ATC160223: Report of the Select Committee on Cooperative Governance and Traditional Affairs on the notice of Intervention Issued In Terms of Section 139(1)(B) of the Constitution in Umkhanyakude District Municipality, dated 23 February 2016

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

REPORT OF THE SELECT COMMITTEE ON COOPERATIVE GOVERNANCE AND TRADITIONAL AFFAIRS ON THE NOTICE OF INTERVENTION ISSUED IN TERMS OF SECTION 139(1)(b) OF THE CONSTITUTION IN UMKHANYAKUDE DISTRICT MUNICIPALITY, DATED 23 FEBRUARY 2016 

 

1.         Introduction and Contextual Background  

 

1.1        On 7 October 2015 the Provincial Executive resolved to intervene in Umkhanyakude District Municipality in terms of section 139(1)(b) of the Constitution. On 8 October 2015 the Minister and the NCOP were notified of the decision to intervene in line with section 139(2) of the Constitution. In terms of section 139(2)(b)(i) of the Constitution, the Minister for   Cooperative Governance and Traditional Affairs has approved the intervention.

 

1.2        Subsequent to the tabling, the Chairperson of the National Council of Provinces (NCOP) referred the notice of intervention in terms of Rule 101, to the Select Committee on Cooperative Governance and Traditional Affairs, for consideration and report.

 

1.3        On the 16 February 2016, Members of the Select Committee had a briefing session with the Department of Cooperative Governance and Traditional Affairs, Speaker, and Administrator of the Municipality.

 

2.       Objective of the Meeting

 

2.1        The objective of the briefing session was to consult and interact with the stakeholders of the Municipality, in order to solicit their opinion with regard to the constitutional, procedural and substantive matters related to the  of intervention in the Municipality in terms of section 139(1)(b) of the Constitution.   

 

3.         General Overview of the Briefing

 

3.1        On the 16 February 2016, the MEC for the Department of Cooperative Governance and Traditional Affairs briefed the Select Committee on the intervention in the Municipality. The presentation focused on background; basis for invoking the intervention in the Municipality; resolutions of the provincial executive council; progress report on the recovery plan and draught related matters.   

 

4.         Background                

 

4.1        The Department informed the Select Committee that the Municipality was for number of years, facing numerous problems and challenges related to persistent governance, financial and service delivery, which could not be resolved despite the provincial and the national government support. During the first quarter of 2015, several indicators from the Municipality itself, from KwaZulu-Natal CoGTA, Department of Water and Sanitation (DWS) and from Provincial Treasury showed that the Municipality was experiencing serious governance, financial and service delivery problems. 

 

4.2        On 27 March 2015, the Department of Cooperative Governance and Traditional Affairs proposed a self-imposed Recovery Plan and Payment Plan which was accepted by the municipal council. Despite the council acceptance, the municipal management failed to implement the Recovery Plan and Payment Plan between April and June 2015, and the Support Team was unlikely to succeed in turning around the Municipality unless the intervention was elevated to a section 139 constitutional intervention.

 

5.         Basis for Invoking Section 139(1)(b) of the Constitution in the District Municipality

 

5.1   The Department informed the Select Committee on the basis for invoking section 139(1)(b) of the Constitution in the District Municipality. These related to governance and institutional matters; financial viability and management and basic service delivery failure.

 

6.         Governance and Institutional Matters

 

6.1        The municipal council and the Executive Committee (EXCO) were meeting regularly, however the implementation monitoring (oversight) and lack of consequence management pointed to poor performance on the part of EXCO and municipal council. The portfolio committees and the Municipal Public Accounts Committee (MPAC) were not meeting as they were supposed to, thus failing to exercise effective political oversight over management.

 

6.2        The Municipality did not have an Audit Committee following the expiry of contracts of the previous committee. An Interim Audit Committee was appointed for three months pending the proper appointment of the Audit Committee. Their contracts had also expired before the Audit Committee could be appointed. The Municipality admitted that its organogram was bloated and could not be funded on a sustainable basis, and that the Municipality had in past years hired and absorbed staff in non-core functions. The Municipality was failing to rectify this matter. Despite numerous attempts by KwaZulu-Natal CoGTA to support the Municipality and family of municipalities, intergovernmental structures as well as the associated technical support structures, remained dysfunctional.

