Enhancing municipal performance: Analysis of financial sustainability disclosures in South Africa

Abstract

Background: The financial performance of South African (SA) municipalities has been declining, raising concerns about financial sustainability in the public sector. The International Public Sector Accounting Standards Board (IPSASB) has advanced research on sustainability reporting. Aligning financial sustainability disclosures with the Recommended Practice Guideline 1 (RPG 1) issued by the IPSASB could improve municipal financial performance.
Aim: This study assessed whether financial sustainability disclosures in SA municipalities enhance financial performance when aligned with RPG 1.
Setting: The study focused on SA metropolitan municipalities, a key subset of the country’s 257 municipalities that are crucial for service delivery and financial management.
Methods: A qualitative research method, underpinned by the Public Sector Financial Sustainability theory, was used. The researcher employed content analysis to identify key themes in the Integrated Development Plans of metropolitan municipalities.
Results: Findings revealed inconsistencies in disclosure practices among municipalities. Some municipalities partially disclose long-term financial sustainability in line with RPG 1, while others omit such disclosures entirely. As compliance with RPG 1 is not mandatory, many municipalities present themselves as going concerns despite financial strain, which could potentially mislead stakeholders and the public.
Conclusion: The study highlights inadequate financial sustainability disclosures and their impact on financial performance. Addressing these inconsistencies could enhance transparency and municipal financial performance.
Contribution: This study advances knowledge on financial sustainability disclosures in metropolitan municipalities. It informs decision-making on municipalities’ ability to continue as going concerns and emphasises the need for improved financial reporting practices.