Indaka, Okhahlamba and Msunduzi municipalities: intervention extension requests; Umhlabuyalingana municipality: intervention termination: by KZN COGTA MEC

Committee: NCOP Co-operative Governance and Traditional Affairs

Chairperson: Mr A Matila (ANC)(Acting)

Date of Meeting: 24 Oct 2011

Summary

The Member of the Executive Council for Co-operative Governance and Traditional Affairs, KwaZulu-Natal, briefed the Committee on the progress of interventions in Umhlabuyalingana, Okhahlamba, Indaka and Msunduzi municipalities. The intervention in Umhlabuyaningana had been terminated in June 2011 and the handover had gone well. Financial control had returned and the finances had been turned around with final cash balance of R58 million in June 2011. The Annual Reports were up to date, an Audit Committee had been set up and all outstanding creditors had been paid. Criminal charges had been taken to the police and a civil summons to recover R15.3 million had been issued against the former Municipal Manager and the former Chief Financial Officer. The Department was happy that the municipality was now healthy and in good hands. The interventions at Okhahlamba, Indaka and Msunduzi had been extended till 31 December 2011. Senior members of management at Okhahlamba, including the Municipal Manager, had been suspended or terminated. The positions had been advertised. The financial position had improved significantly and financial, administrative and management policies had been adopted. The accumulated deficit at Indaka had been reduced to zero for the 2009/10 financial year and internal controls had been introduced. The number of Section 57 employees had been reduced from seven to five. Financial stability had been achieved. The deficit in Msunduzi was being reduced and cash-flow was now analysed daily; policies on budget, tariffs and credit management had been adopted. Internal controls and procedures were now in place and relative financial stability was achieved. Vacant management positions were in the process of being filled and the Department felt confident that the intervention could be terminated on 31 December.

Members asked if individuals who were charged could be blacklisted and requested clarity on the number of individuals who had criminal charges as well as civil charges laid against them. Further information on the suspension and termination of the municipal manager in Umhlabuyalingana was requested. There was extended discussion regarding a preliminary forensic report issued by PricewaterhouseCoopers and whether the Committee had the power to gain access to the report before it was finalised. There was some disagreement on the matter amongst Committee members. Questions were asked regarding the cost of interventions and whether the Auditor-General had visited each municipality, the impact of vacant positions on service delivery and the reduction of Section 57 workers in Indaka municipality. The termination of the intervention in Umhlabuyalingana municipality and the extension of interventions in Okahlamba, Indaka and Msudnuzi municipalities until 31 December were upheld.


Minutes

The Acting Chairperson noted the appointment of the new Minister of Co-operative Governance and Traditional Affairs, the Hon Richard Baloyi, announced the previous day. Hopefully the Minister would soon visit the Committee.

MEC for Cooperative Governance and Traditional Affairs, KwaZulu-Natal: briefing
Ms Nomusa Dube, Member of the Executive Council (MEC) for Co-operative Governance and Traditional Affairs, KwaZulu Natal, reported on the progress of interventions in KwaZulu Natal (KZN). The interventions were all in terms of Section 139(1)(b) of the Constitution. She apologised for the use of the term 'administrators' in the presentation. This was a misleading name and should have been ministerial representatives; administrators were only appointed if the municipality had dissolved or taken over. The municipalities were not taken over in these instances; the executive committee function had been taken over in order to run the municipality. The Committee had heard progress reports on this work several times previously and there had not been too many changes.

Progress: Umhlabuyalingana as at June 2011
In Umhlabuyalingana the intervention had been terminated and the handover to a new municipality in June 2011 had gone well.

