28

Table 4.3 Perceptions concerning the fulfilling of the essential requirements of the AG 44

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CHAPTER ONE: INTRODUCTION AND BACKGROUND TO THE

STUDY

1.1 Introduction

This chapter provides the relevant background to the study and an introduction to

its theme, namely, an assessment of the relationship between clean audit reports

and service delivery in municipalities. The chapter commences by providing the

relevant background to the auditing of municipalities, before proceeding to

provide a formal problem statement, an enumeration of the goal and objectives of

the study, an articulation of the research questions and the significance of the

study, an overview of the research methodology, a clarification of relevant terms

and concepts, and a general outline of the structure of the thesis.

1.2 Background to the auditing of municipalities

Among the responsibilities of the Auditor General of South Africa (AGSA), the

first is to carry out the auditing of the financial statements of institutions at the end

of each financial year. Secondly, the carrying out of an audit also entails reporting

performance in relation to predetermined objectives, and, thirdly, it determines

whether there has been adherence to relevant laws and regulations. In order to

obtain a clean audit, an institution which has undergone auditing needs to be

assessed positively with respect to each of these three criteria (Audit outcomes

report, 2012/2013).

In cases in which any of these criteria is not met in an audit which has been

conducted by the Auditor General or AG, the audit will not be clean, even if one

or two of the criteria are fulfilled: for an institution to achieve a clean audit, all

three criteria need to be met. Today not many organisations, including

municipalities, have been found to be capable of achieving a completely clean

audit. In those instances in which a clean audit has been achieved, it has been

the consequence of synchronised efforts on the part of administrative and

political officials in order to make a concerted and purposeful attempt to remedy

an unsatisfactory state of affairs in a particular municipality or institution.

2

Those instances in which clean audit opinions in municipalities have been

achieved may be attributed to the willingness of the leadership to take a direct

and personal interest in the functioning of their institutions. The leadership in

these municipalities has demonstrated a sense of being both aware of the

functioning of their respective internal control environments, while at the same

time making a significant effort to ensure the proper monitoring of that control

environment. According to Van Vuuren (2012), citing Terence Nombembe, the

former Attorney General, the clean audit opinions which were obtained by some

municipalities resulted from a number of different factors. These include the

consistency of commitment towards taking ownership of the practices which

promote good performance in municipalities, the insistence upon employing

adequately qualified staff, and embracing effective performance management

practices.

In addition, endeavours towards achieving effective performance management in

municipalities are also effectively promoted through the overseeing roles which

are played by committees, including Municipal Account Committees (MPACs),

audit committees, and all other council committees. The roles of these

committees are defined briefly in section 2.2.4 of Chapter 2.

The distinction between an unqualified audit opinion and a clean audit outcome is

by no means always clear-cut. For this reason, the concept of a clean audit

needs to be investigated and evaluated critically, as it has been found, in most

cases, that municipalities are not likely to be able to satisfy all of the requirements

of the laws and regulations which have been introduced to guide their conduct.

The dynamics of governance are inevitably both fluid and complex, which often

makes it exceedingly difficult to discharge responsibilities effectively, while at the

same time remaining, at all times, strictly within the letter of all of the laws and

regulations pertaining to governance.

There have been instances of the very same municipalities which have been

awarded clean audit opinions being overwhelmed by protests which have been

related to poor service delivery (Muchaonyerwa, 2014). Occurrences of this sort

provide an indication that the AG does not conduct sufficiently meticulously

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detailed surveys to ensure that formally formulated plans are based upon the

realities of actual practice. The AG appears to depend on data which is received

from municipal officers, without verifying the validity of the data independently,

through its own field research.

The AGSA seems to be susceptible to a number of limitations and flaws, despite

the fact that its role of enforcing good governance is mandated by the

constitution. Some of these limitations and flaws are human in origin and

instances of favouritism, based on friendship and other similar problems, have

arisen during the conducting of audits. A strong case could be made for the need

to engage an independent body to conduct the analysing of the audit opinions

which are provided by the AGSA to the various institutions, within a specified

period. The aim of this study is to investigate the audit outcomes which have

been determined by the AGSA, through a comparative study of two municipalities

for the financial year 2013/2014. The study will focus on one municipality which

has received a clean audit opinion, and another, which was given an unqualified

audit report.

1.3 Statement of the research problem

From the outcomes of the audits of the AG, it is commonly found that some

municipalities achieve clean audits, despite the fact that they are overwhelmed by

protests which are related to service delivery. The protests indicate that the

municipalities in question are struggling to provide adequate service delivery at

the community level. This situation suggests that these municipalities are not

fulfilling one or more of the essential requirements of the three principal functions

of the AG. This possibility, in turn, could mean that their financial statements at

every financial year-end are unhealthy, that they are not performing in terms of

predetermined objectives, or that they are not always complying with the laws

and regulations governing their conduct. As a result, the simultaneous

occurrence of clean audit opinions being awarded and protests which are

attributed to service delivery makes the concept of a clean audit extremely

problematic, and it is unclear whether audit reports are a true reflection of what is

actually happening in the municipalities whose performance they purport to

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evaluate. Consequently, the aim of this study is to investigate the relationship

between the concepts of clean audits and service delivery, by making a study of

the audit outcome of the Amathole District Municipality for the financial year

2013/2014.

1.4 Purpose and objectives of the study

As the foregoing discussion suggests, the awarding of clean audit reports to

municipalities which are plagued by protests in response to poor service delivery

results in the concept of a clean audit becoming somewhat ambivalent.

Consequently, the aim of this study is to investigate the relationship between the

concept of a clean audit and service delivery in the Amathole District Municipality.

As the study entails an examination of the audit outcomes of the Amathole

District Municipality, an example of an audit report is provided in Appendix 3. The

goal of this study is articulated through the following specific objectives:

To provide an explanation of a clean audit within the context of conducting

an in-depth investigation of the concept of a clean audit as it is perceived

by the officials in the Amathole District Municipality whose work entails

concerns and activities pertaining to auditing.

To investigate the relationship between the concept of a clean audit and

service delivery in Amathole District Municipality.

To conduct a study in order to verify whether or not the concept of a clean

audit can be said to be meaningful when it is applied to municipalities by

the AG.

To conduct an investigation of the underlying factors which determine the

outcomes of audit reports in the Amathole District Municipality, namely,

those factors which contribute towards differences or similarities between

the outcomes of audits from one municipality to another.

