ATC121203: Report of the Select Committee on Co-Operative Governance and Traditional Affairs on Consideration of the Termination Of Intervention in Okhahlamba Local Municipality– dated 20 November 2012

Cooperative Governance and Traditional Affairs

THE FOLLOWING REPORT REPLACES THE REPORT OF THE SELECT COMMITTEE ON CO-OPERATIVE COVERNANCE AND TRADITIONAL AFFAIRS PUBLISHED IN ATC NO

THE FOLLOWING REPORT REPLACES THE REPORT OF THE SELECT COMMITTEE ON CO-OPERATIVE COVERNANCE AND TRADITIONAL AFFAIRS PUBLISHED IN ATC NO. 156, DATED 20 NOVEMBER 2012, PAGE 4771

REPORT OF THE SELECT COMMITTEE ON CO-OPERATIVE GOVERNANCE AND TRADITIONAL AFFAIRS ON CONSIDERATION OF THE TERMINATION OF INTERVENTION IN OKHAHLAMBA 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 Okhahlamba Local Municipality in KwaZulu-Natal Province , reports as follows:

1. Introduction and Background

1.1 On 24 November 2009, the Provincial Executive Council of KwaZulu-Natal Province resolved to intervene at Okhahlamba Local Municipality in terms of section 139(1 )( b) of the Constitution as a result of failures to fulfill various executive obligations. The MEC for Co-operative Governance and Traditional Affairs ( Cogta ) was authorized by the Provincial Executive to appoint Administrators at the aforementioned municipalities. The Administrators were appointed to undertake the functions in terms of section 51 of the Local Government: Municipal Systems Act (Act 32 of 2000), to establish and organize the administration in a manner that would enable the municipalities to achieve the objects of local government, as set out in section 152 of the Constitution.

1.2 On 18 July 2012, the Executive Council resolved to terminate the intervention at Okhahlamba Local Municipality . On 30 August 2012, the Office of the Chairperson of NCOP referred the notices of termination of intervention Okhahlamba to the Select Committee on Co-operative Governance and Traditional Affairs for consideration and reporting in terms of NCOP Rule 101.

2. Reasons for Intervention in Okhahlamba Local Municipality

2.1 The main issues identified by the Provincial Executive to intervene in the affairs of Okhahlamba Local Municipality related to the following matters:

· The Municipality did not have a functional management team which contributed to the Municipality’s dysfunctional state.

· The Auditor-General’s 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, totaled 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 Okhahlamba Local Municipality

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 is 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 is 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 relating to MIG-funded and Small-Town Development-funded projects during the period of 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, to 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 2012.

4. Committee Observations

4.1 The Committee is of the opinion that, for the termination of intervention in Okhahlamba Local Municipality to be efficient and effective, there has to be a committed political and administrative leadership with sound administrative and management processes in place.

5. Committee Recommendations

5.1 The Select Committee on Co-operative Governance and Traditional Affairs recommends as follows :

5.1.1 The National Council of Provinces approves the termination of intervention in Okhahlamba Local Municipality in terms of section 139(1 )( b) of the Constitution.

Report to be considered.

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