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(B) at UMKHANYAKUDE DISTRICT MUNICIPALITY 16 FEBRUARY 2016

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(B) at UMKHANYAKUDE DISTRICT MUNICIPALITY 16 FEBRUARY 2016 KWAZULU NATAL PROVINCIAL EXECUTIVE COUNCIL INTERVENTION IN TERMS OF SECTION 139(1)(b) AT UMKHANYAKUDE DISTRICT MUNICIPALITY 16 FEBRUARY 2016 PRESENTATION TO THE NATIONAL COUNCIL OF PROVINCES SELECT COMMITTEE ON COOPERATIVE AND TRADITIONAL AFFAIRS Ms NOMUSA DUBE NCUBE (MPL) MEC FOR COOPERATIVE GOVERNANCE AND TRADITIONAL AFFAIRS TABLE OF CONTENTS 1. PURPOSE 2. FORMALITIES 3. BACKGROUND 4. BASIS FOR INVOKING SEC 139 AT UMKHANYAKUDE 5. RESOLUTIONS OF THE PROVINCIAL EXECUTIVE COUNCIL 6. SUMMARY PROGRESS REPORT ON THE RECOVERY PLAN 7. DROUGHT RELATED MATTERS 1 1. PURPOSE The purpose of the this report is present to the Select Committee on Cooperative Governance and Traditional Affairs (the Select Committee) the reasons for the intervention in terms of section 139 of the constitution at Umkhanyakude DM as well as ancillary matters 2 2. FORMALITIES • On 7 October 2015 the Provincial Executive resolved to intervene in Umkhanyakude District Municipality in terms of section 139(1)(b) of the constitution • On 08 October 2015 the Minister and the NCOP were notified of the decision to intervene in line with section 139(2) of the constitution • The Minister approved the intervention within the prescribed timeframe of 28 days • The NCOP on the other hand has until the 6 th of April 2016 to either approve or disapprove the intervention 3 4 3(a) BACKGROUND UMKHANYAKUDE DM AND FAMILY OF MUNICIPALITIES POLITICAL REPRESENTATION NUMBER NUMBER EXCO POLITICAL PARTY MUNICIPALITY OF SEATS OF SEATS SEATS REPRESENTATION ON COUNCIL 2011 2016 2011 ANC IFP NFP Umkhanyakude DM 29 31 5 14 10 5 Umhlabuyalingana LM 34 35 6 22 8 4 Jozini LM 40 40 8 21 15 4 Big 5 False Bay LM* 7 Plenary 3 3 1 25 Hlabisa LM* 16 3 4 9 3 Mtubatuba LM 38 40 5 16 15 7 * Municipalities merging after the 2016 local government election Notes • As can be seen above, no party obtained sufficient majority to govern on its own at the District Municipality, thus the municipality is governed by a coalition between the ANC and the NFP • The UKDM ExCo is constituted as follows: 2 ANC, 2 IFP and 1 NFP. 4 3(b) BACKGROUND (cont.) • For a number of years, the municipality was limping from one problem to another. The problems were indicated by persistent governance, financial and service delivery challenges that the municipality was unable to resolve despite provincial and national government support. • During the first quarter of 2015 several indicators from the municipality itself, from KZN Cogta, from the DWS and from Provincial Treasury showed that the municipality was experiencing serious governance, financial and service delivery problems. • As a consequence, on 27 March 2015 Cogta proposed a self- imposed Recovery Plan and Payment Plan which was accepted by the municipal council. However management failed to implement the Recovery Plan and Payment Plan between April and June 2015. 5 6 3(c) BACKGROUND (cont.) • In July and August 2015 KZN Cogta and Provincial Treasury deployed a Support Team comprising of financial, technical and governance experts at the municipality in line with Sec 154 of the Constitution. • Engagements were held with different stakeholders on the 8 th , the 21 st and the 24 th of September 2015 including the municipality itself, DWS, Salga, Provincial Treasury, Political Leadership and Labour Unions. • It was at these engagements where it became apparent that the Support Team was unlikely to succeed in turning around the municipality unless the intervention was elevated to a section 139 constitutional intervention. This course of action was then recommended to the Provincial Executive by the MEC for CoGTA 6 7 4(a) BASIS FOR INVOKING SEC 139 AT UMKHANYAKUDE GOVERNANCE AND INSTITUTIONAL MATTERS • The Council and the Executive Committee were meeting regularly, however the implementation monitoring (oversight) and lack of consequence management pointed to poor performance on the part of ExCo and Council. • Portfolio committees and the Municipal Public Accounts Committee (MPAC) were not meeting as they were supposed to, thus failing to exercise effective political oversight over management. • The municipality did not have an Audit Committee following the expiry of contracts of the previous committee. An Interim Audit Committee was appointed for three months pending the appointment of the Audit Committee proper. Their contracts had also expired before the Audit Committee proper could be appointed. • The municipality admitted that its organogram was bloated and could not be funded on a sustainable basis and that the municipality had in past years hired and absorbed staff in non- core functions. The municipality was failing to rectify this matter. • Despite numerous attempts by KZN Cogta to support the municipality and family of municipalities, intergovernmental structures as well as the associated technical support structures remained dysfunctional. 