1. PRESENTATION TO THE SELECT COMMITTEE ON FINANCE Date: 16 July 2014 PART 1: COGTA'S MANDATE

2. CONTENTS 1. Constitutional foundation of CoGTA’s mandate 2. Legislative mandate of CoGTA 3. CoGTA’s mandate as a Ministry 2

3. CONSTITUTIONAL FOUNDATION OF COGTA’S MANDATE The COGTA Ministry comprises the Department of Cooperative Governance and the Department of Traditional Affairs Key elements and Constitutional foundations of CoGTA’s mandate:  System of Cooperative Government (Chapter 3 of the Constitution);  Bill of Rights (Chapter 2);  Provinces (Chapter 6 of the Constitution);  Local Government (Chapter 7 of the Constitution); &  Traditional Leaders (Chapter 12 of the Constitution). 3

4. CONSTITUTIONAL FOUNDATION OF COGTA’S MANDATE System of Cooperative Government: Chapter 3 [section 40 (1)] of the Constitution constitutes government as National, Provincial and Local spheres, which are distinctive, inter-dependent and interrelated; Collaboration between and among national departments, provincial departments and municipalities is crucial:  Section 40 (2) enjoins all spheres of government to observe and adhere to the principles of cooperative government and intergovernmental relations set out in section 41;  Chapter 7 [section 151(1)] provides for the establishment of municipalities for the whole of the territory of the Republic;  Section 154 (1) of the Constitution obliges National and Provincial government to support and strengthen the capacity of municipalities to manage their own affairs, to exercise their powers and perform their functions”. 4

5. CONSTITUTIONAL FOUNDATION OF COGTA’S MANDATE The mandate of the Department of Traditional Affairs is derived from: Sections 211 and 212 of the Constitution which stipulates that:  “The institution, status and role of traditional leadership, according to customary law, are recognized, subject to the Constitution”;  “National legislation may provide for a role for traditional leadership as an institution at local level on matters affecting local communities”. Section 30 of the Constitution, on Language and Culture: “everyone has the right to use the language and participate in the cultural life of their choice, but no-one exercising these rights may do so in a manner inconsistent with any provision of the Bill of Rights.” Section 31 of the Constitution on Cultural, Religious and Linguistic Communities: “persons belonging to a cultural, religious or linguistic community may not be denied the right, with other members of that community to enjoy their culture, practice their religion and use their language; to form; join or maintain cultural, religious and linguistic associations and other organs of civil society.” 5

6. Constitutional Foundation of COGTA’s mandate Local government at coalface – at the service of citizens The Constitution defines the Republic of South Africa as one, sovereign, democratic state founded on, among others, the following values: o Human dignity, the achievement of equality and the advancement of human rights and fundamental freedoms; The Constitution contains a Bill of Rights which reaffirms the democratic values of human dignity, equality and freedom; The Bill of Rights provides everyone with, among others, the right to human dignity and an environment that is not harmful to their health and wellbeing, and access to water and adequate housing. The Constitution enjoins the State to respect, protect and fulfil the rights in the Bill of Rights. 6

7. LEGISLATIVE MANDATE OF COGTA DEPARTMENT OF COOPERATIVE GOVERNANCE DEPARTMENT OF TRADITIONAL AFFAIRS Municipal Property Rates Act, 2004The Traditional Leadership and Governance Framework Act, 2003 The Intergovernmental Relations Framework Act, 2005 The National House of Traditional Leaders Act, 2009 Local Government Municipal Structures Act, 1998 Local Government Municipal Finance Management Act, 2003 Local Government Municipal Systems Act, 2000 Disaster Management Act, 2002 CoGTA will give effect to it’s mandate through the development of policies and legislation with regard to local government and traditional leaders within the legislative framework that includes: 7

8. COGTA’S MANDATE AS A MINISTRY As the Ministry of CoGTA our primary mandate is to: Develop and monitor the implementation of national policy and legislation seeking to transform and strengthen key institutions and mechanisms of governance to fulfill their developmental role. Develop, promote and monitor mechanisms, systems and structures to enable integrated service delivery and implementation within government. Promote sustainable development by providing support to and exercising oversight over provincial and local government.. 8

9. Fiscal Challenges in Municipalities and Support/Interventions in relations the instruments administered by the Department Part 2: Fiscal Investment and Challenges

