BRIEFING SELECT COMMITTEE ON CO-OPERATIVE GOVERNANCE AND TRADITIONAL AFFAIRS By Ms N. Dube, MPL MEC for Co-operative Governance and Traditional Affairs.

BRIEFING SELECT COMMITTEE ON CO-OPERATIVE GOVERNANCE AND

TRADITIONAL AFFAIRS

By Ms N. Dube, MPLMEC for Co-operative Governance and Traditional Affairs

KwaZulu-Natal

1.Briefing in terms of section 139 of the Constitution on Indaka Local Municipality.2.Briefing in terms of section 139 of the Constitution on Umhlambulalingana Local Municipality.3.Briefing in terms of section 139 of the Constitution on Okhahlamba Local Municipality.

CONTENT• Purpose• Background• Terms of Reference of Ministerial Representatives• Briefing per Municipality

– Motivation for Intervention– Executive Obligations not Met– Intervention Activities

• Indaka Local Municipality• Umhlabuyalingana Local Municipality• Okhahlamba Local Municipality

• The Way Forward

PURPOSE• To provide a report to the Select Committee on

Co-operative Governance and Traditional Affairs of the National Council of Provinces on the Interventions by the Provincial Executive Council of KwaZulu-Natal at the:

• Indaka, Umhlabuyalingana and Okhahlamba Municipalities

• In terms of Section 139(1) of the Constitution.

BACKGROUND• Executive Council approved interventions in terms of Section

139(1)(b)• MEC responsible for Co-operative Governance and Traditional

Affairs– Authorized to appoint Ministerial Representatives to assume the function in terms of

section 51 of the Municipal Systems Act to establish and organise the administrations of these municipalities in a manner that would enable the municipalities to achieve the objects of local government as set out in section 152 of the Constitution.

– Mandated to monitor the intervention and report progress to the Executive Council in February 2010.

– Sub-Committee on Interventions established by the Executive Council of KwaZulu-Natal, including the MECs for Finance; Ms I Cronje, Economic Development; Mr M Mabuyakhulu and Transport, Safety and Security; Mr W Mchunu.

MINISTERIAL REPRESENTATIVES TO ASSUME FUNCTION WOULD, INTER ALIA:

• Devise a turn - around strategy for the Municipalities.• Ratify all decision of the municipal councils and /or its committees, prior to implementation• Ratify all decisions taken by Municipal Managers and section 57 Managers in terms of

delegated or original authority• Ensure implementation of council resolutions by the Administrations.• Implement a system to control and approve all expenditure.• Implement all governance systems and procedures including appropriate councillor oversight

mechanisms.• Ensure implementation of financial systems, policies and procedures.• Ensure implementation of the Municipal Property Rates Act.• Set out a specific strategy for addressing each municipalities’ financial problems, including a

strategy for reducing unnecessary expenditure and increasing the collection revenue. • Prepare the adjustment budgets for the 2009/2010 financial year in respect of each

municipality.• Review the organisational structures of these municipalities.

INDAKA: MOTIVATION• Annual financial statements for 2008/2009 not submitted by 31

August 2009• Non-compliance with section 121 of the MFMA

– No performance report evaluating the performance of the Municipality or Section 57 employees

– Did not table or submit an oversight report– Irrespective Council paid performance bonuses to Section 57

employees

INDAKA: MOTIVATION• Auditor General reports for 2005/2006; 2006/2007 & 2007/2008

financial years– Serious deficiencies in management systems and other

accounting and financial controls – Qualified audit opinions– Council failed to address recurring issues adequately– Serious financial problems

• Poor cash flow• Accumulated deficit of R8,4 million incurred as at June 2008• Entity’s total liabilities exceeded its total assets by R1,9 million• Reserves amounting to R6,5 million not supported by cash.

