ATC120127: Report on Oversight visit to Northern Cape Municipalities from 24 – 27 January 2012, dated 15 May 2012

Finance Standing Committee

REPORT OF THE SELECT COMMITTEE ON FINANCE ON THE OVERSIGHT VISIT TO NORTHERN CAPE MUNICIPALITIES FROM 24 – 27 JANUARY 2012, DATED 15 MAY 2012

REPORT OF THE SELECT COMMITTEE ON FINANCE ON THE OVERSIGHT VISIT TO NORTHERN CAPE MUNICIPALITIES FROM 24 – 27 JANUARY 2012, DATED 15 MAY 2012

 

1. Introduction

 

The Select Committee on Finance undertook an oversight visit to Northern Cape municipalities from 24 to 27 January 2012. Meetings were held in Kimberley at the Protea Hotel and at the William Humphreys Art Gallery .

 

1.1 Purpose of Visit

 

The visit served as a follow-up to the engagement of the Committee with identified municipalities during 1 – 5 March 2010. The purpose was to ascertain the progress made with addressing the issues raised in the Committee’s 2010 report.

 

1.2 Delegation

 

The delegation consisted of the following Members:

 

Hon JMG Bekker, (Western Cape – DA);

Hon TE Chaane , ( North West - ANC);

Hon CJ de Beer, ( Northern Cape - ANC) Chairperson SC on Finance;

Hon RA Lees (KwaZulu-Natal - DA);

Hon BL Mashile ( Mpumalanga - ANC); and

Hon TM Memela (KwaZulu-Natal - ANC).

 

The parliamentary officials who accompanied the delegation were: Mr Z Rento (Committee Secretary: Select Committee on Finance); Mr L Nodada (Committee Secretary: Select Committee on Appropriations), Ms E Grunewald (Committee Secretary: Select Committee on Appropriations); Mr S Mncwango (Committee Researcher: Select Committee on Finance), Ms Y Joseph (Committee Researcher: Select Committee on Appropriations), and Mr M Vumazonke (Committee Assistant).

 

1.3 Terms of reference

 

The visit formed part of the Committee’s ongoing interaction with municipalities to monitor collaboration and coordination pertaining to the provision of municipal services and support given to municipalities by provincial and national departments.

 

The following municipalities in the Northern Cape were visited:

 

• Karoo Hoogland Local Municipality ;
• Renosterberg Local Municipality ;
• Sol Plaatje Local Municipality ;
• Dikgatlong Local Municipality ;
• Kgatelopele Local Municipality ;
• Siyancuma Local Municipality ;
• Siyathemba Local Municipality ;
• Phokwane Local Municipality ;
• Emthanjeni Local Municipality ;
• Thembelihle Local Municipality ;
• Mier Local Municipality ;
• Siyanda District Municipality ;
• Richtersveld Local Municipality ; and
• Kamiesberg Local Municipality .

 

The following stakeholders were invited to participate:

 

• National Department of Cooperative Governance;
• Northern Cape Provincial Treasury;
• South African Local Government Association (SALGA);
• Department of Energy;
• Financial and Fiscal Commission (FFC);
• Provincial Department of Cooperative Governance, Human Settlement and Traditional Affairs;
• Department of Water and Affairs;
• National Treasury;
• Department of Public Works;
• Office of the Auditor-General;
• Development Bank of Southern Africa ; and
• Eskom .

 

2. Presentation by the of Auditor-General

 

The Auditor-General (AG) gave a status update on audit outcomes, governance issues and progress made since the previous oversight visit. The AG reported that the audit outcomes of 11 of the 14 municipalities remained unchanged. Of these audit opinions, 10 were disclaimers and one was financially unqualified with findings on predetermined objectives. The remaining three municipalities improved from disclaimers to qualified audit opinions.

 

Although the 2010/11 audit has not been finalised yet, the AG revealed that only a few municipalities are gradually improving, with the majority remaining unchanged on disclaimers. Late submission of Annual Financial Statements (AFS) remained a huge challenge. For example, eight out of the 14 municipalities submitted their AFS late.

 

2.1 Karoo Hoogland Local Municipality

 

For the 2010/11 financial year, this municipality received a qualified audit opinion with findings on predetermined objectives and on non-compliance with laws and regulations. The AG further found that there had been unauthorised expenditure of R20 million and irregular expenditure of R3.4 million. The AG further reported that due care was not taken when preparing the financial statements, resulting in various adjustments. The financial statements were not properly reviewed by management after it was compiled by consultants and before it was submitted for auditing.

 

It was reported that the majority of the items that were qualified were either as a result of not adhering to the Generally Recognised Accounting Practice (GRAP) requirements (like property, plant and equipment and revenue) or due to a lack of sufficient appropriate supporting evidence. The AG reported that the municipality did not report on its performance against predetermined objectives and its planned targets included in the Integrated Development Plan (IDP) were not specific, measurable, time bound, well defined or verifiable.

 

The AG further reported that there were deficiencies in the design and implementation of internal control in respect of compliance with applicable laws and regulations. This resulted in non-compliance with a variety of legislation. The audit report indicated that the Accounting Officer did not exercise oversight responsibility over the preparation of the financial statements, the report on predetermined objectives, compliance with the laws and regulations, and internal controls. It was further reported that the leadership did not ensure that there were processes to ensure that reviews took place before information was submitted. This was further evident from the material misstatements in the financial statements, non-compliance with laws and regulations and internal control deficiencies noted throughout the audit process.

16.

17. The audit report further indicated that the municipality did not have policies relating to fraud prevention, disaster recovery and information technology security during the financial year. It was further reported that in the absence of appropriate GRAP training to municipal officers, management appointed external service providers to assist with the compilation of a GRAP-compliant asset register . Furthermore, it was mentioned that manual or automated controls were not designed to ensure that the transactions had occurred, were authorised and completely and accurately processed in all instances, while the system of internal control was not adequately designed. Certain corrective measures were not implemented to address the shortcomings in the financial statements and related systems.

 

18. The AG reported that the municipality did not have documented and approved internal policies and procedures to address planning, monitoring and reporting processes and events pertaining to performance information. There were deficiencies in the design and implementation of internal control in respect of compliance with applicable laws and regulations. Further reported that material amendments had to be made to the financial statements as these were not accurate and complete, because senior management did not pick up inconsistencies during the review process. This indicates that there were weaknesses in internal control with regard to the review process of the financial statements.

19.

The AG report revealed that the audit committee did not perform its functions as required and therefore did not promote accountability and service delivery through evaluating and monitoring responses to risks and providing oversight over the effectiveness of the internal control environment, including financial and performance reporting and compliance with laws and regulations. The AG’s report also reported that the Supply Chain Management (SCM) unit did not function effectively and the necessary procedures were not always followed and SCM officials were not aware of all the acts and regulations that should be adhered to concerning SCM.

 

2.2 Renosterberg Local Municipality

 

The AG reported that at the time of reporting to the Committee, the Renosterberg Municipality had not yet submitted their 2010/11 Annual Financial Statements (AFS) for auditing. This Municipality received a disclaimer in the 2008/09 and 2009/10 financial years. During the previous audit, the AG found unauthorised expenditure of R12.9 million; irregular expenditure of R3.7 million and fruitless and wasteful expenditure of R3 million. It was further reported that due to a lack of skills at the municipality the quality of the financial statements and the municipality’s ability to support and substantiate the disclosed financial data, has not improved.

 

The AG mentioned that the majority of the items that were qualified were either as a result of not adhering to the GRAP requirements or due to a lack of sufficient appropriate supporting evidence. The AG also reported that the 2009/10 financial statements were submitted late due to a lack of basic financial discipline relating to financial recordkeeping and controls. The financial statements were not properly reviewed for accuracy and completeness. This resulted in many findings relating to incorrect disclosure. The municipality did not report on its performance against predetermined objectives. Furthermore, it was reported that the leadership did not sufficiently monitor the recording and reconciliation of the financial records and that sufficient control measures were not developed by the leadership to address the matters reported on in prior years. It was mentioned that effective performance systems, processes and procedures as well as the management thereof had not been adequately implemented and that documentation supporting amounts disclosed in the financial statements in the annual report was not available.

 

The AG reported that the finance staff had an insufficient understanding of the accounting framework and this contributed towards the numerous qualifications in the financial statements of the municipality. Inadequate filing procedures at the municipality have resulted in limitations of scope during the current and previous year’s audits. As a result, significant difficulties were experienced in respect of the availability of information. It was also reported that the financial statements contained numerous inaccuracies, which are attributable to weaknesses in the design and implementation of internal control in respect of financial management and financial reporting, and weaknesses in the information systems. It was further mentioned that the municipality did not have a documented fraud prevention plan. Internal control deficiencies were not identified and communicated in a timely manner to allow for corrective action to be taken. The implementation of internal and external audit recommendations was not monitored. This resulted in the audit findings for the previous year not being adequately addressed and that the audit committee was not in operation for the financial year.

 

2.3 Sol Plaatje Local Municipality

 

The AG reported that this municipality had improved from disclaimers in the past two years, to a qualified audit opinion with findings on predetermined objectives and non-compliance with laws and regulations in 2010/11 financial year. The AG found unauthorised expenditure of R1.8 million, irregular expenditure of R40.4 million and fruitless and wasteful expenditure of R582 678.

 

It was reported that the council did not exercise specific oversight over financial and performance reporting, compliance with laws and regulations as well as internal control. The action plans compiled to address the previous year’s audit findings were not monitored and reviewed to determine if the reported progress on the plans related to actual improvements. Delays in the approval of management’s recommendation to consolidate supply chain management and contracts led to management being unable to address weaknesses in asset management and Supply Chain Management (SCM). This resulted in non-compliance with the relevant regulations.

 

It was reported that management proposed the establishment of a fully fledged asset management unit within the finance directorate to enable the accounting officer to exercise his or her responsibilities as required in terms of section 63(2)(c) of the MFMA. This led to insufficient capacity within the municipality to deal with the responsibilities of identifying, safeguarding and maintaining the movable and immovable assets of the municipality. It was further reported that exception reports were not developed and utilised on a monthly basis to ensure the completeness, existence and accuracy of transactions within the areas where high volumes of transactions were processed, such as revenue, receivables, salaries and wages.

 

The AG reported that the Chief Financial Officer’s focused on the development and enhancement of internal controls within financial management responsibilities led to the inadequate monitoring of such controls during the year, as some pertinent reconciliations were not performed as per policy requirements. The AG further reported that management’s action plans to address audit findings were not followed up thoroughly and this was exacerbated by capacity constraints in asset management and SCM. It was further mentioned that the leadership did not adequately monitor the municipality’s compliance with laws, regulations and internally designed policies and procedures, as management mainly focused on the establishment and strengthening of the internal control environment. As a result, material non-compliance issues were noted.

 

The AG mentioned that different directorates within the municipality did not take collective responsibility for the disclosures in the financial statements, performance reporting and compliance with laws and regulations. And the control environments related to financial and performance reporting did not reside within the budget and treasury office and/or the integrated development plan unit, but with every directorate within the municipality. It was also reported that the lack of a fully fledged asset management section within the finance directorate led to the inability to componentise newly acquired infrastructure assets and update asset registers timeously , resulting in significant calculation errors on valuation and depreciation.

 

The AG reported that the financial statements and other information to be included in the annual report were not adequately reviewed for completeness and accuracy prior to submission for auditing. The financial statements were subject to material corrections resulting from the audit, which can be attributed to the weaknesses in the design and implementation of internal control in respect of financial management and financial reporting, and weaknesses in the information systems. This also resulted in the prior year’s audit findings not being substantially addressed in certain instances. It was further mentioned that the municipality did not prepare quarterly interim financial statements to identify and rectify any financial statement errors early on. The Chief Financial Officer (CFO) and the municipal manager should review these financial statements for completeness and accuracy, and submit them to the internal audit unit for review.

