Municipalities In Financial Mess – Report

PICTURE: BusinessTech

CAPE TOWN: A new damning report on dysfunctional local government in South Africa warns that many municipalities are in financial distress.

The report titled, ‘The state of local government finances and financial management as at 30 June 2017′ was released by the Treasury, Monday.

“The State of Local Government and Financial Management Report comprehensively discusses the financial health of all 257 of the country’s municipalities,” the document explained.

“The conclusion of the assessment is that municipalities in financial distress are characterised by poor cash flow management and an increase in outstanding debtors and creditors based on the assessment of the following financial health indicators:

About 64 municipalities had negative cash balances at 30 June 2017. Throughout the 2016/17 financial year, none of the metropolitan municipalities (metros) recorded negative cash balances. This is a strong indication that, in general, they have a solid cash base and comply with cash flow management procedures.

It also indicated that at an aggregate level, 74 (68 in 2015/2016) municipalities in 2016/17 (28.8 per cent) recorded cash coverage exceeding three months of operational expenditure, which is within the acceptable norm. Of concern is the fact that the number of municipalities with cash coverage of less than one month of operational expenditure increased from 116 in 2015/16 to 137 in 2016/17.

The total number of municipalities that overspent on their operational budgets decreased from 163 in 2015/16 to 33 in 2016/17. The total number of municipalities that have underspend on their capital budget by more than 30 per cent have increased from 90 in 2015/16 to 122 in 2016/17.

At the end of the fourth quarter of 2016/17 (as per the Section 71 results), total debtors amounted to R128.5 billion, a R14.9 billion increase from the 2015/16 financial year and total creditors amounted to R43.8 billion, a R4.9 billion increase from the 2015/16 financial year.

There is a decrease in the reliance on conditional grants in municipalities where more than 75 per cent of transfers of revenue on national transfers.

In 2016/17, 17 district municipalities were identified as financially distressed, an increase from the 16 of the previous year. It is cause for concern that district municipalities are financially distressed, given the role they have to play in empowering and capacitating local municipalities.”

The report underpins its own findings by noting that “other analysis and data confirm these findings”.

“The Auditor-General (AG) highlighted the fact that municipal audit outcomes had shown little improvement”.

“Recorded water and electricity losses remain high. There is on-going instability in senior municipal management positions with an increase in the number of acting Municipal Managers (104) and acting Chief Financial officers (88), a total increase in both acting positions from 18 to 20 per cent has a negative impact on service delivery to communities.

“To address capacity challenges, government has channelled very substantial funding towards these initiatives; the results, however, remain unsatisfactory,” it notes.