INTERVENTION IN TERMS OF SECTION 139(1)(B) OF THE CONSTITUTION - PowerPoint Presentation

INTERVENTION IN TERMS OF SECTION 139(1)(B) OF THE CONSTITUTION AT MPOFANA MUNICIPALITY PRESENTATION TO THE SELECT COMMITTEE ON COOPERATIVE GOVERNANCE AND TRADITIONAL AFFAIRS (YOUTH, WOMEN & IGR MATTERS) 15 May 2018

TABLE OF CONTENTS NOITEM 1 BACKGROUND 2 PROCEDURAL MATTERS 3 SUBSTANTIVE REASONS FOR THE INTERVENTION 4 SUPPORT PROVIDED BY COGTA 5 RESOLUTIONS OF THE PROVINCIAL EXECUTIVE COUNCIL INCLUDING TERMS OF REFERENCE 6 SUPPORT MEASURES IMPLEMENTED TO DATE 7 CONCLUSIONS

In 2012 the municipality was identified as dysfunctional as it was plagued by continuous incidents of unrest, including unprotected strikes by employees, service deliver related community protests and serious financial difficulties. The municipal council failed to perform effective executive oversight over the administration. The situation became chaotic and deteriorated further in the presence of the municipal council and a full complement of senior managers.In September 2014, the municipal council was dissolved by the Provincial Executive Council in terms of Section 139(1)(c) of the Constitution. An Administrator was appointed to hold fort and to facilitate a by-election which was successfully held in November 2014. No major challenges were reported at the municipality after the 2014 by election and even though the Executive Council instituted a new intervention in terms of Section 139(1)(a) of the Constitution to support the new municipal council, this intervention was terminated on 31 March 2015.1. BACKGROUND

Prior to the 2016 local government elections there were attempts to split the municipality in terms of the Municipal Demarcation Process due to existential challenges that had since emerged and were, in the main, related to the financial viability of the municipality. Parts of the municipality would have been incorporated into Umvoti Municipality while other parts would have been incorporated into Umngeni Municipality. This path failed as the Municipal Demarcation Board did not approve the request.Following the 2016 local government elections the municipality never really took off the starting blocks as it received a disclaimer of audit opinion from the Auditor General for the period 2015/2016 financial year. This generated community protests particularly against the Municipal Manager. There were employee strikes, vandalism of service delivery infrastructure and general lawlessness and failure by the municipal council to address challenges within its purview, in scenes similar to those last seen in 2014. 1. BACKGROUND …cont.

Section 139(2) of the Constitution provides that whenever the Provincial Executive Council intervenes in terms of section 139(1)(b) of the Constitution, the Minister of Cogta, the National Council of Provinces as well as the Provincial Legislature should be notified within 14 days after the intervention began. The Minister was notified of the intervention on 18 December 2017. The Minister approved the intervention within 28 days as prescribed by the Constitution. The Chairperson of the NCOP was notified of the intervention on 18 December 2017. It is understood that following this engagement the Select Committee will undertake an Oversight visit culminating in the consideration of the matter by the NCOP on 29 May 2018.The Speaker of the Municipality was notified of the intervention on 19 December 2017. This was followed by an engagement between the MEC and the Municipal Council on 11 January 2018 and several engagements between the Municipal Council and the Provincial Department of Cogta.2. PROCEDURAL MATTERS / FORMALITIES

KPA 1 : Municipal Transformation and Institutional Development (B2B Pillar 5: Building Capable Local Government Institutions) The municipal council had not appointed senior managers including failure to fill the position of Chief Financial Officer following the brutal killing of the previous CFO in June 2016. The person who was acting as CFO had been disqualified by the MEC for lack of requisite experience. However the municipality persisted and retained him as Acting CFO and little or no effort was made by the Municipal Council to find a replacement over a long period of time despite hands on support.The employment contract of the municipal manager ended a year after 2016 local government election as prescribed by the Systems Act without the municipal council commencing the processes of filling the position.Hands-on support was provided to the municipality by Cogta in the form meetings and draft advertisements. Despite this support the municipality remained without a CFO and Municipal Manager duly appointed. The processes that commenced with the assistance of Cogta stalled and no plausible reasons were supplied by the municipal council.The Municipal Manager went to the extent of convening a Council meeting, without the knowledge of the Speaker, where the ‘extension’ of his employment contract was purportedly discussed and approved by the Council. This had to reversed and the process restarted.3. SUBSTANTIVE REASONS FOR THE INTERVENTION