 

The AG mentioned that the municipal council did not write off debtors confirmed to be non-recoverable, resulting in a qualification on the existence of debtors. The municipality did not review and monitor compliance with applicable laws and regulations. The municipality did not have a delegated employee that had been trained and had the necessary technical skills to address and monitor new legislative changes affecting the municipality. Record management and maintenance disciplines were not included in the daily key controls, and reviewed and monitored by a management member at the appropriate level.

 

The AG furthermore reported that due to the focus on financial sustainability and infrastructure development for service delivery, monitoring and supervision were not satisfactorily undertaken to enable an assessment of the effectiveness of internal controls over financial and performance reporting. Internal controls were not monitored to prevent, detect and correct material misstatements in financial reporting and reporting on predetermined objectives. The capacity of the internal audit unit had to be supplemented, as consultants were sourced to assist with the internal audit plan. The recommendations of the internal audit unit were not implemented. Certain tenders were being investigated by the Public Protector. The tender documents were confiscated and not in the possession of the municipality. Tenders relating to the sale of land, housing projects and infrastructure construction could therefore not be audited.

 

2.4 Dikgatlong Local Municipality

 

The AG reported that this municipality received a disclaimer for the third year in a row. Unauthorised expenditure of R4.1 million was found, as well as irregular expenditure of R762 969 and fruitless and wasteful expenditure of R133 969. It was also mentioned that they did not make use of consultants to prepare their financial statements and have managed to improve their cash-flow. The majority of the items that were qualified, was either as a result of not adhering to the GRAP requirements (like property, plant and equipment, provisions, etc) or due to a lack of sufficient appropriate supporting evidence.

 

The AG mentioned that the Mayor was retained during the May 2011 municipal election. The municipal and technical managers were seconded from the provincial department of Cooperative Governance, Human Settlements and Traditional Affairs and the contract of the CFO was renewed on a month to month basis from August 2010. Furthermore the position for the corporate service manger was vacant. This resulted in a lack of oversight responsibility over financial and performance reporting, compliance with laws and regulations as well as internal control. It was also reported that the Accounting Officer of the municipality did not ensure that internal control procedures are developed, implemented and monitored.

 

AG reported that most of the systems of the municipality were not documented in approved policy and procedures manuals. The results of the monitoring process were not routinely communicated to all managers and staff. The financial statements were not reviewed by management and those charged with government for completeness and accuracy prior to submission for audit. It was further reported that the municipality did not have proper record keeping and record management processes in place to ensure that the documentation supporting the amounts and disclosures in the financial statements were properly filed and easily retrievable. This resulted in a limitation of scope on audit procedures.

 

The AG reported that the municipality did not have adequate financial systems in place to ensure compliance with the accrual basis of accounting. As a result, information relating to the disclosure notes in the financial statements was not identified and captured in a form and time frame to support financial and performance reporting. The municipality did not review and monitor compliance with applicable laws and regulations. A compliance officer was subsequently appointed. It was further mentioned that the municipal manager did not implement performance management processes and did not delegate the function of collation of performance information to an official. The accounting officer did not ensure that a financial and risk unit is established. The municipality did not identify risks relating to the achievement of financial and performance reporting objectives. Consequently, controls were not developed to prevent, detect and correct material misstatements in financial reporting and reporting on predetermined objectives. The municipality has not undertaken a risk assessment to assess any risks of fraud and has consequently not developed a fraud prevention plan, as required by the MFMA. The municipality did not establish an audit committee and an internal audit function.

 

2.5 Kgatelopele Local Municipality

 

The AG reported that the municipality’s 2010/11 Annual Financial Statements (AFS) were submitted during November 2011. At the time of the oversight visit, the audit was still in process. The municipality received a qualified audit opinion with findings on predetermined objectives and non-compliance with laws and regulations during the 2009/10 audit. This was an improvement from the disclaimer received in the previous year. It was also reported that the Accounting Officer did not exercise oversight responsibility over financial and performance reporting, compliance with laws and regulations and internal control. And that the Accounting Officer failed to implement adequate controls to ensure compliance with laws, regulations and internally designed policies and procedures. As a result, significant non-compliance issues were noted.

 

The AG mentioned that the Accounting Officer did not evaluate whether management had implemented effective internal controls by gaining an understanding of how senior management members had met their responsibilities in terms of preparing bank reconciliations, ensuring proper records management, maintaining an asset register and preparing the annual financial statements. It was further reported that the accounting officer did not take timeous and adequate action to address weaknesses in the finance and SCM directorate, which resulted in non-compliance with applicable legislation and gave rise to irregular expenditure. And that the Accounting Officer did not sufficiently monitor the recording and reconciliation of the financial records. Sufficient control measures were not developed by the leadership to address the qualifications reported in the prior years as identified in the action plan.

The AG reported that regular, accurate and complete financial and performance reports, supported and evidenced by reliable information were not prepared. Furthermore, controls over daily and monthly processing and reconciling of transactions, and proper record keeping in a timely manner to ensure that complete, relevant and accurate information is accessible and available to support financial and performance reporting were not implemented. It was also reported that the financial statements and other information to be included in the annual report were not reviewed for completeness and accuracy prior to submission for audit. This contributed to the numerous disclaimers in the financial statements of the municipality. It was reported that the financial statements contained numerous inaccuracies, which are attributable to weaknesses in the design and implementation of internal control in respect of financial management and financial reporting, weaknesses in the information systems and the audit committee not reviewing financial statements prior to submission for audit. It was also mentioned that the municipality did not have a documented fraud prevention plan and a risk assessment process. Internal control deficiencies were not identified and communicated in a timely manner to allow for corrective action to be taken. The implementation of internal and external audit recommendations was not monitored. This resulted in the prior year audit findings not being substantially addressed and that the performance audit committee was not in operation for the financial year.

2.6 Siyancuma Local Municipality

 

The AFS for 2010/11 were submitted in September 2011 and the audit is still in progress. However, unauthorised expenditure of R21.8 million, irregular expenditure of R1.8 million and fruitless and wasteful expenditure of R176 089 have been found.

Due to the accounting officer only being appointed for six months of the year, the position of the chief financial officer being vacant, the accountant being on extended sick leave and certain finance staff being on suspension as a result of an investigation, there was a general lack in oversight on reporting and compliance with laws and regulations.

 

Among finance staff there was a general lack of understanding of the new accounting framework. A supply chain management unit was not appointed during the year under review, which resulted in non-compliance with applicable legislation. This, in turn, resulted in unauthorised, irregular and fruitless and wasteful expenditure. The accounting officer did not regularly monitor management’s compliance with laws, regulations and internally designed policies and procedures. As a result, significant non-compliance issues were noted. Furthermore, it was reported that the municipality did not have individuals who understand the financial reporting framework and performance management requirements. This resulted in the municipality engaging a consultant to prepare the financial statements. The underlying accounting records of the municipality did not facilitate the preparation of the financial statements to comply with the accounting framework. The financial statements and other information to be included in the annual report were not reviewed by the accounting officer for completeness and accuracy prior to submission for audit.

 

Furthermore, it was reported that manual or automated controls were not designed to ensure that the transactions had occurred, were authorised, complete and accurately processed. Documentation supporting amounts disclosed in the financial statements was not always available. And that management did not document and approve internal policies and procedures to address the process of collection, recording, processing, monitoring and reporting on performance information. Consequently, performance systems, processes and procedures had not been designed and implemented. It was also mentioned that the municipality did not respond to the assessed risks by determining a risk strategy and action plan to manage identified risks. Consequently, internal controls were not developed to prevent, detect and correct material misstatements in financial reporting and reporting on predetermined objectives. It was further reported that the accounting officer did not prioritise the establishment of a fully functioning audit unit and performance audit committee function and therefore the functions were not established and functional during the financial year. This further resulted in the committees not being able to fulfil all their responsibilities.

 

2.7 Siyathemba Local Municipality

 

The AG reported that this municipality’s AFS were submitted in October 2011 and the audit is still in progress. The Municipality received disclaimers during the 2009/10 and 2010/11 audits. The AG could report that unauthorised expenditure of R7.6 million, irregular expenditure of R9.2 million and fruitless and wasteful expenditure of R342 065 have been found.

 

The AG reported that during 2009/10 some of the internal controls were not adhered to. The leadership did not evaluate whether management had implemented effective internal controls by gaining an understanding of how senior management members had met their responsibilities in terms of preparing bank reconciliations, maintaining the fixed asset register and preparing the annual financial statements. The leadership did not ensure that internal control procedures were developed, implemented and monitored to ensure that monthly sets of financial statements were prepared and subjected to review.

 

The AG further reported that the Accounting Officer did not communicate the commitment to quality in preparing the annual financial statements and the maintenance of the fixed asset register. The leadership of the municipality did not implement and monitor the prior year’s external audit findings. Specific training interventions were needed in the municipality to enable finance staff members to understand and implement the GRAP Financial Reporting Framework effectively in order to fully meet the disclosure requirements of these standards. The financial statements were not reviewed for completeness and accuracy prior to submission for auditing. Records management and maintenance disciplines should be refined and included in the daily key controls and reviewed and monitored by the appropriate level of management. It was further reported that the municipality’s audit committee was not operational throughout the year. This resulted in the committee not being able to fulfil its responsibilities as set out in section 166 of the Municipal Finance Management Act (MFMA).

 

2.8 Phokwane Local Municipality

 

The AG reported that the Phokwane Municipality received a disclaimer for the third consecutive year. The AG reported unauthorised expenditure of R19.3 million, irregular expenditure of R4.9 million and fruitless and wasteful expenditure of R98 760. It was also mentioned that the majority of the items that were qualified were as a result of the municipality not adhering to the GRAP requirements and due to a lack of sufficient appropriate supporting evidence. The AG reported that the financial statements submitted for auditing were not prepared in all material respects in accordance with the requirements of section 122 of the MFMA. Material misstatements identified by the auditors were subsequently corrected, but the uncorrected material misstatements resulted in the disclaimer audit opinion. The mayor was retained during the May 2011 municipal election. The employment contract of the accounting officer was renewed on a month-to-month basis from 31 May 2011. The chief financial officer position was filled in January 2010, half way during the financial year. The positions for technical manager and corporate manager were vacant.

 

The accounting officer of the municipality did not ensure that internal control procedures were developed, implemented and monitored that would have ensured that:

· bank reconciliations, debtors reconciliations, creditors reconciliations and VAT reconciliations are performed and reviewed on a monthly basis;

· monthly sets of financial statements are prepared and subjected to review; and

· the property, plant and equipment of the municipality are reported on.

 

The municipality compiled an action plan after the 2009/10 financial year to address the matters reported in that year’s audit report, but failed to implement the actions. Management did not monitor the action plan. Management appointed consultants to address some of the prior year audit findings and to prepare the 2010-11 annual financial statements. The work performed by the consultants was not sufficiently monitored, resulting in the inability of the municipality to provide sufficient and appropriate supporting documentation and explanations for adjustments and disclosures made. The municipality did not have the capacity to address backlog issues and financial system problems, resulting in the need to appoint consultants. Consultants assisted with the preparation of a valuation roll, asset register and annual financial statements. The financial statements were not reviewed for completeness and accuracy prior to submission for audit.

