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Karel van der Molen

INSTITUTE OF MUNICIPAL PEOPLE PRACTITIONERS OF SOUTHERN AFRICA34th International Conference

Consequence ManagementThe very sharp teeth behind the legislation

OTTFFWhat is the next letter?

Financial misconduct –news reports

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Dr Ivan Meyer's Speech - IIASA (Western Cape Regional) Conference 201711 October 2017

Current media reports paint a gloomy picture of wanton corruption, lawlessnessand thievery and the response is where are the checks and balances? This questionis echoed in comments made by the AGSA, Mr Kimi Makwetu in which hehighlights the importance of accountability in the management of municipalaffairs, starting with […] supervision that will ensure proper financial andperformance management. He also mentions respect for the law in the running ofmunicipalities, monitoring by all political and administrative leadership that budgetand performance targets are appropriately achieved, and that there areconsequences for mismanagement and non-performance.Many of you are the keys drivers in ensuring resilient processes that preventmisuse (corruption) and theft of Provincial resources (inclusive of on localgovernment level). [Management must] design controls to mitigate the risks andensure the implementation and continued performance of those controls. Properconsequence management where there is deviation from the system of internalcontrol. Display zero tolerance to fraud and corruption to extent that peoplebelieve that reporting of fraud and corruption will have positive outcomes. Goodwins over evil.

Western Cape municipalities rack up R173 million in irregular spending17 AUGUST 2018Cape Town - The City of Cape Town has incurred R47 million in irregular spending,topping the list of three municipalities in the province that have together spentR173m in 2016/17 without following the legal prescript.The irregular expenditure in the Western Cape has decreased by R1m from 2015/16when it was R174m, but the auditor-general (AG) pointed to the City’s weaknessesin consequence management and revenue management and political instability insmaller municipalities. The main contributors to irregular expenditure were the City ofCape Town (R47m), (ANC/KDF-run) Beaufort West (R36m) and (DA) Eden District(R32m). And R163m of the total irregular expenditure amount related to non-compliance with supply chain management (SCM) regulations.“The overall regression can be attributed to some municipalities not taking ourmessages and recommendations seriously as well as not demonstrating the requiredlevels of accountability and governance. Three municipalities lost their clean auditstatus […] due to material non-compliance with SCM regulations at all threemunicipalities, irregular expenditure not being prevented at Bitou, and weaknessesin consequence management” said Sharonne Adams. Cape Argus

Mokgoro tries to plug leaks26 AUGUST 2018North West Premier Job Mokgoro’s decision to place several local municipalities,including the capital city’s Mahikeng Local Municipality, under administration hassparked mixed reactions.Mokgoro placed seven local municipalities and one of the biggest districtmunicipalities, Ngaka Modiri Molema District Municipality, under administration onWednesday, citing lack of governance.The DA weighed in, asking the premier to consider firing his MEC of Local GovernmentFenny Gaolaolwe and Finance MEC Wendy Nelson.Sanco North West provincia chairperson Paul Sebegoe said placing the municipalitiesunder provincial administration without implementing consequencesmanagement would be “a waste of time and resources”. The civic organisationnoted that wasteful and fruitless expenditure had increased from R3.19billion toR4.29bn at municipal level during the 2016/17 financial year.He said failure by all municipalities in the province to achieve clean audit outcomeswas a manifestation of bigger challenges of alleged looting and a collapse ofgovernance.He said there was an urgent need to review long-term contracts, bid processes,financial system and business models in these municipalities that allegedly “promotedcorrupt practices”. The Sunday Independent

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Auditor General: Irregular spend at “all-time high”8 October 2018 Auditor General Kimi Makwetu has lamented poor financial controls in the publicsector that lead to irregular expenditure, saying the scourge has reached an "all-timehigh".Speaking at The Banking Summit, Makwetu said the rising rate of irregularexpenditure called for stricter regulation that would empower his office to dealmore harshly with transgressors and help boost compliance."There is a glaring absence of consequence for all wrongdoing, which has givenrise to calls to expand the mandate of the Auditor General," he told delegates.According to Makwetu, irregular expenditure at local government accelerated fromR4bn in 2010/11 to more than R16bn in the 2016/2017 financial year.In his 2016/17 report, the Auditor General revealed that only 33 municipalities out of257 had managed to produce financial statements and performance reports of anacceptable standard, and received clean audits. Only 22% of municipalities managedto provide financial statements without material misstatements.

