Presentation to the Select Committee on Appropriations O CTOBER 16 TH 2012 2015/09/081.

Presentation to the Select Committee on Appropriations

OCTOBER 16TH 2012

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OVERVIEW OF THE PRESENTATION

• Introduction• Audit Outcomes• Provincial Support Programme and Coordinating

Structures– OPCA Support Programme– Gauteng Government Debt Management

Programme– Gauteng Debtor’s Book Project

• Way Forward

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INTRODUCTION

• 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

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AUDIT OUTCOMES

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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

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AUDIT OUTCOMES- PROGRESS

• 8 Municipalities have maintained their unqualified status over the last two financial years

• 4 Municipalities have maintained their qualified status over the last two financial years.

• 3 municipalities have regressed over the last two financial years.

• This is of great concern to the Province and plans are in place to address the challenge.

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AU

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AUDIT OUTCOMES- TREND

Audit Opinion 2008/9 2009/10 2010/11

Disclaimer 1 0 0

Adverse 0 0 0

Qualified 2 4 6

Unqualified 10 10 9

Clean 2 1 0

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BACKGROUND AND CONTEXT

Status Quo of audit Outcomes

FINANCIAL YEAR

MUNICIPALITY 2008/9 2009/10 2010/11

CITY OF JOHANNESBURG CLEAN AUDIT QUALIFIED QUALIFIED

CITY OF TSHWANE QUALIFIED UNQUALIFIED UNQUALIFIED

EKURHULENI UNQUALIFIED UNQUALIFIED UNQUALIFIED

METSWEDING DISTRICT CLEAN AUDIT CLEAN AUDIT UNQUALIFIED

NOKENG TSA TAEMANE QUALIFIED UNQUALIFIED QUALIFIED

KUNGWINI DISCLAIMER QUALIFIED QUALIFIED

SEDIBENG DISTRICT UNQUALIFIED UNQUALIFIED UNQUALIFIED

EMFULENI QUALIFIED QUALIFIED QUALIFIED

MIDVAAL UNQUALIFIED UNQUALIFIED UNQUALIFIED

LESEDI UNQUALIFIED UNQUALIFIED UNQUALIFIED

WEST RAND DISTRICT UNQUALIFIED UNQUALIFIED UNQUALIFIED

MOGALE CITY UNQUALIFIED QUALIFIED QUALIFIED

RANDFONTEIN UNQUALIFIED UNQUALIFIED QULAIFIED

WESTONARIA UNQUALIFIED UNQUALIFIED UNQUALIFIED

MERAFONG UNQUALIFIED UNQUALIFIED UNQUALIFIED

AUDIT OUTCOMES- ANALYSISCity Of Johannesburg

Regressed from the year 2008/09 where a clean audit was received and thereafter a qualification for 2009/10 and 2010/11.

The qualification relates to revenue and accounts receivables. Due to system integration shortcomings, property categories in the billing system differed compared to the system which contains information regarding the classification and zoning of properties, which resulted in a qualification in revenue and accounts receivables.

City Of Tshwane Improved from the year 2008/09 where a qualification was received and thereafter unqualified audit opinions for 2009/10 and 20010/11.

Ekurhuleni Maintained their unqualified status for past 3 years

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AUDIT OUTCOMES- ANALYSIS Metsweding District Regressed in the past financial year where it moved from a clean

audit status to unqualified in 2010/11.

Nokeng Tsa Taemane Regressed in the past financial year where it moved from an unqualified audit opinion in the past year to a qualification in 2010/11.

The financial disciplines were not upheld as the key monthly reconciliations of the bank reconciliation were not performed and reviewed, resulting in unreconciled differences between the cash book and the financial statements.

Kungwini Improved from a Disclaimer in 2008/09 to a qualified audit opinion in 2009/10 and 2010/11.

The basis for the qualification was the supplementary valuation roll that was not updated and the accounts receivable sub ledger was not reconciled with the financial statements, resulting in a qualification of revenue and consumer debtors. There was no documentation to support suspense accounts for the liabilities and indigent debtors.

