State of Msunduzi Local Municipality: stakeholder engagement

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Cooperative Governance and Traditional Affairs

02 November 2022
Chairperson: Mr F Xasa (ANC)
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Meeting Summary


Various stakeholders briefed the Committee in a virtual meeting to discuss the status of the Msunduzi Local Municipality, which had been placed under a voluntary Section 139(1) intervention in 2019. The factors which had led to the intervention were listed.

The Committee received inputs from the KwaZulu-Natal Department of Cooperative Governance and Traditional Affairs (COGTA), the Auditor-General of South Africa (AGSA), the provincial treasury, the South African Local Government Association (SALGA), and officials of the Msunduzi municipality.
It was told that progress made within the municipality included an improvement in the administration involving staff, irregular staff payments and work ethics. There had been an improvement in debt collection and payment of creditors, the oversight structures were mostly functional, and the Council was fulfilling its legal obligations.

Financial interventions included a financial recovery plan that was in the process of being developed, and an improvement in forward planning on infrastructure, maintenance and grant spending. The municipality had improved its audit performance and received an unqualified audit outcome during the last financial year, and it currently had a funded budget.

Measures to ensure consequence management had been put in place and some investigations had been initiated. National Treasury was monitoring the financial status of the municipality and would report to the province if a Section 139(5) intervention was required. SALGA and COGTA had embarked on a training programme for both councillors and staff, and all departments were assisting the municipality in ensuring that a skills transfer was taking place. There was a political and administrative will to turn the municipality around, and both the political and administrative arms were working well together.

Meeting report

Mr Sihle Zikalala, Member of the Executive Council (MEC): Cooperative Governance and Traditional Affairs (COGTA), KwaZulu-Natal (KZN), requested the Committee to allow him to attend the provincial Cabinet meeting, and to allow the Department to proceed with the presentation.

State of Msunduzi Local Municipality


Ms Joey Krishnan, Chief Director: Municipal Finance, COGTA, KZN, said the Msunduzi Local Municipality had been put under intervention in terms of section 139(1) of the Constitution in April 2019 because the Council had failed:

To hold councillors accountable for deliberately absenting themselves from critical meetings.
To institute consequence management measures.
To exercise oversight on management, with particular reference to the management of conditional grants.
To exercise oversight over management, resulting in the cash position of the municipality being overdrawn.
To take reasonable steps to prevent unauthorised and irregular expenditure.
To hold management or any person accountable for causing unauthorised and irregular expenditure.
To implement consequence management measures against persons responsible for incorrectly or failing to maintain proper records.
To resolve innumerable service delivery-related challenges besetting the city, with particular reference to waste management, roads and street maintenance, and electricity services. 
To investigate allegations of malfeasance and maladministration against senior managers and other leaders of the municipality.

The Department reported on the improvement within the municipality around audit outcomes, audit action plans, grant performance, budget funding and financial viability ratio.

It reported that the Municipal Council and all committees had been stable since the 2021 local government elections. The unauthorised, irregular, fruitless and wasteful (UIFW) opening balances for 2021/22 had been R1.881 billion, and incurred to date was R26.138 million. R1.101 billion had been written off, and the total balance as at 30 June was R1.72 billion. All identified UIFW had been investigated by the municipal public accounts committee (MPAC), and consequence management was being applied.

The municipality had developed strategies to address electricity outages in the city and surrounding areas. A network development plan was in place to address the ageing and overloaded infrastructure. The municipality was collaborating with Eskom, the Municipal Infrastructure Support Agent (MISA) and businesses to address the electricity issues. According to the Economic Development, Tourism and Environmental Affairs (EDTEA) audit, the New England landfill site compliance had improved substantially. While the municipality had achieved progress which was indicated by the attainment of an unqualified audit opinion for the 2020/21 financial year, the municipality had been identified as having a persistently precarious financial position. Cogta had deployed financial and engineering experts to assist the municipality with a range of matters. They had been appointed on 12-month contracts effective from January 2022.

