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Discretionary Interventions in KwaZulu-Natal District Municipalities

This report provides an overview of the discretionary interventions by the Province of KwaZulu-Natal in the Ugu, Uthukela, and Umzinyathi District Municipalities in accordance with the Municipal Finance Management Act. The report includes a legal opinion, assessments of each municipality, and recovery plans.

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Discretionary Interventions in KwaZulu-Natal District Municipalities

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  1. REPORT TO THE NCOP DISCRETIONARY INTERVENTIONS BY THE PROVINCE OF KWAZULU-NATAL IN TERMS OF SECTION 136(2) OF THE MUNICIPAL FINANCE MANAGEMENT ACT THE READ WITH SECTION 139(1) OF THE CONSTITUTION AT THE UGU, UTHUKELA AND UMZINYATHI DISTRICT MUNICIPALITIES 30 July 2013

  2. Background • Resolution by the Provincial Executive to intervene in the Ugu, Uthukela and Umzinyathi District Municipalities • Intervention in terms of Section 139(1) of the Constitution read with Section 136(2) of the MFMA • Presentation to highlight the following: (a) Legal Opinion on the Intervention (b) Ugu District Municipality(Assessment and Recovery Plan) (c) Uthukela District Municipality(Assessment and Recovery Plan) (d) Umzinyathi District Municipality (Assessment and Recovery Plan)

  3. LEGAL OPINION • Sought to clarify the origin of powers for Intervention in affairs of Local Government. • Legal opinion expressed –Original powers derived from Section 139 of the Constitution • Cabinet memorandums prepared on basis of legal opinion • Discretionary Intervention approved – Section 136(2)MFMA Act 56 of 2003, Approval Section 139(1) of the Constitution

  4. UGU DISTRICT MUNICIPALITY • Municipal Assessment undertaken based on: - Annual financial statements - Audit Report 2011/2012 Financial Year • Consultation on status of Municipality by MEC for COGTA and MEC for Finance, with Mayor (Section 136 MFMA). • Submission of Cabinet Memorandum, Deployment of Intervention Team, Recovery Plan.

  5. UGU: Municipal assessment Assessment findings in terms of Section 131(2)(a) of the MFMA • Audit Report (2011/2012) -Regression of audit opinion - Unqualified (2010/2011)to Qualified(2011/2012) - Unauthorized Expenditure - R 45,2 million - Irregular Expenditure - R 18,4 million - Current Liabilities exceeded Current Assets - Conditional Grants not cash backed - Qualification by AG on accuracy of revenue vs billing.

  6. Ugu: Municipal assessment Assessment findings in terms of Section 131(2)(a) of the MFMA Cont/d • Analysis of the audited AFS (2011/2012: - Poor budgeting:134 cases (R4.6 million) of deviation in 2010/2011 and 67 cases (R1.4 million)in 2011/2012 -Overtime Payments R19 million(2010/2011) and R20 million in 2011/2012 -Inflated Organisational Structure. Salary costs of 56% norm is 33% -Creditors not paid within 30 days -deficit of 32 % in January 2013 - Conditional Grants R63 million not cash backed - Law suits of R 30.3 million against the municipality

  7. Ugu: Municipal assessment Assessment findings in terms of Section 131(2)(a) of the MFMA Cont/d • Additional Institutional matters: - Changes in Top Management - Municipality has loans totaling R285,5 million - Grants of R11 million withheld by National Treasury -Slow progress on previous recovery plan developed - Support by National Treasury Resource not effective

  8. UTHUKELA: BASIS OF DISCRETIONARY INTERVENTION • Ugu District Municipality met the criteria in terms of section 139(1) of the Constitution as well as those for determining serious financial problems and consequently for a discretionary intervention by the MEC responsible for local government in accordance with section 138 of the MFMA as follows: • The municipality has failed to make payments as and when due; • The municipality has defaulted on financial obligations for financial reasons; and • The municipality had an operating deficit in excess of five per cent of revenue in the most recent financial year for which financial information is available.

  9. Ugu: Financial Recovery plan • Suitably Qualified Team appointed • Key Elements/Functional areas on Financial Recovery Plan • Strategic context and Performance Management systems • Legal Context and Compliance • Governance • Human Capital • The Organisation • Revenue Management and Debtors • Expenditure Management/Budget Performance • Liquidity/Cash Flow • Asset Management/Accounting Treatment • Supply Chain Management • Technical Services

  10. Uthukela District municipality • Municipal Assessment undertaken based on: - Annual financial statements - Provincial Treasury Section 71 MFMA Reports - Audit Report 2011/2012 Financial Year • Consultation on status of Municipality by MEC for COGTA and MEC for Finance, with Mayor (Section 136 MFMA) • Submission of Cabinet Memorandum, Deployment of Intervention Team, Recovery Plan

  11. UTHUKELA: MUNICIPAL ASSESSMENT Assessment findings in terms of Section 131(2)(a) of the MFMACont/d • Audited Annual Financial Statements - Conditional Grant not cash backed. - Poor liquidity ratio – Assets to Liabilities 2:1 ideal • Provincial Treasury’s assessment • Unaudited financial February 2013 reflect unpaid creditors of R3,2 million • Negative cash coverage • SCM Weaknesses