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AUDIT OUTCOMES- ANALYSISSedibeng District Maintained their unqualified status for past 3 years.

Emfuleni Local Municipality

Maintained their qualified status for the past 3 years.

The basis for the qualification was the purchase price of infrastructure assets procured in prior periods that could not be confirmed, due to inadequate documentation to support the original cost.

In previous financial years, Emfuleni did not comply with the requirements of GRAP17. In the 2010-11 financial years, Emfuleni was late in engaging consultants to resolve the GRAP17 compliance issues.

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AUDIT OUTCOMES- ANALYSISMidvaal Maintained their unqualified status for the past 3

years

Lesedi Maintained their unqualified status for the past 3 years

West Rand District Maintained their unqualified status for the past 3 years

Mogale City Regressed in the past financial year where it moved from an unqualified audit opinion for 2 years to a qualification in 2010/11.

The basis for the qualification was the adjustments that were made to the opening balances on assets to address the prior yearqualification without adequate supporting documentation.

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AUDIT OUTCOMES- ANALYSISRandfontein Regressed in the past financial year where it moved from an

unqualified audit opinion for 2 years to a qualification in 2010/11.

The basis for the qualification was the property, plant and equipment balance that was not supported by an accurate and complete fixed asset register. The municipality was qualified on the accumulated surplus amounts, primarily resulting from prior period adjustments being made to the comparative figures for which no supporting documentation was available.

Westonaria Maintained their unqualified status for the past 3 year

Merafong Maintained their unqualified status for the past 3 years

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SUPPLY CHAIN MANAGEMENT OUTCOMES

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SUPPLY CHAIN MANAGEMENT (SCM) - METROS

• Supply chain management findings relating to irregular expenditure not condoned in terms of section 170 of the MFMA by national treasury. In this regard, the metros faired as follows:– COJ-R432 million – COT-R119 Million of which R94 million related to contracts entered

into the prior periods – EMM-R14 Million

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Plan to address the issues:-• Tracking mechanisms will be implemented such that when contracts are

entered into, plans for the closure of the project are in place.

• Interactions with National treasury will be initiated to review the applicability and constitutionally of the legislation relating to suppliers in the service of the state.

• Ensure that internal controls are in place to ensure compliance with legislation relating to procurement matters.

• The city of Johannesburg deviation policy should be reviewed to ensure it meets the AG requirement. AGSA uses the requirement set in Regulation 36 and reasons provided are assessed against this SCM regulation.

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SCM findings on awards made to persons in the service of the state 9 SMC Regulation 44)• COJ-Municipality (13-R6.6 Million) and other state institution (27=R45

Million) excluding municipal entities;

• COT-Municipality (41=R20 Million) and other state institution (127=R24, 46 Million);

• EMM-Municipal (4=R0, 5 Million) and other state institutions 28=R149.9 million)

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Plan to address the issues:-

• Internal controls need to be improved to identify suppliers who are employed by the municipalities and the municipal entities. SALGA is in the process of consolidating a database of employees of the state in Gauteng for easy access to municipalities.

• It is a challenge for local government to identify employees in the service of the Public Service. Engagements are underway to discuss and resolve the matter with National treasury and the Accountant General, especially in relation to the constitutionality of the legislation

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Unauthorized expenditure in excess of the limits amount (provided for in the

votes R50 million)

• COJ –R43 Million for bulk purchase and grants and subsidies paid R13 Million

• COJ-R 53 Million mainly relating to overspending on guarding services by JMPD

Plan to address the issue-• The limits in legislation on the amount that the municipalities can spend

over and above the allocated votes could be low. There is a need to engage and review the limits in line with the size of metropolitan municipalities and their respective budget.

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Fruitless and wasteful expenditure with regard to interest on:-• overdue account;• penalties from South Africa Revenue Services;• expenditure for resources not utilized and traffic fines.

Plan to address the issues• Training of the compliance officers and their staff to ensure proper

understanding of the applicable laws and regulations;

• Explore the development of a compliance check list which will be used to ensure that laws and regulations are compiled with before transgression occur.