10. OUTLINE OF PRESENTATION 1. Introduction 2. Constitutional Provisions 3. Equitable Share to municipalities per province 4. Municipal Infrastructure Grant per province 5. MIG Expenditure 6. Debt Management 7. Challenges faced by municipalities 8. MISA role in addressing the challenges 9. Audit outcomes for municipalities 10. Interventions/Actions planned 11. Conclusions 10

11. INTRODUCTION We will seek to provide a summary of the investment that flows directly and indirectly to municipalities aggregated per province. We will also provide some of the challenges experienced in the implementation of fiscal instruments that we administer and how these are mitigated through MISA. We will look at the Debt owed to municipalities by Households, Business, Government and others aggregated per province We will also provide audit outcomes summary for the last four financial years and the plans to support municipalities to improve on their audit outcomes. The audit outcomes of the 12/13 financial year will not be in the presentation because AGSA is releasing them at of July 2014 11

12. Constitutional Provisions Section 214 provide for the equitable shares and allocations of revenues raised nationally These revenues are shared or distributed conditionally or unconditionally through the Division of Revenue Act which is passed annually Section 227(1) of the Constitution provides for the entitlement of provinces and LG to the equitable share of national raised revenue. This is so to enable it to provide basic services and perform functions allocated to it. Section227(1)(b) further provides for allocations that may be received from national government revenue, either conditionally or unconditionally LG receives, among others, the LGES and the Municipal Infrastructure Grant, with the later being conditional 12

13. The Intergovernmental Fiscal System Chapter 13 of the Constitution sets out the guiding principles on intergovernmental financial matters including treasury control, the equitable division of revenue between the 3 spheres of government and the fiscal powers of provincial and local government among other matters. The South African Intergovernmental Fiscal System has been in place now for the past 18 years. It must be mentioned that the current system allocate almost 9% of nationally raised revenue to LG and around 90% is shared between national government and provincial governments Some commentators are of the view that the system has matured and needs minor adjustments to address some of its rigidities. There is also a contrary view that suggests that the system served South Africa well during its transitional phase and needs a thorough review 13

14. Principles guiding the Intergovernmental Fiscal System The system should be consistent with the Constitution; The system should be clear, consistent and stable; The system should be implementable and administratively practical; Powers and functions should be aligned to expenditure responsibilities; The system should allow for ease of regulation and oversight; and Provision must be given to essential or basic services. 14

15. CONDITIONAL GRANTS ALLOCATION TO MUNICIPALITIES OVER THE MTEF 15 GRANT2014/15 (R’000)2015/16 (R’000)2016/17 (R’000) Municipal Infrastructure Grant 14 683 83515 098 07015 766 819 Integrated City Development Grant 255 000 266 000 292 950 Urban Settlement Development Grant 10 284 68410 654 77311 231 861 Neighbourhood Development Partnership Grant (Capital grant) 591 179 600 000 631 800 Public Transport Infrastructure Grant 4 968 0295 097 8815 104 052 Rural Household Infrastructure Grant 47 624 51 000 124 599 Rural Roads Asset Management Grant 75 223 97 763 102 944 Integrated National Electrification ( Municipal )Programme 1 104 6582 056 0902 165 063 Municipal Water Infrastructure Grant (SCHEDULE 5) 534 1501 380 2051 302 002 Municipal Disaster Recovery Grant 37 302 21 805 Regional Bulk Infrastructure Grant 3 986 8964 221 6544 623 602 Integrated National Electrification ( Eskom)Programme 2 948 0373 680 0433 875 085 Neighbourhood Development Partnership Grant (Technical Assistance) 58 300 55 000 52 000 Rural Households Infrastructure Grant 65 500 67 328 Municipal Water Infrastructure Grant (SCHEDULE 7) 524 8261 291 7291 511 545 TOTAL (Rounded figures) 40 165 00044 639 00046 784 000

