REPORT TO THE NCOP
DISCRETIONARY INTERVENTIONS BY THE PROVINCE OF
KWAZULU-NATAL IN TERMS OF SECTION 136(2) OF THE
MUNICIPAL FINANCE MANAGEMENT ACT THE READ WITH
SECTION 139(1) OF THE CONSTITUTION
AT THE
UGU, UTHUKELA AND UMZINYATHI DISTRICT
MUNICIPALITIES
30 July 2013
BACKGROUND
• Resolution by the Provincial Executive to intervene in the Ugu,
Uthukela and Umzinyathi District Municipalities
• Intervention in terms of Section 139(1) of the Constitution read with
Section 136(2) of the MFMA
• Presentation to highlight the following:
(a) Legal Opinion on the Intervention
(b) Ugu District Municipality(Assessment and Recovery Plan)
(c) Uthukela District Municipality(Assessment and Recovery Plan)
(d) Umzinyathi District Municipality (Assessment and Recovery Plan)
LEGAL OPINION
• Sought to clarify the origin of powers for Intervention in affairs of
Local Government.
• Legal opinion expressed –Original powers derived from Section 139
of the Constitution
• Cabinet memorandums prepared on basis of legal opinion
• Discretionary Intervention approved – Section 136(2)MFMA Act 56
of 2003, Approval Section 139(1) of the Constitution
UGU DISTRICT MUNICIPALITY
• Municipal Assessment undertaken based on:
- Annual financial statements
- Audit Report 2011/2012 Financial Year
• Consultation on status of Municipality by MEC for COGTA and MEC
for Finance, with Mayor (Section 136 MFMA).
• Submission of Cabinet Memorandum, Deployment of Intervention
Team, Recovery Plan.
UGU: MUNICIPAL ASSESSMENT
Assessment findings in terms of Section 131(2)(a) of the MFMA
•
Audit Report (2011/2012)
-Regression of audit opinion - Unqualified (2010/2011)to
Qualified(2011/2012)
- Unauthorized Expenditure - R 45,2 million
- Irregular Expenditure
- R 18,4 million
- Current Liabilities exceeded Current Assets
- Conditional Grants not cash backed
- Qualification by AG on accuracy of revenue vs billing.
UGU: MUNICIPAL ASSESSMENT
Assessment findings in terms of Section 131(2)(a) of the MFMA Cont/d
• Analysis of the audited AFS (2011/2012:
- Poor budgeting:134 cases (R4.6 million) of deviation in
2010/2011 and 67 cases (R1.4 million)in 2011/2012
-Overtime Payments R19 million(2010/2011) and R20 million in
2011/2012
-Inflated Organisational Structure. Salary costs of 56% norm is
33%
-Creditors not paid within 30 days
-deficit of 32 % in January 2013
- Conditional Grants R63 million not cash backed
- Law suits of R 30.3 million against the municipality
UGU: MUNICIPAL ASSESSMENT
Assessment findings in terms of Section 131(2)(a) of the MFMA Cont/d
• Additional Institutional matters:
- Changes in Top Management
- Municipality has loans totaling R285,5 million
- Grants of R11 million withheld by National Treasury
-Slow progress on previous recovery plan developed
- Support by National Treasury Resource not effective
UTHUKELA: BASIS OF DISCRETIONARY
INTERVENTION
• Ugu District Municipality met the criteria in terms of
section 139(1) of the Constitution as well as those for
determining serious financial problems and
consequently for a discretionary intervention by the
MEC responsible for local government in accordance
with section 138 of the MFMA as follows:
– The municipality has failed to make payments as and when
due;
– The municipality has defaulted on financial obligations for
financial reasons; and
– The municipality had an operating deficit in excess of five
per cent of revenue in the most recent financial year for
which financial information is available.
UGU: FINANCIAL RECOVERY PLAN
• Suitably Qualified Team appointed
• Key Elements/Functional areas on Financial Recovery Plan
–
–
–
–
–
–
–
–
–
–
–
Strategic context and Performance Management systems
Legal Context and Compliance
Governance
Human Capital
The Organisation
Revenue Management and Debtors
Expenditure Management/Budget Performance
Liquidity/Cash Flow
Asset Management/Accounting Treatment
Supply Chain Management
Technical Services
UTHUKELA DISTRICT MUNICIPALITY
• Municipal Assessment undertaken based on:
- Annual financial statements
- Provincial Treasury Section 71 MFMA Reports
- Audit Report 2011/2012 Financial Year
• Consultation on status of Municipality by MEC for COGTA and
MEC for Finance, with Mayor (Section 136 MFMA)
• Submission of Cabinet Memorandum, Deployment of
Intervention Team, Recovery Plan
UTHUKELA: MUNICIPAL ASSESSMENT
Assessment findings in terms of Section 131(2)(a) of the MFMA Cont/d
• Audited Annual Financial Statements
- Conditional Grant not cash backed.
- Poor liquidity ratio – Assets to Liabilities 2:1 ideal
• Provincial Treasury’s assessment
– Unaudited financial February 2013 reflect unpaid creditors of
R3,2 million
– Negative cash coverage
– SCM Weaknesses
UTHUKELA: MUNICIPAL ASSESSMENT
Assessment findings in terms of Section 131(2)(a) of the MFMA Cont/d
•
•
•
•
R4 million allocated from the Disaster Relief Fund which have not been
applied for the purpose intended and there has been no progress in
addressing the service delivery programme
In 2012/2013 year despite COGTA allocating R2, 8 million in grant
funding to the municipality for the purpose of data cleansing of debtors
the municipality has been slow in appointing a suitable service provider
to undertake this task. There is an unknown loss of revenue due to the
Municipality’s poor management of the water service function
exacerbated by the lack of debt collection and indigent management.
