Dire state of ADM revealed in parliament

MPS told of dismal audit outcomes, budget chaos and low collection rate at East Cape municipality

The cash flow of the municipality is negatively affected by this. Debt write-offs are at a soaring high as a percentage of the provision for bad debts

Financial, administrative and political challenges engulfing the troubled Amathole district municipality were laid bare in parliament on Tuesday.

The municipality came under the spotlight at a hearing of the co-operative governance and traditional affairs portfolio committee.

Various stakeholders, including the provincial treasury and co-operative governance departments, the auditor-general’s office and the SA Local Government Association, made presentations on the dire state of affairs at the district municipality.

Tabling a presentation on behalf of the provincial treasury, district director Pumeza Sikuza told MPS it was of deep concern that the district had obtained five dismal audit outcomes in a row in the past five years.

In the latest audit, in which ADM received an adverse opinion, the auditor-general was unable to obtain sufficient evidence to provide a basis for an audit opinion on the embattled municipality’s financial statements.

Sikuza said equally of concern was that ADM had adopted unfunded budgets for the past five years, with the local municipality recording a decline in its revenue.

“The 2022/2023 budget is currently unfunded as a result of the payables from exchange transactions which have been growing over the years, mainly attributed to the decrease in the cash and cash equivalents, as well as low collection rates for water and sanitation services,” she said.

The municipality had a revenue collection rate of below 30%, “way below the prescribed norm of 95%”.

“There is a concern at the high wage bill at Amathole, showing signs of failure to manage human resources, which will not be sustainable in the long run.

“The trading services of water and sanitation are operating at a deficit, meaning that the current tariffs are not cost-reflective, hence a funding gap exists on the budget of the municipality.”

In addition, the municipality spent fractionally less than half — 49.9% — of the 2022/2023 budget operational expenditure on employee-related costs, as well as councillors’ remuneration.

Sikuza said the municipality had tried to cut costs over the years, but this had not led to a funded budget because it had faced other high operational costs for items such as security, office rents and the financial system.

ADM’S debts had been growing over the years because the municipality could not afford to service them.

It owed the water board R132.6m, the department of water and sanitation R18.4m and Tech Mahindra R23.5m.

Against that, ADM had recently written off R1bn owed to it by its debtors.

Referring to the poor collection rate, Sikuza added: “The cash flow of the municipality is negatively affected by this.

“Debt write-offs are at a soaring high as a percentage of the provision for bad debts.

“This may be due to data cleansing that needs to be done within the municipality’s revenue system.”

She said the financial strain that the municipality was under had been worsened by the low collection of revenue and increase in contracted services, “with the municipality consistently increasing the use of consultants”.

Sikuza told parliament, though, that there was clear evidence of a financial governance failure at the municipality, with audit outcomes recording serious weaknesses and failures, and there had been no consequence management to enforce accountability.

She attributed this to the failure by the council to exercise its oversight responsibilities.

In addition, over the past few years, ADM had experienced significant challenges relating to service delivery, with the council at risk of losing unspent cash allocations.

Sikuza revealed that ADM had applied for a budget rollover of unspent municipal infrastructure grant funding to the value of R92m.

The National Treasury had rejected the application.

The recent suspension of CFO Lucky Mosala had resulted in delays in the sitting of the finance work stream, resulting in delays in the progress of the implementation of the mandatory financial recovery plan.

She advised the council to “set a tone of zero tolerance for noncompliance and non-performance”.

Mayor Anele Ntsangani said Mosala had been suspended as a result of the poor audit outcomes, and his alleged failure to submit crucial financial records to the auditor-general on time, resulting in adverse audit opinions.

Committee chair Fikile Xasa urged ADM’S bosses to move with speed in implementing a high court judgment relating to the reversal of the 2017 illegal municipal grading.