1. 1 Action plan to support municipalities that fail to submit AFS Presentation to Portfolio Committee on COGTA 13 November 2012

2. Outline of Presentation 2 1. Introduction 2. Broad support areas 3. What have we done to support municipalities? 4. Specific support role played by Treasury 5. Audit status of municipalities that failed to submit AFS – 2010/11 6. Municipalities that failed to submit their AFS – 2011/12 7. Conclusion

3. Introduction 3  The department drew an action plan to assist municipalities to respond to the AG’s report  The plan clustered activities for support under three critical areas, namely:  Leadership (both political and administrative);  Governance; and  Financial management.  The action plan identifies the stakeholders responsible for particular actions in the drive to support municipalities to achieve a favourable audit opinion.  The plan itself is a collaborative effort in that it draws from inputs made by other stakeholders in support of municipalities

4. Broad Support Areas 4 The development of the plan that is referred to in the introduction is not only focused on those municipalities that failed to submit the AFS. It looks at all the municipalities irrespective of the audit outcome achieved, The compilation of the AFS is a continuous process that is supposed to be a daily activity by an institution The leadership in the municipality and the governance structures are important in the compilation of the AFS

5. What have we done to support municipalities? 5 Leadership By March 2012, support was given to municipalities to fill vacant position (202 Municipal Managers and 218 CFO position filled). The following municipalities either did not have an MM or CFO or both in March 2012. (Bela-Bela, Ngwathe, Sekhukhune, Nala, Renosterberg, Kamiesberg and Dikgatlong, By the end of September, the status of filled position was as follows:  219 out of 278 Municipal Managers posts were filled as at end September 2012; and  278 CFO posts were filled as at the end of September 2012.

6. What have we done to support municipalities? 6 Governance We have supported the establishment of oversight structures to perform oversight over proper financial management There are in this regard 245 MPACs, 96%Audit Committees and 79% Internal Audit Units. We have trained municipal officials on ethics management as part of improving good governance in district municipalities and their constituent municipalities

7. What have we done to support municipalities? 7 Financial Management In order to improve sound financial management and revenue collection, DCOG with SALGA are conducting workshops on Credit Control and Debt collection policy guidelines. The intention is that by the end of January 2013, all inputs are considered for finalization of guidelines Policy guidelines will be finalized between February and March and made available to all municipalities to assist in amending credit control policies and by-laws, to be adopted and approved by the Councils at the beginning of financial year In this regard: 39 municipalities participated in KwaZulu-Natal 18 in the Northern Cape, 18 in Eastern Cape, 8 in Limpopo, 13 in WC and in Mpumalanga still to be confirmed The workshop will be conducted in all provinces.

8. Specific support role played by Treasury 8 The majority of the activities under financial management falls within the scope of the National Treasury and Provincial Treasuries (though Provincial Cogtas also provide support) National Treasury, Provincial Treasuries and in certain provinces provincial Cogtas, have been monitoring and where necessary, giving support to municipalities to compile their financial statements The support is provided by the deployment of financial experts through the Municipal Finance Improvement Programme (MFIP) and deployment of consultants. The National Treasury provided COGTA with information relating to the municipalities which could not submit their AFS by 30 August 2012

9. Specific support role played by Treasury Section 126(1)(a) of the Municipal Finance Management Act, Act 56 of 2003, provides for the Accounting Officer of a municipality to prepare the AFS within two months after the end of the financial year and submit the statement to the AG for auditing. Municipalities are, therefore, supposed to submit their AFS to the AG by 30 August of each year. Any submission of the statement after 30 August is viewed as non compliance. Based on the AG information to the National Treasury, as of 2 November 2012, there are 12 municipalities whose AFS submission to the AG were still outstanding. These municipalities are tabulated below 9

