An Ad Hoc Committee was established by the National Council of Provinces in terms of Rule 160(1)(a) to consider the application for approval of an intervention by the North West Provincial Government in the Mafikeng Local Municipality, in accordance with Section 139(1 )(b) of the Constitution. The Ad Hoc Committee, comprised of the following delegates: Reverend Chabaku (ANC), Ms J kgoali, leader of the delegation (ANC), Mr L Lever (DA), Mr PDN Maloyi (ANC), Mr BJ Mkhaliphi (ANC) and Kgoshi ML Mokoena (ANC), having conducted an inspection in loco at the Municipality between the 1-2 October 2Q03, reports as follows:

In the course of exercising their obligations in terms of Section 1051 of the Municipal Systems Act, the North West Department of Developmental Local Government and Housing (hereinafter the Department) observed the Municipality's mounting problems and poor performance. It found that the Municipality has not been fulfilling its executive obligations, particularly with respect to service delivery. The Municipality faces severe shortcomings in its budget and cash flow management. As a result, its financial condition and ability to deliver essential services has been seriously compromised and continues to deteriorate. The deterioration has also been attributed to poor financial planning and administration and the inability to collect monies owed to the Municipality. This impacted on the capacity of the municipality to deliver free basic services to its indigent communities.

The Department subsequently compiled many political and administrative reports on the performance of the Municipality. The Department requested interventions by the Municipality in accordance with these reports but reforms were never implemented. The Provincial Government had previously been requested by both the Office of the former Speaker and the former Executive Mayor to assist with investigations into alleged breaches of the code of conduct and corruption in the Municipality.

On 5 March 2003 the provincial Executive Council approved an investigation by the Department in terms of Section 1062 of the Municipal Systems Act No.32 of 2000 into alleged maladministration, fraud, corruption and other serious malpractices in the Municipality. Notice of this investigation was submitted to the National Council of Provinces (NCOP) in compliance with Section 106(3) of the Systems Act.

In motivating this investigation, the Department noted the following:

· There were public concerns and negative perceptions about the alleged failure of the Council to fulfil many of its responsibilities.

· There was a lack of co-operation from the Municipality with the Department's attempts to conduct an internal audit, which would have led to the development of a comprehensive support plan for the struggling Municipality.

· There had been allegations and counter allegations made by the Office of the Speaker and Executive Mayor about corruption, maladministration and financial irregularities.

· Service delivery in the municipal area has declined severely over a period of three years, coupled with deteriorating infrastructure.

· A draft Integrated Development Planning (IDP) assessment report by the Department indicated that the Municipality was in serious financial difficulties. The report highlighted an urgent need to conduct a detailed financial planning exercise as well as improve collections and budgeting. For instance, the Municipality's total debt versus income was 115,2% whereas the norm was 35%.

· There was a need to do a systems audit to enhance good governance.

· That the Department had a constitutional responsibility to support, monitor and build the capacity of the Municipality to perform its functions.

During the investigation, conducted by external audit firm, Gobodo Forensic Auditors Incorporated, the Department heard many allegations and counter-allegations, some of which could not be proved. The report included the following findings:

· Tender procedures were not followed. Officials acted beyond their powers.

The Council was presented with the recommendations and a committee was subsequently established to implement the recommendations. The Municipal Manager had been suspended prior to this investigation but as a result of the recommendations contained in the investigation report, many other officials were suspended. A senior Department official was seconded to the Municipality in the position of acting Municipal Manager. The Speaker of the Municipality had also been dismissed in April 2003.

The acting Municipal Manager and new Mayor have, since taking office, begun to implement certain turn around strategies and cost cutting initiatives. However, it was noted that, for the purposes of the intervention, it would be impossible to separate areas where performance was satisfactory from those where it was not.

In spite of the steps taken by the Department to assist the Municipality, poor financial management and lack of visible service delivery continued unabated since March 2003. This led to the launch, on 3 September 2003, of an intervention by the Provincial Executive in the Municipality in terms of Section 139(1)(b) of the Constitution.

The Provincial Executive submitted a written notice to the NCOP to approve the intervention, which effectively commenced on 4 September 2003, in compliance with Section 139(2)(a)(ii) of the Constitution.

The Northwest Provincial Government sought approval for its intervention on the following terms, as resolved in the meeting of the Executive Council on 3 September 2003:

· To produce a service delivery plan for the entire municipal area in terms of all its powers and functions as stipulated in Schedule 4b and 5b of the Constitution, subject to the Minister's authorisation and MEC's adjustment of powers and functions as provided for in Section 84 of the Municipal Structures Act No.117 of 1998 .

