ATC151027: Report of the Select Committee on Cooperative Governance and Traditional Affairs On Termination of Intervention issued in terms of Section 139(1)(C) of the Constitution (1996) in Mpofana Local Municipality, dated 27 October 2015

NCOP Cooperative Governance & Traditional Affairs, Water and Sanitation and Human Settlements

REPORT OF THE SELECT COMMITTEE ON COOPERATIVE GOVERNANCE AND TRADITIONAL AFFAIRS ON TERMINATION OF INTERVENTION ISSUED IN TERMS OF SECTION 139(1)(c) OF THE CONSTITUTION (1996) IN MPOFANA LOCAL MUNICIPALITY, DATED 27 OCTOBER 2015 

 

1. Background

 

1.1     On 03 August 2015, the MEC for Cooperative Governance and Traditional Affairs in KwaZulu-Natal tabled to the Office of the Chairperson of the National Council of Provinces (NCOP) a notice of the termination of intervention in terms of section 139(1)(c) of the Constitution in Mpofana Local Municipality. As a result of the tabling, the notice of intervention was referred to the Select Committee on Cooperative Governance and Traditional Affairs for consideration and report.

 

1.2     On 21 October 2015, during loco inspection on the notice of intervention in terms of section 139(1)(b) of the Constitution in Indaka Local Municipality, the Select Committee also called the Department of Cooperative Governance and Traditional Affairs for a briefing on the termination of intervention in terms of section 139(1)(c) of the Constitution in Mpofana Local Municipality.                 

 

1. Objectives of the Briefing Session

 

2.1     The objectives of the session was to accord the Department of Cooperative Governance and Traditional Affairs, an opportunity to brief the delegation of the Select Committee on progress made in implementing the constitutional, procedural and substantive matters related to the of intervention in the Municipality in terms of section 139(1)(c) of the Constitution and the Provincial Executive Council’s (PECs) decision to terminate the intervention in Mpofana Local Municipality.

 

1. Presentation on Termination Intervention in Mpofana Local Municipality

 

3.1     On 21 October 2015, the Department of Cooperative Governance and Traditional Affairs briefed the Select Committee on the termination of intervention issued in terms of section 139(1)(c) of the Constitution in Mpofana Local Municipality. The presentation focused on the overview of background and reasons for the intervention; success indicators in the period up to February 2015; extension and emerging challenges; current status and way-forward.            

 

1.    Overview of Background and Reasons for the Intervention 

 

4.1  Mpofana Local Municipality is one of seven municipalities in the Umgungundlovu District. The Municipality has 7 council members of which the ANC has 5, the IFP (1), DA (1) member. The Municipality has a population of 35,518 (2011), with 15,582 registered voters (2013) and 4 wards.

 

4.2     The Municipality is dominated by the urban areas of Mooi River, Bruntville and Nottingham Road. There is a significant number of farmland areas. The Municipality has a budget of close to R145 million, of which over R22 million was set aside for capital expenditure (2015/16). Grant reliance accounts for about 35% to 40% of its revenue basket.

 

4.3     The Municipality experienced a series of incidents of labour unrest and community protest actions. These were allegedly caused by poor governance and political tensions within the council. The Municipality was also experiencing serious financial difficulties arising from cash-flow problems and mismanagement of funds. The PEC instituted the section 139(1)(c) intervention in Mpofana in September 2014. The following were cited as the reasons:

 

• Lack of a credible IDP for the 2013/14 financial year, in which it had scored 47.54% for credibility (a score which was well below the provincial average) because it omitted critical aspects, such as a human resource strategy, an integrated waste management plan, the status of the road network and other matters.
• Payments made in contravention of the supply chain management requirements, resulting in irregular expenditure being understated by R26.43 million, and failing to include in the financial statements particulars of such irregular expenditure or the irregular expenditure that was condoned.
• Losses in the sale of electricity amounting to R11.3 million and R6.87 million in the 2011/12 and 2013/14 financial years, respectively, due to illegal connections and poor debt management.

 

• Amounts owed by the Municipality were not always paid within 30 days or an agreed period, as required by section 65(2)(e) of the MFMA, and some payments were made without the approval of the accounting officer or a properly authorized official, as required by section 11(1) of the MFMA.
• Failure to have in place an effective system of expenditure control, including procedures for approval, and an adequate management, accounting and information system which recognized expenditure when it was incurred, both of which are required as per the provisions of section 65(2) of the MFMA.
• Failure to take reasonable steps to prevent unauthorised, irregular and fruitless expenditure, as required by section 62(1)(d) of the MFMA.
• Disregard to all supply chain management regulations and financial controls, giving rise to the abuse of public funds.
• Dysfunctionality of the Internal Audit Unit which failed to audit the performance measurements continuously and to submit quarterly reports, as required by the Municipal Planning and Performance Management Regulation 14(1)(c), leading to a system of no internal controls being in place, and the resultant lack of checks and balances.
• The Municipality did not have an Audit Committee, in contravention of section 166(1) of the MFMA, and this led to a breakdown of oversight from an independent body which was vital for the proper functioning of the administration.
• Failure by the Accounting Officer to exercise adequate oversight over financial and performance reporting and compliance, as well internal controls, leading to (among others) material amounts affecting financial statements not correctly disclosed and a debtor, Tai Yuen Textile, being extremely under-billed using an incorrect formula.