 

The municipality did not implement a performance management system, which resulted in the annual performance report not being prepared and submitted. The municipality did not review and monitor compliance with applicable laws and regulations. The accounting officer of the municipality did not ensure that a financial and risk unit is established. The municipality did not identify risks relating to the achievement of financial and performance reporting objectives. Consequently, controls were not developed to prevent, detect and correct material misstatements in financial reporting and reporting on predetermined objectives. The internal audit section reported to the municipal manager as no audit committee had been established for the year under review. This negatively impacted on the independence and operation of the internal audit section

 

2.9 Thembelihle Local Municipality

 

The municipality submitted their 2010/11 AFS on 20 January 2012. During the 2008/09 and 2009/10 audits, they received disclaimers. The AG reported unauthorised expenditure of R12.7 million, irregular expenditure of R27.7 million and fruitless and wasteful expenditure of R80 170. Due to lack of skills at the municipality consultants were used to prepare the financial statements and address challenges with the municipality’s ability to support and substantiate the disclosed financial data. In spite of this intervention, the quality of the financial statements did not show improvement.

 

The majority of the items that were disclaimed were either as a result of not adhering to the GRAP requirements or due to a lack of sufficient appropriate supporting evidence.

 

2.10 Mier Local Municipality

 

The majority of the items which led to the qualified audit opinion, was either as a result of the municipality not adhering to the GRAP requirements or due to a lack of sufficient appropriate supporting evidence. The accounting officer of the municipality did not ensure that internal control procedures were developed, implemented and monitored. Management appointed consultants to prepare the 2010/11 annual financial statements. The work performed by the consultants was not sufficiently monitored, resulting in the inability of the municipality to provide sufficient and appropriate supporting documentation and explanations for adjustments and disclosures made.

 

The financial statements were not reviewed for completeness and accuracy prior to submission for audit. The requested information was not made available timeously , and sometimes, not at all -resulting in a limitation of scope of audit. Furthermore, management did not provide management comment on audit findings raised and issued to them. The municipality did not implement a performance management system, which resulted in the annual performance report not being prepared and submitted. It further did not review and monitor compliance with applicable laws and regulations. The accounting officer did not ensure that a financial and risk unit was established. The municipality did not identify risks relating to the achievement of financial and performance reporting objectives. Consequently, controls were not developed to prevent, detect and correct material misstatements in financial reporting and reporting on predetermined objectives. The municipality did not establish an audit committee or an internal audit section.

 

2.11 Siyanda District Municipality

 

The Siyanda District Municipality received a financially unqualified audit opinion for the 2010/11 financial year, with findings on predetermined objectives and non-compliance with laws and regulations. This is an improvement on both 2009/10, when the opinion was qualified, and 2008/09, when they received a disclaimer. The AG reported unauthorised expenditure of R1.3 million, irregular expenditure of R8.1 million and fruitless and wasteful expenditure of R24 241. Due to a lack of skills at the municipality, they made use of consultants to prepare the financial statements. The municipality did not report on its performance against predetermined objectives in a manner that is consistent with the approved integrated development plan. The municipality did not implement a framework that describes and detects irregular expenditure and non-compliance with laws and regulations.

 

Management did not properly review the financial statements, which resulted in material amendments to the financial statements to ensure its fair presentation. In the absence of appropriate GRAP training to the finance staff, management appointed external service providers to compile the financial statements. Adequate reviews of performance against predetermined objectives were not performed. Senior management did not adequately review actual expenditure against the approved budget in order to prevent and detect unauthorised expenditure. Regular reconciliations between the asset register and the financial statements were not performed. There were deficiencies in the design and implementation of internal controls in respect of compliance with applicable laws and regulations.

 

The audit unit did not follow a risk-based approach in selecting components to be audited and did not use a systematic method to select samples. Material components of performance information were not audited during the 2010/11 financial year. The audit committee did not perform an adequate review of the financial statements of the municipality before they were submitted to the external auditors.

 

 

 

 

2.12 Richtersveld Local Municipality

 

The Richtersveld Local Municipality received a financially unqualified audit opinion with emphasis of matter for the third year in a row. Unauthorised expenditure of R13.9 million and irregular expenditure of R21 million was incurred. Material impairments of R2.5 million were incurred, due to poor debt collection. Personnel were not aware of the allocation of duties, responsibilities and lines of reporting. Management failed to implement controls to ensure that procurement was done in accordance with the minimum requirements as set out in the SCM Regulations. This increased the risk of fraud at the municipality. Pertinent information was not identified and captured in a form and time frame to support financial and performance reporting. The system of internal control was not adequately designed, as manual or automated controls were not designed to ensure that transactions had occurred, were authorised and were completely and accurately processed in all instances. Corrective measures were not implemented to address the shortcomings in the financial statements and related systems. The municipality did not have documented and approved internal policies and procedures to address planning, monitoring and reporting processes and events pertaining to performance information .

 

Detailed standard operating procedures setting out the roles and responsibilities of all levels of staff involved in the collection and collation of reporting on performance against predetermined objectives, from source document to reporting, were not communicated to all employees concerned. There were significant deficiencies in the design and implementation of internal control in respect of compliance with applicable laws and regulations. Material amendments had to be made to the financial statements, which indicate that weaknesses in internal control occurred with regard to the review process of the financial statements. The financial statements were not accurate and complete, as senior management members did not pick up these inconsistencies during their review process. The municipality did not have a formal risk assessment process and did not identify risks relating to the achievement of financial and performance reporting objectives.

The municipality did not establish an internal audit unit to enhance the internal control environment. The internal audit unit is crucial to ensure the proper implementation and monitoring of internal control. The municipality did not establish an audit committee. The audit committee is crucial to ensure the proper implementation and monitoring of internal control.

 

2.13 Kamiesberg Local Municipality

 

Kamiesberg Local Municipality received a disclaimer for the third year in a row. The AG reported unauthorised expenditure of R9.6 million, irregular expenditure of R4.9 million and fruitless and wasteful expenditure of R740 434. The accounting officer did not implement effective HR management to ensure that adequate and sufficiently skilled resources were in place and that performance was monitored, as the finance department could not fill a number of vacancies for the full duration of the year. A number of audit findings relating to material non-compliance with the provisions of the MFMA and the Municipal Systems Act (MSA) were identified. The instances of non-compliance occurred due to the fact that the mayor and the accounting officer did not exercise oversight responsibility over reporting and compliance with laws and regulations. A direct contributing factor was the suspension of the chief financial officer during the previous financial year resulting in the oversight functions being vacant for a greater part of financial period.

 

The accounting officer did not exercise oversight responsibility regarding financial and performance reporting and compliance and related internal controls. The accounting officer did not develop and monitor the implementation of action plans to address internal control deficiencies. An action plan was not implemented based on the 2009/10 findings by the AG. The accounting officer did not establish an IT governance framework that supported and enabled the business, delivered value and improved performance. The accounting officer did not implement proper record keeping in a timely manner to ensure that complete, relevant and accurate information was accessible and available to support financial and performance reporting.

 

The Accounting Officer did not implement controls over daily and monthly processing and reconciling of transactions. The different directorates within the municipality did not take collective responsibility for the disclosures within the financial statements, performance reporting and compliance with laws and regulations. The control environments related to financial and performance reporting did not reside within the budget and treasury office and/or the integrated development plan unit, but with every directorate within the municipality. The Accounting Officer did not design and implement formal controls over IT systems to ensure the reliability of the systems and the availability, accuracy and protection of information.

 

The AG mentioned that the financial statements and other information to be included in the annual report were not adequately reviewed for completeness and accuracy prior to submission for auditing. The financial statements were subject to material corrections resulting from the audit, which can be attributed to the lack of a risk assessment, weaknesses in the design and implementation of internal control in respect of financial management and financial reporting, and weaknesses in the information systems. This also resulted in the prior year’s audit findings not being substantially addressed in certain instances. It was also reported that the lack of a fully-fledged asset management section within the finance directorate led to the inability to componentise newly acquired infrastructure assets and update asset registers timeously , resulting in significant calculation errors and limitations regarding the valuation performed on assets.

 

Furthermore, the AG reported that the Accounting Officer did not implement appropriate risk management activities to ensure that regular risk assessments, including consideration of IT risks and fraud prevention, were conducted and that a risk strategy to address the risks was developed and monitored. The accounting officer did not ensure that there was an adequately resourced and functioning internal audit unit that identified internal control deficiencies and recommended corrective action effectively and that no audit committee was established at the municipality.

 

2.14 Summary of Unauthorised, Irregular and Fruitless Expenditure

 

Table 1 (below) shows the amounts that could not be accounted for by municipalities through unauthorised, irregular and, fruitless and wasteful expenditure for the 2009/10 financial year.

 

Table 1: Summary of AG findings on expenditure by municipalities

No.	Municipality	Unauthorised expenditure   (R)	Irregular expenditure   (R)	Fruitless and wasteful expenditure (R)
1.	Thembelihle Local Municipality	12 743 865	27 742 766	80 170
2.	Karoo Hoogland Local Municipality	20 099 989	3 466 402	0
3.	Renosterberg Local Municipality	12 902 022	3 714 964	3 063 753
4.	Dikgatlong Local Municipality	4 187 034	762 969	133 969
5.	Sol Plaatjie Local Municipality	1 855 979	40 480 889	582 678
6.	Kgatelopele Local Municipality	0	0	0
7.	Emthanjeni Local Municipality	0	7 287 868	0
8.	Phokwane Local Municipality	19 322 431	4 978 614	98 670
9.	Mier Local Municipality	0	0	0
10.	Siyathemba Local Municipality	7 622 405	9 219 787	342 065
11.	Siyanda District Municipality	1 359 044	8 149 469	24 241
12.	Siyancuma Local Municipality	21 852 680	1 874 681	176 089
13.	Richtersveld Local Municipality	13 928 199	21 034 974	0
14.	Kamiesberg Local Municipality	9 672 017	4 940 190	740 434
	Total	125 545 665	133 653 573	5 242 059

 

 

3. Presentations by Municipalities

 

3.1 Karoo Hoogland Local Municipality

 

3.1.1 Municipal Transformation and Institutional Development

 

Prior to 2009 the municipality was in dire straits, with all senior positions vacant and no proper policies in place. They had experienced a rates boycott for three years. In the 2007/08 financial year, Karoo Hoogland was one of the four worst performing municipalities in the Northern Cape Province . Since the latter part of 2009 the municipality has been implementing its own turnaround plan. The municipality reported that they had received very good support from Provincial Treasury and the Department of Cooperative Governance, Human Settlement and Traditional Affairs (COGHSTA) during this process. The position of Chief Financial Officer (CFO) was filled from 1 February 2011. A new Municipal Manager assumed duty on 1 January 2012. The position of Head of Infrastructure Services is currently vacant, with the deputy acting in that position.

 

An internal audit function was established on 1 July 2010, and an audit committee (AC) appointed. The AC held regular meetings. Budget and Supply Chain Management (SCM) offices were also established on 1 July 2010 and staff appointed to them.

 

3.1.2 Basic Service Delivery

 

With regard to basic services (water, electricity and sanitation) Karoo Hoogland Municipality reported that they faced no serious challenges, as all households in the municipality received these basic services. The major challenge was to address the housing backlogs in all three towns and the upgrading of the electricity reticulation network in Fraserburg . Between Williston, Sutherland and Fraserburg there were a total of 500 housing units outstanding.

 

3.1.3 Local Economic Development (LED)

 

The municipality reported that the vision of the council was that the municipality become an economic growth node. Council wanted to create an environment that would enhance economic development with special focus on poverty alleviation and the creation of direct and indirect job opportunities. Special focus would be placed on the development of life skills, infrastructure and education. The LED strategies of the council were directly aligned with the provincial growth and development strategies. Various departments and institutions were involved in giving effect to projects in order to stimulate LED.

