BRIEFING TO THE SELECT COMMITTEE ON COGTA

TERMINATION OF SECTION 139 INTERVENTION IN
UMHLABUYALINGANA LOCAL MUNICIPALITY & EXTENSIONS OF INTERVENTIONS IN INDAKA, OKHAHLAMBA AND MSUNDUZI LOCAL MUNICIPALITIES

25 OCTOBER 2011

1.	PURPOSE
To inform the Select Committee of progress made with regard to the interventions implemented by the Department based on a resolution of the Provincial Executive Council of the Province of KwaZulu-Natal to intervene in terms of section 139(1)(b) at Indaka, Okhahlamba, Umhlabuyalingana and Msunduzi municipalities.
2.	BACKGROUND
On 24 November 2009 the Provincial Executive Council of KwaZulu-Natal resolved to intervene at Indaka, Okhahlamba and Umhlabuyalingana municipalities in terms of section 139(1)(b) of the Constitution as a result of failures to fulfill various executive obligations.  The MEC was authorised to appoint administrators to undertake the functions in terms of section 51 of the Municipal Systems Act to establish and organise the administration in a manner that would enable the municipality to achieve the objects of local government as set out in section 152 of the Constitution. On 10 March 2010, the Executive Council resolved to intervene at Msunduzi municipality in terms of section 139(1)(b) of the Constitution and authorised the MEC to appoint an administrator as was the case with the aforementioned municipalities. In terms of a resolution of the Provincial Executive dated 06 October 2010 all the aforementioned interventions were to end on 30 June 2011. Based on the resolution of the Executive Council dated 06 October 2010, the Department crafted a close out plan which included:-
(i)	the development of exit strategies by the administrators;
(ii)	presentation of the exit strategies including the background to the relevant interventions to the newly elected councils;
(iii)	identification by the councils and the Department of additional or further support required in the implementation of the exit strategies; 
(iv)	the submission of close out reports by the administrators to the Department; and
(v)	the submission of close out reports by the Department to the Executive Council, National Minister, NCOP and Provincial legislature

	The administrators developed exit strategies which were presented to the respective councils 	and which included progress achieved and continuation thereof as well as outstanding matters 	that required 	implementation including the capacity requirements (responsible official in the 	administration of the municipality). The Department assessed the exit strategies and took into account existing capacity at the municipalities and individual circumstances of each municipality, based on which the Department recommended to the Executive Council that, the interventions and the term of the administrators at Indaka, Okhahlamba and Msunduzi municipalities are extended for a period of six months ending 31 December 2011 and that the intervention at Umhlabuyalingana municipality is terminated as at 30 June 2011, which recommendations were approved on 29 June 2011 by the Executive Council. 
3.	DISCUSSION
With regard to the progress made in respect of the interventions as at June 2011, the Department reports as follows:-
3.1	UMHLABUYALINGANA
The recovery plan had 55 remedial actions/outputs, which addressed mainly governance systems, financial systems and institutional review. All the targets have been met except the review and adoption of a delegation framework and a workshop on monitoring and evaluation systems. By April 2010 there had been a complete financial turnaround in the Municipality. All creditors had been paid off; the bank balance was sufficient to cover all Conditional Grants to allow for implementation of the programmes of the grants. At the end of June 2010 the Municipality closed the financial year with a cash balance in the bank of R8.3 million for the first time in 5 years. There has been a total stabilisation of the finances of the municipality with a bank balance of more than R58 million at the end of May 2011 in which provision is made for R11 500 000 for service delivery in 2010/11 and R16 900 000 for service delivery in 2011/12. Civil recovery is underway with regard to recovery of approximately R15 300 000 from the former municipal manager and the chief financial officer. The municipality is financially stable and has appointed a municipal manager who is able to undertake the implementation of the exit strategy. In the event that further or additional support is required by the municipality as identified by the council after assessing the exit strategy, then the Department will provide such support. Based on the progress with regard to the intervention, the Executive Council terminated the intervention at Umhlabuyalingana as at 30 June 2011.
3.2	OKHAHLAMBA
The municipality has stabilised with regard to its financial position, which 	improved from a R16 300 000 deficit to an anticipated R4 200 000 surplus by the end of the financial year. Considerable progress has been made with regard to putting in place various financial systems and controls, governance and institutional systems. In terms of the exit strategy, there are still matters that require continuity, and for this purpose it is pertinent to note that the municipal manager has recently been suspended. Although considerable progress has been achieved at the municipality with regard to the intervention, it is critical that the municipality has focused and strategic direction as well as the expertise to implement the exit strategy. The municipality just prior to 30 June 2011 was without a municipal manager as he had been suspended, and the position of director corporate services was vacant. A new council was elected, and this council was not aware of the nature, complexities and dynamics of the intervention that plays a pivotal role in the development of the municipality, a mere presentation to the council on the exit strategy, would not have been sufficient. Considering the capacity constraints and the fledgling council, the Executive Council resolved to extend the intervention for a period of six months ending 31 December 2011. The administrator is implementing the exit strategy and reporting on the performance indicators as identified in such exit strategy. The municipal manager was dismissed by the new council.
 