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1.5 Research questions

The study has been conducted in order to answer the following research

questions, specifically in relation to the Amathole Municipality:

What do the officials whose work centres on municipal audits

understand by the term ‘clean audit’?

What is the nature of the relationship between clean audits and

service delivery?

Is the concept of a clean audit adhered to in municipalities in

accordance with the role which they play as government

institutions?

What are the underlying factors which contribute to either the

disparities or similarities between the outcomes of audits from one

municipality to another?

1.6 Significance of the study

This research study could contribute to the generating and consolidation of

knowledge concerning the auditing of municipalities. As not many studies have

been conducted concerning this research topic, to date, the knowledge which the

study generates could be invaluable. The results of the study and the

recommendations which are made on the basis of them could also provide

valuable guidelines to municipalities for making improvements to their auditing

systems and for broadening their understanding of the concept of a clean audit.

1.7 Overview of research methodology

The study made use of a qualitative research design. Semi-structured interviews

were conducted with municipal officials in order to generate the data. The

research sample was selected through purposive sampling.

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1.7.1 Clarification of terms and concepts

In order to clarify the terms and concepts which are used in this study, working

definitions of the concepts which are used to evaluate audit opinions and

outcomes are provided below.

Clean audit outcome: This term refers to financial statements which are free from

material misstatements. This appraisal implies an audit opinion which is

financially unqualified and in which there have been no material findings in the

reporting concerning the failure of performance objectives to be met or non-

compliance with relevant legislation. A clean audit outcome indicates that:

The financial statements and annual reports of a municipality have been

prepared in compliance with the appropriate principles, which have been

consistently applied.

The statements and annual reports comply with all of the relevant statutory

requirements and regulations.

There has been sufficient disclosure of all material matters which are

relevant to the proper presentation of the financial information, subject to

statutory requirements, in those instances in which they are applicable.

Any changes in the accounting principles or in the method of their

application and the effects which result from them have been determined

correctly and disclosed in the financial statements.

There has been compliance with all relevant laws and regulations in all

significant respects.

The reporting concerning service delivery or with respect to predetermined

objectives is accurately represented in accordance with the statutory

frameworks.

Financially unqualified audit opinion: The financial statements of an unqualified

audit opinion contain no material misstatements. If the Auditor-General does not

pronounce an audit outcome to be clean, there will be findings which indicate

either unsatisfactory reporting concerning predetermined objectives, or non-

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compliance with relevant legislation, or a failure to fulfil both of these

requirements.

Qualified audit opinion: The financial statements in a qualified audit either include

a significant number of material misstatements, or there may be insufficient

evidence to prove that specific amounts which are included in the financial

statements have not been materially misstated.

Adverse audit opinion: In an adverse audit opinion, the financial statements either

include material misstatements which are not confined to specific amounts, or a

substantial number of the financial statements are misstatements.

Disclaimer of audit opinion: This procedure is followed when the entity which is

audited has provided insufficient documented evidence for the purposes of

arriving at an audit opinion. This insufficiency is not confined to specific amounts,

and neither does it represent a substantial portion of the information which is

contained in the financial statements.

1.8 Outline of the study

Chapter 1: Introduction. This chapter serves as an introduction and is devoted to

providing the relevant background information pertaining to the study.

Chapter 2: Literature review. This chapter takes the form of a comprehensive

review of all of the relevant available literature, in order to provide an adequate

theoretical framework for the study.

Chapter 3: Research methodology. This chapter is devoted to a comprehensive

discussion of the methodology which was employed in order to conduct the

study. The research design, the methods which were used to collect and analyse

the data, the research population, the research sample, the techniques which

were used to select the research sample, and the ethical standards which are

applicable to the conducting of research in the social sciences are all covered in

detail.

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Chapter 4: Presentation and discussion of the findings. In this chapter the

findings of the study are presented, analysed, and interpreted.

Chapter 5: Conclusion and recommendations. This chapter presents the

conclusions which were drawn from the findings and makes recommendations on

the basis of the conclusions, before closing with concluding remarks.

1.9 Conclusion

The chapter has served to introduce the research topic by providing a general

background concerning the nature of the study and its objectives in the

conducting of an assessment of the relationship between clean audit reports and

service delivery in municipalities. In the next chapter, the relevant available

literature from which the theoretical framework of the study was developed is

reviewed.

1.10 Summary

This chapter has endeavoured to provide a clear elucidation of the concept of a

clean audit opinion, which, in the considered opinion of the researcher, tends to

take on an ambivalent character in certain contexts, owing to the fact that, in

some instances, clean audit opinions are awarded to municipalities in which

vociferous and even violent protests erupt in response to perceived poor service

delivery. In these instances it appears to be extremely unlikely that audit reports

provide a true reflection of the actual functioning of the municipalities whose

performance they purport to evaluate.

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CHAPTER TWO: LITERATURE REVIEW

2.1 Introduction

The literature which is reviewed in this chapter is divided into two sections. The

first is devoted to the empirical literature, in which the relevant available

information concerning the relationship between the concept of a clean audit and

service delivery (Operation Clean Audit, 2014), the legislative frameworks which

underpin the process of auditing, and effective performance management

through committees in municipalities is evaluated. The second section covers the

relevant theoretical literature, specifically in relation to multidimensional

performance measurement.

2.2 Empirical literature

2.2.1 The relationship between the concept of a clean audit and service

delivery

Research concerning the concept of a clean audit has been conducted by

researchers such as Mpehle and Qwabe (2006) and Muchaonyerwa (2014). A

clean audit outcome is desirable for any municipality or government department,

as it indicates that the organisation is functioning adequately, which, in turn

serves to boost the confidence of the public and to promote accountability. High

levels of confidence and accountability are usually indicative of a municipality or a

government department providing adequate service delivery to the members of

the community which it serves (Muchaonyerwa, 2014).

As has been noted, it is not always the case that clean audit reports are indicative

of municipalities necessarily functioning adequately, and numerous municipalities

which have received clean audits have been confronted with protests concerning

service delivery, which reveals that they are, in fact, not responding adequately

to the needs of their communities (Mpehle and Qwabe, 2006:259). In addition,

there are also cases of municipalities which are in dire financial straits, but it

appears that these municipalities do not receive disclaimer audit results

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(Muchaonyerwa, 2014). This finding suggests that the negative audits which are

given to those municipalities are, for all intents and purposes, kept concealed.

