AGSA Local Government Audit Outcomes 2024–25

AGSA’s 2024–25 Local Government Audit Outcomes: Key Findings and What Municipalities Must Do Next

Municipalities across South Africa face growing pressure to deliver essential services while managing financial constraints, ageing infrastructure and increasingly complex regulatory requirements. Against this backdrop, the Auditor-General South Africa’s (AGSA) Local Government Audit Outcomes 2024–25 report provides an important assessment of municipal financial management, governance and institutional performance.

The report presents a mixed picture. Although some municipalities continue to demonstrate sound governance and financial discipline, many remain under significant financial and operational strain. Persistent weaknesses in financial sustainability, financial reporting, infrastructure management and accountability continue to affect service delivery and public confidence.

Rather than simply reporting audit outcomes, the AGSA identifies the systemic issues municipalities must address to become financially resilient, strengthen governance and build capable institutions. For municipal leaders, finance professionals and oversight structures, the report offers valuable guidance on where improvement efforts should be focused.

Key Findings from the AGSA’s 2024–25 Local Government Audit Outcomes

The latest audit outcomes show modest progress in some areas while confirming that significant challenges remain across local government.

One positive finding is that 98% of municipalities submitted their annual financial statements by the legislated deadline. However, timely submission did not necessarily translate into quality, as many financial statements still required material corrections during the audit process.

Municipal Financial Sustainability Remains a Major Concern

The report identifies financial sustainability as one of the greatest risks facing local government.

Only 89 municipalities (35%) were assessed as having good financial health, while 102 (40%) were classified as concerning and 64 (25%) as unfavourable. In addition, 62 municipalities were identified as having going concern uncertainties, raising concerns about their long-term financial viability.

Several factors continue to undermine municipal finances:

• Unfunded budgets
• Weak revenue collection
• Rising debt obligations
• Limited cash reserves
• Increasing unauthorised expenditure
• Ageing infrastructure and inadequate maintenance

The AGSA also reported that:

• 116 municipalities (45%) adopted unfunded budgets.
• 174 municipalities (72%) had short-term debt exceeding available cash.
• 123 municipalities (51%) had net current liabilities exceeding current assets.
• Municipalities owed R70.07 billion to Eskom and R25.85 billion to water boards.

Revenue management remains another critical weakness. Municipalities continue to lose significant income through inaccurate billing, poor debt collection, ineffective indigent management and distribution losses. During the reporting period, water losses amounted to R14.73 billion, while electricity losses totalled R21.63 billion.

These findings demonstrate that improving financial sustainability requires more than balancing budgets. Municipalities need stronger revenue management, disciplined financial planning and effective cash flow management to support long-term service delivery.

Financial Reporting Quality Still Requires Attention

Reliable financial reporting underpins accountability, informed decision-making and effective governance. While municipalities have improved the timeliness of submitting annual financial statements, the quality of those submissions remains inconsistent.

Before the audit process:

• 64% of municipalities submitted financial statements containing material misstatements relating to revenue and receivables.
• 51% submitted material misstatements relating to fixed and movable assets.

The AGSA attributes these errors to weaknesses such as:

• Incorrect or incomplete revenue recognition
• Weak debt management processes
• Poor asset record-keeping
• Delayed asset verification
• Inadequate supporting documentation
• Insufficient internal review procedures

Poor-quality financial information affects far more than audit outcomes. It limits management’s ability to make informed decisions, weakens accountability and increases financial risk.

Municipalities can strengthen financial reporting by improving year-round financial controls, maintaining accurate asset records and implementing rigorous review processes before financial statements are submitted for audit.

Solutions such as Dynamic AFS can help municipalities streamline the preparation of GRAP-compliant annual financial statements, improving consistency and reducing the risk of reporting errors. Dynamic FAR supports the complete lifecycle of fixed asset management, including asset recording, depreciation, transfers, disposals and GRAP compliance, while Dynamic Verify helps municipalities maintain accurate asset registers through structured asset verification and reconciliation. Together, these solutions strengthen the quality and reliability of financial information, supporting improved governance and audit readiness.

Dependence on Financial Reporting Consultants Remains High

Skills shortages continue to drive municipalities’ reliance on external financial reporting consultants.

During the 2024–25 financial year, 225 municipalities appointed consultants at a combined cost of approximately R1.61 billion, with recurring appointments recorded at 153 municipalities.

Although consultants provide valuable expertise where vacancies or specialist skills exist, the AGSA identified several recurring concerns:

• Limited skills transfer
• Weak monitoring of consultant performance
• Consultants appointed without adequate needs assessments
• No clear plans to reduce long-term dependence

Most notably, 61% (137) of financial statements submitted for audit contained material misstatements in areas where consultants had been involved.

The findings suggest that municipalities should view consultants as a means of strengthening internal capability rather than a permanent solution. Investing in structured knowledge transfer and continuous professional development will help build more resilient finance functions over time.

Infrastructure Governance Directly Affects Service Delivery

Infrastructure investment remains one of local government’s greatest responsibilities, yet project delivery continues to face significant challenges.

The AGSA found that 78% of audited infrastructure projects contained findings, while delayed projects averaged 25 months behind schedule.

