R70 million debt to Garden Route municipality deemed 'uncollectable'

Nearly R70 million owed to the Garden Route District Municipality is at risk of being permanently lost, primarily due to unpaid fire service accounts, despite the municipality achieving yet another clean audit.

That is the picture painted in the oversight report on the municipality’s 2024/25 annual report, which was served before councillors at a special council meeting on Thursday.

The Garden Route District Municipality oversees and supports several local municipalities across the Garden Route in the Western Cape, including George, Knysna, Mossel Bay, Oudtshoorn, Hessequa and Kannaland.

The report, compiled by the Municipal Public Accounts Committee (MPAC), is the council’s formal review of the municipality’s financial and service delivery performance for the year ended June 30.

Though the Auditor-General issued “an unqualified audit opinion with no material findings”, the oversight report showed serious financial pressures remained behind the clean audit outcome.

Receivables from exchange transactions were described as “significantly impaired”, with the impairment allowance increasing to R69,877,737 in 2024/25, compared to R50,591,262 in the previous financial year.

Of the R69,877,737 impaired, R52,435,277 — or 75% — related to fire services accounts.

The report said the impaired amount was not collectible.

"This has been the case for quite a number of years," the report said.

In practical terms, most of the debt on the municipality’s books stemmed from unpaid fire service charges that had accumulated over time and were not being recovered.

The report called on management to act.

“Management must continue to explore possible ways to collect the fire accounts,” it said.

It further warned: "Our municipality is heavily dependent on equitable share allocation and failing to collect the little that we can, may be disastrous in the long run."

A strategy to address the fire accounts must be submitted to MPAC before June 2026.

At the same time, more than R48m in expenditure has been flagged for investigation under Section 32 of the MFMA, which deals with unauthorised, irregular and fruitless and wasteful expenditure.

Unauthorised expenditure totalled R21,426,918.

This includes R18,038,825 in operational overspending due to non-cash items such as impairment losses and depreciation, and R2,891,661 in capital overspending across various departments.

Irregular expenditure amounted to R26,581,328, mainly due to non-compliance with supply chain management regulations.

Fruitless and wasteful expenditure totalled R95,867 and relates to interest on late payments to creditors and penalties.

The report stated: “It is strongly recommended that all instances of unauthorised, irregular, and fruitless and wasteful expenditure be thoroughly investigated under the Section 32 process of the MFMA.”

It added the process “will ensure accountability, determine the root causes, and establish appropriate corrective actions, including recovery of funds or disciplinary measures where applicable".

Beyond the financial figures, the municipality is also facing a property ownership dispute with Knysna municipality.

Knysna is challenging the ownership of several properties registered in the name of the Garden Route District Municipality.

“The contingent liability related to these properties is valued at R54,586,454 as at June 2025,” the report states.

It recommended that both municipalities prioritise formal discussions and establish a dedicated task team to resolve the dispute.

On service delivery, the municipality achieved 75% of its targets, down from 90% in the previous year.

The report attributed the decline mainly to infrastructure challenges, particularly capital spending linked to the regional landfill site and road maintenance targets.

The contract with the service provider appointed to construct the regional landfill site “has since been terminated”.

Approached for comment, mayor Marais Kruger said management was in the process of developing a comprehensive turnaround strategy to strengthen financial viability.

"These measures will be finalized and presented before the close of the current financial year on June 30," Kruger said.

"Debt collection processes are actively being pursued to address long-outstanding debtor accounts. In line with the requirements of the Generally Recognised Accounting Practice (GRAP), specifically GRAP 104: Financial Instruments and GRAP 1: Presentation of Financial Statements, municipalities are required to assess the recoverability of their debtor books at each financial year-end."

Regarding the municipality's property dispute with Knysna, Kruger said discussions regarding that were being led by the office of the municipal manager.

"The municipality remains committed to constructive engagement and is working towards reaching an amicable resolution that serves the best interests of all parties involved," he said.

"In addition, formal processes have been established to investigate matters related to Section 32.

"These investigations will be subjected to internal audit review and subsequently tabled before MPAC.

"It should be noted that the primary cause of the reported irregular expenditure arises from a revised interpretation of Supply Chain Management regulations during the audit process, which differs from the approach applied in prior years."

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