Durban – The KwaZulu-Natal Treasury has raised alarm bells regarding the state of finances of the eMadlangeni local municipality (Utrecht), saying it is showing signs of having financial difficulties.
In a letter dated October 28, 2022, sent by the Treasury head of department (HoD), Carol Coetzee, to the municipal manager, Grace Mavundla, and copied to the National Treasury, it indicates the municipality has displayed signs it may struggle to meet its financial obligations as and when they become due.
The signs the municipality in northern KwaZulu-Natal, run by the IFP, is under distress came through in early October.
By law, municipalities have to submit monthly financial reports to the provincial treasury so they can be monitored.
Where necessary, they would be given help and stabilised before they collapse or are crippled.
Among the things the treasury has to look out for in these reports is whether the municipality’s expenditure has exceeded its current revenue.
In the case of eMadlangeni, Coetzee’s department recorded the municipality’s financial records to the Auditor-General (AG) were late.
When they eventually landed on the AG’s lap, the municipality’s books were so bad the AG gave them a qualified audit opinion for the 2020/2021 period.
It also raised concerns about negative cash flow for the municipality in the past two years, saying that was worrisome.
“As reflected in table 1, the municipality has had a negative cash position for two consecutive years as per Section 138(h) of the MFMA (municipal finance management act) which allows for any other material condition that exists which indicates that the municipality, or a municipal entity under the municipality’s sole control, is likely to be unable for financial reasons to meet its obligation,” reads part of the letter to the municipality.
During this period, the municipality was run by the ANC and there was infighting by factions of the governing party.
The IFP only started running the municipality in November last year after ousting the ANC during the local government elections.
Regarding the current state of finances, the provincial treasury said it was going to monitor it in the next quarter to see whether its situation improves or not.
Mavundla confirmed they had received the letter from the department and had prepared their response.
“At no stage has the municipality denied these challenges as many of them have been inherited from the previous administration. Provincial Treasury has raised these concerns on several occasions in the past but were not taken seriously by those charged with responsibility, as even the budgets were almost unfunded and the situation was left to escalate.
“You will note that the municipality received a qualified audit opinion in the 2020/2021 financial year as cited in the letter from Provincial Treasury and it has had a negative cash position for two consecutive years as a result of a collapse in governance and administrative systems in the municipality in the previous financial years.
“I assume that you are fully aware that the municipality has been under 139 administration in the past few years and even failed to approve its budget,” Mavundla said.
She added due to challenges inherited from the previous administration, service providers had been knocking on their doors, demanding to be paid.
“This administration inherited a municipality in crisis with creditors who had not been paid for years, with some taking legal action against the municipality and even attaching assets of the municipality.
“This was also compounded by the failure to collect monies due to the municipality as the debtors’ book kept increasing with no reasonable actions taken.
“Furthermore, there were unresolved disciplinary cases which have been costing the municipality in excess of millions on legal fees and salaries for both suspended incumbents and those acting in positions.”
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