Key contributing factors included:

• Poor planning and project management
• Procurement and contract management weaknesses
• Weak financial controls and grant management
• Insufficient monitoring and oversight
• Delays in appointing replacement contractors

The report also highlights that many municipalities continue to spend below recommended maintenance levels, accelerating infrastructure deterioration and increasing future replacement costs.

Strengthening project governance, improving financial oversight and maintaining reliable asset information are essential to protecting public investment and improving service delivery outcomes.

Governance and Institutional Capability Drive Better Audit Outcomes

Throughout the report, the AGSA reinforces that sustainable improvement depends on strengthening the entire accountability ecosystem rather than focusing solely on compliance.

Material non-compliance with legislation remains widespread, affecting 215 municipalities (84%), particularly in procurement, expenditure management, consequence management, revenue management and asset management.

The report consistently links stronger audit outcomes to municipalities that demonstrate:

• Stable leadership
• Effective internal controls
• Ethical governance
• Financial discipline
• Investment in professional capability
• Consistent accountability

These characteristics enable municipalities to improve financial reporting, strengthen governance and sustain better audit outcomes over time.

Lessons from Better-Performing Municipalities

The report shows that improved audit outcomes are achievable. Better-performing municipalities consistently share several characteristics.

These observations align closely with the AGSA’s emphasis on professionalisation, capable institutions and coordinated governance as the foundation for long-term improvement.

Material Irregularities Continue to Demand Attention

The AGSA’s material irregularity process highlights risks that extend beyond audit opinions, focusing on financial loss, harm to the public and failures in governance.

During the 2024–25 audit cycle, the AGSA identified 516 material irregularities linked to non-compliance and suspected fraud. These included estimated financial losses of R10.23 billion, substantial harm to public institutions and communities, and the misuse of public resources. At the same time, the report shows that the material irregularity process is helping recover losses, improve internal controls and strengthen accountability across local government.

The findings reinforce the need for municipalities to act promptly when governance failures are identified, rather than allowing financial and operational risks to escalate.

Six Priorities for Municipal Leaders

The AGSA’s findings point to six practical priorities that can strengthen municipal performance and improve future audit outcomes.

1. Strengthen Financial Sustainability

Focus on realistic budgeting, stronger revenue collection, disciplined cash flow management and reducing unfunded budgets.

2. Improve Financial Reporting

Strengthen financial controls, maintain accurate supporting records and improve review processes to reduce material misstatements before audit.

3. Build Internal Capability

Invest in skills development and knowledge transfer to reduce long-term reliance on consultants and strengthen institutional capacity.

4. Strengthen Governance and Accountability

Promote ethical leadership, effective oversight and consistent consequence management to improve governance and public confidence.

5. Improve Infrastructure Governance

Strengthen planning, procurement, contract management and project oversight to ensure infrastructure investment delivers sustainable value.

6. Invest in Professional Development

Professionalising municipal finance requires continuous investment in technical skills and recognised qualifications. Ongoing GRAP training and public sector finance programmes, supported by Ducharme Consulting’s professional development services and accredited qualifications such as the Accounting Technician (AT(SA)) programme offered through Credo Business College, help municipalities build internal capability, strengthen succession planning and reduce long-term reliance on external consultants.

What the Report Means for Municipal Finance Professionals

The AGSA’s findings reinforce that municipal finance professionals play a strategic role in building financially sustainable and well-governed municipalities.

Beyond legislative compliance, finance teams are expected to support sound decision-making, strengthen governance, manage risk and improve service delivery through accurate financial information and effective financial management.

Addressing many of the report’s findings requires a combination of capable people, strong processes and reliable systems. Solutions such as Dynamic FAR, Dynamic Verify and Dynamic AFS, together with GRAP implementation support and professional training, can help municipalities strengthen internal capability, improve financial reporting and enhance audit readiness.

Conclusion

The AGSA’s Local Government Audit Outcomes 2024–25 report provides valuable insight into the challenges and opportunities facing South African municipalities.

While improvements have been made in areas such as the timely submission of annual financial statements, many municipalities continue to struggle with financial sustainability, governance, infrastructure management and reporting quality.

The report makes it clear that sustainable improvement requires more than regulatory compliance. Building capable institutions depends on strong leadership, effective governance, skilled finance professionals, robust internal controls and a culture of accountability.

Municipalities that invest in these fundamentals will be better positioned to improve audit outcomes, strengthen financial resilience and deliver reliable services to their communities.

Frequently Asked Questions

What is the AGSA Local Government Audit Outcomes report?

It is the Auditor-General South Africa’s annual assessment of municipal financial management, governance, compliance and audit outcomes across local government.

Why are municipal audit outcomes important?

They provide an independent assessment of financial health, governance and accountability, helping municipalities identify risks and areas for improvement.

What is a clean audit?

A clean audit is an unqualified audit opinion with no material findings on financial reporting, performance reporting or compliance with key legislation.

How can municipalities improve audit outcomes?

By strengthening financial controls, improving governance, investing in professional skills, enhancing financial reporting processes and building long-term institutional capability.