This state of affairs gives rise to concerns concerning the efficacy of audit reports

as a means of measuring the performance of municipalities (Notshikila and

Govender, 2014). The risks which are associated with audit reports include the

possibility that they may concern themselves only with technical concerns and

tend to ignore the underlying internal controls and other aspects of sound

financial management. The key internal controls include those mechanisms

which ensure the orderly and efficient carrying out of the activities and

responsibilities of municipalities and government departments, their adherence to

laid down policies, their compliance with the relevant regulations and laws, the

safety of their assets and that records are adequately maintained, in order to

ensure, in turn, that they are reliable, complete, and accurate. By contrast, sound

financial management may also refer to undertakings such as verifying whether

the resources of an organisation, be they human, financial or other relevant

resources, have been used efficiently (Mpehle and Qwabe, 2006).

Although a clean audit outcome should indicate that the performance of a

municipality with respect to service delivery is adequate, the fact that protests in

response to poor service delivery have erupted in municipalities which have

received clean audit outcomes provides conclusive evidence of the problematic

nature of using audit outcomes as a means of determining and ensuring

adequate service delivery to communities.

2.2.2 Operation Clean Audit 2014

Among the key achievements of the post-apartheid South African government in

the domain of audit reports has been the initiating, in 2009, of a campaign known

as Operation Clean Audit 2014 or OCA, under the auspices of the former

Department of Traditional Affairs (Muchaonyerwa, 2014). OCA was introduced as

a means of ensuring that by the end of 2011, none of the two hundred and

eighty-three (283) municipalities in South Africa would receive either a disclaimer

11

or an adverse audit opinion in their audit reports, and that by 2014 all

municipalities would have clean audit reports (Steytler and Ayele, 2011).

However, over time it became apparent that these targets were unrealistically

ambitious. Despite the 2014 deadline for clean audit reports, the reports for the

2013 financial year revealed that only 9% of municipalities had achieved clean

audits (Muchaonyerwa, 2014). The inescapable conclusion was that the target

deadline of 2014 had been an ambitious but unfeasible goal.

Although the need for municipalities to achieve clean audits is irrefutable, as

doing so is indicative that a municipality functions adequately as an entity,

although a clean audit report does not necessarily always present all of the

relevant facts pertaining to the overall performance of a municipality

(Muchaonyerwa, 2014). Some municipalities tend to be hamstrung by several

problems, including inadequate or inefficient service delivery, corruption, a lack of

capacity as a result of a lack of adequately skilled and knowledgeable officials

(Notshikila and Govender, 2014: 4), unfilled essential positions, and senior

officials performing duties for which they lack the minimum levels of skills and

competency (Media Release, 13 August, 2013). Despite the fact that it

represented a commendable desire to make all municipalities fully functional, the

inevitable conclusion which needs to be drawn is that Operation Clean Audit

2014 was not a success.

2.2.3 The legislative framework which underpins the process of auditing

The auditing of municipalities and government departments is governed by

several legislative frameworks, including the Municipal Systems Act (2000), the

Municipal Finance Management Act (2003), the Public Audit Act (2004) (Act No.

25 of 2004), and the Auditor-General Act (Act No. 12 of 1995). The respective

roles which are played by each of these pieces of legislation are detailed below.

The Public Audit Act, 2004: Section 4(1) (d) of the act stipulates that the Auditor-

General has the duty to audit and report on all matters pertaining to financial

management in all of the municipalities, including their financial statements and

12

accounts. Section 20 (3) stipulates that the AG is responsible for reporting

whether the resources which were procured by municipalities were procured in

an economical manner and used effectively and efficiently (Mpehle and Qwabe,

2006: 265).

The Municipal Systems Act, 2000: Section 41(c), sections (i) and (ii), require

every municipality to be responsible for monitoring, measuring, and reviewing

their performance at least once a year. In cases in which a municipality should

fail to deliver services or to meet its targets, Section 41(d) compels the

municipality concerned to institute procedures in order to improve its

performance in terms of its development priorities and objectives in those areas

in which it has failed to meet its targets for performance (Mpehle and Qwabe,

2006: 264). Section 45 of the act stipulates that it is necessary to audit the

outcomes of measuring performance, and that this procedure needs to be

carried out internally in the course of internal audits and externally by the

Auditor-General. In addition, Section 14(1) (c) requires internal auditors to audit

the performance of municipalities continuously and to submit quarterly reports to

their municipal managers and audit committees (Notshikila and Govender, 2014:

5).

The Municipal Finance Management Act, 2003: The act serves to delegate the

responsibility for “the economic, efficient and effective use of resources to the

accounting officer of a municipality” (Mpehle and Qwabe, 2006: 264).

The Auditor-General Act: Section 3(4) of the act requires that the AG should be

reasonably satisfied that acceptable processes of management have been

adhered to in order to ensure that the use of those resources which are available

is made in a manner which is economical, efficient, and effective, and that reports

to this effect should be submitted to the appropriate legislative bodies (Mpehle

and Qwabe, 2006: 264).

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2.2.4 Effective performance management through committees in

municipalities

Municipal Account Committees: An MPAC is comprised of both internal and

external stakeholders and its responsibilities include overseeing the annual

reports and annual financial statements of the municipality which it serves.

Audit committees: The role of an audit committee in a municipality is to ensure

that the council is discharging its responsibilities. Its role is to ensure that

systems of internal controls are functioning properly, and, when it is appropriate

to do so, it advises the council of instances of irregularities in the municipality

concerned. Fitzgerald and Giroux (2014: 67) concur with this assessment of the

role of audit committees, by maintaining that audit committees constitute a

significant mechanism for monitoring the performance of municipalities in large

cities, in an overall endeavour to improve the quality of reporting on matters

pertaining to municipal finances.

Municipal councils: A municipal council, which is generally referred to as the

council in many contexts, has a great number of responsibilities, among which is

ensuring that the activities of the municipalities which it serves are carried out in

accordance with the achieving of clean audits. The responsibilities of a municipal

council, in this respect, are summarised below:

To encourage the functioning of the council in a way that fosters

accountable governance.

To ensure that the standing rules of the council are in accordance with the

goals of clean and accountable governance.

To ensure that the scheduled meetings of the council coincide with the

time frames of reporting which are required by the relevant legislation,

such as convening meetings during January, in order to ensure the

presenting of annual reports in council.

To facilitate the election of committee appropriate structures to oversee

the performance of the council.

