How Accountants Help Municipalities to Avoid Financial Distress

How Accountants Help Municipalities to Avoid Financial Distress

In one way, at least, South African municipalities are like movies. The main casts are your colleagues, comrades, family members and friends. Nosy journalists, oversight bodies, opposition parties and any one scrutinising you closely on how you manage your municipality can be your villain. You may ask, what about producers and screenwriters who are responsible for creating the movie? I would say municipalities create the movie themselves either through their lack of accountability or skills.

In South Africa, the challenges faced by municipalities in meeting their statutory and democratic responsibilities are well documented. They manifest themselves through service delivery protests and audit reports.

It is clear to everyone that there is something terribly wrong with how finances are managed by municipality managers, in particular, managers of district municipalities. You may argue, but there is a range of systems that should prevent all that.

Are municipal systems helpful?

Yes, indeed there is a range of systems which establish how funds are spent which are regulated by the Municipal Finance Management Act (MFMA). But let's be honest, those systems on their own can not prevent the misappropriation of funds or the fiscal distress.

In 2018, for example, 87 municipalities were reported to be already in financial distress while only 7% were functioning well.

You may also recall the findings of the Treasury report titled, "The State of Local Government and Financial Management 2017" which examined the financial health of all 257 municipalities in the country. It has reported that district municipalities are likely to be financially distressed than municipalities in the metros.

The Treasury report found that while 64 district municipalities had negative cash balances at the end of June 2017, none of the metros recorded negative cash balances.

This is a strong indication that, in general, metros have a solid cash base than districts.

“The problem of fiscal distress seldom emerges overnight. It develops slowly, which makes the development of an early warning system not only a topical issue but a necessity. An early warning system can play a critical role in preventing the occurrence or mitigating the impact of fiscal distress and in improving the three Es (efficiency, effectiveness and economy). Yet South Africa has no formal early warning system to alert policy-makers, oversight bodies, politicians, citizens and other stakeholders of municipalities heading for fiscal distress.” noted Mkhulile Ncube and Nomfundo Vacu in their report measuring fiscal performance of local government.

Good news! You can prevent financial distress, and this is how...

Good financial management practices are crucial for your municipality to deliver services to the public. But as I have already indicated, financial management practices on their own won't be helpful unless you hire highly skilled accountants to help you record and prepare your financial statements.

Accountants can come up with a set of financial ratios, and help you detect financial distress risk. Or even better, help you get an indication if your municipality is already in financial distress.

Hire an accountant who is ethical as finding a good accountant with strong work ethics and a high sense of integrity is imperative for your municipality.

Why Financial Reporting and Auditing are crucial?

Financial reports are a valuable tool for monitoring the finances of a municipality and the public. They also illustrate to the public how funds were collected and spent. Also, managing and monitoring financial activities becomes easy for you if you have all the financial reports.

What about auditing? It gives government and the public an overview of how responsibly your municipality spends public funds. Moreover, it goes without saying that every municipality should aim at getting a clean audit from the Auditor General.

How accountants will help your municipality

The basis for meaningful financial reporting is a good accounting system which consists of general ledgers, journals and detailed subsidiary ledgers. Key to this is maintaining and keeping records up to date. This is where accounting firms like MGT Accounting comes in handy.

MGT Accounting will ensure that all transactions are 100% accurate and our auditing ensures that your municipality has sufficient revenue to meet expenditure responsibilities. Also, that your municipality remains transparent and prudent about its finances.

Why You Should Work With Us?

Even if you are a Manager of a small district municipality from Limpopo or of a big one in Gauteng, it is crucial to hire an accountant as soon as possible.

Luckily, you are already in the best place to find one. At MGT Accounting we strive to ensure every one of our employees possesses the best qualities of an accountant. The founder of MGT, Mashudu G Tshakhuma is a Chartered Accountant who served articles at KPMG in 2011.

We are here to help you and your municipality to avoid financial distress and get a clean audit. Talk to us today!

Contact us to schedule your consultation by emailing info@mgt-accounting.co.za

By Dumisani Hlatswayo