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Municipal infrastructure deteriorating due to poor financial management

23 June 2022 - 08:36
Auditor-general Tsakani Maluleke. File photo.
Auditor-general Tsakani Maluleke. File photo.
Image: Freddy Mavunda/Business Day

Auditor-general Tsakani Maluleke says the financial health of municipalities has deteriorated over the past five years with most reporting concerning statistics in terms of their financial statuses.

“The financial health, income statements, balance sheets and cash flows of municipalities are in a very poor state and that has a detrimental impact on current services being provided, but will also have a negative impact on future services if the situation is not corrected,” said Maluleke on Wednesday.

She was addressing editors during a dialogue about the recent municipal audit report which she published last week.

Maluleke said the worst-affected provinces in terms of poor financial health of municipalities were the Free State, North West, Northern Cape, Gauteng and Mpumalanga.

She said while economic pressures existed, municipalities made matters worse by not managing the little they had properly.

“They are not billing properly, they don’t budget properly, and they approve unfunded budgets because they allow these budgets to show and account for own revenue which they know they will never collect.

“And when they don’t collect it, they run out of cash and they start building arrears to Eskom, water boards, and other creditors.”

This leads to fruitless and wasteful expenditure as municipalities end up paying penalties and interest to creditors.

They are not billing properly, they don’t budget properly, and they approve unfunded budgets because they allow these budgets to show and account for own revenue which they know they will never collect. And when they don’t collect it, they run out of cash and they start building arrears to Eskom, water boards, and other creditors.
Tsakani Maluleke, Auditor-general

This also meant municipalities would then need the following year’s equitable share to pay for the previous year’s expenditure and the following year’s conditional grants to deal with cash flow pressures from the previous year.

Maluleke said 26% of SA’s municipalities ended the last financial year in a deficit in that their income was less than their expenditure.

One of her main concerns was that far too many municipalities do not provide for maintenance of infrastructure, she said.

“Very few of them spend the 8% norm on maintaining the municipal infrastructure which then means the infrastructure that is in the ground starts deteriorating over time.

“With the negative impact on the ability to deliver services and to generate revenue, we are also finding that in far too many instances they don’t provide for capital that is going to help them replace the infrastructure in time.

“So their balance sheets don’t make any provision for new infrastructure and that diminishes the ability to respond to the growing needs of a population,” she said.

The failure to properly manage or maintain waste water plants was another growing problem identified by the AG.

She said things were getting worse and if too many municipalities aren’t able to budget for maintaining infrastructure year on year, and they don’t have maintenance plans, the infrastructure will deteriorate.

“When we cautioned against the neglect of infrastructure maintenance for many years, this was the very thing we were trying to deal with.

“It is getting there and it’s because there’s been an ongoing neglect in terms of maintaining, no plans, no budget, and no discipline in terms of maintaining and there’s been inadequate attention to building new ones as the population has grown,” said Maluleke.

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