INDAKA: MOTIVATION• 99.7 percent grant dependant and not providing any services but appointed

seven Section 57 managers. • The total salary cost was 51 percent of the total operating expenditure. • Implemented the Municipal Property Rates Act 6 of 2004 (MPRA) on 1 July 2009,

– Failed to produce or deliver rates accounts. The delay resulted in an additional burden on rate-payers to pay over a lesser period with a potential rates-boycott.

– Did not apply for condonation.

• Council– Not been able to exercise effective oversight over the administration – Decisions were negatively impacting on the finances and functioning of the municipality evident

in:• Over expenditure on the budget• Poor grant management• Not implementing an effective debt collection and credit control policy resulting in increasing

outstanding debt.

INDAKA: MOTIVATION• No political or administrative leadership

– Mayor passed away– MM suspended

• Problems date back to the 2005/2006 financial year – council and the administration do not have the capacity to correct the

institutional problems– Or to exercise an oversight role and implement the necessary reforms

• Despite the ongoing support– Not capable of administering its affairs on its own– No progress made to improve the administrative and financial controls

INDAKA MOTIVATION• Given limited budget

– High number of section 57 managers could not be justified– Despite their employment, there was a deficiency in skills and resources to

conduct their duties

• Despite the poor performance of management, suspension of MM for financial mismanagement, and an enormous financial deficit, all managers received an 18% increase in salary as well as performance bonuses, which could not be justified.

• Consistent lack of oversight by the councillors, as well as poor decision making leading to a dysfunctional and financially compromised municipality.

INDAKA: EXEC. OBLIGATIONS NOT MET• Municipal Systems Act, No.32 of 2000

– Section 4(1)(c) – Section 4(2)– Section 38

• Municipal Finance management Act, No 56 of 2003 – Section 32– Section 54– Section 121– Section 126– Section 165(2)– Section 166

• Failure to approve a revenue raising measure as part of the budget warranting an intervention in terms of Section 139(4) of the Constitution.

INDAKA: INTERVENTION ACTIVITIES• Met Indaka Council on 14 December 2009, informing of Provincial

Executive’s decision• Mr Roger Ferguson appointed as Ministerial Representative,

commenced in January 2010• Imbizo at Indaka on 22 January 2010

– Community highlighted the lack of, and poor service delivery relating to basic needs• Water• Sanitation• Electricity• Clinics• Access to FET colleges• Housing

• Status report by Ministerial Representative confirms serious deficiencies

UMHLABUYLINGANA: MOTIVATION• Supported under the Department’s Management Assistance Programme (MAP)

since 2002. – R2.35 million allocated– R1,7 million spent– Progress hampered by the non availability of senior officials– Unspent amount not cash backed - conditional grant has been expended on

operations• Allegations of maladministration, fraud and corruption

– Incurred irregular expenditure amounting to approximately R16 million relating to Municipal Infrastructure Grant (MIG) as well as other conditional grants

– Supply chain management irregularities– Forensic investigation in terms of Section 106 of the Municipal Systems Act, 2000

commenced in May 2009– Investigation finalized and recommends disciplinary, civil recovery and criminal action

UMHLABUYALINGANA: MOTIVATION• Assessment of Annual Financial Statements, Audit Report and

responses, in terms of section 131 of the MFMA– Cash flow problems with an accumulated deficit at 30 June 2008 of R8,9

million. – Unspent grants totalling R13 million.– Shortfall of R14 million in financing of fund reserves, creditors and provisions– Salaries for September and October 2009 were paid late. – Unauthorized expenditure of R2,5 million incurred, being conditional capital

grant funding utilised for operating expenditure. – Unauthorised expenditure of R555 498 incurred, being the over-expenditure

of repairs and maintenance and leave encashment budgets. Over-expenditure not ratified by council in terms of section 29(3) of MFMA.

UMHLABUYALINGANA: MOTIVATION• Discretionary Intervention by MEC for Co-operative

Governance and Traditional Affairs in terms of Section 136 – 138 of the MFMA.– Council resolved to accept the discretionary intervention on

26th June 2009. – MEC deployed a financial and a governance expert to prepare a

recovery plan. – Financial expert reported a lack of cooperation from the senior

management and council decisions with financial implications taken in his absence.