16. LG EQUITABLE SHARE ALLOCATION OVER THE MTEF PROVINCE2014/15 (R’000)2015/16 (R’000)2016/17 (R’000) TOTAL PER PROVINCE(R’000) Eastern Cape 6 858 7777 758 1457 953 651 22 570 573 Free State 3 324 6043 403 2693 340 251 10 068 124 Gauteng 7 734 3338 499 0299 324 909 25 558 271 Kwazulu Natal 8 653 0449 868 16810 353 912 28 875 124 Limpopo 5 843 6016 957 2007 327 712 20 128 513 Mpumalanga 3 995 9374 514 0854 747 032 13 257 054 Northern Cape 1 266 1681 373 6511 405 426 4 045 245 North West 3 751 3724 301 5904 528 631 12 581 593 Western Cape 3 062 3093 532 5613 887 182 10 482 052 TOTAL (ES) 44 490 00050 208 00052 869 000 147 567 000 MUNICIPAL GRANTS (TOTAL) 40 165 00044 639 00046 784 000 131 588 000 TOTAL (ES & GRANTS) 84 655 00094 847 00099 653 000 279 155 000 16

17. MUNICIPAL INFRASTRUCTURE GRANT (MIG) ALLOCATION TO MUNICIPALITIES OVER THE 2014 MTEF PROVINCE2014/15 (R’000)2015/16 (R’000)2016/17 (R’000)TOTAL PER PROVINCE(R’00 0) Eastern Cape 2,916,227 3,022,805 3,158,498 9,097,530 Free State 813,654 724,060 754,408 2,292,122 Gauteng 453,318 461,648 482,230 1,397,196 Kwazulu Natal 3,207,141 3,322,553 3,468,354 9,998,048 Limpopo 3,064,058 3,202,931 3,350,444 9,617,433 Mpumalanga 1,707,250 1,766,529 1,847,404 5,321,183 Northern Cape 450,944 452,351 467,659 1,370,954 North West 1,598,850 1,658,492 1,733,431 4,990,773 Western Cape 472,393 486,701 504,391 1,463,485 TOTAL (MIG) 14,683,835 15,098,070 15,766,819 45,548,724 17

18. MUNICIPALITIES’ PROJECTED OWN REVENUE(OPERATING) 2014/15 FINANCIAL YEARS 18 PROVINC E Billed Property Rates Billed Service Charges Electricity Billed Service Charges Water Billed Service Charges Waste water Mng Billed Service Charges Waste Mng Billed Service Charges Other Other Revenue Total Revenue Eastern Cape 2,664,310 6,040,241 1,546,675 833,982 621,733 433,310 3,918,798 16,059,049 Free State 1,492,572 4,889,730 1,514,124 580,676 460,338 67,426 2,477,669 11,482,536 Gauteng 17,273,372 40,793,78 5 12,143,168 4,818,729 3,709,880 607,932 8,683,585 88,030,451 Kwazulu Natal 8,395,219 16,490,61 0 4,618,993 1,300,222 962,310 220,371 4,917,087 36,904,812 Limpopo 903,973 2,325,449 766,666 165,241 175,494 55,107 1,132,923 5,524,853 Mpumalanga 1,293,282 2,596,181 847,257 261,385 346,589 19,614 1,107,219 6,471,527 Northern Cape 1,215,561 3,379,848 1,247,141 444,461 359,480 199,645 1,377,446 8,223,581 North West 727,361 1,541,233 544,479 214,222 178,953 62,633 452,284 3,721,165 Western Cape 7,798,393 15,283,82 3 3,803,554 2,018,288 1,528,748 271,663 4,793,357 35,497,826 TOTAL 41,764,042 93,340,90 0 27,032,058 10,637,206 8,343,525 1,937,701 28,860,367 211,915,8 00

19. MUNICIPALITIES’ PROJECTED OWN REVENUE (OPERATING) 2015/16 FINANCIAL YEARS 19 PROVINCE Billed Property Rates Billed Service Charges Electricity Billed Service Charges Water Billed Service Charges Waste water Mng Billed Service Charges Waste Mng Billed Service Charges Other Other Revenue Total Revenue Eastern Cape 2,891,774 6,508,968 1,703,016 922,717 687,011 468,449 4,119,115 17,301,050 Free State 1,598,981 5,364,629 1,633,915 622,629 492,280 81,200 2,639,414 12,433,048 Gauteng 18,660,855 44,384,853 13,138,246 5,146,789 3,995,851 647,854 9,203,321 95,177,769 Kwazulu Natal 8,918,765 17,887,578 4,917,231 1,404,947 1,034,569 235,713 5,252,274 39,651,076 Limpopo 960,040 2,499,391 815,789 179,444 186,147 56,301 1,069,690 5,766,801 Mpumalanga 1,393,632 2,680,218 986,772 313,799 382,021 20,655 1,213,320 6,990,418 Northern Cape 1,291,116 3,621,624 1,334,058 471,057 380,635 210,439 1,344,478 8,653,407 North West 785,089 1,661,912 583,142 225,937 192,719 29,618 475,254 3,953,673 Western Cape 8,325,126 16,607,118 4,175,881 2,216,853 1,661,531 294,956 5,064,117 38,345,583 TOTAL 44,825,377 101,216,291 29,288,050 11,504,172 9,012,764 2,045,185 30,380,984 228,272,823

