SCOLG Meeting

1. update on corrective measures done by western cape provincial treasury (WCPT) in addressing underperformance in municipalities (AUDIT OUTCOMES) SCOLG Meeting • WCG- Standing Committee on Local Government • WCPT - MFMA Team

2. Table of Content • Current WC Governance Context • WCPT Governance Approach • Submission of 2018/19 Annual Financial Statements (AFS), Audit Files and Asset Registers • Support to municipalities with Disclaimer and Adverse Audit Opinions • WCPT Support Initiatives to municipalities relating to – UIFW, Consequence Management, SCM, Financial Governance, Public Finance and Cash Management Items Impacting on Municipal Audit Outcomes • Joint District Approach as a lever in addressing Municipal Support Initiatives Going Forward

3. Current WC Governance Environment • Challenges with effective political and administrative leadership – Accountability Failures • Shortage of requisite skills and competencies in local government • Increased allegations i.t.o fraud and corruption • Ineffective utilisastion of assurance providers to improve the design and implementation of internal controls • Ineffective consequence management • Stagnant Economic outlook for the Western Cape - Transversal economic, budget and service delivery risks must be considered. • Financial viability of municipalities linked to cost and quality of services • Progressive MFMA reform agenda vs the municipal capacity to implement • Continuous introduction of new laws without the pre-emption of implementation challenges and the impact on efficiency of service delivery • Increase cost of compliance with little/no impact on service delivery

4. WCPT’s Governance Approach Linked themes of WCG– Governance for Performance Impact Eliminating Poverty and Reducing Inequality 1. Policy making in a complex environment 3. Economy and Employment 4. Economic Infrastructure 5. Environmental Sustainability 8. Transforming Human Settlements 9 Improving Education, Training and Innovation 10. Health Care for all 12. Building safer communities 13. Building a Capable Developmental state 15. Nation building and social cohesion “To realise an open-opportunity society for all, so that residents of the Province can use their freedom to live lives they value.” ECONOMY & A JOB IN EVERY HOUSEHOLD EMPOWERINGPEOPLE SAFE AND COHESIVE COMMUNITIES PUBLIC TRANSPORT, MOBILITY & SPATIALTRANSFORMATION INNOVATION & CULTURE

5. WCPT’s Governance Approach – An integrated and outcome-based Governance Approach • Provincial Treasury’s mandate: A responsiveandinclusiveTreasury that enables positive change in the lives of citizens - below are some of the enablers to be utilised: • effective resource mobilisation and sound fiscal management, • the effective and efficient use of resources, • effective financial oversight (Leadership on all levels including the focus on culture), • building capabilities of local governance to enable resilience, agility and innovation. The Western Cape Provincial Treasury therefore takes an integrated outcome-based approach to good financial governance.

6. Submission of 2018/19 Annual Financial Statements (AFS), Audit Files and Asset Registers • Except for Kannaland Municipality, every other municipality within the Province, complied with the MFMA legislative prescripts regarding the submission of AFS and Annual Performance Reports, including review by the Audit Committees. • Provincial Treasury in concert with the Department of Local Government is monitoring the finalisation of the AFS by Kannaland Municipality. (Expected Submission date : 15 October 2019). • Operational matters – Delayed finalization of the prior year audit, prevented the timeous submission of AFS by Kannaland Municipality. • Review of Annual Financial Statements by Provincial Treasury • Provincial workshop with municipal assurance providers in respect of upcoming audit, legal prescripts and how to enhance combined assurance within SCM environment (role of SCM manager, Line manager, Audit Committee, Internal Audit and Risk functions) – 20 June 2019 • Invitation extended to all municipalities to submit AFS for review by Provincial Treasury. Reviews completed in respect of the following 17 municipalities: Beaufort West, Bergrivier, Cape Agulhas, Cape Winelands DM , Central Karoo DM, Drakenstein, Knysna, Laingsburg, Matzikama, Mossel Bay, Oudtshoorn, Overstrand, Prince Albert, Saldanha Bay, Theewaterskloof, West Coast DM and Witzenberg.

7. Support to municipalities with Disclaimer and Adverse Audit Opinions (SPECIFIC DETAILS PER MUNI) • No Municipality received a Disclaimer or Adverse opinion within the Province for the 2017/18 FY.

8. PT Support Initiatives : Unauthorised, Irregular, Fruitless and Wasteful Expenditure and Consequence Management (1) • The 2018/19 Strategic Integrated Municipal Engagements (SIME 1 & 2) and the Technical Integrated Municipal Engagements (TIME) as part of the Integrated Work Plan (IWP) were utilised as vehicles to identify solutions, synergies and opportunities for partnerships to embed good governance practices and addressing persistent municipal governance challenges. • SCM forum March 2019 – provided a platform for municipal CFOs and SCM managers to engage with the Auditor General regarding the SCM interpretation challenges • Provincial workshop with municipal assurance providers as how to enhance combined assurance within SCM environment (role of SCM manager, Line manager, Audit Committee, Internal Audit and Risk functions) – 20 June 2019 • In-year monitoring engagements by Provincial Treasury and Department of Local Government • Municipal audit readiness assessment took place in July 2019 • •

9. PT Support Initiatives : Unauthorised, Irregular, Fruitless and Wasteful Expenditure and Consequence Management (2) • The Provincial Treasury during the audit process provided weekly support to municipalities in respect of their audit challenges in terms of CoMAF’s, issued and liaised as and when required with both National Treasury and AGSA on these transversal issues • Awareness at relevant forum targeting relevant role players i.t.o roles and responsibilities as it pertains to the implementation of the financial misconduct regulations • Monitoring and support to municipalities i.t.o implementation of financial misconduct regulations • Development of process maps i.t.o financial misconduct regulations – currently at National Treasury for comment • Training provided to MPACs across the 5 districts i.t.o the NT MPAC guide and toolkit from November 2018 to June 2019 • Development of Single Support Plan for Municipalities in concert with the Department of Local Government where amongst others; the Development of a Procurement Toolkit to assist and support municipalities with procurement planning and implementation was identified – To be completed March 2020. • •