KPA 2: Good Governance and Public Participation (B2B Pillar 1: Putting People First and Pillar 3: Good Governance)The Municipal Council appeared to be functional when assessed against the number of meetings had held since August 2016. Cogta had attended several council meetings and held several bilateral meetings with the municipal council and the following patterns were observed:The municipal council did not respect its own Rules and Orders. It was not unusual for meetings to start several hours after the meeting was scheduled to start and often at a different venue.Management submitted poorly constructed reports, if at all, that did not assist the municipal council in its decision making process.It was not unusual for management to participate in council proceedings as though they themselves were members of the municipal council. Council condoned this type of conduct. Committees of council were functional only in so far as they met, however they were unable to process relevant matters as management consistently failed to present credible reports to these committees. 3 . SUBSTANTIVE REASONS FOR THE INTERVENTION… cont.

KPA 2: Good Governance and Public Participation (B2B Pillar 1: Putting People First and Pillar 3: Good Governance)….continuationThe Speaker was reluctant to implement the code of conduct for councillors and thus poor conduct by councillors inside and outside the council chamber went unpunished. It was not uncommon for management to prepare notices of council meetings and sign the notices calling council meetings even when they have not been expressly authorised by the Speaker. The Municipal Council had failed to apply consequence management: Particularly, against managers who, on numerous occasions, were reported to have absented themselves from work without prior authority. Managers who consistently failed to submit reports to committees of council.Managers who failed to implement the Auditor General findings on employees who were alleged to have committed various acts of misconduct including absenteeism, fraud and vandalism and other matters. The Municipal Council failed to conduct performance management for senior managers against predetermined objectives.The Municipal Public Accounts Committee (MPAC) remained dysfunctional largely due to lack of management support and lack of cooperation among councillors. This was despite capacity building and support. 3 . SUBSTANTIVE REASONS FOR THE INTERVENTION….cont.

KPA 3: Municipal Financial Viability and Management (B2B Pillar 4: Sound Financial Management)The municipality received a disclaimer audit opinion in the 2015/2016 financial year, which was a regression from the previous financial years’ qualified audit opinion. The basis for the disclaimer audit opinion were the preparation and submission of the Annual Financial Statements (AFS) without complete and accurate supporting documentation. A high level assessment of the 2016/2017 AFS intended to establish the root causes of the financial crises and the extent to which it was compromising effective service delivery to the community, was conducted by Cogta. The assessment revealed that the municipality posted an operating loss of R 26 267 981 in the 2015/2016 financial year. The municipality’s conditional grants as at June 2017 were not cash backed. The municipality stated a bank balance of R 858,027 and unspent conditional grants of R17 428 905, indicating that R16,570,878 was not cash backed.The cash coverage ratio of the municipality was -1.92 which was way below the norm of 1-3 months as determined by National Treasury. This was an indication that the municipality did not have sufficient cash or short term investments to meet its monthly fixed operating commitments at an average of R8.6m. 3. SUBSTANTIVE REASONS FOR THE INTERVENTION….cont.

KPA 3: Municipal Financial Viability and Management (B2B Pillar 4: Sound Financial Management)… continuationThe municipality’s current ratio was 0.49:1 which was below the norm of 2:1, thus the municipality’s current liabilities were more than its current assets. The municipality was failing to meet its financial obligations as its creditors were not paid within 30 days as stipulated in terms of section 65 of the MFMA. The total amount owing on electricity to Eskom was R36.6m (arrears and current). Eskom threatened to disconnect the municipality as it had already reneged on three previous payment agreements. Other creditors owed by the municipality totalled an additional amount of R11.5m. The highest payment outstanding under contracted services was Khuselani Security for R3.6m indicating excessive spending on security by the municipality. On repairs and maintenance the municipality budgeted only 0.82% to the value of its property plant and equipment which was way below the norm of 8% prescribed by National Treasury. On revenue and debt management, credit control and debt collection was extremely weak. The municipality reported under collection on property rates particularly from farmers due ongoing disputes. The municipality reported R97m in gross debtors, which included R26.9m debtors from property rates. 3 . SUBSTANTIVE REASONS FOR THE INTERVENTION….cont.