Support in different fields had been deployed to the municipality. MISA had deployed an electrical engineer to support its operations. The municipality had received financial support regarding the internship implementation, capacity building and development opportunities of recognition of prior learning (RPL) for employees with experience in infrastructure-related fields. Cogta had deployed a finance expert to support the implementation of the audit action plan; portfolio of evidence (POE) preparation; compilation of interim financial statements (IFS) and annual financial statements (AFS); addressing UIFW and skilling supply chain management (SCM) employees on the prevention of UIFW expenditure; revenue enhancement strategies; and skills transfer to the Budget and Treasury Offices (BTOs). COGTA has also deployed a governance expert to assist with all governance and compliance matters. Finally, a water "war room" was being revived to streamline all the support offered to the Municipality. The water war room would now be an integral part of the one-on-one engagements and for close monitoring.

Support had also been provided around training, orientation and recruitment. Support was provided during establishment of the ward committees and revival of the Municipal Rapid Response Teams (MRRTs), and all ward committees and MRRTs were established while skills transfer was prioritised.

The MEC met with the Msunduzi Municipality in September and outlined to them the requirements for taking the municipality out of the intervention. While there was acknowledgement that the challenges facing the municipality were complex and could take a long time to turn around, the municipality was given three months to show tangible progress. Another session would be held with the municipality in January 2023, at which time recommendations would be submitted to the Provincial Executive Council to consider terminating or extending the intervention further, as the case may be.

(Details available in slide presentation)

Office of the Auditor-General

Mr H Makanyela (unconfirmed), Senior Manager, AGSA, briefed the Committee on the progress made within the municipality from the view of the Auditor General.

The municipality was assessed based on its annual financial statements, predetermined objectives, compliance with key legislation and Public Audit Act implementation, whilst prioritising access to water, electricity, housing and roads through good governance. The municipality should also be accountable for all actions, ensure timely corrective action, and ensure consequence management is taking place.

The AG found that although the municipality had progressed to an unqualified audit opinion on the financial statements, widespread non-compliance was found. This included material misstatements in submitted financial statements, high levels of unauthorised, irregular, fruitless and wasteful expenditure, and a lack of consequence management, strategic planning and revenue management. Going concern matters included poor credit control and debt collection practices resulting in constrained cash flows, material irregularities, underspending of the capital budget and accountability failures.

Material findings were identified on development priorities around basic service delivery. Some indicators were not well-defined and as a result, the reliability of the supporting documentation for these indicators could not be tested.

Concerning compliance with key legislation, the financial statements submitted for auditing were not prepared in all material respects in accordance with the Municipal Finance Management Act (MFMA). Material misstatements of non-current assets, current assets, current liabilities, revenue, expenditure and disclosure items identified by the auditors in the submitted financial statements were subsequently corrected, resulting in the financial statements receiving an unqualified audit opinion. Reasonable steps were not taken to prevent unauthorised expenditure, irregular expenditure, and fruitless and wasteful expenditure. Reasonable steps were not taken to ensure that the municipality implemented and maintained an effective system of expenditure control, including procedures for the approval, authorisation and payment of funds.

(Details available in slide presentation)

KZN Provincial Treasury

Mr Farhad Cassimjee, Senior Manager, KZN Provincial Treasury, briefed the Committee on the financial state of the municipality.

There was an improvement in the operating deficit, as it had decreased by around R350 million. The net cash position had changed, resulting in a cash coverage ratio of 0.4 months in 2021/22, compared to the prior year's ratio of 0.5 months. It was concerning to note that the municipality was not able to cover operating expenditure for even one month should there be no cash inflows in any given month. As per MFMA Circular No.71, the norm range was between one and three months. The current ratio of one in 2021/22 was below the recommended norm of 1.5 to 2:1, as per MFMA Circular No. 71.
Operating grants made up 12% of the municipality's total operating income, which indicated that the municipality was not reliant on operating grants to fund its operations. Thus, it was imperative that the municipality improve its collection rate.

The municipality had spent only 93% of its capital expenditure budget for 2021/22, which was an improvement from the prior year, where it had spent only 80% of its capex.

The debtors' collection rate on billed revenue had remained the same at 85% in 2021/22 compared to the prior year. Consequently, the net debtors’ days remained the same at 129 days in 2021/22 compared to the prior year. The municipality took, on average, 137 days to pay its creditors in 2021/22, which was an increase from the 101 days taken to pay creditors in the prior year. Section 65(2)(e) of the MFMA requires that creditors be paid within 30 days of receiving the relevant invoice or statement.

