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PART 1: COGTA'S MANDATE

PART 1: COGTA'S MANDATE. PRESENTATION TO THE SELECT COMMITTEE ON FINANCE Date: 16 July 2014. CONTENTS. Constitutional foundation of CoGTA’s mandate Legislative mandate of CoGTA CoGTA’s mandate as a Ministry. CONSTITUTIONAL FOUNDATION OF COGTA’S MANDATE.

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PART 1: COGTA'S MANDATE

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  1. PART 1: COGTA'S MANDATE PRESENTATION TO THE SELECT COMMITTEE ON FINANCE Date: 16 July 2014

  2. CONTENTS • Constitutional foundation of CoGTA’s mandate • Legislative mandate of CoGTA • CoGTA’s mandate as a Ministry

  3. CONSTITUTIONAL FOUNDATION OF COGTA’S MANDATE • The COGTA Ministry comprises the Department of Cooperative Governance and the Department of Traditional Affairs • Key elements and Constitutional foundations of CoGTA’s mandate: • System of Cooperative Government (Chapter 3 of the Constitution); • Bill of Rights (Chapter 2); • Provinces (Chapter 6 of the Constitution); • Local Government (Chapter 7 of the Constitution); & • Traditional Leaders (Chapter 12 of the Constitution).

  4. CONSTITUTIONAL FOUNDATION OF COGTA’S MANDATE • System of Cooperative Government: Chapter 3 [section 40 (1)] of the Constitution constitutes government as National, Provincial and Local spheres, which are distinctive, inter-dependent and interrelated; • Collaboration between and among national departments, provincial departments and municipalities is crucial: • Section 40 (2) enjoins all spheres of government to observe and adhere to the principles of cooperative government and intergovernmental relations set out in section 41; • Chapter 7 [section 151(1)] provides for the establishment of municipalities for the whole of the territory of the Republic; • Section 154 (1) of the Constitution obliges National and Provincial government to support and strengthen the capacity of municipalities to manage their own affairs, to exercise their powers and perform their functions”.

  5. CONSTITUTIONAL FOUNDATION OF COGTA’S MANDATE The mandate of the Department of Traditional Affairs is derived from: • Sections 211 and 212of the Constitution which stipulates that: • “The institution, status and role of traditional leadership, according to customary law, are recognized, subject to the Constitution”; • “National legislation may provide for a role for traditional leadership as an institution at local level on matters affecting local communities”. • Section 30of the Constitution, on Language and Culture:“everyone has the right to use the language and participate in the cultural life of their choice, but no-one exercising these rights may do so in a manner inconsistent with any provision of the Bill of Rights.” • Section 31of the Constitution on Cultural, Religious and Linguistic Communities: “persons belonging to a cultural, religious or linguistic community may not be denied the right, with other members of that community to enjoy their culture, practice their religion and use their language; to form; join or maintain cultural, religious and linguistic associations and other organs of civil society.”

  6. Constitutional Foundation of COGTA’s mandate • Local government at coalface – at the service of citizens • The Constitution defines the Republic of South Africa as one, sovereign, democratic state founded on, among others, the following values: • Human dignity, the achievement of equality and the advancement of human rights and fundamental freedoms; • The Constitution contains a Bill of Rights which reaffirms the democratic values of human dignity, equality and freedom; • The Bill of Rights provides everyone with, among others, the right to human dignity and an environment that is not harmful to their health and wellbeing, and access to water and adequate housing. • The Constitution enjoins the State to respect, protect and fulfil the rights in the Bill of Rights.

  7. LEGISLATIVE MANDATE OF COGTA CoGTA will give effect to it’s mandate through the development of policies and legislation with regard to local government and traditional leaders within the legislative framework that includes:

  8. COGTA’S MANDATE AS A MINISTRY As the Ministry of CoGTA our primary mandate is to: • Develop and monitor the implementation of national policy and legislation seeking to transform and strengthen key institutions and mechanisms of governance to fulfill their developmental role. • Develop, promote and monitor mechanisms, systems and structures to enable integrated service delivery and implementation within government. • Promote sustainable development by providing support to and exercising oversight over provincial and local government. .

