Thabo Mofutsanyana District Municipality in Free State: termination of intervention

NCOP Cooperative Governance & Traditional Affairs

14 November 2011
Chairperson: Mr M H Mokgobi (ANC, Limpopo)

Meeting Summary

The Free State Department of Cooperative Governance and Traditional Affairs presented its Exit Report on the termination of the interventions in Thabo Mofutsanyana District Municipality. The Department set out the situation in which the District Municipality was placed under Section 139(b) on 4 November 2009 after a special report on the status quo of its municipalities given to the MEC for Cooperative Governance, Traditional Affairs and Human Settlements at the beginning of November 2009. The intervention ended on 30 September 2010.

The presentation summarised major challenges faced by the District Municipality prior to the intervention which included that that it could not discharge its functions and execute its mandate. In addition the Municipality had ceased to function effectively as a District Municipality in rendering services to its Local Municipalities. Issues of vacant posts had been widened by the conflict between the then Municipality Manager and the Chief Financial Officer that subsequently led to the resignation of the CFO. Further, the Municipality was failing to attend to the financial and administrative challenges experienced.

Issues raised by the Executive Council and the progress made so far were outlined. Key achievements included updating of annual reports, service delivery and budget implementation plans. The Municipality had  managed to fill all vacant posts and had completely utilised the Municipality Infrastructure Grant (MIG) fund allocation. Internal controls were introduced resulting in an unqualified audit result. Financial, administrative and management policies were adopted.

The issue of the outstanding payment of R16 million owed by the Municipality to Podbielski Mlambi was discussed extensively. The firm had been paid nearly R37 million to collect a mere R6 million.The firm had no contract with the Municipality therefore the matter required further investigation. Members agreed that an investigation by the Special Investigating Unit needed to be initiated. The Committee also agreed to go on an oversight visit to the Free State. Members asked questions about the forensic report by KPMG and vacant posts.

Apologies were noted from the MECs of the Free State (who was the former Executive Mayor of Thabo Mofutsanyana District Municipality)
and the North West Departments of Cooperative Governance and Traditional Affairs who had both missed their flights. The Chairperson ruled that the presentation by North West on the Ngaka Modiri Molema District Municipality Section 139(1)(b) intervention close-out report could not be heard until the Head of Department and MEC were present.

Members noted that the presentatation on the investigation by the MEC on the allegations of maladministration at Matjhabeng Local Municipality, which occurred prior to 2009, was not a Section 139 matter but a Section 106
(1)(b) investigation into the affairs of a municipality and therefore Members could engage with the document and bring up issues of concern in writing.

Meeting report

Chairperson’s opening remarks
Apologies were noted from the MEC of the Free State and North West Departments of COGTA who had both missed their flights. The Chairperson expressed dissatisfaction at the composition of both delegations. The delegation did not represent MEC, Mayor, Chief Whip, Speaker and Municipality Manager who had been invited and had to be present for the presentations.

Mr A Matila (ANC, Guateng) expressed frustration that it had not been the first time that the Free State had not heeded the wishes of the Committee. He noted how in a previous meeting the Free State delegation had given short notice of a cancellation. He viewed this as continual undermining of the Committee. He suggested that a letter be written to the Premier to express the Committee’s dissatisfaction.

Mr Kopung Ralikotsane, Head of Department, Free State CoGTA, replied that his delegation, except the MEC, constituted all members that had been invited. The additional missing delegates must have been in the case of the North West department. Furthermore, the previous meeting had been cancelled while he had arrived in Cape Town with the administrator for the meeting.

The Chairperson confirmed that the North West Department had made the cancellation.

Free State Department of Cooperative Governance and Traditional Affairs Exit Report
The delegation consisted of Tebego Ramasilabele, District Speaker, Ngaka Modiri Molema Municipal; Mapathane Kgomo, Chief Director of Local Governance, National West Department of Local Government and Traditional Affairs; Phaladi Saku, Executive Mayor of Ngara Modari Molema.

Mr Kopung Ralikontsane, Head of Department: Free State CoGTA, noted that the Thabo Mofutsanyana District Municipality was placed under Section 139(1)(b) on July 2010. He explained the history of the Section 139(1)(b) which started on 4 November 2009. It came after a special report on the status quo of Municipalities made available to the MEC for Cooperative Governance, Traditional Affairs and Human Settlements at the beginning of November 2009

The presentation outlined challenges faced by the District Municipality prior to the intervention. Its Executive Council had acknowledged the following problems: The Municipality could not discharge its functions and execute its mandate. It had ceased to function effectively as a district Municipality in rendering services to its local Municipalities. Problems with vacant posts had been widened by the conflict between the then Municipality Manager and the Chief Financial Officer (that subsequently led to the resignation of the CFO). Further, the Municipality was failing to attend to the financial and administrative challenges it experienced.

