‘Fraud, poor governance’ cause municipal crisis

Agrowing financial crisis and governance failures at local and provincial government levels have been identified as a “serious fiscal risk” by the treasury in the medium-term budget policy statement (MTBPS).

Unpaid bills and accruals are piling up and these costs, which are not reflected in the budget, could have detrimental effects on service delivery if money for this has to be spent on outstanding bills.

Provincial departments have an estimated R25-billion in unpaid bills, plus provincial health departments have contingent liabilities of R80billion from medical legal claims. In 2017-2018, R1.5-billion was paid out for these and this figure is expected to exceed R2-billion in 2018-2019.

The situation at municipal level is getting worse. Of 257 municipalities, 113 local governments adopted unfunded budgets in 2018-2019, an increase of 83 on the previous year.

An unfunded budget is when “municipalities make operational spending commitments without identifying revenue sources to fund them. One consequence is that municipalities may not pay service providers”, the budget documents state.

Municipalities already owe R23.4billion to service providers. “A default on these obligations would weaken the public-sector balance sheet,” according to the documents.

Minister of Finance Tito Mboweni said, although some municipalities had capacity issues, which made it difficult for them to meet their obligations, many problems stemmed from governance failures, fraud and corruption. “The funds lost by municipalities in the collapse of VBS Mutual Bank offer a dramatic illustration of how greed and corruption impacts the achievement of developmental objectives.” He said it was not the only case where public finances were improperly used and diverted for the benefit of a “few greedy individuals”.

Mboweni said retired professionals who heeded President Cyril Ramaphosa’s Thuma Mina call would be deployed to local government to support revenue collection functions and assist in stabilising operations.