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SUPPLY CHAIN MANAGEMENT (SCM) - LOCALS

• SCM findings on awards made to persons in the service of the state (SCM regulation 44):– Sedibeng District Municipality (SDM) (1=R836 942) and other state institution

( 23=R527 497)– Emfuleni Local Municipality (1=R94 000) and other state institutions ( 15=R4

750 553)

• Unauthorized expenditure, overspending on total budget or main division within budget:– Merafong City-R 13 million for bulk purchase and grants and subsidies paid.– Mogale City- R11,8 million relating to overspending of the total operational

expenditure budget– Randfontein-R53 million mainly relating to overspending on operational

expenditure

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SUPPLY CHAIN MANAGEMENT (SCM) - LOCALS

• Other Supply Chain Management (SCM) findings identified for all municipalities 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.

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SUPPLY CHAIN MANAGEMENT (SCM)

• Tender processes 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.

• Limited capacity and skill within SCM units in municipalities.

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PROVINCIAL SUPPORT PROGRAMME

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• Revenue Enhancement and debtor management model implementation

• Hands on support to monitor, advise on and coordinate the implementation of Operation Clean Audit (OPCA)– address issues raised by the Auditor General (AG) in

Randfontein and Tshwane– Compilation of GRAP 17 compliant asset registers (Emfuleni

and Westonaria).– implemention the shared services model in the Westrand

region (the Westrand district municipality and its locals.)

• The establishment and training MPAC members.

INTRODUCTION – SUPPORT INITIATIVES

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INTRODUCTION – SUPPORT INITIATIVES

• Coordination and support of key structures and committees– CFO and MEC/MMC Indaba Forum– OPCA Provincial Coordinating Committee (OPCA PCC)

• Support to implement the Performance Management System in Tshwane

• HR support with regards to the filling of critical posts with special focus on the top six posts

• Implementation of the Critical and Scares skills strategy and plan

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Management paradigm shift entails the following:

• Increased Accountability

– Role of political and administrative leadership: Mayor and MMC finance, Municipal Manager and CFO

– Accountability of all employees towards achieving clean audits (declaration forms/performance contract for all SMS members)

• Each senior manager to do an analysis to identify risks in their areas of work that could compromise OPCA

– Development of comprehensive plans to achieve clean audits

MANAGEMENT PARADIGM SHIFT

MANAGEMENT PARADIGM SHIFT

– Diligent monitoring of the implementation plan

• OPCA standing item in all Council and SMS meetings• Establishment of an OPCA steering committee to play oversight

role• Weekly/bi weekly OPCA meetings to track progress made in

addressing AG issues with involvement of MMC finance in the dire cases.

– Management of the audit process: • Efficient document management systems (availability of

supporting documentation)• Availability of senior managers during audit process

OPERATION CLEAN AUDIT SUPPORT

Purpose and Objectives:-

• The OPCA Targeted Hands on Support is a support project focusing on assisting Municipalities that received disclaimers and qualifications in their audit opinions during the 08/09 and 09/10 financial year.

• The project aims to assist Municipalities to receive unqualified and clean audit outcomes by the financial year 14/15.

• The support is currently been implemented across most Local Municipality and the new City of Tshwane Metro Municipality.

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TARGETED HANDS ON SUPPORT• Primary focus areas of the targeted hands on support are:-

– Internal Controls – Asset Management – Oversight Function– Revenue Management– Capacity Building – Scarce and Critical Skills – Performance Informatio;– Annual Financial Statements– Integration of the Financial system data- City of Tshwane

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PROGRESS OF THE TARGETED HANDS ON SUPPORT IN TSHWANE

AND EMFULENI

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TSHWANE METRO MUNICIPALITY (COT) OPERATION CLEAN AUDIT SUPPORT PROGRESS

TO DATE Support was provided in the following areas:• Analysing revenue exception reports generated

by the Computer Assisted Auditing Techniques program

• Development of a Compliance checklist• Creditor’s Reconciliations• Asset verification on movable assets and

operational leases

TSHWANE METRO MUNICIPALITY (COT) OPERATION CLEAN AUDIT SUPPORT PROGRESS

TO DATE Tshwane Metro Municipality (CoT)• 15 technical experts 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

• This support has enabled the City of Tshwane to integrate the data from the merged municipalities (Metsweding, Nokeng and Kungwini.)