KPA 4 Basic Service Delivery (B2B Pillar 2: Delivering Basic Services)The service delivery programme was limited to conditional grants which included Municipal Infrastructure Grant from DCoG, Small Town Rehabilitation grant from KZN Cogta as well as housing development grants from the Dept of Human Settlements. Cogta reports indicated that the municipality had spent less than 10% of its MIG allocation as at 30 November 2017. It was thus likely that the MIG funding would be stopped by National Treasury. The municipality was indeed considered by National Treasury for the stopping of its MIG allocation, however KZN Cogta and Administrator lobbied for the stay of the stopping.The municipality was indicated as having two housing development projects namely Craigieburn and the Townview Housing Projects which had since stalled due to the municipality using conditional grants for operational expenses.The municipality also had a Small Town Rehabilitation project funded by Cogta to the tune of R5m which had also stalled due to the municipality using conditional grants for operational expenses.The municipality had INEP projects that also stalled due to the municipality’s failure to comply with Eskom specifications. 3 . SUBSTANTIVE REASONS FOR THE INTERVENTION….cont.

Both Provincial Treasury and KZN Cogta conducted quarterly assessments and provided hands on support to management at the municipality based on such assessments. Provincial Treasury assessed the 2017/2018 budget of the municipality and found it to be unfunded. The municipality was advised on what remedial steps to undertake. Despite such advise the municipality did not take the remedial steps. Cogta provided support in respect of the filling of senior management positions including supply of proforma adverts to the municipality. However, the municipality failed to fill the positions of CFO and Municipal Manager. In fact the Municipal Manager was unlawfully in place as his acting appointment had expired in November 2017. The Municipal Council had not submitted a request for the MEC to extend the appointment by another three months, in terms of section 54A of the Municipal Systems Act. This despite the municipal council being advised about this requirement on several occasions. The Human Settlements Department provided support, however the municipality did not cooperate and thus its housing projects stalled. Cogta provided support in respect of the implementation of the Integrated National Electricity Programme (INEP) however despite such support there was little willingness on the part of management and thus challenges remained. 4. SUPPORT PROVIDED BY PROVINCIAL GOVERNMENT

Cogta provided support to the municipality in respect of the establishment of the animal pound as stray animals roam the streets of the Town of Mooi River and occasionally this affected the N3. The municipality had not implemented the plans in this regard. Cogta guided the municipality on how to deal with possible overpayment of salaries to councillors and the municipality did not implement the recommendations. Cogta supported the municipality with negotiating payment agreements with Eskom of which the municipality had, at that time, breached three. The present agreement was also negotiated with the assistance of Cogta and Provincial Treasury, 4. SUPPORT PROVIDED BY PROVINCIAL GOVERNMENT…continued

The PEC resolved to intervene in terms of section 139(1)(b) of the Constitution, 1996 at Mpofana Municipality by assuming the functions related to financial management; the recruitment of senior managers and related disciplinary procedures and the implementation of project management functions at the municipality.The PEC also resolved to authorize the MEC for Cooperative Governance and Traditional Affairs to appoint a suitably qualified person as a Ministerial Representative to implement the following terms of reference: preparation and implementation of a recovery plan approved by the municipal council;ensure implementation of financial systems, policies and procedures including preparation and implementation of cost cutting measures in order to reduce and ultimately complete the process of paying prior year creditors, increase revenue collection and related measures;to be a compulsory signatory on the municipality’s primary bank account and other bank accounts that the municipality may operate;institute and act as chairperson of the Interim Finance Committee (IFC) to monitor and manage the cash flow of the municipality, approve or dis-approve purchase requisitions and to ensure that the municipality’s cash position is not overdrawn; 5. RESOLUTIONS OF THE PROVINCIAL EXECUTIVE COUNCIL INCLUDING TERMS OF REFERENCE

Ensure that the IFC meets regularly and reports fortnightly to council on the cash flow position, payments approved and disapproved and commitments made (via approved purchase orders);Undertake the appointment of senior managers in terms section 54A and section 56 of the Municipal Systems Act, 32 of 2000 as amended including disciplinary procedures for senior managers as prescribed;Implement governance systems and procedures including oversight over the administration and ratification of all municipal council decisions prior to implementation ;Ratify decisions taken by the Municipal Manager and Section 56 Managers (including acting managers) in terms of delegated or original authority;Ensure implementation of findings arising from any investigations into fraud or maladministration or corruption;5. RESOLUTIONS OF THE PROVINCIAL EXECUTIVE COUNCIL INCLUDING TERMS OF REFERENCE…continued

