PROVINCIAL INTERVENTIONS KWAZULU-NATAL Report to the Select Committee on Local Government 04 March 2008
CONTENT • Purpose • Report on New Interventions • Amajuba & Umzinyathi Districts and Newcastle Local Municipalities • Impendle Local Municipality • Greater Kokstad Municipality • Progress Report • Emadlangeni Municipality • Abaqulusi Municipality • Background • Status
PURPOSE • To provide the Select Committee with a report on interventions by the Provincial Executive of KwaZulu-Natal in Municipalities in terms of Section 139 of the Constitution • Five interventions
Amajuba & Umzinyathi Districts and Newcastle Local Municipalities
BACKGROUND • On 5 December 2007 the Provincial Executive Council resolved to intervene in terms of section 139(1)(b) of the Constitution in the Amajuba District, the Umzinyathi District and the Newcastle Local Municipalities and to assume the responsibility for their municipalities’ water service authority functions.
REASONS • Long outstanding resolution of issues raised in a forensic investigation • Lack of commitment by parent municipalities to address findings • Community dissatisfaction with service delivery • Allegations of maladministration, fraud and corruption • Non-compliance with various legislative imperatives • MFMA: Non-submission of AFS • MFMA: Transfer of Assets & Liabilities • M Systems Act: Provisions related to municipal entities • Companies Act: Registration etc. • Disjuncture between parent municipalities and the entity • Budgets • Reporting • Communication • Shareholder and Board decision making
MEC MANDATE • Appoint a multi-disciplinary task team of specialists to undertake a forensic investigation and a comprehensive assessment of the operations, management and finances of uThukela Water (Pty) Ltd. • Undertake the section 78 assessments in the respective municipalities and to prepare recommendations for the future provision of basic water supplies to the respective communities. • Undertake any actions necessary to ensure the provision of basic water supplies to the communities of the respective water services authorities. • Appoint a multi-disciplinary task team of specialists to manage uThukela Water (Pty) Ltd pending the outcome of the above assessments. • Suspend or recall all Directors of uThukela Water (Pty) Ltd as contemplated in the Local Government: Municipal Systems Act, 2000 as necessary. • In the execution of the above mandate the MEC is to ensure the adoption and implementation of outcomes by the three water services authorities and must also devise an exit and handover strategy to the future water services provider as determined through the intervention.
INTERVENTION ACTIVITIES • Meeting with WSAs: 29 February 2008 • Meeting with Board of Directors: 03 March 2008 • Appointment of Administrator, Mr D Naidoo of Umgeni Water, to perform the functions of the Board of Directors as per section 93H of the Municipal Systems Act. • Technical Support by Mr Frank Stevens of eThekwini Metro in the management of uThukela Water (Pty) Ltd, to ensure service delivery, as well as to do an assessment of the operational structures, procedures, systems and policies of the entity. • Ngubane & Co have been appointed as the preferred service provider, to do the performance review and forensic investigation originally intended by the parent municipalities.
OBJECTIVES OF PERFORMANCE REVIEW & FORENSIC INVESTIGATION • Undertake a performance review in terms of section 93C of the Municipal Systems Act read in conjunction with section 87(5)(d) of the Municipal Finance Management Act. This review is necessary to determine the performance of the entity against its objectives and indicators. • Evaluate the financial situation and actions taken by the Board to correct the financial situation to establish action to be taken in terms of section 109 of the MFMA. Consider the annual budgets submitted by UThukela Water, (the municipal entity), to parent Municipalities taking cognizance of increases thereto in relation to the improvement or extension of water services with a view to reviewing whether the originally anticipated economies of scale were being realised or not. • To audit and review general compliance with the legislative and policy prescripts which may point to possible maladministration or non-performance such as the non-submission of annual financial statements for auditing to the Auditor-General since the establishment of the entity as a result of which the Auditor General has been issuing qualified reports to the parent municipalities. • To investigate a number of issues which came from the first forensic to determine whether recommendations have been implemented. • To investigate certain specific new issues.
SCOPE OF PERFORMANCE REVIEW • To review the business structure through the assessment of the current legal status, form of organizational structure, staffing, other statutory status and its constitutions [Memorandum and Articles of the Association]. • To review institutional arrangements and interactions and reporting to the parent municipalities through an assessment of all contracts and commitments by parties. • To review the business's financial health based on a detailed examination of financial information including budgets, statements, reports to the board of directors and an analysis of the existing asset base. Assess performance with regard to current cash flow and financial status/sustainability of UTW. • Verify and confirm assets, liabilities, revenue and expenditure of the entity and the ability of the entity to meet payment obligations. • The future potential of the business reflected in the strengths of its service delivery and the probability of reduced financial burden on the part of the parent municipalities over the medium- to long-term. • To review the mechanisms for service delivery including the detailed assessment regarding the roles, functions, influence and value-added by any external service providers to the entity, their role in the organization and including agreements concluded with them. • To assess the tariff related to the compliance of the status quo with the objectives of SP2030 and the original business plan submitted to DWAF in 2004 [Shareholders Meeting No. 7 dated 09 December 2004]. • The compliance with laws and regulations governing the municipal entity: the MFMA, the Companies Act, the Municipal Systems Act and the PFMA have detailed compliance issues which the entity must comply with. Verify and report the extent to which such requirements have been met, which will include the review of the minutes of the board of directors. • Such assessment should deal generally with any anomalies and inconsistencies found in the management and decision making of the organization and the board.
