Cape Town's financial boss tells Heather Formby why it did not get a clean audit from the auditor general.
In many of South Africa's cities and municipalities, checks and balances have been replaced by cooking the books and, sometimes, the stealing of municipal revenues.
Although this does not apply to the auditor general's 2010-2011 unqualified audit of Cape Town, tarnishing its squeaky-clean record under the Democratic Alliance-led government, it has raised questions about what is going on. Is Cape Town becoming a Polokwane?
According to deputy mayor Ian Neilson, who is also in charge of the city's finances, Cape Town has improved its controls but the auditor general has moved the goalposts.
He said the information in the report was released in January and so it was not new. But the city has taken note of the auditor general's concerns about "administrative irregularities" that put the spotlight on Cape Town's tender process.
Neilson said more controls had been implemented to ensure tender awards were not made to city officials (12 according to the audit), state employees or suppliers on the banned list (one), which were concerns raised by the audit.
Another of the auditor general's concerns was that for 28 out of 572 contracts, the tender advertising period was less than the required 30 days. But Neilson said some people could not count.
"There were no problems with our financial statements or our predetermined objectives. There were legal compliance issues mainly with supply management [tenders, in other words]," he said. "We have subsequently improved controls, such as checking ID numbers against salary databases [to ensure employees were not being awarded tenders]. In the case of awarding tenders to employees of the state, we do not have access to many of the state or parastatal databases which the attorney general can view.
"Although it has been said that Cape Town has regressed in terms of its reporting, it has actually improved. The auditor general just added stricter requirements."
Neilson said Cape Town's 500 to 700 tenders a year were transparent. "We put everything on our website and every tender's progress can be tracked by anyone who wants to look. We have a database of thousands of suppliers who we SMS to alert them to new tenders. Our tender adjudication committee is open to the public.
"We have also introduced a demand plan so tenders are staggered over the year, giving us enough resources to handle each tender proficiently and the ability to plan things better."
He said tenders were awarded for work or goods of more than R200 000; amounts of less than this were considered to be "quotes" and did not have to go out to tender. Quotes were being made long-term contracts to avoid frequent quoting and tenders were becoming "multiyear agreements" to improve efficiency.
"We are becoming far more efficient and our administration is becoming less cumbersome," Neilson said.
Despite the "administrative irregularities" the auditor general identified, Cape Town's finances are still among the best managed in the country, particularly when if it is compared with others such as Johannesburg, where the billing system is in disarray and questions have been asked about its financial stability.
Neilson made Cape Town's success sound simple. "You send out accurate accounts and then you collect the money. If your cash flow is good, you can spend and you can borrow. We don't spend money which we don't have."
He admitted nothing was ever perfect and said Cape Town was in a constant battle to detect fraud and implement control systems. The city sends out more than one million accounts a month to residents and business owners, which are spread out and amount to about 50000 a day. "Behind the accurate billing must be correct water and electricity meter readings, which we have tried to automate. In the case of sudden large amounts on individual accounts, the computer system aborts the account and it is reverted to a human for checking. And if [the person] raises a problem, debt collection actions are stopped for a short time while investigations take place," Neilson said.
Outstanding bills also have to be collected. When the DA took over the management of Cape Town, Neilson said, payments were low. "Out of one million accounts only 360 000 households and businesses paid their rates and services bills. We sent out final notices. The airport, for example, owed us R49-million but paid in a few hours when we threatened to cut off their power."
A big bank, which also owed a few million, paid up within a day after the city threatened to cut off its electricity and individuals apparently queued to pay their bills once they received final notices.
<strong>Good credit ratings</strong>
Neilson said the average collection rate was 96%. "We still have substantial amounts outstanding, many of which are historical, and we are still trying to recover some of those."
He said about 80% of Cape Town's revenue came from rates and service charges, which amounted to about R90-billion, giving it a good cash flow. "We make sure we only spend what we collect. The management of our finances also allows us to borrow as we receive good credit ratings."
Unfortunately, about a third of Cape Town's expenditure goes on salaries, which limits the amount that can be spent on providing services. "We have had to comply with above-inflation salary settlement agreements each year, along with national government's negotiations with civil servants. We would prefer our salary bill to be a smaller proportion of our spending and are already taking action. We can only afford to have rising salaries if productivity increases, so we've introduced an internal broadband system connecting most of our buildings, which improves efficiency, and we are improving the training and upskilling people," he said.
Some of the problems of other municipalities arise from having huge salary bills, leaving little to spend on services, and productivity is also low. "When we came into power in Cape Town, we had to ensure that everyone knew what their jobs were and who they reported to. No one really seemed to know. We also fire incompetent people or those who don't do their jobs, though with labour laws that sometimes takes time."
Cape Town's other major expenses are for services such as water and electricity from Eskom, which Neilson said was flawed. "Last year's electricity turnover was R8-billion in Cape Town; R5-billion of that went to Eskom. We believe there is an imbalance in the way Eskom charges."
Cape Town also has plans to improve its ability to compete with other cities around the world. "As a city, we look at efficiency. Part of our problem is our low density - the city is spread out, probably because of apartheid. We need to get people living in the city so they are closer to work. We also have to improve our public transport systems as well as our broadband capacity. We have to drive all those elements to ensure a well-functioning city which compares with others in the world."