14

To nurture a democratic environment which is conducive to vigorous

debate, concerning reports.

To develop the capacity of both councillors and committees to perform

their overseeing roles effectively.

2.3 Theoretical literature: Multidimensional performance

measurement

The theoretical framework of this study is provided by the theory of

multidimensional performance measurement and the concept of the balanced

scorecard. Before proceeding to define the concepts of multidimensional

performance measurement and a balanced scorecard, it would be advisable to

examine the concept of performance measurement or PM with respect to the

public sector.

Performance measurement is of particular importance in the public sector,

particularly in the context of local government, as this tier of government has

direct contact with the members of the communities to which it is mandated to

deliver services. The significance of PM is inherent in the responsibility which the

public sector has to be accountable to a “wider set of stakeholders” (Brignall and

Modell, 2000: 282), such as taxpayers, political organisations, civic society

organisations, and so on. These stakeholders have a diverse range of

expectations, which concern all levels of governance, with respect to increasing

effectiveness and efficiency in government operations. However, to date, PM

seems to have tended to confine its activities to the financial concerns of

organisations, while ignoring their non-financial concerns. Kloot and Martin (2000:

231) explain that conventional PM systems have tended to concentrate on

developing indicators which make evaluations mainly according to the criteria of

economy, in terms of inputs, and efficiency, in terms of costs. As a result they

have been criticised for not taking into account those dimensions of performance

which are not directly related to financial considerations and which are measured

according to other criteria.

15

In addition, the tendency to be preoccupied with narrow criteria for measuring

performance has been considered by researchers such as Emmanuel et al.

(1990), cited by Kloot and Martin (2000: 231), as being inadequate in terms of

measuring the overall performance of organisations. This conclusion suggests

that measurements of financial performance alone do not provide those who are

tasked with making decisions with the broad spectrum of information which they

require concerning the organisations in question. As an example, objectives are

usually presented in the public sector in terms which are not financial, which

makes it necessary to make use of non-financial criteria to measure performance,

as financial criteria alone would not provide a sufficiently comprehensive

assessment of the performance of an organisation (Kloot and Martin, 2000: 231).

For this reason, it is necessary to adopt a multidimensional approach to the

measurement of performance.

Multidimensional performance measurement makes use of a combination of

criteria for measuring performance, which include both financial criteria and

criteria which are not financial (Kaplan and Norton, 1996: 64). Financial criteria

include operating income, return on investment, the adding of economic value

and, so on. Among the criteria which are not based on financial considerations

are concerns such as customer satisfaction and the attitudes of employees

(Kaplan and Norton, 1996: 53, 55). Various models of multidimensional PM have

been adopted by a diverse range of organisations as a means of improving their

working performance. These include the Balanced Scorecard of Kaplan and

Norton (1992), the Results and Determinants Framework of Fitzgerald et al.

(1991), and the Performance Pyramid of Lynch and Cross (1991). This study is

concerned only with the Balanced Scorecard.

The Balanced Scorecard is a system which provides organisations with a

comprehensive framework by means of which they may facilitate the translating

of both vision and strategy into a coherent and interlinked set of criteria for

measuring performance. This model proposes that the functioning of an

organisation may be defined according to four specific perspectives, namely,

“customer, financial, internal business processes, and learning and growth”

perspectives (Kaplan and Norton 1996: 55). The customer and financial

16

perspectives may be regarded as the primary objectives of an organisation, while

the internal business processes would be secondary objectives. The third

perspective is not categorised in terms of objectives. Kloot and Martin (2000:

282) maintain that primary objectives concern the measuring of results, in terms

of either services which have been delivered or deliverable services. Secondary

objectives are concerned with the determinants of results, with respect to how the

services should be delivered to the customers.

2.3.1 Primary objectives: Customer and financial perspectives

Primary objectives may be described as being externally-oriented (Kloot and

Martin, 2000: 231). They entail fulfilling the needs of stakeholders who are

outside of the organisation, such as customers and shareholders. The objectives

in relation to the customers include verifying whether an organisation is delivering

services or products which are of sufficiently high quality to its customers. In the

case of shareholders, the performance of an organisation may be determined by

whether or not its shareholders are receiving adequate returns on their

investments in the organisation.

2.3.2 Secondary objectives: Internal business processes

Secondary objectives are internally-oriented and concern how an organisation

“chooses to pursue its primary objectives” (Kloot and Martin, 2000: 231). The

question which needs to be asked concerning secondary objectives with respect

to internal processes is: “In which business processes should an organisation

excel, if it is to be to be able to fulfil the needs of its customers and

shareholders?” (Kaplan and Norton 1996: 54).

2.3.3 Learning and growth

The learning and growth perspective concerns the identification of the

infrastructure which needs to be created by an organisation in order to promote

long-term growth and improvement (Kaplan and Norton, 1996: 63). An example

could be provided by the need for organisations to make use of the most

advanced technologies which are available in terms of equipment such as

computers, in order to become and remain competitive in the market. From this

17

assertion it follows that, at the same time, the staffs of organisations need to

receive training, in order to make optimal use of equipment which is continually

being upgraded, in order to keep pace with technological advances and remain

competitive.

2.4 Conclusion

This review of the relevant available literature has endeavoured to provide a

comprehensive overview of the significance of clean audit outcomes by

integrating the contributions which various researchers and writers have made to

the discourse. It has emerged that a clean audit outcome, which implies that the

service delivery of the municipality concerned had been effective, can be

problematic in instances in which the eruption of protests concerning service

delivery in municipalities which have received clean audit reports demonstrates

quite incontrovertibly that they have been not performing effectively. The chapter

also revealed that Operation Clean Audit 2014 had represented an ambitious but

unachievable goal. The various legislative frameworks which govern the auditing

of municipalities and departments of governments were covered in detail in this

chapter. The various committees which serve municipalities play a key role in

managing their performance. Finally, it was found that performance measurement

in organisations tends to be confined to financially-based considerations, to the

detriment of non-financial ones. The next chapter will be devoted to a

comprehensive description of the research methodology which was adopted and

developed in order to conduct the study.

2.5 Summary

This chapter, through the conducting of a review of the relevant available

literature, has revealed that a clean audit outcome can have a diverse range of

different implications for municipalities, although it would normally be assumed

that service delivery in a municipality which has received a clean audit outcome

should be at least adequate. As the value and validity of a clean audit outcome

appears to be questionable in certain instances, an in-depth investigation of the

relationship between clean audit outcomes and service delivery is not only

justified, but also a necessity.

