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Pretoria - The budgets of more than half of South Africa’s municipalities are not worth the paper on which they are written because they are not appropriately financed.
Without money to implement them, budgets have little credibility.
In a National Treasury overview of municipal budgets and expenditure for 2006/07 to 2012/13 published on Wednesday, 90 of the 283 municipal budgets for 2010/11 were apparently insufficiently funded. In the case of 70 there was too little information for an evaluation.
“If a budget is insufficiently financed, it is not a credible budget – the revenue projections could be unrealistic, the operating expenditure too high or the capital budget too ambitious,” says the Treasury. Generally one finds a problem in all three areas.
The problems can be rectified only by doing basic things correctly and by ensuring that municipalities do not spend more than they can realistically be expected to collect.
Treasury has drawn up specific regulations to enforce municipalities to manage their cash flow. Nevertheless many only learn the hard way when they land in trouble, says the report.
Municipalities approach budgeting incorrectly – they first plan their spending and then turn to their income.
Turnover is cash only once collected, and there is a passage of time from the time accounts are sent out until the money is banked – if the accounts are indeed paid.
This procedure leads to serious cash flow problems for many local authorities, which become vulnerable because they have exhausted their historical cash reserves, says the Treasury.
Only when municipalities find themselves unable to pay their staff and service suppliers because of cash flow problems, do they start to focus on managing their cash. “This means cutting out unnecessary expenditure and making revenue collection a priority,” says Treasury.
In the 2009/10 financial year 174 municipalities underspent more than 5% of their operating budgets, despite pressure to improve service delivery. A total of 39 overspent more than 5%.
This, according to the Treasury, indicates overambitious budgeting, that management is struggling to implement the budget or that the municipality is not collecting the money necessary to meet its expenditure – all of which indicates poor budgeting.
A deviation of more than 10% from the capital budget indicates that the original budget was unrealistic.
During the financial year 28 municipalities underspent more than 10% and 23 overspent more than 10%.
At the same time, municipalities together underspent R15bn on capital projects.
Regulations on cash management and a new budgeting format are aimed at preventing some of these problems, but decisions as to what will receive preference when money is allocated, the costing of projects and services and the technical capacity at the municipalities themselves all need to improve.
- For more business news in Afrikaans, go to www.sake24.com
Without money to implement them, budgets have little credibility.
In a National Treasury overview of municipal budgets and expenditure for 2006/07 to 2012/13 published on Wednesday, 90 of the 283 municipal budgets for 2010/11 were apparently insufficiently funded. In the case of 70 there was too little information for an evaluation.
“If a budget is insufficiently financed, it is not a credible budget – the revenue projections could be unrealistic, the operating expenditure too high or the capital budget too ambitious,” says the Treasury. Generally one finds a problem in all three areas.
The problems can be rectified only by doing basic things correctly and by ensuring that municipalities do not spend more than they can realistically be expected to collect.
Treasury has drawn up specific regulations to enforce municipalities to manage their cash flow. Nevertheless many only learn the hard way when they land in trouble, says the report.
Municipalities approach budgeting incorrectly – they first plan their spending and then turn to their income.
Turnover is cash only once collected, and there is a passage of time from the time accounts are sent out until the money is banked – if the accounts are indeed paid.
This procedure leads to serious cash flow problems for many local authorities, which become vulnerable because they have exhausted their historical cash reserves, says the Treasury.
Only when municipalities find themselves unable to pay their staff and service suppliers because of cash flow problems, do they start to focus on managing their cash. “This means cutting out unnecessary expenditure and making revenue collection a priority,” says Treasury.
In the 2009/10 financial year 174 municipalities underspent more than 5% of their operating budgets, despite pressure to improve service delivery. A total of 39 overspent more than 5%.
This, according to the Treasury, indicates overambitious budgeting, that management is struggling to implement the budget or that the municipality is not collecting the money necessary to meet its expenditure – all of which indicates poor budgeting.
A deviation of more than 10% from the capital budget indicates that the original budget was unrealistic.
During the financial year 28 municipalities underspent more than 10% and 23 overspent more than 10%.
At the same time, municipalities together underspent R15bn on capital projects.
Regulations on cash management and a new budgeting format are aimed at preventing some of these problems, but decisions as to what will receive preference when money is allocated, the costing of projects and services and the technical capacity at the municipalities themselves all need to improve.
- For more business news in Afrikaans, go to www.sake24.com