Mail & Guardian

Treasury and auditor-general join forces to cut wasteful expenditure in municipalities 24 October 2018 The Treasury will work with the office of the auditor-general to reduce wasteful,irregular and unauthorised expenditure in municipalities, finance minister TitoMboweni said on Wednesday. He also urged law enforcement agencies to actagainst those implicated in wrongdoing.Auditor-general Kimi Makwetu announced in May that audit outcomes inmunicipalities have continued to regress, with irregular, fruitless and wastefulexpenditure ballooning more than 70% for the 2016/2017 financial year. Irregularexpenditure specifically increased 75% to R28.4bn in 2016/17, up from R16bn in2015/16. Mboweni said in his maiden medium-term budget policy statement inparliament that this is the first step to strengthen financial management in thegovernment. The second step is the deployment of skilled professionals atlocal government level to boost revenue collection and attain developmentalobjectives.“Many of these are retirees that have heard the president’s ‘thuma mina’ call,”Mboweni said, referring to the call to action President Cyril Ramaphosa madeduring his state of the nation address in February. Business Day

Why Consequent Management?

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• Loss of monies• No funds for essential and other services• Loss of confidence in municipality• Loss of confidence in other state institutions• Irregular and unauthorised expenditure• Poor Auditor-General reports• Failure to take action against implicated persons• Others?

What are the effects of financial misconduct and poor Consequence Management practices?

• Lack of proper knowledge, skills and capacity• Non-compliance with legislation, regulations andpolicy• Lack of understanding of the processes andprocedures• Failure to timeously appoint the Disciplinary Board• Failure to report to Provincial Treasury• Failure to elicit assistance from Provincial Treasury• Inadequate planning• Failure to adequately investigate financialmisconduct• Others?

What causes these adverse effects?

Consequence Management and the law

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Legislative framework • Constitution of the Republic of South Africa• White Paper on Transforming Public Service Delivery, 1997• White Paper on Local Government, 1998• Local Government: Municipal Structures Act (Act 117 of 1998)• Local Government: Municipal Systems Act (Act 32 of 2000)• Local Government: Municipal Finance Management Act (Act 56 of 2003)• Promotion of Administrative Justice Act (Act 3 of 2000)• Promotion of Equality and the Prevention of Unfair Discrimination Act (Act4 of 2000)• Protected Disclosures Act (Act 26 of 2000)• Prevention and Combating of Corrupt Activities Act (Act 12 of 2004)• Municipal Regulations on Financial Misconduct and Criminal Proceedings(2014)• MFMA Circular 68• MFMA Circular 76• SALGA Guideline Document on the Roles and Responsibilities ofCouncillors, Political Structures and Officials• Code of Conduct for Municipal Officials• Code of Conduct for Municipal Councillors

Section 195 (1)Public administration must be governed by the democratic values and principlesenshrined in the Constitution, including the following principles:a) A high standard of professional ethics must be promoted and maintained.b) Efficient, economic and effective use of resources must be promoted.c) Public administration must be development-oriented.d) Services must be provided impartially, fairly, equitably and without bias.e) People’s needs must be responded to, and the public must be encouraged toparticipate in policy-making.f) Public administration must be accountable.g) Transparency must be fostered by providing the public with timely, accessible andaccurate information.h) Good human-resource management and career-development practices, tomaximise human potential, must be cultivated.i) Public administration must be broadly representative of the South African people,with employment and personnel management practices based on ability, objectivity,fairness, and the need to redress the imbalances of the past to achieve broadrepresentation.

The ConstitutionBasic values and principles governing public administration

• Section 40(1):National, provincial and local spheres of government aredistinctive, interdependent and interrelated - principles of co-operative government

• Section 41:– fostering friendly relations– assisting and supporting one another– informing one another– consulting one another on matters of common interests– co-ordinating their actions and legislation with one another– avoiding legal proceedings against one another

The ConstitutionLegislative relationship between three spheres of government

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Financial misconduct –what is it?

(1) The accounting officer of a municipality commits an act offinancial misconduct if that accounting officer deliberately ornegligently …(2) The chief financial officer of a municipality commits an act offinancial misconduct if that officer deliberately or negligently …(3) A senior manager or other official of a municipality exercisingfinancial management responsibilities and to whom a power orduty was delegated in terms of section 79, commits an act offinancial misconduct if that senior manager or officialdeliberately or negligently …(4) A municipality must -(a) investigate allegations of financial misconduct …(b) if the investigation warrants such a step, institute disciplinaryproceedings …

Financial misconduct by municipal officials –Section 171 of the MFMA

(1) The accounting officer of a municipal entity commits an act offinancial misconduct if that accounting officer deliberately ornegligently …(2) The chief financial officer of a municipal entity commits an act offinancial misconduct if that officer deliberately or negligently …(3) A senior manager or other official of a municipal entity exercisingfinancial management responsibilities and to whom a power orduty was delegated in terms of section 106, commits an act offinancial misconduct if that senior manager or officialdeliberately or negligently …(4) A municipal entity must -(a) investigate allegations of financial misconduct …(b) if the investigation warrants such a step, institute disciplinaryproceedings …