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EMFULENI ASSET MANAGEMENT SUPPORT PROGRESS TO DATE

• The compilation of the asset register was completed in 2011, however 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

• The Price Water Cooper 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 and more detailed reports are available.

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EMFULENI ASSET MANAGEMENT SUPPORT PROGRESS TO DATE

Objective:-• The Department identified assets management (with focus on

GRAP 17 compliance )as the high risk area in Emfuleni and financially supported the municipality in this regard

Progress:-• To date Price Water Coopers was contracted by the

municipality to compile a GRAP 17 asset register.

• The initiative included both infrastructure and movable assets.

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OPCA PROVINCIAL COORDINATING COMMITTEE

(OPCC)• The OPCACC , coordinating and monitoring structure was

established to:-– monitor the implementation of OPCA within Municipalities

as well as the provincial departments within the province.• All Municipalities the progress made in addressing AG issues as well

as progress towards achieving clean audits.

• All stakeholders also present the progress made in supporting municipalities to achieve clean audits.

– Streamline the support from various stakeholders to municipalities.

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DEPARTMENTAL SUPPORT – SUPPLY CHAIN

• Provide hands on support to targeted municipalities.

• Monitor compliance and the implementation of municipals plans through the OPCACC and Municipal Audit Steering Committees.

• Facilitate and strengthen critical capacity in terms of skills, policies and systems through hands on support to targeted municipalities.

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INTERNAL CONTROL STRUCTURES

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GOVERNANCE OF MUNICIPAL FINANCES

Upgrading systems to ensure effective internal control measures (Audit Committees and Internal Audit)

– MFMA regulates the establishment of Audit Committees and Internal Audit. GPG conducting study on shared services where the functions are not effective.

– Availability of credible annual risk based plan - alignment to risk assessment

– Development of Internal Audit and Audit Committee framework

– A partnership has been developed by GPG with the Institute of Internal Auditors to play a strategic role towards strengthening the functioning and focus of the Internal Audit Function.

– Strengthening the assessment, monitoring and implementation of Key controls recommendations

INTERNAL CONTROL STRUCTURES

• Municipalities are statutorily required by section 165 and 166 of the Municipal Finance Management Act (MFMA) to establish strong governance structures to advise the municipality on matters relating to:-– internal controls, internal audit, accounting and

financial reporting,– risk management, – performance management, – governance, – compliance with the MFMA and any other applicable

legislation.

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ESTABLISHMENT OF FUNCTIONAL INTERNAL AUDIT UNITS

Establishment of Internal Audit units by Gauteng Municipalities:

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Municipality I.A. Unit in place In-house/Outsourced/Co-sourced

City of Johannesburg MM Yes In-house

Ekurhuleni MM Yes In-house

City of Tshwane MM Yes In-house

West Rand DM Yes In-house

Randfontein LM Yes In-house

Westonaria LM No N/A

Merafong City LM Yes In-house

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ESTABLISHMENT OF FUNCTIONAL GOVERNANCE

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Municipality I.A. Unit in place In-house/Outsourced/Co-sourced

Mogale City LM Yes In-house

Sedibeng DM Yes In-house

Emfuleni LM Yes In-house

Midvaal LM Yes Outsourced

Lesedi LM Yes Outsourced

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OVERALL ASSESSMENT OF INTERNAL AUDIT UNITS

• Most of the Municipalities have established in-house internal audit units informed by their approved Charters

• The Midvaal LM and Lesedi LM which have outsourced this function to private audit firms.