 

3.1.4 Financial Viability and Management

 

In the Auditor-General’s report, Karoo Hoogland received disclaimers for nine years until the 2008/09 financial year. For both the 2009/10 and 2010/11 financial years, they received a qualified audit opinion. The municipality indicated that all efforts were focused on obtaining a clean audit on 30 June 2012. After the implementation of the turnaround plan, the municipality’s cash flow had improved drastically. Currently all commitments were met and creditors were being paid within 30 days.

 

While all households in the municipality had prepaid electricity meters, the collection of arrears for water, rates and sanitation remained a problem. Overall collection rates were around 64 per cent, which was significantly lower than the budgeted figures. This could be attributed to the large number of households struggling with their finances, old debt that had accumulated but also to the lack of qualified staff to do the collections.

 

Due to severe financial restrictions the revenue budget of the municipality had to be curtailed in order to make tariffs more affordable. This placed a tremendous strain on the functionality of the municipality. Maintenance and training were amongst the first casualties. Additional costs were to be incurred regarding the Internal Audit function, appointment of a Municipal Manager as well as the large increase in councillor travelling costs due to meetings. This would need to be addressed in the Amendment Budget. A problem that would have a serious effect on the budget was the delivery of a library service in the area.

 

The municipality reported that their capital expenditure was on track. However, problems experienced with the registration of MIG projects had a serious effect on service delivery. Due to the non-registration of projects they were unable to report on progress as the systems only reported on registered projects. This led to continuous threats of withholding of MIG funds.

 

More than a third of the community in Karoo Hoogland was considered to be indigent. More than 1 500 of the 3 300 households have registered. The annual process of evaluation was underway. The registration was done on an annual basis and community participation in the process was encouraged. While a cut-off date was set for administration processes, consumers were continuously invited to apply. Community Development Workers ( CDWs ) and ward councillors were tasked to assist officials to evaluate applications. Results were placed on bulletin boards.

 

3.1.5 Good Governance and Public Participation

 

Karoo Hoogland Municipality reported that ward committees for the four wards had been re-established in 2011, but they were not functioning effectively. Training was being planned for the near future. There were five Community Development Workers ( CDWs ) in the municipality, who were mainly being utilised to promote communication between the council and the public. However, the municipality reported that it was difficult to manage and discipline these CDWs as they were not municipal employees.

 

 

3.2 Renosterberg Local Municipality

 

3.2.1 Governance

 

Following a report issued by Provincial Treasury, the entire senior management of the municipality resigned. There were currently an acting Municipal Manager (seconded from the Provincial Department of Cooperative Governance, Human Settlements and Traditional Affairs), an acting Chief Financial Officer (seconded from the Provincial Treasury), and an acting Technical Manager. The position of Manager of Corporate Services was also vacant, but no acting appointment had been made. The municipality reported they had a good relationship with the Community Development Workers ( CDWs ), who assisted in relations between the municipality and the community. Monthly meetings took place with the community.

 

3.2.2 Financial Management

 

Although revenue collection had improved from R 100 000 to R 400 000 since the appointment of the acting CFO, the CFO did not foresee it improving further, due to the high unemployment rate of more than 60 per cent. The municipality reported that their salary bill took up 56 per cent of their total budget and they were resorting to paying salaries out of their conditional grant funds.

 

The municipality further reported that an indigent policy was in place and was being implemented. The indigent information was in the process of been reviewed and updated. Due to the financial situation of the municipality creditors were not paid within 30 days. Major creditors included Eskom , the Department of Water Affairs, and the Auditor-General. The total amount owed to creditors was R8 million. Debtors over 90 days amounted to R18.5 million.

 

 

3.2.3 Service Delivery

 

In terms of service delivery, the municipality reported that the ageing infrastructure and old electricity meters posed a challenge to effective delivery. Other challenges included an inadequate and ageing fleet and a lack of skilled staff in the technical department. With regard to service delivery infrastructure, projects had been planned for the 2011/12 financial year to pave streets in Phillipstown and Petrusville . These projects were at the design stage.

 

 

3.2.4 Local Economic Development

 

Renosterberg Municipality reported that the main activities in their local economy were related to agriculture. In addition, temporary jobs were created by the Expanded Public Works Programme (EPWP) and other projects.

 

Specific plans for intervention included the following:

 

· Private Public Partnership (PPP) at the Van der kloof Resort

· Capacitating local small contractors

· Creating an environment for stimulating the local economy

· Investigate ways to add to the value chain of agricultural products.

 

 

3.3 Sol Plaatje Local Municipality

 

3.3.1 Municipal Transformation and Institutional Development

 

The municipality reported that focussed interventions to improve overall governance and financial management that included the following, was undertaken:

 

· A review of the political governance model to expedite decision making,

· A functioning performance management system was in place,

· A reviewed of the macro and micro organizational structure to align it with the objects of local government and the IDP,

· A reconciliation of the payroll with the organizational establishment was done,

· A review of the effectiveness of the Local Labour Forum (LLF) was done.

 

 

3.3.2 Basic Service Delivery

 

Sol Plaatje Municipality reported that bulk infrastructure had to be upgraded to ensure bulk reticulation to provide households with services but also to ensure economic growth. A non revenue water loss minimization project had been undertaken to detect causes of losses (e.g. leaks, bypassing of meters) and to take corrective actions. This project was likely to yield results only in the 2012/13 financial year. The municipality reported that they had achieved a 84 per cent Blue Drop Status (up from 60 per cent).

 

An emergency project to improve the functioning of Homevale Waste Water Treatment Works (R60 million) would be completed by February 2012, after which further upgrades would follow. The municipality further reported that they had achieved 75 per cent Green Drop Status, which was the best in the Northern Cape Province . The municipality reported that they were in the process of increasing the electricity capacity by 80 MVA, bringing the total to 200 MVA, and to upgrade the network and various sub stations. Eskom had been commissioned in this regard and the project was scheduled for completion in 2012/13 financial year.

 

Sol Plaatjie municipality further reported that an Integrated Waste Management Plan had been finalised that would ensure effective handling of waste in terms of collections, treatment and disposal, monitoring and compliance. Cleaning projects had been reactivated and 15 persons per ward were hired as part of the EPWP II Programme to focus on cleaning in the city. Two new compactors were bought and another was on order for delivery in August 2012.

 

 

3.3.3 Local Economic Development (LED)

 

The municipality reported that its economic growth would be infrastructure led and driven. Municipal economic growth had been constrained by limitations of its infrastructure capacity.

 

In order to stimulate economic development and create an enabling environment for investment, the following were done or in process:

• two SMME villages were being constructed,
• Bulk Infrastructure Intervention Plan had been approved by council, and
• Shorten turnaround times for approval of building plans and rezoning applications by removing the red-tape, and
• Develop incentive schemes for prospective investors.

 

 

3.3.4 Financial Viability and Management

 

The municipality reported that they had worked hard over the previous two years to turn around financial management and compliance aspects. They had moved from a disclaimer to a qualified audit opinion. They indicated that their Financial Services Directorate assisted the Municipal Manager in ensuring compliance with MFMA. In addition, reserves had been rebuilt to R100 million, from a zero base.

 

Sol Plaatje municipality further reported that they had adopted a 30 day creditor payment policy and considered quicker payment terms for small to medium enterprises and those offering a discount on early payment. Payment was delayed beyond the 30 days only on valid grounds (inconsistencies and non-compliances). The municipality indicated that their collection rate at mid-term had been 86 per cent, which was below the target of 88 per cent but an improvement from 83 per cent as at 30 June 2011. Capital spending was below targets but an action plan would be tabled focusing mainly on conditional grant spending and borrowed funds.

 

The municipality reported that its policy on indigent persons recognised two categories of indigent persons, namely those who were income poor (earning less than R2 500 pm as gross household income notwithstanding the value of property) and asset poor (those with properties valued at less than R70 000 and earning less than R2 500 pm at the same time). The municipality indicated that they maintained an electronic register linked to the billing system which was updated daily by staff employed in the unit dealing with indigents.

 

 

 

3.3.5 Good Governance and Public Participation

 

Sol Plaatje reported that their interventions had focused on –

· administrative inefficiencies,

· poor audit outcomes (OPCAR),

· procedural violations (SCM procedure revised),

· performance management (Section 57 managers signed performance agreements – being rolled out to second level of managers), and

· planning and alignment between IDP/Budget/PMS

 

The top 30 strategic risks had also been identified and a Risk Management Plan put in place to mitigate these risks. In addition, 24 policies had been adopted to streamline and facilitate decision-making.

 

 

3.4 Dikgatlong Local Municipality

 

Dikgatlong Municipality reported on the results of the after implementation of their turn-around plan. They indicated that they had received good support from Provincial Treasury and the Auditor-General during the process. However, they indicated that they had received no assistance from National Treasury and the national Department of Cooperative Governance and Traditional Affairs ( Cogta ). The acting Municipal Manager as well as a technical advisor had been deployed by the provincial Department of Cooperative Governance, Human Settlement and Traditional Affairs (COGHSTA). The CFO was acting on a month to month basis. The municipality reported that they planned to appoint a CFO, Corporate Services Manager and Technical Manager by the end of February 2012.

 

 

3.4.1 Situation before Turn-Around

 

Dikgatlong municipality reported that the Mayor had been removed from office after community protests and the entire management team suspended on charges of mismanagement. These managers had since been dismissed. There had been no second tier management in place, resulting in a leadership vacuum. The municipality further reported that the paper trail of important documents was almost non-existent and institutional memory on critical aspects almost wiped out.

 

Further challenges included the following:

 

• Missing project funds of about R10 million

• Increase of trade creditors of about R7 million

• Unaccounted funds of about R20 million

• Increase in overdraft from R4 million to R7 million

• Staff vacancies at around 40 per cent

• No systems and procedures in place

• Complete lack of middle management

• Payment level of 20 per cent

• Zero compliance to MFMA

• Monthly operational deficit of R300 000

• No project plans submitted for IDP projects

• Qualified audit report with 380 pages of queries

 

 

3.4.2 Turnaround status at end of 2010/11

 

Dikgatlong reported on the status of their turn-around plan as follows:

 

· No overdraft in operation – there’s surplus funding in bank. The Municipality had a positive balance of R50 million at the end of July 2011;

· Operating surplus of R29.5 million at year end – 2011/12 ;

· Surplus of R17 million budgeted for 2011/12. Provision to fill all staff vacancies and implement IDP projects;

· Secured project funding of R 27 million – available for project implementation;

· Improved payment levels by 15 per cent. Annualised improvement of R4 million;

· Annualised cost savings of R13.2 million;

· Upgraded Council Chambers and main offices (added 16 offices) to provide more office space. Awaiting tender to upgrade the technical offices;

· Provided new computers to all workstations ( about 20);

· Installed new telephone system and improved connectivity between all work places;

· Awaiting tender to purchase 11 vehicles and additional office furniture;

· Provided protective clothing to all workers;

· Key appointments (seven positions) at middle management to improve management capacity. Appointed additional 40 staff members at operational level;

· Senior Accountant and five interns were appointed to improve capacity in financial department;

· Repaid outstanding Auditor-General debt of R1.5 million;

· Reduced Sedibeng Water debt from R8.6 million to R5.8 million and made payment arrangement to settle the account in full by October 2012; and

· Reduced Vaalharts Water debt by R1 million.

