· Lydenburg

· Sable

· Graskop

· Former Pilgrims Rest TRC area

The Municipality was established with a total of 23 Councilors who are all part time.

2.1 As part of the process of developing the newly established municipalities the Department Provincial and Local Government provided financial assistance that facilitated the appointment of Pasqua Africa to specifically address the following:

· develop a municipal organogram

· preparation of the 2000/01 financial statements

· standing orders and roles and responsibilities

During this period of appointment Pasqua develop an organogram for the municipality and finalized the financial statements for 2000/01.

2.2 Notwithstanding the fact that the organogram was developed by Pasqua Africa this has not been implemented. Although the position of heads of departments was advertised with a closing date of 10th July 2002. Due to the failure of the Executive Committee to shortlist the 15 officials the MEC intervened in June 2003, where after the short listing was finalized. Interviews were conducted in August 2003. Although this matter served before Council on seven occasions no appointments of heads of departments have been done.

The non-appointment of heads of department has had a major impact on the performance of the municipality and has resulted in poor service delivery especially in the technical and finance departments. Only one post in the technical unit has been filled.

2.3 The implementation of the roles and responsibilities within Council continued to be a challenge. Although the municipal manager was appointed on 4th March 2002 his employment contract was only signed on 16th October 2002. The signing of the employment contract was finalized only as a result of the direct intervention of the MEG, Bhabha. Notwithstanding numerous attempts by the legal representatives of the municipality, the municipal manager, as well as senior officials of the Department to have the performance agreement of the municipal manager, finalized and signed, this has not been successful. The Performance agreement has not been entered into between the Council and the municipal manager.

2.4 The support provided amounted to R750 000.

3.1 Due to alleged irregularities in the use of the funds provided by the Department a forensic audit was conducted at the Municipality during 2002/2003.

3.2 The forensic auditors inter alia recommended the suspension of the then acting Chief Financial Officer and the Councilor involved. The recommendation also included the termination of the relationship with the relevant service provider.

3.3 It was also revealed that irregularities occurred in the investments of the municipality and that a possible loss of R350 000 had been suffered. The National Special Investigation Unit was appointed to take the necessary steps to recover this loss. Summons is being prepared to institute proceedings against a banking institution implicated in this matter.

3.4 The forensic report was submitted to Council for implementation. This instruction was followed up through a letter from MEC Bhabha dated 8th March 2004 when it was realized that Council failed to implement the recommendations.

3.5 Despite the reminder by MEC Bhabha no response to the letter of 18th March 2004 has been received, indicating that Council has not implemented the recommendations of the report.

4.1 Due to the fact that the municipality was not in a position to and did not have the capacity to perform essential financial responsibilities KPMG was appointed by MEC Bhabha in April 2004 to perform the following tasks.

· Updating of the bank reconciliation's for 2001/2002,2002/03 and part of 2003/04

· Preparation of 2001/2002 and 2002/2003 Financial Statements

· Preparation of Investment, Loan and Fixed Asset Register in accordance with the new GAMAP

· Consumer Audits

4.2 Irrespective of the fact that KPMG had been on site since April 2004 they could not complete their assignment due to the in capacity of the municipality to provide the necessary documentary assistance. See letters from KPMG dated 15 November and 22 November 2004. KPMG then resorted to request the Department to intervene.

4.3 Following the request from KPMG the Department deployed three staff members during December 2004 and January 2005 to assist KPMG with their assignment.

4.4 Indications are that KPMG will finalise their assignment by the end of March 2005.

4.5 An amount of RI, 5million has been allocated to this project.

As part of the take over from MEC Baba, MEC J.L. Mahlangu paid his initial visits to Thaba Chweu. During this visit he addressed numerous governance matters raised by MEC Baba during the hand over. Top on the list was sound financial management, good governance of Council and debts of staff and Councilors.

