Turnaround for municipal distress resolution: An audit outcomes approach

Abstract

Purpose: This research study aims to identify effective turnaround strategies that can resolve municipal financial distress by improving the audit outcomes of dysfunctional municipalities.

Motivation: As many as 64% of South African municipalities were classified as financially distressed by the National Treasury on 7 December 2022, indicating that most South African municipalities require urgent intervention. There is a knowledge gap in the existing literature on how to resolve municipal financial distress practically.

Design / Methodology / Approach: An exploratory sequential mixed methods design was utilised to identify effective turnaround strategies. An interpretative content analysis of Audit Action Plans was conducted, followed by a census of the provincial treasuries, the National Treasury and the Department of Cooperative Governance and Traditional Affairs (COGTA) in South Africa.

Main findings: The main research findings indicate that turnaround strategies associated with effective and adequate internal controls, revenue management, ethics and fraud prevention can improve municipal financial viability.

Practical implications/Managerial impact: The improved financial viability of municipalities will empower dysfunctional municipalities 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.

Novelty/Contribution: Improved essential service delivery directly contributes towards local economic development and job creation.

Keywords:

• municipality
• distress
• turnaround
• strategy
• audit outcomes
• audit report

Disclosure statement

No potential conflict of interest was reported by the authors.

Acknowledgments

This article is derived from the following Doctoral thesis:

McKenzie, M. (2023). A framework for municipal distress resolution based on audit outcomes (Doctoral thesis, University of Johannesburg, South Africa).

The research proposal and questionnaires were submitted to the University of Johannesburg’s School of Accounting’s Research Ethics Committee, which awarded an ethical clearance certificate to conduct the study.

Notes

1 The MFMA database can be accessed at http://mfma.treasury.gov.za.

2 This portal can be accessed at https://lg.treasury.gov.za/ibi_apps/signin.Audit.