Town councils sinking deeper into the red

THE Auditor General has released new reports highlighting the financial struggles of many municipalities that are crippled by huge debts because of non-payment for services.

The reports say the improved monitoring controls instituted in the previous financial years were not adhered to and resulted in the increase of losses. At Tsumeb, no provision was made for bad or doubtful debts and residents owed the Council N$18,7 million at the end of June 2003.The amount had increased from N$15,4 million the previous year.The bad debts represented 80 per cent of the outstanding amount at year-end.”A thorough investigation should be undertaken by the Municipality to establish the full exposure regarding the outstanding debts.There are quite a few suspense accounts that should be investigated and also cleared,” the AG, Junias Kandjeke, said in the last report of the northern town.He said the Council struggled to collect debts that “snowballed out of proportion against income” and now threatened the town’s cash situation.”Council should implement strict credit-control measures and improve debt collection as a matter of great urgency,” Kandjeke said.He said Tsumeb had not made any provision for bad debts for five years and the collection period was 290 days.If the debts were to be written off, “it would have a severe impact on the going-concern status of the Municipality”, he warned.He said by not addressing the debt collection system, Tsumeb was setting itself up for a serious cash-flow problem.Credit control at Oshakati is also getting out of hand and outstanding debts are crippling the municipality’s treasury.Kandjeke said the debt-collection period had deteriorated from 60 days to 82 in the financial year that ended June 30 2004.”This indicates a lax credit-control system.The Council does not have a formal credit-control policy to facilitate constant review of the debtors’ recoverability and has to institute appropriate measures to recover these amounts,” the AG said.Kandjeke also found that the water-distribution losses at Oshakati were “abnormally high” and called on the Council to implement control measures to reduce such losses.At Otjiwarongo, bad debt also continued to grow from N$11,6 million the previous year to N$14,9 million by the end of June 2004.”Debtors have been increasing significantly, causing working capital to decrease, which should concern the Council,” Kandjeke said.He said the bad-debt provision of 20 per cent (N$3 million) was inadequate and resulted in misleading financial information.At Tsumeb, no provision was made for bad or doubtful debts and residents owed the Council N$18,7 million at the end of June 2003.The amount had increased from N$15,4 million the previous year.The bad debts represented 80 per cent of the outstanding amount at year-end.”A thorough investigation should be undertaken by the Municipality to establish the full exposure regarding the outstanding debts.There are quite a few suspense accounts that should be investigated and also cleared,” the AG, Junias Kandjeke, said in the last report of the northern town.He said the Council struggled to collect debts that “snowballed out of proportion against income” and now threatened the town’s cash situation.”Council should implement strict credit-control measures and improve debt collection as a matter of great urgency,” Kandjeke said.He said Tsumeb had not made any provision for bad debts for five years and the collection period was 290 days.If the debts were to be written off, “it would have a severe impact on the going-concern status of the Municipality”, he warned.He said by not addressing the debt collection system, Tsumeb was setting itself up for a serious cash-flow problem.Credit control at Oshakati is also getting out of hand and outstanding debts are crippling the municipality’s treasury.Kandjeke said the debt-collection period had deteriorated from 60 days to 82 in the financial year that ended June 30 2004.”This indicates a lax credit-control system.The Council does not have a formal credit-control policy to facilitate constant review of the debtors’ recoverability and has to institute appropriate measures to recover these amounts,” the AG said.Kandjeke also found that the water-distribution losses at Oshakati were “abnormally high” and called on the Council to implement control measures to reduce such losses.At Otjiwarongo, bad debt also continued to grow from N$11,6 million the previous year to N$14,9 million by the end of June 2004.”Debtors have been increasing significantly, causing working capital to decrease, which should concern the Council,” Kandjeke said.He said the bad-debt provision of 20 per cent (N$3 million) was inadequate and resulted in misleading financial information.