Ensure implementation of remedial action plans dealing with negative findings from the Auditor General;Ensure implementation of all projects undertaken by the municipality including unblocking projects that have stalled;Open and conclude negotiations with NERSA and ESKOM as well as processes related to the takeover of electricity distribution license from Mpofana Municipality to Eskom in the shortest possible time.Implement programmes to capacitate the councillors of Mpofana Municipality on their governance role including oversight on the institutional, financial and service delivery affairs of the municipality; 5. RESOLUTIONS OF THE PROVINCIAL EXECUTIVE COUNCIL INCLUDING TERMS OF REFERENCE…continued

EMERGING MATTERS These are matters that were identified by the Administrator in addition to the challenges that led to the intervention:Perpetual extension of irregular contracts which points to poor Contract Management Excessive costs on outsourced capital equipment required for provision of basic delivery Eskom debt had risen to over R66 million and the terms of the Payment Plan were not complied with The Municipality could hardly pay for Third Parties including SARSSome creditors had commenced with litigation actions against the municipalityThe municipal council did not approve a credible Audit Action Plan in response to the 2016/17 audit outcomes The following slides outline some of the measures that have been implemented to date in effort to turn the municipality around in the shortest possible time. 6. SUPPORT MEASURES IMPLEMENTED TO DATE

6. SUPPORT MEASURES IMPLEMENTED TO DATE…continued PILLAR 1: PUTTING PEOPLE FIRSTWard Committees meet regularly. The municipality has identified a dedicated resource to support the work of ward committees The recent (April 2018) community meetings were held in all wards as part of IDP/Budget engagementsFurthermore, community meetings were held in Wards 3 and 5 to encourage communities to pay for services.All 5 Operation Sukuma Sakhe War Rooms are functionalThe MKMVA grouping led by the former Mayor (Mr Sifiso Mkhize) forcefully closed municipal offices on three occasions during April 2018 demanding jobs and houses. In all cases the Administrator working with the Speaker and Local/Regional structures was able to diffuse the tension. Their demands have been partly met and the outstanding ones are continuously considered and monitored

19 PILLAR TWO: DELIVERING BASIC SERVICES The Municipality has been operating without Project Management Unit (PMU). KZN Cogta is assisting the Municipality to develop a PMU Business Plan in order access ‘top-slice’ funding to establish the PMUDue to slow payments, contractors have been deserting sites. The Administrator and Management have engaged the contractors and requested them to remain on site and those that had disestablished to re-establish. Contractors agreed to remain on sites. The MIG expenditure is currently at 64%. The municipality made payments during the first two weeks of May which will increase MIG expenditure to 84 %. Since most conditional grants are not cash backed, the municipality is utilizing funding for current project phases to pay for previous project phases . Payments to contractors have been prioritized and effected as and when the municipality collects money from consumers. 6. SUPPORT MEASURES IMPLEMENTED TO DATE …continued

6. SUPPORT MEASURES IMPLEMENTED TO DATE…continued 20PILLAR TWO: DELIVERING BASIC SERVICESThe municipality is considering whether to review scopes of current project phases and align them to remaining 2017/18 budget and move the remainder of the phases to the 2018/19 financial year. All Housing had been suspended due to funds tranched by Human Settlements Department having been utilized for operations. The Department of Human Settlements has agreed to resume Housing projects on condition that Council resolves to have a Municipal Housing Operating Account opened and Cogta monitors the replenishment of funds used for operations . The municipality had received R3m funding from KZN Cogta for Phase II of the Small Town Rehabilitation project. Phase II was awarded at the value of R3,242,994.48 is 80% complete. Due to cash flow challenges only an amount of R1,785,066.92 has been paid towards the project. The contractor has been requested to remain on site and complete the project at his cost while the Municipality raises the balance of just over R1,457,927.56. It is anticipated that Phase II will be completed before the end of the 2017/2018financial year There is a further R7m available from Cogta to implement Phase III

21 PILLAR TWO: DELIVERING BASIC SERVICES – THE MUNICIPALITY’S MIG DEBT IS AS FOLLOWS: Fin Year Project Amount Owing and not cash backed 2015/16 Mangaung Phase 1 R423,573   Sthembiso Road Phase 1 R1,492,894 2016/17 Sthembiso Road Phase 2 R4,288,592   Mangaung Road Phase 2 R3,041,793   Nkandla/ Thendele Access Road R271,528   Nyamvubu Hall R1,174,505 2017/18 Rehabilitation of Upper Town Roads R11,646,749 High Over Access Road Not awarded yet Mgqula Access Road Not awarded yet 6. SUPPORT MEASURES IMPLEMENTED TO DATE …continued

