MINUTES OF INFORMAL DISCUSSIONS of a MUNICIPAL PUBLIC ... of the Speaker... · 1. That MPAC...

MINUTES OF INFORMAL DISCUSSIONS

of a

MUNICIPAL PUBLIC

ACCOUNTS COMMITTEE MEETING (MPAC)

held on

14-06-17

SOL PLAATJE MUNICIPALITY

Office of the Municipal Manager KIMBERLEY 5 June 2017

MEMBERS: Cllr N Buda (Chairperson) Cllr M Lekhatlanya Cllr H Pieterse Cllr L Steenkamp Cllr P R van Wyk Cllr P J Vorster NOTICE is hereby given that a MUNICIPAL PUBLIC ACCOUNTS (MPAC) COMMITTEE meeting of the City Council will be held in the Council Chamber, Civic Offices, Kimberley on WEDNESDAY, 14 JUNE 2017 at 14:00.

PLEASE BRING MPAC AGENDAS DATED 12 APRIL AND 10 MAY 2017 TO THE MEETING.

CLLR N BUDA CHAIRPERSON

i MINUTES OF INFORMAL DISCUSSIONS MPAC Index 14 June 2017

RES. NO. ITEM NO & HEADING PAGE ANNEXURE

A. APPLICATION FOR LEAVE 1

B. CONFIRMATION OF MINUTES 1

1. MPAC - 09.11.16 - (MPAC31/11/16 - MPAC33/11/16) 2. Postponed MPAC - 12.12.16 (No quorum) 3. Special MPAC - 06.02.17 (No quorum) 4. Special MPAC - 13.02.17 (No quorum) 5. Special MPAC - 20.02.17 (Presentations) 6. Special MPAC - 28.02.17 (Presentations) 7. Special MPAC - 01.03.17 (Presentations) 8. Special MPAC - 02.03.17 @ 14:00 (No quorum) 9. Advanced MPAC - 02.03.17 @ 09:00 (No quorum)

C. PRESENTATIONS

None

NOTE: SECTION D - H: AS PER THE APRIL 2017 and MAY 2017 AGENDA D. MATTERS ARISING: 08.02.17

MPAC01/06/17 1. MPAC31/11/16: Appointment of MPAC Researcher 2

MPAC02/06/17 2. Submission of section 71: Monthly Budget Statement

October 2016

2 1 - 39

E. DIRECTORATE REPORTS: 08.02.17

Directorate: Financial Services

Office of the CFO

MPAC03/06/17 1. Audit Report - Opinion 4 (Was not addressed therefore not attached)

MPAC04/06/17 MPAC05/06/17 MPAC06/06/17 MPAC07/06/17 MPAC08/06/17 MPAC09/06/17

2. 3. 4. 5. 6. 7.

Report on Fruitless & Wasteful Expenditure: 2016 Presentation of Audit Action Plan: 2017 Report on Fruitless & Wasteful Expenditure - Qtr 1 of 2016/17 Financial Year Report on Fruitless & Wasteful Expenditure - Qtr 2 of 2016/17 Financial Year Submission of Section 71 Monthly Budget Statement: December 2016 Presentation of the latest Audit Committee Minutes

5 7 8 9 10 11

(Was not addressed therefore not attached)

(Was not addressed therefore not attached) (Was not addressed therefore not attached)


40 - 82 (Was not addressed therefore not attached)

ii MINUTES OF INFORMAL DISCUSSIONS MPAC Index 14 June 2017

RES. NO. ITEM NO & HEADING PAGE ANNEXURE

F. DIRECTORATE REPORTS: 08.03.17


Office of the CFO

MPAC10/06/17 MPAC11/06/17 MPAC12/06/17

1. 2. 3.

Submission of Section 71 Monthly Budget Statement: January 2017 Irregular Expenditure Policy Irregular, fruitless & wasteful expenditure

13 14 15

83 - 124 (Was not addressed therefore not attached)


G. DIRECTORATE REPORTS: 12.04.17


Office of the CFO

MPAC13/06/17

1. Submission of Section 71 Monthly Budget Statement: February 2017

17 125 - 169

H. DIRECTORATE REPORTS: 10.05.17


Office of the CFO

MPAC14/06/17 1. Submission of Section 71 Monthly Budget Statement: March 2017

18 170 - 211

MPAC15/06/17 MPAC16/06/17

2. 3.

