Major South African city flushes R2.5 billion down the drain

The City of Tshwane reported irregular expenditure of R2.49 billion for the 2023/24 financial year, and the true number may be even higher.

The City of Tshwane Metropolitan Municipality’s results for the year through June 2024 were released on Friday morning.

The city achieved a surplus of R2.11 billion for the financial year, which is an improvement from the previous year. This indicates better revenue collection and cost management efforts.

Total revenue increased to R46.6 billion from R42.4 billion in 2023, largely driven by growth in service charges, property rates, and other income streams.

However, expenditure grew to R44.46 billion from R40.98 billion in 2023, as debt impairment and finance costs were higher than budgeted. 

Operating cash flow was strong at R3.46 billion, reflecting improved collections and operational efficiency. 

“The cashflow is the lifeblood of any organisation; not only does it present the organisation’s ability to meet its current obligations it’s also the biggest indicator of the survival of the organisation,” the city said in its results. 

“The cashflow of the city has improved on a year-on-year basis. There has been an

improvement in the payment of some of the significant creditors, namely Rand Water, SARS and Eskom.” 

“The last four months of the financial year has seen collections of over R3 billion per month presenting evidence of the improvement.” 

However, the city also explained that several budgetary targets were not met. 

For example, service charge revenue underperformed due to electricity losses from tampering and illegal connections, while debt impairments exceeded expectations due to an increase in gross receivables.

“The ratios of the city are outside of the expectation of a healthy organisation, and they fall short of planned targets mainly due to the historical losses,” it said. 

“The liquidity and solvency of the city is lower than expectations and mainly because of the historical performances.” 

“There is, however, tangible evidence which points to the improvement of these ratios.” 

Looking ahead, the city expects its cash flow to improve significantly in the 2024/25 financial year.

The best-case scenario predicts cash flows will increase by R1.4 billion, while the worst-case scenario sees cash flows decreasing by R2.8 billion.

Based on collections in July 2024, the city said it is tracking toward the best-case scenario.

The city said this would enable it to halve its Eskom debt and ensure its financial sustainability.

In December last year, the City of Tshwane announced it had reached a landmark agreement with Eskom to settle the R6.67 billion historical debt owed to the utility. 

“This agreement, formalised as a court order on 26 November 2024, is a significant milestone in our journey to financial recovery and stability,” said Tshwane Executive Mayor Nasiphi Moya.

“The arrangement outlines a structured repayment plan spanning five years, with the first payment of R400 million scheduled for December 2024.” 

“Additionally, the city has already paid R425 million for arrears for October 2024. A critical condition of this agreement is the timely payment of current accounts within 30 days of billing.”

“This settlement signals a turning point, ending years of costly litigation and redirecting our focus toward improving service delivery and enhancing revenue collection systems.”

However, one concerning aspect of the city’s latest results is that it lost at least R2.49 billion to irregular expenditures in 2023/24, which could have significantly reduced its debt to Eskom or gone toward service delivery.

The city recorded irregular expenditures of R2.49 billion for the 2023/24 financial year, bringing its cumulative irregular expenditures to R15.52 billion​.

Tshwane said it has identified these cases of irregular expenditure and initiated investigations. 

The key issues under investigation are:

• Non-compliance with Municipal Finance Management Act (MFMA) regulations
• Subcontracting exceeding 25% without proper authorisation
• Non-compliance with Supply Chain Management (SCM) policies, including awarding contracts to entities with known fraudulent acts or employees
• Misrepresentation by bidders using forged documents​

However, a closer look at the audit report on these results shows that the R2.49 billion figure may be even higher.

The Auditor-General said that the municipality did not have an adequate system for identifying and disclosing all irregular expenditures incurred.

“In addition, I was unable to obtain sufficient appropriate audit evidence that irregular expenditure for the current year has been properly accounted for due to the status of the accounting records.”

“I was unable to confirm the irregular expenditure by alternative means.”

This was part of the reason why the city received a qualified audit opinion, which signals its significant issues with financial management and compliance with laws and regulations. 

In a media statement released on Friday, 24 January, the city addressed the Auditor-General’s findings.

“The Executive Mayor wishes to assure the residents of Tshwane that the city takes these findings seriously and is fully committed to implementing a comprehensive remedial action plan to address them,” it said.

“Since taking office in October 2024, the city’s administration has been steadfast in its determination to restore financial accountability and governance excellence in the City of Tshwane.”

“This year, the city is introducing a range of new interventions as part of a consolidated Audit Outcome Remedial Action Plan designed to effectively tackle the challenges pointed out by the Auditor-General.”