3.3	INDAKA
The municipality has made some progress in certain focus areas in terms of the recovery plan, however, this progress was masked with non-co-operation by the council and administration as regards the implementation of the intervention. The current administrator has identified various matters in the exit strategy that are yet to be addressed, including the adoption and implementation of key, governance, financial and institutional systems. The municipality’s failure/neglect and or refusal to adhere and implement to the controls and measures put in 	place by the administrator, more specifically an expenditure control system, resulted in the Executive Council having resolved on 30 March 2011 to extend the administrator’s terms of reference in undertaking the function assumed by the Executive Council, to include the fiscal and financial management 	function, specifically to replace the acting municipal manager and the chief financial officer as signatory on the municipal banking account. Notwithstanding 	the resolution of the Executive Council, the municipality failed to take any steps to implement this resolution. The Bank was also reluctant to take any steps without the consensus of the municipality, which it did not provide. It was, therefore, necessary for the Department to approach the High Court for an order compelling all interested parties to effect the necessary changes in line with the resolution of the Executive Council dated 30 March 2011. The order was granted 	and it was pursuant thereto that the signatories were amended. Some controls 	are therefore being implemented and the expenditure is being regularised in this 	regard. The Department conducted a forensic investigation in terms of section 106 of the Local Government Systems Act as a result of which various senior officials were suspended including the chief financial officer, senior accountant, manager supply chain management and the manager IDP. The acting municipal manager confirmed that disciplinary hearings have taken place during June 2011 and that these matters are proceeding. The municipal manager is suspended since September 2009 on various allegations of maladministration and misconduct. Disciplinary action was initiated, however, there were many delays, including the death of the presiding officer of the hearing. It was clear from the above, that this 	municipality, did not have the capacity or expertise to implement the exit strategy and much was yet to be done in this regard. Considering the reasons for this intervention, the objectives yet to be met with regard to the intervention and the capacity at the municipality, the Executive Council resolved on 29 June 2011 to extend the intervention for a period of six months ending 31 December 2011. The administrator resigned as at 13 July 2011 and Mr. Bamba Ndwandwe, the administrator at Umhlabuyalingana municipality was appointed at Indaka municipality as at 22 July 2011. 
3.4	MSUNDUZI
Considering the financial status of the municipality, the non-compliance with various statutory obligations relating financial, institutional and governance matters and the lack of oversight by the council of the municipality prior to the intervention by the Executive Council, it is reported that the municipality has improved in many respects. The municipality has adopted a 2011/2012 operating and capital budget and the IDP, a number of policies have been adopted 	including budget, tariff, rate and credit management policies to support the budget process. Grant funding is now cash-backed and a grants register has been developed to track developments and account for each grant. The 	municipality’s revenue collection rate has also stabilised to a large extent. It is evident that progress has been achieved with regard to the recovery plan for Msunduzi, however, there were various concerns with regard to the 	implementation and the achievement of all outcomes as is reflected in the administrators exit strategy. The administrator highlighted the fact that critical strategic positions have not been filled, that a draft organisational structure has been developed but no agreement has been reached with the Unions, funds have to be secured from the DBSA to ensure that the capital budget for 2011/2012 is cash-backed, the current level of consumer debtors must be reduced, there is a need to review the strategic and operational risk profile of the municipality and to develop mitigating strategies at the beginning of the 2011/2012 financial year. It is important to note that the municipal manager resigned and that criminal charges have been instituted against him with regard 	to maladministration. The contract of the CFO was settled subsequent to disciplinary action instituted against him. The manager corporate services, is currently on suspension, whilst the disciplinary hearings have been protracted by 	various technical points raised by his legal representatives. The acting manager public safety has been dismissed. The manager, community services is also currently on suspension. The procurement unit is without a manager as he has resigned during the course of his disciplinary process. Various other officials of junior and middle management levels have been suspended and are subject to disciplinary action. The positions of municipal manager, chief financial 	officer, city engineer and other critical positions within finance have been advertised in May with the objective that they be filled by August 2011 and September. Notwithstanding this initiative it is evident that the municipality currently lacks the capacity and expertise to ensure the implementation of the 	exit strategy. The magnitude and complexity of Msunduzi’s recovery is clearly identified by the administrator and it is for this reason that the Executive Council resolved to extend the intervention for a period of six months ending 31 December 2011. 

