Council approved the write-off of outstanding retention balances that have lapsed, making them legally and practically unclaimable.
Retention amounts are withheld from contractors during capital project implementation to ensure the correction of defects during the contract liability period.
Upon successful completion and handover of the projects, and the defect liability period lapsing, the withheld amounts are paid to contractors if the withheld amount has not been used to address the defects.
Several retention balances have been identified by the municipal finance department, which are no longer recoverable.
Accounts include non-submitted claims, companies that have been deregistered or liquidated, and companies that failed to adhere to the three-year claim deadline period.
The municipality thus has no legal or operational obligation to retain the balances any further.
The lapsed retention accounts are all from 2020 to 2022 and tally R54m.
The above amount has been dormant and fully backed by accounting provisions in the financial systems of the municipality.
The elimination of the dormant accounts will clean the municipal liabilities ledger and improve financial accuracy as well as the municipal liquidity ratio.
Keeping the accounts will inflate municipal liabilities, which creates audit and compliance risks due to misstated financial statements.
If a contractor can prove that the prescription was interrupted, by debt acknowledgement, for example, the municipality may still be obligated to reimburse the claim.
If the claim was legally prescribed, there’s no obligation to settle.
The balances after write-off will be recognised as revenue in the municipal statement of financial performance.
Many of the accounts involve road and electrical infrastructure contracts.
Council also approved the write-off of long-standing creditors’ balances between 2018 and the current financial year.
In the previous statutory audit on payables from exchange transactions by the Auditor General, it was found that the general ledger on creditors did not agree with supporting documents and creditors’ listings.
A full creditor reconciliation was done to confirm the validity of each creditor’s balance, which involved confirmations and valid invoices to be submitted.
Council approved the write-off of R4.5m, which will be recorded as revenue.