• Unspent conditional grants of R15 744 437 were not cash-backed by an amount of R7 million, giving rise to a question about the Municipality’s ability to          operate as a going concern.

 

5.      Success Indicators in the Period up to February 2015

 

5.1     The new Mpofana Local Municipal council was elected on 26 November 2014. This resulted in the intervention in terms of section 139(1)(c) of the Constitution terminating automatically by operation of law. The PEC therefore took a resolution to intervene in terms of section 139(1)(a) of the Constitution after the by-election. The directive, which was envisaged to expire at the end of March 2015, provided that the Municipality must fulfil the following:

 

• Adopt by Council Resolution, the exit strategy in respect of the close-out report of the intervention in terms of section 139(1)(c) of the Constitution, and accept the continuation and provision of support by CoGTA in KwaZulu-Natal or any other stakeholder during the period of the intervention.
• Accept a resource deployed by CoGTA to assist the municipality to implement the exit strategy.

• Ensure that the Municipal Manager and all senior managers account in respect     of all indicators included in the exit strategy, on a monthly basis.
• Attend all Steering Committee meetings convened by CoGTA on             interventions.
• Develop a strategy of addressing imminent service delivery protests.

 

5.2     In February 2015, when the Executive Council resolved to terminate the section 139(1)(a) intervention it was on the strength of the Mpofana Local Municipality having made considerable progress on its exit strategy and had complied with the above directive.

5.3     There were however aspects of the exit strategy that were still to be implemented by the Municipality. These aspects were integrated with the Back to Basics support plan of the Municipality and are being monitored by the provincial CoGTA through that approach.

5.4     The successes during the intervention included the following factors:

 

• Portfolio committees and MPAC were established.
• The municipal council and portfolio committee meetings were convened monthly.
• An Interim Finance Committee comprising the municipality, the Provincial            Treasury and Provincial CoGTA was established to assist the Municipality      address cash flow problems.
• The dissolution of the municipal council did not extend to ward committees.        After the by-election there was a revival of the ward committees whereby the      newly elected councillors held public meetings in all wards.
• The newly elected councillors had undergone an extensive capacity building        programme. This was facilitated by the Provincial CoGTA, but involved the District Municipality and other provincial governments’ sector departments.
• The Municipality and Umgungundlovu District Municipality had begun working much closer than before to address water service delivery challenges and in particular, water shortages.

• The successful resolution of the litigation matter between the Municipality and Tai Yuen Textiles was important as it affected the ability of the municipality to render an efficient electricity service.
• Sporadic service delivery protests were promptly addressed. Since the by-election, there have been less community protests with one serious and violent being sparked by the tension between hostel dwellers and township residents.
• There was an improvement in meeting legislative compliance deadlines.
• Despite the ability to manage MIG and other grants remaining weak, the Municipality was one of 49 municipalities across the province that spent 90-100% of their 2014/15 MIG allocations.

 

6.     Residual or Emerging Challenges

 

6.1     One of the main residual challenges in Mpofana, one that was always going to take long to resolve, is the high rate of illegal electricity connections, especially in the township of Bruntville. The Municipality continues to suffer revenue losses as a result.  The Municipality has however, began to implement its strategy to fight illegal connections. Recent correspondence from the Municipality indicated that this was proving difficult and if anything, it is pitting the administration against the councillors.

 

6.2     While the Audit Committee is functional and has thus far met at least once per quarter as required by section 166 (4)(b) of the MFMA, the internal audit capacity remains very    

         weak. The projected budget is in deficit, and there is a lack of relevant capacity in managing municipal finances within the Budget and Treasury Office (BTO), which will delay the financial turnaround.

 

6.3     The Municipality is owing grant funds, used for operational reasons, and there is no reflection in the 2015/16 budget on how this will be paid back. Provincial Treasury assisted the Municipality in this regard. In addition, there is inadequate project management and coordination at technical level delay project implementation.

 

7.     Current Status and Way-Forward

 

7.1     The Municipal Demarcation Board (MDB) declined the proposed merger of Mpofana and Umngeni Municipalities. Mpofana Municipality is, in the view of the Provincial CoGTA, a non-viable Municipality, one that will have to be merged with a stronger municipality going forward. Umngeni Municipality is the natural choice. Whether the merger happens during the 2016 local government elections or later is a matter for the MDB to decide. It may also become part of a metropolitan municipality, with Msunduzi as the core.

7.2     The ongoing challenges in Mpofana Local Municipality, have been incorporated into the Municipality’s Back to Basics support plan and are thus being monitored by

          CoGTA through that approach.

 

8.       Select Committee Observations

 

8.1     The Select Committee has observed and noted based on departmental briefing that the intervention was terminated as of 31 March 2015. The Municipality has, however, not fully recovered. Mpofana will require ongoing handholding over the next term. Such handholding by provincial CoGTA will require massive resources.

 

 

 

9.      Recommendations 

 

9.1     The Select Committee recommends to the NCOP as follows: 

 

          9.1.1 The NCOP approves the termination of the intervention in Mpofana Local             

                 Municipality in terms of section 139(1)(c) of the Constitution.

 

9.1.2 The KwaZulu-Natal Department of Cooperative Governance and Traditional                      Affairs should table quarterly reports to the NCOP and the KwaZulu–Natal               

        Provincial legislature in terms of the support that would be provided to the                      Mpofana Local Municipality.

 

Report to be considered.