22 PILLAR TWO: DELIVERING BASIC SERVICESHousing projects will be unblocked as soon as Council resolve to set up a Municipal Housing Operating Account and commence to replenish the funds used for operations Craigeburn and Townview Projects collectively owes just over R14mPhumlas Project will commence as soon as the appointment of the Implementing Agent is settled between the DoHS and the Municipality Ebuhleni Project was suspended due to a dispute with the land owner Mr . Mhlongo Ntuli Farm awaits the completion of Ward 2 bulk water project impelmented by Umgungundlovu District Municipality Ekujabuleni Farm Workers project awaits conclusion of MOU between the District and Sierra Ranch Resort owners for the provision of temporal supply of water while the Craigeburn Dam project is under way. There are other projects that are early stage i.e. Thendele , Bruntville Hostel site and Riverview. 6. SUPPORT MEASURES IMPLEMENTED TO DATE …continued

23 PILLAR TWO: DELIVERING BASIC SERVICES R6m was transferred by the Department of Energy for 300 connections. R4,524,549.36 has been spent so far R1,475,450.64 balance has been used for operational costs and is thus not available to complete the project.6. SUPPORT MEASURES IMPLEMENTED TO DATE …continued Source of Funding Department of Energy Programme INEP Project Name Ward 2 & 4 Electrification Total Amount Transferred R6 Mil Expenditure To Date R4 524 549,36 Balance R1 475 450,64 Number of New Connections Planned 300 Number of Number of New Connection Completed and Electrified 138 New Connection Completed Waiting for Eskom Outage 50 Total Number of In fills Completed 71 New connections which are Work in progress 41 ( Scottfontein )

24 PILLAR TWO: DELIVERING BASIC SERVICES With 4422 households having access to electricity, the electricity backlog stand at 5000 households. The current contractor had been appointed at turn-key basis, which created challenges in terms of monitoring progress. Since it was discovered that their contract was irregular they have been served with termination notice and the process of appointing a consultant for the new allocation has commenced. The new INEP allocation is R5m.The municipality identified roads in Mooi River and Rosetta towns that are being maintained, utilising internal funding sources. These are special projects being implemented in response to complaints from ratepayers. Waste is collected regularly in Ward 1, 2, 3 and 5 6. SUPPORT MEASURES IMPLEMENTED TO DATE …continued

6. SUPPORT MEASURES IMPLEMENTED TO DATE…continued 25PILLAR 3: GOOD GOVERNANCECouncil and all its structures (MPAC and Portfolio Committees) meet monthly to process council business. All members but the Chairperson of the Audit Committee have been unavailable to attend meetings. The Audit Committee term expired on 30 April 2018. The process of appointing new members had already commenced. Council will appoint a new committee before the end of May 2018. The Fraud Prevention plan was reviewed and approved by Council The Risk Assessment was conducted and the Risk Register compiled. Internal Audit Unit has been requested to ensure that Quarterly Reviews are conducted There is an investigation currently conducted by Cogta in terms of Section 106 of the Municipal Systems Act.

6. SUPPORT MEASURES IMPLEMENTED TO DATE…continued 26PILLAR 4: SOUND FINANCIAL MANAGEMENT - REVENUE & GRANT MANAGEMENT The Municipal Revenue & Debt Steering Committee has been established. A Schedule of all Government Debt has been shared with KZN CoGTA and Provincial Treasury officials for assistance and follow up. A Debt collector has been appointed to deal with the ever growing debtors book. As 31 March 2018 the total (gross) amount of R104,665m remains outstanding. Description 30 Days 60 Days 90 Days 120 Days 150 Days 180 Days +180 Days Total % Organs of State 331,000 174,000 161,000 149,000 121,000 124,000 6,123,000 7,183,000 7% Commercial 473,000 249,000 230,000 213,000 172,000 177,000 8,746,000 10,260,000 10% Agricultural 304,000 246,000 215,000 236,000 198,000 187,000 5,747,000 7,133,000 7% Households 3,626,000 1,819,000 1,698,000 1,528,000 1,231,000 1,286,000 66,849,000 78,037,000 75% Other 95,000 50,000 46,000 43,000 34,000 35,000 1,749,000 2,052,000 2% Total 4,829,000 2,538,000 2,350,000 2,169,000 1,756,000 1,809,000 89,214,000 104,665,000 100%