20. Transfers and own revenues for different types of municipalities, 2012/13 Budgets 20

21. Province Allocated 09/10 (R'000) Expenditure (R'000) Expenditure % Balance Unspent (R'000) Allocated10/ 11 (R'000) Expenditure (R’000) Expenditure % 10/11 Balance Unspent 10/11 (R’000) Eastern Cape1,892,0791,720,89491.0%171,182 2,193,444 2,085,65395.09% 107,791 Free State793,030683,38186.2%109,646 869,071 754,00186.76% 115,070 Gauteng283,204219,97377.7%63,233 379,349 326,51486.07% 52,835 KwaZulu Natal1,872,2141,827,92997.6%44,317 2,160,896 1,954,58490.45% 206,312 Limpopo1,465,2221,402,97095.8%62,250 1,688,104 1,358,28080.46% 329,824 Mpumalang a928,752734,14179.0%194,610 978,689 799,63881.71% 179,051 Northern Cape335,710241,43871.9%94,271 353,286 275,01377.84% 78,273 North West896,277708,91079.1%187,369 989,881 680,62968.76% 309,252 Western Cape272,185 100.0%0 312,086 311,60999.85% 477 TOTAL8,738,6727,811,82189.4%926,878 9,924,806 8,545,92286.11% 1,378,884 National Overview of MIG expenditure 2009/10-2010-11

22. National Overview of MIG expenditure 2011/12-12-13 PROVINCE Allocated 11/12 (R'000) Expendit ure to date (R'000) Expenditur e as % allocation Balance Unspent (R'000) Allocated 12/13 (R'000) Expenditur e (R'000) Expenditur e as % allocation Balance Unspent (R'000) Eastern Cape 2,405,727 2,019,91983.96% 385,807 2,918,290 2,580,72788.43% 337,563 Free State 841,111 767,14891.21% 73,962 1,020,313 964,52794.53% 55,786 Gauteng 399,532 317,71579.52% 81,816 484,655 446,99492.23% 37,661 KwaZulu Natal 2,598,937 2,181,93783.95% 416,998 3,152,666 2,897,79291.92% 254,874 Limpopo 2,030,304 1,485,01373.14% 545,289 2,462,883 1,479,42460.07% 980,988 Mpumalang a 1,177,082 873,07074.17% 304,009 1,427,874 982,95168.84% 444,922 Northern Cape 424,909 299,60270.51% 125,301 515,429 381,21873.96% 134,211 North West 1,190,545 931,27878.22% 259,267 1,444,203 1,130,01478.24% 314,189 Western Cape 375,358 372,73699.30% 2,622 455,320 100.00% 0 TOTAL 11,443,505 9,248,41880.82% 2,195,071 13,881,633 11,318,96781.54% 2,560,194

23. 2013/14 MIG EXPENDITURE AS AT END MAY 2014 Province Allocated (R'000) Transferred to date (R’000) Expenditure to date (R’000) Expenditure as % allocation Expenditure as % transferred Balance Unspent (R’000) Eastern Cape 2,952,906 2,474,25683.79% 478,650 Free State 968,682 805,32183.14% 163,361 Gauteng 456,461 333,78173.12% 122,680 KwaZulu Natal 3,193,259 2,586,05480.98% 607,205 Limpopo 2,650,869 1,659,50562.60% 991,364 Mpumalanga 1,565,716 1,145,33273.15% 420,384 Northern Cape 499,123 322,26464.57% 176,859 North West 1,481,743 1,094,073 73.84% 387,670 Western Cape 455,688 346,97976.14% 108,709 TOTAL 14,224,447 10,767,56575.70% 3,456,882 23