• The issue of outsourcing the internal audit function poses a challenge to municipalities with regard to skills transfer and huge costs to municipalities. Some municipalities view outsourcing as a means to enhance the independence of the internal auditors;

• Challenge:-

– The capacity of internal audit staff remains a challenge if the skills transfer clause is not implemented for those with outsourced services.

– For those with internal units delays in filling of vacancies in these units impact negatively on the performance of the internal audit function.

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ESTABLISHMENT OF FUNCTIONAL GOVERNANCE

• The internal auditors of municipalities have appropriate qualifications but not sufficient experience on IT and financial audits,

• Capacity is a challenge in relation to the size of a municipality which leads to the internal audit function being less effective.

• Some internal audit units are not allocated sufficient budget to purchase electronic audit software which would support their work in complying with the required professional standards.

• Senior management do not give support to the internal auditors through the commitment of implementing the recommendations of internal audit unit. Ad hoc assignments by management impact negatively on the execution of the internal audit plans.

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ESTABLISHMENT OF FUNCTIONAL AUDIT COMMITTEES

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Establishment of Audit Committees by Gauteng Municipalities:

Municipality Audit Committee established

City of Johannesburg Established

Ekurhuleni MM Established

City of Tshwane MM Established

West Rand DM Established

Randfontein LM Established

Westonaria LM Established

Merafong City LM Established

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ESTABLISHMENT OF FUNCTIONAL AUDIT COMMITTEES

Municipality Audit Committee established

Mogale City LM Established

Sedibeng DM Established

Emfuleni LM Established

Midvaal LM Established

Lesedi LM Established

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OVERALL ASSESSMENT OF AUDIT COMMITTEES• The assessment is based on the Departmental attendance at audit

committee meetings.

• The Auditor-General also attends these audit committee meetings as a means to improve audit opinions and giving guidance in this regard.

• The composition of the established audit committees is in line with the MFMA as the members are not in the employ of the municipality and they are not councilors.

• The challenge comes when members resign from the audit committees as it takes a lengthy process to advertise and appoint new members to serve on the committees.

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SHARED SERVICES PROVINCIAL SUPPORT

• In response to the challenges experienced within the Internal audit functions and audit committees, the Department has undertaken a feasibility study with the view of establishing shared services.

• A 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.

• The individual municipalities need to take council resolutions to implement .

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MPACS • A separation of powers model has been introduced in Gauteng local

government. The Oversight Model mirrors parliament’s portfolio committees.– It was piloted City of Jo’burg (COJ) - – It has now been rolled out in the City of Tshwane and the Ekurhuleni

Metropolitan Municipality.

• Municipal Public Accounts Committees (MPACs), which are similar to parliament’s Standing Committee on Public Accounts (SCOPA) have been established across all municipalities in Gauteng since the Local Government Elections 2011.

• Their primary responsibility is to ensure that reports of the Auditor General (AG) are given the serious attention that they require by municipal councils.

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STATE OF MPACS• An evaluation of MPACs in Gauteng in 2010 highlighted

challenges upon which the following recommendations were formulated:– A need for a standard approach on the appointment of

members, – Continuous training for members was required, constant

monitoring of MPACs, – Granting chairpersons fulltime councillor status, and – To develop a legislative authority for MPACs.

• By 31st October 2011, all MPACs were established in Gauteng in line with Circular 56 dated June 2011

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STATE OF MPACSMUNICIPALITY DATE ESTABLISHED NUMBER OF MEMBERS

COT Metro 15/07/2011 and re-established on 27 October 2011

13 Members

COJ Metro 07/2011 18 Members

Ekurhuleni Metro 20/07/2011 11 Members

West Rand DM 29/06/2011 8 Members

Merafong LM 24/08/2011 13 Members

Mogale LM 28/10/2011 13 Members

Westonaria LM 26/08/2011 7 Members

Randfontein LM 20/07/2011 10 Members

Sedibeng DM 10/08/2011 9 Members

Emfuleni LM 06/2011 12 Members

Lesedi LM 28/06/2011 6 Members

Midvaal LM 27/10/2011 7 Members -5 permanent 2 alternates51

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MPACS- CHALLENGES• Following are their key challenges:

– Committee members are lacking the required skills and expertise on financial and non-financial oversight and scrutiny.