 

 

3.4.3 Targets

 

The municipality reported that they had achieved 36 per cent of recovery after 18 months of implementing the strategy. They reported that their 2011/12 targets were the following:

 

(a) Financial

· Reduce non-fixed cost on identified items by 20 per cent compared to 2010/11

· Reduce total liabilities by 20 per cent compared to 2010/11

· Achieve a 50 per cent payment level by July 2011, thereafter 10 per cent increase per annum

· Reduce water and electricity losses by 10 per cent per annum

· Sell all unproductive assets by November 2012

· Obtain clean audit status by 2012/13

 

(b) Institutional

· Fill all senior and middle management vacancies by July 2011

· A 100 per cent compliance with MFMA and other legislation

· Ensure full operational functionality of previously dysfunctional sections

· Implement 70 per cent of turnaround plan by the end of 2012

 

(c) Service delivery

· Ninety (90) per cent of all customer complaints attended to according to standard response times

· Purchase of vehicles, equipment and machinery essential for service delivery

· A 100 per cent spending of all available capital project funds by the end of each financial year

· Comply with Blue- and Green Drop requirements and achieve an award status by the end of 2012

 

 

3.5 Kgatelopele Local Municipality

 

The municipality reported that during the period of political uprisings after the local government elections in May 2011, disgruntled residents had burned the municipal chambers, the old municipal offices and a municipal vehicle of the electrical department. Cases of arson had been opened, but the mayor expressed concern over the lack of progress with the investigation. The municipality further indicated that both the Internal Auditor and the Supply Chain Practitioner had resigned as a result of the uprisings. The CFO was on sick leave for the same reason.

 

 

3.5.1 Municipal Transformation and Institutional Development

 

Kgatelopele municipality reported that there was an organisational structure in place, with a total of 27 vacancies. The vacancies included the positions of Internal Auditor, Supply Chain Practitioner, Technical Manager, Senior Accountant and LED Officer. The municipality indicated that they intended to fill these vacancies by 30 June 2012.

 

A Municipal Skills Audit had been conducted by the Council and the Department of Cooperative Governance, Human Settlement and Traditional Affairs (COGHSTA), where areas for training and development of staff had been identified. The municipality reported that the training that had been conducted included Supply Chain Management, Municipal Financial Management and Local Economic Development. They further reported that they had requested a technical deployee to assist the municipality from the Development Bank of Southern Africa (DBSA) and were awaiting their response.

 

Only the CFO met the requirements in terms of Municipal Regulations on minimum competency level. Council had identified a service provider for capacity building for all relevant personnel in the Finance Department. Through the implementation of the internal bursary, the council hoped to develop the competency of staff in their respective areas of employment. The municipality further reported that a performance management system still had to be developed.

 

3.5.2 Basic Service Delivery

 

The electricity network was in a poor condition and that an amount of R 18 million was needed for its upgrade. Petra Diamonds Finch Mine had made R1.5 million available to do the most critical maintenance during 2012. In addition, Idwala Mine and PPC Mine had made a combined R975 157 available.

 

The water network was older than 30 years and in need of an upgrade. R1.5 million was made available by Petra Diamonds Finch Mine to replace 7 145 metres of pipe. With regard to sanitation, the ervens were connected to a central sewerage system which was in a good condition. A total of 266 ervens were not yet connected to the system and were being serviced by two sewerage removal vehicles. The oxidation pond system had reached its capacity. The roads in Tlhakalatlou and Kuilsville had been paved with funds received from the MIG, PPC and Idwala Mines and the Department of Public Works. The tar roads were not in a good condition and would have to be resealed . The current landfill site was being used for the Danielskuil and Lime Acres communities and was near its capacity. Tenders had been invited in 2011 to develop a new refuse removal system.

 

 

3.5.3 Local Economic Development (LED)

 

The provincial Department of Economical Affairs and Tourism made funds available to develop an LED strategy and this process started in September 2011. A total of 253 SMMEs had received training in various courses through partnership with SEDA, LIBSA and LEDET and 63 SMMEs had participated in the SMME summit.

 

A total of 300 jobs had been created during the implementation of the following projects:

· Paving of Streets (MIG) – 100 jobs

· Paving of Roads (Social and Labour Plan) – 100 jobs

· Roads and sidewalks (EPWP) – 100 jobs

 

 

3.5.4 Financial Viability and Management

 

A Supply Chain Management Policy was in place, and that the Supply Chain Management Unit had been functional until the resignation of the responsible official on 31 December 2011. Similarly, the Internal Audit Unit had been functional until the resignation of the Internal Auditor (an intern), in October 2011. All the bid committees had been established and functioning. Training to capacitate these committees was conducted by National and Provincial Treasuries. The municipality indicated that they had a Budget and Treasury Office. Due to the political instability and uprisings, Kgatelopele could not submit their 2010/11 Annual Financial Statements to the Auditor-General on time, and the audit was still in progress. They received a qualified audit report for the 2009/10 financial year. The municipality indicated that they were able to comply with the section 71 reporting requirements, due to good support received from Provincial Treasury in Upington .

 

The collection rate was at 30 per cent. They indicated that there were outstanding government debts from, among others, the Departments of Health and Public Works. Further, a total of 1 792 persons were on their indigent register, which was reviewed quarterly. With respect to conditional grants, the municipality reported that of the R790 000 allocated under the Municipal Systems Improvement Grant (MSIG), they had only managed to spend R152 766. The municipality reported that they paid creditors within 30 days of statement date in 90 per cent of cases. The 10 per cent not paid within 30 days were due to administrative reasons like late invoicing .

 

 

 

3.5.5 Good Governance and Public Participation

 

The ward committee meetings took place quarterly and it ensured regular communication with communities. They indicated that there was an adopted public communication system policy. Furthermore, council resolutions were tracked and monitored through the Document Management System and manually for effective communication.

 

3.6 Siyancuma Local Municipality

 

3.6.1 Good Governance and Public Participation

 

The municipality reported that general council meetings took place bi-monthly and special council meetings were held when necessary. The portfolio committees included those on Finance, Infrastructure & Commonage, Administration & Human Resources and Housing. The Audit Committee was a shared service. They further reported that interaction with the community took place at local labour forum meetings, ward committee meetings and during Council Meets the People. The Municipal Manager and Chief Financial Officer participated in regional forums and regular management and staff meetings took place.

 

 

3.6.2 Service Delivery

 

Siyancuma Municipality reported several challenges in their delivery of basic services. The challenges included insufficient allocations and ageing infrastructure of which the operation and maintenance were too costly. This resulted in water and electricity losses. They further reported a high indigent population who consumed more than the subsidised amounts. Not all indigents were registered, due to the reluctance of the community.

 

The municipality reported a lack of own funding for capital projects and a low payment ratio, especially in outlying towns and townships. A further challenge reported, was the establishment of infrastructure and the building of houses in two restitution areas. The municipality also reported that there were vacancies due to the fact that they could not fund their entire organogram .

 

 

3.6.3 Local Economic Development (LED)

 

The municipality reported that it did not have a dedicated LED unit, only an LED Officer. They indicated that a strategy was being developed together with the Department of Economic Affairs and the District Municipality . The municipality further reported that it had allocated land in the industrial area for a recycling project and that land had also been earmarked for agriculture activities.

 

 

3.6.4 Financial Viability and Management

 

Siyancuma reported that during 2010 they did not have a Chief Financial Officer (CFO), had been in a bad financial position and had received a disclaimer of audit opinion. They indicated that this situation had been turned around after the appointment of a CFO on 1 January 2011. The municipality was now in a financially strong position. According to the municipality they had received valuable assistance from Provincial Treasury, the Department of Cooperative Governance, Human Settlement and Traditional Affairs and various other provincial departments with the implementation of their turnaround strategy. The municipality reported that a Supply Chain Management (SCM) Unit had been established and all SCM Committees had been appointed. The Internal Audit function was rendered by the shared Internal Audit Unit of Pixley Ka Seme District Municipality. The shared Audit Committee of the District Municipality had been appointed and was active.

 

Siyancuma reported that the outstanding amount from debtors totalled R43.127 million. Almost 50 per cent of outstanding debt for households related to indigents. In addition, 507 outstanding rates accounts, with a rand value of R2.8 million had been handed over to a lawyer for collection. The Credit Control and Debt Collection Policy provided for the writing off of irrecoverable debt. The municipality further indicated that most creditors were being paid within 30 days. However, the municipality owed the Auditor-General R3 million and payments of R150 000 per month were being made. Outstanding debt to trade creditors amounted to R564 798.

 

 

3.7 Siyathemba Local Municipality

 

3.7.1 Service delivery

 

Sanitation, Water, and Electricity are supplied by the Municipality and Eskom . It was mentioned that they are maintaining the existing infrastructure. It was mentioned that they had 2265 indigents plus an additional 160 which uses paraffin, instead of electricity. They receive subsidies for water, sanitation, electricity /paraffin and refuse removal to the amount of R 332 per month.

 

 

3.7.2 Financial Management

 

All tenders and proposals that were advertised are evaluated and adjudicated by these Committee's. The Municipality does not have sufficient personnel to establish a separate Specification Committee.  The municipality mentioned that therefore the compliance with the SCM Policy and Regulations remains a challenge.

 

 

3.7.3 Integrated Development Plan and Local Economic Development

 

It was reported that their IDP and LED were aligned with District and Provincial Growth and Development Strategies. The municipality mentioned that the implementations of economic opportunities are slow as a result of legislative challenges. Mining Companies do not adhere to their permit conditions regarding social responsibility.

 

 

3.7.4 Institutional transformation

 

The municipality reported that the following senior management positions were filled; Municipal Manager, Manager Technical Services, and Chief Financial Officer. The following vacancies still exist, Corporate Service Manager, Accountant, Head Income Clerk, Senior Income Clerk, PA of the Mayor, and four Finance Interns.

 

 

3.7.5 Good Governance

 

The municipality reported that their Audit Committee was not operational throughout the year. This resulted in the committee not being able to fulfill its responsibility. It was mentioned that this was due to the unavailability of all audit committee members in order to form a quorum. No internal audit reports were laid before council due to audit committee meetings not held based on reasons stated above.

 

 

3.8 Phokwane Local Municipality

 

3.8.1 Basic Service Delivery

 

The municipality reported that they had a total number of 11600 active households. It was reported that 5393 households were having access to water, 965 with access to electricity, 8913 with access to sanitation, and 9482 with access to refuse removal. And it was mentioned that some of the areas were serviced by ESKOM and Sedibeng water board. It was further reported that the municipality was having the following projects; Pampierstad sewer connection and pump/housing (1400), Pampierstad housing unit’s development (1450), Masakeng sewer project. Sakhile’s bulk waterline was active but not appropriated through an approved budget by Council. The total amount of the projects combined was R 29 868 196.32 .

 

 

3.8.2 Status of IDP

 

It was reported that the municipality had approved its IDP timeously together with the budget, and reflected long term vision. The municipality mentioned that alignment in terms of planning with sector departments was still a challenge, and response to community needs that are core business of other department remains a challenge, which causes conflict between the municipality and its community. Sector plans such as, Spatial Development Framework, LED, Integrated Waste Management Plan, Environmental Plan, Disaster Management Plan, Integrated Transport Plan, and Financial Plan are in place.

 

 

3.8.3 Institutional challenges

 

It was reported that the finalisation of the job evaluation process that impacted on the employees moral was concluded in 2010. It was also mentioned that their equipments and machinery was old and overstretched, and need replacement to provide effective maintenance.

 

The municipality reported that m any community members were indigent and could not pay for services. They are having housing backlogs, and their challenge was the allocation that does not match their needs. The municipality experiences continuous pipe breaks in areas of Valspan and Pampierstad , maintenance challenges visa via availability of equipments.