  9. Part 2: Fiscal Investment and Challenges Fiscal Challenges in Municipalities and Support/Interventions in relations the instruments administered by the Department

  10. OUTLINE OF PRESENTATION Introduction Constitutional Provisions Equitable Share to municipalities per province Municipal Infrastructure Grant per province MIG Expenditure Debt Management Challenges faced by municipalities MISA role in addressing the challenges Audit outcomes for municipalities Interventions/Actions planned Conclusions

  11. INTRODUCTION • We will seek to provide a summary of the investment that flows directly and indirectly to municipalities aggregated per province. • We will also provide some of the challenges experienced in the implementation of fiscal instruments that we administer and how these are mitigated through MISA. • We will look at the Debt owed to municipalities by Households, Business, Government and others aggregated per province • We will also provide audit outcomes summary for the last four financial years and the plans to support municipalities to improve on their audit outcomes. • The audit outcomes of the 12/13 financial year will not be in the presentation because AGSA is releasing them at of July 2014

  12. Constitutional Provisions • Section 214 provide for the equitable shares and allocations of revenues raised nationally • These revenues are shared or distributed conditionally or unconditionally through the Division of Revenue Act which is passed annually • Section 227(1) of the Constitution provides for the entitlement of provinces and LG to the equitable share of national raised revenue. • This is so to enable it to provide basic services and perform functions allocated to it. • Section227(1)(b) further provides for allocations that may be received from national government revenue, either conditionally or unconditionally • LG receives, among others, the LGES and the Municipal Infrastructure Grant, with the later being conditional

  13. The Intergovernmental Fiscal System • Chapter 13 of the Constitution sets out the guiding principles on intergovernmental financial matters including treasury control, the equitable division of revenue between the 3 spheres of government and the fiscal powers of provincial and local government among other matters. • The South African Intergovernmental Fiscal System has been in place now for the past 18 years. • It must be mentioned that the current system allocate almost 9% of nationally raised revenue to LG and around 90% is shared between national government and provincial governments • Some commentators are of the view that the system has matured and needs minor adjustments to address some of its rigidities. • There is also a contrary view that suggests that the system served South Africa well during its transitional phase and needs a thorough review

  14. Principles guiding the Intergovernmental Fiscal System • The system should be consistent with the Constitution; • The system should be clear, consistent and stable; • The system should be implementable and administratively practical; • Powers and functions should be aligned to expenditure responsibilities; • The system should allow for ease of regulation and oversight; and • Provision must be given to essential or basic services.

  15. CONDITIONAL GRANTS ALLOCATION TO MUNICIPALITIES OVER THE MTEF

  16. LG EQUITABLE SHARE ALLOCATION OVER THE MTEF

  17. MUNICIPAL INFRASTRUCTURE GRANT (MIG) ALLOCATION TO MUNICIPALITIES OVER THE 2014 MTEF

  18. MUNICIPALITIES’ PROJECTED OWN REVENUE(OPERATING) 2014/15 FINANCIAL YEARS

  19. MUNICIPALITIES’ PROJECTED OWN REVENUE (OPERATING) 2015/16 FINANCIAL YEARS

  20. Transfers and own revenues for different types of municipalities, 2012/13 Budgets

  21. National Overview of MIG expenditure 2009/10-2010-11

  22. National Overview of MIG expenditure 2011/12-12-13

  23. 2013/14 MIG EXPENDITURE AS AT END MAY 2014

  24. MIG expenditure comparison • The MIG expenditure over the past four financial years has been always been above 80% • The MIG allocation quantum has been increasing over the years and the balance unspent has always been an issue of concern; • The support initiatives like Siyenzamanje were introduced to support municipalities • Challenges contributing to under-expenditure were identified-which will be outlined in the slides below • The establishment of a Special Purpose Vehicle to support municipalities to spend on their infrastructure was muted around 2009 and culminated in the establishment of MISA

