ATC190219: Report of the Select Committee on Cooperative Governance and Traditional Affairs Inspection Loco on Notice of Intervention in Terms of Section 137 of The Financial Management Act (2003) in Naledi Local Municipality, dated 19 February 2019
Report of the Select Committee on Cooperative Governance and Traditional Affairs Inspection Loco on Notice of Intervention in Terms of Section 137 of The Financial Management Act (2003) in Naledi Local Municipality, dated 19 February 2019
1. Background and Overview
1.1 The Select Committee on Co-operative Governance and Traditional Affairs, having considered the request by the National Council of Provinces (NCOP), to consider and report on the intervention notice invoked in Naledi Local Municipality in terms of section 137 of Municipal Finance Management Act, the Select Committee reports as follows:
1.2 In terms of NCOP Rule 101, the Office of the Chairperson of the NCOP referred the notice of intervention by the North West MEC for Cooperative Governance, Human Settlement and Traditional Affairs (CoGTA), to the Select Committee for consideration and reporting. On 30 January 2019, the Multi-Party Delegation of the Select Committee conducted a loco inspection in Naledi Local Municipality.
2. Objective of the Loco Inspection in Naledi Local Municipality
2.1 The main objective was to interact with the internal and external stakeholders of the Municipality in order to solicit their opinions on the constitutional, procedural and substantive matters related to the invocation of section 139(1)(b) of the Constitution.
3. Composition of the Delegation
3.1 The Select Committee delegation was composed of the following Members of Parliament and officials: (ANC); Hon T Wana, Eastern Cape (ANC); (ANC); Hon G Oliphant, Northern Cape (ANC); Hon D Ximbi, Western Cape (ANC); Hon E Matame Limpopo (ANC); Hon B Engelbrecht, Gauteng (DA), Mr TM Manele, Committee Secretary (Committee Section), Mr B Mahlangeni, Researcher (Research Unit) and Mr N Mfuku, Content Advisor (Committee Section) and Mr P Bongco, Committee Assistant (Committee Section) and Mr M Mbebe, Procedural Officer, NCOP
4. General Overview of the Loco Inspection at Naledi Local Municipality
4.1 On 30 January 2019, the delegation of the Select Committee interacted with senior officials of the Department of CoGTA, representatives of the African National Congress (ANC), Democratic Alliance (DA), Agri-Forum.
4.2. The departmental official made a presentation on the constitutional, procedural and substantive reasons for the intervention. The representatives of the political parties and Organised Labour, shared their opinions with regard to the intervention as tabled by the MEC for CoGTA.
5. Presentation on Financial matters related to intervention in the Local Municipality
5.1. The Head of the Department of Cooperative Governance, Human Settlement and Traditional Affairs briefed the delegation of the select committee on the substantive matters related to the invocation of section 137 of the Municipal Finance Management Act in Naledi local municipality. The presentation focused on substantive matter related to financial management and associated municipal challenges.
6. Financial management and reasons for intervention
6.1. The municipality being in a serious cash flow crisis hence its inability to meet its financial obligation. The problem has been exacerbated by the failure to pay creditors within 30 days;
6.2. The local municipality closed the books in June 2017 with a bank balance of R8.9 million which was far less to cover the outstanding creditors of R437 million. Due to increase of liabilities as the result of non-payment of suppliers, the local municipality have failed to develop cash flow model and a methodology on to prioritize creditor’s payments.
6.3. The local municipality has implemented unfunded budgets for the past three years which was as a result of over commitment on the operations. The department of Cogta indicated that an absence of a credible long or medium term financial strategy, it may be difficult to compile effective operational budgets or spend in line with available financial resources
6.4. The Department of Cooperative Governance, Human Settlement and Traditional Affairs further indicated that the analysis of financial performance reports have shown that the local municipality operating expenditure had far exceeded the projected income as at 2016/2017 financial year.
7. Progress Made Since the Commencement of the Intervention
7.1 The Administrator reported that the municipality has completed the initial assessment of the financial management system on its functionality and control system. The municipality has also made significant progress in reviewing debt and control policies; meter reading processes and procedures.