 

 

3.8.4 Municipal Financial Viability and Management

 

The municipality reported that their financial administration has been strengthened considerably during the year with the appointment of a new chief financial officer, and a deputy financial officer. Several other changes and new appointments were made in both the Income and Expenditure Sections that has contributed to improved financial administration. A Budget and Treasury Office was also established with the appointment of a budget preparation and budget control officer that will make a big improvement to the preparation of the budget and the monthly control of expenditure.

 

It was reported that with the appointment of additional staff in the financial department the overall financial administration and MFMA compliance improved systematically during the year. The financial statements for the financial year was completed and submitted to the Auditor General on time. The stable financial position of the municipality over the past years continued with a positive monthly cash flow with no overdraft facilities being used. It was mentioned that the municipality had recorded cash receipts of R 142 ,1 million from rates, services charges and government grants and has resulted in net cash from operating activities to the amount of R43,7 million. The cash equivalents of the municipality increased by R 9 ,5 million from R9,8 million from the previous year to R18,9 million this year.

 

 

3.8.5 Income

 

The income of the municipality has increased to R165 ,9 million compared to the R145,0 from the previous financial year and represents an increase of 14.4 per cent. The revenue recorded for the year is R 15,9 million or 11 per cent more than budget despite the fact that the services charges has decreased from R52,0 million to R47,5 million. The revenue from government grants and subsidies has however increased from R 72 ,9 million to R 98,4 million.

 

 

3.8.6 Expenditure

 

The municipality reported that its expenditure has increased from R 98. 8 million the previous year to R 116. 2 million for the current year and represents an increase of 20 per cent, but is 5.5 per cent less than the budget for the year. The bulk purchases represent 35.5 per cent of the total cost and increased by 19.7 per cent mainly due to the increase in Eskom tariffs. The salaries increased by 15.9 per cent whilst the general expenses increased by 25.8 per cent mainly due to increase in audit fees, valuation fees of R1,1million and operation and maintenance contribution to Sedibeng Water. Although there were zero fruitless, wasteful and irregular expenditure an amount of R 8.5 million of unauthorized expenditure occurred that awaits authorization. This is mainly due to line budget items that were exceeded and expenditure that relates to roll over-projects.

 

 

3.9 Emthanjeni Local Municipality

 

3.9.1 Governance

 

The municipality reported that they had fourteen (14) Councillors, comprising of seven (7) Ward and seven (7) PR Councillors; Council meets once a quarter as per the legislation. The following committees were reported as being in place, Executive, Infrastructure and Development, Social Services, MPAC and Rules Committees. It was mentioned that ward committees were established in all seven (7) wards but still needs to be inducted.

 

It was reported that their Integrated Development Plan (IDP) was adopted annually. The Communication and Tourism forums were established and functional. The Audit Committee and Internal Audit functions were rendered by the Pixley Ka Seme District Municipality .

 

 

3.9.2 Issues raised during 2010 engagement with the Committee

 

The municipality reported that on the issue of increasing debtors, it still remains the case and had issued a tender in order to appoint a company to collect on their behalf. On funding constraints, the municipality was still heavily grant dependent (capital). On the matter of the credibility of their IDP, it was reported that there were improvement as sector departments do attend the IDP Representative Forum.

 

It was reported that on asset verification, it was c ompleted prior to 2010/2011 audit; and there were no significant findings during 2010/2011 audit. On the issue of the audit for the 2009/2010 financial year the municipality received a disclaimer and for the 2010/2011financial year a qualified opinion. It was also reported that sector departments were making improvements in terms of paying for services.

 

 

3.9.3 Compliance with the MFMA

 

The municipality reported that the Supply Chain Management (SCM) unit has been established. The SCM Bid committees are established and are functioning properly. It was reported that the Specifications, Evaluation and Adjudication Committees operates separately. It was reported that members of Specifications Committee consists of all committees but the Evaluation and Adjudication committee members are not the same members.

 

 

3.9.4 Budget Performance

 

The municipality reported that they had received R 13.5 million from National Government Grants and from their own internal reserves R 7 million which then amounts to R 20.5 million of funding source of capital expenditure. The municipality reported that they were depending on government grants. It was reported that the expenditure on salaries was at 27.4 per cent of the operating budget. This was excluding Councillors Remuneration. The municipality reported that they had budgeted to collect R 162.3 million and managed to collect R 86.7 million for 2011/12 financial year.

 

 

3.9.5 Service Delivery and Capacity Constraints

 

The municipality reported that they had approved for the 2011/12 financial year a total of about 2475 indigent households. It was mentioned that extensive campaigns will be developed by Council with regard to indigent’s households and Credit Control.

 

It was mentioned that the 2475 successful indigent households will receive the following monthly services of R320, 70

• 6000 liters (6 kl ) water -R 52, 71
• 50 khw (units) Electricity -R 39, 90
• Monthly Sanitation -R127, 71
• Monthly Refuse Account -R 79, 64
• Monthly Rates And Taxes rebate -R 20, 74

 

3.9.6 Challenges

 

The municipality mentioned that they had the following challenges:

• Eradication of buckets in Hanover and Britstown ;
• Resealing of streets;
• To further improve the audit opinion;
• The constant increase in debtors;
• Local Economic Development;
• Unemployment;
• Housing; and
• To improve our income.

 

 

3.10 Mier Local Municipality

 

3.10.1 Municipal Transformation

 

The municipality reported that they characterized 2011 as a year where they had their first ward elections, and their boundaries had been extended. Most of the areas that had been amalgamated to the municipality are farms. The municipality had been demarcated into four wards with estimate of about 1000 voters.

 

 

3.10.2 Institutional Development

 

The Municipality reported that their Employment Equity Plan was submitted to the relevant Department. The following critical posts remain vacant: municipal manager, chief financial officer, manager: infrastructure services , and manager: corporate services. No Performance System is in place. The training for staff members was funding through the FMG grant and the DBSA conducts training programmes .

 

 

3.10.3 Service Delivery

 

It was reported that Bulk Electricity services are provided by ESKOM, from Namibia ( Nampower ) to all the towns within the municipality, except for Noenieput , Swartkopdam , Andriesvale and other small informal settlements. More that 75 per cent of households had access to electricity.

 

The m unicipality reported that they only use underground water. Rainfall and drought influence the underground water levels and its quality. Water is pumped from boreholes to reservoirs or pressure towers and from there it’s distributed to the towns. Residents are mostly serviced with metered water on site. The municipal area, as part of the larger Kalahari semi-desert, could be classified as a water-poor area.

 

 

3.10.4 Local Economic Development

 

The municipality reported that they were busy with the project of the speed track which was 20 km long and 1.5 km wide. It was mentioned that the Department of Public Works and Tourism was responsible for funding of the project, and it has created 315 jobs. The plan is to finish the project before the 2013 and during that time the bloodhound team want to break the land speed record of 1 600 km/H.

 

3.10.5 Budget Performance for 2010/11 financial year

 

The municipality reported that they were only able to generate 27.84 per cent of the total operating income, and were 72.16 per cent dependent on government grants. It was mentioned that total debtors decreased with 65.63 per cent (R 4.6 million) notwithstanding the fact that the provision for doubtful debt have increased with R 1 630 033 (R1.6 million) plus R 6 016 985(R6.0 million) (Under provision prior year) to R 12 003 495 resulting in a actual increase or non-payment of R 7 433 894 which represent 66 per cent of actual billed income .

 

 

3.10.6 Compliance with the MFMA

 

It was reported that the Supply Chain Management Policy was adopted by Council and the Committees were establish. The municipality does not have a Budget and Treasury Office due to the lack of capacity. It was reported that annual financial statements ( AFS) were submitted on 30 November 2011 to the AG and other relevant departments. Section 71 reports are provided to the Provincial Treasury and the Mayor monthly. The municipality had appointed an Internal Auditor and Audit Committee, and the unit is functioning well. It was reported that the Council had adopted the annual report on 23 January 2012 and notices were sent to local newspapers inviting the community to inspect the document and make comments.

 

 

3.10.7 Good Governance and Public Participation

 

The municipality reported that they had no policies. By-laws were in place to improve good governance. The participation process in all the local communities is been done by the councillors and the ward committee members. Ward committees were established in July 2011 and received training in September 2011 . The training for the new councillors was in June 2011. The HIV/AIDS policy was compiled and approved in 2005, but needs to be reviewed. It was mentioned that Council meetings rotate between the different towns to ensure good governance and community access to council meetings and councillors.

 

 

3.11 Siyanda District Municipality

 

3.11.1 Municipal Transformation

 

The municipality reported that their organizational structure have been reviewed and aligned to the proposed business (post 2011 demarcation). Personnel of Roads and District Management Areas have been transferred to the Department of Roads, Public Works, Kai ! Garib and Mier Local Municipality as from (01/07/11) and the Municipal Manager has been appointed. All Section 56 Managers had been appointed, except for the Director Technical Service post. The Assistant Director act as a Director since Dec 2011 , and p erformance agreements are in place.

 

 

3.11.2 Institutional Development

 

It was reported that the Employment Equity Plan of the Siyanda District was submitted to the Department of Labour before 16 January 2012. All Employment Equity Plans of the municipalities that fall under the District were also submitted on time. It was reported that the performance management system was operational in Siyanda District, and would be implemented in Kheis , Mier and Kgatelopele Municipalities (in third quarter of 2012). The District Municipality and 5 Local municipalities also submitted their Workplace Skills Plans (WSP) on time, with the exception of Kgatelopele . The Human Resource Forum and Local Labour Forum in the District are fully functional . IT and Archive audits were conducted and the recovery plan will be developed . A Municipal Public Account Committee ( MPAC) was established on the 6 Dec 2011.

 

 

3.11.3 Municipal Financial Viability and Management

 

The District reported that for the 2010/11 financial year they had managed to collect R1.775 million of the budgeted R1.997 million which represents 89 per cent. The municipality reported that their cash flow position as on 16 January 2012 was at R18.869 million. It was reported that the outstanding debtors at the end of 30 December 2011 was at R119 408.52.

 

It was reported that the District serviced the District Management Areas up until 30 June 2011. After that they were transferred to the applicable category B municipalities on 01 July 2011.

 

 

3.11.4 Basic Service delivery

 

The Municipality has been delivering services to the communities which were previously considered as DMA. Since 1 July 2011 the areas were re-demarcated to the Local Municipalities nearby.

 

 

3.11.5 Local Economic Development

 

The District Municipality informed the Committee that they were situated in the heart of the Northern Cape . On District level an Integrated Economic Development plan was developed, identifying specific LED Projects. The District has a fully functional LED forum headed by the District Municipality . The Forum has sub-committees, such as Social labour plan which enhances Local Economic Development. It was mentioned that the forum consists of various stakeholders taking hand in realizing the economic goals of the district, and are in a process of reviewing the District LED Strategy.

 

The District reported that the following projects were their priority for the 2011/12 financial year:

— Riemvasmaak Arts and Craft;

— Kalksloot Raral development cooperative;

— Tupeny Artist;

— Masakhane Arts and Craft Cooperative; and

— Ubuntu poultry Farming.

 

The District reported that they were currently assisting Mier and Tsantsabane Local Municipalities with their LED Strategies.

 

 

 

 

 

3.11.6 Good Governance and Public Participation

 

The Committee was informed by the District that ward committees were established in all its municipalities with the exception of Kgatelopele , that was due to the political unrests within the municipality but a program was in place. The District reported that during the months of September to December 2011 they had conducted induction for ward committees.