18

CHAPTER THREE: RESEARCH METHODOLOGY

3.1 Introduction

This chapter provides a detailed overview of the research methods which were

employed in order to conduct the study, with the ultimate aim of arriving at

appropriate and satisfactory answers to the research questions. The chapter

begins with a discussion of the research design, followed by descriptions of the

methods which were used to collect the data, the research population, the

research sample, the techniques which were used to select the research sample,

and the procedures which were followed in order to analyse the data, before

enumerating the limitations of the study and the ethical standards for conducting

professional research in the social sciences which were adhered to at all times

during the conducting of the study.

3.2 Research design

A qualitative research design was used to conduct this study. Qualitative

research is very often conducted in surroundings which are familiar to the people

who agree to participate in particular research studies. It is an approach to

research which is well suited to studying the attitudes and behaviour of people, in

order to be able to understand them in the context of how their lives are lived

within their own environments. Qualitative research enables researchers to view

the world through the eyes of the participants in their studies, as it recognises the

need to understand the people in relation to their subjective perceptions,

opinions, beliefs, histories, and environments (www.agsa.co.za). It enables the

actions and responses of the participants to be described in great detail, by

allowing them to give their own accounts of their experiences, perceptions,

beliefs, and opinions (Babbie and Mouton, 2001: 270). In this study, qualitative

research methods were chosen in order to permit the participants to describe, in

their own words, their perceptions of what was actually taking place in their

working environments and the conditions which constituted significant factors for

the outcomes of audit reports. The nature of qualitative research also enabled

http://www.agsa.co.za/

19

the researcher to obtain an in-depth understanding of the realities and dynamics

which prevail within the municipalities in which the study was conducted.

3.3 Methods employed to collect data

The data was collected from semi-structured interviews, which are sufficiently

open and flexible to allow participants to express their own perceptions, beliefs,

and opinions and to clarify their answers, should the interviewer require them to

do so. In this respect qualitative research stands in sharp contrast to the methods

which are used in quantitative research, in which respondents are obliged to

choose their answers from a series of fixed and predetermined options to an

equally fixed and predetermined set of questions (Babbie and Mouton, 2001: 289;

Mack et al., 2005: 3).

Babbie and Mouton (2001) maintain that the strength of semi-structured

interviewing lies in the fact that probing techniques can be incorporated into the

open-ended questions which can be asked in interviews of this sort. Open-ended

questions enable respondents to craft their own responses to the questions which

are put to them. Secondly, probing for information entails researchers listening

carefully to the answers which are given by the participants, who are engaged in

accordance with their individual personalities and ways of expressing

themselves. The intention behind probing questions is to encourage participants

to expand and to elaborate upon their responses by asking them questions which

begin with interrogatives such as ‘why’, ‘how’, and so on (Mack et al., 2005: 4).

The ability of semi-structured interviews to allow participant sufficient flexibility to

reply to questions from own perspectives was of particular value for enabling the

researcher to acquire descriptive information in relation to vital concerns

pertaining to the conducting of audits in municipalities.

The interviews were arranged by making appointments with the participants,

either by telephone or through e-mail correspondence. Some of the interviews

were conducted by the researcher in the offices of the participants. These

interviews took place mainly in the Amathole District Municipality, as the

researcher works in the same complex of municipal offices as the participants

20

from this municipality. The option of using telephone interviews was considered in

those cases in which gaining access to participants at work was unlikely to be

accomplished easily. The same procedures for conducting semi-structured

interviews were followed for the telephone interviews.

Although the interviews were conducted in English, the option of interviewing in

IsiXhosa was kept open, whenever the need to do so arose, in order to meet the

needs of particular participants. The interviews were scheduled to have a

duration of between 30 and 40 minutes each. Field notes were taken in English

during the course of the interviews.

3.4 Research population and sampling techniques

The research population for this study comprised all of the municipalities in the

province of the Eastern Cape. Babbie and Mouton (2001) define a research

population as a large all-inclusive collection of the people, objects, or entities

which constitute the specific field of interest of a particular researcher. As it would

usually be impractical to attempt to study an entire population with respect to a

specific phenomenon, researchers are obliged to determine the size of the

sample of the population which would be representative of the population as a

whole, for the purposes of a particular study (Babbie and Mouton, 2001).

Purposive sampling was used to select the research sample. Purposive sampling

entails the selection of participants or respondents according to specific criteria,

such as culture, age, or work experience. Unlike the methods which are often

used to select samples in quantitative research, purposive sampling is not

performed randomly (Law et al., 1998: 6). Selecting a sample purposively makes

use of the knowledge of individual researchers of the populations which they

intend to study, their constituent elements, and the nature of the aims of their

individual studies (Babbie and Mouton, 2008: 166). Purposive sampling was

preferred for the purposes of this study, because it allowed the researcher to

select a sample of participants who fulfilled specific criteria which had been

identified. The Amathole District Municipality in the Eastern Cape province was

21

selected in order to obtain comprehensive data concerning a municipality which

had not received a clean audit report.

Officials who were employed by the municipality were purposively selected for

their ability to provide answers which would enable the research questions to be

answered. They were selected on the basis of the knowledge of the researcher of

the organisational structure of the municipality, which enabled her to identify

potential participants who were best qualified to provide the information which

was needed in order to answer the research questions. Officials from various

levels were selected in order to obtain a diverse range of perceptions, opinions

and attitudes. Eight (8) were selected, to yield a research sample which was

comprised of one official per position in the municipality, including one officer

from the office of the Auditor-General). The sample was made up as follows:

1 Senior manager

1 Senior manager: accounting and reporting

1 Senior manager: internal audits

1 Senior manager: revenue

1 Manager: the Auditor-General’s office

1 Senior accountant

1 Accountant

1 Councillor

3.5 Analysis of the data

The analysing of qualitative data refers to the process of breaking data down into

manageable themes, trends, patterns, constructs, and relationships (Mouton,

2006: 108). In this study, the data which had been collected was analysed by

means of coding. According to Babbie and Mouton (2008: 499), coding entails

taking the content of portions of recorded texts which have been derived from the

responses of the participants and labelling them according to categories or codes

which are meaningful to the researcher concerned.