  12. UTHUKELA: MUNICIPAL ASSESSMENT Assessment findings in terms of Section 131(2)(a) of the MFMA Cont/d • R4 million allocated from the Disaster Relief Fund which have not been applied for the purpose intended and there has been no progress in addressing the service delivery programme • In 2012/2013 year despite COGTA allocating R2, 8 million in grant funding to the municipality for the purpose of data cleansing of debtors the municipality has been slow in appointing a suitable service provider to undertake this task. There is an unknown loss of revenue due to the Municipality’s poor management of the water service function exacerbated by the lack of debt collection and indigent management. • Unaudited financials as at February 2013 reflect the collection rate on water services at 53.85%. The billing from June 2012 to February 2013 was R438,888 million and payments received were R236, 360 million. • Municipal Support Program by Provincial Treasury was not well received or had the desired event at the municipality

  13. UTHUKELA: MUNICIPAL ASSESSMENT Assessment findings in terms of Section 131(2)(a) of the MFMACont/d • Additional institutional matters: • Irregularities within the municipality • Councillor Arrears at R 3,557 for less than thirty (30) days and R 63, 581 for more than ninety (90) days. • Increase in gross consumer debt • Investigation in terms of Section 106 of the Municipal Systems Act

  14. UTHUKELA: BASIS OF DISCRETIONARY INTERVENTION • Uthukela District Municipality met the criteria in terms of Section 139(1) of the Constitution as well as those for determining serious financial problems and consequently for a discretionary intervention by the MEC responsible for local government in accordance with section 138 of the MFMA as follows: • The municipality has failed to make payments as and when due; • The municipality has defaulted on financial obligations for financial reasons; and • The municipality had an operating deficit in excess of five per cent of revenue in the most recent financial year for which financial information is available.

  15. UTHUKELA: Financial recovery plan • Suitably Qualified Team appointed • Key Elements/Functional areas on Financial Recovery Plan • Institutional Capacity • Financial Management • Service Delivery and Infrastructure • Governance and Public Participation

  16. Umzinyathidistrict municipality • Municipal Assessment undertaken based on - Annual financial statements - Provincial Treasury Section 71 MFMA Reports - Audit Report 2011/2012 Financial Year • Consultation on status of Municipality by MEC for COGTA and MEC for Finance, with Mayor (Section 136 MFMA) • Submission of Cabinet Memorandum, Deployment of Intervention Team, Recovery Plan

  17. Umzinyathi: Municipal assessment Assessment findings in terms of Section 131(2)(a) of the MFMA • Legal costs: Budget R220 000 vs actual R653 000 • Indigent support: Budget R60 000 vs actual R264 809 • Security: Budget R200 000 vs actual R1 575 335 • Original Budget R 360 177 620 vs actual budget R 378 660 111 • Operating deficit in excess of five percent of revenue in the last three financial years • Grants R15 million not cash backed – 2011/2012 • Grants R17,225 million not cash backed – 31 January 2013 • Poor liquidity ratio – Assets to Liabilities 2:1 ideal

  18. UMZINYATHI: MUNICIPAL ASSESSMENT Assessment findings in terms of Section 131(2)(a) of the MFMA Cont/d • Additional institutional matters: • Appointment of a consultant CFO • Significant increase in security • Recruitment process • Allegations of maladministration • Technically insolvent • Negative cash coverage • 73% Capital budget spent • Unspent conditional grants • Various SCM weaskness

  19. Umzinyathi: BASIS OF DISCRETIONARY INTERVENTION • Umzinyathi District Municipality met the criteria in terms of section 139(1) of the Constitution as well as those for determining serious financial problems and consequently for a discretionary intervention by the MEC responsible for local government in accordance with section 138 of the MFMA as follows: • The municipality has failed to make payments as and when due; • The municipality has defaulted on financial obligations for financial reasons; and • The municipality had an operating deficit in excess of five per cent of revenue in the most recent financial year for which financial information is available.

  20. UmzinyatHi: Financial recovery plan • Suitably Qualified Team appointed • Key Elements/Functional areas on Financial Recovery Plan • Strategic context and performance management systems • Legal context and compliance • Governance • Human capital • The Organisation • Revenue Management/Debtors • Expenditure Management/Budget Performance • Accounting Treatment • Liquidity/Cash Flow • Asset Management • Supply Chain Management • Technical Services

  21. Mandate Of experts • To prepare a financial recovery plan • Adoption of the recovery plan by the council of Municipality • Implementation of the recovery plan in accordance with section 145 of the MFMA • Review the provincial intervention • Coordinate all support • Ratify all recommendations • Provide guidance and advice

  22. Comments on recovery planS The respective Intervention teams as stipulated in Section 141(3) (c) of the MFMA are in process of obtaining comments from various role-players, as follows • The Municipality; • The MEC for finance and the MEC for Local Government ; • Organised Local Government in the Province; • Organised Labour; • Or request, any supplier or creditor of the municipality; and • Comments from the Community.

  23. Progress on the recovery plan It must be noted that whilst currently in the process of obtaining final approval on the three Intervention Recovery plans, the Intervention teams have prioritised functional areas on the plan and have commenced work on same, namely analysis of the 2013/2014 Financial Year Municipal budget and preparation of the 2011/2012 Annual Financial Statements. It must be noted that the amendment to the recovery plan may be necessary, subject to the changing circumstances of the respective intervention. In such instances the correct procedure as legislated in terms of Section 144 of the MFMA.

  24. conclusion The Uthukela and Ugu recovery plans are comprehensive in encapsulating the main issues that resulted in the Municipality experiencing serious cash flow problems, and attaching corrective measures to stabilise the municipality. The functional area in respect of the Technical Support required by the Municipality will be included in the Umzinyathi District Municipality Recovery Plan.

  25. 14th Floor, North Tower Natalia Building 330 Langalibalele Street Pietermaritzburg, 3200 Tel: +27(0) 33 395 2831 Fax: +27(0) 33 345 6432 E-mail: hodenquiries@kzncogta.gov.za Website: www.kzncogta.gov.za

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