UMHLABUYALINGANA: MOTIVATION• Auditor General reported difficulty in audit (2008/2009)

– Municipal Manager and Chief Financial Officer not available– Documents not available– No cooperation from officials.

• Inability to communicate with Municipality– both landlines and cell-phones– unavailability of management– Major hindrance to monitoring of performance and meetings– Telephone accounts not paid periodically and services

suspended

UMHLABUYALINGANA: MOTIVATION• Municipal Property Rates Act, No. 6 of 2004 (MPRA)

– Implemented 1 July 2009– Did not comply with certain prescribed timeframes– Did not apply for condonation for non-compliance– Budgeted R994 000 as projected rates income - did not produce and deliver

necessary accounts• Despite being cash strapped, EXCO approved Swiss International Exhibition trip

– Mayor, MM and Chairperson of Planning, LED and Infrastructure Development Portfolio Committee to attend

– Travel costs were sponsored but the trip did not materialize– Council paid 4 000 Euros for a stand at the Swiss International Exhibition which is

construed as fruitless and wasteful expenditure.

UMHLABUYALINGANA: MOTIVATION• Special Council meeting on 28 October 2009 (20h30) suspended

MM and CFO and administration without leadership• Summary

– Serious and persistent breach of legislation– Continued decline in financial management and administration– Weak performance and a lack of accountability. – Council for two consecutive years condoned irregular, fruitless and wasteful

expenditure– Council failed to exercise oversight over administration and finances– Council had taken decisions not in best interests of community– Failure by council to implement the financial recovery plan– Municipality was dysfunctional and financially compromised.

UMHLABUYALINGANA: EXEC. OBLIGATIONS NOT MET

• Fire fighting function – failure to pay amounts due to Umkhanyakude District• Municipal Systems Act, No.32 of 2000

– Section 4(1)(c) – Section 4(2) – Section 38

• Municipal Finance management Act, No 56 of 2003– Section 32 – Section 54– Section 121– Section 131– Section 165(2)– Section 166

• Failure to approve a revenue raising measure as part of the budget warranting an intervention in terms of Section 139(4) of the Constitution

UMHLABUYALINGANA: INTERVENTION ACTIVITIES• Met Indaka Council on 13 December 2009, informing of Provincial

Executive’s decision• Mr Bamba Ndwandwe appointed as Ministerial Representative,

commenced in mid-December 2009• Imbizo at Umhlabuyalingana on 17 December 2009

– Community highlighted the lack of, and poor service delivery relating to basic needs• Access Roads• Water• Sanitation• Electricity• Clinics• Housing

• Status report by Ministerial Representative confirms serious deficiencies

OKHAHLAMBA: MOTIVATION• No functional management team for a year placed

administration in a precarious position resulting a dysfunctional state

• Allegations of maladministration, fraud and corruption– MEC for Co-operative Governance and Traditional Affairs

commissioned a forensic investigation into these matters in terms of Section 106 of the Municipal Systems Act, No. 32 of 2000.

– The investigation is under way– Inability to obtain evidence – supporting documentation due to

poor record keeping

OKHAHLAMBA: MOTIVATION• Auditor General reports

– Serious deficiencies in management systems, accounting and financial controls – Disclaimed audit opinions - two consecutive financial years and an adverse opinion in

respect of the last year– Annual financial statements submitted after statutory deadline 31 August 2008– Council failed to address recurring issues adequately.