· To develop a financial management plan for the Municipality to include the following:

-A cost recovery plan.

- Debt management and control.

- Cost cutting measures.

- Cash management plan.

-. Credit control policy.

- Indigent policy.

· To develop a plan for the placement of staff.

· To develop performance agreements for all employees covered by Section 57 of the Municipal Systems Act

· To review all existing delegations to empower the Council and Executive to drive the change plan.

· To finalise the IDP process and link it to the budget.

· To finalise all service level agreements with the relevant service authorities (for example water, electricity, fire services etc)

As a result, the terms of reference of the intervention would be restricted to the following functional areas of the Municipality:

· Service delivery.

· Finance.

Debt management.

· Cost cutting.

· The staff complement of the Municipality.

In the course of its inspection in loco at the Mafikeng Local Municipality in October 2003, the Committee convened meetings with the MEC for Local Government, the administration of the Municipality including the Executive Mayor, acting Municipal Manager as well as various stakeholders including representatives of the business community, organised labour and SALGA (please see Appendix for the full list of participants). All stakeholders agreed to attend these meetings at very short notice and some travelled great distances to attend.

The Committee noted the following issues during the course of these meetings:

The Municipality's current budget is comparatively low, at R120 million-R140 million. Following the demarcation process, completed in December 2000, Mafikeng Local Municipality incorporated rural areas and it is now covers a bigger area which is 25% urban and 75% rural. Its equitable share does not reflect these demographics and the needs of the Municipal area. Since demarcation its budget has only increased annually by a range of 6 to 9%. The Municipality has few sources of income, besides the bulk water supply and rates and taxes. The lack of income impacts negatively on service delivery. The cost of developing its rural areas is largely being borne by the property owners in Mafikeng through taxes as most residents are too poor to develop the broader area. It appears that this results in excessive tax and an undue burden on these property owners.

By 30 June 2003 the Municipality's outstanding debtors amounted 10 R195 million. The acting Municipal Manager was not able to confirm the amount of R195 million. Since there are no financial Systems in place in the Municipality and the billing system is inadequate there is a dispute about arrear amounts for services owing to the Municipality. Cheques amounting to R1,6 million were dishonoured, due to insufficient funds, at the end of June 2003. This resulted in the possibility of legal action being taken against the Municipality. The provincial Department has had to pay the Municipality's water bills and negotiate with banks on their behalf.

The Municipality missed the 2003 deadline for passing its budget and failed to publish their tariffs. A deficit of R7,7 million was budgeted for in the annual budget for 2003/04, which is not permissible, and National Treasury did not approve the budget. This was caused by lack of proper training of staff in compiling the budget. As a result the Municipality had to recall the previous financial manager to assist in this process. The Department also assisted by setting up a committee to draw-up and pass a budget. National Treasury previously adopted the Municipality as a pilot for budget reform in local government but the project has since collapsed.

The Municipality has not finalised the placement of staff; casual or contract staff were appointed at a cost of R268 000 per month. The personnel cost as a percentage of the total budget exceeds 50%, which is far above the national norm of 33-35%. Salaries of personnel employed in accordance with Section 57 of the Municipal Systems Act, who are accountable directly to the Municipal Manager of the Municipality, were decided on without a Council resolution.

The Municipality's overdraft increased from R7 to R11 million and stood at R18 million when the new Mayor came into office. This was in spite of a Council resolution that the overdraft should not exceed R 7 million. The overdraft facility was particularly used when there was no money to pay employees' salaries in July 2003. The Municipality no longer has an overdraft, which was paid off when the national Department of Public Works advanced R 22 million of an amount of R30 million owed to the Municipality. Although the amount owing had not fallen due yet, the Department paid the amount in response to a request from the Municipality. There is some disagreement about the actual amount owed by the Department of Public Works as there is no mechanism in place to determine how much was owed although the acting Municipal Manager attempted to assist in this regard.

The financial problems experienced by the Municipality also resulted from certain decisions taken by the previous Municipal Manager without Council resolution. For instance, a tender was approved without a Council resolution, which led to financial loss for the Municipality.

The IDP of the Municipality has been implemented on an ad hoc basis from reserve funding and has not been linked to the budget. There are also no business plans linked to the IDP. The June 2003 deadline to finalise the lDP was not met because the IDP review was not completed. By October 2003 a draft IDP would have been finalised, which will be tabled before Council and circulated to the community. The Municipality is seeking donor funding for the implementation. In addition, the Municipality is engaging with provincial and national Departments to establish whether their developmental projects in Mafikeng can be linked to the Municipality's IDP. Each Director has been tasked with devising strategies that can be implemented by November 2003. There are no financial plans and no medium term economic framework for the IDP; an actual implementation plan for the IDP is therefore needed. If the IDP were linked to the budget it would be easier to implement the IDP.