During October 2004, reports appeared in the press alleging that Councilors owed large amounts of money to Council. Flowing from this, the Department conducted an informal investigation into the newspaper matters during November 2004. This investigation revealed serious shortcomings in the financial affairs of the municipality of which the following are more important:

· The cashbook could not be provided and the last time it was balanced was during the 2001 financial year

· KPMG is in a process to assist the municipality to reconcile the cashbook with the bank account for the outstanding period. KPMG informed us that notwithstanding numerous requests over the past two months the officials could not assist them with information to complete the bank reconciliation.

· Council is operating with not less than nine different bank accounts. Statements in respect of only two accounts could be provided. Both accounts were overdrawn with amounts of R173 526.62 and R742 185.15 respectively.

· Each unit (Sable, Graskop and Lydenburg), within Thaba Chweu operates its own revenue account "to simplify control over funds" received. The revenue is then regularly transferred to the main operating account in Lydenburg. Indications are that certain expenditure is processed out of these revenue-earmarked accounts. This situation presents a serious risk to the Council.

· The payment of creditors is made on the availability of cash. The cheques are made out and released, as and when the funds become available.

· No expenditure plan, which is linked, to a cash flow plan, is in operation.

· The Council does not have any investments.

The monthly salary bill of the Municipality amounts to R4 024 553.00. Other statutory obligations are paid over to the relevant institutions except for an amount of R55 000.00, which was not paid to the pension fund in November 2004. This issue is currently under investigation and will be corrected as soon as the reconciliation is completed. Council is currently implementing a capital budget, which at 18th November 2004 had not been approved by Council. This was in contravention of the Municipal Finance Management Act.

At the end of November 2004, National treasury informed Council that their equitable share would not be paid out if the outstanding budget documentation if not submitted.

In order to address this issue officials from the Department assisted with the preparation of the necessary documents and after approval by Council submitted the budget to Treasury.

5.3.1 Consumer debtors

· The Council still does not have an integrated financial system. The following billing and payments were recorded as from July 2004:

Billed: Cash Received %Payment

R17 977 977.00 R15069817.00 83%

· Council provided an amount or R2 300 000.00 in their budget for bad debtors during the financial year. The accumulating debtors for this financial year already exceeded this provision.

· The outstanding consumer debtors creased from May 2004 to September 2004 with an average of RI 000 000,00 per month. This is mainly due to incorrect billing, inaccurate data resulting consumers not paying accounts that have been queried. The current outstanding debtors amounts to R39 136 217,00. In order to address this issue Council was advised that the different financial systems currently utilized needs to be integrated into one financial system for the municipality as a whole. Secondly a consumer audit was recommended to ensure the correctness of the database.

· No new staff advances were approved since July 2004 as this is prohibited by the MFMA. The old staff loans to the amount of R125 456.44 are currently deducted from staff salaries. The deductions were verified and proof was obtained.

· The Chief Financial Officer, who is currently suspended, still owes an amount of R73 710.00. This amount is currently deducted from his salary at an amount of R2 730.00 per month. This will take 27 months to repay this outstanding balance. The other big outstanding amount of R19 800.00 is towards the Mayors Secretary who is currently repaying an amount of R600.OO per months for the next 33 months. These lengthy repayment arrangements are irregular and staff should repay these funds within one financial year.

· Debtor's reconciliation's could not be provided.

· During Departmental visits it surfaced that Councilors were arranging loans with the CFO. The department issued a circular discouraging this practice (See Circular dated 07/01/04). It is clear that the circular issued to all municipalities with regard to cell phone allowances was not adhered to. The service provider debits the cell phone accounts directly against the Council's bank account. This prevents the Council to control these accounts.

· A proper reconciliation could not be provided on these cell phone accounts because no records could be traced. The balances could not be reconciled. From a report, which was submitted, to Council during September 2004 it appears that the outstanding balances amount to R332 834.28.

