2.6 OVERVIEW OF BUDGET FUNDING OVERVIEW OF BUDGET FUNDING
2.6.5 COLLECTION RATES FOR EACH REVENUE SOURCE
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· Trending of repeat offenders in respect of irregular expenditure;
· Interrogate irregular expenditure reports for root causes and compile quarterly report to MPAC;
· Internal Audit and Auditor General Logs – continuous monitoring and unpacking of findings to assist Line Departments in implementing controls to address the root causes which gave rise to the audit finding;
· Finance Management Capability and Maturity Model (FMCMM) – Follow up on the implementation of action plans relating to the FMCMM as set out by National Treasury in compliance with the Municipal Finance and Management Act on a quarterly basis;
· City Integrity and Investigations (CIIU) Unit Recommendations: Tracking of CIIU recommendations with regard to ensuring that the recommended disciplinary procedures are implemented; and
· Ensuring that the daily EFT/ Cheque Payment Service runs efficiently.
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0 - 30 Days 31 - 60 Days 61 - 90 Days Over 90 Days Total
R' 000 % R' 000 % R' 000 % R' 000 % R' 000
Debtors at
31.12.2019 1,375,837 10.76 1,101,667 8.62 459,767 3.60 9,848,546 77.03 12,785,817 Debtors at
31.12.2018 1,961,296 18.80 1,062,422 7.56 438,620 3.43 8,963,404 70.21 12,425,742
Movement -585,459 39,245 21,147 885,142 360,075
%
Increase/(decrease)
year on year -29.85 3.69 4.82 9.88 2.90
NB: The total debtors figure is stated prior to adjustments in respect of Provision for Bad Debts.
The total debtors outstanding of R12.8 billion represents an increase of R360 million, which is an increase of 2.9
% compared to December 2018. Included in the outstanding amount is interest which has accrued on the capital outstanding at 10.25% per annum.
The increase is also due to increases in tariffs for services and rate effective from 1 July 2019. Unemployment rate has increased resulting in a number of customers defaulting on their payments. We also see more and more businesses under rescue. Electricity and Water overbilling has also contributed to the increase in debtors.
Collectable debt over 90 days – Categorised
CUSTOMER NAME OUTSTANDING
AMOUNT (R)
Total Debt As At 31 December 2019 12,785,817,542
Less: Doubtful Debt 4,052,488,105
Section 21 Schools 188,463,722
Department of Water Affairs 29,916,764
Parastatals 224,841,014
Credit Authorities 484,640,406
SIE & Legal Process 3,070,559,487
Ugu District Municipality 32,260,006
Durban Marine Theme Park 21,806,706
Less: Uncollectable Debt 2,101,430,873
Rural Water 990,971,992
Tansnat Durban CC 504,839,528
Hostels 187,123,287
R293 Properties + Properties valued less than R230,000 23,107,307
Not In Use Accounts 94,029,849
Insolvent Estates 36,369,172
Deregistered Companies 9,048,564
Deceased Estates 255,941,174
Ingonyama Trust 180,873,062
Collectable Debt 6,631,898,564
Analysis of Total Debtors
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In December the total debt was R12.8 billion of which R4 billion represent doubtful debt which will take a longer period to recover and uncollectable debt of R2.1 billion.
Doubtful debt amounts to R4 billion and reasons for slow/non-payment includes disputes and customer financial affordability challenges. These include the following:
1. Credit Authorities – They are 16,955 number of credit authority signed of which payment terms varies from 6 months to 36 months. The last credit authority signed in December 2019 has a last payment date of January 2022. Although credit arrangements are being entered into financial stress due to unfavourable economic conditions for customers create doubt that the terms of the arrangement can be adhered to in the long run.
2. SIE & Legal Process – They are 952 number of accounts amounting to R264,726,410 under legal process. Legal processes generally take longer to finalise and there is no guarantee that the outcome will be in favour of the Municipality. The balance of 81,694 number of accounts amounting to R2,805,833,077 are with recovery, pending sale in execution.
3. Ugu District Municipality – An arrangement to pay has been entered into with the Municipal Manager of Ugu.
4. Durban Marine Theme Park – Rates raised after 10 years of deferral as approved by council. The deferment period has since lapsed, however the Theme Park currently cannot afford to pay the amount due.
Uncollectable debt amounts to R2.1 billion and reasons for non-payment includes liquidation and insolvency challenges.
These include the following:
1. Rural Water – Properties which are in rural areas whereby some of the debt amounts to more than the property values. The Revenue Department will have discussions with our Water Department to determine the proper classification of these accounts.