6. SUPPORT MEASURES IMPLEMENTED TO DATE…continued 27PILLAR 4: SOUND FINANCIAL MANAGEMENT - REVENUE & GRANT MANAGEMENT A total of R2 624 613.24 has been collected by the Debt Collectors as at 31 March 2018. A data cleansing has been completed for 260 debtors with information successfully updated on the financial system. Top 100 consumers have been contacted via email correspondence, telephone calls, personal visits and some served with final letters. The cumulative collection rate is 51% as at 31 March 2018. The collection rate is based on the current year’s billing against confirmed receipts for each service. Service category Total billed Total allocated receipt % Electricity 42 832 751 22 127 848 52% Refuse 2 871 073 445 995 16% Rates 9 268 522 5 674 423 61% Total 54 972 346 28 248 266 51% The account of the biggest client of the municipality iro electricity has been analyzed for 3 years. There are possible under recoveries noted which will be followed up for collection through the debt collection program

6. SUPPORT MEASURES IMPLEMENTED TO DATE…continued 28PILLAR 4: SOUND FINANCIAL MANAGEMENT - EXPENDITURE MANAGEMENT The municipality has placed a moratorium on all non-core service delivery expenditure. Overtime is being reduced to bear minimum. The Interim Finance Committee is sitting on a regular basis to monitor cash-flow and expenditure. (5 sittings since 28 February 2018) The total amount of creditors as at 31 April 2018 is R 76,189,911 of which R63,131,286 relate to the Eskom account of which there a payment plan. There has been improvements and the municipality is currently up to date with the payment plan. Community meetings were held on 15 April 2018, at Ward 3 and 5 to encourage people to pay for electricity, and the Electricity Recovery Strategy was presented. The Municipality has requested the Msunduzi Municipality for assistance in conducting the sweeping of electricity meters. The Electricity Recovery Strategy was approved by the Municipal Council on 7 May 2018 A prepaid meter has been installed at the Town Hall, to ensure that illegal occupants pay for their consumption.

6. SUPPORT MEASURES IMPLEMENTED TO DATE…continued 29PILLAR 4: SOUND FINANCIAL MANAGEMENT - EXPENDITURE MANAGEMENT… continued The IFC began sitting on 28 February 2018 and from that date 6 meetings have been held. Some of the resolutions of the IFC which have been successfully implemented include the following: No Service Category Termination Reasons for Termination Additional Comment s 1 Electrification Project 30-Jun-18 Regulation 32 was extended, rendering it irregular. To be re-advertised - Bid Specs being finalized 2 Vat Consultant 31-Mar-18 Section 36 appointment not meeting all legal and / Policy requirements Services no longer required 3 Valuation of long term service awards and provision for land fill 31-Mar-18 Section 36 appointment not meeting all legal and / Policy requirements To be re-advertised - Bid Specs being finalized 4 Refuse Trucks 31-Mar-18 Section 36 appointment not meeting all legal and / Policy requirements All Bid committee processes have been finalized. 5 Excavator - Landfill site 31-Mar-18 Section 36 appointment not meeting all legal and / Policy requirements All Bid committee processes have been finalized. 6 TLB - Landfill site & Cemeteries 31-Mar-18 Section 36 appointment not meeting all legal and / Policy requirements All Bid committee processes have been finalized. 7 New Leased Tripper Trucks Rejected Stale contract Contract extremely expensive

6. SUPPORT MEASURES IMPLEMENTED TO DATE…continued 30PILLAR 4: SOUND FINANCIAL MANAGEMENT - EXPENDITURE MANAGEMENT… continued Further IFC Resolutions successfully implemented: Re-advertisement of at least 5 of the terminated contracts (as indicated on the table above) Placement of a moratorium on all non-core service delivery expenditure Reduction of overtime hours and subsistence and travel claims Reduction of creditors, in particular the settlement of small creditors below R 30 000, see table below: Included in the total outstanding creditors is an amount of R 68 131 286.09 which relate to the ESKOM account The municipality has concluded acknowledgment of debt and repayment plans for most of the creditors above R 500 000 Range 28-Feb-18 31 April 2018 Number of Suppliers Rand Value Number of Suppliers Rand Value R0 - R30 000 51 225 674.45 19 172 118.52 R30 001 - R 200 000 16 2 053 903.14 15 1 614 851.87 R 200 001- R 500 000 3 1 035 909.26 2 624 190.80 Over R 500 000 6 78 652 659.07 5 73 778 749.98 Total Outstanding Creditors 76 81 968 145.92 42 76 189 911.17