Fruitless & Wasteful Expenditure Reported in Financial Statements 2016 Tabling of Audit Action Plan Progress Report

19 21

212 - 250 251 - 344

1

SOL PLAATJE MUNICIPALITY

MINUTES OF INFORMAL DISCUSSIONS OF A MUNICIPAL PUBLIC ACCOUNTS COMMITTEE MEETING HELD ON WEDNESDAY, 14 JUNE 2017 AT 14:00

PRESENT: Members Cllr N Buda (Chairperson)

Cllr H Pieterse Non-members Cllr B P Gilbert

Municipal Manager (G H Akharwaray), Chief Financial Officer (Z L Mahloko), MPAC Administrator (M V Matsime), Administrator: Committee Services (S Campher) and the Administrative Assistant: Committee Services (J Knox).

A. APPLICATION FOR LEAVE

Cllr L Steenkamp Cllr P Vorster Cllr P R Van Wyk

ABSENT WITHOUT LEAVE Cllr M Lekhatlanya

Since there was a no quorum, it was agreed to proceed with informal discussions. Further, that due to the back log, urgent items will be referred directly to council.

B. CONFIRMATION OF MINUTES

That the confirmation of minutes stands over to the next meeting.

__________________________________________________________________________

2 MINUTES OF INFORMAL DISCUSSIONS Municipal Public Accounts Committee 14 June 2017

D. MATTERS ARISING: 08.02.17

1. MPAC31/11/16: Appointment of MPAC Researcher (MA – 09.11.16) (Mrs) ZL Mahloko

At the MPAC meeting held on 12 October 2016 it was resolved per resolution MPAC31/11/16: That the Chairperson consults with the Speaker enquiring whether the post of MPAC Researcher may be approved by the committee with report-back. AWAIT REPORT-BACK MPAC01/06/17 AGREED:

That the matter be held in abeyance until the next meeting.

2. Submission of Section 71 Monthly Budget Statement: October 2016 (Mrs) ZL Mahloko

Purpose The purpose of this report is to submit the monthly budget statement for the month of October 2016. Background The guidelines for the establishment of MPAC’s requires that the committee be provided with the monthly budget statement submitted to the Executive Mayor for interrogation or request for more detailed information it is for the fulfilment of this requirement that the report is submitted. Annexure description Monthly Budget Statement – October 2016 ANNEXURE

p. 1 – 39 Financial Implications None Legal Authority and Implications Guidelines for the establishment of MPAC MFMA 56 of 2003 Terms of reference of MPAC Consultation Chairperson of MPAC, CFO and Accounting Officer

3 MINUTES OF INFORMAL DISCUSSIONS Municipal Public Accounts Committee 14 June 2017

D. MATTERS ARISING: 08.02.17

Contact Person Mrs ZL Mahloko Chief Financial Officer Contact number: 053-8306500 FOR INFORMATION MPAC02/06/17 AGREED TO RECOMMEND TO COUNCIL:

That the report be noted. __________________________________________________________________________

4 MINUTES OF INFORMAL DISCUSSIONS Municipal Public Accounts Committee Directorate: Financial Services 14 June 2017 Office of the CFO


1. Audit Report – Opinion

(Mrs ZL Mahloko) 25 January 2017

Purpose The purpose of this report is to present the Audit Opinion in detail to the Committee for a better/thorough understanding. For noting /for decision by The item/report has NOT been considered by a portfolio committee. The item is for noting by the Executive Mayor. Background The guidelines for the establishment of MPAC’s indicates that the committee is responsible amongst other things to deal with the audit opinion, and the recommendations for the Audit Committee. As per the Council Resolution made in the Special Council meeting held in December 2016 the Audit Report had been referred to the MPAC for detailed discussions with management, consider the Action Plan to address the findings and monitor the progress made against the tabled action plan by means of physical verification, analysing reports and any other means practical. It is against this background that management comments are hereby submitted to the MPAC and the Action Plan. Annexures Management comments ANNEXURE (Was not addressed therefore not attached) Motivation None Personnel implications None Financial Implications None Legal Authority and Implications MFMA Guidelines for the establishment of MPAC



Consultation Executive Management Team and Council Meeting Contact Person Mrs ZL Mahloko Chief Financial Officer Contact number: 053-8306500 RECOMMENDATION:

1. That the management comments on the Final Management Report as issued by the Auditor-General be noted.

2. That the Action Plan as proposed be accepted by council. 2. That the MPAC commits to monitor the execution of the plan by analysing the

monthly reports that will be provided by management and report back to council.