2. Tansnat – An arbitration process has commenced and a further sitting has been scheduled for March 2020.
3. Hostels – Redline letters will be sent to the respective occupiers in order to recover the debt. Prepaid meters are also being considered.
4. R 293 – these are properties which initially did not fall within the category of exemption and had been charged rates. They have since been exempt from paying rates, however the rates accumulated prior to exemption is a challenge to collect since these are customers deemed to be indigent.
5. NIU accounts – R 8,031 is for electricity, R 66,710,358 is for water and R 27,311,460 is unallocated. These account will be cleared out and re-allocated to the respective customer accounts.
6. Insolvent Estate – Due to state of economy many businesses have gone into liquidation and for many accounts the municipality only learns of the liquidation after the creditors meeting.
7. Deregistered Companies – They are 12 number of deregistered companies currently identified. Many companies have been deregistered due to financial difficulties.
8. Deceased Estates - Beneficiaries of Estates are finding it hard to keep up with payments on these accounts and a number of deceased estate properties are not being reported to the Masters Office.
Government Debt Pending Issues
Total Government Debt equates to R742 million, of which R154 million is from National Government, R181 million is for Ingonyama and R407 million is for Provincial Government.
The following are pending issues:
National Government
· Department of Water affairs – the debt relates to rates for Inanda and Hazelmere dam. Initially there was a dispute between National and the Department of Water Affairs on who should be accountable for payment.
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The dispute has since been resolved and the Department of Water Affairs has taken accountability for payment. Discussions and verification of accounts are in progress between the municipality and the department.
· Public Works Department (National) – NDPW has forwarded a request to Head Office to waive the normal process of engaging with the State Attorney regarding the transfer of these properties and appoint a Private Conveyancer to try and fast track the project. The process of transferring properties is ongoing and NDPW has applied for revenue clearance certificates.
Ingonyama Trust
· Ingonyama Trust – A report to Council to recommend Legal process will be prepared and sent to Exco.
Approval from Council is still pending.
Provincial Government
· Public Works Department (Provincial) – Delay in submission of invoices resulted in the delay of payment for the respective accounts.
· Department of Housing – An Exco report will be prepared to request for the exemption of these properties as they were developed by the municipality on land owned by the department. Approval of the Exco report is still pending.
· Section 21 Schools – The municipality is faced with ongoing challenge of non/slow payment; however, plans are in place to cab the escalation of non-payment by installing prepaid meters for the schools. A pilot project has been initiated and there have been several meetings with schools regarding.
· Department of Health – A number of accounts have been paid, however allocation of payment to the respective accounts has been slow.
In December 2019 the following activities we undertaken:
· Monthly staff deductions are made towards staff salaries not more than 25% of the Net Pay.
· A total amount of R879,785 was deducted from employees’ salaries.
· There were 10,432 Electricity and 7,244 Water disconnections for the month of December 2019.
· In December 2019 there were payments of R325,443 from summons and R9,378 was written off.
· Collection Rate for year to date is 98.49% These figures are based on actual figures which have not been adjusted.
· The Magistrate Court Act has been amended, going forward an affordability check of customers has to be determined before the credit agreement is signed. Judgements cannot be obtained on customers who default with payment arrangements if the affordability documents are not disclosed. A report was sent to Council to update with this matter. The affordability documents will be implemented by the Revenue section soon to try and curb the escalating debt.
The Covid-19 pandemic has negatively affected the financial position of the country and more specifically Ethekwini Municipality. It is important to note that the country finds itself technically in a recession and the impact of the COVID-19 pandemic is putting further constraints on the financial resources of the City and impact negatively on the collection processes. In addition to the lockdown, Moody’s joined its peers Standard and Poor’s and Fitch in giving South Africa a below investment grade credit rating. This also added to the woes of South African public and businesses. Some of the businesses could not afford to pay their employees full salaries or even honour their obligations to pay the municipality for rates and services. Although it was estimated that collection rate for the months under lockdown was going to decrease but the collection rate of 56% for the month of April 2020 was never foreseen. Ethekwini Municipality has always taken pride in its collection rates which have been 95% on average. At the end of March 2020 which was the beginning of lockdown the Municipality managed to obtain a collection rate of 93%. April was the first full month under lockdown and although customers were advised to pay at alternative places but due to limited movement customers were not able to pay.
The estimated collection rate for the year ending 30 June 2020 is 87%. The following cash recorded shows the impact we have experienced with the COVID-19 pandemic.
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