6. SUPPORT MEASURES IMPLEMENTED TO DATE…continued 31PILLAR 4: SOUND FINANCIAL MANAGEMENT - SCM AND CONTRACTS MANAGEMENT The BTO is finalising the voucher audit for the period ending 31 March 2018. SCM compliance checklists have been introduced and all payments are being thoroughly checked for compliance prior to payments being processed. All BID Committees have been reconstituted (effective 01 February 2018) and committees are sitting as planned. In particular, the BID evaluation has sat to consider the service provider for the new General Valuation Roll. SCM Registers are updated on a monthly basis. As at 31 March 2018, the Irregular, Fruitless and Wasteful expenditure (reported to council) amounts to: Irregular Expenditure : R 8 700 242.17 Deviations: R 1 627 541.00 Fruitless and wasteful expenditure: R 1 636 019.83.

6. SUPPORT MEASURES IMPLEMENTED TO DATE…continued 32PILLAR 4: SOUND FINANCIAL MANAGEMENT - BUDGET & REPORTING The municipality has established a Budget and Steering Committee which has separate functions from the Budget and Treasury Portfolio Committee . The Committee composition is in line with the Treasury Guidelines. The draft budget for 2018/19 was adopted by council on 27 April 2018. However, the draft budget has a deficit of R 28,6 million. Section 71 reports are now being prepared with detailed analysis of variances. Bi-Monthly cash-flow forecast are prepared and discussed in the Interim Finance Committee meetings as means of controlling and monitoring expenditure. Creditors repayment plans have been concluded for most major creditors and are incorporated in the cash-flow forecast. Whilst there are notable improvements in some areas within Budget and Reporting, the municipality is still challenged with the implementation of M SCOA . Treasury has issued a non compliance letter, this was due to late submission of monthly data strings , Schedule C of the MBRR and electronic section 71 Reports (These are system based challenges). As remedial action, an independent service provider from the system implementing agent will conduct the following reviews (a) MSCOA system implementation review and (b) compliance review (audit file, circular/legislative compliance) and system functionality

6. SUPPORT MEASURES IMPLEMENTED TO DATE…continued 33PILLAR 4: SOUND FINANCIAL MANAGEMENT - PROGRESS REPORT ON THE AUDIT ACTION PLAN 2018/19 NO. AUDIT REPORT ISSUES TIMEFRAME STATUS COMMENT 1 Property, plant and equipment 30-Jun-18 In progress Differences in the computation of accumulated depreciation have been corrected. KZN Treasury assisted in the matter and the revised FAR has been shared with AGSA. A file with supporting documents is maintained and updated on a monthly basis. Provisional depreciation figures for the current year have been computed and reported in the interim financial statements. 2 Receivables from exchange and non-exchange transaction 30-Jun-18 In progress Monthly reconciliations of debtor age analysis has been performed retrospectively with signed off records maintained. Differences were corrected from the opening balances. An exercise to reconcile the new financial system to old is also underway. 3 Expenditure – General expenses 30-Jun-18 In progress The finance department is conducting a voucher audit for the period ended 31 March 2018. Vouchers are inspected for all audit assertions with specific attention given to SCM compliance. An SCM Compliance checklist is also being used to test compliance. The SCM registers are also updated accordingly. The Expenditure Accountant has been tasked with the function of controlling document movement through the use of voucher registers. A secure filing cabinet is being used for voucher storage 4 Payables from non-exchange transactions – leave pay provision 30-Jun-18 In progress The new payroll system (VIP) has been updated with leave transactions of the current financial year. Provisional leave balances were computed during the preparation of interim financial statements. Manual leave books are completed and submitted to the HR department for capturing. All system users have been trained on the new system. 5 Revenue – License and permit 30-Jun-18 In progress The traffic department will be visited during the month of May to investigate all differences that were noted by the AGSA on the revenue for License and Permits. A 100% verification of records will be conducted together with the Internal Audit Unit. 6 Irregular Expenditure 30-Jun-18 In progress Monthly update of irregular expenditure registers is being performed with monthly reporting to council structures. An SCM compliance checklist has been introduced. Some irregular contracts / appointment have been terminated with a view of reducing the irregular expenditure. 7 Material impairments 30-Jun-18 In progress The municipality has appointed a debt collector with a view of reducing the number of account debtors written off as irrecoverable. The exercise also seek to update the consumer database.