3.3 Political problems

The Section 106 investigation instituted by the Department found that the problems within the Municipality are both political and administrative. Many Councillors are not familiar with the relevant legislation despite workshops and other attempts at capacity building. The political tensions are serious and as a result there is little cohesion within the Council. The committee system is not working and the former Mayor and former Speaker have also fought over who should control the committees, which are seen as a political constituency. This resulted in a difficult relationship between these two office bearers and resulted in the appointment of a new mayor and a new speaker.

From 2000 to 2003 the Council did not receive information on the financial status of the Municipality from the former Mayor or the former Municipal Manager, who never reported to the Council on service delivery. However, since the appointment of the new Mayor there has been improvement in communication between the Mayors' Office and the Council.

Initially there appeared to be some resistance by Council to the use of the Section 106 mechanism. There was also some resistance from Directors towards the acting Municipal Manager. The situation in this regard has since improved and all role players are more co-operative.

There is no visible service delivery in Mafikeng. Traffic lights are not in working condition and there is a danger that this could lead to legal action and the loss of life. National resolutions on basic service delivery need to be implemented.

Rural areas are currently being prioritised especially where there is absolutely no development. Although such development will improve with the implementation of an IDP, until proper financial management systems are in place, the IDP cannot be implemented.

With regards to the delivery of houses, roads and so forth, the Municipality will also work with the Department. A decision was taken to provide 60 kilolitres of free water, the provision of which began in July 2003. No agreement has yet been signed with Eskom on the provision of 50 kilowatts of electricity. The Municipality is also working towards putting the appropriate infrastructure in place for service delivery.

There is an uncoordinated approach to land sales. The land register is not completely accurate and in addition there are inter-governmental disputes about who owns certain portions of land and also disputes with traditional communities.

The Department has given money to register indigent people. The Council is encouraging unemployed people to assist in registering people in the wards. The plan would be presented to Council very shortly.

The Municipal Manager failed to report to the Council on service delivery problems, instead giving himself bonuses without a Council resolution.

All the former "Bantustan" capitals had all or some of their responsibilities taken away from them prior to 1994 when there was no system of local government in place. In 1992 the former Bophutatswana had their electricity distribution license taken from them. When the Bantustans were formally incorporated into South Africa in 1994 Eskom subsequently took over the license to distribute electricity in Mafikeng, diverting much needed revenue from the Municipality. Mafikeng is therefore one of the few municipalities with no coverage of its own jurisdiction. Special consideration must be given to such struggling municipalities which previously relied on the income from selling electricity. Although the Municipality has corresponded with the National Electricity Regulator and Eskom, there has been no progress on this issue. The NCOP was requested to assist in fast-tracking the granting of the electricity distribution license to the Municipality.

On 30 September 2003 an agreement should have been signed with Eskom, nationally, to provide free service in the provinces. However, in the North West province Eskom has stated that they are not ready, as the provincial division of Eskom has not received a mandate from Eskom's national office.

The Municipality's financial system has no performance management aspects, which means that it is essentially an accounting financial system. The debtors' amount of H 195 million reflected in the Municipality's records is under dispute due to inadequacies in the billing system. Attorneys are being used to recover monies owed to the Council but the billing system continues to reflect amounts already recovered as arrear accounts. Billing queries are not adequately resolved and as a result interest continues to accumulate on these arrear accounts. In 2000 the Department allocated money for work on the billing system but until now, for unknown reasons, this money has not been used.

Payments from consumers come in too slowly and in addition the Municipality's credit control policy, which is also inadequate, is not being implemented properly. The Municipality is not in a position to cut off the electricity or water supply to non-payers since it is not the distributor.

For the past number of years the Auditor General's reports have been qualified. Financial management has been highlighted as a core problem; Systems are not in place and auditing of those systems is not being done properly. Reports from the Auditor General are generally not followed up and as a result there is a recurrence of the same audit queries.

With respect to statutory payments, they are currently 30 days outstanding while some are longer. These are being brought up to date.

By July 2003 the Botshelo Water Board, which is the supplier of bulk water to the Municipality, was owed R11 million; the Municipality is currently up to date till the end of August and they are trying to negotiate their arrears. Government Departments owe close to R53 million to the Municipality and there are negotiations with them to pay their debts. This amount could not be confirmed due to the lack of financial systems. Financial systems are needed to reach the point where a cash funded budget can be sustained. The current rate of payment for services is 60-65%, which is very low. Although this rate has improved in the past two months, it needs to be sustained.