The municipality had seen an improvement in the audit opinion of the 2020/21 financials. There was a material uncertainty relating to the going concern. There were doubts about the appropriateness of the going concern basis of accounting. These included the inability of the municipality to collect money due from consumer debtors, inability to pay creditors on time, decreasing reserves and other adverse financial ratios. These conditions indicated that a material uncertainty existed that may cast significant doubt on their ability to continue as a going concern.

The municipality had incurred material electricity losses. This was mainly due to illegal connections, infrastructure vandalism, ageing infrastructure and overloading.

It had incurred material water losses, mainly due to illegal connections, with progressive deterioration, ageing, and increasing levels of fragility in the bulk water infrastructure.

The performance management system and related controls were inadequate, as they did not describe how the performance measurement, review and reporting processes should be conducted, organised and managed.

The financial statements submitted for auditing were not prepared in all material respects in accordance with the requirements of the MFMA. Material misstatements of non-current assets, current assets, current liabilities, revenue, expenditure and disclosure items identified by the auditors in the submitted financial statements were subsequently corrected, resulting in the financial statements receiving an unqualified audit opinion.

Reasonable steps were not taken to prevent unauthorised, irregular and fruitless and wasteful expenditure. The majority of the unauthorised expenditure was caused by overspending the approved budget. The majority of the irregular expenditure was caused by non-compliance with supply chain management regulations. The majority of the disclosed fruitless and wasteful expenditure was caused by payment of site re-establishment costs to a service provider.

Reasonable steps were not taken to ensure that the municipality implements and maintains an effective system of expenditure control. An effective system of internal control for debtors and revenue was not in place, and an adequate management, accounting and information system which accounts for revenue, debtors and receipt of revenue was also needed.

Concerning consequence management, no appropriate action was taken against officials of the municipality where investigations proved financial misconduct.

The accounting officer and management did not ensure that systems of internal control were adequately implemented and monitored. Management did not adequately review the annual financial statements and annual performance reports before submitting them for auditing. In addition, management did not validate achievements against supporting documents. As a result, material findings were raised during the audit.

Material irregularities were found during the 2020/21 audit, where revenue was not correctly billed at the landfill site. Salary payments were made to an employee who had never reported for duty since appointment two and a half years ago. The municipality had also failed to collect revenue from a service provider for the disposal of timber.

The municipality maintained a funded budget for the 2022/23 financial year.

Department of Cooperative Governance and Traditional Affairs
Mr K Njokweni, on behalf of the Deputy Director-General (DDG), presented an overview of the state of the municipality, in line with the previous presentations.

Judging from the reasons that had led to the municipality being put under intervention, a lot had been achieved. The municipality was stable and Council structures were functional, with the leadership taking the lead in delivering services through the daily war rooms, which was encouraging.

Recommendations from forensic investigations were being implemented, disciplinary cases had been concluded and the municipality's financial position had been turned around. It could be improved if cost-cutting measures were observed and implemented by a credit collection policy.

Objectives of the national Department’s interventions included:
Mainstreaming a cooperatives-based community economic development model as a critical catalyst in the implementation of the District Development Model (DDM);
Implementing the cooperatives-based community economic development model as a required training and cooperatives development intervention, to address service delivery challenges;
Facilitating a developmental exit strategy of Community Work Programme (CWP) and Expanded Public Work Programme (EPWP) beneficiaries from the programmes;
Positioning intervention as a training programme to access funding in Sector Education and Training Authorities (SETAs), thereby helping municipalities with limited financial resources.
Focusing on service delivery challenges in municipalities.
Developing a funding model would enable different government departments and entities to complement each other, reduce the silo mentality and avoid duplication of services and resources to maximise results.

Support was provided through innovative solid waste management processes implemented and piloted in the municipality. The Department of Science and Innovation, in partnership with the Technology Innovation Agency and the MISA, was in the process of initialising the viability and validation of Innovation for Service Delivery: Waste Innovation. The MISA had also embarked on a programme management support and capacity building initiative towards institutionalising labour-intensive construction (LIC). The LIC capacity building programme sought to provide strategies and assistance for municipalities to realise labour-intensive construction methods within the existing grant funding. They would assist in improving the skills of unskilled labour through project-based training. They contribute towards the maintenance of municipal infrastructure for improved service delivery and towards the alleviation of unemployment while delivering basic services. 

The Department, through MISA, had also provided hands-on support with weekly war room meetings and monthly one-on-one intervention meetings with KZN COGTA for support on infrastructure project implementation and grants management, and support towards improving infrastructure asset management practices.

