Assessing the efficacy of financial reporting in expenditure management at Emfuleni Local Municipality

Abstract

Decision making is a critical process in local government; it puts into effect the role played by municipal officials in public life. Through the development of strategic plans and budgets; decision makers enter into commitments that are geared towards securing the needs and demands that emanate from the public. In contrast to the private sector, the execution of a budget is not measured on the value of profit or loss. However, budgeting within the public domain is aimed at measuring outcomes on account of public expenditure. As executors of the will of the people, decision makers on the directive of the Constitution and legislation, are required to account for the use of public resources. This applies to every financial transaction; whether big or small, it must be recorded, processed and reported. The purpose of this study is to assess the efficacy of financial reporting in expenditure management at Emfuleni Local Municipality (ELM). The study utilised extensive literature review and document analysis to investigate the extent to which ELM is compliant in managing its‟ expenditure. Central to the purpose and outcome of the study, it was established that ELM's financial reporting system is not effective in managing expenditure. Based on the findings of the research, the state of ELM's financial performance is not at a desirable level. The financial reporting system of ELM is marred by systematic weaknesses in internal control along with inefficiencies in monitoring, information and communication processes. As a result, this translates into material findings in relation to how financial information is prepared and disclosed. In what the study identifies as financial performance crisis, ELM's operational budget is running on a consistent deficit. What ELM's statement of financial performance reveals; the Municipality is spending more on its budget than what it generates as income. Moreover, the study recognised that the management approach of ELM is not effective in ensuring compliance; wherein, the Municipality is failing to prevent unlawful expenditure, along with adhering to the regulatory requirements of supply chain management. It was also observed that due to ELM's financial challenges, the Municipality is failing to settle it's invoices in a timely manner. There is material discrepancy in terms of what the requirements of the law are, in contrast to how ELM actually operates. Consequently, the impact of non-compliance yields no positive impact on ELM's financial viability.