22

3.6 Limitations of the study

As the researcher was in full-time employment, restrictions were inevitably placed

upon the time which was available to her to pursue her studies and to conduct

research. This disadvantage was offset, to a very great extent, by the fact that the

study was to be conducted in the municipality in which she worked and with

which she was familiar. The potential participants were easily accessible and

arranging appointments for interviews was accomplished with a minimum of

effort, as the researcher already knew several of them personally.

3.7 Ethical considerations

Particular attention was given to the following ethical considerations during the

conducting of this study:

The researcher ensured that all of the participants agreed to participate in

the study after giving their informed consent to do so in writing.

During the initial stages of each interview session, the purpose of this

study was explained to each participant before the interview proceeded.

They were informed that their participation was completely voluntary and

that they had the right to withdraw from participating at any time during the

course of the interview session if they felt the need to do so, without

needing to fear negative consequences of any sort whatsoever, should

they elect to withdraw their participation.

Trust between the researcher and the respondents was established by

means of creating rapport with them during the initial stages of the

interviews.

Care was taken not to disrupt the daily duties of the interviewees and most

of them were interviewed in their offices.

The confidentiality of the information which was provided by participants

was maintained at all times. The information was not revealed to anyone

who did not participate in the study. The names of the participants would

not be disclosed in the research report which would be produced at the

23

end of the study. The researcher concerned herself with only the ideas,

perceptions, opinions, and beliefs of the participants, and not the identities

of the participants, and it would not be possible to associate any ideas or

thoughts which were expressed with any particular individual participant.

3.8 Conclusion

This chapter has provided a comprehensive overview of the research

methodology which was adopted and developed in order to obtain qualitative

data, through the conducting of the semi-structured interviews with officers who

were employed by the two municipalities which were selected to participate in the

study. In the following chapter, the findings of the study will be presented,

analysed, and discussed in detail.

3.9 Summary

The purpose of this chapter was to provide an adequate account of the

systematic procedures which were followed in order to arrive at credible and valid

answers to the research questions, in order to establish that the aims and

objectives of the study had been achieved. It also provided a detailed summary of

the ethical standards which are applicable to the conducting of research in the

social sciences, which were scrupulously adhered to at all times during the

conducting of the study.

24

CHAPTER FOUR: PRESENTATION AND DISCUSSION OF THE

FINDINGS

4.1 Introduction

This chapter is devoted to a presentation, an analysis, and a discussion of the

findings of the study, in relation to both the aims and objectives of the study and

the research questions. The chapter begins with a discussion of the positions

which were held by the participants at the time at which the study was conducted,

followed by a discussion of the implications of the term ‘clean audit’, the problems

which are encountered by municipalities with respect to providing adequate

service delivery to the communities which they serve, the anomalies which have

emerged in relation to clean audit reports and service delivery in municipalities,

and the fulfilling of the essential requirements of the Auditor-General.

4.2 Professional positions held by the participants

Of the 8 officers who participated in the study, 7 were ADM officers and the

remaining participant worked in the office of the Auditor General. Those who

were employed by the ADM comprised a senior manager, a senior manager for

accounting and reporting, a senior manager for internal audits, a senior manager

for revenue, a senior accountant, an accountant, and a councillor. The participant

who worked in the office of the Auditor-General held the position of a manager.

These positions are shown in Table 4.1 below.

25

Table 4.1: Positions held by the participants

Position Institution No. of responses

Senior manager ADM 1

Senior manager: Accounting & reporting

ADM 1

Senior manager: Internal audits ADM 1

Senior manager: Revenue ADM 1

Manager The office of the Auditor-General

1

Senior accountant ADM 1

Accountant ADM 1

Councillor ADM 1

Total 8

4.3 Perceptions of the term ‘clean audit’

This section surveys the appraisals of the term ‘clean audit’ which were provided

by the officers of the Amathole District Municipality who participated in the study,

which are presented below:

The concept of a ‘clean audit’ means that the financial statements which

are submitted by the officers of a municipality during the auditing process

present a fair and accurate picture of the municipality and they (financial

statements) need to comply with generally accepted accounting principles.

A clean audit report is a term which is used by the Auditor-General as a

means of confirming that a particular institution is in full compliance with

the General Accepted Accounting Principles (GAAP), and its financial

affairs are maintained in a manner which is effective and efficient.

A clean audit report implies that the financial statements of an institution

are free from material misstatements; in other words, a financially

unqualified audit opinion, and that there are no material findings in the

reporting concerning failure to meet performance objectives or non-

compliance with the legislation.

26

It is an audit opinion without any emphasis on matters pertaining to

non-compliance with rules and regulations, which means that all of

the controls, finances, and service delivery obligations are in order.

It also means that an institution has fulfilled all of the requirements

of the Auditor-General.

The Auditor-General forms an opinion concerning whether all

material aspects of the financial statements have been prepared in

accordance with the applicable financial reporting framework, and,

in this instance the Auditor-General concludes that, except for

specifically listed insubstantial misstatements, the financial

statements remain a fair reflection.

The office of the Auditor-General scrutinises the annual financial statements of

municipalities, in order to ascertain whether they fulfil all of the legal prerequisites

for financial management as they are enshrined in the Municipal Financial

Management Act (MFMA) No. 53 of 2003. The aim is to modernise budget and

financial management practices by placing local government finances on a

sustainable footing, in order to maximise the capacity of municipalities to deliver

services to all of their constituencies. As audits are conducted in accordance with

prevailing auditing standards and audit reports are not in any way a substitute for

good financial management, there is a high risk that the scope of audit reports

may be confined to technical concerns pertaining to accounting only, rather than

encompassing underlying internal controls and other elements of good financial

management. Consequently, more consideration needs to be given to the nature

of the concerns and criteria which have informed audit opinions to date (PDG and

Akhil, 2010:58).

In addition, March and Sutton (1997: 698) warn that inferences concerning the

factors which contribute to performance cannot be made only from the data which

is available internally in an organisation. External audits have a vital role to play,

as they provide an independent means of examining information in order to

express an opinion concerning whether the performance of an organisation

27

meets set standards or not. External audits, particularly by the office of the

Auditor-General, perform a key function in organisations, as they provide

independent assessments of their affairs, which is of particular importance to

external stakeholders who have vested interests in a particular organisation.

Consequently, reports which assess the performance of organisations need to be

based not only on data which is available internally. It is also necessary for the

performance of organisations to be assessed through conducting investigations

of their external affairs.