They had reviewed a standalone electricity department structure, which was now complete and ready for implementation with a reviewed operations and maintenance strategy. A study to convert a municipal building into a green energy facility was conducted by implementation of a rooftop photo-voltaic (PV) solar system. This should assist the municipality with its green energy strategy in the long term whilst reducing dependency on the grid. They had engaged Eskom on behalf of the Msunduzi Local Municipality on the operations, maintenance, and network planning issues. The operating and maintenance portion was being implemented, and some substations had already undergone maintenance through this collaboration with Eskom. A review of the existing network development plan has been initiated, which should be undertaken by Eskom.

(Details available in slide presentation)

Cllr Petros Ngubane, of the South African Local Government Association (SALGA) said that SALGA was requested to provide assistance in the form of employees to the municipality. Areas of concern included cash flow management, payment of debtors, billing provision for water and electricity, meter reading, payment of salaries to verifiable employees, and human resource capacity.

Additional areas of concern identified included waste management, landscaping, parks and gardens, budget preparation and billing.
SALGA provided assistance through a councillor induction programme, MPAC strategic planning, development of oversight reports, policy compliance, monitoring and evaluation development and performance management of staff.

The Municipal Manager was assisted to investigate staff absenteeism, the payment of deceased staff, staff that left the employment of the municipality and staff not showing up for work. Measures were put in place to recover money paid to people irregularly.

Cllr Mzimkhulu Thebolla, Msunduzi Mayor, informed the Committee that the prepared presentation from Msunduzi municipality had been covered by the presentations of COGTA and the Auditor-General, so in the interests of time, they would not do their full presentation.

The municipality approached COGTA voluntarily in February 2022 to review its financial recovery plan. Progress reports were also submitted to the Executive Committee and Council regularly. The leadership in the municipality acknowledged the challenges, but could report that there were improvements in a number of fields, such as collections and the payment of creditors. Although assistance was still needed from the province, it was requested that it be in terms of section 154, not through a section 139 intervention.

Cllr Mxolisi Mkhize, Msunduzi Deputy Mayor, said that progress had been made with critical vacancies. Appointments were ready to be presented to the Council, or were awaiting the concurrence of COGTA.

Ms Kavitha Ruplal, Financial Recovery Services, National Treasury, informed the Committee that her department was responsible for assisting municipalities with their financial recovery plans, and had been approached to revise the existing financial recovery plan. They had agreed to assist the municipality, and the assessment agreed largely with the information presented to the committee. They had prepared a draft recovery plan and would be conducting a workshop with the municipality on Monday, 7 November.

Following this workshop, inputs from the municipality would be incorporated into the plan and the municipality could commence with its implementation from December 2022 or January 2023.


Mr C Brink (DA) pointed out that the citizens were frustrated. Bearing in mind that this municipality was the province's capital city, what did the rest of the province look like? He commented that this had been a voluntary intervention, but the debt collection was still poor, and so was the capital spent. He proposed that the intervention be converted to a compulsory intervention, which may put more pressure on the municipality to implement changes and recommendations.

Mr X Msimango (ANC) raised a concern that the municipality had not moved forward from one term to the next. He asked the Department if the employee's salary that did not show up for work had been recovered, and if an investigation was conducted to determine whether there were more cases of people committing the same offence.

Mr K Ceza (EFF) noted that there had been no improvement in revenue collection. He asked the Department what improvement section 154 would achieve, as the current intervention did not seem to bring any alleviation to the citizens. He said failures should be acknowledged and that a timeframe on commitments to rectify them should be provided. He asked for details on the consequence management on all UIFW expenditure, as it was the responsibility of the accounting offices to report on this. Lastly, he asked for a breakdown of the salary bill of the municipality.

Mr G Mpumza (ANC) asked the Department how much of the irregular expenditure on security measures had been recovered. He also observed that governance leadership was weak or absent, as the municipality was placed under administration in 2019 and there had been no improvement.

Ms S Buthelezi (IFP) asked the Department to provide information on what consequence management measures had been put in place.


Cllr Thebolla acknowledged that the municipality's infrastructure was aged, but a report was received regularly on how this was managed. A summons had been issued for the staff member who had been paid a salary illegally, and all the oversight structures were now functional. Salga recognised the municipality for its credit control. Although the municipality still needed assistance, he was of the opinion that it did not need to be under intervention.