4.	TOWARDS 31 DECEMBER 2011
4.1	MSUNDUZI
The Administrator is in the process of implementing the exit strategy, the following progress is noted since June 2011:-
•	Oversight Committees have been established; 
•	Increase in the revenue collection rate from 53% to an average of 79% in the 2010/11 financial year; 
•	Financial austerity measures introduced as part of the overall cost containment strategy;
•	An Expenditure Committee has been put in place to approve all expenditure before being incurred; 
•	Disciplinary processes of Senior Management has been implemented and, if not finalised, in the process of finalisation; and 
•	Substantial progress in concluding forensic investigations;
•	Municipality is in the process of recruiting senior management including a municipal manager.
4.2	OKHAHLAMBA
•	Audit committee is in place and functional, the Annual Financial Statements were reviewed  and submitted to the AG as per the MFMA;
•	Preliminary findings of a forensic investigation by PWC have been reported to SAPS and the Hawks. The former Mayor, municipal manager and director corporate services have been implicated;
•	The former manager technical services (currently the deputy mayor) is being investigated by the serious crimes unit in relation to charges of rape of municipal officials;
•	Civil recovery against the aforementioned individuals, where necessary, has commenced;
•	The municipal manager and other senior management posts have been advertised and recruitment of  the top structure is underway;

4.3	INDAKA
•	Post June 2011, the administrator at Indaka municipality resigned and was replaced with the administrator who was appointed Umhlabuyalingana municipality;
•	Based on a situational analysis of Indaka, considering its history of challenges and non-co-operation, the Administrator devised a recovery plan including key performance areas relating to good governance, finance, financial management (reporting, internal controls, SCM), Institutional development, infrastructure and service delivery and disciplinary matters;
•	Department officials, Provincial Treasury and other stakeholders have met to assist in the identification of resourcing the recovery plan;
•	One of the critical issues is the capacity of the municipality to implement any recovery plan or exit strategy that may be developed for Indaka;
•	In this regard the MEC is considering, around the issue of the suspended municipal manager, an application received by the municipality for her approval of a settlement proposal. The municipality requires strategic and focused direction from a suitably qualified and experienced Head of Administration;
•	Various suspensions of municipal officials, including the CFO and key Finance staff  have been effected following a forensic report;
•	The administrator has identified this issue as part of the recovery plan to expedite this process to unblock key posts and fill such posts with the necessary skills and expertise;
•	Positively, the municipality has reviewed/rectified the budget on the 11/10/2011 and approved it accordingly. The exercise achieved a saving of R 10.5 M which was transferred to Capital Investment (ring fenced for service delivery);