MPAC03/06/17 AGREED:

That the matter be held in abeyance until the next meeting. __________________________________________________________________________ 2. Report on Fruitless & Wasteful Expenditure: 2016 (Mrs ZL Mahloko) 25 January 2017

Purpose The purpose of this item is to report on fruitless & wasteful expenditure incurred during the year 2015/16 as reported in the Audited Financial Statements. Background MFMA Section 32 (4) requires that the Accounting Officer must promptly inform the Mayor, MEC for Local Government in the Province as well as the Auditor-General of any fruitless and wasteful expenditure incurred by the municipality. It is however reported that at this stage, no official nor councillor has been held responsible for the expenditure incurred as the matter are still due for investigation by the committee. Annexures Annual Financial Statements notes ANNEXURE (Was not addressed therefore not attached) Motivation None



Personnel implications None Financial Implications No additional costs. Legal Authority and Implications MFMA – Section 32 SCM Policy Irregular, Fruitless & Wasteful Expenditure Policy Budget Policy Consultation Executive Mayor, Accounting Officer and CFO. Letters have been issued to the user departments affected to prepare submissions in the next committee meetings. Contact Person Executive Mayor – Cllr O M Matika Municipal Manager – Mr G H Akharwaray Chief Financial Officer – Ms Z L Mahloko Executive Management Team RECOMMENDATION:

That the MPAC investigates the reported fruitless and wasteful expenditure for purposes of making a recommendation to council, whether the expenditure incurred be written off or recovered.


That the matter be held in abeyance until the next meeting. __________________________________________________________________________



3. Presentation of Audit Action Plan: 2017 (Mrs ZL Mahloko) 25 January 2017

Purpose The purpose of this item is to present the audit queries action plan that is aimed at addressing audit findings as contained in the management letter. Background MFMA Section 131 refers to the issues revised by the Auditor-General in audit reports. The section states that the municipality must address any issues raised by the Auditor-General in an audit report. It further states that the Mayor of a municipality must ensure compliance by the municipality. The MPAC as an oversight committee assists the Mayor in completing his duties in this regard. It is based on his background that a detailed action plan is tabled in this meeting. Annexures Audit Action Plan ANNEXURE (Was not addressed therefore not attached)

Motivation None Personnel implications None Financial Implications See item 1 (Audit report). All other costs are budgeted for in the approved budget. Legal Authority and Implications MFMA – Section 129 Guidelines for the establishment of MPAC Municipal Systems Act MFMA Circulars on Annual Report Council Resolution (SCM – 28.01.15) Consultation CFO and MPAC Chairperson Contact Person Mrs ZL Mahloko Chief Financial Officer Contact number: 053-8306500



RECOMMENDATION:

For discussion and final inputs –

1. That MPAC resolves to recommend to council to accept the tabled Audit Queries Action Plan.

2. That council shall receive monthly reports on progress made in terms of the plan. 3. That the MPAC shall submit its oversight report in line with Section 129 (1) together

with the Municipal Manager’s reporting responsibility. MPAC05/06/17 AGREED:

That the matter be held in abeyance until the next meeting. ___________________________________________________________________ 4. Report on Fruitless & Wasteful Expenditure – Qtr 1 of 2016/17 Financial Year (Mrs ZL Mahloko) 25 January 2017

Purpose The purpose of this item is to report fruitless and wasteful expenditure incurred during the first quarter of the financial year 2016/17. Background MFMA Section 32 (4) requires that the Accounting Officer must promptly inform the Mayor, the MEC for Local Government in the Province as well as the Auditor-General of any fruitless and wasteful expenditure incurred by the municipality. It is however reported that at this stage, no official, nor councillor has been held responsible for the expenditure incurred as the matters had been submitted to the Municipal Public Accounts Committee for investigation. Annexures Quarter 1 report ANNEXURE (Was not addressed therefore not attached)

Motivation For tabling Financial Implications Any additional costs are to be investigated.



Legal Authority and Implications SCM Policy Irregular, Fruitless & Wasteful Expenditure Policy Budget Policy MFMA – Section 32 Consultation Executive Mayor, Accounting Officer and CFO.. Letters were also written to the user departments affected. Contact Person Executive Mayor – Cllr O M Matika Accounting Officer – G H Akharwaray Chief Financial Officer - Mrs ZL Mahloko RECOMMENDATION:




_________________________________________________________________________ 5. Report on Fruitless & Wasteful Expenditure – Qtr 2 of 2016/17 Financial Year (Mrs ZL Mahloko) 25 January 2017

Purpose The purpose of this item is to report fruitless and wasteful expenditure incurred during the second quarter of the financial year 2016/17. Background MFMA Section 32 (4) requires that the Accounting Officer must promptly inform the Mayor, the MEC for Local Government in the Province as well as the Auditor-General of any fruitless and wasteful expenditure incurred by the municipality. It is however reported that at this stage, no official, nor councillor has been held responsible for the expenditure incurred as the matters had been submitted to the Municipal Public Accounts Committee for investigation. Annexures Quarter 2 report ANNEXURE (Was not addressed therefore not attached)