7.2. The municipality has invoked the clauses in the contract that deals with non-performance and dispute resolution, appointed management of extended public works programme, reviewed debt and credit control policies, reviewed indigent register and verified that all qualifying indigents arrear accounts are written off.
7.3. The Administrator further reported that the municipality has also introduced new mechanisms for bills running, conducted meter audits and reading, terminated non-performing contracts, implemented section 32 of municipal finance management act, introduced invoice registry, tabled cost cutting measures to the council and ensured compliance to section 18 and 19 of the municipal finance management act for adjustment and budgeting.
7.4. In accordance with the terms of reference, the administrator further indicated that the municipality has already reviewed the organisational structure in order to align with municipal strategy, integrated development planning, service delivery mechanisms, legislative requirements and the core mandate of the municipal finance recovery plan
8. Opinions of Political Parties and Stakeholders of the Municipality
8.1 During loco-inspection, the Select Committee interacted and solicited opinions of the political parties, internal and external stakeholders of the Municipality. Their opinions are tabled below:
9. Opinion of the African National Congress (ANC)
9.1 The representative of the ANC indicated that the municipal council has acknowledged the PEC’s decision to invoke section 137 of the Municipal Finance Management Act in the Municipality. however, the member of the ANC raised concerns with regard to tabling of section 71 reports, capacity within the supply chain management and absence of the chief financial officer. In conclusion the ANC member welcomed the progress made by the local municipal as the result of the intervention and appointment of the administrator.
10. Opinion of the Democratic Alliance (DA)
10.1 The representative of the DA tabled an opinion that supported the intervention. However, concerns were raised with regard to the lack of consultation, fruitless expenditure; non- compliance with tender procedures; lack of service delivery; non-payment of salaries; delays on payment of pension funds; non-implementation of council decisions; lack of consequence management and Eskom debts.
11. Opinion of Agri- Forum
11.1 The representative of the Agri-Forum tabled an opinion that supported the intervention, and further raised concerns with matters related to lack of service delivery; payment of rates and taxes; technical problems on water, sanitation, street lights and non-maintenance of road and road signs
12. Select Committee Observations and Opinion
12.1 In terms of the constitutional and procedural matters, the Select Committee has observed that the National Minister for CoGTA, the NCOP, the North West Provincial Legislature and the Municipality were notified of the intervention about the substantive matters related to the invocation of section 137 of the Municipal Finance Management Act.
12.2 The Select Committee has also noted that the planned protests at Naledi Local Municipality and the change of venue has affected the participations of some of the stakeholders including organised labour, women, youth forums.
12.3. In accordance with the terms of references, the select committee has noted that the administrator has made progress in developing the municipal financial recovery plan and the plan was tabled and adopted by the council. The select committee has noted also that the administrator has assisted the municipality to develop implementation plan dash board to assess the seriousness of the financial problems and developed audit action plan to deal with matters raised by the Auditor-General
13. Select Committee Recommendations
13.1 Having conducted the oversight visit to Naledi Local Municipality and interacted with members of African National Congress, the democratic party and representatives of the Agri-Forum, the Select Committee on Co-operative Governance and Traditional Affairs recommends as follows:
13.1.1 The NCOP approves the intervention in Naledi Local Municipality in terms of section 137 of the Municipal Finance Management Act.
13.1.2 The Administrator should fast-tract the process of implementing the municipal turn-around plan, in accordance with the terms of reference assigned by the North West MEC for CoGTA.
14.1.3 The Administrator should provide progress reports on municipal plan to pay Eskom debt; review of organisational structure and resuscitation of local labour forum.
14.1.4. The North West MEC for CoGTA must conduct Forensic Investigation on Supply Chain Management in the local municipality and tabled the report to the National Council of Provinces
13.1.4 The North West MEC for CoGTA should table quarterly progress report to the NCOP on the status of the intervention in the Municipality; including challenges encountered.
13.1.5 The Select Committee on Co-operative Governance and Traditional Affairs, in co-operation with the relevant Portfolio Committee in Free State Provincial Legislature, should in future conduct a follow-up oversight visit to the Municipality in order to evaluate the progress made in respect of the intervention in the Municipality.
Report to be considered.
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