BRIEFING TO THE SELECT COMMITTEE OF FINANCE

1. BRIEFING TO THE SELECT COMMITTEE OF FINANCE Progress of Free State Municipalities 28 May 2013

2. Table of Contents • Progress made on recommendations • Presentation - Free State Provincial Treasury • MEC’s Intervention; • Municipal Budgets & IYM; • Municipal Compliance & SCM; • Municipal Revenue & Debt; • Municipal Risk & Internal Audit; • Municipal Accounting Services; • Unauthorised, Irregular, Fruitless & Wasteful Expenditure; and • Support at Nala Municipality.

3. Table of Contents (Cont…) • Presentation - Department of Cooperative Governance & Traditional Affairs • Municipal Public Accounts Committees (MPAC’s); • Management Support Program; • Caseware and IMESA Projects; • Audit Outcomes; • Timeframes for Implementation of Valuation Rolls; • Appeals against property valuations; • Property Rates Policies & By-Laws; • Legal Services; • MIG Expenditure – 30 April 2013; • KPMG Forensic Report – Nala; • Ramathe-Fivaz Forensic Report – Matjhabeng; and • Section 106 Investigations (Selesho Commission) – Matjhabeng.

4. Progress made on recommendations

5. Progress made on recommendations

6. FREE STATE PROVINCIAL TREASURY

7. MEC’s Intervention • MEC conducted onsite meetings with the Mayors, MMC’s, MM’s and CFO’s at following municipalities that have been identified as struggling: • MEC conducted unannounced visits at Moqhaka and Dihlabeng municipalities during their budget public participation meetings. • MEC’s office attended budget bilateralssessions with 22 FS municipalities on the draft budgets for the 2013/14 financial year. • Feedback letters were submitted to Mayors on draft budget evaluations on credibility, sustainability and relevance on the 22nd May 2013.

8. MUNICIPAL BUDGETS & IYM

9. Section 21(1)b of the MFMA, requires the Mayor of the municipality to tabled in the Municipal Council a table of key deadlines for preparation, tabling and approval of the annual budget. Municipal Budgets – Compliance

10. Section 16(2) of the MFMA, requires the Mayor of the municipality to tabled the annual budget at Municipal Council at least 90 days before the start of the budget year. Municipal Budgets – Compliance

11. Bilaterals & Support 2011/12 Support was provided to the following municipalities: 2011/12

12. Bilaterals & Support 2012/13 Support was provided to the following municipalities:2012/13

13. Bilaterals & Support 2013/14 Support was provided to the following municipalities:2013/14

14. Training of Service Delivery and Budget Implementation Plan was conducted during the month of August 2012 for all municipalities. There has been significant improvement with regards to submission of SDBIP as a result of the support provided to senior managers of municipalities. This resulted in an increase in submissions from 5 the previous year to 19. Continuous technical support is provided on municipal budget returns and document Monthly Municipal infrastructure meetings (MIG ) which are arranged by COGTA are attended by the Provincial Treasury to monitor progress on infrastructure programmes Training Provided

15. Section 71 Reporting - Provincial Treasury’s In-year Monitoring (IYM) reports are in compliance to Section 71(6) and & 71(7) of the MFMA. Non-compliance letters and support is provided to municipalities. Section 71 reports credible has improved since prior financial years Disputes – Bulk Service Providers Provincial Treasury had dispute resolution meetings with the following municipalities: Municipal IYM - Support

16. MUNICIPAL COMPLIANCE & SCM

17. Municipal Compliance & SCM - Support Supply Chain Management • Centralized Provincial Supplier Database Launched in Xhariep District and will be rolled-out to other districts; • SCM Toolkit in process of development; • Updating of SCM Unit and Bid Committee; • SCM information sessions conducted; • Training provided on Contract Management; Local Content; Uploading of Contracts Above R100k; • Assessment of SCM policies for alignment to Model Policy; • Reporting Formats being finalized for roll-out during quarter under review; and • Assisting municipalities with procurement plans for 2013/14.

18. Municipal Compliance - Support Compliance • Supported municipalities with compliance to the Minimum Competency Regulations; • Rolled-out 30 MFMA Monitoring Indicators and municipalities have shown progress in implementation; • Rolled-out revised system of MFMA delegations to 22 of 23 municipalities; • Conducted Municipal Interns Forums to assist with capacity building of interns; and • Provincial Capacity Building Forum in place in collaboration with CoGTA, SALGA and LGSETA. • Minimum competency levels, 102 registered with SAICA, 22 modules completed and 93 is registered with DBSA and 85 registered with Wits Business (CPMD). • SMC – 22 municipalities applied to NT, Maluti a phofung is in the process of application.