Motivation None Financial Implications The interest/penalties had been paid against the budget appropriated for the principal expenditure, and this was not provided for. However, the expenditure as paid does not require an adjustment budget as per MFMA Section 29. Legal Authority and Implications SCM Policy Irregular, Fruitless & Wasteful Expenditure Policy Budget Policy MFMA – Section 32 Consultation Executive Mayor, Accounting Officer and CFO.. Letters were also written to the user departments affected. Contact Person Executive Mayor – Cllr O M Matika Accounting Officer – G H Akharwaray Chief Financial Officer - Mrs ZL Mahloko RECOMMENDATION:




__________________________________________________________________________

6. Submission of Section 71 Monthly Budget Statement: December 2016 (Mrs) ZL Mahloko 25 January 2017

Purpose The purpose of this report is to submit the monthly budget statement for the month of December 2016. Background The guidelines for the establishment of MPAC’s requires that the committee be provided with the monthly budget statement submitted to the Executive Mayor for interrogation or request



for more detailed information it is for the fulfilment of this requirement that the report is submitted. Annexure description Monthly Budget Statement – December 2016 ANNEXURE

p. 40 - 82 Financial Implications None Legal Authority and Implications Guidelines for the establishment of MPAC MFMA 56 of 2003 Terms of reference of MPAC Consultation Chairperson of MPAC, CFO and Accounting Officer Contact Person Mrs ZL Mahloko Chief Financial Officer Contact number: 053-8306500 FOR INFORMATION MPAC08/06/17 AGREED TO RECOMMEND TO COUNCIL:

That the report be noted. __________________________________________________________________ 7. Presentation of the latest Audit Committee Minutes (Mrs) ZL Mahloko 25 January 2017

Purpose The MPAC is an oversight committee that needs to have sight of the Audit Committee minutes and reports to monitor the implementation of the Audit Committee recommendations. Background None Annexure description Minutes of Audit Committee: November 2016 ANNEXURE (Was not addressed therefore not attached)



Personnel Implications None Financial Implications None Legal Authority and Implications None Consultation CFO and Audit Manager Contact Person Mrs ZL Mahloko Chief Financial Officer Contact number: 053-8306500 FOR INFORMATION MPAC09/06/17 AGREED:




1. Submission of Section 71 Monthly Budget Statement: January 2017 (Mrs) ZL Mahloko 21 February 2017

Purpose The purpose of this report is to submit the monthly budget statement for the month of January 2017. For noting / for decision by The item/report has NOT been considered by a portfolio committee. This item is for recommendation by the Executive Mayor to Council.

Background The guidelines for the establishment of MPAC’s requires that the committee be provided with the monthly budget statement submitted to the Executive Mayor for interrogation or request for more detailed information it is for the fulfilment of this requirement that the report is submitted. Annexure description Monthly Budget Statement – January 2017 ANNEXURE p. 83 - 124 Financial Implications None Legal Authority and Implications Guidelines for the establishment of MPAC MFMA 56 of 2003 Terms of reference of MPAC Consultation Chairperson of MPAC, CFO and Accounting Officer Contact Person Mrs ZL Mahloko Chief Financial Officer Contact Number: 053-8306500

FOR INFORMATION MPAC10/06/17 AGREED TO RECOMMEND TO COUNCIL:




2. Irregular Expenditure Policy Ms ZL Mahloko

Purpose The purpose of this item is to present the policy on Irregular Expenditure to the committee for information.

Background The Municipal Public Accounts Committee is an oversight committee as per the terms of reference document already presented to the committee. As such, it is responsible for the investigation of unauthorised, irregular, fruitless and wasteful expenditure identified throughout the financial year, and as such, make recommendations to Council. The Council adopted an Irregular Expenditure Policy which guides the Accounting Officer and the Chief Financial Officer with regards to the processes of identifying and reporting of such expenditure. Annexure Description

ANNEXURE Irregular Expenditure Policy (Was not addressed therefore not attached) Personnel Implications None Financial Implications None Legal Authority and Implications MFMA 56 of 2003 Terms of reference of MPAC Guidelines for the establishment of MPAC’s in Municipalities Consultation No consultation was necessary as the policy is presented as a reference to the items in the agenda. Contact Person: Ms ZL Mahloko Chief Financial Officer Contact number- 053-830 6500

FOR INFORMATION MPAC11/06/17 AGREED:




3. Irregular, fruitless & wasteful Expenditure Ms ZL Mahloko

Purpose The purpose of this item is to report irregular, fruitless and wasteful expenditure as reported in the audited financial statements of the municipality for the period ended 30 June 2016.