 

7.         Financial Viability and Management

 

7.1        The cash flow situation in the Municipality had deteriorated to the point where it was persistently failing to meet its financial commitments. Thus the ability to pay back its short term liabilities, was 0.65:1 against the norm of 1.5–2:1 (Circular 71 National Treasury, 17 January 2014). Although management had developed a cash flow plan, there was no commitment and urgency to take decisions that were critical to the sustainability of the institution. The 2014/15 annual financial statements of the Municipality showed that it had only about R12,6 million in cash and cash equivalents against unspent conditional grants of R31,5 million as at 30 June 2015, pointing to the use of conditional grants to fund operating expenditure.

 

7.2        The Municipal Manager had admitted that the Municipality had outstanding creditors of R130 million as at 30 June 2015, which indicated poor financial and project management. The Provincial Treasury found both the operational and capital budget of the Municipality to be unfunded or in deficit to the amount of R117 million, this was later reduced to R57 million.

 

7.3        The internal control environment remained weak. The management persistently failed to implement policies and procedures of the Municipality leading to the ballooning of Unauthorized, Irregular or Fruitless and Wasteful (UIWF) expenditure. This had ballooned to more than R1,3 billion as at the end of June 2015. The Municipality adopted cost cutting measures at the beginning of 2015 but management failed to implement the measures. During the 4th quarter ending 30 June 2015, the KwaZulu-Natal CoGTA quarterly assessment found that the Municipality’s poor revenue collection record persisted at 44% against the norm/benchmark of 95% (Circular 71 National Treasury, 17 January 2014).

 

8.         Basic Service Delivery 

 

8.1        The Municipality remained one of the poorest performers in terms of the blue drop assessments conducted by DWS. The blue drop scores for 2011, 2012 and 2013 were 32%, 78% and 63% respectively. The Municipality remained one of the poorest performers in terms of the green drop assessments conducted by DWS. The “green drop” scores for 2009, 2011 and 2013 were 41%, 22% and 29% respectively.

 

8.2        Project management and supervision was poor. Although consultants were used, they too have to be supervised to ensure adequate monitoring and control over implementation of projects against project schedules in the Municipality. The expenditure on repairs and maintenance in 2013/14 was 2.46% of PPE (Property, Plant and Equipment), as extracted from the annual financial statements for that financial year. The 2014/15 budget for repairs and maintenance for the year was slightly higher at 2.52% of PPE. The norm is 8% (Circular 71 National Treasury, 17 Jan 2014). 

 

8.3        The Municipality did not have a planned and preventative maintenance programme in place, nor funds to finance such a programme. Consequently, this had a negative impact on the confidence levels in the value placed on PPE. During the preparation of the Universal Access Plan (UAP), considerable difficulties were experienced in obtaining records of existing assets and systems from the Municipality. Records of assets, their condition, locality and maintenance requirements were extremely limited and had to be re-constructed as far as possible, from memory and consultants records.

 

9.         Resolutions of the Provincial Executive Council (PEC)

 

9.1        Intervention in terms of section 139(1)(b) of the Constitution be implemented and CoGTA assumes the functions specified in sections 51, 54a, 56 and 67(1)(h) of the Municipal Systems Act (Act 32 of 2000) and the District Municipal functions in terms of the Intergovernmental Framework Relations Act (Act 13 of 2005).

 

9.2        The PEC directed that a Recovery Plan aimed at securing the Municipality’s ability to meet its obligations to provide basic services or its financial commitments be imposed on the Municipality, which Recovery Plan will (i) be prepared in accordance with national legislation; and (ii) binds the Municipality in the exercise of its executive authority, but only to the extent necessary to solve the crisis in its financial affairs and service delivery failures

 

9.3        Mr B Ndwandwe be appointed Ministerial Representative at Umkhanyakude District Municipality tasked with the preparation and implementation of the Recovery Plan and the following terms of reference:-

 