78 4(b) BASIS FOR INVOKING SEC 139 AT UMKHANYAKUDE (cont.) FINANCIAL VIABILITY AND MANAGEMENT • The cash flow situation at the municipality had deteriorated to the point where the municipality was persistently failing to meet its financial commitments . Thus the ability to pay back its short term liabilities, was 0.65:1 against the norm of 1.5–2:1 (circ. 71 National Treasury, 17 January 2014). • Although management had developed a cash flow plan, there was no commitment and urgency to take decisions that were critical to the sustainability of the institution • The 2014/15 AFS of the municipality showed that the municipality had only about R12.6 million in cash and cash equivalents against unspent conditional grants of R31.5m as at 30 June 2015 pointing to the use of conditional grants to fund operating expenditure • The Municipal Manager had admitted that the municipality had outstanding creditors of R130m as at 30 June 2015 which indicated poor financial and project management 9 4(c) BASIS FOR INVOKING SEC 139 AT UMKHANYAKUDE (cont.) FINANCIAL VIABILITY AND MANAGEMENT • The Provincial Treasury found both the operational and capital budget of the municipality to be unfunded / in deficit to the amount of R117m, this was later reduced to R57m. • The internal control environment remained weak. The management persistently failed to implement policies and procedures of the municipality leading to the ballooning of Unauthorized, Irregular or Fruitless and Wasteful (UIWF) expenditure. • The municipality adopted cost cutting measures at the beginning of 2015 but management failed to implement the measures. • During the 4 th quarter (ending 30 June 2015) the KZN Cogta quarterly assessment found that the municipality’s poor revenue collection record persisted at 44% against the norm/benchmark of 95% (circ. 71 National Treasury, 17 January 2014). 8 10 4(d) BASIS FOR INVOKING SEC 139 AT UMKHANYAKUDE (cont.) BASIC SERVICE DELIVERY FAILURES • The municipality remained one of the poorest performers in terms of the “blue drop” assessments conducted by DWS. • The municipality remained one of the poorest performers in terms of the “green drop” assessments conducted by DWS. • Project management and supervision of consultants was poor. 9 4(e) BASIS FOR INVOKING SEC 139 AT UMKHANYAKUDE (cont.) FINANCIAL VIABILITY AND MANAGEMENT • The municipality consistently failed to produce an updated audit action plan to track the progress being made in addressing the issues raised by the AG in the 2013/14 management letter and audit report. • Due to cash flow challenges the the municpaltiy is struggling to pay its creditors. • Persistent poor audit outcomes: Qualified (2012/13), Qualified (2013/14) and Disclaimer (2014/15) 10 4(f) BASIS FOR INVOKING SEC 139 AT UMKHANYAKUDE (cont.) BASIC SERVICE DELIVERY FAILURES • The municipality was utilizing conditional grant funds, MIG funds in particular, to meet operating expenditure, in contravention of the grant conditions as prescribed in sec 17 of the Division of Revenue Act, 2015 • The absence of a revised Water Service Development Plan (WSDP). According to DWS, the last revision was dated February 2012 • Under-spending on the 2014/2015 Municipal Infrastructure Grant (MIG) programme resulted in R40m of the original allocation of R206m being stopped in terms of section 19 of the Division of Revenue Act (Act 10 of 2014) • The municipality had lost the 2014/2015 implementing agent status for the Municipal Water Infrastructure Grant (MWIG) • The municipality also lost their Accelerated Community Infrastructure Programme (ACIP) funding for 2015/16 which was given to Mhlathuze Water to implement the 3 waste water treatment works (WWTW) refurbishments for uMkhanyakude (R13m) 11 4(g) BASIS FOR INVOKING SEC 139 AT UMKHANYAKUDE (cont.) BASIC SERVICE DELIVERY FAILURES • The expenditure on Repairs and Maintenance in 2013 / 2014 was 2.46% of PPE (Property, Plant and Equipment), as extracted from the AFS for that financial year. • The 2014/15 budget for repairs and maintenance for the year was slightly higher at 2.52% of PPE. The norm is 8% (circ. 71 National Treasury, 17 Jan 2014). • The municipality did not have a planned and preventative maintenance programme in place, nor funds to finance such a programme. Consequently, this had a negative impact on confidence levels in the value placed on PPE. 12 4(h) BASIS FOR INVOKING SEC 139 AT UMKHANYAKUDE (cont.) OTHER MATTERS • Back To Basics Support Plan - The municipality took too long to adopt their Back to Basics Support Plan. The assessment of the programme in the municipality as at end of quarter four (30 June 2015) showed that the municipality had to be re-categorised from being
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