PERIOD UNDER REVIEW • The performance assessment will cover the period since establishment of the entity from 2004 to date. • The forensic investigation will cover the financial years 2005/2006, 2006/2007 and the current 2007/2008 to date.
TIMEFRAMES • The draft report is required to be submitted within two months of engagement. • A final report is to be submitted within three months of engagement. • Maximum period of intervention is six months.
REASONS • Suspension of senior management team for an extended period of 18 months • Failure to implement provisions of the MSA relating to contracts for Section 57 employees • Lack of progress on support programmes due to a lack of commitment • Serious deficiencies in AG report for the past three financial years • Failure to approve budget in terms of MFMA and serious shortcoming on budget • Failure by council to appoint senior management including: • MM • CFO • Technical Services Manager • HR Manager
MEC MANDATE • Appointment of a multi-disciplinary task-team of specialists with the appropriate expertise and knowledge in the applicable fields to assume the following obligations of the Impendle Municipality: • to investigate and address the failure of the municipality to provide services in a sustainable manner to practise good human resource management, to procure goods and services in accordance with a system which is fair, equitable, transparent, competitive and cost-effective; • to investigate and address the failure of the municipality to provide an economic, accountable, effective and efficient administration; • to investigate and address areas of shortcomings in the municipal administration; • to ensure that the municipal manager is properly appointed; • to ensure that senior municipal managers are appointed within the means and requirements of the municipality; • to address the shortcomings in the municipality’s management systems and financial systems and controls identified by the Auditor General; • to identify and address the issues of concern arising from the 2007/2008 budget; • to support the administration of the municipality; • to assist the municipality in filling key posts within the means and requirements of the municipality; • to regularise the municipality’s Human Resource and management systems; and • Task-Team so appointed to report to the Executive Council on any action taken in terms of their mandate.
PROGRESS • A detailed recovery plan has been drafted incorporating: • Organisational review • Recruitment of staff • Operational systems, policies and procedures • Compliance • MFMA & Financial Management • Annual Report • SDBIP • SCM • Internal Audit • Budget Review • Councillor Allowances • MSA • IDP • Performance Management • Employment Contracts • An acting Municipal Manager has been deployed to the municipality by the Provincial Department and has been appointed in such capacity by the municipal council • A financial management expert has been sourced from the DBSA and is providing the required support • Corporate service and Human Resource expertise has been accessed from the adjacent Umgeni local municipality to render support in this functional area
TIMEFRAMES • Six month duration or until senior management has been appointed • Individual projects/activities – as per the recovery plan • Monthly reporting to provincial department
REASONS • Failure to meet creditor obligations: Eskom • Poor cooperation and inability to achieve objectives of support programmes run jointly by various stakeholders including: • DLTGA • DPLG • DBSA • Sisonke District • Failure to comply with statutory timeframes for budgetary process • Disclaimed audit opinion • Poor financial management systems • Lack of controls • Debt Management • Asset Management • HR Matters • Negative performance audit opinion from AG
REASONS • Failure to fulfill specific executive obligations: • IDP not reviewed annually • PMS not adopted • Service delivery performance • No internal audit reports • No PMS report. • Annual report
MEC MANDATE • Directive: • Greater Kokstad Municipality to appoint a multi-disciplinary task team in consultation with and upon instruction of the MEC to: • Review affairs, administration and financial management • Refine a turnaround strategy • Municipality to: • Cooperate • Undergo capacity empowerment • Report to Executive Council • MEC to take such steps necessary to give effect to resolutions
PROGRESS • Provincial department providing support on matters arising from AG report • Financial and technical expertise from DBSA • Draft turn-around strategy received • Awaiting confirmation of details of multi-disciplinary task team
TIMEFRAMES • Individual projects/activities – as per the recovery plan • Specific request to Department to assist in addressing audit issues – Audit readiness programme by June 2008 • Monthly reporting to provincial department
PROGRESS • Previously reported to Select Committee on 23 October 2008 • Special Committee fieldwork complete • Disciplinary hearings concluded • Final Report to MEC in one week for review
PROGRESS • Acting MM • Recovery Plan developed and being implemented • MFMA & Financial Management • Revenue Enhancement and Debt Recovery • Systems, policies and procedures • Audit issues • Asset Management • VAT • LED: Game Park • Organisational Structure and HR matters • Acting CFO • Departmental Funding
PROGRESS • Background • Council dysfunctional • In-fighting • Removal from office of councillors • No quorum • Status • Intervention has ended • Election of new council – March 2006 • MM and Section 57 employees in place