Serious cash flow problems as a result of poor financial planning and general mismanagement threaten the collapse of Northern Free State local municipalities despite a general improvement in the annual audit outcomes of these municipalities.
The Free State Provincial Legislature’s Portfolio Committees on Finance and Governance yesterday and today engaged the Ngwathe, Matjhabeng, Moqhaka, Tswelopele, Nala and Tokologo Local Municipalities on their audit outcomes for the 2015-16 financial year.
In the case of Ngwathe, despite obtaining an unqualified audit opinion, the Auditor-General (AG) found that the municipality’s current liabilities exceed its assets by more than R714 million threatening the municipality’s ability to operate as a going concern.
Ngwathe incurred unauthorised expenditure of more than R117 million as a result of overspending on its budget, irregular expenditure came in at just over R60 million while fruitless and wasteful expenditure clocked in at almost R74 million. As at 30 April 2017, the municipality’s debt book is at R600 million in unpaid services of which only 45% is recoverable, while it owes its creditors more almost R750 million, of this, ESKOM is owed more than R700 million.
For this first time since the formation of the Matjhabeng Local Municipality, after 17 consecutive disclaimer audit opinions, it has obtained an unqualified audit outcome. This is encouraging and shows that, at the very least, the municipality is beginning to correctly report on its finances. Unfortunately, the financial situation in Matjhabeng is atrocious. It incurred more than R800 million in unauthorised expenditure, R150 million in fruitless and wasteful expenditure and R300 million in irregular expenditure. Matjhabeng incurred a net loss of more than R750 million. As at 30 April 2017, Matjhabeng owes ESKOM more than R1,3 billion and the water board more than R1,7 billion. Residents, businesses and government departments owe Matjhabeng more than R2,4 billion in unpaid municipal accounts, while the municipality’s creditors book stands at R3,1 billion. Matjhabeng is technically bankrupt.
Moqhaka Local Municipality improved on its audit outcome, moving from a qualified to an unqualified audit outcome, but we are concerned that it incurred R190 million in unauthorised expenditure and R29 million in irregular expenditure. Moqhaka suffered a net loss of R84 million during the year under review. Its outstanding debtors is at R470 million, but it enjoys a recovery rate of 70% which is encouraging.
The current ESKOM bill is at R26 million. Although the financial situation here is slightly better, the ability of the municipality to continue as a going concern is doubtful unless financial management improves.
Tswelopele Local Municipality obtained an unqualified audit outcome. It incurred irregular expenditure of R16,8 million, unauthorised expenditure at almost R9 million and fruitless and wasteful expenditure of R109 000. Tswelopele owes ESKOM R10,6 million and the water board just over R600 000. While the financial situation here is not that bad, Tswelopele had to use about R3,2 million from its Municipal Infrastructure Grant to fund its operational requirements which is irregular.
The situation in the Nala Local Municipality is showing improvement. It obtained an unqualified audit opinion, but incurred almost R100 million in unauthorised expenditure.
Most concerning is Nala’s ESKOM debt, as at 30 April 2017, of R168 million while it owes the water board almost R130 million. The municipality also struggles to pay third party payments. It outstanding debtors is at R537 million of which only about half is recoverable which threatens the municipality’s ability to deliver services.
The Tokologo Local Municipality obtained an unqualified audit opinion, but incurred almost a R100 million in unauthorised expenditure. It’s outstanding debtors totals R115 million of which only half is recoverable. Tokologo also struggles with ESKOM debt which is just over R26 million as at 30 April 2017.
The AG’s annual reports for these municipalities show that these are generally improving in their financial reporting, but that rampant non-compliance with the Municipal Finance Management Act (No 56 of 2003) and Supply Chain Management directives persist.
In addition, municipalities are heavily indebted, especially with bulk services suppliers such as ESKOM and water boards, while the municipalities themselves are owed massive amounts in unpaid household debt for municipal services rendered.
This situation threatens the cash flow of municipalities which in turn threaten their viability to continue as going concerns and, more worryingly, the ability to deliver basic services to residents.