  25. MIG expenditure challenges which were further confirmed by the diagnostic conducted by MISA • Lack of municipal readiness to address extension of basic services to areas where there are no services, especially with regards to project prioritisation and registration. • Lack of information regarding basic services backlogs per ward/village in targeted municipalities. • Non-functional water schemes, resulting to inconsistence water supply. • Outdated sector plans to direct future MIG and other funds to areas of high priorities. • Poor project preparation and packaging to achieve efficiency and attraction of alternative funding • Lack of contract and project management skills • Poor financial management threaten the sustainability and viability of most municipalities. • Poor Supply Chain Management Processes with regard to procurement leading to delays in project implementation and poor spending on infrastructure grants • Lack of infrastructure asset management practices in particular, GRAP 17 asset registers

  26. MIG expenditure challenges which were further confirmed by the diagnostic conducted by MISA • Overloaded Waste Water Treatment Works that require refurbishment • Urgent need for road classification • Deteriorated road conditions on both municipal and provincial roads • Landfill sites not licensed and the Municipalities require support with the licensing process. • Municipalities requires assistance with the development of operations and maintenance plans • High water and electricity losses due to illegal connections, vandalism of infrastructure assets and problematic billing systems

  27. MIG expenditure challenges which were further confirmed by the diagnostic conducted by MISA • Severe lack of skilled personnel in infrastructure and service delivery units. • Lack of credible Master Plans for the development of service delivery infrastructure. • Inadequate focus on maintenance and operations of existing infrastructure remains a huge problem across the board. • Municipalities unable to attain blue drop and green drop certification. • Lack of implementation of municipal by laws • Prevalent governance problems affecting service delivery

  28. MISA’s Role and Responsibility in relation to challenges identified Flowing from the mandate, MISA’s primary role and responsibilities are: • To support municipalities to conduct effective infrastructure planning; • To support and assist with the delivery of infrastructure in municipalities; • To support and assist with operation and maintenance of infrastructure in municipalities; and • To build the capacity of municipalities to undertake effective planning, delivery, operations and management of municipal infrastructure

  29. MISA support initiatives • We are currently through MISA, providing support to 121 municipalities in the country. Of these, a total of 92 municipalities are from the 108 municipalities approved by Cabinet and an additional 29 municipalities identified by provinces. • We have 69 Technical Consultants across municipalities 63 of which are allocated within provinces, • A total of 33 PSPs are currently supporting 92 municipalities on various areas of infrastructure planning, development and management. • We have noticed that there are a number of interdependencies that require attention for municipalities to be able to effectively spend, like skills, governance aspects relating to proper oversight, recruitment practices etc

  30. CURRENT AREAS OF SUPPORT TO MUNICIPALITIES PER PROVINCE MISA is providing technical support to municipalities in key areas of infrastructure planning, implementation, operations and / maintenance including strategic integrated planning, as indicated below :

  31. CURRENT AREAS OF SUPPORT TO MUNICIPALITIES PER PROVINCE

  32. CURRENT AREAS OF SUPPORT TO MUNICIPALITIES PER PROVINCE

  33. CURRENT AREAS OF SUPPORT TO MUNICIPALITIES PER PROVINCE

  34. CURRENT AREAS OF SUPPORT TO MUNICIPALITIES PER PROVINCE

  35. MUNICIPAL DEBTORS

  36. Consumer debt • Aggregate municipal consumer debts were R93.4 billion as at 31 March 2014. • This is R0.1billion more than the R93.3 billion reported at 31 December 2013. • Government’s share of the outstanding debtors represent 4.3 per cent or R4.1 billion. • The largest component relates to households which accounts for 61.5 per cent or R57.5 billion followed by commercial or business for 20.7% or R19.3 billion and other category of debtors for 13.4% or R12.5 billion.