· Arrangements were made by certain Councilors to deduct the arrears on the cell phone accounts from their allowances, but in most instances it seems not be sufficient to cover the total outstanding amount as per directive that all outstanding amounts should be paid by November 2005. Two Councilors did not make any arrangements for deductions, and their respective outstanding balances are R77 059,70 and R2 711,29.

With the information provided it appears that the Councilors and management is up to date with regards to payment of consumer accounts.

There is no uniformity with regard to the implementation of the credit control policy between the different units. Although Council is cutting electricity it seems not to be effective. This can clearly be seen on the escalation of the consumer debtors. The vacancies of meter readers and shortage of other credit control staff as well as the poor control over vending machines are contributing factors to the escalation of the debtors.

· The Capacity of the staff in the finance section is estimated at 3 on a scale of 0-10. They do not have a clear understanding of financial policies and procedures. The posts of the five heads of departments have been vacant since 2001.

· In most instances proper reconciliation's, financial Statements, non-amalgamation of the financial systems as well as poor financial record keeping is clearly an indication of non-compliance with financial prescripts as well as a lack of proper financial management within the municipality.

The following is an indication of the lack of internal control:

· Payment of service providers on behalf of Councilors/officials.

· Non-reconciliation of staff and councilors debts.

· Duplicate payment, which are made to service providers.

· Payment of service providers without issuing of orders.

· Different financial systems create confusion and incorrect reporting.

· Operation of 9 different bank accounts without doing bank reconciliation's; and.

· Increase of the consumer debtors with an amount of R1 000 000 per month.

The numerous Departmental interventions and advice did not yield the desired results.

5.7.1 Disciplinary proceedings were instituted against the Acting Chief Financial Officer due to the fact that he approved loans to himself of between R400 and R 5000 per month over a period of approximately three years.

5.7.2 The hearing was set down for 23rd February 2004. The official, however, resigned on 24 February 2004.

l5.7.3 The Executive Committee decided to intervene and negotiate with the Acting Chief Financial Officer to withdraw his resignation. This action of the Executive Committee is a transgression of the Systems Act (see Annexure hereto).

The incapacity of the Municipality surfaced in a number of areas:

· Due to the non-compliance with budgetary requirements, National Treasury indicated that they would not be transferring the November 2004 equitable share to the Municipality. Assistance was provided by the Department, which resulted in the finalisation of the budget process and receipt of the equitable share by the municipality.

· Threatened withholding of equitable share due to non-submission of financial statements.

During January 2005 a request was received from the Municipality for assistance with the preparation of the 2005/06 budget. This request was made due to a lack of capacity within the municipality to perform this task. The Department intervened to assist with this matter.

8.1 Having regard to the above the Executive Council was requested to approve an intervention in Thaba Chweu in terms of section 139(1 )(b) of the Constitution based on the municipalities failure to meet the following executive obligations:

· Failure to submit financial statements since 2002 in contravention of Section 138 (e) of the Municipal Finance Management Act; 2003.

· Failure to collect revenue owing to Council resulting in outstanding debts of R39 million in contravention of Section 64 of Municipal Finance Management Act; 2003.

· Failure to appoint Senior Managers in contravention of Section 56 of the Local Government Municipal System Act, 2000;

· Failure to implement effective asset management in contravention of Section 64 of the Municipal Finance Management Act; 2003

· Failure to submit appendix 1 of the budget to Treasury is in contravention of Section 24 Municipal Finance Management Act; 2003 and resulting in National Treasury withholding their equitable share for the month of December and onwards. (The department dispatched a team to assist the Municipality to complete this required annexure for submission to National Treasury)

· Failure to finalise the disciplinary procedures against the suspended Acting Chief Financial Officer Mr. Eben Theron.

Considering all the Administrative and Political interventions at this Municipality, the non-improving state of affairs, the Executive Authority recommended to the Executive Council the implementation of Section 139(1)(b) of the Constitution. This recommendation was approved by the Executive Council on 1 December 2004.

[PMG Note: Appendices not included]