KNYSNA NEWS - The Knysna Municipality seems to be on the brink of insolvency after it went from more than R50-million in the black to more than R190-million in the red in terms of cash held in just three months.
In light of the shocking revelation, the Knysna-Plett Herald anonymously received an internal memorandum penned by municipal manager Sitembele Vitala informing councillors of serious cash-flow problems faced by the municipality and that there was a "dire need" for a financial recovery plan.
The Knysna Ratepayers Association's Chris Gould said they became aware of the crises after recently studying the municipality's November financial reports which revealed that the 30 June 2020 projected net deficit in cash was R191 600 000.
"We were shocked and dismayed, particularly in light of the fact that the relevant figure was +R53 337 000 in August last year," Gould said.
They brought it to Vatala's attention shortly thereafter, but Gould said they had not received an explanation as to what happened to the funds.
In an e-mail reply to the KRA Vatala said: "My apologies for responding late to your enquiry, I was out of connectivity. I am busy analysing the report and gathering information on the cash deficit. I will then advise the deputy mayor accordingly on remedial actions to be taken," the e-mail read.
Gould said it has been almost a month since they first raised the municipality's looming insolvency with the municipal manager.
"We have still not received a substantive reply. We are perplexed at how the municipality could go from a figure of +R53 337 000 in August 2019 to -R191 660 000 in three short months," Gould added.
He further said the situation had grown even worse since then. "Between 30 November and 30 December, the net projected cash deficit as of 30 June 2020 climbed from -R191 660 000 to -R211 172 000, deepening the hole by approximately another R20-million. We certainly hope that bonuses were not awarded in December. We trust that these matters will be clarified at the ordinary council meeting scheduled for this Thursday, 30 January at 09:00, if not before, and that a business rescue plan has been developed to keep the municipality solvent."
Gould said should the plans not be in place to remedy the situation, the municipality could find itself in a financial position that is prohibited by the Municipal Systems Act.
In the meantime, on 22 January, Vatala seemingly sent out the memorandum informing councillors and staff of "financial cash-flow challenges" of the Knysna Municipality.
In the document Vatala states that it had come to his attention that the municipality was "facing serious financial distress in terms of cash-flow" which was attributed to a "plethora of decisions and non-actions by structures of council".
He added that following internal engagements, it had become apparent that the municipality was in "dire need" of a financial recovery plan of six to twelve months.
Vatala further stated in the memo that the municipality was however still capable of continuing with paying creditors, salaries and meeting other financial statutory obligations.
"The administrative and political leadership of the municipality is working extremely hard to salvage the situation. A financial recovery plan is being drafted by management and will be presented to the first council meeting by end of January 2020.
"The leadership of the municipality urges staff to be resilient and calm in these trying times of financial cash-flow challenges. The municipality will continue to render essential services to communities and meet its statutory obligations," the memorandum read.
Municipal communications manager Christopher Bezuidenhout said the municipality was unable to respond to Knysna-Plett Herald's enquiries about the issues raised in the memorandum.
"The municipal manager prepared a draft cash management plan, which will be tabled before council at its ordinary council meeting at 09:00 on Thursday, 30 January 2020. "A full statement will be issued following the council meeting on the said date," Bezuidenhout said.
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