A total financial turnaround had been achieved with a cash of balance of R58 million in June 2011; this was a massive improvement on the negative balance of 5-years ago.
A Performance Management System had been completed.
2010/11 Integrated Development Plans (IDPs) were completed.
Annual Reports were up to date.
Quarterly / Mid Year Reports were up to date for 2010/11.
Organogram Review had been completed.
An Audit Committee was appointed.
Internal Audit Function was established.
Institutional and Financial stability had been restored/established.
Internal Financial Control Manual had been completed.
Implementation of the Municipal Property Rates Act (MPRA) had been completed in respect of business and Government properties.
All outstanding creditors had been paid.
There was sufficient cash provision of R37million for all Conditional Grants in June 2011
All criminal allegations for irregular, fruitless and wasteful expenditure had been reported to the police for criminal charges; against the former Municipal Manager and former chief financial officer (CFO). The Department had a case number for each case opened and in some instances offered assistance to municipalities in running disciplinary hearings.
A Civil Summons for R15.3 million (recovery) had been issued against the former Municipal Manager and the former CFO in respect of irregular and fruitless and wasteful expenditure before November 2009.
An upgrade to the Financial Management system (ABACUS) was underway. (Slide 10)

There remained some handover involvement and the Executive Committee had been given an understanding of where the municipality had come from and what mistakes had been made previously.

Progress: Okhahlamba as at June 2011
Okhahlamba remained under Section 139 intervention.

Financial position improved from R16.3 million deficit to an anticipated R4.2 million surplus by the end of the financial year.
Assessment of Existing VR and Completion of Supplementary VR for 2011/2012 had been completed;
A comprehensive revenue enhancement strategy had been adopted;
An 80% rates collection rate had been achieved and the rate policy was being enforced;
Committees of council had been established, including SCOPA;
A process was in place to fill one position on the Audit Committee in June 2011;
The 2009/10 Annual Report had been finalised;
Budgeted vacancies were in the process of being filled;
Various financial, administrative, governance and human resources policies and frameworks had been adopted;
Small town development programmes were being implemented to uplift the municipality. (Slide 11)

There were still matters that required continuity and so it had been decided to continue the intervention. This was also the request of the new municipality elected on 18 May 2011 and it was felt that the new Executive needed help in understating the complexities of the situation and challenges of the municipality. The municipal manager had recently been suspended. Progress had been achieved and the exit strategy was an area of focus. The extension was made until the end of December and would be re-evaluated on 31 December.

Progress: Indaka as at June 2011
Unnecessary expenditure had been curbed. All financial records, which had been neglected for a six-month period, were updated and were now kept up to date. All outstanding creditors were paid within 30 days as per the Municipal Finance Management Act (MFMA). All reserves and grants were now cash-backed with the accumulated deficit reduced to zero for the 2009/10 financial year.

⚫ The municipality was able to reinstate the equitable share amounting to R4.3million that was withheld due to non-compliance in reporting. The municipality was also able to reconcile and recover outstanding Value Added Tax (VAT) claims to the value of R1.6 million.
All financial policies and procedures had been reviewed and implemented.
Internal controls had been introduced to detect irregular transactions.
The 2009/10 Annual Financial Statements had been submitted to the Council and Office of the Auditor-General by 31 August 2010 which was an improvement on the previous financial year.
The review of Supply Chain Management resulted in the supplier’s database being renewed with the correct implementation of Supply Chain Management Processes in place. Although the recovery process had been slow, financial stability had been achieved during the intervention.
The organisational review of municipal administration had led to a reduction in the number of section 57 employees from seven to five. The unmanned Community Services Department was abolished and the function incorporated into the Corporate Services Department.

The new executive management at Indaka had been met with. In this instance the intervention had also been extended till 31 December and this would be reviewed in December. (Slide 12)

Progress: Msunduzi as at June 2011
The cash-flow of the Municipality was now analysed daily and had improved with the operating deficit being reduced.

⚫Payment of overtime was a contentious issue, and had been curbed with only essential services now incurring overtime payment.
Creditors were paid within 30 days after being screened.
The Municipality had implemented a control and debt management policy effectively and was managing outstanding debt, which was improving the rate of payment.
The supply chain management policy had been revised and implemented.
 
