‘Urgent steps’ needed to save struggling Northern Cape municipalities, MEC tells NCOP.
THE MEC for Finance, Economic Development and Tourism, Abraham Vosloo, has warned that struggling municipalities in the Northern Cape are in imminent danger of collapse if urgent steps are not taken.
Addressing the National Council of Province (NCOP) delegates on Tuesday on the Phokwane, Dikgatlong and Joe Morolong local municipalities in the Northern Cape, Vosloo identified deficiencies including a toxic relationship between politicians and administration, high vacancy rates, corruption and maladministration and incompetence.
Vosloo indicated that Renosterberg and Phokwane municipalities, which had been placed under administration, were plagued by political leadership problems. “Sound political intervention at these municipalities might be our only hope to save them from total collapse.”
Vosloo stated that Phokwane Municipality was tabling unfunded budgets between 2018 and 2020.
“This municipality adopted an unfunded budget in the 2019/20 financial year. The situation changed during the forced correction of budgets. This budget became ‘funded’ due to the equitable share which was going to be withheld. The municipality is currently finalising the budget that will be taken to the executive council for adoption.”
He indicated that Phokwane Municipality received R67 million for the provision of free basic services for the 2020/21 financial year. “The municipality only budgeted R53 million, resulting in a shortfall of R14 million.”
Vosloo added that the municipality would not be able to adequately sustain the provision of free bulk water and electricity.
“The municipal highest expenditure was reported under bulk purchases of water and electricity at 210 percent, which constitutes overspending of the adjusted budget by 110 percent.
“This is an indication of poor budgeting or incorrect reporting followed by contracted services and remuneration of councillors at 80 percent of the adjusted budget.”
He stated that while employee-related costs were an “excessive 84 percent” of the adjusted budget, critical posts including the chief financial officer and director of technical services remained vacant.
“The municipality is heavily reliant on grants and is highly dependent on equitable share other than generating its own revenue.
“No spending was reported under finance charges, depreciation and debt impairment as at June 30, 2020. This reflects the poor state of financial management.”
Vosloo indicated that debt amounted to R650.7 million; with household debt constituting the largest amount of R542.1 million, followed by commercial debt of R78.7 million and organs of state at R 29.8 million.
“The outstanding amount for water accounts for the largest percentage debt is at 26 percent. As of September the municipality owes Eskom R136.4 million and has not signed a repayment agreement with the power utility.”
He stated that the municipality owed Vaalharts Water service provider an amount of R46.6 million and Sedibeng Water an amount of R109.1 million.
“There is no signed repayment agreement and no payments are made in the account.”
Vosloo added that the Northern Cape Provincial Treasury would appoint dedicated personnel to act as a rapid response team to proactively address the problems in municipalities.
He said Dikgatlong Municipality was without a municipal manager after the previous municipal manager gave a 24-hour notice of resignation. “The chief finance officer (CFO) is on indefinite suspension,” he added.
Vosloo reported that despite offering to assist, the municipality did not appear “keen” to co-operate with the department to find lasting solutions.
“There is general instability at management level and the system may collapse if necessary action is not taken.”
He indicated that the municipality had appointed financial consultants to compile its annual financial statements and asset register for the last three years.
“The municipality has been adopting unfunded budgets for successive years which result in expenditure beyond their means.
“This municipality requires serious attention in relation to good financial management, discipline and proper prioritisation for improved financial health of the municipality.”
Vosloo stated that the municipality received R55.2 million for the provision of free basic services for the 202/21 financial year. “However, the municipality only budgeted R 5.5 million, resulting in a shortfall of R49.7 million.”
Vosloo said employee-related costs were reported at 74.1 percent of the adjusted budget, compared to the norm of 25 to 40 percent.
“The highest expenditure was reported under the Municipal Infrastructure Grant (MIG) at 68 percent. This is unacceptable given the lowest spending that was reported under expanded public works projects (EPWP) at three percent.”
He said that as of September, Dikgatlong Municipality owed Eskom R135.5 million while it owed Vaalharts Water an amount of R13.4 million and R15.2 million to Sedibeng Water.
He stated that Joe Morolong Municipality was unable to pay creditors, reconcile its banking or update its asset register.
“Cash flow constraints, unauthorised, irregular, fruitless and wasteful expenditure remains unresolved. Suspense accounts are not cleared regularly and all unknown deposits have not been cleared on a timely basis.
“Supporting documentation has not been properly safeguarded. All required supply chain management processes have not been followed in the acquisition of assets and other items.
“Expenditure was not monitored against the approved budget. In some instances, supporting documentation is omitted.”
Vosloo added that the municipality adopted an unfunded and special adjusted budget in 2020/21.
“While the municipality received R95.6 million for the provision of free basic services, the approved 2020/’21 municipal budget as published on the National Treasury website indicated that the municipality did not provide for the provision of free basic services as it was not budgeted for.
“No additional information or explanation was available from the municipality at time of this report.”
He pointed out that high property rates (387 percent), water revenue (342 percent) and electricity revenue (315 percent) amounted to “unrealistic budgeting”.
“The highest expenditure was reported under EPWP at 440 percent which constitutes overspending of 340 percent followed by MIG at 93 percent and Financial Municipal Grant at 83 percent.”
Vosloo stated that debt owed to Joe Morolong Municipality amounted to R325 million. “Household debt is the largest amount at R185 million, followed by commercial debt R113 million and organs of state amounting to R26 million. Property rates account for the 44.5 percent of total outstanding debt.”
He added that the municipality owed Sedibeng Water an amount of R1.1 million and commended the municipality for settling the Eskom debt.