Mr Ralikontsane outlined the progress that had been made to date: The Municipality had completed the annual performance report for 2008/09 on 14 May 2010 with the assistance of the administrator. The outstanding Service Delivery and Budget Implementation Plans for 2008/09 and 2009/10 were finalised. The The Integrated Development Plan (IDP) and Budget Process Plan for 2010/11 to 2012/13 had been developed and adopted during the Special Council Meeting.

Mr Ralikotsane noted that the entire Municipality Infrastructure Grant (MIG) allocation had been spent on road paving of two roads, the Zamani sewer network (completed at the end of July 2010) and the Zamani Oxidation Ponds at end of August 2010.

He mentioned that the Free State Department was working in conjunction with various Government Departments in carrying out its mandate. For example the Department of Trade and Industry (DTI) through its Tourism Enterprise Support Programme (TEP) and Free State Tourism Authority was assisting in the training of the SMMEs in the district. While the Department of Environmental Affairs and Tourism (National and Provincial) was providing legislative mandate support.

Notable progress included that the Municipality was now complying with the provision of Section 71 of the Municipality Finance Management Act (MFMA). The Draft Budget for 2010/11 had been developed and adopted. An action plan to address the issues raised by the Auditor-General for the 2008/09 financial year was drawn and was currently being implemented. The “Operation Clean Audit Project” intervention implemented by COGTA had resulted in an unqualified audit report for the financial year 2009/10. Free State COGTA and Treasury were managing and supporting a financial recovery plan of the Municipality. Procurement and Supply Chain Management processes had been addressed.

In terms of their engagement with public participation, the Public Participation and the Presidential Liaison Officers had been appointed on 1 March 2010. Public participation and consultation processes for the IDP and the Budget Plan have been successfully rolled out in all the local Municipalities, with the IDP Representative Forum being conducted on 7 May 2010. Public participation forums and capacity building workshops had been conducted by the Office of the Speaker for Ward Committees and Community Development Workers in Phumelela Local Municipality.

Mr Ralikontsane highlighted the controversial issue of the transaction with Podbielski Mlambi Inc which the Municipality had commissioned to pursue legal action in about 7200 cases. He noted that the point of contradiction lay on the issue of payments. The law firm had submitted a bill of R 16,386,428 to the municipality as at 30 June 2011 for services rendered. This amount has not been budgeted for. The outcome of an appeal is awaited. The Attorneys had been obliged to amend the summons to be in line with a Gauteng High Court decision. The complication arose when the defendants (farmers) objected to the amended summons and took the matter to court. The court upheld the objection. The Attorneys then applied for leave of appeal against the Supreme Court Appeal later this year. Mr Ralikotsane added that since the intervention a total of R4 million had been paid out in court litigation. He added that the Department was managing the situation to ensure that it did not incur further costs.

Mr Ralikotsane discused progress made with the National Council of Provinces (NCOP) recommendations:
▪ Fast tracking the process of appointing Section 56 and 57 managers. The Chief Financial Officer, Corporate Services and Municipality Manager had been appointed mid 2010.
▪ The Department was making arrangements to have the former Municipality Manager of Thabo Mofutsanyana District Municipality appear before the Committee in order to explain and give details about the allegations of maladministration and misappropriation of funds during his term.
▪ The Free State Premier was to interact with the COGTA National Minister on this investigation.
▪ An independent forensic audit was to be conducted by the National Minister, to allow the Department to submit the scoping investigation exercise report on the Municipality to the National Minister and the Committee.
▪ The scoping exercise in collaboration with KPMG had been submitted to COGTA-National.
▪ The report had been shared with South African Local Government Association (SALGA) and Local Government Sector Education and Training Authority (LGSETA) to ensure a concerted effort was being made to support the Municipality’s political and administrative leadership.
▪ With regard to the recommendation to encourage financial support by Provincial Treasury, at the moment no funding had been secured from Provincial Treasury. Therefore administration had to consider streamlining in order to ensure austerity measures in funding the Municipality was found.

In conclusion he said that the intervention had ended on 30 September 2010.

Members asked for clarification with regard to the terms Section 56 and Section 57 managers.

Mr Ralikontsane replied that the difference was that Manager’s reports were termed as Section 57 reports which were performance based; while they were employed as Section 56 Managers. He added that these terms were used interchangeably.
Mr A Matila (ANC, Gauteng) inquired about the difference in the amounts given in the report by Councillors at a previous meeting and the one cited by the Department.

Mr Ralikontsane replied the amount cited in the presentation was the amount used to assist the Municipality to pay their legal fees under Section 139. The Municipality had already paid R6 million that was quoted as work done. The outstanding R16 million was still under investigation - until a forensic investigation had been undertaken.

Mr S Polelo, General Manger, Department of Free State, asked for further information about the Councillors Report.

Mr Matila noted that during the meeting with the Councillors it had been noted that no contract existed between the Municipality and Podbielski Mhlambi. In addition between 2009 and 2010 a total of R37 million had been paid. The report by Councillors also stated that the firm had managed to recover only R6 million. In essence the Municipality had paid approximately R37 million to collect the R6 million. He added that this indicated major discrepancies.