4.4 Factors which militate against effective service delivery

This section is devoted to an investigation of the factors which served to preclude

the ADM from providing effective service delivery during the 2013/2014 financial

year, particularly with respect to service delivery which has resulted in

expressions of intense dissatisfaction on the part of the members of communities

towards the municipality as an agent of local government. In this context the

participants were asked to indicate whether or not they believed that the

municipality had experienced difficulty in providing effective service delivery to all

of the communities which it serves. The participants were asked to begin with a

simple “yes” or “no” response and then to elaborate. This section is divided into 2

subsections, namely, an investigation of instances of failure to provide effective

service delivery in order to generate quantitative findings, and a narrative account

of the difficulties which have been experienced with respect to providing effective

service delivery.

4.4.1 Failures with respect to service delivery: A quantitative appraisal

The responses of the participants in relation to their perceptions of the failure of

the municipality to provide effective service delivery are shown in Figure 4.2

below. Of the 8 respondents, 5 gave a “no” response, which indicated that they

believed that the Amathole District Municipality was not adversely affected by

unsatisfactory service delivery. However, the remaining 3 participants gave a

“yes” response, which provided evidence of a diametrically opposed perception.

28

Table 4.2: Perceptions of the participants of whether or not the ADM was adversely affected by poor service delivery

4.4.4.1 The absence of poor service delivery in the municipality

The 5 officials who indicated that they believed that the ADM was not adversely

affected by poor service delivery based their responses on the fact that all of the

budget which had been allocated for specific projects had been used as it had

been intended to be used. According to laid down procedures, municipalities are

required to have formalised plans and strategies for providing particular services

to residents in their jurisdictional areas. However, in numerous instances these

plans, and the promises which accompany them, evolve into nightmares as

municipalities throughout the country struggle to work in a manner which enables

targets which have been set to be met. In the case of the Amathole District

Municipality during the 2013/2014 financial year, all of the targets for service

delivery were met and the allocated budget was spent. This process was

monitored by means of a performance management system tool which is known

as the SDBIP (Service Delivery and Budget Implementation Plan).

In addition, the communities which were the beneficiaries of these projects did

not express any dissatisfaction in the form of protests or related activities

concerning service delivery. When communities are frustrated with the slow pace

of service delivery, they are required to engage with their municipalities before

engaging with other spheres of government. According to chapter two of the Bill

of Rights of the Constitution of the Republic of South Africa (Act 108 of 1996), it is

the responsibility of the government to ensure that the services which are

provided by municipalities are received by all communities, within the limits of

available resources. In the Bill of Rights, citizens have the right to take action

against municipalities if they believe that their constitutional rights have been

Response No. of responses

No 5

Yes 3

Total 8

29

infringed upon. Consequently, receiving adequate services is not a privilege, but

a legitimate right. It may be concluded that the Amathole District Municipality has

fulfilled its responsibility to ensure that services are received by all communities

in the Amathole region during the 2013/2014 financial year.

4.4.4.2 The prevalence of poor service delivery in the municipality

Evidence of poor service delivery was provided by the perceptions of 3 of the

participants. Poor service delivery is inevitably a reflection of the adoption of poor

governance practices, which include, inter alia, poor administration. Poorly

functioning administrations result in poor levels of service delivery to the public

and are often characterised by instances of large-scale fraud, with large portions

of funds, which had been allocated to service delivery, going missing without

being accounted for (Nevondwe and Matotoka, 2013). Consequently, instances

of poor service delivery are symptoms of either poor governance practices or

inadequate administration. Unfortunately, these symptoms are frequently

associated with multifaceted problems for municipalities, such as protests in

response to poor service delivery, which often result in the destruction of

government property and much-needed facilities in communities, such as schools

and clinics.

In addition, the failure to adopt and adhere to principles of good governance,

such as ethical leadership and compliance with accepted laws, codes, rules, and

standards, results in problems pertaining to service delivery, which can be

directly attributed to corruption and fraud. According to Nevondwe and Matotoka

(2014: 15-16), as the local level of government is characterised by poor financial

controls, fraudulent activities are rife. Consequently, there is an urgent need for

the adoption of and the adherence to the principles and practices of good

governance as mechanisms for promoting and improving the delivery of public

services at the local level of government in South Africa.

The two variables which are represented by poor service delivery and poor

governance practices should be regarded as being both interdependent and

mutually inclusive. Although a clean audit outcome ostensibly shows that the

30

performance of a municipality with respect to service delivery is effective,

receiving a clean audit report does not always imply that a municipality is

performing effectively, which makes the concept clean audit outcome

problematic in certain instances. This finding suggests that the Auditor-General

should balance the need for achieving clean audit outcomes with ensuring

effective service delivery to the communities which need it most.

4.4.4.3 Evaluations of service delivery: A narrative appraisal

a) Problems which result from poor service delivery

A significant number of participants revealed that the municipality had been

plagued by poor service delivery during the financial year with which this study is

concerned. The nature of the problems which resulted in instances of poor

service delivery is analysed in the sections which follow

The mandate of the municipality is to provide basic services such as water

and sanitation to communities. However, the endeavour to fulfil this

mandate is undermined by several different factors. The insufficient supply

of potable water is aggravated by dilapidated infrastructure, such as

machinery for water treatment, water reticulation systems, and ageing

pipes, which require large sums of money to be repaired, in order to be

able to transmit sufficient water to communities. In some instances,

connection problems prevent water from reaching certain parts of

communities, which is further aggravated by the steadily rising demand for

the water and sanitation services which municipalities are mandated to

provide to the communities which they serve. In addition, ageing and

obsolete infrastructure, such as the underground pipes which transmit

water to taps, often causes great losses of precious water resources,

owing to leakages, which further strains the abilities of municipalities to

deliver water to communities.

The inadequate delivery of basic services to communities is in direct

conflict with the provisions of the constitution, which assigns to

31

municipalities the responsibility of ensuring that all citizens are provided

with services to meet their basic needs. The most important of the services

which municipalities provide to communities are water, sewage and refuse

disposal, and health services. The availability of these services has a

direct and immediate influence on the quality of the lives of the people in

particular communities. For example, if the water which is provided is of

poor quality or refuse is not collected regularly, unhealthy and unsafe living

environments will be among the inevitable consequences. As poor

municipal services can also make it difficult to attract businesses or

industries to areas which have been targeted for economic development,

opportunities for employment continue to be limited for the residents of the

communities concerned. The Amathole District Municipality is responsible

for providing services in the form of water, sewage disposal, refuse

collection, and health services to the communities which it serves.

