Electricity theft, meter tampering and faulty meters cost the City of Tshwane R416 million in the 2013/14 financial year. This is an 83% increase over the previous year.
Together with technical losses, the municipality lost income from electricity to the value of R819 million, up from R622 million in the previous financial year.
In total 14.25% of all elelctricity available for sale was lost. This is a sharp increase from 11.03% in the previous financial year and comes as the country is subjected to load shedding because of a supply shortage.
The norm for electricity losses in big cities is 6%-8%, Leon Claassen, analyst at Ratings Afrika earlier told Moneyweb.
The extent of the electricty losses was disclosed in the Auditor-General’s (AG) audit report that will be tabled in council on Thursday.
The Democratic Alliance (DA) on Wednesday hosted a media conference about the AG report and other issues from the annual financial statements the report is based on.
The city got an unqualified report with emphasis on several matters.
One of the matters the AG emphasised is the R5 billion impairment of consumer debtors, an increase of almost R1.3 billion from the previous financial year and 66% of all consumer debtors (2013:54%).
The city also made a provision for doubtful debt of R1.1 billion, up from R810 million in the previous financial year.
As in previous years the AG said Tshwane’s financial statements contained several material misstatements, this time including non-current assets, revenue and irregular expenditure. These were corrected during the audit process resulting in the unqualified audit opinion.
The AG stated that city manager Jason Ngobeni as accounting officer contravened supply chain management regulations by approving procurement of goods and services of more than R200 000 without inviting competing bids.
He did not put a value to such transactions, but added that construction contracts were given to contractors who did not qualify in terms of the Construction Industry Development Board (CIDB) regulations.
The CIDB grades contractors in terms of financial and technical ability, which implies that the contractors appointed might not have been able to complete the job properly.
The AG also stated that contracts were unlawfully given to government employees, council employees and their family members and where applicable, the relationship was not disclosed.
While he does not disclose the amounts involved in each instance, irregular expenditure, which is in contravention of legislative requirements, amounted to R451 million. This is a cumulative number, which had an opening balance of R295 million at the beginning of the year, of irregular expenditure in previous years that has not been addressed.
Unauthorised expenditure, which refers to spending that was not budgeted for and is a number accumulated only in the reporting period, amounted to R1.2 billion – double the R600 million of the previous financial year.
The AG pointed out that internal controls were not effective to ensure that an adequate asset register was maintained and the municipality did not pay its creditors within the required 30 days.
In the financial statements the Group CFO admitted that creditors are on average paid after 51 days. The DA however argues that if the payment before invoice of the city’s controversial electricity contractor PEU is excluded, the payments are on average only being made after 104 days – three and a half months!
The AG criticised the lack of effective oversight over financial reporting and the implementation of plans to address previous audit findings.
The DA said the city is facing serious risks. “The city is operating on or beyond healthy financial ratios, with a dicey asset register, decreasing cash flow, non-collection of debtors and insufficient cash to meet its liabilities to name but a few,” the party said.
According to the party, the city’s current ration (current assets in relations to current liabilities) is 0.72:1.
That means the city only has 72c in assets to pay every R1 of short term liabilities. It will therefore have to dip into long term assets to cover its current liabilities.
The DA explains why the city embarked on a hurried sale of several of its properties last year – it needed cash.
If inventories are excluded from current assets the ration deteriorates to 0.66:1.
The party said the City of Tshwane’s cash decreased by 19% over the year, while current liabilities decreased by only 2.6%, illustrating the worsening cash shortage.
According to the DA, Tshwane “will simply run out of operating cash during the present financial year” as it fails to collect debtors.
This article first appeared on Moneyweb and is republished with permission.