Abstract
This research study aims to develop effective turnaround strategies that can resolve municipal financial distress by improving the audit outcomes of dysfunctional municipalities. As many as 64% of South African municipalities have been classified as financially distressed by the National Treasury in the State of Local Government Finances report for 2021 issued on 7 December 2022, indicating that most South African municipalities require urgent intervention and turnaround. However, municipal financial distress is nothing new, as financial disasters and dysfunctionality have plagued South African municipalities for decades. The real concern is that when municipalities are financially distressed, essential service delivery collapses, and local communities are often tormented with water and electricity interruptions, dilapidated roads, and faltering emergency services. To date, interventions to alleviate financial distress have yielded inconsistent results, and many municipalities remain under section 139 administration for an extended period of time. In addition, the South African government does not have an effective and official turnaround framework available to resolve this crisis. This research study breached this knowledge gap by identifying practical, evidence-based turnaround strategies to resolve municipal financial distress.
Research Methodology
This study used a post-positivistic research paradigm in response to the research problem. This exploratory study followed a mixed methods approach consisting, firstly, of an interpretive content analysis of the audit reports and audit action plans of municipalities that have achieved improved audit outcomes. Secondly, the research findings from this interpretative content analysis were confirmed through quantitative census responses from the National Treasury, each of the provincial treasuries and the Department of Cooperative Governance and Traditional Affairs, which are all mandated by the South African Constitution to monitor and support municipalities and to intervene in cases of financial distress. Methodological triangulation was applied to prove the reliability and validity of the research findings of this study.
Main findings
A kaleidoscope of various critical success factors that can contribute to municipal financial distress resolution was identified as part of this exploratory empirical study, which can be broadly classified into turnaround strategies associated with effective and adequate internal controls, revenue management, ethics and fraud prevention, asset management, consequences management, governance and oversight, procurement and contract
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management, strategic leadership, records management, expenditure management, budget management, human resources management, performance information, the preparation of credible annual financial statements and debt management. These effective turnaround strategies have been successfully implemented by municipalities that have improved their audit outcomes and financial viability. Due to the standardised manner in which municipalities function, it is envisaged that financially distressed municipalities will be empowered to resolve their own financial distress by implementing similar effective and practical turnaround strategies, thereby improving the quality of essential service delivery to local communities.
Keywords
Audit outcomes, audit report, governance, turnaround, financial distress, financial crisis, municipality, local government, dysfunctionality.