Mr Matila commented that the absence of a contract could mean the possibility of fraudulent activities.

Mr Polelo replied that the issue of Podbielski Mhlambi was a complex one which involved three parties: the Municipality, Thakanagoaha and Podbielski Mhlambi. He noted that Thakanagoaha had been given the contract as the sole debt collector for the Municipality, however due to various issues such as slow implementation they were replaced by Podbielski Mhlambi after being paid R 2.5 million. However, while a transfer of files had occurred, no contract was signed. After the intervention, the Department had continued to use Podbielski Mhlambi as it did not have an alternative representative - which could cause delays in its High Court case. The matter was queried with the Premier to try and determine the outstanding debt that was increasing on a monthly basis. Further, payment of the debt was not forthcoming as the equitable share of the Municipality was not enough to pay for the legal costs. In addition the standing contract with Thakanagoaha was that it was to be paid 20% of the intended R50 million dollars. He conceded that he could not explain the process and the absence of a contract.

The Chairperson suggested that the way forward on this issue was to consider if the municipality with its newly inaugurated Councillors and Mayor met the minimum standards of the terms of reference given by the Provincial Executive.

The Chairperson added that the question of the outstanding legal fees needed to be pursued separately as the Members did not have a complete understanding or capacity to analyse the situation and come up with a conclusion. He suggested that the Members go on an oversight visit to the Free State. Further, it was essential to solicit legal advice from the state law adviser and the Special Investigating Unit on behalf of the Committee to ensure that public funds had not been abused.

Mr Matila agreed with the suggestion and added that the Committee’s experience in municipalities indicated that forensic investigations were ineffective as they served to increase expenses and produced few results.

Mr T Mofokeng (ANC, Free State) referred to the terms of reference by the Provincial Executive, and said the Municipality had met the minimum requirements and therefore they should agree to the uplifting of the intervention. However the issue of the outstanding fees had to be accounted for.

Mr D Bloem (COPE, Free State) said that he did not agree with the uplifting of the Section 139(1)(b) intervention as he felt that there were still a lot of outstanding issues. With regard to the Municipality having newly inaugurated Councillors and Mayor, it was critical that they started on the right footing. The decision to uplift could be made after a site visit and a report from the Special Investigating Unit.

Mr Ralikontsane replied that he needed to clarify to Mr Bloem on the issue of the “upliftment” of Section 139(1)(b). He noted that the presentation was an exit report as the Department had ended the intervention on 30 September 2010. He however, acknowledged and appreciated the sentiments of the Members that the issue of the outstanding debt had to be resolved.

A member asked if the vacant posts had been filled.

Mr Ralikontsane replied that all vacancies including the LED post had been filled. He believed that the new structures and restructuring could create new vacancies.

Mr Matila asked if the forensic investigations had been completed.

Mr Ralikontsane replied that the MEC had been the former Executive Mayor and therefore could not investigate the matter and he had handed over the role to KPMG. The completed scope report had been handed over to COGTA and the National Minister. He added that the National Minister had not finalised the forensic report of the previous legal firm.

Mr Bloem stated that uplifting could not be possible, given that the HOD had mentioned that the Department had already moved out.

The Chairperson mentioned that what was required was for Members to focus on the assessment of the work of the Municipality and not that of the uplifting - as the Department did not need permission from the Committee.

Mr Matila said that the matter had been exhausted and could they persuade Mr Bloem to agree to the suggestions made. He added the investigation by a Special Investigating Unit could be initiated within seven days.

Mr Bloem conceded to the suggestion.

The Chairperson stated that the investigation should include the Public Protector. The National Minister could be consulted on the issue of the investigation.
Mr Matila seconded the notion.

Mr Matila noted that a letter should be drafted by the Committee to the Public Protector and the National Minister with the recommendations made.

The Chairperson noted that this could be taken up by the NCOP Chairperson as the Committee did not have the mandate.

Mr Ralikotsane said the Department had provided the full forensic report to the Chairperson.

The Chairperson noted that section 46 of the report that summarised the State of Local Government should be presented as part of the Provincial Report Government Status Report. Also copies could be made available to Members.

The Chairperson mentioned that the document on Section 106 Matjabeng noting investigations by the MEC into allegations of maladministration in Matjhabeng Local Municipality which occurred prior to 2009 was not a Section 139 report. Members could engage with the document and bring up issues of concern in writing.

North West presentation
The Chairperson noted that the presentation by the North West could not be presented in the absence of the MEC and HOD.

He thanked the present delegation which consisted of Tebego Ramasilabele, District Speaker, Ngaka Modiri Molema Municipal; Mapathane Kgomo, Chief Director Local Governance, National West Department of local Government and Traditional Affair; Phaladi Saku, Executive Mayor, of Ngara Modari Molema that had heeded to the invitation. He noted that there was need for the delegation to come at a later date.

The meeting was adjourned.