– Performance and status of the MPACs is negatively affected by the lack of resources (i.e. human and financial).

– The lack of a committee researcher is a clear impediment to the majority of MPACs in the province as they can bridge the skills gap of members.

– Generally there is lack of powers to enforce decisions of the MPACs.

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MPACS- PROVINCIAL SUPPORT

• SALGA Councillor Induction Programme (June 2011) strengthened on the role of MPACs

• Workshops held on the role and function of MPACs• APAC, DLGH, Provincial Treasury held 2 day session in May

2012 on the role, mandate and functions of MPACs• Certificate Programme developed with Regenesys - 50 MPAC

members being trained• Full-time Section 79 Chairpersons – Concurrence assigned at

70% of the upper limit. Of the 9 municipalities qualifying in terms of their size, 5 applied and received concurrence from the MEC.

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Progress on the Implementation of the scarce and critical skill’s strategy

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SCARCE AND CRITICAL SKILL STRATEGY

PROGRESS TO DATEPurpose:-• To provide training and mentoring opportunities to targeted scarce and

critical skills areas.

Progress:- To date the department has trained and mentored over 700 officials and politicians in the areas of:-• Financial Management For Lower Level Employees, • Auditing And Finance • Supply Chain Management, • Finance For Oversight Committees, • Integrated Development Planning With Focus On Linking Budget To The

IDP

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HUMAN RESOURCE DEVELOPMENT, MANAGEMENT AND PERFORMANCE MANAGEMENT SYSTEMS

PROGRESS TO DATE

The department rendered support to the Westrand region and Tshwane:-

• To implement the Human Resource Development and Management strategy

• Monitoring and support the implementation of the Performance Management Systems.

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GAUTENG GOVERNMENT DEBT MANAGEMENT

PROJECT

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BACKGROUND

• The report is focusing on the five GPG Departments that owe the municipalities the most amounts:-

– Departments of Local Government and Housing,

– Health and Social Development,

– Education;

– Infrastructure Development and;

– The Department of Transport.

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DEPARTMENT OF EDUCATION (GDE)

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ANALYSIS OF TABLE

• GDE has made significant and constant payments to municipalities

• This has shown the municipalities the commitment they have in settling the municipal debt.

• The department has developed a strategy to address the challenges it has been experiencing regarding the section 21 school’s lack of payment of services.

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ANALYSIS OF TABLE

• The key part of the strategy is that the budget for services will no longer be given to those section 21 schools that have not been paying for services, instead payment of services will be centralised at the GDE head office.

• For those section 21 schools that are paying, the GDE require proof of payment from the schools by a certain date of the month to ensure timeous payments.

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CHALLENGES PER DEPARTMENT: EDUCATION

• Meter readings at schools are a big challenge as in some cases departments are billed on estimates which are higher than the actual reading or municipalities cannot locate the meters in the school yard hence they bill on estimation.

• This leads to a dispute of the billed amount. This results in the schools withholding the payments while the matter is being resolved.

• Attempts to resolve this are underway via the one on one engagements between the Department and the municipalities.

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• It is also noted that schools with exorbitant outstanding amounts are due to decaying water infrastructure and abuse of the water and electricity by communities in those schools that are not properly secured

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• The other challenge that was noted during the working session with the Department of Education is that some of the schools have been paying for rates and taxes due to the fact that the municipalities are not splitting the accounts.

• This however is being dealt with through one on way

engagements with these municipalities.

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DEPARTMENT OF ROADS AND TRANSPORT

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DEPARTMENT OF INFRASTRUCTURE(DID)

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ANALYSIS OF TABLE: DID• DID is trying to bring all the account up-to-date in most

municipalities, however that is dependent on the municipalities delivering correct information as agreed in the debt management committees.

• In addition, payments are also subject to property verification processes. This is a challenge for municipalities as the DID asset register is incomplete and this results in the verification process taking too long.

