4 th September 2012 Cape Town

1. Department of local Government and Housing Action plan in response to the Auditor General’s Report for the financial year 2010/11 4th September 2012 Cape Town

2. Overview • Background • Mandate, Key Outputs, Achievements, Challenges, Possible Solutions, Key Delivery Agents • Departmental Plan • Overview of Qualified Municipalities • Key Issues of Concern • Support provided by the DLGH • Joint Programmes with Gauteng Treasury • Way Forward • Challenges

3. BACKGROUND • Core Functions of the Department include the following:- • Support and Strengthen the capacity of municipalities to manage their own affairs; exercise their powers and perform their functions; • Draft Provincial Legislation that affects the status, institutions, powers or functions of Local Government; • Monitor, support and promote the development of local government and see to the effective performance by municipalities of their functions as per Schedule 4 and 5

4. MANDATE • Constitutional Mandate:- • Section 154(1):- Support and Strengthen the capacity of municipalities to:- • Manage their own affairs, • Exercise their powers and • Perform their functions

5. LEGISLATIVE MANDATE

6. POLICY MANDATE Some of the key policy mandates are outlined below:

7. OUTCOME AND OUTPUTS • Responsive, accountable, effective and efficient local government system:- • Differentiated approach to municipal financing, planning and support • Improving access to basic services • Implementation of the Community Work Programme (Responsibility of DED) • Actions supportive of the human settlement outcomes • Deepen democracy through a refined ward committee model • Administrative and financial capability • Improved coordination of interventions impacting on Local Government

8. KEY DELIVERY AGENTS • Revenue Enhancement and Debtor management: Department of Finance • Operation Clean Audit: Department of Finance • National Department of Traditional Affairs • National Department of Cooperative Governance

9. Background – Audit Outcomes • Of the 15 audited municipalities, • 9 Unqualified:- COT, Ekurhuleni, Metsweding, Westrand, Sedibeng, Midvaal, Lesedi, Westonaria and Merafong • 6 were qualified:- Mogale City, Emfuleni, COJ, Nokeng, Randfontein and Kungwini • 0 disclaimers or adverse

10. Background – Audit Outcomes • 2 Regressions: • Randfontein and Nokeng Local municipalities regressed from financially unqualified to qualified. • There has been a general regression in Gauteng as can be seen in the table below • However, Gauteng municipalities have met the target of achieving no disclaimers and adverse opinions

11. Background – Audit Outcomes

12. Overview of Qualified Municipalities • The City of Johannesburg (COJ) obtained a qualified audit opinion on • revenue and receivables with other matters. • leave liability was also raised at COJ. • Kungwini was qualified on • revenue and consumer debtors. • Nokeng was qualified on • lack of monthly reconciliations resulting in unreconciled differences between the cash book and the financial statements.

13. Overview of Qualified Municipalities • Emfuleni, Randfontein, Mogale were qualified on Capital assets (Property, plant and equipment) • Randfontein municipality was unable to fulfill the requirements of GRAP 17 due to lack of adequate skills to interpret GRAP standards . • In Emfuleni and Mogale City the qualification on GRAP 17 compliance related to lack of documentation to support balances and adjustments of property plant and equipment.

14. Overview of Qualified Municipalities • Material adjustment to financial statements • Reporting on pre-determined objectives (Performance information) • Distribution losses: an estimated R3 billion in lost revenue for all Gauteng municipalities • Human Resource management: vacancies at some of the municipalities in key finance units positions

15. Key Issues of concern • Information Technology: The general control environment across all municipalities has shortcomings relating to: • Security management • Access controls • IT services continuity ( i.e. the disaster recovery plan) and • IT governance.

16. Key Issues of concern • Supply Chain Management (SCM) findings identified were as follows: • Reasons for deviation that do not meet the requirements of SCM regulation 36, • Advertisement for tenders less than minimum period • No competitive bidding process for other awards • Three quotations not obtained • Tender process not followed for awards that are required by the legislation • Inadequate contract management resulting in deviations to SCM as contracts are not managed properly towards the end of their terms.

17. Operation Clean Audit (OPCA) Hands on Support

18. OPCA Hands on Support • OPCA targeted Hands on support to address AG issues is being implemented across Gauteng Local Municipalities. Particular focus was give to, Randfontein, Westonaria, Mogale City, City of Tshwane and Emfuleni municipalities • Primary focus areas of support are:- • Internal Controls • Assets • Oversight • Revenue Management • Capacity Building – Scarce and Critical Skills • Performance Information and; • Annual Financial Statements • Integration of the Financial system data- City of Tshwane

19. Progress on OPCA Hands on Support Randfontein local municipality: The Municipality has identified capacity needs in various areas where resources were made available to provide hands on support. To date, support was provided in the following areas: • Capitalization of Moveable Assets • Debtors data clean up and Revenue Analysis • Audit of Action Plans • Revenue Data Capturing • Data clean up and inactive debtors’ analysis and write offs • Capturing of backlog traffic fines into the system to ensure completeness of revenue

20. Progress on OPCA Hands on Support Tshwane Metro Municipality (CoT): The Municipality identified capacity needs in various areas where resources were made available to provide hands on support. To date, support was provided in the following areas: • Analysing revenue exception reports generated by Computer Assisted Auditing Techniques program • Development of a Compliance checklist • Creditor’s Reconciliations • Asset verification on movable assets and operational leases • 15 deployees were allocated to assist with verification of over 100 000 movable assets for the city of Tshwane at different locations in the period June / July 2012

21. OPCA Provincial Coordinating Committee

22. OPCA Provincial Coordinating Committee (OPCC) • The OPCA PCC was established by the premier within the IGR framework act. • It was established to monitor the implementation of OPCA within municipalities as well as provincial departments within the province. • All Gauteng Municipalities are required to present to the OPCA PCC on the progress made in addressing AG issues as well as progress towards achieving clean audits.

