An Audit Committee Perspective on the Local Government Turnaround Strategy

1. An Audit Committee Perspective on the Local Government Turnaround Strategy Presented by: RiaanVisser Manager: Public Sector Consulting Division IMFO Conference 2011

2. Discussion Points • Background to the study • What is meant with the term “strategy”? • Five strategic objectives of LGTAS • Problem statement • Methodology used • Results and findings • Conclusions • Recommendations

3. Background to the study • Local Government Turn-around Strategy (TAS) issued by DCOG in November 2009 • Reason: certain worrying trends have developed over the past years since 1994 • Undermine the progress and successes that local government should have achieved by 2011 • Intention of TAS: counteract those forces that are undermining the South African Local Government system

4. Background to the study (cont.) • Development of Strategy was based on State of the Local Government Report, 2009 • Municipalities where performance failures occur, or have difficult social and economic circumstances to manage, were known • Report highlight need for a number of adjustments and reforms in leadership, policy, regulatory and oversight environments • Need to turn those municipalities around from a scenario of poor or non-service delivery to a scenario where they execute their service delivery mandates as required by legislation/customers

5. What is meant with the term “strategy”? • Strategy = plan of action to achieve goals/ objectives over the medium to longer term irrespective of changing environment • I.t.o. LGTAS it means setting goals/objectives for each municipality as part of IDP and SDBIPs • Means that each organisational structure of municipality has to contribute to turn-around • TAS cannot be dealt with in isolation from the plans of action envisaged by a municipality

6. Five strategic objectives of LGTAS • Ensure municipalities meet basic service needs of communities • Build clean, effective, efficient, responsive and accountable local government • Improve performance and professionalism in municipalities • Improve national and provincial policy, oversight and support • Strengthen partnerships between local government, communities and civil society

7. Problem statement LGTAS indicate “main problems” as: • Serious leadership and governance challenges • Very poor financial management • Unable to deliver basic services/grow economies • Legacy of apartheid spatial development patterns/inequity continues • Inadequate human resource capital to ensure professional administrations

8. Problem statement (Cont.) LGTAS indicate root causes as: • Inappropriate national and provincial government policies, practices and onerous requirements • Socio-economic conditions that are not been adequately addressed through macro, micro-economic and industrial policies and plans of the State • Political parties undermining integrity and functioning of municipal councils through intra- and inter-party conflicts and inappropriate interference in councils and administration • Breakdown of values at a societal level that is breeding unethical behaviour, corruption, culture of non-payment, and lack of accountability

9. Problem statement (Cont.) LGTAS indicate root causes as: • Communities are engaging in destructive forms of protest including withholding of payment for local taxes and services • Municipalities that are not geared for delivering basic services and are not responsive and accountable enough to residents • Absence of communications resources and no accountability for how and when municipalities communicate to communities

10. Problem statement (Cont.) • Since issuing of LGTAS until now (2011) not much has changed • in terms of the performance of municipalities; and • their ability to comply with acceptable service delivery standards • Case study been conducted within one district municipality and two local municipalities in North West Province • Focus was on results of LGTAS at those municipalities

11. Methodology used • Following sources of data were used: • Minutes of Audit and Risk Committee • Financial and management reports • Internal audit reports • Management letters of the Auditor-General SA • To determine to what extent LGTAS has been implemented by three municipalities during the whole of 2010 and the first part of 2011 • Possible to determine whether any changes occur in performance of these municipalities i.t.o. service delivery and sound financial management

12. Results and findings Matters continuously discussed by ARC: • Finance: • Statement of financial performance, cash flow and investment • Age analysis of debtors • Contingent liabilities • Conditional grants • Fruitless, wasteful, irregular and unauthorised expenditure • SCM: • Implementation of SCM policy • Procurement in various quarters (Bids, quotations) • Long-term contracts • Recorded and approved deviations

13. Results and findings (Cont.) Matters continuously discussed by ARC: • Legal and compliance: • Litigation reports • Any compliance reviews performed • Implementation of AG and IA findings • Action plan for AG’s report • Database of IA findings • Internal audit: • Internal audit reports • Deviations from Internal Audit Plan

14. Results and findings (Cont.) Reports to ARC include the following (not exhaustive): SCM:- • Supply chain procedures not followed • No database of suppliers • Suppliers used that are not on database • No declaration of interest by officials/councillors (i.t.o. bids) • No specification on acquisition of services • No register/list of contracts • No monitoring of performance of contractors • Payments made after 30 days • Source documents not submitted for audit

15. Results and findings (Cont.) Reports to ARC include the following (not exhaustive): Performance Management System (PMS):- • Not fully implemented or implemented at all • IDP incomplete – no or little consultation • No SDBIPs developed • Performance agreements concluded after beginning of financial year (s.57 Managers) • Non-implementation of Risk Management Policy • Lack of policies • Critical positions not filled

16. Results and findings (Cont.) • Over past three years reports did not change much despite inputs from ARC • Not any of the so-called “main problems” and their “root causes” (i.t.o. LGTAS) have been addressed by any of the three municipalities • No indication from the management of these municipalities that there are a commitment or willingness to make any effort to improve the management and service delivery of these municipalities • Political interference by Councils and not much support from provincial authorities contribute to fact that these municipalities do not make any progress in turning themselves around

17. Results and findings (Cont.) • TAS of municipalities not developed/not included in IDP and SDBIPs • I.t.o. case study “problems” are so severe that it will take a lot of commitment from all role-players to turn those municipalities around • Not so much about technical expertise, but about the right attitude to do the right things that will benefit the community, specifically the poorest of the poor

18. Conclusions and recommendations Conclusions: • Clear from this case study that national government’s Strategy to improve the management of municipalities and service delivery at local government level has not been implemented at all • Service delivery is deteriorating rather than improving • Will have an impact on the objective of national government to have “clean audits by 2014” • Recommended that the manner in which the implementation of the LGTAS is approached be revisited and interventions be adopted that will facilitate a real turnaround

19. Conclusions and recommendations Recommendations: • Recommended that the manner in which the implementation of the LGTAS is approached be revisited and interventions be adopted that will facilitate a real turnaround • Officials and councillors – have to be trained and mentored. Must demonstrate commitment. • Planning – has to include TAS objectives • Performance – measure achievement of objectives • National/provincial government: • Strict enforcement of legislation

20. END THANK YOU