Finance

Municipalities must demonstrate accountability to the Auditor-General, Provincial Treasury, National Treasury, and ultimately to the citizens it serves.
(a) Technical Hurdles
i. Compliance with Accounting Standards (GRAP)
• Interpretation and Application - In certain instances municipal officials often
struggle with the interpretation and consistent application of GRAP.
This is particularly evident in areas such as:
o Infrastructure Assets: Recognising, valuing, and depreciating bulk
infrastructure assets (water networks, sewage systems, roads).
o Provisions and Contingencies: Accurately accounting for potential liabilities
like landfill site rehabilitation or legal disputes or VAT.
o Revenue Recognition: Correctly distinguishing between exchange and nonexchange
transactions (e.g., property rates vs. government grants).
• IT System Limitations - Many financial systems are not fully configured/updated
to automatically handle GRAP specific reporting requirements, leading to manual
workarounds that are prone to error.
• Lack of Technical Expertise - A critical shortage of skilled and experienced
accountants and financial managers who possess specialised knowledge of public
sector accounting creates a significant capacity gap.
ii. Reporting on Service Delivery
• Data Integrity and Reliability: The primary technical hurdle is establishing
systems that produce accurate, verifiable, and timely performance information.
Data is often not addressed in the core system, manually captured at source and is
not adequately reconciled with the financial system, leading to inconsistencies.
• Linking Performance to Finance: Technically aligning predetermined objectives
(from IDP’s) with specific budget allocations and actual expenditure is a complex
process. System setups often fail to provide a clear audit trail showing how money
spent achieved a specific service delivery outcome.
• Indicator Definition: Poorly defined or unrealistic performance indicators in the
IDP and Service Delivery and Budget Implementation Plan (SDBIP) make
meaningful measurement and reporting technically difficult.
iii. Challenges with Debt Collection
• System Integration Deficiencies: A lack of seamless integration between the
billing system (for rates and services), the customer management system, and the
general ledger leads to discrepancies in aged debtors' reports and impairments.
• Inaccurate Data and Billing: Technical errors in the billing system, often due to
faulty meters, incorrect tariff tables, or outdated property valuations, result in
incorrect bills undermines the credibility of the billing process and hampers
collection efforts.
• Impairment Modelling: The technical requirement to accurately calculate and
provide for impaired debt (irrecoverable debt) is a significant challenge. Many
municipalities lack the modelling tools and historical data required to make these
calculations reliably.
(b) Administrative Hurdles
i. Compliance with Accounting Standards
• Inadequate Supporting Documentation: In certain cases, a failure to maintain
complete, accurate, and easily retrievable supporting documentation for
transactions makes it problematic for auditors to verify the validity and accuracy
of figures presented.
• Poor Record Management: Weak processes and systems for filing and managing
contracts, Council approvals, and other key documents lead to potential delays and
qualified audits due to the inability to provide evidence.
• Ineffective Internal Controls: Weaknesses in internal control processes,
including lack of supervision, inadequate segregation of duties, and poor
reconciliation procedures, create an environment where errors and omissions are
not detected and corrected before submission.
ii. Reporting on Service Delivery
• Siloed Operations: A lack of coordination and communication between the BTO
and the Technical Service departments. These departments often work in isolation.
• Inadequate Monitoring and Oversight: There is frequently a lack of consistent,
senior-level administrative oversight throughout the year to track progress against
the SDBIP. Reporting is often done as a year-end compliance exercise rather than
a continuous management process.
• Unclear Accountability: Ambiguous lines of responsibility for collating,
verifying, and certifying performance data mean that the task is not owned by any
single official or department, leading to gaps.
iii. Challenges with Debt Collection
• Ineffective Credit Control Policies: While policies may exist on paper, the
administrative determination and consistency to implement them are often lacking.
Political pressure and a reluctance to disconnect non-paying households (especially
indigent households that have not been formally registered) cripple enforcement.
• Poor Customer Data Management: Administratively, municipalities struggle to
maintain a clean, accurate, and updated customer database. This includes incorrect
addresses, outdated contact details, and failure to manage estate accounts, making
communication and follow-up impossible.
• Capacity of Revenue Management Units: These units are often understaffed and
lack the administrative capacity to effectively manage the vast number of accounts,
pursue legal action, and manage payment arrangements.
In conclusion the challenges are deeply interlinked. Technical shortcomings are frequently
exacerbated by administrative weaknesses. To improve audit outcomes, a dual-focused
intervention is required.
The Provincial Treasury’s Municipal Support Programme remains a key vehicle for addressing
these hurdles.