  37. Debtors age analysis by province: March 2014

  38. Operation Clean Audit

  39. Background • Operation Clean Audit 2014; was launched in 2009 as a specific response programme within the Local Government Turnaround strategy. • At the time 86 of the municipalities audited obtained disclaimers for the 2007/8 financial year and another nine municipalities adverse audit opinions.

  40. Operation Clean Audit milestones The guiding vision for Operation Clean Audit is that by 2014 all municipalities will achieve unqualified audit opinions in their Annual Financial Statements. The programme milestones to realise the 2014 vision for municipalities were fixed as follows: • Between 2010 and 2011, no municipality and municipal entity will obtain adverse and disclaimer audit opinions. • At least 60% of municipalities and municipal entities will achieve unqualified audit opinions by 2012. • There will be an increase in municipalities and municipal entities achieving unqualified audit opinions to at least 75% by 2013. • 100% of municipalities and municipal entities will achieve unqualified audit opinions by 2014.

  41. Current status of audit outcomes • The latest audit outcomes for Local Government that have been released by the Auditor General (AG) pertain to the 2011/12 financial year. The AG is finalising the 2012/13 outcomes for release later this year. • The 2011/12 outcomes reflect that 48% of municipalities and municipal entities achieved unqualified opinions against the 75% target of 2013 . In addition; the adverse audit opinions and disclaimers have not been eliminated. These were set to be eliminated by 2011. • Only 3 provinces have managed to reach the 75% target for 2013 ; these are Gauteng, KwaZulu Natal and Western Cape at 84%, 77% and 85% respectively.

  42. What has been achieved since 2009? Enhancing sound financial management • Audit outcomes for the past 4 years indicates a slow uptake from 1 to 9 (3%) out of 278 municipalities receiving Clean Audit outcome for 2008/09 and 2011/12 financial year, respectively. A total of 61 (22%) municipalities have consistently received unqualified audit outcomes over the past 4 years (50% WC, 45% KZN and 41% Gauteng). • There is a significant reduction in the number of municipalities receiving disclaimers from 113 to 76 between 2008/09 and 2011/12 financial years.

  43. Operation Clean Audit Support • On an annual basis after the release of the Local Government audit outcomes by the Auditor General; the Department co-ordinates the development of a standard integrated support plan for Operation Clean Audit. (OPCA) • The OPCA plan is developed after the analysis of the annual financial statements and audit outcomes of municipalities; in response to Section 131 of the MFMA. • Accordingly; the attached 2013/14 plan (see ANNEXURE A) has been developed and approved by the CoGTA MINMEC for implementation in response to the 2012/13 Local Government Audit outcomes. • The provinces share municipal finance support responsibilities which include the activities in the OPCA plan between the Provincial Treasuries and Provincial CoGTA’s • The reporting on the implementation of the plan is quarterly to the Premier Co-ordination Forums / Committees; the Provincial MUNIMEC’s as well as a consolidated report to the CoGTA MINMEC.

  44. Operation Clean Audit Support The key areas of focus in the attached 2013/14 OPCA plan are the following: • Actions to ensure that quality AFS are submitted timeously. • Actions to ensure that key controls are in place and that corrective measures are implemented to address key control deficiencies. • Actions to improve the efficient use of service providers • Actions to ensure the development and implementation of audit remedial plans • Actions to improve leadership involvement in guiding and directing the implementation of OPCA initiatives • Actions to create a platform for consequence management, • Actions to improve performance reports • Actions to improve asset management, Records management, Supply Chain Management, Unauthorised, irregular, fruitless and wasteful expenditure. • Actions to improve Information Technology Controls, • Actions to ensure improved HR practises • Actions to improve the capacity of DCoG and Provinces to support municipalities. • Actions to ensure effective governance - Audit and Public Account Committees

  45. THANK YOU

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