How poor debt collection cripples municipalities

Cape Town - The inability to collect debt, account for revenue and dwindling financial resources were some of the main reasons for municipalities’ ill financial health in the 2014-15 financial year.

Auditor general Kimi Makwetu announced the audit outcomes of 270 of municipalities in South Africa at a press briefing in Pretoria on Tuesday, stating that a serious government intervention is required at 85 (31%) municipalities.

“There is a going concern at municipalities in the North West, Northern Cape, Limpopo, Gauteng and Western Cape, caused by poor debt collection and a lack of revenue generation among other things,” according to the report.

The auditor general calculated in his report the number of days it took for municipalities to collect debt they deemed recoverable and found that the situation got worse in 2014-15 when half of municipalities had an average debt-collection period of over 90 days.

This regression was attributed to a lack of the right skills in finance departments, the poor economic climate and systems that didn’t properly account for revenue.

“These extended periods of debt collection put severe pressure under municipalities’ cash flow, which in turn meant they took longer to pay their creditors,” Makwetu said.

He noted that in the past five years, since the current local government administration has taken office, there has been improvement in municipalities’ financial management and administration, "but progress is slow and critical shortcomings remain".

Makwetu said the signs of poor financial management are apparent in municipalities’ budget preparation and monitoring processes, control over electronic fund transfer payments, grant management and the general financial viability.

“In the past five years there has been little improvement in municipalities’ supply chain management practices and expenditure management,” Makwetu said. “This has led to increased levels of irregular, fruitless and wasteful expenditure and opportunities to get value for money and save costs have therefore been wasted.”    

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