24. MIG expenditure comparison The MIG expenditure over the past four financial years has been always been above 80% The MIG allocation quantum has been increasing over the years and the balance unspent has always been an issue of concern; The support initiatives like Siyenza manje were introduced to support municipalities Challenges contributing to under-expenditure were identified-which will be outlined in the slides below The establishment of a Special Purpose Vehicle to support municipalities to spend on their infrastructure was muted around 2009 and culminated in the establishment of MISA 24

25. Lack of municipal readiness to address extension of basic services to areas where there are no services, especially with regards to project prioritisation and registration. Lack of information regarding basic services backlogs per ward/village in targeted municipalities. Non-functional water schemes, resulting to inconsistence water supply. Outdated sector plans to direct future MIG and other funds to areas of high priorities. Poor project preparation and packaging to achieve efficiency and attraction of alternative funding Lack of contract and project management skills Poor financial management threaten the sustainability and viability of most municipalities. Poor Supply Chain Management Processes with regard to procurement leading to delays in project implementation and poor spending on infrastructure grants Lack of infrastructure asset management practices in particular, GRAP 17 asset registers MIG expenditure challenges which were further confirmed by the diagnostic conducted by MISA 2015/07/02 25

26. Overloaded Waste Water Treatment Works that require refurbishment Urgent need for road classification Deteriorated road conditions on both municipal and provincial roads Landfill sites not licensed and the Municipalities require support with the licensing process. Municipalities requires assistance with the development of operations and maintenance plans High water and electricity losses due to illegal connections, vandalism of infrastructure assets and problematic billing systems MIG expenditure challenges which were further confirmed by the diagnostic conducted by MISA 2015/07/02 26

27. Severe lack of skilled personnel in infrastructure and service delivery units. Lack of credible Master Plans for the development of service delivery infrastructure. Inadequate focus on maintenance and operations of existing infrastructure remains a huge problem across the board. Municipalities unable to attain blue drop and green drop certification. Lack of implementation of municipal by laws Prevalent governance problems affecting service delivery MIG expenditure challenges which were further confirmed by the diagnostic conducted by MISA 2015/07/02 27

28. MISA’s Role and Responsibility in relation to challenges identified 2015/07/02 28 Flowing from the mandate, MISA’s primary role and responsibilities are: To support municipalities to conduct effective infrastructure planning; To support and assist with the delivery of infrastructure in municipalities; To support and assist with operation and maintenance of infrastructure in municipalities; and To build the capacity of municipalities to undertake effective planning, delivery, operations and management of municipal infrastructure

29. MISA support initiatives We are currently through MISA, providing support to 121 municipalities in the country. Of these, a total of 92 municipalities are from the 108 municipalities approved by Cabinet and an additional 29 municipalities identified by provinces. We have 69 Technical Consultants across municipalities 63 of which are allocated within provinces, A total of 33 PSPs are currently supporting 92 municipalities on various areas of infrastructure planning, development and management. We have noticed that there are a number of interdependencies that require attention for municipalities to be able to effectively spend, like skills, governance aspects relating to proper oversight, recruitment practices etc 29

30. CURRENT AREAS OF SUPPORT TO MUNICIPALITIES PER PROVINCE Municipalities Kind of Support 1.Eastern Cape: Alfred Nzo DM, Ntabankulu, Joe Gqabi DM, Gariep, OR Tambo DM, Port St. Johns, Mhlontlo, KSD, Chris Hani DM, Engcobo, Emalahleni, Sakhisizwe, Amathole, Nxuba, Mbashe, Kouga, Blue Crane, Great Kei, Sundays River, Makana, Koukama, Mbizana, NMBM PMU and Project Management Support to fast track MIG expenditure Contract Management, O&M Support Basic Water & Sanitation Services Support Audit of existing infrastructure projects. Spatial Development Plan Reviews 2. Free State: Mohokare, Naledi, Letsemeng, Kopanong, Tokologo, Masilonyana, Nala, Phumelela, Setsoto, Ngwathe, Maluti-a-Phofung. PMU and Project Management Support O&M Support Unlocking funds for bulk water projects, Water Conservation and Water Demand Management Blue & Green Drop Assessments Design & Construction 2015/07/02 30 MISA is providing technical support to municipalities in key areas of infrastructure planning, implementation, operations and / maintenance including strategic integrated planning, as indicated below :

