1. STATE OF MUNICIPAL FINANCES LIMPOPO PROVINCE as at 31 March 2015 x

2. Provincial Profile Limpopo is one of the least urbanised provinces Majority of the population of 5.4 million (Stats SA 2011) lives in rural areas and are unemployed The real economic growth is the lowest in the SA, to which mining and quarrying contributes the most * Aggregate municipal expenditure in Limpopo averages 5.2 per cent of the country’s municipal expenditure Per capita spending in Limpopo below the national average Province consists of 30 municipalities, i.e. 25 local & 5 district municipalities 2 * Provincial Profile 2004, Limpopo (Stats SA)

3. Service delivery and backlog : 2001 - 2011 3 Despite progress with regard to the provision of basic services to communities, it is noted that sanitation backlogs have increased in Mopani, Capricorn and Sekhukhune Districts from 2001 and 2011 – what is reason for this? Also backlogs for refuse removal have increased in 4 districts between 2001 and 2011 (decrease reported for Waterberg District) Backlogs for electricity have decreased in all districts

4. 2013/14 audit outcomes 43 per cent of municipalities received unqualified opinions - compared to 10 per cent in previous year Number of disclaimers opinions reduced to 6 in 2013/14 - from 12 in 2012/13 Mopani Municipality received an adverse audit opinion - compared to no adverse opinions in 2012/13 There was one outstanding audit outcome for Aganang Municipality Improvement in audit outcomes for 2013/14

5. Status of 2014/15 MTREF Budgets 5 18 (60 per cent) tabled budgets were funded in 2014/15 An unfunded budget may result in a cash flow crisis if not managed well – cash strapped municipalities are likely to spend conditional grants on operating expenditure Only 3 of the adopted 2015/16 MTREF budgets are not funded, namely Fetakgomo, Greater Tubatse and Sekhukhune.

6. Summary of 3 rd quarter S71 results (31 March 2015)

7. S71 Expenditure as per 3 rd Quarter results (31 March 2015)

8. 8 Conditional grant performance as per 3 rd Quarter results (31 March 2015) -Limpopo receives 14 per cent of the total National allocation of R25.5 billion for direct transfers -R3.5 billion was transferred as at 31 March 2015 against an adjusted allocation of R5.2 billion -MIG contributes 77 per cent towards the total conditional grant allocation in the province -RHIG and MHSCG only transferred during the 3rd quarter - hence low expenditure -Sekhukhune, Giyani, Thulamela and Capricorn are recipients of the RHIG

9. State of municipal finances as at 31 March 2015 59 per cent of adjusted operating budget spent - reasonable at this stage of the financial year, but salaries and wages 33 per cent to the total operating expenditure which may indicate operational inefficiency and ineffectiveness Low at 31 per cent of the adjusted capital budget - concern when the historic trend in this province is considered. Targets for service delivery and eradication of backlogs might not be achieved There is still excessive reliance on national and provincial grants and subsidies to fund operating and capital expenditure budgets – but only 51.4 per cent (R1.8 billion) of the transferred R3.5 billion was spent as at 31 March 2015 R755 million in conditional grants were rolled over - of which R319 million or 42.3 per cent was spent as at 31 March 2015 82 per cent of the debtors have been outstanding for more than 90 days as a result of poor implementation of debt management and credit control and debt collection policies – this amounts to R2.4 billion 51 per cent of creditors outstanding for more than 90 days - these are predominantly bulk electricity, bulk water and trade creditors. This is in contravention of S65(2)(e) of MFMA and have a negative effect on local economic development and job creation. Note: In addition to the above observations, NT has concerns about the credibility of the information reported via the S71 reports.

