Auditor-General report indicate immense liquidity problems at municipality

MBOMBELA – Despite a formal turnaround strategy implemented by the City in June 2017 to improve the municipality’s finances, the Auditor-General’s (AG) report for the year ending June 30, 2019, reflects a R300 million total liabilities increase in comparison to the previous reporting period.

The AG also gave a qualified audit opinion for the 2018/19 financial year. This was tabled to council in the City’s financial management report (FMR) during a council meeting held at the civic centre on Friday.

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The AG’s report contained in the City’s FMR paints the picture of a municipality with an “inability to meet short-term obligations as they become due”.

“The liquidity position of the City remains a huge area of concern as the current ratio reflects a cash coverage ratio (CCR) of zero months,” the financial statement read.

The CCR is an indication of how many months a municipality has to pay its operating expenses with the cash it has available, with the norm being one to three months.

“The total liabilities, including current liabilities (creditors) and non-current liabilities for the reported period ending June 30, 2019 amounted to R2,7 billion, in comparison with the previous year ending June 30, 2018 – a variance of R1,4 billion indicating an increase of R300 million,” the FMR read.

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This represents a 23 per cent increase in the money owed to the City’s creditors that also consists of non-current liabilities – interest bearing borrowings from banks.

The CMLM’s approved financial plan for the year ending June 30, 2019, only budgeted for liabilities in the amount of R1,3 billion, according to its FMR, a 110 per cent difference from the figures in the AGSA report.

“It is true we have regressed in terms of the AG report. It does not show progress on each matter and we are not proud of the regression for which we take full responsibility. The debt owed to creditors is not a new issue. They are biting into our cash flow and we are not yet at a point where we have cash reserves to settle creditors,” Executive Mayor Sibusiso Mathonsi added.

The City indicated that it has conducted a 360-degree assessment and subsequently “developed a clean audit road map that incorporates compliance, leadership, organisational culture, employees’ behaviour, internal controls and governance and systems subjects”.