The efficient and effective use of financial resources by municipalities is of

crucial importance for ensuring optimal service delivery. In order to prevent

the expressions of anger which have characterised demands for improved

service delivery in many communities, municipalities need to learn to

adhere to the laws of the country, beginning with the constitution, as it

guarantees the basic rights of all people, the key pieces of legislation

which govern and regulate municipal workers, and laws such the MFMA

(Municipal Finance Management Act) and the MSA (Municipal Systems

Act). Strict adherence to the laws of the country by municipalities would

make a significant contribution to ensuring improved service delivery. In

the case of the ADM, it was found that the relevant laws and regulations

had been adhered to, in that adequate plans for the allocation of financial

resources had been made and spent accordingly, which, in turn, saw the

institution fulfilling its mandate to deliver services through the projects

which had been planned for the 2013/2014 financial year. Accordingly, the

ADM office has played a significant role with respect to service delivery, by

delivering water and sanitation services to its communities.

32

One of the most significant factors which undermines the capacity of the

municipality is its heavy reliance upon grants, in the form of funding from

the national government, owing to a small revenue base and a severely

restricted ability to collect revenue for the services which it delivers. At

present the municipality is unable to collect monies which are owed by its

debtors, as it is a rural district municipality. As most of the debtors of the

municipality are indigent and dependent upon government grants, they are

unable to pay for the services which they receive, which, in turn,

perpetuates a cycle of dependence, as the municipality is obliged to be

dependent, to a very large extent, upon grants from the government.

According to Craythorne (2003:150), the Constitution of the Republic of

South Africa (1996) requires municipalities to practise integrated

development planning, to structure and manage their administration,

budgeting, and planning processes, to give priority to the basic needs of

the communities which they serve, and to promote the social and

economic development of the community. Section 215 of the constitution

requires municipalities to have budgets which have processes for

promoting transparency, accountability, and the effective financial

management of the economy, debt, and the public sector (Craythorne,

2006:254). The councils of municipalities are required to approve an

annual municipal budget before the start of each financial year. The mayor

of each municipality is required to table the annual budget at a council

meeting at least 90 days before the start of the budget year, which is July

1 of each year. An annual budget is usually divided into a capital budget

and an operating budget, in accordance with international best practice. It

is required to articulate realistic anticipated revenues for the budget year

from each source of revenue (Craythorne, 2006:254).

In order to fund the fulfilling of responsibilities which entail constitutionally

mandated expenditures, the Amathole District Municipality is intended to

rely on its own revenue, which is generated by charges for municipal

services which are rendered, and intergovernmental fiscal transfers, in the

form of grants. However, owing to economic inequalities within the area

33

which falls under its jurisdiction, the revenue which the ADM is able to

generate falls far short of the requirements of the area. Consequently, it is

obliged to rely heavily upon the intergovernmental transfers which ensure

that all municipalities are sufficiently well funded to fulfil their service

delivery mandates. Municipal consumer debt refers to the non-payment of

property rates and fees and charges for services which are provided by

municipalities such as water, sanitation, electricity, and refuse removal.

The principal sources of non-payment include households, businesses,

and government departments. Consequently, it may be concluded that the

inability of the municipality to collect a significant portion of the debt which

is owed to it by consumers serves to restrict its ability to generate its own

revenue and obliges it to rely upon funding in the form of grants from the

government.

Owing to high rates of unemployment and poverty, there are significant

numbers of indigent households and citizens who are unable to pay for

basic services. According to the Free Basic Service (FBS) Strategy of

South Africa (2001), people who are classified as indigent on account of

their falling below a certain threshold are exempt from being required to

pay for basic services. The ADM funds this segment of the population from

its own revenue, which places further strain on its budget. As a result, the

plight of indigent people, which results in their not being required to pay for

basic services, effectively reduces the amount of its own revenue which is

at the disposal of the municipality, which, in turn, restricts its ability to

extend to services access and to deliver FBS to the poorest of the poor.

Although the indigent register is used to keep track of indigent households,

as it is difficult to update the relevant information regularly, people who

have been classified as being indigent may be included among those who

have been listed as illegal defaulters, thereby inflating the apparent extent

of consumer debt. Those who are indigent are often reluctant to come

forward to register, or to update their information, should their status

change. Consequently, it becomes imperative that the regular updating

and maintenance of information pertaining to indigent people should be

34

recognised as an integral component of revenue management and be

included in Section 64 of the MFMA. Particular attention needs to be given

to ensuring the quality and accuracy of data and information pertaining to

indigent people, as the information would contribute towards the meeting

of a number of social development objectives, from improving the services

which are provided to the poorest of the poor to enabling consumer debt to

be accurately quantified.

The vision of the Municipal Infrastructure Grant (MIG) programme is to

provide all South Africans with at least a basic level of services, through

the providing of finance in the form of grants, which are intended to cover

the capital cost of basic infrastructure for the poor. The MIG is a

conditional grant which is provided if municipalities do not perform well, in

terms of providing services to their communities, as a result of deficiencies

with respect to revenue which they are able to generate. As the ADM

receives a share of the MIG in order to fund its service delivery

programme each financial year, it is considered to be dependent upon

receiving external funding through grants from the government.

Although the municipality received an unqualified audit opinion, it has

suffered several setbacks in the domain of delivering adequate services to

the communities which it serves. Not every project which had been

embarked upon with respect to service delivery was implemented to a

sufficiently high standard, and the standard of work which had been

performed was often disproportionate, in terms of the money which had

been spent by the municipality on particular projects. Contracted service

providers were found not always to have rendered satisfactory services,

and often the municipality was the loser, in terms of receiving value for

money. This state of affairs frequently resulted in significant setbacks for

service delivery, which, in turn, resulted in intense anger and distress and

a loss of confidence and trust by communities which were ostensibly

served by the municipality.

35

These findings concur with concerns which have been expressed by

various different researchers and writers in relation to poor service delivery

by municipalities in South Africa. Monkam (2011:12) maintains that most

of the problems which are encountered by municipalities in South Africa

were rooted in poor service delivery. The failures of some municipalities

stem from huge backlogs, inadequate collecting of revenue, corruption and

fraud, poor financial management systems, and a lack of highly skilled

personnel.

b) The municipality was not adversely affected by poor service

delivery

The perceptions of the participants who asserted that the municipality had not

been adv