ATC130507: Report of the Select Committee on Cooperative Governance and Traditional Affairs on the request of extension of Intervention in terms of Section 139 (1)(B) of the Constitution – dated 7 May 2013 

REPORT OF THE SELECT COMMITTEE ON COOPERATIVE GOVERNANCE AND TRADITIONAL AFFAIRS ON THE REQUEST OF EXTENSION OF INTERVENTION IN TERMS OF SECTION 139 (1 )( b) OF THE CONSTITUTION – DATED 7 MAY 2013

1. Introduction and Background

1.1 On January 2013, the MEC for Cooperative Governance and Traditional Affairs at the KwaZulu-Natal Province tabled a notice requesting extension of intervention in Indaka Local Municipality to the Chairperson of the National Council of Provinces (NCOP). In terms of Rule 101, the Chairperson of the National Council of Provinces referred the notice of request of extension of intervention in Indaka Local Municipality to the Select Committee on Cooperative Governance and Traditional Affairs for consideration and reporting. The Committee reports as follows:

1.2 On the 30 ^th April 2013, the Committee scheduled a briefing session with the Provincial Department of Cooperative Governance and Traditional Affairs, in order to brief Members on the reasoning and justification for the request of extension of intervention in Indaka Local Municipality .

2. Presentation on Extension of Intervention in Indaka Local Municipality

2.1 The Provincial Department briefed the Members of the Committee on the reasoning and justification for the request to extend intervention in Indaka Local Municipality . In its briefing, it was reported that in January 2013 the Intervention Plan in the form of Recovery Plan was reviewed and evaluated to determine the degree of success/failure of the Recovery Plan. Broadly, the overall success of the Recovery Plan was rated at 68% of the 141 planned recovery actions, which translated to a negative balance of 45 recovery actions which were still outstanding. Around 62% of the said balance of 45 actions was in the category of Leadership & Oversight and Governance.

2.2 The success rate of the recovery actions in finance-related actions was around 90%. This level of success in finance translated directly into moving the audit opinion from a disclaimer in 2011 to a qualified opinion in 2012. It was decided to close the recovery chapter on all the successfully completed actions, and elevate all the actions on which there were still challenges to the Exit Strategy.

2.3 Whilst the focus of the erstwhile Recovery Plan was on the immediate pressures in the overall systems in the Municipality, the focus of the Exit Strategy was on the sustainability of the gains and benefits of the section 139 intervention in the affairs of the Municipality. A large volume of the action targets in the Exit Strategy cover the on-going systems routines of a normal Municipality. The Exit Strategy has two objectives:-

(a) Pursuance of the recovery actions inherited from the erstwhile Recovery Plan;

(b) Institutionalisation of the successes & gains of the Recovery Plan for sustainability post Provincial Intervention.

2.4 As at 31 March 2013, the Municipality had a cash balance of R81 million, inclusive of investments. There has never been so much available money in the Municipality previously. However, there are still no service delivery programmes. The current capital budget is about R34 million and the expenditure is standing at R7 million (20.5% of the budget). As an act of best practice, the Municipality has prepared and submitted interim financial statements for the mid-year results to the Auditor-General (AG). The AG has indicated that the Municipality’s books were in a better shape than they were in June 2012. The only challenge was with regard to PMS information. This exercise helped the Municipality to be informed of areas that they still need to work on, before the end of the financial year in June 2013. It is believed that the Municipality will receive, at least, an unqualified opinion from the AG in 2013.

3. Civil Proceeding for Recovery of Irregular and Fruitless Expenditure

3.1 The civil proceedings for the recovery of irregular expenditure and fruitless expenditure are well underway against the former Municipal Manager, the former Acting Municipal Manager, former CFO, former Manager in the Office of the Mayor and the former “Consultant CFO”, totalling R42.785 million. The process was unfolding accordingly.

3.2 However, the recovery of about R317 000.00 from Councillors, is in abeyance pending the decision of the MEC/KwaZulu-Natal Cabinet Sub-Committee on Municipal Interventions/Minister on the report to be submitted in terms of section 32 of the Local Government: Municipal Finance Management Act, (56 of 2003) by the Municipal Manager.

4. Intervention Progress

4.1 The following progress has been registered with regard to the intervention:

4.1.1 The Public Participation Programme has been approved by Council.

4.1.2 Interim financial statements to the AG for the six months performance have been submitted.

4.1.3 The interim financial statement for 2013 has been submitted to the AG to test progress.

4.1.4 There are now regular internal audit reports in terms of the Internal Audit Plan.

4.1.5 The section 71 Performance Management System Report has been finalised.

4.1.6 The Budget Adjustments for 2012/13 financial year were approved by the Council.

4.1.7 The draft Budget for the 2013/14 financial year was tabled in the Council.

4.1.8 Interim financial statements for the 2012/13 financial year were finalised.

4.1.9 Manuals on Bank Reconciliation Procedure Manual, Creditors Procedure Manual, and the Capital Accounting Treatment Procedure Manual have been developed.

