Many municipalities are not budgeting, transacting, and reporting directly in and from their core financial systems.
Instead, they prepare their budgets and reports on an excel spreadsheet and then import the spreadsheets into the system, with this manipulation of data leading to unauthorised, irregular, fruitless, and wasteful (UIFW) expenditure.
This is according to the National Treasury’s local government revenue and expenditure report for the fourth quarter, as well as the cumulative results of the 2022/23 financial year.
This fourth quarter publication covers 257 municipalities’ financial information and conditional grants information.
The report was prepared using figures from Municipal Standard Chart of Account (MSCOA) data strings. The MSCOA regulations were promulgated on April 22, 2014, and prescribe the uniform recording and classification of municipal budget and financial information at a transaction level. All municipalities and municipal entities had to comply with the regulations by July 2017.
However, the Treasury found that municipalities are not locking their adjusted budgets or their financial systems at month-end to ensure prudent financial management.
“Some municipalities are also reporting incorrectly on conditional grants spending (an allocation to a municipality from the national government’s share of revenue raised nationally for a specific purpose) despite the National Treasury issuing guidance on how to account for grants using the MSCOA in May 2022.
“The issuance of guidance was meant to address the reporting challenges experienced since MSCOA implementation. Metropolitan municipalities reported 64.9% against the total revised allocation of R13.2 billion, just below the overall conditional grants performance of 76.1%.”
On aggregate, municipalities spent 87.4% or R496bn of the total adjusted expenditure budget of R567.3bn as at June 30.
A net total underspending of R71.3bn or 13.7% of municipalities’ total adjusted expenditure budgets was also reported.
“This net underspending represents an increase of R10.5bn from the R60.8bn underspending recorded in the fourth quarter of 2021/22,” the report read.
The report further found that when billed revenue is measured against adjusted budgets for the core services, the performance of metros reflects a surplus for the fourth quarter of the 2022/23 financial year.
“Water revenue billed was R46bn against expenditure of R43.2bn; energy sources revenue billed was R89.3bn against expenditure of R87.1bn; the revenue billed for wastewater management was R20bn against expenditure of R9.9bn, and levies for waste management billed were R12.2bn against expenditure R10.9bn,” the report read.
It was also noted that metropolitan municipalities are owed R163.5bn (R117.5bn reported in the fourth quarter of 2021/22) in outstanding debt as of June 30, 2023.
The largest contributors were the cities of Johannesburg at 29.6%, Ekurhuleni at 20% and eThekwini at 15.4%.
Households in metropolitan areas are reported to account for R127.5bn or 77.9% of outstanding debt, followed by businesses that account for R30bn or 18.4%. Debt owed by government was at R4.9bn or 3% of the total outstanding debt owed to metros.
“Municipalities owed their creditors R100bn as at June 30.
“The increasing outstanding creditors could be an indication that municipalities are experiencing liquidity and cash flow challenges, and consequently are delaying the settlement of outstanding debt owed.”
Cape Times