Background In terms of disclosure requirements, the Accounting Officer is required to disclose in the financial statements any expenditure that did not meet the minimum compliance requirements in terms of the approved supply chain management policy. In terms of MFMA, Irregular expenditure, in relation to a municipality or municipal entity, means—

a) expenditure incurred by a municipality or municipal entity in contravention of, or that is not in accordance with, a requirement of this Act, and which has not been condoned in terms of section 170;

b) expenditure incurred by a municipality or municipal entity in contravention of, or that is not in accordance with, a requirement of the Municipal Systems Act, and which has not been condoned in terms of that Act;

c) expenditure incurred by a municipality in contravention of, or that is not in accordance with, a requirement of the Public Office-Bearers Act, 1998 (Act No. 20 of 1998); or

d) expenditure incurred by a municipality or municipal entity in contravention of, or that is not in accordance with, a requirement of the supply chain management policy of the municipality or entity or any of the municipality’s by-laws giving effect to such policy, and which has not been condoned in terms of such policy or by-law, but excludes expenditure by a municipality which falls within the definition of ‘‘unauthorized expenditure’’;

Whilst fruitless and wasteful expenditure is defined as; ‘‘fruitless and wasteful expenditure’’ means expenditure that was made in vain and would have been avoided had reasonable care been exercised; The municipality has an approved policy on identification, reporting and consequence management with regards to irregular expenditure. As such, irregular expenditure identified during the 2015/16 had been reported as required. It is therefore presented to the committee for investigation and recommendations to Council. Based on the assessment made, none of the irregular expenditure incurred was as a result of fraud and corruption but rather non-compliance with SCM at the time of procurement of such goods and services. It is also as a result of suppliers who failed to disclose their relatedness with people in service of state or that the suppliers are in service of state. Included in the list of irregular expenditure, it also includes overpayment of salaries made to Councillors during 2007/2008, when implementing the upper limits. This matter had been tabled to the MPAC and was since referred back to the Committee by Council.



Annexure Description Financial Statements note on Irregular, fruitless and wasteful expenditure

ANNEXURE (Was not addressed therefore not attached)

Personnel Implications None Financial Implications None, as the item is presented for investigation by the committee Legal Authority and Implications MFMA 56 of 2003 Supply Chain Management Policy Irregular Expenditure Policy Format for the preparation of Annual Financial Statements Consultation Executive Mayor, EMT and Financial Services Directorate Contact Person Ms ZL Mahloko Chief Financial Officer Contact number - 053-830 6500

FOR DISCUSSION MPAC12/06/17 AGREED:



G. DIRECTORATE REPORTS: 12.04.17

1. Submission of Section 71 Monthly Budget Statement: February 2017 (Mrs) ZL Mahloko 15 March 2017

Purpose The purpose of this report is to submit the monthly budget statement for the month of February 2017. For noting / for decision by The item/report has NOT been considered by a portfolio committee. This item is for recommendation by the Executive Mayor to Council.

Background The guidelines for the establishment of MPAC’s requires that the committee be provided with the monthly budget statement submitted to the Executive Mayor for interrogation or request for more detailed information it is for the fulfilment of this requirement that the report is submitted. Annexure description Monthly Budget Statement – February 2017 ANNEXURE p. 125 - 169 Financial Implications None Legal Authority and Implications Guidelines for the establishment of MPAC MFMA 56 of 2003 Terms of reference of MPAC Consultation Chairperson of MPAC, CFO and Accounting Officer Contact Person Mrs ZL Mahloko Chief Financial Officer Contact Number: 053-8306500





1. Submission of Section 71 Monthly Budget Statement: March 2017 (Mrs) ZL Mahloko 13 April 2017

Purpose The purpose of this report is to submit the monthly budget statement for the month of March 2017. For noting / for decision by The item/report has NOT been considered by a portfolio committee. This item is for recommendation by the Executive Mayor to Council.

Background The guidelines for the establishment of MPAC’s requires that the committee be provided with the monthly budget statement submitted to the Executive Mayor for interrogation or request for more detailed information it is for the fulfilment of this requirement that the report is submitted. Annexure description Monthly Budget Statement – March 2017 ANNEXURE p. 170 - 211 Financial Implications None Legal Authority and Implications Guidelines for the establishment of MPAC MFMA 56 of 2003 Terms of reference of MPAC Consultation Chairperson of MPAC, CFO and Accounting Officer Contact Person Mrs ZL Mahloko Chief Financial Officer Contact number: 053-8306500


That the report be noted.

