Our hero this week is the National Treasury, which, in an unprecedented move, has cut the umbilical cord of funding to a municipality in the northern Free State following its failure to submit financial statements to the Office of the Auditor-General (AG) as required in terms of the Municipal Finance Management Act – for the fourth consecutive year.

The last time the AG was able to audit Nala Municipality’s financial performance was in the 2008/09 financial year. In his latest annual report, Terrence Nombembe, the AG, cited dysfunctional financial systems and the inability of management to implement recommendations he had made in his 2010/11 report to help improve its systems as two of the glaring problems in the municipality.

The Treasury is able to invoke such action under section 216(2) of the Constitution, which says the department is “empowered to stop the transfer of funds to any organ of state that commits a serious or persistent breach of the measures prescribed to promote transparency, accountability and the effective financial management of the economy”.

The first sign of trouble for the administration came when the Treasury issued a statement in September 2012 in which the department said it intended to stop financial transfers to the municipality. For the 2013/14 and 2014/15 financial years, the municipality would have received R205.5-million and R220.7-million, respectively.

“[The] Treasury has given Nala Local Municipality several chances to remedy the situation and tried unsuccessfully to work with the municipality to address its budgeting, financial management and service delivery challenges,” said the statement.

The trouble with Nala

The two towns of Bothaville and Wesselsbron both function as administrative centres in the municipality, with the former serving as the head office.

In a report late last year, the Financial Mail quoted a resident of Monyakeng, a Wesselsbron township, as saying the community’s views of the two towns being amalgamated were not considered, and as a result Bothaville – which has more wards – was favoured by the executive council for its regular meetings. The shuttling back and forth between the two towns, she said, was creating unnecessary costs. She also cited the removal of skilled personnel who worked under the previous administration as another problem.

The current municipal manager, Chris Mokomela, could not answer to these and other allegations when approached by Corruption Watch on Friday. He did say, however, that he would give official comment after a meeting scheduled for 24 January between officials from the municipality and the Treasury.

“We expect that all the allegations of the National Treasury will be put on the table and our discussions will be based on that as well as the findings of the KPMG report,” said Mokomela.

Some of the findings by the AG’s team were:

  • A non-functional financial system, and officials have to rely on the manual documentation of records;
  • No proper leadership culture, resulting in inadequate record-keeping processes which led to the municipality’s inability to prepare financial statements;
  • No information systems audit caused by a breakdown in systems;
  • No improvement in administrative processes, which meant there was no attempt to recover debts; and
  • No billing of customers.

No stranger to controversy

Nala, which falls under the Lejweleputswa region, is no stranger to controversy. Mokomela’s predecessor, David Shongwe, was suspended in early 2012 and later dismissed after findings of corruption were unearthed by auditing firm KPMG in a report commissioned by Finance Minister Pravin Gordhan.

The report investigated allegations of mismanagement and corruption within the council, and also fingered several councillors and other senior officials. Sidwell Nxumalo, who was the technical services manager at the time the report was being compiled, resigned a month before the suspension of Shongwe. He was also fingered in the report.

The Treasury also noted in its statement that there were no other disciplinary measures other than the dismissal of Shongwe, despite the KPMG report implicating officials and councillors.

In its Integrated Development Plan report for the area, the Department of Water Affairs and Forestry (DWAF) also noted several challenges at the municipality, and recommended that they be addressed speedily.

Among these was a lack of a rural development strategy, despite the area being dependent on the agricultural sector for economic growth. Infrastructure development was another challenge, as was lack of interest from businesses to invest in the municipality. From a social development perspective, the lack of funding for projects and poor project management and planning also surfaced in the DWAF report.

Unless the issues raised with Nala are addressed and there is a concerted effort to implement all of KPMG’s recommendations, the suspension will remain in place.

More suspensions expected

Eight other municipalities have also failed to compile and/or submit their annual financial statement to the AG and are at risk of the same fate are:

  • Bela-bela Municipality in Limpopo,
  • Renosterberg Municipality in the Northern Cape
  • Joe Morolong Municipality in the Northern Cape
  • Kai ! Garieb Municipality in the Northern Cape
  • Kgatelopele Municipality in the Northern Cape
  • Mier Municipality in the Northern Cape
  • Kannaland Municipality in the Western Cape, and
  • Swellendam Municipality in the Western Cape.
Excerpt
After years of financial mismanagement and ignoring the requests and orders of the auditor-general, Nala Municipality has been hit where it hurts: the Treasury has cut off funding to the council. For this, the national Treasury is our hero of the week.