KZN municipalities write off R1.222 billion in bad debt

Mark Steele, MPP

DA KZN Spokesperson on SCOPA

KwaZulu-Natal municipalities have, during the past two financial years, written off a combined R1.222 billion as a result of bad debt.

The shock figure forms the basis of a July 2013 parliamentary reply by KZN COGTA MEC, Nomusa Dube, to questions posed by the Democratic Alliance.  According to the reply, R739 million was written off during the 2010/11 financial year and R483 million in the 2011/12 financial year.  An alarming 50 out of 61 municipalities in the province have been forced to cancel outstanding debt.

Of the local municipalities, Abaqulusi (R184 million) Newcastle (R174 million) and Msunduzi (R154 million) top the list.  The districts also have exceptionally large figures when one remembers they are bulk service providers in the main.  Heading this list is Sisonke with R97 million, Ilembe with R90 milllion,  Zululand with R89 million and Umgungundhlovu with R83 million.  In comparison to all these municipalities the eThekweni Metro has a mere R1 million in write offs.

Having to write off bad debts means poor budgeting, poor revenue collection or both.  Municipalities have not only failed to collect the R1.222 billion for services provided, they have also conceded that this money will never be collected.  Ultimately everyone suffers because this money should have been spent on maintaining the water, electricity and road networks which provide the basic municipal services.

Either way it points to municipalities under financial stress.  Sustainable municipalities manage their revenue collection and thus have to write off less than poorly managed municipalities.  Writing off bad debt is not a ‘get out of jail free’ card that means municipalities can escape responsibility for poor financial management – the consequences always come back to hurt the residents in the form of reduced service delivery.

Bad debts also have to be cash backed and this means money which could be used to fund capital projects is tied up.  The MEC all but confirms this in his reply.  This means that councils either have to borrow to fund new capital projects or forgo those projects – a situation that the DA regards as highly problematic.

The DA acknowledges the enormity of the task in collecting this debt.  We also appreciate why debt has to be written off and while the province’s Scopa committee has no direct oversight of municipalities, the amount being written off is an urgent issue for MPACs and Audit Committees to consider as there are serious compliance issues involved.

Before bad debts can be written off, all possible measures have to be undertaken to ensure that debts owing have been collected, and municipalities have to show the Auditor-General that they have done all they could.  Write offs therefore appear as audit queries in the annual reports, and it will be for the MPACs to interrogate the way their municipalities complied with the MFMA and at the same time put better systems of debt collection in place to prevent future problems.