__________________________________________________________________________



2. Fruitless and Wasteful Expenditure Reported in Financial Statements 2016

(CFO: Ms Z.L. Mahloko) 19 April 2017

Purpose The purpose of this report is to submit fruitless and wasteful expenditure as reported in the financial statements 2017, for investigation and recommendation to Council. For noting / for decision by

The following options exist in terms of noting / for decision by:

Council (to approve)

The item/report has been considered by a portfolio committee. This item is for recommendation by the Executive Mayor to Council.

Background The Municipal Finance Management Act 56 of 2003, Section 131 deals with “Issues raised Audit General in Audit Report”. Sub-section 1 (one) requires that the municipality must address any issues raised by the Auditor General, and that the Mayor of the municipality must ensure compliance with this sub-section. Community Services directorate in conjunction with the Finance Department invited bidders for the valuation of land fill site and determination of provision for the costs of rehabilitation. Quotations were received to this effect and Kazia Consulting was awarded the quotation. After series of follow with Kazia, an extension was given for the submission of the report as expected. The report was found unacceptable, lacking content and the Finance Directorate was left with no option but to solicit a new quotation to have the valuation concluded within the timelines, as the financial statements had to be submitted to EMT, Audit Committee and to the AGSA. It was further found that Kazia submitted a claim to Community Services Directorate and were paid prior to submission of report. It is based on these arguments that the paid made was fruitless and wasteful. Annexures Quotation for valuation of landfill site and acceptance of quotation Payment documents – Kazia Consulting Report submitted Report of the service provider that was subsequently appointed

ANNEXURE p. 212 - 250



Motivation

MFMA Section 32 requires that fruitless and wasteful expenditure must be investigated,

depending on the outcomes of investigations, that the committee appointed by Council to

conduct investigations make recommendations to;

- Recover the expenditure from officials or councillors involved

- Recommend write off of fruitless and wasteful expenditure

Due to fact that the information as highlighted by the AGSA was not available or relevant at

the time of procurement, and with evidence that corrective actions had since been put in place,

that the committee recommends write off of the irregular expenditure incurred.

Personnel Implications In implementing the action plan, only internal personnel shall be responsible, where contractors will be appointed, this will be in line with supply chain management policy of the municipality. Financial Implications There shall be no additional financial implications, other than as budgeted for. Legal Authority and Implications

The Municipal Finance Management Act 56 of 2003 Consultation The Municipal Manager, all Executive Directors and Senior Managers were consulted. Contact Person Chief Financial Officer: Ms. Z.L. Mahloko For enquiries Chief Financial Officer – Z.L. Mahloko

RECOMMENDATION:

That MPAC investigates the fruitless and wasteful expenditure incurred as a result of the sub-quality report received from the service provider after having been paid for the work, an amount of R150 000.00 and that the committee make recommendations to Council based on its findings in this regard.

FOR INFORMATION


That the item be held in abeyance for investigation at a Special MPAC meeting scheduled for Wednesday, 21 June 2017 at 14:00.



3. Tabling of Audit Action Plan Progress Report (CFO: Ms Z.L. Mahloko) 19 April 2017

Purpose The purpose of this report is to submit progress report with regards to the implementation of Audit Action Plan 2017. For noting / for decision by The following options exist in terms of noting / for decision by:

Council (to approve)

The item/report has been considered by a portfolio committee. This item is for recommendation by the Executive Mayor to Council.

Background The Municipal Finance Management Act 56 of 2003, Section 131 deals with “Issues raised Audit General in Audit Report”. Sub-section 1 (one) requires that the municipality must address any issues raised by the Auditor General, and that the Mayor of the municipality must ensure compliance with this sub-section. It is therefore against this background that the Audit Action is compiled. The Chief Financial Officer is the Co-ordinator of the action plan and the Municipal Manager sponsors the implementation and report to the Executive Mayor regularly. The Municipal Public Accounts Committee, in terms of the terms of reference of the committee has the responsibility to play an oversight role on behalf of Council to ensure that the Action Plan is implemented successfully. The Action had a deadline of 31 March 2017, to allow for the Internal Audit to conduct an assurance audit and provide the Municipal Manager as the sponsor a report in this regard. In preparation for internal audit procedures, the Chief Financial Officer as the coordinator met with various section as per the action to establish the achievements and the remaining challenges, if any that remained outstanding after the due date. The Summary Report is provided below: Report on Supply Chain Management Issues that were raised by AGSA related to compliance with the likelihood of resulting in irregular expenditure in future years. These issues include the following: Bidders failing to declare their interest The Supply Chain Management Regulations states that “no bids may be awarded to people in service of state” and that in cases where bidders are related to those in service of state, the value of goods and services procured from such companies must be disclosed in the financial