• The issue will be dealt with urgently by the senior management of DLGH and DID.

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DEPARTMENT OF HOUSING AND LOCAL GOVERNMENT (GDLGH)

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CHALLENGES PER DEPARTMENT: DLGH

• There is serious weakness in the system regarding the transfer of housing projects and land to beneficiaries.

• There is no standard approach to handle the transfer process in particular between the Housing Department and municipalities.

• Ownership of property has been a contentious issue that has constantly surfaced as an impediment in the payment of outstanding debt

• Municipalities continue to bill the department for service consumption by residents until change of ownership to occupants is effected

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DEPARTMENT OF HEALTH (GDH )

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ANALYSIS OF TABLE

• The department of Health is still experiencing financial crisis, hence such low payment rates in the table.

• However, there is an intervention by the MEC for Health, the premier and National Treasury.

• The Mogale City and Lesedi municipality have credits on DoH accounts for the clinics and are awaiting authorization from the department to off-set the credits against hospitals with arrear accounts.

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DEPARTMENT SUMMARY OF THE TOTAL OUTSTANDING DEBT AS AT

JUNE 2012

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CHALLENGES: GENERIC

• The cash flow is a challenge for some departments who don’t budget enough money for payments of municipal services and yet they process payments.

• Payments are delayed at times due to the fact that the departments must verify the accounts once they receive the claim before they can make payments.

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WAY FORWARD- GOVERNMENT DEBT

• Working sessions to be held to aid in verifying and resolving unclear matters between municipalities and departments with regards to issues of ownership and asset verification.

• That Gauteng Municipalities are encouraged to bill DID on property rates on a quarterly basis in sync with the timing of the grant, so as to avoid incorrect cash flow projection from the municipal side.

• A firm and clear directive be given in a form of a circular, on the ownership of housing projects upon completion, therefore enable municipalities to bill beneficiaries directly and not the Departments of Housing.

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• All the school districts should do their own meter reading on monthly basis and it will be compared to the municipalities reading and the billing will be based on that.

• That the committee investigates the possibility of implementing remote meter reading infrastructure in the Departments.

• Considers ring-fencing allocations for services for the Department of Health at the level of the Gauteng Treasury.

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• There should be a concerted effort towards resolving water leakages in schools and continuously maintaining such infrastructure.

• The provincial debt management committee to engage officials responsible for the Provincial water demand management project to plot a way forward in implementing the project.

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UPDATE ON GAUTENG DEBTORS BOOK PROJECT

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BACKGROUND: DEBTORS’ BOOK PROJECT

• The first phase:-– Entailed an in-depth analysis of the five year transactions of the

debtors book of the respective municipalities.

– It was completed in 2009 and the results were communicated to the relevant stakeholders.

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Summary of Phase two process

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The second phase entails the process of selling the right to collect outstanding debtors of the municipal debtors book.

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• 90 Days and Over

o 6 Bids were received on 30 September 2011, and one preferred bidder after the evaluation process was nominated.

o That bidder was then given an electronic copy of the detailed transaction history of the Debtors’ Book, as well as a detailed Term Sheet to mark up.

o Reserve bidders were provided with the same information due to the protracted nature of negotiations with the preferred bidder. However, the submissions by the reserve bidders fell short of the client’s expectations, and the process with these bidders was thus discontinued

EMFULENI: PHASE II CURRENT STATUS

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EMFULENI: PHASE II CURRENT STATUS

90 Days and Over• Upon receipt of the debtors book, the preferred investor undertook their own due diligence of the debtors book and made an upfront offer of R300 million for a R 1 billion book.•The findings of the institutional due diligence were that the history of the municipality indicated that the municipality as an institution has not been stable in terms of leadership.• Based on these findings the investor proposed a payments schedule in to ensure that the investors have access to their money if the municipality were to end the project before the agreed time lines. Additionally, the investor would not have the liberty to access the money under no other conditions except the termination of the project by the municipality.• The municipality has decided to reject the offer on the basis that they will not receive the full R300 million upfront.