Cllr Ross Strachan, Msunduzi Executive Committee member, said that the Council was riddled with political interference. There had been a request for a forensic investigation since 2016 that had not been implemented. He supported the proposal by Mr Brink that further intervention was required, where the implementation of corrective measures were compulsory and not on a voluntary basis.

Cllr Sandile Dlamini, Chief Whip of Council, informed the Committee that daily meetings were held and that this had brought about huge improvements. They were in the process of verifying employees.

Ms Nelisiwe Ngcobo, Chief Financial Officer, said that beneficiaries of security protection had been reduced, and was used only where a threat analysis determined the need for security. Only infrastructure security was currently in place. She confirmed that a summons had been served on the employee that had received the irregular salary, and a forensic investigation was underway at payroll. Five employees had been suspended to date, of whom three already had clear cases of misconduct. They were also in the process of reviewing their systems and delegations. The administration was providing progress reports on cases of consequence management to both the Council and the MPAC.

She said low capital expenditure was normal for the first quarter of the financial year -- it increased as the projects progressed. She confirmed that the daily meetings with the troika were beneficial. The municipality had implemented a project plan for debt recovery which included physically walking from door to door.

Mr Lulamile Mapholoba, Municipal Manager, informed the Committee that they were adopting a zero-tolerance policy with staff transgressors to ensure clean governance, and clean administration approach. Regular meetings were held around expenditure and grant spending. He admitted that the municipality was not performing well on service delivery, and they had identified the project management unit as the problem area. Departmental assistance to rectify this has been obtained. They had adopted a forward planning approach, and all measures would be in place before the start of the next financial year. The municipality was working with the assistance of COGTA around the electricity infrastructure and provision problems, and had approached the Department of Mineral Resources and Energy for assistance in building a sub-station. There had also been an improvement in waste collection, but further improvement was required.

The municipality had launched an investigation into high overtime submissions, and action would be taken against managers who had facilitated this. The information communication technology (ICT) system had been identified as a problem area, and they had requested National Treasury to assist in getting their system Municipal Standard Chart of Accounts (mSCOA) compliant. A meeting was held with the Head of Department (HOD), Department of Human Settlements, to address the problems in this area.

Mr Mapholoba said the Council supported the administration and there was both political and administrative will to turn the municipality around.

Follow-up questions

Ms Buthelezi asked why not all of the ward committees were functional, specifically Ward 47.

Mr Mpumza asked which recommendations had been implemented, and which were still in progress.

Mr Ceza asked the CFO what percentage of the debt collection came from business and government, and what percentage came from private citizens. He also wanted to know what the status of the indigent list was.

Municipality's response

Mr Mapholoba said that a number of projects had been awarded to the Independent Development Trust (IDT), which did not have the capacity to fulfil the contracts. The municipality was in the process of recovering this money, but all internal avenues had to be exhausted before the matter could take a legal course.

Cllr Thebolla admitted that all but one ward committee was functional, as there were still some outstanding matters in this ward. He said that according to StatsSA, the indigent list of the municipality was very low and they were in the process of addressing the matter.

Mr Madoda Khathide, DDG: Local Government, KZN COGTA, said the Department would accept the comments and recommendations of the Portfolio Committee. The functionality of the ward was rated as yellow, but could be fully functional by the end of the year. Incomplete projects and lack of maintenance and repairs had improved. There has also been an improvement in dealing with maladministration and fraud. The only challenge was the alignment around this with law enforcement, and the assistance of the Committee would be appreciated. Regarding the poor cash flow, it was recommended that the municipality sustain and improve the existing plan, as this would also assist with infrastructure and maintenance.

The filling of vacancies, especially at a senior level, should be finalised before the end of the year.

Ms Ruplal explained to the Committee what a Section 139(5) intervention entailed -- that it could be invoked only if there was a financial crisis. The criteria for such an intervention were very clear. The municipality did meet the criteria after the first quarter, and Treasury would monitor this for the second and third quarters before making a recommendation to the province in this regard.

She said the financial recovery plan, as requested by the municipality, was the same as what they would have done under a Section 139(5) intervention.

The Chairperson requested that all relevant stakeholders work towards the municipality's recovery, and that progress could be seen in the work done.
The meeting was adjourned.      

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