The increasing debt owed to it by municipalities remains the main threat to the auditor-general’s financial viability, says the institution in its annual report for the 2016-17 financial year. At the end of that year, local government debtors made up 49% – or R390 million – of the total debt of R806 million owing to the auditor-general’s office.
The report says 10% of the auditor-general’s client base is classified as financially-distressed municipalities that generally lack the capacity to generate revenue: “These auditees make up 49% of the total debtors book, with little or no probability of our successfully collecting the outstanding revenue. The National Treasury has also consistently underpaid the debt of financially distressed auditees.”
Although the National Treasury paid the office of the auditor general R79 million in 2016-17, compared to R42 million in the previous year, the outstanding balance of R321 million for financially-distressed municipalities and 1% debtors “is still significant, and strains our cash flows”, says the AG.
The auditor-general’s debtors book closed at R806 million, an increase of 19% from the previous year’s balance of R679 million. The main contributors to this increase were the local government debtors, which make up 49% of the total debt (2015-16: 51%). Although the “other entities” category of debtors has also increased in 2016/17 to R132 million from R97 million, the bulk of this category of debt is within the auditor general’s target collection-period of 90 days.
Debt concentrated in the four provinces
According to the annual report, local government debt is mainly concentrated in the Eastern Cape, Free State, Northern Cape and North West. These provinces make up R309 million, or 81%, of the local government debt (2015-16: R276 million or 81%). As a result, the provision for doubtful debts of R177 million (2015-16: R169 million) is concentrated in these four provinces. However, it is noted that the provision for the Eastern Cape and Northern Cape has decreased by R10 million and R24 million, respectively, compared to 2015-16.
An analysis of the ageing of trade receivables that are 30 days and over is as follows: R426.7 million (2016: R369.7 million) of receivables, comprising 53% (2016: 54.4%) of total receivables, are in arrears. Local government debtor arrears comprise R372.4 million (2016: R303.3 million), which is 87.3% (2016: 82%) of total arrears and amounts to 46.2% (2016: 44.7%) of total receivables.
Included in the local government debt of R390 million (2016: R343 million) is an amount of R291 million (2016: R297 million) owed by the 1% and financially distressed municipalities, which is due from National Treasury in terms of Section 23(6) of the Public Audit Act.
The author of the article is Clive Keegan, editor of the SA Local Government Briefing