The municipality had achieved relative financial stability in the systems, procedures and internal controls put in place would assist the municipality in a full financial recovery.
The 2011/12 Operating and Capital Budget and the IDP had been adopted. Improvement had been made in terms of the development of criteria for prioritisation of capital projects on a multi-year basis.
A number of policies had since been adopted such as the Budget Policy, Tariff Policy, Rate Policy, Credit Management Policy, etc. to support the budget process. Similarly, by-laws for Special Rating Areas had also been adopted by council for facilitate the implementation of the concept of Urban Improvement Districts and ensure Inner City Renewal.
Grant funding was now cash-backed and the Grants Register had been developed to track developments and account for each grant.
Interviews for senior management were underway and short-listings had been made for the Municipal Manager and Chief Operations Officer.
A challenge remaining was that the municipality had old infrastructure requiring investment and upgrade. An Infrastructure Renewal Plan had been put in place. (Slide 13)

The intervention had been extended till 31 December with the hope that the senior positions might be filled by then.
Challenges at Indaka, Okhahlamba, and Msunduzi, as at June 2011 were indicated (slides 14-16).
The Executive Council had, on 29 June 2011, resolved based on the progress made and the existing challenges yet to be resolved to :-
⚫Terminate the intervention at Umhlabuyalingana municipality;
⚫Extend the interventions in terms of section 139(1)(b) at Indaka, Okhahlamba and Msunduzi municipalities until 31 December 2011. (Slide 17).

The Department concluded that the interventions were progressing at a consistent pace, including at Indaka municipality where progress had been hindered as a result of the lack of co-operation of the municipality. Indaka municipality was now working to ensure the implementation of a sustainable recovery plan; one of the indicators was the unblocking of posts e.g. post of municipal manager. (Slide 21)
(See presentation document.)

Discussion
Umhlabuyalingana
Mr A Watson (DA, Mpumalanga) congratulated the MEC on the work done. He asked if people charged with misconduct were blacklisted so as to avoid having them employed again.

Ms Dube responded that unfortunately there was no blacklisting system but that the Department did keep tabs on such individuals. In one instance two people dismissed for the Department had been re-employed as municipal managers. The municipality had been informed of their history and was advised to press charges because the previous expulsion had not been divulged. There was no formal system, however. A positive development was new legislation that required municipalities to inform the MEC of new appointments for municipal managers; this made it easier to keep track of who was where. Some municipalities invited the Department to their interview panels and many asked for advice and kept the Department informed. Civil and criminal charges were aggressively followed; this was why the Department now laid these charges instead of relying on the municipalities to do so. The Hawks had also been approached for help.

Mr D Bloem (ANC, Free State) noted that little had been presented on criminal charges, only civil. The Committee wished to see criminal charges. People could not be left to move from one municipality to another without criminal charges. He requested that a breakdown of the number of criminal charges be given to the Committee.

The Acting Chairperson seconded this request. The Committee agreed to uphold the termination of the intervention in Umhlabuyalingana.

Ms Dube thanked the Chairperson and responded that the case numbers could be left with the Committee at the end of the meeting.

Okhahlamba
The Acting Chairperson asked for clarity on the suspension of the municipal manager as no reasons had been given in the report. It was not clear if December was a reasonable goal for the ending the intervention with such key positions not filled.

Mr Bloem asked for further clarity in the same issue; the report stated that the municipal manager had been suspended and then dismissed. The Committee needed the reasons for this.