Financial misconduct by officials of municipal entities –Section 172 of the MFMA

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• Section 173 – Offences:If a financial offence committed by any person i.t.o. section 173of the Act, such offence MUST be reported to SAPS• Section 174 – Penalties:A person is liable on conviction of an offence in terms ofsection 173 to imprisonment for a period not exceeding fiveyears or to an appropriate fine determined in terms ofapplicable legislation

Criminals proceedings

MFMA Circular 68

May 2013

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• The questions to be asked when dealing with theauthorisation of unauthorised expenditure• The adjustments budgets to authoriseunauthorised expenditure• The recovery of unauthorised expenditure• The writing off of irregular expenditure• The ratification of minor breaches of theprocurement process

Circular 68 – processes and procedures

• Disciplinary charges for irregular expenditure• Criminal charges arising from an act of irregular expenditure• Recovery of irregular expenditure• Processes to respond appropriately to fruitless and wasteful expenditure• Register of unauthorised, irregular, fruitless and wasteful expenditure• The reporting to the mayor, the MEC for local government in the province, the Auditor-General, disclosed in the annual report, and to council

Circular 68 – what to do when

Municipal Regulations on Financial Misconduct Procedures and Criminal Proceedings

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May 2014

• Municipal Regulations on Financial MisconductProcedures and Criminal Proceedings• Government Gazette No. 37682 (30 May 2014)• Supports measures to expeditiously addressfinancial misconduct and mismanagement• Four chapters• Definitions:

o designated officialo disciplinary boardo financial misconducto financial offenceo investigator

An overview

• Municipal council or board of directors of amunicipal entity must establish a disciplinaryboard to investigate allegations …… and monitorthe institution of disciplinary proceedings

Regulation 4

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• Independent advisory body• Assists the council or the board of directors withthe investigation of allegations of financialmisconduct• Must provide recommendations on further stepsto be taken regarding disciplinary proceedings• Or any other relevant or appropriate steps to betaken

Disciplinary Board

If a municipality or municipal entity does not havesufficient capacity to establish a disciplinary board,a disciplinary board established by a districtmunicipality or an equivalent provincial or nationalstructure established for a similar purpose may,with approval of the district municipality orprovincial or national structure, be used as adisciplinary board for the municipality or municipalentity

Disciplinary Board – capacity

MFMA Circular 76

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October 2015

• Complements the Local Government: MunicipalSystems Act, 2000 (Act No 32 of 2000) and regulations• Disciplinary proceedings will be dealt with in terms ofthe Disciplinary Regulations for Senior Managers orthe collective bargaining agreement between theSouth African Local Government Association (SALGA)and relevant municipal unions• All issues that are not covered in the DisciplinaryRegulations for Senior Managers relating to financialmisconduct will be dealt with in terms of theMunicipal Regulations on Financial MisconductProcedures and Criminal Proceedings

Circular 76 - general

• Process initiated before the promulgation of theRegulations• Process to follow after the promulgation of theRegulations• Synergy with other local government reforms• Clarification of overall intention and spirit of theregulations• Clarification of specific provisions within theregulations• Municipal Public Accounts Committee and theDisciplinary Board and other committees withinmunicipalities• Names of provincial officials responsible formonitoring implementation of regulations

Circular 76 - topics

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Circular 76 – the flowcharts (1)

The investigations

• An investigation is:o A systematic process of collecting all and collating allthe relevant and appropriate evidence as quickly aspossibleo An assessment of all the evidence looking to theissues which have raisedo A determination or conclusion which is both logicaland reasonable flowing from the assessment of theevidence which has been collected

• An investigation is not:o A passive process of complaint and then merelyresponding to the issues raised in the complaint

The investigation – what it is … and not

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The 5W questions:• Why is the investigation necessary?• What facts do we know for certain?• Who is best placed to investigate the circumstances?• When should the investigation take place?• Where should the investigation take place?

The investigation – the 5W approach

So, what are the challenges faced by many municipalities?

• National Treasury MFMA Circular 76 has notbeen adopted• There is no Consequence Management Policy• Lack of proper knowledge and training of whatfinancial misconduct is and understanding theprocess and procedures• Employees are afraid to report financialmisconduct because of the possibleimplications and possible victimisation

The challenges …

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Consolidated general report on the audit outcomesof local government (2011 – 2012):Human resource management and the use of consultants (1)

Consolidated general report on the audit outcomesof local government (2011 – 2012):Human resource management and the use of consultants (2)

So, what must be done?

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• Adopt National Treasury MFMA Circular 76• Draft and adopt a Consequence ManagementPolicy• Appoint a Disciplinary Board• Ensure proper communication with ProvincialTreasury• Provide training for all municipal officials• Provide training for all municipal councillors

The measures …

And the final question –What role do you, as HR practitioners, play in this all-important issue?

Karel van der Molen083 444 5891

kvdm@sun.ac.za

Thank you