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• Tshwane has appointed the transaction advisor to support the municipality to take the book to the market.

• A kick off meeting was held between the department, service provider and the revenue officials in the municipality to agree on the process and timelines.

TSHWANE METRO: STATUS

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• The City of Joburg put the project on hold when the markets slumped during the 2009 recession. Indications were that they would re-engage the market when they were satisfied that market conditions had sufficiently improved.

• The City is re-considering re-engaging the market to sell the right to collect on behalf of the municipalities.

CITY OF JOBURG: STATUS

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PROJECT IMPLEMENTATION CHALLENGES

• Delays by municipalities in making data available for the analysis of the debtors book. This challenge is as a result of system compatibility issues.

• Delays in approvals of the different processes in the implementation plan by both the administration and political leadership

• The negotiations with the investors are complex and long due to several factors that have to be considered in contracting on this kind of a transaction. For example, the investors have identified key institutional risks such as possible leadership changes during the project implementation which might result in the project being canned.

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Progress on the Implementation of the scarce and critical skill’s strategy

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SCARCE AND CRITICAL SKILL STRATEGY

PROGRESS TO DATEPurpose:-• To provide training and mentoring opportunities to targeted scarce and

critical skills areas.

Progress:- To date the department has trained and mentored over 700 officials and politicians in the areas of:-• Financial Management For Lower Level Employees, • Auditing And Finance • Supply Chain Management, • Finance For Oversight Committees, • Integrated Development Planning With Focus On Linking Budget To The

IDP

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HUMAN RESOURCE DEVELOPMENT, MANAGEMENT AND PERFORMANCE MANAGEMENT SYSTEMS

PROGRESS TO DATE

The department rendered support to the Westrand region and Tshwane:-

• To implement the Human Resource Development and Management strategy

• Monitoring and support the implementation of the Performance Management Systems.

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WAY FORWARD - PROPOSED NEW INITIATIVES

Improve the management of the revenue value chain:• Improve the correctness and completeness of the revenue debtor

data.• Profile customers and developing customized strategy for each

grouping and classification of accounts by Debtor types (e.g. current Government debtors, households, businesses etc)

• Review Tariff setting to ensure transparency and Cost reflective.• Billing and Invoicing systems and processes.• Metering management (smart metering)• Strengthening capacity and capability to enforce Municipal Credit

Control and Debt Management Policies and Procedures;

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• Indigent Management:-– Management of Indigent Registration system and process– Facilitate and coordinate poverty alleviation and job creation

opportunities with applicable strategic partners– Review of Grant Formulas.

• Policy and Legislative Review and Advocacy:– Improve current fiscal policy and legislative framework – Facilitate and lobby for the development of enabling legislation that

will allow municipalities to collect their debtors.• Integrated Customer Relations and Communication campaigns;

• Roll-out integrated communication and education campaigns on credit control

• Reinforce Political leadership on consumer education and advocacy

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• Infrastructure Development and Maintenance• Upgrade and Maintenance of infrastructure• Improve Water and Electricity Demand Management, • Explore and introduce Energy Saving initiatives;

• Improved Capacity Building Initiatives• Strengthen recruitment, development and retention of required skills and

capacity in regards to the Revenue Value Chain broadly and billing in particular.

• Strengthening political leadership and oversight• Research and explore other innovative revenue enhancement options.

– Municipal Financial viability and sustainability study completed.– Explore options for growing the municipal revenue base and sources

(untapped sources)

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Improved Capacity Building Initiatives• Strengthen recruitment, development and retention of required

skills and capacity in regards to the Revenue Value Chain broadly and billing in particular.

• Strengthening political leadership and oversight• Enterprise Risk management• Strengthening the implementation of M&E and assessment of

Key controls recommendations• Embed the successes and impact of support and achievements • Strengthen the Provincial Departmental Capacity to support

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Presentation to the Select Committee on Appropriations O CTOBER 16 TH 2012 2015/09/081.

Documents

Transcript of Presentation to the Select Committee on Appropriations O CTOBER 16 TH 2012 2015/09/081.