Ms Dube clarified that the municipal manager had been charged and suspended in the previous administration. The reasons for intervention had been presented to the Committee in the previous meeting. The municipality was experiencing poor cash-flows, did not have proper governance structures for policies and had no financial management or human resources policies. Grants were not cash-backed. The previous municipal manager was charged with maladministration. The new municipality discharged him and the position had been advertised as had other top management positions. The Department would have a meeting with the administration as well as council executive to assess how far the implementation of the recovery plan had gone. That was why the focus at this point was on the exit plan; assessing whether the municipality would be in a position to run on its own or not. After that assessment a decision would be made with the municipality about whether to extend the intervention or not. The administration would not be handed over if the municipality were not ready or did not have the capacity. This was decided collectively with the municipality. The intervention was not seen as a bailout and should not mean responsibility was relegated to somebody else. Therefore it was not the Department’s place to take over and run the municipality. Government’s job nationally and provincially was to support, assist and capacitate and ensure that the municipality executed the functions as outlined by the constitution. Therefore it was a joint decision to end the intervention and capacity at various levels and areas were assessed.

Mr J Gunda (ID, Northern Cape) commented that the turnaround strategy was encouraging. Did the anticipated R4.2million collection mean that the rate would increase toward 90% by the end of the financial year?

Ms Dube responded that indeed, the collection rate would continue to improve. A further improvement to even 85% would see a further increase in surplus. This was due to co-operation with the Rates Payers Association. The previous representative had worked well with the Chamber of Commerce and civic organisations and RPA to update community structures on developments in the intervention and recovery.

Mr Bloem asked about a report on the preliminary finding of a forensic investigation by PricewaterhouseCoopers (PWC) given to South African Police Service (SAPS) and Hawks in which the former mayor, municipal manager and director of corporate services had been implicated. Could the Committee get this report?

He commented that the former manager of technical services was currently the deputy mayor of that municipality and was being investigated by the serious crimes unit in relation to the rape of municipal officials. What was the situation?

Ms Dube responded that this was a preliminary report and the Department was still awaiting the final report by PWC There are parallel processes going on; although the report from PWC was not yet complete, the SAPS was already investigating certain aspects.

The Acting Chairperson added that the municipal manager and director of corporate services were important strategic positions; if they were not filled by the end of December, how could an exit strategy be discussed?

Ms Dube answered that the posts had been advertised and that a recruitment company was assisting the municipality to fast-track the process and it was hoped that one or all of the posts could be filled by the end of next month. The situation would have to be assessed at the end of December and a decision regarding the intervention would be made then.

Mr Bloem requested that the Committee be given a copy of the preliminary report. He understood that it was not complete. The Committee as an oversight body needed to check implementation.

The Acting Chairperson asked that the Committee be given a copy of the report within the next week.

Ms Dube responded that this was not possible. It would not be possible until the investigation had been completed and all sides had been heard. Even the Department did not have access to the report at this stage. As soon as the investigations were completed and the report was tabled the Committee would be given a copy. The investigations into the rape charges were also still in process; this was a serious case, but investigation had to be completed.

The Acting Chairperson commented that while the intervention was in place new issues were coming up and this was a concern for the Committee. The question was if there was any improvement or not. It was not clear if these were recent issues. How soon could a report be given on these issues? The intervention could not be lifted with these issues pending.

Ms Dube responded that the report would be made available as soon as she received it. The issues raised were not new; they had been raised in previous meetings. There was progress and the preliminary report was part of that.

The Acting Chairperson asked why the Committee could not also be given the report. The request was that the Committee be given what the MEC had.

Ms Dube responded that she did not have the report. When an investigation was underway a preliminary report is issued to the people implicated in order for them to respond. Based on this the forensic investigators would compile a final report.

Mr Bloem asked who the complainant was. Was it the municipality or CoGTA? Surely CoGTA should first get the report? Two names had already been mentioned in the briefing document. How would these people be implicated? Are there others implicated beyond the former mayor, municipal manager and director of corporate affairs.

Mr Dube responded that yes, there would be others implicated. The report had been requested by the municipality and not CoGTA.

The Acting Chairperson stated that a report that the MEC did not have sight of could not be reported on. The Committee wanted to have the report in order to assist with making necessary decisions. He commented that there was confusion because the document implied that the MEC had the report.