31. CURRENT AREAS OF SUPPORT TO MUNICIPALITIES PER PROVINCE MunicipalitiesKind of Support 3. Gauteng: Westonaria, Randfontein, Merafong, Emfuleni, Lesedi, Sedibeng DM Integrated Asset Management Support Water & Electricity Loss Reduction Strategies O&M Support Development of Dolomite Risk Management Strategy (Merafong) Bucket System Eradication - 58 hh in Lesedi 4. KwaZulu-Natal: Ugu DM, Umgungundlovu DM, Msunduzi, Mkhambathini, Uthukela DM, Okhahlamba, Imbabazane, Zululand DM, Uphongolo, Umkhanyakude DM, Big Five False Bay, Umhlabuyalingana, Jozini, Mtubatuba, Uthungulu DM, Mthonjaneni, Ilembe, Ndwedwe, Maphumulo, Sisonke DM, Umzimkhulu, Amajuba DM, Umzinyathi DM PMU and Project Management Support Bulk Water Supply – Planning & Construction of Regional Water Scheme Exploration and development of boreholes for water extraction Maintenance and refurbishment of water purification works Revamping of ageing infrastructure Dalton Dam Construction Operations & Maintenance Support SCM Policy Review 2015/07/02 31

32. CURRENT AREAS OF SUPPORT TO MUNICIPALITIES PER PROVINCE MunicipalitiesKind of Support 5. Northern Cape: Renosterberg, Siyancuma, John Taolo, Ga-Segonyana, Joe Morolong, Gamagara, Khai Mai, Kamiesberg PMU Support Land-use Management Systems Asset Management Support SCM Systems, Complaints Management System Funding Model for Waste Water-Roads- Electrical-Water Infrastructure O&M Support Infrastructure Master Plans to ensure sustainable infrastructure development Spatial Development Framework IDP Assessments 6. Western Cape: Swellendam, Kannaland, Berg Rivier, Cederberg, Witzenberg, Prince Albert PMU and Project Management Support (Multiple Infrastructure Projects under implementation), O&M Support, Integrated Regional Waste Management Plan Asset Management Planning Infrastructure Funding Models 2015/07/02 32

33. CURRENT AREAS OF SUPPORT TO MUNICIPALITIES PER PROVINCE MunicipalitiesKind of Support 7. Limpopo: Lephalale, Tubatse, Musina, Makhado, Ba-Phalaborwa, Tzaneen, Elias Motsoaledi, Maruleng, Sekhukhune DM, Mopani DM, Vhembe DM, Capricorn DM Letaba, Fetakgomo, Ephraim Mohale PMU and Project Management Support Asset Registers and Asset Management Support O&M Support Water Conservation Demand Management Water & Sanitation Policies and SLAs 8. Mpumalanga: Thaba Chweu, Nkomazi, Dr JS Moroka, Thembisile Hani, Chief Albert Luthuli, Dr Pixley Ka Isaka Seme, Mkhondo, Bushbuckridge, Dipaleseng, Goven Mbeki, eMalahleni, Lekwa PMU and Project Management Support Energy Master Plans Roads and Storm Water Master Plans Integrated Waste management Plans Dolomite Risk Strategies, Water and Sanitation Asset registers Environmental Impact Assessments Geo-technical Studies By-laws (Technical and Town Planning) 2015/07/02 33

34. CURRENT AREAS OF SUPPORT TO MUNICIPALITIES PER PROVINCE MunicipalitiesKind of Support 9. North West: Tswaing, Ratlou, Moretele, Kgetleng Rivier, Mamusa, Moses Kotane, Madibeng, Ventersdorp, Dr Ruth Mompati DM, Lekwa- Teemane, Ngaka Modiri Molema DM PMU and Project Management Infrastructure Asset Management Integrated Waste Management System Develop Fleet Management System Operations & Management Support 2015/07/02 34

35. MUNICIPAL DEBTORS 35

36. Consumer debt Aggregate municipal consumer debts were R93.4 billion as at 31 March 2014. This is R0.1billion more than the R93.3 billion reported at 31 December 2013. Government’s share of the outstanding debtors represent 4.3 per cent or R4.1 billion. The largest component relates to households which accounts for 61.5 per cent or R57.5 billion followed by commercial or business for 20.7% or R19.3 billion and other category of debtors for 13.4% or R12.5 billion. 36