Audits show that staff members often authorise expenditure outside normal delegated powers. For instance, there have been tenders awarded without Council approval and the Municipal Manager awarded himself bonuses without Council approval.

There is no profit to subsidise services and this results in very high water and electricity rates. Eskom paid a loss in income profit to the Municipality twice but these payments have since stopped. There is an ongoing dispute with the Ministry of Mineral and Energy Affairs as well as the National Electricity Regulator. Had the Municipality been compensated for the loss in profit, the situation facing the Municipality would have been different - services could have been delivered. Bulk water supply is being bought from Botshelo Water Board, which acts as the middleman between the Municipality and the Department of Water Affairs and Forestry. Built into the amount paid by the Municipality is a water tariff that is due to the Department of Water Affairs and Forestry but the Botshelo Water Board do not pay this over so that the Municipality is effectively subsidising the Water Board. If the Municipality could acquire this bulk water supply function it would create savings and ease the cash flow problems.

There is unaccounted water of about 40%, due to theft and water leaks. The Council is currently strengthening its by-laws to curb the situation. Council will charge the private residence at a reduced tariff where there have been leaks.

Staff placement in the new structure required by the IDP has almost been finalised. The Municipality is working towards each staff member having a job description and the implementation of performance management requirements. There is a grievance procedure and disciplinary procedures in place but no performance management system has been introduced yet. Directors have performance agreements but this needs to be cascaded down to staff, Councilors and Mayoral Executive Committee members. Staff members will have a job description once Council approves their appointments. There is some laxity in implementing disciplinary procedures but it remains an effective management tool. Most managers were appointed around April 2003 and have not been assessed yet. This needs to be considered.

Prior to 30 June 2003 more than 50% of the budget was allocated to personnel. This was due to the high numbers of contractual employees, some without job descriptions. The assessment of the IDP was that the staff structure was too bloated. In particular, there was too many support staff and too many units. This will need to be considered in the IDP review process and possibly the budget review.

Each directorate is required to stipulate how many staff they need. There are staff which will remain because of their contracts. Some people have been paid huge allowances. Council has a policy on these allowances and cost cutting measures have been put in place, even to curb the excessive use of consumables. Directors have been requested to cut costs.

Following the investigation by the Department and the appointment of the acting Municipal Manager, the Municipality has embarked on certain cost cutting measures to avoid reverting back to the use of the overdraft. For instance, spending on personnel costs have been reduced. Council took a decision that from 1 August 2003 the payment of allowances would be cut. Although there is a clear policy in place on who qualifies for an allowance, these allowances were wrongly given to staff who did not qualify. The number of contract workers employed has been reduced, as they are not being re-employed when their contracts ended. There are still 27 employees whose contracts only terminate in 2004; they have no exit clauses in their contracts. The Municipality has advised that as soon as staff placement in the Municipality has been finalised, former contract workers would be free to apply for the positions once they are advertised.

A new policy on the use of credit cards was implemented. The former Mayor and Municipal Manager were each receiving RiO 000 annually for entertainment but the money was often used for personal expenditure. It was agreed that the Finance Department would recover any personal expenditure from their salaries but this was not done. The money spent in this manner is being recovered but the use of these credit cards has been stopped by the new Mayor until a new policy in this regard is put in place. The Council was also previously used as surety to fund the purchase of cars for the Municipal Manager and his personal assistant, without a Council resolution. This matter is currently being dealt with.

The South African National Civics Organisation (SANCO) reported that they have never participated in Council meetings. The Council did not respond to their requests for meetings. There is a lack of popular community participation in the decisions of Council.

Although SANCO has offered their assistance on the campaign to get people to pay for services, their offer has not been taken up. Councilors never report back to the community on projects and policies. The ward committees are few and very weak; this hampers participation.

Since taking office, the Mayor has covered five wards, noting that the ward committees found the vastness of the area and the number of unemployed a problem. The ward committees do function but they need assistance.

Civil society needs to understand when to participate in local government processes.

The Department has developed a support plan to assist the Municipality in its turnaround. It includes funding for the appointment of an Acting Municipal Manager to replace the current Acting Municipal Manager, a senior official seconded from the Department. It is also seeking to fund the appointment of turnaround strategists to address the institutional and financial problems afflicting the Municipality. The turnaround strategies would not necessarily be to assume the normal functions of the Municipality but to focus on the finances and cost drivers of the Municipality. The framework of the intervention is therefore not intended to take over" certain functions but will focus and advise the Municipality on financial issues. This is a more restricted, manageable form of intervention.

