Johannesburg finance MMC Rabelani Dagada’s weekend statement that the City has “commissioned a forensic accounting investigation to determine the root cause of the liquidity degradation at City Power” has brought into sharp focus alleged problems with cash flow.
This comes in the wake of revelations that the entity, estimated to generate more than 40% of the City’s revenue, according to an inside source, had an opening balance of only R133 million at the beginning of the 2017/2018 financial year and operated on a massive overdraft.
This is understood to have had an adverse effect on the City’s balance sheet, a situation that resulted in the finance department being unable to meet its financial obligations.
Reacting to the ANC Johannesburg region’s allegations over the weekend that the City is operating on an overdraft, the MMC said “the results of the investigation will empower us to implement administrative controls that will improve the MOE’s finances”.
It has now emerged that on June 1, a deputy director of cash flow management in the group finance department, in fact wrote an email in which she tells “cash flow managers” to halt all other payments, except salaries and value added tax (VAT).
“Please note that the GCFO Reggie Boqo has issued a directive, to the effect that: Until the City’s cash flow improves no payments except legislated (e.g. VAT, Tax) and salaries. You will then be notified as and when other payments can be processed.
“This essentially means, the daily limits for today and the next week are at 0,” the email stated.
The directive, as the deputy director explained, requested “respective cash flow manager’s to submit revised cash flow forecasts for June, July and August as soon as possible”, and directed that, for the month of June, payments falling in the stipulated category be forecast.
The directive appeared to have caused rifts within the finance unit at City Power. An official argued that the decision would cause officials to inadvertently break the law.
“Please note that I am currently drafting an extensive and detailed response to the letter sent to City Power by the GCFO on 24 May with regard to City Power cash flow matters. In the letter, I fully lay out where City Power’s cash flow problem emanates from.
‘Are you suggesting therefore that we should no longer comply with legal requirements?’
“In the meantime, while I understand the cash flow difficulties being experienced by the City, and the slower rate of collection of debtors in the Revenue department, I wish to point out that City Power is obliged by law to pay creditors within 30 days,” the official wrote.
The official further asked: “Are you suggesting therefore that we should no longer comply with legal requirements relating to payments to creditors? Please advise.”
“I believe Mr Boqo is the appropriate incumbent as the GCFO to respond to your email. As mentioned in my email to the CFO’s the directive is from the GCFO and ours is just to execute based on the City’s cash position and revenue inflows,” the deputy director answered.
The email directive was also addressed to City Power, City Parks, Johannesburg Development Agency, Joburg Fresh Produce Market, Johannesburg Social Housing Company, Johannesburg Road Agency, Johannesburg Property Company, Johannesburg Water, Pikitup and Metro Bus.
The MMC’s interim spokesperson, Lesego Ngobeni, wrote the following in response:
“The email in your possession was sent out without the authority of the Executive Mayor, the MMC of Finance or even the City Manager, as such, disciplinary measures have been instituted against the persons involved.
“The contents of the email are a product of miscommunication between the then Group Chief Financial Officer and the Deputy Director who wrote it. Therefore the instruction purported in the email was not sanctioned nor ratified by the Executive Mayor, the MMC for Finance nor the City Manager, as is required by law.”