10. Audit status of municipalities that failed to submit AFS-2010-11 10 MunicipalityAudit Status Ngwathe Local Municipality Disclaimer Nala Local Municipality Disclaimer Masilonyana Local Municipality Disclaimer Greater Sekhukhune District Municipality Disclaimer Bela-Bela Municipality Adverse

11. Audit status of municipalities that failed to submit AFS-2010-11 11 MunicipalityAudit Status Dikgatlong Municipality Disclaimer Renosterberg Municipality Not submitted Kamiesberg Municipality Disclaimer Karoo Hoogland Municipality Qualified Mier Municipality Disclaimer Kannaland Municipality Audit in progress Swellendam Audit in progress

12. Municipalities that failed to submit their AFS- 2011-2012 ProvinceMunicipalitySupport MeasuresSubmission status Free State Ngwathe Municipality appointed a service provider (Deloitte Consulting) to compile and finalise the 2011/12 AFS for the municipality End of November 2012. Nala MFIP Advisors are assisting in compiling 2010/11 AFS (Final draft to be available by end of Nov 2012 and the 2011/12 AFS to be started only after the 2010/11 AFS are done. Backlogs from 2009/10, opinion for 2009/10 out- Disclaimer Masilonyana Municipality appointed a service provider (SAB&T Incorporated) to compile and finalise the 2011/12 AFS for the municipality. *There is also MFIP Advisor. Submission date still to be determined 12

13. Municipalities that failed to submit their AFS-2011- 2012 ProvinceMunicipalitySupport measuresSubmission status LimpopoSekhukhune District 2 service providers appointed by provincial COGHSTA(Corp MD was appointed for the compilation of the AFS (resident accountant) whilst KPMG was appointed for the unbundling of assets and asset management.) *Therer is also MFIP Advisor. AFS is expected on the 30 November 2012. Bela-bela Service Providers (Consortium between Kgorong Consultancy & Financial Services and Ngubane & Co.) appointed by provincial COGHSTA to compile and finalise 2011/12 AFS, MFIP Advisor appointed to also assist in technical matters AFS is expected end November 2012.. 13

14. Municipalities that failed to submit their AFS 2011-2012 ProvinceMunicipalitySupport MeasuresSubmission status Northern Cape Dikgatlong AFS compiled in-houseAFS is expected on 30 September 2012,. Renosterberg Service Provider (University of Free State) appointed by PT to compile and finalise the 2011/12 AFS for the municipality. * There is also MFIP Advisor. AFS is expected on by 30 November 2012. Kamiesberg Service Provider (Altimax) appointed by PT to compile and finalise the 2011/12 AFS for the municipality * There is also MFIP Advisor. AFS is expected on 31 January 2013 Karoo Hoogland AFS compiled inhouseAFS expected on 31 December 2012. Mier Service Provider (Altimax) appointed by PT to compile and finalise the 2011/12 AFS for the municipality AFS expected on 30 November 2012 14

15. Municipalities that failed to submit their AFS-2011-2012 ProvinceMunicipalitySupport measuresSubmission status Western Cape Kannaland Service Provider(MUBESKO) appointed by the municipality to compile and finalise the 2011/12 AFS for the municipality. AFS expected on 20 January 2013 Swellendam Service Provider(MUBESKO) appointed by the municipality to compile and finalise the 2011/12 AFS for the municipality. *There is also MFIP Advisor. AFS expected on 20 January 2013 15

16. Conclusion 16  The compilation of the AFS by consultants is a stop gap measure to address backlogs in municipalities  The appointment of CFOs and Municipal Managers, together with appointment of competent staff in the finance units of municipalities, are critical steps towards the establishment of sound financial management and the ability to timeously compile AFS in municipalities.  In this regard, the National Treasury has published the minimum competency levels for all managers in finance units  The appointment of staff in finance and internal audit units must be accompanied by continuous training to ensure consistent capacity development.  The real test of the efficacy of these interventions and investments will be evidenced in the consistent improvement of audit outcomes henceforth