Ms Dube responded that what was meant, as stated in the progress report was that a preliminary report had been issued by the PWC and the process of forensics, as with any other investigation, was that a preliminary report was not a public document. It was issued to the relevant people implicated to allow them to state their cases. When the report was finalised everyone could have it and it could be engaged on. At this time no one, including CoGTA, had access to the report except the people implicated.

The Acting Chairperson stated that the powers of the Committee to gain access to the report would need to be ascertained. It seemed that something was seriously wrong and this type of situation should not happen.

Prince M Zulu (IFP, KwaZulu-Natal) seconded the Chairperson’s statement. This was a very serious issue.

Mr T Mofokeng (ANC, Free State) agreed with the MEC, saying that it was a matter of procedure that the report could not be seen before it was finalised.

Mr Bloem stated he did not agree; he had seen preliminary reports previously. The information could be kept confidential to the Committee, but no documents could be kept from a parliamentary Committee.

The Acting Chairperson responded that, as he had ruled, the Committee’s powers on the matter should be ascertained. More could not be done now. The MEC should not report on matters for which there was no information.

Ms Dube responded that the report had been mentioned as part of the progress update. No information was being kept from the Committee and the report would be shared with the Committee as soon as it was finalised.

The Acting Chairperson responded that the MEC was putting the Committee in a difficult position and asked the Committee Secretary for his input.

Mr Moses Manele, Committee Secretary, answered that the Committee should take the word of the MEC and agree to the extension with the condition that the final report should be tabled as soon as it was released.

The Committee agreed that the extension to 31 December of the intervention in Okhahlamba should be upheld on the conditions suggested by the administration.

Indaka
Mr Gunda asked if the reduction of Section 57 employees at Indaka from seven to five had been done through a restructuring of senior management. How did this affect service delivery? Was some of the work outsourced?

Ms Dube answered that Community Services had been a standalone department. There was not in fact a Section 57 worker in place; the position was vacant. It was decided that the size of the municipality did not require having seven Section 57 employees and simply needed restructuring and aligning to allow for this. A ministerial representative had resigned due to a misunderstanding and the new representative was taking the work seriously and progress had sped up.

The Committee agreed to extend the intervention at Indaka.

Msunduzi
The Acting Chairperson commented that a lot of serious issues had been raised with regard to Msunduzi. He asked what the impact was on service delivery of having so many positions empty. If these positions were filled now would the new additions have enough time to get up to date before 31 December. What had the cost of the intervention been to the Department?

Ms Dube responded that the intervention at Msunduzi had cost approximately R5 million to date. This was why she had stressed that interventions were not meant as a bailout for the municipalities, because there were people being paid to do their jobs. In this case there was a difference in that the credibility of the individuals working at Msunduzi, including the style of operations, required extra capacity from outside the municipality in order to get things right. It was believed that come 31 December Msunduzi would be able to stand on its own. The new municipal manager would be announced as soon as a week from the current date.

Mr Gunda noted that an Auditor-General’s report had been referenced for only one of the municipalities. Did the Auditor-General visit the municipalities? And could these reports be made available to the Committee? Had all the municipalities had such reports and visits?

Ms Dube responded that all municipalities had been visited and that the Auditor-General had been impressed, especially with Msunduzi. All the right mindsets were in place which was a good thing for ensuring that the municipalities turned around.

The Committee approved the extension at Msunduzi.

Committee business
At the beginning of the meeting apologies had been received from Mr M Mokgobi (ANC, Limpopo), Chairperson, who was unable to attend the meeting due to the recent death of his mother. Mr A Matila (ANC, Gauteng) was elected as Acting Chairperson [Mr Mofokeng proposed, Mr Bloem seconded].

The Acting Chairperson asked that a moment of silence be observed in honour of Mr Mokgobi's loss.
Mr Watson proposed that the Committee send condolences to the family.

The Acting Chairperson responded that the Committee should send flowers and asked that this be noted.

Ms Dube added her condolences.

The Acting Chairperson thanked Ms Dube and Members.

The meeting was adjourned.