ATC121120: Report of the Select Committee on Co-Operative Governance and Traditional Affairs on Consideration of the Termination Of Intervention in Okhahlamba Local Municipality and Extension of Intervention in Indaka Local Municipality – dated 20 November 2012
Cooperative Governance and Traditional Affairs
REPORT OF THE SELECT COMMITTEE
ON CO-OPERATIVE GOVERNANCE AND TRADITIONAL AFFAIRS ON CONSIDERATION OF THE TERMINATION
OF INTERVENTION IN OKHAHLAMBA LOCAL MUNICIPALITY AND EXTENSION OF INTERVENTION
IN INDAKA LOCAL MUNICIPALITY DATED 20 NOVEMBER 2012
The Select Committee on Co-operative Governance and
Traditional Affairs, having considered the directives of the National Council
of Provinces (NCOP), to consider and report on the notices of termination of
intervention in
1.
Introduction and Background
1.1
On 24
November 2009, the Provincial Executive Council of KwaZulu-Natal Province
resolved to intervene at
Okhahlamba
and
1.2
On
18 July 2012, the Executive Council resolved to terminate the intervention at
2.
Reasons for Intervention in
2.1
The
main issues identified by the Provincial Executive to intervene in the affairs
of
·
The Municipality
did not have a functional management team which contributed to the Municipalitys
dysfunctional state.
·
The Auditor-Generals reports for the 2004/5, 2005/6,
2006/7 and the 2007/8 financial years, indicated that there were serious
deficiencies in the management systems and other accounting and financial
controls, and the Auditor-General issued disclaimed audit opinions in respect
of two financial years, and an adverse opinion in respect of the last year.
·
The annual
report for the 2007/8 financial year did not comply with section 121 of the Municipal
Finance Management Act (MFMA), as no performance report evaluating the
performance of the Municipality or Section 57 employees was attached.
·
The
Council did not table or submit an oversight report as required in terms of
section 129 of the MFMA. The Council did not have an established internal audit
unit and audit committee as required in terms of sections 165 and 166 of the
MFMA.
·
The Municipality
experienced serious financial problems, and this is evident from the poor cash
flow, and posted a deficit of R17 963 025.00 (un-audited) in the 2008/9
financial year. The accumulated deficit as at June 2009, totaling
R24 517 042.00. The grant funding allocated for Housing was utilized
irregularly to finance the operations of the Municipality. Unspent conditional
grants to the sum of R20 196 551.00 were not cashed backed.
·
As
reflected in the 2008/9 annual financial statements, general expenses increased
from R11 306 725.00 in the 2006/7 financial year, to
R57 294 633.00 in the 2008/9 financial year, resulting in a
percentage increase of 407%. The Municipality failed to make payments to its
creditors as and when it was due.
3.
Progress
of Intervention in
3.1
In terms of
progress achieved to date on the enhancement of revenue collection, the
verification
and assessment of the existing valuation roll and the compilation of the
supplementary valuation roll for 2011/12 was done and completed in April 2011,
with very few objections received, and were all subsequently resolved. For
continuous maintenance of the valuation roll, a service provider has been
retained by the Municipality and an advert for a service provider to assist
with the new process was already out, for the 2013/14 financial year
assessments.
3.2
The debt
book of over R18 million in the financial year 2010/11 was drastically reduced
to the extent of at least 50%. Equally, the collection rate had increased from
the 36% collection rate recorded during the financial 2010/ 2011 to 61
,44
% accumulatively, as at 30 April 2012 against the annual
target of 75%. The strict expenditure management measures resulted in the
Municipality having a total R81 million in cash reserves, including all
cash-backed conditional grants totaling just over R40 million. This simply
means that the Municipality was now able to accurately report on a monthly
basis on revenue, expenditure, cash flow, debt recovery and creditors.
3.3
All
Council statutory, administrative and functional structures have been
established and are all operational. Therein included are a fully functional
audit committee and internal audit unit as well as IDP, Budgeting and PMS procedures.
Whilst the Municipality took a resolution binding itself to the achievement of
Clean Audit by 2013/14, it is highly likely that all queries raised by the Auditor-General
during the last financial year may be resolved by this financial year, which
may result in the Municipality obtaining a clean audit in 2011/2012.