 

 

3.12 Richtersveld Local Municipality

 

3.12.1 Basic Service Delivery and Infrastructure

 

The municipality reported that they had recorded progress in the provision of service delivery although some challenges remain. It was mentioned that the total number of households was 5935, sanitation backlogs being at 0 (rebate). It was mentioned that all of their households were having access to water and sanitation.

 

 

3.12.2 Local Economic Development

 

It was reported that mining has been the dominant industry within the municipality. Many of the poorer communities have been dependant on a family member gaining income from this industry, and were not sustainable in the long term. The region is already experiencing the affects of downscaled mining production. This has increased the number of unemployed people returning to the rural towns. A limited number of work opportunities exist within the area .. The mines have controlled most of the land where there are opportunities for industries such as irrigation, agriculture and Mari culture. Tourism is seen as a possible job creator but almost all the successful tourism initiatives are controlled from outside of the region, including Springbok and Cape Town . Thus strategies for future livelihood options are based on communities gaining access to the land and resources with high agriculture, Mari culture and tourism potential.

 

Over the past six years Port Nolloth has become a very popular tourist destination for all the people of Namaqua . The infrastructures to accommodate the influx of people over the festive season on the beaches are insufficient. More needs to be done on the infrastructure of the beaches.

 

 

3.12.3 Municipal Transformation and Institutional Development

 

In 2011, the municipality, with the help of the Provincial Treasury in Kimberley managed to develop a risk management implementation plan. A risk assessment was done in the municipality, and an action plan was develop and a Risk Management Policy was accepted by Council. The municipality intend to have a Supply Chain workshop during February 2012 for all officials involved in SCM. The new Council attended a workshop on credit control, being assisted by COGHSTA. The municipality are still in a process to review its credit control and indigent policy.

 

The municipality mentioned that they had not filled the critical posts of Municipal Manager and CFO yet. However the posts were advertised and it closed on 30 December 2011. The municipality has adopted a Performance Management System (PMS) although it is not entirely functional yet. The senior management team are not yet employed on performance-based contracts. An individual PMS has not been developed for all staff. The municipality and its service provider are currently working on completion of the system.

 

 

3.12.4 Municipal Financial Viability

 

The municipality reported that they have budgeted for a total expenditure of R 52 126 and R 46 296 total revenue for the 2011/12 financial year, which result into a deficit of R5 830, on the budgeted operating statement. Capital budget on grants amounts to R7 113 which brings the accounting deficit to R1 283. Nevertheless the budget result in a surplus of R 97 000.00 considering reserves and cash backing.

 

It was reported that an amount of R 9.513 million have been budged for capital expenditure consisting out of funding from the M.I.G, long term borrowing and the Cash Reserve Ratio ( CRR). The Budget from the CRR includes the acquisition of three bakkies , upgrading on the caravan park and the purchasing of new pumps. The loan is attained to purchase a refuse truck. Council intend to write of bad debts in the current financial year. Provision for bad debts was made in the budget.

 

Taking the cash flow into consideration the municipality is very much grant dependable in term of payments that must be made to creditors. The municipality strive towards keeping within the 30 days to pay all creditors as required by section 65(2) (e) of the MFMA. The municipality have received a financially unqualified audit report with emphasis of matters, taking into account that the auditor-general eliminated the provision of Directive 4 during the 2010/11 audit. Richtersveld municipality has now consistently received financially unqualified audits for three consecutive years (2008/09; 2009/10 and 2010/11).

 

 

3.12.5 Budget Performance

 

It was reported that according to the revise budget, the projected expenditure at year end will be R54.056million and the revenue will be R55.256 million. This projected figures result in an accounting surplus of R1.2million. Capital expenditure on the revise budget will increase with R15 451. 00.

 

It was mentioned that a short term cash flow projection was done on a daily basis, which was of the utmost importance. The payments are scheduled according to its different payment dates, which give the municipality time to save- up for the payment of critical creditors like electricity and water as well as payroll creditors. The Council has different accounts which are Cash back, Finance External fund, Leave gratuity fund, Housing Reserve fund, Annual Bonus fund and the CRR. It was reported that the Council manage these funds with the contributions from land sales as well as VAT claimed operating expenditure.

 

The council does not have a bad debt write off policy yet. However the municipality identified consumer accounts that need to be written off and are now in a process of writing of these bad debts, as by council decision, which amounts to R3.392 million. Due to a cash flow problem, the municipality is not able to pay within 30 days.

 

 

 

 

 

3.13 Kamiesberg Local Municipality

 

3.13.1 Municipal Transformation and Institutional Development

 

The Kamiesberg Local Municipality reported that the position of the municipal manager remain a challenge. It was reported that they had submitted a letter in terms of section 54 (a) of the Systems Act (amended) to the MEC for Local Government to apply for the extension of three months to find a suitable candidate. But in the meantime, are awaiting secondment. The delay is due financial constraints. The position of the c hief financial officer is resolved as it would be filled soon. Interviews were conducted on 25 January 2012 and a report would be tabled at next Council meeting for approval.

 

The municipality reported that they were having more than 50 per cent of vacant positions in their Finance Department at the Head Office in Garies , and three of the finance interns’ contracts will be expiring by 31 March 2012. The expenditure department consists of only one (1) permanent staff member and three (3) interns. The revenue sections consist of three permanent staff members and two Interns. The municipality reported that they had developed a plan of action to address the above challenges: which would be to a dopt the proposed organisational structure recommended by Provincial Treasury to set up a proper Budget and Treasury office.

 

 

3.13.2 Local Economic Development

 

The municipality reported that their Local Economic Development Strategy was finalised and would be adopted by Council during February 2012. It was mentioned that they were investigating revival of the granite factory (feasibility study and business plan completed), and revival of a water bottling facility (business plan completed), and a guest farm in Roodebergskloof .

 

 

3.13.3 Financial Viability and Management

 

The municipality reported that due to the cash-flow problem, a portion of the MIG allocation was used to pay for operational expenses, including salaries that amounted to R9.955 million. It was reported that an amount of R493 900 of the MSIG allocation were used to pay for operational expenses. An application for a roll-over of R4.2 million was forwarded on 22 September 2011 to COGHSTA, but was not approved yet. Due to high volumes of indigent households, revenue collection still remains a challenge and collection rate is currently between 20 to 45 per cent.

 

The municipality reported that they had started to implement the credit control and debt collection policy on a monthly basis since December 2011. But due to their cash flow problems, it is difficult to control expenditure in line with the budget. It was reported that only urgent payments are made depending on the cash flow. This results in under spending of the budget. It was mentioned that at 25 January 2012 the balance on their current account was R328 864.92. The municipality had three (3) fixed deposit accounts at First National Bank which amounts to R95 000 and serves as security for Eskom payments. An amount of R3.620 million was owed to the Auditor General. The municipality mentioned that they did not have an indigent register, and information sessions are held on a regular basis with community .

 

 

 

3.13.4 Good Governance

 

The municipality reported that communication forums which include all stakeholders is established within the Kamiesberg area. The forum meets on a regular basis. And communication strategy is developed for Kamiesberg , assisted by the Government Communication and Information System. The municipality adopted a fraud prevention plan.

 

 

3.13.5 Basic Service Delivery

 

The municipality reported that, the following households were having access to basic services: 3136 (water, electricity, and refuse), 957 [sanitation (VIP)], 715 [sanitation (UDS)], 226 drains, 683 flush. It was reported that the total number of Indigent households was 1485 being provided with water, electricity and sanitation . It was reported that they were having the following backlogs: 337 housing, 86 water connections, 93 sanitation upgrading, and 54 for electricity prepaid meters.

 

 

4. Stakeholder comments

 

4.1 National Treasury

 

National Treasury (NT) reported that, of the 14 municipalities identified by the Committee they were providing direct technical support to the following; Renosterberg , Siyancuma , Siyathemba , Thembelihle , and Kamiesberg .

 

4.1.1 Renosterberg Local Municipality

 

NT reported that they had provided the municipality with the services of Mr. Gert Swanepoel on a full time basis since mid December 2011, and the support plan was adopted by the 30 September 2011. He would be dealing with the following institutional issues; steering committee, appointment of senior management, budget and treasury office (BTO) organogram , staff training, and internal audit, and the following technical issues, 2011/12 draft budget, cash management and investment policy, cash-flow monitoring, section 71 reporting, asset management, debtors, and creditors.

 

4.1.2 Siyancuma Local Municipality

 

NT reported that a new advisor will commence in February 2012, and the support plan is subject to review by the new advisor. He would be dealing with the following institutional issues, focus on facilitating urgent senior management appointment to fully capacitate the BTO, and steering committee. And to focus on the budget, annual financial statements, and the audit initial stages.

 

4.1.3 Siyathemba Local Municipality

 

NT reported that support had been concluded in January 2012 (Mr. Neville Nel had supported the municipality). A support plan had been adopted by 30 September 2011. Institutional issues, like the steering committee is fully operational, municipal manager and chief financial officer are appointed, capacity initiatives undertaken and ongoing, some additional appointments are required in the BTO, organogram to be reviewed, and intern development.

 

4.1.4 Thembelihle Local Municipality

 

NT reported that a new advisor will commence in February 2012, and the support plan is subject to review by the new advisor. The advisor would be dealing with the following, institutional issues, focus on facilitating urgent senior management appointment to fully capacitate BTO, and steering committee. And the following technical issues, to focus on budget, annual financial statements, and audit initial stages.

 

4.1.5 Kamiesberg Local Municipality

 

NT reported that a new advisor Mr. Nel commenced in January 2012, and the support plan is being developed. He would be dealing with the following institutional issues, focus on facilitating urgent senior management appointment to fully capacitate the BTO, and steering committee, and to focus on the budget, annual financial statements, and audit initial stages.

 

 

4.2 Provincial Treasury

 

Provincial Treasury informed the Committee that they had obtained an approval for an amount of R24 million from the Provincial Revenue Fund for the purpose of providing financial assistance to municipalities. The amount will assist medium capacity municipalities that were qualified on the incorrect application of GRAP 17. The budget will be shared between Provincial Treasury and Cooperative Governance Human Settlements and Traditional Affairs. Reputable service providers would be appointed to assist ailing municipalities.

 

It was reported that all district municipalities will be excluded from the support intervention. Support will be provided to all low capacity municipalities towards the compilation of GRAP compliant asset registers. This must augment existing municipal plans (if any) to obtain the desired results. Municipalities that struggled to complete the 2010/11 financial statements due to technical know-how and capacity constraints will be prioritized and assisted for a period of two years. ( i.e . 2010/11 and 2011/12) . Municipalities that need urgent intervention will be identified and assisted. The department cautioned those municipalities that are using the services of consultants whereas they do have chief financial officers to do the job. It proposed that, a solution might be to have a revolving chief financial officer for those municipalities that are close to each other.

 

 

4.3 Provincial Department of Cooperative Governance, Human Settlements and Traditional Affairs ( COGHSTA)

 

The department reported that they had a 30 per cent vacancy rate, and are struggling to employ staff because of shortage of funds. It was reported that the department would request assistance from the Provincial Treasury in order to be able to fund those posts.

 

The department reported that they were providing hands-on technical capacity to municipalities. Out of the thirty two municipalities (32) in the province twenty three (23) attended GAPSKILL and report writing training in Pretoria . Out of the 14 municipalities that the Select Committee on Finance had identified, all of them attended, except Renosterberg , Siyathemba , Richtersveld , Kamiesberg and Karoo Hoogland . In their cases, the surrounding municipalities, as well as the respective District Municipalities were requested to give them hands-on-training .

