SU has to date worked on the resolution of government debt in all local and metropolitan municipalities in Gauteng as well as a few municipalities in the rest of the country, and is thus able to share the knowledge with all stakeholders in the local government sector.
Debt owed to municipalities is estimated at over R40 billion – this is for a combination of rates and service charges. It is further estimated that residential debt is the largest component of this debt, possibly as much as 60-70%, as compared to business/commercial, industrial, or government debt. While government debt (debt owed by provincial and/or national government to municipalities) may be in the region of less than 5% of total debt, it is a source of sustainable revenue to municipalities if well managed. Furthermore an improved collection of Government Debt can be used as a trendsetter by municipalities for improved credit control measures on other debt.
Most municipal billing systems have the functionality of categorising government debt from other debt, as well as being able to separate the billing and payment of rates separately to service charges, so this is not the major contributing factor to government debt. However, the classification of debt is not always correctly recorded on the system.
PSU's experience to date can confirm that the incorrect allocation of accounts by debtor type is a significant problem – that is where non-government accounts are incorrectly classified as government accounts or where government accounts appear as residential, business, etc.
In some cases the government departments concerned do not even dispute the fact that they have not paid their municipal accounts – they sight a lack of budget and/or budgetary planning for doing so as well as the non-receipt of municipal accounts (including the wrong official receiving the account). There are some cases where government departments have made payment to the municipality and can provide proof of payment, yet the municipality has an “unallocated account” due to some or other problem with reconciling payments to the relevant account/s.
Where there is a dispute between the municipality and the government department on the amount owed, there is generally a lack of adequate communication between the parties. Most of these disputed government accounts were resolved by verifying the ownership of the properties concerned – in other words, verifying the asset (property) registers of the government departments.
Subsequently municipal accounts needed to be split for billing of rates charges to the Department of Public Works and service charges to the relevant government department. There were a significant number of properties that were being billed to a government department, but were actually municipal-owned properties or properties that had been transferred to individuals as part of the government programme on housing transfer.
The most valuable lesson learnt has been that of “communication”. What does not work is simply mailing the accounts to a government department and in some cases not even having the correct postal address and waiting for payment to be made. Personal communication, face-to-face interaction and knowing the correct person within each government department gets the best results. Knowing the name and contact details of the relevant officials both at municipal and government level enables disputes to be resolved and bills to be sent to the correct officials and payments can be tracked.
Government departments that are most affected with regard to government debt are the departments of Public Works, Housing, Health and Education. The arrears owed by the Public Works department is explained by the fact that they are responsible for all assessment rates on government-owned property. The debt owed by the Education department relates primarily to the services rendered to schools.
PSU was able to recover approximately 90% of government debt in Gauteng. The remaining challenges in Gauteng have been handed over to the Department of Local Government and the Treasury to resolve. The Gauteng Department of Education further contracted PSU to do a sample survey of water consumption at 30 schools in an effort to find a more sustainable solution for the payment of municipal charges.
The sustainability of the work done on government debt by PSU is dependent on the implementation of changes to accounts data by municipal administrations, the correct billing and delivery of accounts or the arrangement of hand-delivery of accounts to relevant departments, as well as the correct allocation of payments received.
The sustainability of the results is also dependent on an appreciation on the part of government departments of the requirements of municipal systems to allocate payments correctly, particularly where payments are received in bulk every few months rather than regular monthly payments.
The timely submission of monthly or quarterly payment schedules to municipalities is critical in curbing the increase in credits in municipal suspense accounts and the unnecessary accumulation of interest on accounts that have been paid but which payments have not been allocated to the correct accounts.