37. Debtors age analysis by province: March 2014 37

38. Operation Clean Audit 38

39. Background Operation Clean Audit 2014; was launched in 2009 as a specific response programme within the Local Government Turnaround strategy. At the time 86 of the municipalities audited obtained disclaimers for the 2007/8 financial year and another nine municipalities adverse audit opinions. 39

40. Operation Clean Audit milestones The guiding vision for Operation Clean Audit is that by 2014 all municipalities will achieve unqualified audit opinions in their Annual Financial Statements. The programme milestones to realise the 2014 vision for municipalities were fixed as follows: Between 2010 and 2011, no municipality and municipal entity will obtain adverse and disclaimer audit opinions. At least 60% of municipalities and municipal entities will achieve unqualified audit opinions by 2012. There will be an increase in municipalities and municipal entities achieving unqualified audit opinions to at least 75% by 2013. 100% of municipalities and municipal entities will achieve unqualified audit opinions by 2014. 40

41. Current status of audit outcomes The latest audit outcomes for Local Government that have been released by the Auditor General (AG) pertain to the 2011/12 financial year. The AG is finalising the 2012/13 outcomes for release later this year. The 2011/12 outcomes reflect that 48% of municipalities and municipal entities achieved unqualified opinions against the 75% target of 2013. In addition; the adverse audit opinions and disclaimers have not been eliminated. These were set to be eliminated by 2011. Only 3 provinces have managed to reach the 75% target for 2013 ; these are Gauteng, KwaZulu Natal and Western Cape at 84%, 77% and 85% respectively. 41

42. What has been achieved since 2009? Enhancing sound financial management Audit outcomes for the past 4 years indicates a slow uptake from 1 to 9 (3%) out of 278 municipalities receiving Clean Audit outcome for 2008/09 and 2011/12 financial year, respectively. A total of 61 (22%) municipalities have consistently received unqualified audit outcomes over the past 4 years (50% WC, 45% KZN and 41% Gauteng). There is a significant reduction in the number of municipalities receiving disclaimers from 113 to 76 between 2008/09 and 2011/12 financial years. 42 Audit Outcome Changes in the number of audits between 2008/09 to 2011/12 2011/122010/112009/102008/09 Clean AuditImproved by 893%135%62%10% UnqualifiedRegressed by 710939%11541%11943%11642% QualifiedRegressed by 156222%5218%6222%4717% Disclaimer / Adverse Improved by 377627%8832%8631%11341% OutstandingRegressed by 35228%104%52%10%

43. Operation Clean Audit Support On an annual basis after the release of the Local Government audit outcomes by the Auditor General; the Department co-ordinates the development of a standard integrated support plan for Operation Clean Audit. (OPCA) The OPCA plan is developed after the analysis of the annual financial statements and audit outcomes of municipalities; in response to Section 131 of the MFMA. Accordingly; the attached 2013/14 plan (see ANNEXURE A) has been developed and approved by the CoGTA MINMEC for implementation in response to the 2012/13 Local Government Audit outcomes. The provinces share municipal finance support responsibilities which include the activities in the OPCA plan between the Provincial Treasuries and Provincial CoGTA’s The reporting on the implementation of the plan is quarterly to the Premier Co-ordination Forums / Committees; the Provincial MUNIMEC’s as well as a consolidated report to the CoGTA MINMEC. 43

44. Operation Clean Audit Support The key areas of focus in the attached 2013/14 OPCA plan are the following: Actions to ensure that quality AFS are submitted timeously. Actions to ensure that key controls are in place and that corrective measures are implemented to address key control deficiencies. Actions to improve the efficient use of service providers Actions to ensure the development and implementation of audit remedial plans Actions to improve leadership involvement in guiding and directing the implementation of OPCA initiatives Actions to create a platform for consequence management, Actions to improve performance reports Actions to improve asset management, Records management, Supply Chain Management, Unauthorised, irregular, fruitless and wasteful expenditure. Actions to improve Information Technology Controls, Actions to ensure improved HR practises Actions to improve the capacity of DCoG and Provinces to support municipalities. Actions to ensure effective governance - Audit and Public Account Committees 44

45. THANK YOU 45