5. Intervention Challenges

5.1 The Council is currently not functional. No meaningful decisions have been taken by Council after receiving a letter from Provincial Department of Cooperative Governance and Traditional Affairs, which informed them that their application for salary increases was turned down.

5.2 The Accounting Officer has transgressed supply management policies, thus reducing the chances of a clean audit. Council has been informed accordingly. There are no performance agreements for the Municipal Manager and other section 56 managers. Equally, there is no performance review of the senior managers that has been done. There is currently no technical capacity for infrastructure planning for new infrastructure and maintenance of the existing infrastructure.

5.3 All though there is a positive bank balance, Councillors want to focus on sponsorship rather than tangible service delivery programmes. Their focus is on sponsoring community functions/activities such as isicathamiya , traditional dance, young maiden virginity testing, sport festivals, Christmas/Easter functions, food parcels etc. Yet, there are no sport facilities/public amenities in the whole of Indaka .

5.4 The AG findings are still not monitored by Council. The item is still not a standing item on the Council Agenda and the Municipal Manager still does not report on progress with regard to the implementation of the Action Plan on the AG findings. The Debtors Procedure Manual and the Operating Procedure Manual on the Treatment of Conditional Capital Grants are still not in place. The AG dash board is not monitored by the Council. The Mayor was required to make quarterly reports to Council on the status of the dash board, which has not happened.

5.5 The Municipal Manager is required to submit a detailed monthly report to the Executive Committee (EXCO) specifically on the underperformance areas/targets of the SDBIP, this has not been done. The EXCO is required to submit a quarterly report to the Council on the remedial/corrective action to address under-performance; this has also not been done. In that respect, Council was not exercising effective oversight on financial and performance matters in respect of underperformance or poor performance.

5.6 The Council has not reviewed the functionality and effectiveness of the Municipal SCOPA as an instrument of Council overall Oversight function. The 2013/14 IDP & Budget process plan, indicating IDP & budgeting milestones has not been finalised.

5.7 The Audit Committee is required to submit quarterly reports to Council indicating the status of the implementation of Risk Controls. The Audit Committee is also required to report to the Council on the efficient and effectiveness of the Management responses to the Internal Audit reports & implementation thereof, this has not happened. The Audit Committee is further required to report quarterly to Council on the quality of Internal Audit Reports and the usefulness thereof.

5.8 The risk controls have not been incorporated into the performance agreements for all section 56/57 Managers, and the risk register has not been implemented. EXCO has not assessed policies and internal controls on SCM, Acquisition Plan, Capital Budget versus Project Performance and PMS Reporting. Irregular Expenditure for 2010/11 & 2011/12 in terms of section 32 of MFMA have not been finalised. The strict SCM controls in terms of the SCM Policy have not been implemented to prevent Irregular Expenditure in future.

5.9 The quality of the SDBIP has not been done, and the institutional SDBIP has not been broken down into Departmental HOD SDBIPs for monitoring by the relevant Portfolio Committees. The Service Delivery component of the Mid-Year Report has not been re-written. Further, training on Demand Management & Procurement Planning has not happened and the bid Committee Training has not happened. Lastly, there was n o adequate progress on MIG new projects in 2012/13 per SDBIP as well as on Council’s own funded capital projects as per SDBIP.

6. Committee Observations and Opinion

6.1 The Committee has observed that the intervention in Indaka Local Municipality has been extended three time and significant progress has been made in terms of the development of municipal turn-around strategy.

6.2 The Committee has noted the progress made by the Provincial Department of Cooperative Governance and Traditional Affairs in respect of Council’s approval of Public Participation Programme; submission of interim financial statements to the AG; Council’s approval of 2012/2013 budget adjustments; tabling of draft 2013/2014 budget to the Council and finalization of 2012/2013 interim financial statements.

6.3 Despite the progress made, the Committee noted that the challenges the Municipality faced which impacted on the successful implementation of the municipal turn–around strategy.

6.4 Though the intervention has been extended previously, the Committee is of the opinion that further extension of intervention in the Municipality is justifiable in order to enable the Administrator under the leadership of the MEC for the Provincial Department of Cooperative Governance and Traditional Affairs, to implement the turn-around strategy in terms of its key performance areas, measurable outcomes and timeframes.

7. Recommendations

7.1 Having been briefed on the progress and challenges in respect of the intervention in Indaka Local Municipality , the Committee recommends to the NCOP as follows:

7.1.1 That the NCOP approves the request of the extension of intervention in Indaka Local Municipality for a period ending 31 December 2013.

7.1.2 The Provincial Department of Cooperative Governance and Traditional Affairs should table quarterly progress reports to the KwaZulu-Natal Provincial Legislature and the NCOP.

7.1.3 The Provincial Department of Cooperative Governance and Traditional Affairs should table an exit report to the KwaZulu-Natal Provincial Legislature and the NCOP, after the intervention has ended.

Report to be considered.