3.4
The
Municipality has compiled an Infrastructure Maintenance Plan which is being
implemented since June 2012, where all plant and equipment is sent to each ward
for a period of 10 days to ensure that all existing infrastructure is
maintained. The Municipality has also experienced difficulty in spending grants
related to MIG-funded and Small-Town Development-funded projects between
October 2011 and March 2012, with the assistance from
Cogta
where a dedicated project manager was sourced. All of these projects were now
moving, and were fairly within the acceptable expenditure levels. Furthermore,
the electrification project funding which was nearly lost due to
non-expenditure and reporting, has now been re-secured with the Implementing
Agent already appointed.
3.5
It was reported that all
senior positions are filled, with the exception of a Director for Corporate
Services, and based on the investigations by the PWC, irregular payments have
been identified and criminal cases have been instituted. The main reason for
the extension of the intervention on 13 December 2011 was the fact that the Municipality
lacked a senior management team to sustain the progress and to implement any
outstanding intervention priorities and sustain progress made. However, based
on the fact that the senior positions were filled and that there was
considerable progress in respect of the intervention priorities, the
intervention was terminated on 13 December 2011.
4.
Reasons for Intervention
at
4.1
In the year ended in June 2011, the
Municipality incurred unauthorised expenditure of R4.644 million and irregular
expenditure of R22.5 million; totalling R27.2 million. Furthermore, in January
2012, the Mid-Year Review established a number of irregular, unauthorised and
fruitless and wasteful expenditure which were reported to the Council, as part
of the Mid-Year Review report. The copy of the report was forwarded to the
Department as part of the monthly reporting. The Administrator advised the then
Acting Municipal Manager (Mr.
Maphanga
) to report the
said expenditures in terms of sections 62 and 32(4) of the MFMA, to the MEC
responsible for Local Government in the Province and the Office of the Auditor-General.
The Administrator reported that such irregular expenditures were not reported
to the MEC and the Auditor-General.
4.2
There
have been various irregular financial activities resulting in an increase in
unauthorized, irregular, fruitless and wasteful expenditure, which continued
under the stewardship of the Administrator, without his knowledge. This
reflected defiance by the administrative and political leadership of the Municipality
and undermined good governance. In addition, the administrative leadership of
the Municipality is still unstable with key senior positions of the CFO and
Director for Technical Services remaining vacant. The Mayor and Council are
still unable to exercise effective political oversight and strong leadership to
promote financial prudence and good governance. Consequently, the intervention
was extended at the
5.
Progress of Intervention
in
5.1
The status
on financial management was fair
.
The
secondment
of the Financial Expert from the
Department of
Cogta
has had a major positive effect
on the implementation of the Recovery Plan on financial management. The Expert
together with the Administrator was in the process of reconstructing the
financial records of
Indaka
, going as far back as
2009/10 on certain transactions to date. In addition, various financial
irregularities had been reported and the intention of the Administrator was to
issue civil summons to recover all the irregular and fruitless expenditure from
the former Municipal Manager and affected Councillors.
5.2
The
majority of priorities in respect of governance as identified in the recovery
plan have been met. The Internal Auditor was effective, but was stifled by the
managements failure to either respond to the audit findings or failure to
implement the recommendations. It appears that there is poor leadership in this
Municipality, although all the necessary policy frameworks were in place. However,
the problem was a lack of implementation. According to the Administrators
assessment, the Councils oversight and performance management and reporting,
remain a concern and much work is yet to be done, despite efforts being made by
the Administrator in this regard.
6.
Committee Observations
6.1
The
secondment
of the Financial Expert from the Department of
Cogta
has had a major positive effect on the implementation
of the Recovery Plan on financial management at
6.2
Various
financial irregularities had been reported in
Indaka
,
and the Committee welcomes the intention of the Administrator to issue civil
summons to recover all the irregular and fruitless expenditure from the former
Municipal Manager and affected Councillors.
6.3
In
addition to the consideration of the extension of intervention in
6.4
The Committee is of the opinion that,
for the termination of intervention in
7.
Committee
Recommendations
7.1
The Select Committee on Co-operative Governance and
Traditional Affairs recommends as follows
:
7.1.1 The National Council of
Provinces approves the termination of intervention in
7.1.2 The National Council of
Provinces approves the extension of intervention in terms of section 139(1
)(
b) of the Constitution at
Report to be considered.
Documents
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