10. PT Support Initiatives : Unauthorised, Irregular, Fruitless and Wasteful Expenditure and Consequence Management (3) • Financial Governance training and capacity building initiatives: Bespoke Accredited training calendar via School of Public Leadership: Stellenbosch University issued to Municipalities in August 2019. responsive to MFMA reforms and the following capacity building areas o Public Sector Governance and Assurance Functions o Supply Chain and Asset Management - Data Analytics and SCM modular training o Revenue, Expenditure and Cash Management o Predetermined Objectives o Financial Reporting - Annual Financial Statements • Financial Management Support Grant provides financial assistance to municipalities to improve overall financial governance – Refer 2019 WC Appropriations Act – LG Allocations • Financial Management Capacity Building Grant provides financial assistance to municipalities to build a skills pipeline within municipal areas - Refer 2019 WC Appropriations Act – LG Allocations • Engagement with NT and AG towards an alternative dispute resolution process – Matter under discussion by the Provincial Accountant-General Forum chaired by the National Accountant General.

11. Update on SCM : Response to addressing the Audit Outcomes: 2017/18 • Provincial Treasury will be meeting with NT: OAG and OCPO in September 2019 on the audit outcomes. The discussions included the impact of the audit on service delivery. • District Combine Assurance workshops are currently being conducted to capacitate Internal Auditors and Risk Management Officials District, Bid Committee Members, Line Managers and SCM officials. The workshops are aimed at early detection mechanism. Workshops took place at the following Districts: • Central Karoo District – 3 September 2019 • Garden Route District – 10 September 2019 • Garden Route District – 11 September 2019 • Key Risk Areas for the 2018/19 audit : Special attention will be given to high risk SCM areas, Bid Committee structures, Management of Infrastructure projects and Contract Management, B-BBB Regulations, SCM Regulation 32, Local Content, Deviations, Suppliers in the service of the state – Monitoring CSD. • The accredited training via the University of Stellenbosch will address the regression of the past audit. “Addressing the supply chain management audit outcomes by focussing on material non-compliance which led to irregular expenditure”

12. Update on SCM – SCM Initiatives: 2019/20 Financial Year The following SCM Initiatives took place as listed: i-Develop Workshop - 01-02 August 2019 at Kromme Rhee in Stellenbosch. LED-SCM INDABA: A collaborative initiative between Provincial Treasury, Department of Economic Development and Tourism (DEDAT), Department of Environment Affairs and Development Planning (DEADP) and WC municipalities will be held on 14-15 November 2019 at ATKV Hartenbos in Mossel Bay. Virtuous Cycle (VC) SCM Assessments were done at the following municipalities, to check for compliance: Theewaterskloof (31st July – 02nd August 2019) Langeberg (19-23 August 2019); and SCM Training Projects to commence in October 2019: 4 training sessions will take place for the 2019/20 FY.

13. Update on SCM – Way Forward • 2 VC SCM assessments will be done at the following municipalities; Matzikama (16 – 20 September 2019) and Kannaland (30 September – 04 October 2019) to follow next. • B-BBEE Workshop will be held on the 20 September 2019, at Stellenbosch Municipality with the BEE Commission to address compliance to the BEE Regulations. • Meeting with LED Managers, DEDAT and DEADP, refining the LED initiatives for the LED-SCM Indaba on 17 September 2019 at Investor Centre, Cape Town. Steercom Meeting for LED-SCM Indaba taking place on 27 September 2019 in Mossel Bay. • Bespoke Training on CSD,E-Portal, CRA and Supplier Evidence Bank for the Garden Route and Central Karoo District Municipalities taking place from 25-26 September 2019 in George. • Various Local Content Workshops in all five Districts to take place during the month of October 2019 in collaboration with PGSCM and DEDAT. • Municipalities will be kept abreast of all developments related to the Audit Outcomes. Compiling an audit readiness checklist for municipalities based on the 2017/18 audit. (Things to look out for/early detection). The toolkit will also focus on the emerging risk.

14. Progress on implementation of FMCMM action plans • During 2019, five (5) municipalities, namely Beaufort West, Bitou, Kannaland, Knysna, and Laingsburg submitted their FMCMM reassessments to Provincial Treasury and have been requested to develop action. • As part of the MGRO process, these 5 municipalities are being monitored and monthly reports generated through the In-Year Monitoring.

15. PT Support Initiatives: Public Finance and Cash Management (Overdrafts, Withdrawals, Investments) • Entrenched as part of the MFMA Section 71 IYM process. • Confirmation of Bank balances and Investments as stated in AFS prepared 31 August 2019 furnished to National Treasury - LGBA on 16 September 2019. • Continuous engagements and discussions (assessments) with the municipality on the overdraft issues. Municipalities advised to cut the non-essential expenditures Municipalities Experiencing some liquidity risk are: • Matzikama, Cederberg, Witzenberg, Drakenstein, Breede Valley, Overberg, Theewaterskloof, Kannaland, Mossel Bay, Bitou, Knysna, Central Karoo, Laingsburg and Beaufort West this is due to the fact that their reported liquidity ratios are less than 1:1. • These Municipalities are continuously engaged via normal and adhoc monthly IYM letters and Engagements on how to improve on this

16. Conclusion and Way Forward • The Department is committed to the Joint District Approach as a lever in addressing Municipal Support Initiatives to assist with the drive to improve financial governance, integration, co-planning, budgeting and implementation.