 

The department mentioned that at the end of October 2011, municipalities reported expenditure of 15.6 per cent of the MIG allocation . 11 of the 14 municipalities reported expenditure of 60 per cent or less expenditure . This resulted in the withholding of the scheduled November transfers . Phokwane and Mier municipalities manage to spend 60 per cent or more . Siyanda District Municipality did not receive a MIG allocation due to DMA areas demarcated to local municipalities . Funding was released in December 2011 for municipalities that were able to report expenditure of 60 per cent or more at the end of November 2011.

 

The department mentioned that they planned the interventions to assist municipalities in GRAP training during the period of January to March 2012. It was reported that municipalities will be monitored if they establish the Municipal Public Accounts Committee (MPAC) in line with the approved guideline.

 

 

4.4 South African Local Government Association (SALGA)

 

SALGA reported that they had conducted oversight training which was a imed at building capacity and to strengthen the oversight role of councilors. A total of 110 delegates from the 32 municipalities attended the workshop (councillors) in October 2011.

 

It was reported that the District Area Finance Forum (DAFF) had been established by SALGA since 2005. The primary purpose of the DAFF is to promote shared learning and identification of challenges between municipalities CFO’s at a district level. Focus is on compliance with all relevant Municipal Finance Legislation, improving the audit profiles of municipalities and ensuring financial sustainability of municipalities. It was further mentioned that they had adopted three municipalities to receive hands-on support, namely: Magareng , Renosterberg , and Kgatelopele Local Municipalities .

 

SALGA reported that there was no support from National Treasury to train finance interns and thus recommends that Treasury should review finance interns programme in consultation with municipalities.

 

 

4.5 National Department of Cooperative Governance

 

The department reported that they had established support units in all provinces during its restructuring process. The unit in the Northern Cape is based in Kimberley and only became fully operational in November 2011. The purpose of the establishment of this unit is to strengthen and improve the capacity of the provincial department on local government so as to give hands on support to municipalities. The unit, SALGA and the provincial department must identify the needed expertise, human resources and challenges by municipalities and to provide appropriate support as required by law.

 

It was mentioned that the challenge of municipalities in the province was that of not appointing suitably qualified personnel and that affected good administration and governance. There was also a high vacancy rate of critical senior positions in municipalities and a high number of disciplinary cases that are unresolved over a long period at the financial burden of municipalities. The department introduced the Municipal Systems Amendment Bill to parliament that was subsequently passed by parliament and ascended by the President as law. The department further conducted workshops on the Municipal Systems Amendment Act (MSAA) and also published regulations on disciplinary procedures for senior managers in municipalities for public comment. SALGA focused on the issues of disciplinary code for section 57 managers.

 

 

4.6 National Department of Energy

 

The department reported that they foresee capacity challenges in terms of Kgatelopele and Richtersveld Local Municipalities in completing their projects. The department mentioned that all the projects for Kamiesberg Local Municipality have been reported as being completed. It was reported that they had assisted Karoo Hoogland with an amount of R2.5 million and had received an application for an amount of R4 million to complete phase two of their project. The department mentioned that they did not allocate any funds for Dikgatlong during 201/11 financial year due to the municipality not able to spend but had allocated R2 million for 2012/13 financial year.

 

It was reported that they had assisted Siyancuma Local Municipality with an amount of R2.9 million for the current financial year and had requested the municipality to return the funds back. The municipality was requested to submit business plan for their ageing infrastructure but to date they have not done so. And it was reported that they were working with Siyanda District Municipality on the issue of the Solar system that was brought by the department of Agriculture.

 

 

4.7 Eskom

 

ESKOM reported that they were working on developing a programme to assist all those municipalities that were experiencing challenges in terms of their billing systems.

 

 

4.8 Development Bank of Southern Africa (DBSA)

 

The Development Bank of Southern Africa (DBSA) reported that they had conducted a full investigation on the issue of Kgatelopele Local Municipality ’s loan and discovered that they could afford to pay. An agreement was signed during December 2010 but could revisit it if the municipality experiences challenges. It was also reported that they had done very little in terms of assisting Siyancuma Local Municipality and are working towards addressing the matter by planning together with them for future purposes.

 

 

4.9 Department of Water Affairs

 

The department reported that they had assisted municipalities with their Water Services Development Plan ( WSDP ), with Module 1-3; Integrated Development Plan (IDP) input report; and annual Business Plan. They had assisted them with Blue and Green Drop certification programmes. It was reported that they were proud of Kgatelopele Local Municipality as they are doing well in the Blue Drop status in terms of receiving good results over the past two years. It was mentioned that for the 2013/14 financial year they had allocated an amount of R20 million to Dikgatlong Local Municipality for water supply.

 

The department reported that they are assisting municipalities in terms of funding them through the following: Accelerated Community Infrastructure Programme (ACIP), Regional Bulk Infrastructure Grant (RBIG), Masibambane (European Union donor funding), Repairs and Maintenance Support (RAMS), Operation and Maintenance (O & M) and Masibambane (DWA Funding).

 

 

4.9.1 Table below shows the funding provided by the department to municipalities

 

No.	Municipality	Masibambane (EU donor funding)	RAMS	Masibambane (DWA Funding)	ACIP	RBIG
1.	Karoo Hoogland	R350 000	R20 000	0	0	0
2.	Renosterberg	R350 000	R40 000	R977 000	R7.95m for 11/12 – 12/13	R33.2m for 2011
3.	Sol Plaatje	0	0	R488 200	0	0
4.	Dikgatlong	R370 000 for 10/11	R30 000	0	0	R14m for 13/14 and R6m for 14/15
5.	Kgatelopele	R328 000 for 10/11	R54 000	R285 200	0	0
6.	Siyancuma	R355 000 for 10/11	0	0	0	0
7.	Siyathemba	R570 000 for 10/11	0	R293 200	R2.94m for 11/12	R2.255m for 11/12
8.	Phokwane	R350 000	0	0	0	0
9.	Emthanjeni	R465 000 for 10/11 and R140 800 for 11/12	0	R293 000	0	R15m for 12/13 and R24m for 13/14
10.	Thembelihle	R300 000 for 10/11	0	R293 000	0	R6.2m for 11/12, R20m for 12/13 and R5m for 13/14
11.	Mier	R420 000	R60 000	R293 000	0	0
12.	Richtersveld	R340 000	R293 000	0	0	R8m for 12/13 and R17m for 13/14
13.	Kamiesberg	0	R50 000	0	0	R0.5m for 11/12, R5m for 14/15 and R28m for 15/16

 

 

 

5. Observations and Findings

 

Having considered the above issues, the following findings/observations were made:

 

5.1 The Committee noted that the following municipalities; Kamiesberg , Phokwane , Renosterberg , and Kgatelopele have not addressed AG’s findings of the previous financial year hence their audit outcomes remain unchanged and the majority of those municipalities received a disclaimer; referring to supply chain management, service delivery, human resources management; and accuracy of financial reports

 

5.2 The Committee noted that the support from provincial COGTA to municipalities do not have significant impact in improving financial management and governance and late submission of Annual Financial Statements is a major challenge in most municipalities;

 

5.3 The Committee noted that small municipalities don’t have other sources of revenue hence they still rely on grants like Mier , Renosterberg and Kamiesberg Local Municipalities as a result of its per capita income;

 

5.4 The Committee noted that financial reporting of municipalities is not consistent with section 71 of the MFMA. Eight municipalities did not report on their cash positions;

 

5.5 The Committee noted that the use of consultants in preparing annual financial statement is a point of concern from the AG;

 

5.6 The Committee noted that critical positions in some municipalities are occupied by people without the relevant qualification, which result in a skills transfer problem even if there are interventions in the municipality

 

5.7 The Committee noted some municipalities have outstanding debt on its audit fees with the Auditor General. The majority of municipalities have cash flow challenges which need urgent attention;

 

5.8 On revenue collection municipalities are not consistent with their billing system;

 

5.9 The Committee noted that in some municipalities the internal audit and audit committees are not fully functional;

 

5.10 In majority of municipalities, accounting officers did not take reasonable steps to prevent irregular and unauthorised expenditure, and follow the prescriptions of section 54 of the MFMA;

 

5.11 Ageing infrastructure is a challenge for almost all municipalities, and lack of proper budgeting;

 

5.12 Non-compliance with supply chain management regulations has attributed to the reported irregular expenditure;

 

5.13 The non-attendance of some accounting officers and mayors at the meetings was of grave concern to the Committee, in terms of the discipline and commitment within municipalities;

 

5.14 The Committee noted that some government departments owe municipalities and this has contributed to cash flow challenges in those municipalities;

 

5.15 The Committee noted with concern that the Provincial Treasury has not made enough efforts to assist the struggling municipalities in terms of training and skills transfer in the province; and

 

5.16 The Committee was concerned about the deployment strategy of the Development Bank of Southern Africa as they only deploy people in municipalities that have loans with the Bank.

 

 

6. Recommendations

 

In light of the findings and conclusions above, the Select Committee on Finance recommends the following:

 

6.1 That the Provincial Treasury should strengthen its support programme to assist the struggling municipalities to capacitate them in their finance management unit;

 

6.2 That the Northern Cape Provincial Government should consider placing Renosterberg Local Municipality under section 139 (b) of the Constitution intervention. When doing so, the National Treasury, Provincial Treasury and Cooperative Governance, Human Settlements, and Traditional Affairs should intervene and assist Renosterberg Local Municipality in terms of funding;

 

6.3 That the Siyanda District Municipality should review the contract of contractors that build houses and ensure that all houses built conforms with national norms and standard;

 

6.4 That the Siyathemba Local Municipality should urgently establish its Audit Committee and Supply Chain Management Committee. Furthermore, the Select Committee on Finance recommends the following:

 

• That the Council of Siyathemba Local Municipality should review the contract of their Chief Financial Officer and the Municipal Manager and evaluate whether the Municipal Manager is still fit for the office;

 

• That the Council of Siyathemba Local Municipality should evaluate the performance of their senior officials on a quarterly basis as services are not fully rendered to their communities as required; and

 

• That the Siyathemba Local Municipality should consult the Development Bank of Southern Africa in terms of technical staff assistance and also develop a turnaround strategy for the Municipality;

 

6.6 That the Provincial Treasury and the Department of Provincial Cooperative Governance and Traditional Affairs should assist the Emthanjeni , Mier , and Kamiesberg Local Municipalities in order for them to be able improve and accelerate in service delivery;

 

6.7 That the Development Bank of Southern Africa should consider deploying their skilled personnel to all municipalities with serious challenges in financial management and not only to certain areas;

 

6.8 That small municipalities that advertise to fill senior positions, should not benchmark themselves with the well capacitated municipalities when it comes to the offering salary packages;

 

6.9 That the human resource units of municipalities should appoint qualified people with relevant experience and qualifications to ensure quality service delivery;

 

6.10 That the provincial departments of Cooperative Governance, Human Settlements and Traditional Affairs, Provincial Treasury and South African Local Government Association should coordinate and establish a task team that will include all sector departments and assist the municipalities to deal with all challenges identified by the Committee;

 

6.11 That all the municipalities that had unauthorised, irregular, and fruitless and wasteful expenditure should provide the Select Committee on Finance, through the House, with a detailed report on their action plan in dealing with these matters and all the findings by the Auditor General. The progress report would be monitored by the Committee after three months on the adoption of the report by the House; and

 

6.12 That the MEC for Cooperative Governance, Human Settlements and Traditional Affairs (COGHSTA) should design a strategy of monitoring these municipalities and ensure that turnaround strategies are in place and being implemented.

 

 

Report to be considered.