• Non-compliance– Annual report 2007/2008 did not comply with section 121 of MFMA– No performance report evaluating the performance of the Municipality or Section 57

employees– Council did not table or submit an oversight report– Council did not have an established internal audit unit and audit committee

OKHAHLAMBA: MOTIVATION• Serious financial problems

– Poor cash flow– Posted a deficit of R17 963 025.00 (un-audited)– Accumulated deficit as at June 2009 totaled R24 517 042.00– Grant funding allocated for Housing utilised irregularly to finance the operations

resulting in a shortfall of over R20 million in the Housing fund– Unspent conditional grants of R20 196 551.00 were not cashed backed

• 2008/2009 AFS– General expenses increased from R11 306 725.00 in 2006/2007 to

R57 294 633.00 in 2008/2009 = increase of 407%– Municipality failed to make payments to its creditors as and when due

OKHAHLAMBA: MOTIVATION• Discretionary Intervention

– Process commenced with Council on 31 July 2009– Serious financial problems highlighted– Consultation as is required by the MEC responsible for Local Government in terms of

Section 136(1) of the MFMA– Council resolved to request MEC to afford it six months to turnaround due to new

management being appointed– Motivated that “primary responsibility to avoid, identify and resolve financial

problems rests with the municipality itself” - Section 135 MFMA– Three months elapsed and Department monitored situation– Department assisted– Draft a recovery plan– Secured the services of a finance technical expert from the DBSA– Compiled the AFS for 2008/2009 as the CFO passed away in September 2009

OKHAHLAMBA: MOTIVATION• Municipal Property Rates, No. Act 6 of 2004 (MPRA)

– Implemented 1 July 2009– Failed to produce or deliver rates accounts– Delay an additional burden on the rate-payers to pay over a

shorter period– Potential rates-boycott– Five condonations for non-compliance required– As at June 2008, unable to recover debt on rates, totaling

R6 256 060.00

OKHAHLAMBA: MOTIVATION• Council

– No effective oversight over administration– Decisions negatively impacting on finances and functioning– Cost of security for Mayor– Nature of projects undertaken not part of functions of local government

• Educational assistance to students• Unfunded mandates such as primary healthcare• Hosting arts and culture programmes at cost• Agricultural projects

• Council had no conception of its primary responsibility to deliver basic services and ensure sound management and administration

OKHAHLAMBA: MOTIVATION• Summary

– Only municipality in the Province to receive an adverse audit opinion– Serious financial problems– Problems date back to 2005/2006– Council and administration did not have capacity to correct the institutional problems– Or no capacity to exercise oversight and implement necessary reforms– Council given six months to improve– CFO passed away– Newly appointed MM lacked necessary experience to turn-around the municipality

within timeframe– Political interference of the Council – negative impact on functioning and financial

position– Service Delivery and Budget Implementation Plan (SDBIP) indicated council not aware

of its role and has incurred expenditure on unfunded mandates

OKHAHLAMBA: EXEC. OBLIGATIONS NOT MET• Municipal Systems Act, Section 4(1)(c)

– Section 4(2)– Section 38– Section 74– Section 96(a)– Section 96(b)

• Municipal Finance Management Act, No. 56 of 2003 – Section 21(1)(b) – Section 54– Section 121– Section 165(2)– Section 166

• Failure to approve a revenue raising measure as part of the budget warranting an intervention in terms of Section 139(4) of the Constitution

OKHAHLAMBA: INTERVENTION ACTIVITIES• Met Okhahlamba Council on 14 December 2009, informing of

Provincial Executive’s decision• Mr Clermont Sithole appointed as Ministerial Representative,

commenced in January 2010• Imbizo at Okhahlamba scheduled for 20 February 2010• Status report by Ministerial Representative confirms serious

deficiencies

THE WAY FORWARD• Ministerial Representatives required to report monthly• If municipalities do not, or cannot, approve necessary

measures to give effect to any intervention activities, the Executive Council may take a decision to dissolve the respective municipal council

• Detailed recovery plans in respect of the Indaka, Umhlabuyalingana and Okhahlamba Municipalities will be finalized by 28 February 2010 and shall be considered by the Department

THANK YOU!

QUESTIONS AND DISCUSSION