The City of Johannesburg's cash reserves are a fraction of what they should be, as it battles to collect revenue from consumers, government and big business.
The city ended the financial year with only R681 million in the bank, a cover of only three days, compared with National Treasury's requirement that municipalities have three months' worth of revenue on the bank.
The situation has been blamed on the municipality's billing crisis, which affected about 65 000 of its more than a million accountholders.
Johannesburg migrated to a SAP-based system, under a project code-named Phakama, between November 2009 and July last year, at a reported cost of about R1 billion.
The move, aimed at integrating its disparate legacy systems, resulted in complaints from residents that they were receiving grossly inflated bills, incorrect meter readings and a lack of assistance from its contact centre.
Payment challenges
Stan Maphologela, deputy director of customer communications in the city's Revenue and Customer Relations Department, says the city had a closing cash and cash equivalents balance of R681 million at the end of the last financial year to June.
Maphologela says the city has a budget deficit of R3 billion for the first quarter of the year, of which R1.5 billion is linked to outstanding collections, while the balance is due to commitments that rolled over into the new financial year.
“The accruals from the previous years have been settled in the current financial year, thus putting financial strain on the current financial cash balances,” says Maphologela.
Maphologela says the city achieved a 102% collection rate last month and more than 90% of its 1.3 million customers are being billed correctly. Billing issues are now at a “minimum”, he says.
A recent National Treasury report into local government revenue and expenditure found the city was owed R12.1 billion at the end of June. Of this, R8.9 billion has been overdue for more than 90 days.
Maphologela explains the debtors' book also contains historic debt, which the city inherited. He says these overdue amounts cannot be written off because they are a tax, which only prescribes after 30 years.
Cash crunch
Democratic Alliance shadow finance MMC Patrick Atkinson says the August collection rate shows the city has made some progress in collecting overdue arrear amounts.
However, as the city had previously only achieved an 88% rate, it is not surprising that it is R1.5 billion behind in the first quarter budget, Atkinson says.
The city collects about R2.4 billion each month, and should have around R7.2 billion in reserve, explains Atkinson. This amount is in line with Treasury's requirement that municipalities have three months worth of revenue in the bank to cover expenses in case they have an issue with collections, he says.
Atkinson says the city's cash reserves will only last between seven and eight days if it has an issue with collecting money. He adds this will affect its ability to pay suppliers.
The low cash reserve is a direct result of the billing crisis, says Atkinson, who sits on the city's finance committee. He explains collections became more difficult as consumers are not always willing to pay their accounts because of the billing debacle.
Maphologela says the deficit is not linked to its move to SAP.
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