statements as related party transactions. GRAP 20, though not effective as yet asserts that “Close members of the family of persons related to the entity may influence, or be influenced by them in their transactions with the entity”. On the other hand, the Code of Conduct for Supply Chain Management Practitioners requires members of the committees or those involved in the procurement of particular goods and services must declare their interest or relationship with the bidders. Any award made to people in service of state or failure to disclose related party transactions leads to such expenditure to become irregular as a resulted of non-compliance. National Treasury also issued MFMA Circular 62 acknowledges and directs that “In the event that the Auditor-General detects irregular expenditure during the audit process as a result of possible false declarations and subsequent awards based on those declarations, the municipality or municipal entity will be informed of such irregular expenditure. The municipality or municipal entity will be required to rectify this matter by instituting the necessary remedial measures, by investigating the matter, recovering the funds spent, instituting disciplinary proceedings against those liable for such actions and possible criminal prosecution as may be appropriate. The accounting officer must also apply the remedial measures contained under “Termination for Default” in the General Conditions of Contract. The expenditure at this stage will not be classified as irregular expenditure. National Treasury had, with effect from 1 July 2016, introduced a Central Supplier Database which compels all businesses who want to do business with government should register and verified according for many aspects including their relatedness with the state. Resolved: The municipality had adopted the CSD as its supplier database and confirms the relationship of the company/bidder with the state and take all precautionary measures to comply with SCMR 41 and 42, In service of State and people related to those in service of state. For all quotations, an MBD 4 form is compulsory for completion by bidders interested in responded to the quotation and a register is kept by Expenditure Section and submitted to the CFO for the purposes of preparing the Financial Statements and making the necessary disclosure. Irregular Expenditure: The Auditor General declared payments made to two service providers as irregular due to the following:

- Validity period of the original contract at the consenting municipality could was not confirmed by the Municipal Manager

- The contract of the service provider was extended beyond the original term of contract at the consenting municipality

The BAC as an advisory committee to the Municipal Manager for all SCM Regulation 32 had reviewed its procedure and the matter is now resolved. The MPAC will deal with the investigation with the intention to make recommendations to the Council in respect of the two contracted referred to above.



Contract Management The Internal Audit conducted an assurance audit on contract management in line with MFMA Section 116. The findings of the audit indicated that there is no contracts management policy and procedure adopted by council and huge gaps were identified in the process. The CFO developed the Contracts Management Policy, which is ready for adoption by Council, together with the Budget Related Policies. Report on Expenditure Management During the audit, there were two exceptions raised by the AGSA which were resolved. However, the following remains a risk to limitation of scope and all processes are put in place to ensure that the area remains clean in the next audit. Document Management There were a number of break-ins at the Expenditure Office Block and unauthorised access to the building beyond office hours. It was also found that access was gained to offices and it is still being investigated if there are any documents that were removed illegally from Payroll and Sundry Creditors Section. If in any case, it is identified that documents were removed, liaison with the respect user departments will be embarked upon, to recreate the copy document for completeness of files and expenditure. The Expenditure Offices are overflooded with papers, and a strategy is being sought after to reduce the paper generated and managed. These include vouchers, clock-cards, personnel files etc. adequate office space is required to secure and safeguard treasury documents. A security system is planned to be installed with 24hr surveillance for management to know exactly access to the property etc. It is planned that a system needs to be introduced for reporting for duties for general workforce of the municipality. Such a system must integrate with Human Resources and Payroll for both remuneration, leave application, absenteeism and overtime. Existence of employees Employees must be verified for existence annually through various means and ways. Currently, Budget and Treasury Office, through its financial managers send payroll reports to the Supervisors/Managers of various section to confirm the post title, the level and employment status. Feedback from the Supervisors and Managers is forwarded to Payroll Section as is necessary. Compliance with Upper Limits Gazette – Public Office Bearers, Municipal Manager and Senior Managers Payroll in conjunction with Human Resources ensure compliance with the upper limits gazette. Employee Benefits and Taxation Human Resources determines employment benefits of each employee of the municipality and advises Payroll accordingly. Tax on employee benefits is implemented by the Systems Administrator upon being advised by the Chief Financial Officer or her delegate. There is a