• Undertake all fiscal and financial management functions at the municipality including Budget and Treasury Office functions and powers provided for in  Chapter 9 of the Municipal Finance Management Act (Act 56 of 2003) as amended as well as becoming a compulsory signatory on the municipality’s bank accounts.
• Ensure the implementation of financial systems, policies and procedures.
• Undertake all steps prescribed in section 54A and 56 of the Municipal Systems Act and associated regulations.
• Undertake all functions listed in section 51 of the Municipal Systems Act as amended.
• Ensure the implementation of all governance systems and procedures, including oversight mechanisms and functionality of all council structures, including the Local Labour Forum.
• Ensure the implementation of findings of any forensic investigations undertaken by the Municipality, agency or the relevant MEC in term of section 106 of the Municipal Systems Act or any other relevant legislation.
• Undertake the functions referred to in section 67(1)(h) and Schedule 2 of the Municipal Systems Act, read with any other relevant legislative provisions dealing with disciplinary matters, including criminal and civil action.
• Ratify all decisions of the municipal council and its committees, prior to implementation.
• Ratify all decisions taken by the Municipal Manager and section 56 Managers in terms of delegated or original authority.
• Implement a system to control and approve all expenditure including a system to reduce and contain operating expenditure.
• Review the organizational structure of the Municipality, and implement remedial actions which may be required.
• Prepare and implement a strategy to deal with service delivery failures with particular focus on water and sanitation, including a strategy to deal with service delivery protests.
• Ensure the Municipality complies with requirements of the Intergovernmental Framework Relations Act.

 

 

9.4        The PEC has requested Provincial Treasury, CoGTA and Department of Water Affairs and Sanitation to identify R40 million required for the operations and maintenance at the District, as a matter of urgency. The Provincial Treasury made available R33 million. Endorsed the interventions proposed by the Provincial Planning Commission, especially to engage Umngeni Water Board to assist with a turnaround programme to ensure that people get water urgently.

 

10.        Select Committee Observations

 

10.1      The Select Committee condemned the utilization of the conditional grand funds to meet   operating expenditure by the Municipality, in contravention of the grant conditions as prescribed in section 17 of the Division of Revenue Act. Equally, the internal control environment of the Municipality remained weak. The management persistently failed to implement policies and procedures, resulting to the ballooning of unauthorised, irregular and fruitless expenditure.

 

10.2      The drought has put a strain on the already stretched water resources in the District.  Although drought is a natural phenomenon which cannot be prevented, however, the District should mitigate its economic and social impact on its people, taking into account that water is a scarce resource in South Africa. Therefore, the key focus is on all stakeholders to mitigate the impact of drought on households in their communities.

 

10.3      In respect to the District’s Back to Basics Plan, it was observed that the Municipality took too long to adopt its Plan. The assessment of the programme in the Municipality as at the end of June 2015, revealed that the Municipality had to be re-categorised from being challenged to a Municipality requiring intervention.

 

11.        Recommendations 

 

11.1      Considering the challenges in Umkhanyakude District Municipality, the Select Committee recommends as follows:

 

            11.1.1   The NCOP approves the intervention in Umkhanyakude District Municipality in terms of section 139(1)(b) of the Constitution.

 

            11.1.2   The Provincial Department of Cooperative Governance and Traditional Affairs in KwaZulu-Natal Province should have an urgent bilateral with Umkhanyakude District Municipality, to address and manage the improper use and underspending of the conditional grant funding. A report in this regard should be forwarded to the NCOP, within 14 days after the adoption of this report by the NCOP.

 

            11.1.3   The Select Committee on Cooperative Governance and Traditional Affairs will conduct a follow-up visit to the District Municipality, to interact with all stakeholders in order to determine progress on the intervention and the implementation of the Back to Basics Programme in the District Municipality.

 

            11.1.4   The Provincial Department of Cooperative Governance and Traditional Affairs in KwaZulu-Natal Province, together with SALGA and in co-operation with Local Government Sector Education and Training Authority, should facilitate training and capacity building for municipal officials and councillors, to further deepen their competencies and understanding of the oversight role, legal framework, management and policies that govern the activities of the Municipality.

 

            11.1.5 The Administrator should investigate and take corrective steps to fast-track the disciplinary measures and suspension of municipal officials, especially the Municipal Manager and the Chief Finance Officer, as a matter of urgency.

 

            11.1.6 The KwaZulu-Natal MEC for Cooperative Governance and Traditional Affairs should table quarterly progress reports to the NCOP and the Provincial Legislature on the status of the intervention in the Municipality, including the termination of the intervention. 

 

Report to be considered.