KNYSNA NEWS - Knysna municipal manager Dr Sitembele Vatala has until next week to give reason why he should not be suspended following recent revelations about the municipality's financial woes which includes plunging from a more than R50-million projected cash surplus in November to a projected cash deficit of more than R200-million recently.

During last week's ordinary council meeting DA councillor Peter Myers submitted a motion to force Vatala to explain why he should not be suspended. 

It is believed that Vatala, during proceedings, threatened to sue any councillor who voted to suspend him, but this did not change the outcome of the vote as the motion succeeded with 11 votes to 9.

Several observers in the know have commented that while, as accounting officer, Vatala was legally responsible for the parlous state of the municipality's finances, chief financial officer Mbulelo Memani was also in the line of fire. No action was however proposed against Memani.

The Knysna Ratepayers' Association's Chris Gould said it was their understanding that Vatala was only served with formal notice to give reason why he should not be suspended on Monday 3 February and thus he has until next week to respond. "We hope to hear his reasons this coming Monday," Gould said.

He added that they hoped that there would be a thorough, impartial investigation to get to the bottom of the situation. "We also hope that the results will be made public so all of Knysna's residents can be confident that they know what actually happened."

The draft cash management plan, submitted by the municipal manager at the council meeting, suggested several alleged causes of the cash flow problems.

Some of these include "unsustainable budgeting, ineffective management, weak or no controls and limited or no detection and monitoring of processes and systems".

Another cause stated in the plan is an increase in capital expenditure of 293% over a four-year period funded from own revenue. "In short, the municipality is using its own money to advance funds for projects normally paid by national or provincial grants (including housing) or loans, whilst awaiting reimbursement. There was an enormous increase in capital expenditure financed from cash reserves in 2019-20, exhausting the municipality's available reserves," Gould said.

Other reasons highlighted was the failure to spend grant funding received, which is then lost; the failure to apply for needed grants and the failure to adjust capital and operating expenditures to be in line with income actually received.

Ineffective billing and cash-collection processes; the municipality's deteriorating socio-economic profile, with high levels of unemployment and indigence and the failure to charge tariffs for rates and services that reflect actual costs also mentioned.

The draft cash management plan also alluded to the municipality's borrowing at 50% below the norm for capital projects. "The municipality is spending cash reserves on capital projects until they are exhausted, rather than borrowing the money."

No evidence of theft or fraud was presented at the meeting. "For the past three years, the Knysna audit committee has submitted recommendations to council designed inter alia to avoid the situation the municipality now finds itself in. 

"All but one of the thirty-odd recommendations has been ignored, year after year. In its analysis of standard financial ratios in last year's report, the committee said: 'The fact that these ratios are below the norm and tending downwards indicates a deterioration in cash management and hence the flashing of very strong warning lights.' 

"On the issue of debtors' management, it said that on average the municipality required 78 days to receive payment for bills for services, far in excess of the norm of 30 days, showing that the municipality is still exposed to significant cash flow risk and is facing challenges in the collection of outstanding amounts."

Although a complete business rescue plan remains to be developed, the draft cash management plan proposes several remedial actions including immediately arranging an overdraft facility with the bank; delaying or cancelling capital projects financed from loans that are not absolutely essential; financing those essential capital projects from immediate borrowings; financing all future capital projects from loans pending recovery from the cash flow deficit and placing a moratorium on the filling of all non-critical budgeted vacancies.

"If these recommendations are properly implemented the draft plan predicts that the projected cash will be replaced by a projected cash surplus of R40-million. If not, reliable sources indicate that the municipality may struggle to pay salaries in late February."

By the time of going to print Knysna Municipality had not provided a response.

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