A municipal leadership academy has also been established to build capacity within municipalities.

In the course of the meetings during the inspection in loco, the Committee agreed as follows:

· There is a need for follow up meetings to discuss the development and service delivery issues that are unique to the North West province.

· There should be a broader meeting with SANCO and all stakeholders on the state of Municipalities in the province.

· A special debate on the role of SALGA in local government would be arranged. SALGA would be asked to present their vision for local government and this would also be debated in the House.

According to the MEC, the turnaround would take a minimum of one month; following adjudication on 1 October, service providers would be appointed.

The Committee recommends that the intervention in the Mafikeng Local Municipality by the North West Government be approved.

Further, that the Office of the MEC submit monthly reports to the NCOP, in order to enable the Council to monitor the intervention regularly. These monthly reports should focus on the terms of reference for the intervention as well as the areas of concern raised in this report.

Report to be considered.

105. (1) The MEC for local government in a province must establish mechanisms, processes

and procedures in terms of section 155 (6) of the Constitution to-

(a)n monitor municipalities in the province in managing their own affairs exercising their powers and performing their functions;

(b) monitor the development of local government capacity in the province; and

(c) assess the support needed by municipalities to strengthen their capacity to manage their own affairs, exercise their powers and. perform their functions.

(2) The MEC for local government in a province may by notice in the Provincial Gazette require municipalities of any category or type specified in the notice or of any other kind described in the notice, to submit to a specified provincial organ of state such information as may be required in the notice, either at regular intervals or within a period as may be specified.

(3) when exercising their powers in terms of subsection (1) MECS for local government-a) must rely as far as is possible on annual reports in terms Of section 46 and information submitted by municipalities in terms of subsection (2); and

(b) may make reasonable requests to municipalities for additional information after taking into account-

(i) the administrative burden on municipalities to furnish the information; (ii) the cost involved; and

(iii) existing performance monitoring mechanisms, systems and processes in the municipality.

2 Section 106 of the Municipal Systems Act reads as follows:

Non-performance and maladministration

106. (i) If an MEC has reason to believe that a municipality in the province cannot or does not fulfill a statutory obligation binding on that municipality or that maladministration, fraud, corruption

or any other serious malpractice has occurred or is occurring in a municipality in the province, the MEC must

(a) by written notice to the municipality, request the municipal council or municipa manager to provide the MEC with information required in the notice; or (b) if the MEC considers it necessary, designate a person or persons to investigate the matter.

(2) n the absence of applicable provincial legislation, the provisions of Sections 2,3, 4, 5 and 8 of the Commissions Act, 1947 (Act No.8 of 1 g47), and the regulations made in terms of that Act apply, with the necessary changes as the context may require, to an investigation in terms of subsection (1)(b).

(3) An MEC issuing a notice in terms of subsection (i)(a) or designating a person to conduct an investigation in terms of subsection (l)(b), must submit a written statement to the National Council of Provinces motivating the action.

3 The report is currently embargoed until the Department decides to release it publicly.

4 Section 84(3) of the Municipal Structures Act, Act 117 of 1998 as amended, deals with the authorisations that are the responsibility of the Minister of Provincial and Local Government.

Section 84(3)(a) stipulates that the Minister may, by notice in the Government Gazette and, after consultation with the Cabinet member responsible for the functional area in question, and after consulting the MEC for local government in the province and, if applicable, subject to national legislation, authorise a local municipality to perform a function or exercise a power mentioned in subsection (1 )(b), (c), (d) or (i) in its area or any aspect of such function or power.

The functions and powers referred to in Section 84(3) are

· Potable water systems - Section 84(1)(b)

· Bulk supply of electricity, which includes for the purposes of such supply, the transmission, distribution and, where applicable the generation of electricity Section 84(1 )(c)

· Domestic waste-water and sewage disposal systems - Section 84(1)(d)

· Municipal health services - Section 84(1)(i)

The adjustment of the division of functions and powers between district and local municipalities is addressed by Section 85 of the Municipal Structures Act, Act 117 of 1998, as amended. Section 85(1) of the Act stipulates that the MEC for local government in a province may, subject to the provisions of this section, adjust the division of functions and powers between a district municipality as set out in Section 84(1) or 84(2) by allocating, with a prescribed policy framework, any of those functions or powers vested -

(a) in the local municipality, to the distinct municipality; or

(b) in the district municipality (excluding a function or power referred to in Section 84(1)(a), (b), (d), (i), (o) or (p) to the local municipality No.32 of 2000

6 Former Municipal Manager, Mr B Nakedi, was suspended and has recently been charged with

142 counts of fraud.

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