23. OPCA Provincial Coordinating Committee (OPCC) • The OPCA PCC also serves to streamline the support from various stakeholders to municipalities. • The stakeholders that sit in the OPCA PCC are • Local Government and Housing, • Gauteng Treasury, • National COGTA and; • SALGA • The stakeholders also present the progress made in supporting municipalities to achieve clean audits

24. Internal Audit and Audit Committee Shared Services – Progress to date

25. Shared Services – Progress to date Purpose of project. • To establish the feasibility and viability of implementing shared services for internal audit units and audit committee within the West Rand Region.

26. Shared Services – Progress to date • The study concluded that it is feasible and cost effective to establish a shared services model in the Westrand. • The outcomes of the study were then presented to the municipal managers and mayors within the West Rand Region. • The findings were also presented to the regional transformation committee, which is made up of mayors, MMCs finance, and municipal managers of all the municipalities in the Westrand. • The transformation committee approved that the shared services be established, however the individual municipalities need to take council resolutions to implement .

27. Asset management support

28. Asset management support – Progress to date • The Department identified assets management (with focus on GRAP 17 compliance) as a high risk area in Emfuleni and Westonaria. • Financial support was provided to the municipalities in this regard. • Service providers were contracted by the respective municipalities to compile a GRAP 17 asset registers for both infrastructure and movable assets. Both the asset registers were completed in 2011.

29. Asset management support – Progress to date • In Emfuleni there were still areas that needed to be resolved regarding the calculation methodologies as well as supporting documentation for opening balances. As a result the municipality was qualified in the area of asset management • Consequently, the Price Water Coopers contract was extended to address the issues of qualification as well as to update the asset register with new assets that the municipality procured post the compilation as well as library books. • Significant progress has been made in this regard • The Westonaria project fully achieved its objective and the municipal audit outcome was positive.

30. Implementation of the Scarce and Critical Skills Strategy

31. Implementation of the Scarce and Critical Skills Strategy – Progress to date • The training embarked on in partnership with AAT and SAICA resulted in approximately 550 financial professionals being trained in basic finance • Training and mentoring in the areas of municipal officials and politicians in auditing, supply chain management, finance for oversight committees, Integrated Development Planning with focus on linking budget to the IDP • Fully established and trained MPAC members. The format of the training was workshops with the AG and Provincial SCOPA and a formal accredited training with Regennesys.

32. Human Resource and Performance Management

33. Human Resource and Performance Management – Progress to Date • Hands on support was provided to implement the Human Resource Development and Management strategy in the Westrand region and the City of Tshwane. • Hands on support to implement Performance management systems in identified municipalities • The department is monitoring of the filling of critical posts with special focus on the top six posts (MM, CFO and Executive Directors)

34. Joint Department of local Government and Housing and Gauteng Treasury initiatives

35. Joint DLGH and GDF Support • Coordinate CFO and MEC/MMC forum meetings which are aimed at:- • strengthening the oversight capability of the MMCs for Finance, as well as; • providing a platform for sharing of better practice between Gauteng municipalities. • Monitor the implementation of the Gauteng approach to achieving clean audits to ensure that Operation Clean audit is driven from the top through the office of the mayor, MMC finance, Municipal manager and CFO

36. Joint DLGH and GDF Support • The establishment of Operation Clean Audit steering committees at individual municipal level. • The committees are attended by Heads of Departments as per functional units in the municipalities and chaired by the CFO, • The committees are established to monitor and ensure that all responsible heads of departments address issues raised by the AG in their respective areas. • OPCA hearings are also held in some municipalities to address those HODs that are not performing in terms of addressing the AG issues in their respective areas.

37. Way Forward

38. Way Forward • The Department will continue to implement the support highlighted above.

39. Way Forward • Improve the quality of financial statements and facilitate a more efficient and effective interim audit by: • Ensuring that municipalities prepare Monthly/quarterly financial statements with supporting notes and disclosure (including reconciliations). • Ensure an independent review of Financial statements by internal audit before submission to external audit.

40. Way Forward Hands on Support towards improving the Information technology controls:- • Assist municipalities in establishing a Chief Information Officers’ forum • Assist with ensuring that municipalities monitor the development and implementation of  IT policies and procedures e.g. user account management, change management, security management, service continuity, etc. • Ensure ownership within municipalities of these policies.

41. Way Forward • Assist with following up on IT issues raised on the previous reports to ensure that they have been adequately addressed. • Assist with reviewing the IT organizational structures and provide advice to the municipalities on to which IT positions are critical and should be filled as soon as possible.

42. Way Forward • Assist with ensuring that adequate service level agreements are drafted and signed as municipalities mostly use vendors/consultant for IT services. • Develop best practice guidance for initiating a compliance process among all municipalities and thereby standardizing the approach.

43. Way Forward • Provide enterprise Risk management support • Strengthening the implementation of M&E and assessment of Key controls recommendations • Internal controls with special focus on HR and Supply Chain Management • Support to improve reporting on Performance information

44. Way Forward • Support to reduce Distribution losses (Water and Electricity) • Provide additional support regarding revenue enhancement with a particular focus on the revenue value chain (integrity of data, metering, billing etc) • Embed the successes and impact of support and achievements • Strengthen the Provincial Departmental Capacity to support Municipalities

45. Challenges • Resources to roll-out support to reduce water and electricity losses. • Sustaining the achievements within the respective municipalities (turnover of staff and leadership) • Consistent leadership and oversight. • Skills and capacity in municipalities and at a support level

46. THANK YOU