10. Adjustments to MIG allocations for 2014/15 per province 10 The stopping of the 2014/15 MIG allocation was done in compliance with S19 of DoRA 2014 Municipalities with substantial underspending had their funds stopped – i.e. 40 per cent or less NT stopped and reallocated R956.8 million against MIG 8 municipalities in Limpopo have been affected R529.7 million was stopped in LIM −R224.3 million re-allocated to fast spending municipalities within LIM province −Difference reallocated outside province

11. Adjustments to MIG allocations for 2014/15 - Limpopo 11

12. Stopping of MIG funding in Limpopo (1) 1. Mopani District Municipality In 2014/15 Mopani was allocated a MIG amount of R429.5 million –Excludes the approved rollover amount of R7.5 million for WSOS* and RRAMS** An amount of R290 million was stopped against the MIG allocation –At the end of the 3 rd quarter only 28.5 per cent was spent against the revised amount of R139 million –The implementation plan indicated that the municipality will not be able spend the entire allocated funds –The municipality did not have projects against this money Challenges –Over the years the municipality struggled to spent against the MIG programme –In 2013/14 and 2014/15 a total amount of R210.3 million was offset against the municipality’s ES for 2012/13 unspent CG (which included MIG of R200.2 million)  The reason for the offsetting was that the unspent were not cash backed  The municipality entered into a repayment arrangement which was later cancelled because the municipality did not honor its commitments  The municipality had governance challenges  There was no permanent CFO for almost four years  The AFS were constantly submitted late *Water Services Operating Subsidy **Rural Road Asset Management Grants 12

13. Mopani District Municipality (continue) In order to assist the municipality the following transpired: –The new Executive Mayor has been working closely with Treasury  She managed to suspend the MM  She appointed a forensic investigation  Continually reports to the Treasury on progress –A task team was established in order to assist the municipality, including NT, PT, CoGTA, COGHSTA and MISA – NT chaired the work stream –An MFIP II advisor is currently assisting the BTO of the muni –PT official has been seconded to the municipality as the acting MM –Other actions by NT:  MFMA unit assisted with the recovery plan  Agreed with the municipality on a repayment arrangement against the 2012/13 unspent CG (which was later cancelled)  Municipality was requested to cut the budget and budget for a surplus in order to accommodate the repayment arrangement  Assisted the municipality with funding for conducting a forensic investigation 13 Stopping of MIG funding in Limpopo (2)

14. 2. Aganang Municipality In 2014/15 FY the municipality was allocated a MIG amount of R32.2 million –Excludes the approved rollover amount R8.1 million An amount of R5 million was stopped against the MIG allocation –In the 3 rd quarter the implementation plan indicated that the municipality will not be able spend the entire allocated funds –The municipality was willing to surrender funds At end of the 3 rd quarter only 1.1 per cent of adjusted allocation of R27.2 million was spent - current spending 38 per cent per cent of the revised amount 3. Thabazimbi Municipality In 2014/15 the municipality was allocated a MIG amount of R32.9 million –Excludes the approved rollover amount R13.2 million An amount of R19.8 million was stopped against the MIG allocation –In the 3 rd quarter there were no projects running at the municipality At end of the 3 rd quarter only 64.9 per cent of adjusted allocation of R13.2 million was spent The municipality had an unspent amount of R16.8 million against the 2013/14 MIG allocation and had outstanding creditors of R92 million for more than 90 days for which MIG was used Have now entered into a repayment arrangement with their creditors 14 Stopping of MIG funding in Limpopo (3)

15. 4. Lephalale Municipality In 2014/15 the municipality was allocated a MIG amount of R35.9 million –Excludes the approved rollover amount R3.5 million An amount of R7 million was stopped against the MIG allocation –In the 3 rd quarter most of the service providers were not appointed yet At end of the 3 rd quarter only 56.7 per cent of adjusted allocation of R29.9 million was spent 5. Modimolle Municipality In 2014/15 the municipality was allocated a MIG amount of R32.4 million –Excludes the approved rollover amount R23.3 million An amount of R13.4 million was stopped against the MIG allocation –In the 3 rd quarter the municipality changed projects which affected their expenditure The municipality have now fully spent their revised allocation and are now focusing on spending the approved rollover However, the R13 million was reallocated to their District in order to continue with the projects SLA was entered into between the two municipalities with the support of NT, COGHSTA and COGTA The municipality had an unspent amount of R16.8 million against the 2013/14 MIG allocation and it reverted to the NRF 15 Stopping of MIG funding in Limpopo (4)