6. SUPPORT MEASURES IMPLEMENTED TO DATE…continued 34PILLAR 4: SOUND FINANCIAL MANAGEMENT - CASHFLOW FORECAST TO JUNE 2018 Cash Flow Forecast Mar-18 Apr-18 May-18 June 2018 Opening cash 765 298.86 1 757 666.45 1 466 388.11 -2 190 277.37 Revenue 12 976 287.37 7 000 000.00 7 249 256.21 9 247 768.63 Equitable Share 7 306 000.00 - - - SANRAL 1 509 217.54   249 256.21 747 768.63 Collections 4 161 069.83 7 000 000.00 7 000 000.00 8 500 000.00 Total Planned/ anticipated payments 8 472 923.15 6 107 758.96 10 205 921.69 10 394 921.69 Salaries , Concillors remuneration and EPWP 2 198 741.96 2 112 251.96 2 112 251.96 2 112 251.96 3rd Party Payments 1 023 555.44 1 023 555.44 1 023 555.44 1 023 555.44 Contracted Services 579 869.57 1 761 162.82 1 209 114.29 1 209 114.29 Fuel & Oil 100 000.00 200 000.00 200 000.00 200 000.00 Bulk Purchases - Eskom 4 320 756.18 - 5 000 000.00 5 500 000.00 Legal fees - 410 788.74 311 000.00 - Auditor General 250 000.00 600 000.00 350 000.00 350 000.00 Closing cash balance R5 268 663.08 R2 649 907.49 -R1 490 277.37 -R3 337 430.43 Eskom repayment R2 500 000.00 R700 000.00 R700 000.00 R500 000.00 Cash Balance R2 768 663.08 R1 949 907.49 -R2 190 277.37 -R3 837 430.43 Creditors Paid 768 844.69 483 519.38 - - Cash Balance After ALL Payments R1 999 818.39 R1 466 388.11 -R2 190 277.37 -R3 837 430.43

6. SUPPORT MEASURES IMPLEMENTED TO DATE…continued 35PILLAR FIVE: BUILDING INSTITUTIONAL CAPABILITIESThe positions of the MM, CFO and Director Social and Economic Services have been advertised Council item is being prepared for Council to resolve on the filing of the Corporate services position. The following Capacity Development programmes have been run for the Councillors and Management: Council Item Writing Standing Rules Roles and Responsibilities Code of Conduct for both Councillors and Municipal Officials Files burnt in the HR building are being re-constructed.

6. SUPPORT MEASURES IMPLEMENTED TO DATE…continued 36 36 IMPACT OF SUPPORT MEASURES: There is control over expenditure, and Section 71 reports show a marginal decrease in general expenses. Litigation by creditors has been averted as Acknowledgement of Debt and Payment Plan documents have been concluded with most major creditors Number of unpaid creditors is decreasing especially those under R30,000.00 Third parties are paid timeously Debtors are now making payment arrangements Data cleansing is simultaneously undertaken as final notices are served Irregular contracts are cleared as they get discovered The Municipality now has a legally appointed Accounting Officer Better relations with Farmers Association and other stakeholders

37 37 REMAINING CHALLENGES The Municipality is still badly financially constrained Slow implementation of projects Senior Management vacancies not yet eradicated Staff morale remains stubbornly low Poor interface between Political principals and Managements 6. SUPPORT MEASURES IMPLEMENTED TO DATE …continued

It is clear from the foregoing explanations that the Provincial Executive Council applied its mind and correctly decided to intervene at Mpofana Municipality.It is also clear that the municipality had received support, particularly from both the Provincial Treasury and Cogta and that despite such support the municipality is failing. The Ministerial Representative will succeed only if the he/she has the full backing of the municipal council, its office bearers, management and the employees of the municipality. If the municipal council or management, choose the hard road of resisting the support and mobilising community uprisings against the Ministerial Representative the Municipal Council will be running a serious risk of being dissolved yet again.It is not the intention of the Provincial Executive Council to retain the intervention beyond the period necessary to resolve the challenges besetting the municipality.7 . CONCLUSIONS

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