19. MUNICIPAL REVENUE & DEBT

20. Municipal Revenue & Debt - Support Intergovernmental Debt Steering Committee • Intergovernmental debt was reduced by ± 60% since the establishment of the Committee • All municipalities are supported by the Committee

21. Municipal Revenue & Debt - Support Revenue Committees (Household and Business debt has increased) • To reduce the debt position, the following municipalities established revenue committees: • Kopanong, Mohokare, Masilonyana, Tokologo, Setsoto, Dihlabeng, Nketoana, Phumelela, Mantsopa • The following municipalities are in the process of establishing revenue committees: • Letsemeng, Naledi, Tswelopele, Matjhabeng, Maluti a Phofung, Metsimaholo Evaluation of policies • Revenue related policies were evaluated against minimum legislative requirements: • Tariff • Indigent • Credit Control & Debt Collection • Rates • Feedback provided to all municipalities

22. Municipal Revenue & Debt – Strategies / Initiatives • EXCO resolved that PT should support revenue and debt collection campaigns • PT Circular 27 required municipalities to submit indigent registers, lists of councilors, municipal officials and public servants owing municipal debt Municipal councillors • Verify that Councillors are not registered as indigents in indigent registers, Municipal officials • Verification of debt for municipal services by municipal officials and councillors Public Servants • Debt owed by public servants to be deducted from salaries

23. MUNICIPAL RISK & INTERNAL AUDIT

24. Risk Management Status (Xhariep. District)

25. Risk Management Status (Lejwe. District)

26. Risk Management Status (TM District)

27. Risk Management Status (FD. District)

28. Internal Audit Status (Xhariep. District)

29. Internal Audit Status (Lejwe. District)

30. Internal Audit Status (TM District)

31. Internal Audit Status (FD. District)

32. Risk management and Internal Audit Support • All Municipality’s Internal Audit and Risk Management activities were evaluated and recommendations were communicated to address each municipality to improve the compliance rate. • Trainings for both Audit and Risk Management were conducted. • Audit Committee chairpersons’ forum was established to address their in effectiveness. • PFMA Audit Team has been seconded to the following Municipalities to adress backlog Audits. • Phumelela Local Municipality • Masilonyana Local Municipality

33. Risk management and Internal Audit Support • Risk Awareness and Assessments are scheduled for the following Municipalities: • Naledi Local Municipality • Matjhabeng Local Municipality • Mantsopa Local Municipality • Lejweleputswa District Municipality • Quality assurance is scheduled to be performed for all Internal Audit Units. This project is a joint project with National Treasury.

34. MUNICIPAL ACCOUNTING SERVICES

35. Municipal Accounting Services - Support Masilonyana municipality • The municipality was supported during the audit process • Support was given in the compilation of the Annual Report in the new template. Although there was no commitment from the municipality, the new management have given an undertaking that the municipality will welcome the support from Provincial Treasury • Monitoring of the audit action plan was done • Support was given in the initial implementation of IMESA project Matjhabeng municipality • The municipality will be supported in the preparation of the 2012/13 Annual Financial Statements. Provincial Treasury will assist the municipality to ensure that the preparation for year end takes place. A detailed key activity has been developed and arrangements are being made to meet with the municipality • The meeting will also review the 2011/12 audit action plan for progress and verification thereof. We will also assist the municipality to draw up a timetable for the preparation of the AFS and there will be monitoring thereof.

36. Municipal Accounting Services - Support Naledi municipality • The municipality was supported during the audit process. 6 Audit Steering Committee meetings were attended by Provincial Treasury to render technical support to the municipality • Problems arising from the contract with Centlec that lead to disclaimer of opinion for Naledi are being attended to with the assistance from Provincial Treasury • A Delphi session to address the audit qualifications will be held next week • National and Provincial Treasury compiled a financial recovery plan for the municipality Mohokare municipality • The municipality was supported during the audit process. Three audit steering committee meetings were attended by Provincial Treasury • Support was given in the compilation of the Annual Report in the new template • A work session has been arranged for 04 June 2013 to prepare for the compilation of the 2012/13 Annual Financial Statements • Problems arising from the contract with Centlec that lead to disclaimer of opinion for Mohokare are being attended to with the assistance from Provincial Treasury

37. Municipal Accounting Services - Support Kopanong municipality • The 2010/11 Audit report was evaluated and comments given to the municipality • 9 Audit steering committee meetings were attended and assistance was given to deal with some of the audit queries. However, there were still issues that we could not assist with due to lack of information from the municipality. These issues are the following: • Landfill site. There was a rehabilitation projection done but we could not get the proof that the land belongs to the municipality • Classification of leases (cellphones) • Centlechas entered into an agreement with the Southern Hemisphere municipalities including Kopanong Local Municipality to provide electricity services on its behalf to its communities and Free State Provincial Treasury has in numerous attempt requested to secure appointment with Centlec in a process to facilitate assistance between the municipalities with the main purpose of the issues mentioned below and no success/response has been achieved to secure such appointment: • The impact of Centlec’s audit findings on Southern Free State Municipalities; • The processes in place to ensure financial and performance reports are submitted to the Southern Free State Municipalities on a monthly basis; and • The progress made towards addressing issues on the audit action plans.