Unaudited financials as at February 2013 reflect the collection rate on
water services at 53.85%. The billing from June 2012 to February 2013
was R438,888 million and payments received were R236, 360 million.
Municipal Support Program by Provincial Treasury was not well
received or had the desired event at the municipality
UTHUKELA: MUNICIPAL ASSESSMENT
Assessment findings in terms of Section 131(2)(a) of the MFMA Cont/d
• Additional institutional matters:
– Irregularities within the municipality
– Councillor Arrears at R 3,557 for less than thirty (30) days and R
63, 581 for more than ninety (90) days.
– Increase in gross consumer debt
– Investigation in terms of Section 106 of the Municipal Systems
Act
UTHUKELA: BASIS OF DISCRETIONARY
INTERVENTION
• Uthukela District Municipality met the criteria in terms
of Section 139(1) of the Constitution as well as those
for determining serious financial problems and
consequently for a discretionary intervention by the
MEC responsible for local government in accordance
with section 138 of the MFMA as follows:
– The municipality has failed to make payments as and when
due;
– The municipality has defaulted on financial obligations for
financial reasons; and
– The municipality had an operating deficit in excess of five
per cent of revenue in the most recent financial year for
which financial information is available.
UTHUKELA: FINANCIAL RECOVERY PLAN
• Suitably Qualified Team appointed
• Key Elements/Functional areas on Financial Recovery Plan
– Institutional Capacity
– Financial Management
– Service Delivery and Infrastructure
– Governance and Public Participation
UMZINYATHI DISTRICT MUNICIPALITY
• Municipal Assessment undertaken based on
- Annual financial statements
- Provincial Treasury Section 71 MFMA Reports
- Audit Report 2011/2012 Financial Year
• Consultation on status of Municipality by MEC for COGTA and
MEC for Finance, with Mayor (Section 136 MFMA)
• Submission of Cabinet Memorandum, Deployment of
Intervention Team, Recovery Plan
UMZINYATHI: MUNICIPAL ASSESSMENT
Assessment findings in terms of Section 131(2)(a) of the MFMA
•
•
•
•
•
Legal costs: Budget R220 000 vs actual R653 000
Indigent support: Budget R60 000 vs actual R264 809
Security: Budget R200 000 vs actual R1 575 335
Original Budget R 360 177 620 vs actual budget R 378 660 111
Operating deficit in excess of five percent of revenue in the last
three financial years
• Grants R15 million not cash backed – 2011/2012
• Grants R17,225 million not cash backed – 31 January 2013
• Poor liquidity ratio – Assets to Liabilities 2:1 ideal
UMZINYATHI: MUNICIPAL ASSESSMENT
Assessment findings in terms of Section 131(2)(a) of the MFMA Cont/d
• Additional institutional matters:
– Appointment of a consultant CFO
– Significant increase in security
– Recruitment process
– Allegations of maladministration
• Technically insolvent
– Negative cash coverage
– 73% Capital budget spent
– Unspent conditional grants
– Various SCM weaskness
UMZINYATHI: BASIS OF
DISCRETIONARY INTERVENTION
• Umzinyathi District Municipality met the criteria in
terms of section 139(1) of the Constitution as well as
those for determining serious financial problems and
consequently for a discretionary intervention by the
MEC responsible for local government in accordance
with section 138 of the MFMA as follows:
– The municipality has failed to make payments as and when
due;
– The municipality has defaulted on financial obligations for
financial reasons; and
– The municipality had an operating deficit in excess of five
per cent of revenue in the most recent financial year for
which financial information is available.
UMZINYATHI: FINANCIAL RECOVERY PLAN
• Suitably Qualified Team appointed
• Key Elements/Functional areas on Financial Recovery Plan
–
–
–
–
–
–
–
–
–
–
–
–
Strategic context and performance management systems
Legal context and compliance
Governance
Human capital
The Organisation
Revenue Management/Debtors
Expenditure Management/Budget Performance
Accounting Treatment
Liquidity/Cash Flow
Asset Management
Supply Chain Management
Technical Services
MANDATE OF EXPERTS
• To prepare a financial recovery plan
• Adoption of the recovery plan by the council of Municipality
• Implementation of the recovery plan in accordance with section 145
of the MFMA
• Review the provincial intervention
• Coordinate all support
• Ratify all recommendations
• Provide guidance and advice
COMMENTS ON RECOVERY PLANS
The respective Intervention teams as stipulated in Section 141(3) (c) of
the MFMA are in process of obtaining comments from various roleplayers, as follows
• The Municipality;
• The MEC for finance and the MEC for Local Government ;
• Organised Local Government in the Province;
• Organised Labour;
• Or request, any supplier or creditor of the municipality; and
• Comments from the Community.
PROGRESS ON THE RECOVERY PLAN
It must be noted that whilst currently in the process of obtaining final
approval on the three Intervention Recovery plans, the Intervention
teams have prioritised functional areas on the plan and have
commenced work on same, namely analysis of the 2013/2014
Financial Year Municipal budget and preparation of the 2011/2012
Annual Financial Statements. It must be noted that the amendment to
the recovery plan may be necessary, subject to the changing
circumstances of the respective intervention. In such instances the
correct procedure as legislated in terms of Section 144 of the MFMA.
CONCLUSION
The Uthukela and Ugu recovery plans are comprehensive
in encapsulating the main issues that resulted in the
Municipality experiencing serious cash flow problems, and
attaching corrective measures to stabilise the municipality.
The functional area in respect of the Technical Support
required by the Municipality will be included in the
Umzinyathi District Municipality Recovery Plan.
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Tel: +27(0) 33 395 2831
Fax: +27(0) 33 345 6432
E-mail: hodenquiries@kzncogta.gov.za
Website: www.kzncogta.gov.za