close working relationship between the System Administrator and the Service Provider (Systems) to ensure accuracy of employee taxation. Financial Delegations The internal audit identified a weakness in that financial delegations were not written. As such, a copy of financial delegations is attached. This will be presented at the Finance Committee for adoption by Council. Assets Management Assets Management is one of the critical areas that, any error, when extrapolated, may lead to a negative audit opinion. As highlighted in the previous report, the following are issues being attended to: Review of Useful Life of PPE The unit is finalising its submission to National Treasury in as far as its request to review useful lives as determined in the NT Asset management Guidelines. An assessment will be determined once the outcomes from NT is known. Low Cost Housing Development There has been a persisting challenge with regards to accounting for land planned and surveyed for low cost housing development projects, and the classification thereof. Various options are explored in this regard and an updated Inventory or Investment Register will be completed. This will also give direction for the Billing and Property Taxation Managers. Disposal of redundant assets and assets no longer in use The Disposal Committee had resolved to disposed of redundant and assets no longer in use. These assets must now be removed from Asset Register. On the other hand, the asset registers are being updated with all new acquisitions. Accounting for WIP This process is in progress in consultation with Project Managers, the Engineers and PMU. Conditional Assessment The conditional assessment will be done by internal staff. The CFO will guide the process as it is important for audit purposes to document assumptions, methodology and conclusions. A meeting is set to take place on the 25th of April 2017. Report on ICT Progress has been made with regards to findings raised in this division. Policies and procedures have been developed and are ready for consideration and recommendation by ICT Steering Committee and for approval by the Municipal Manager. As part of the action plan, it was identified that there are critical software that must be procured to complete some commitments made in the action plan such, password management



software and strength validation, as well as malwares, spywares and firewall for security of information. All these should be in place by 15 June 2017. Report on Revenue Management Revenue management is as critical as assets management due to the value involved in this regard. The following are issues and are in process of being resolved: Failure to replace meters The Billing Section is responsible for meter reading, as such they identify faulty meters. It is expected that Infrastructure and Services will attend to the list provided by Metered Services of all faulty meters. This is not materialising, despite various meetings held with the responsible people in the Engineering Services. The following had been resolved:

- That financial services will establish existence of contract for supply and delivery of water meters, as well as prepaid electricity meters. In the absence of any of these contracts, procurement will be initiated as soon as possible. This applies to both electricity and water meters.

The consequences of no replacement of meters is non reading of meters, leading to interims that are not acceptable by auditors if they are based on reading taken longer than 12 months ago as at 30 June 2017. Existence of debtors Though we are not conducting a full debtor verification exercise, a movement on debtor account is an indication of existence of that debtor. As such, efforts will be placed on accounts with no movement in the last twelve month and investigated for existence. Indigent Verification The Financial Services will be embarking on verification of indigent’s households who are currently benefitting in line with the policy. A system has been procured for this. Annexures MFMA 56 of 2003 Accounting Reporting Framework

ANNEXURE p. 251 - 344

Motivation It is critical that the action plan is implemented in its fullest to resolve the audit findings, in line with MFMA Section 131. Personnel Implications In implementing the action plan, only internal personnel shall be responsible, where contractors will be appointed, this will be in line with supply chain management policy of the municipality.



Financial Implications There shall be no additional financial implications, other than as budgeted for. Legal Authority and Implications The Municipal Finance Management Act 56 of 2003 Consultation The Municipal Manager, all Executive Directors and Senior Managers were consulted. Contact Person Chief Financial Officer: Ms. Z.L. Mahloko For enquiries: Chief Financial Officer – Z.L. Mahloko

FOR INFORMATION

COMMENTS:

1. Asset Management: That the CFO investigates the issue of three trucks standing at the

workshop whose licenses disks must be renewed since this hampers service delivery.

That the fleet manager takes charge of this regard.

2. Labor relations: The meeting noted that there has been a partner of court cases lost by

the municipality. That the CFO presents to MPAC in the next meeting relevant

procedures that must be followed in court cases.

3. Existence of debtors: The issue was raised of how to deal with the account of a property

owner that becomes deceased. The CFO indicated that the property must be

represented by an attorney and placed in a deceased estate. Claims from family

members may be submitted on this estate and payments may be processed through

the high court. The rest of the debt can be written off or remains on the account and is

paid by person that takes over the account.

MPAC16/06/17 AGREED TO RECOMMEND TO COUNCIL:

That the report be noted.

__________________________________________________________________________ The meeting closed at 15:15. __________________________ _________________________ CHAIRPERSON DATE

MPAC

14-06-17

ANNEXURES

PLEASE RETAIN ALL ANNEXURES FOR MAYORAL COMMITTEE AND COUNCIL

MEETINGS. COPIES WILL NOT BE RESUBMITTED

MPAC

14-06-17

MATTERS ARISING: 08.02.17

ANNEXURES p.1 - 39

MPAC

14-06-17

DIRECTORATE REPORTS (08.02.17)

ANNEXURES p.40 - 82

MPAC

14-06-17


ANNEXURES p.83 - 124

MPAC

14-06-17



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