38. Municipal Accounting Services - Support Mafube municipality • The municipality was supported during the audit process. 4 Audit Steering Committee meetings were attended by Provincial Treasury to render technical support to the municipality • A session was held with the municipality to determine the readiness of the municipality towards the compilation of the 2012/13 Annual Financial Statements. The biggest challenge at the moment is for the municipality to appoint a service provider to complete the compilation of GRAP compliant asset register • The municipality will be assisted with the compilation of the 2012/13 Annual Report on the new template Ngwathe municipality • The municipality was supported during the audit process, although the challenge during the 2011/12 financial year and part of the 2012/13 financial year there was no appointed CFO. The CFO has just been recently appointed • We assisted with the investigation into salary increases during the 2011/12 financial year • A session will be held with the municipality to address the qualifications in the 2011/12 audit report and to ensure that the municipality submit the 2012/13 financial statements on time.

39. Municipal Accounting Services - Support Phumelela municipality • An assessment of the 2010/11 audit report was done, and progress on the implementation of the audit action plan was monitored • The municipality was also supported during the audit process. Audit Steering Committee meetings were attended by Provincial Treasury to render technical support to the municipality • The municipality was assisted in monitoring the work performed by the service provider • Although the 2011/12 audit opinion was a disclaimer, the qualifications decreased to more than 40 in the 2010/11 audit report to 8 in 2011/12 one, 5 of which were on assets Setsoto municipality • Council was given training in understanding GRAPcompliant Annual Financial Statements • Support was given to the municipality during the 2011/12 audit process

40. Municipal Accounting Services - Support OTHER SUPPORT TO MUNICIPALITIES • GRAP training was held to ensure that municipalities are kept abreast with Accounting developments. • Training on the compilation of the Annual Report on the new National Treasury template was held • Audit Technical Steering Committee Meetings took place during the audit process. These are meetings held with AG(SA) and CoGTA to deal with technical issues picked up during the audit process. Significant achievements include a reduction of audit findings for municipalities. • The 2012/13 PROPAC resolutions will include the compilation of mid-year financial statements

41. UNAUTHORISED, IRREGULAR, FRUITLESS AND WASTEFUL EXPENDITURE

42. Unauthorised, Irregular, Fruitless and Wasteful Expenditure PHASE 1 – Prior Years SCM Matters • FS PT and COGTA is in the process to form a task team to support 3 municipalities (Kopanong, Matjhabeng & Moqhaka) that owe 55 percent of the unauthorised, irregular, fruitless & wasteful expenditure in the Province. • Scope of Work of the Task Team • Teams formed must investigate prior year Unauthorised, fruitless, wasteful and irregular expenditure incurred by the municipality. • Report on findings presented to the council committee appointed to investigate such expenditure • Report must be reviewed and endorsed by the committee • Committee to present the report to council for: • approval of report; • write off were applicable or • further investigation or • Legal action and or criminal proceeding against officials and or • Recovery of amounts from officials / parties concerned • Composition of the Task Team • Officials from FS PT and COGTA • Municipal officials in Internal Audit and SCM • MFIP Advisor

43. Unauthorised, Irregular, Fruitless and Wasteful Expenditure PHASE 2 – Current Year SCM Matters • The Task Team will simultaneously deal with current year SCM issues: • Identification of weaknesses within the municipalities SCM process for the 3 selected municipalities • Rolling out SCM Quarterly & Annual Reporting Templates • Assisting Municipalities to identify and rectify SCM Deviationsi.t.oS36 of the SCM Regulations • Rolling SCM Competitive Bidding Templates (Tender Processes) • Training on Improved Contract Management

44. Unauthorised, Irregular, Fruitless and Wasteful Expenditure

45. SUPPORT PROVIDED AT NALA MUNICIPALITY

46. NALA MUNICIPALITY Provincial task support provided FS Provincial Treasury and Department of Cooperative Governance & Traditional Affairs (COGTA) intervened, reason being: To obtain the 2009/10 & 2010/11 annual financial statements submitted for audit as soon as possible. Initial agreed date for submission was 30 November 2011, and the final proposed date for submission of the 2009/10 statements were 24 April 2012. To ensure consumers are billed for services and subsequently collection of revenue. Weekly meetings held on Mondays to evaluate progress and deal with challenges arising from submission of the financial statements and correcting the billing. A decision was taken to suspend the services of Pastel and BIQ was then requested to take over early in February 2012. Billing commenced at the end of February 2012.

48. FREE STATE DEPARTMENT OF CO-OPERATIVE GOVERNANCE AND TRADITIONAL AFFAIRS

49. LOCAL GOVERNMENT SUPPORT PROGRAMMES 2012/13 TO DATE • MPACS • MANAGEMENT SUPPORT PROGRAMME • CASEWARE • IMESA PROJECT • SPECIFIC SUPPORT • LEGAL SERVICES • MUNICIPAL PERFORMANCE MONTORING • MIG SUPPORT • INVESTIGATIONS

50. Municipal Public Accounts Committees (MPAC’S) • The following Municipalities established MPACs: • Mangaung Metropolitan Municipality • Xhariep District Municipality with the following Local Municipalities sharing in the Committee • Kopanong • Letsemeng • Naledi • Matjhabeng Local Municipality • Masilonyana Local Municipality • Tswelopele Local Municipality • Thabo Mofutsanyana District Municipality with the following Local Municipalities sharing in the Committee • Mantsopa Local Municipality • Nketoana Local Municipality