16. Stopping of MIG funding in Limpopo (5) 6. Mogalakwena Municipality In 2014/15 the municipality was allocated a MIG amount of R138.8 million - excludes the approved rollover amount of R1.6 million A MIG allocation of R25 million was stopped at the end of the 3 rd quarter as: –the implementation plan indicated that the allocated funds will not be spend due to inactivity at the municipality –only 28.8 per cent of adjusted allocation of R113.8 million was spent Challenges Over the years the municipality struggled to spent against the MIG programme In 2013/14 an amount of R83 million was stopped due to: litigations against the municipality, challenges with governance, SCM challenges, political interference, alleged fraud and corruption (including looting within the municipality) and late payment of salaries 7. Fetakgomo Municipality In 2014/15 the municipality was allocated a MIG amount of R21.4 million - excludes the approved rollover amount R8.5 million A MIG allocation of R10.1 million was stopped at the end of the 3 rd quarter as: –the implementation plan indicated that the allocated funds will not be spend –There was non procurement of service providers At end of the 3 rd quarter only 29 per cent of adjusted allocation of R11.2 million was spent 16

17. Stopping of MIG funding in Limpopo (6) 8. Sekhukhune Municipality In 2014/15 the municipality was allocated a MIG amount of R451.1 million –Excludes the approved rollover amount of R78.6 million An amount of R170 million was stopped against the MIG allocation –In the 3 rd quarter the implementation plan indicated that the municipality will not be able spend the entire allocated funds At end of the 3 rd quarter only 34.6 per cent of adjusted allocation of R281.1 million was spent An amount of R81.9 million was offset against the 2014/15 ES Challenges - 15 projects were irregularly awarded while the MM was on leave Upon returning, the MM stopped all projects and initiated a forensic investigation which established the following: –Process of appointing contractors was done unlawfully and improperly against SCM E.g. Bid evaluation process not completed, preferential points awarded to bidders, no due diligence to confirm registration of bidders, etc. The MM requested permission from Treasury to terminate all projects and reappoint NT supported the decision and the muni is in the process of reappointment The municipality was cautioned about the possibility of legal challenges The MM was however comfortable that the funds were protected and requested NT to assist them in future when they are ready 17

18. Unspent conditional grants – 2013/14 At the end of 2013/14, Limpopo municipalities spent R2.9 billion or 79.3 per cent of the R3.4 billion transferred (excludes USGD and in-kind allocations) Approved rollovers in 2013/14 were R755.4 million against a R1.1 billion request Only R319 million of the approved 2012/13 rollover was spent as at 31 March 2015 – that is less than half of the rollover amount A total amount of R386.7 million was offset for Limpopo municipalities against the 2014/15 equitable share: –July 2014 - payment arrangement R180.3 million –Nov 2014 - 12/13 unspent R77.8 million –Nov 2014 - 13/14 unspent R124.4 million –Mar 2015 - 13/14 unspent R4.2 million Municipalities were offered an opportunity to enter into repayment arrangements - two municipalities in Limpopo entered into a repayment arrangement 18

19. Key financial management challenges faced by Limpopo municipalities Inappropriately qualified staff and high staff in Budget and Treasury Office Poor financial controls and record keeping Weak political oversight on the implementation of budgets and capital infrastructure projects Poor infrastructure planning and project management due to unqualified staff Inefficiencies in the municipal supply chain management processes and procedures Poor maintenance of indigent registers result in growing numbers of beneficiaries that are not indigent General lack of adherence to existing policies and procedures, SCM and corporate governance

20. Recommendation NT request the committee to: Note the contents of the presentation Note the challenges faced by the Limpopo municipalities Agree that there should be proper political oversight with regard to In-year Reporting (S71) by: –Ensuring that MMs do proper quality checks before signing-off quarterly s71 reports; –Better assessment of reports by the Provincial Treasury; –Tabling of s71 reports at the provincial legislature (legislature should request the reports). 20

21. Thank you 21

22. Annexure

23. Revenue as per 3 rd Quarter results (31 March 2015)

24. Expenditure as per 3 rd Quarter results (31 March 2015)

25. Salaries and wages as per 3 rd Quarter results (31 March 2015)

26. Capital expenditure as per 3 rd Quarter results (31 March 2015)

27. Debtors Age analysis as per 3 rd Quarter results (31 March 2015)

28. Creditors Age analysis as per 3rd Quarter results (31 March 2015)

29. Negative cash position 29