City of Tshwane on the verge of bankruptcy 

10 February 2014

The DA is in possession of the City of Tshwane's financial statements for the 2013/14 financial year which highlights that the City is on the verge of bankruptcy. Considering that debts are not being collected, the DA projects that the City will run out of operating cash. 

We have therefore written  to the Portfolio Chairperson on Cooperative Governance and Traditional Affairs (COGTA), Richard Mdakane, requesting that he summon the Gauteng COGTA MEC, City of Tshwane Municipal Manager and Chief Financial Officer and the Provincial Auditor-General (PAG) of South Africa to Parliament to account for discrepancies in the City of Tshwane's finances.

Some of the major concerns include but are not limited to the following:

The increase in unauthorised expenditure to R1.2 billion;

The increase in irregular expenditure to R451 million;

The significant restatement in the prior year's financial statements (amounting to R705 million). A further restatement to correct errors amounted to R57 million;

A decreasing collection rate of municipal debts, and an impairment of consumer debts of R1.4 billion;

Average settlement period of creditors at 51 days (in contravention of section 65 (2)(e) of the MFMA). This worsens to 104 days when the broader view of "trade creditors" is considered;

No reports submitted to council on irregular and unauthorised expenditure, despite a legal obligation to investigate and report on the same;

The failure to recover the illegal and irregular expenditure on ward committees from the municipal councillors who voted in favour of this illegal activity;

The failure to maintain an adequate municipal asset register;

The expenditure of approximately R100 million on Tshwane House, with nothing tangible to show for it;

The inability of the City to meet its financial obligations (Current ratio of 0.72:1 and Acid Test ratio of 0.66:1). This implies that the City is technically bankrupt; and

The failure of the auditor general to qualify the annual financial statements, despite these issues having been pointed out to him.

Despite the PAG being notified on numerous occasions by the DA of these concerns, the PAG awarded the City an "unqualified audit" although the annual financial statements of the city show otherwise. 

This begs the question as to why the PAG overlooked the information in performing the audit and did not report on it, nor did he report on the Mayor's failure to inform council that the City is in financial distress. 

In terms of National Treasury Municipal Financial Management Act (MFMA) Circular 49 dealing with Non-Payment of Obligations, a municipality is regarded as being in financial distress if: "...a municipality fails to make payments when due and such failures amount in total to 2% of the municipality's operating budget for that year may indicate that the municipality is in serious breach of its obligations, which is a factor in considering whether a mandatory intervention is necessary."

If the Portfolio Committee is not satisfied with the responses of the parties concerned, the DA will have no hesitation in requesting that the Gauteng COGTA MEC urgently intervene in terms of section 137 of the MFMA to impose a financial recovery plan for the City of Tshwane.

Statement issued by Kevin Mileham MP, DA Shadow Minister of Cooperative Governance and Traditional Affairs, February 10 2015

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