[PPT] - Handling and Managing a Municipality in Crisis The Taibeh PowerPoint Presentation

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Handling and Managing a Municipality in Crisis The Taibeh Municipality in Israel

Isam Haskiya

Deputy Director of Audit Department B Local Government Audit Division

EUROSAI TFMA Seminar “Local Government Finance: Future Challenges” November 2018

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Structure of the Presentation

Scope of Audit Carried out by SAI Israel
1. Local Government in Israel - Brief Introduction
2. Financial and Management Crises of Local

Authorities

3. Powers of the Ministry of Interior - Deal with

Poorly Functioning Local Authorities

4. Audit Report - Aspects of the Functioning of a

Municipality in Crisis - Taibeh Municipality

5. Summary

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SAI Israel - Scope of Audit

The State

The Government Offices

Enterprises, Institutions or Corporations of the State

Local Authorities Other Bodies

About 1,500 Audited Bodies

Economy Property Finances Obligations Administration

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The State Comptroller Examines

LEGALITY ORDERLY MANAGEMENT ECONOMY OTHER MATTERS MORAL INTEGRITY EFFICIENCY EFFECTIVENESS

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Scope of Audit

Local Government Bodies

Every Local Authority Land and Urban Planning Bodies Legal Entity Active Through a Local Authority Legal Entity Financed by a Local Authority

Supervision of the Local Government Audit Division

f SAI Israel

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The Local Government in Israel

One of the Most Important and Influential Public Sector

128 Local Councils 75 Municipalities 53 Regional Councils

256 Local Authorities

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Local Authorities in Israel

Legal Entities
Local Constituency – As Expressed through Elected

Representatives

Election for Head and Councils Every 5 Years
Perform a Wide Range of Services: Physical,

Educational-Cultural, Social Welfare

Levy Local Taxes and Various Payments for Services
30% - 40% of their Current (Excl. Development and

Projects) Budget – Provided by Government Ministries

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Financial and Management Crises

f Local Authorities

Accumulated Deficits (2016) = 830 million Euro Total Debt (2016) = 4.4 billion Euro 30% of the Total Current Income Indicates Large Debts Difficult for Local Authorities to Fulfill their Duties

Many Local Authorities have been Facing Financial and Management Crises - Very Large Financial Deficits

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Financial Crises

Intervention that Violates the Principle of Local Democracy

Leads to Intervention in the Administration of the local Authority

Affects the Quality of the Services they Provide to the Residents Affects the Functioning of the Local Authorities

Supervision and Control to Detect as Early as Possible Financial Crises Even Before they are Exacerbated

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Powers of the Ministry of the Interior

Annually Appoints Accountants for all the Local

Authorities

Variety of Powers to Deal with a Poorly

Functioning Local Authority, which:

– Deviates from the provisions of the law – Does not fulfill its municipal obligations – Manages a budget with deficit – Does not collect taxes – Does not provide essential services – Does not pay salaries to its employees

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Among the powers available

Use of Power In order to… The Power

Control its expenses
Ensure that the budget is

balanced

Check the cash flow
Update on exceptional events

Appointment of an accompanying accountant

Collect municipal taxes

Appointment of a government

fficial
2004 – 150
2016 - 50
Rehabilitate the local authority
Ensure that the expenses do not

exceed the income

Settle past debts

Formulation and implementation- monitoring of a recovery programme

2013 – 32
2016 - 9
Replacing them with a committee

to administrate the local authority Dismissal of the head of the local authority and the elected council

In respect of an expenditure from

the local authority's budget that was unlawfully made Imposing a personal charge on elected officials and employees

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The Means of Intervention: Prevent Harm to the Residents and to Prevent the Waste of Public Funds

All the Functions Carried out by the Ministry
f the Interior in Relation to Local Authorities -

Audited by the Local Government Audit Division of SAI Israel

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A Case Study – Taibeh Municipality

About 40,000 residents – 100% Arab
One-third of all local authorities are Arab
Suffered from financial crises and
rganizational deficiencies
Lack of resources
Lack of independent sources of Income – 21%

from the total current income – compared to a national average of 58% (in 2014)

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The Municipality of Taibeh

For years characterised by mismanagement Led the State to intervene repeatedly in its administration In 1999 and 2007 the municipality reached a state of insolvency Court Appoint a receiver to arrange the payment of its debts More than 200 million Euro 9 times the municipality's annual budget

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Decade and a Half of State Involvement

Appointing an accompanying accountant
Dispersing the municipal council and

appointing a committee to manage its affairs

Implementation of a recovery program

Its Basic Problems Were Not Resolved

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Exceptional Situation

The services were reduced The budgets used for covering deficits Major delay in infrastructure development Provide residents with the most basic services –

No normal life

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Audit Actions of SAI Israel

October 2015 – February 2016
Examined Various Aspects of the Functioning
f the Taibeh Municipality
Examined the Actions of the Ministry of the

Interior in Rehabilitating the Municipality and Supervising its Activities Audit Report Published in November 2016

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Lack of Infrastructure and Services Water - 2016

65% - 70% of the water supply infrastructure – defective and faulty The residents suffered from water

shortages – especially during summers

Debts in respect of water payments – 8 million Euro (2012 – 2015)

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Lack of Infrastructure and Services Sewage - 2016

40% - 50% of the city’s area

No Sewage Disposal Infrastructure

The residents set up -

Cesspools to remove sewage

Endangered their health Polluting water sources

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Lack of Infrastructure and Services Transportation Infrastructure - 2016

70% of the roads in the city = 70 km

Dirt road No drainage system

Harms the movement of the residents

Especially during winter

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Lack of Infrastructure and Services Industrial Zone

One industrial zone in the city Non-development of new zones

Severe shortage of basic infrastructure

Such as: water, sewage, roads, communications and lighting

One of the barriers to building the city’s growth levers

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Activities of the Central Government

Since 2013 – Special Programs to Taibeh Development, Strengthening and Rehabilitation To Improve its Administrative and Financial Affairs To Enable it to Provide an Adequate Level of Services Special Grant of 53 million Euro: To Cover the Municipality’s Obligations To Implement the Municipality’s Development Plan

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Deficiencies in the Central Government Activities

Many of the Government’s Decisions - Not

Implemented by the Relevant Ministries

Specially the Ministry of the Interior:
1. Didn’t examine the municipality’s financial statements
2. Didn’t build economic growth mechanisms
3. Didn’t implement a organizational rehabilitation plan
4. Didn’t act to plan commercial areas – Economic

anchor in the long term

5. Didn’t fully implement the mechanisms for reporting

and controlling

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Flaws in the Activities of the Appointed Committee

Description Flaw

In 2014-2015 the municipality operated

without an approved budget

Large deviation in expenditures
Ultimately approved by the Ministry of the

Interior

1. Budget Not

Approved

The municipality didn’t record all its

liabilities in 2013-2015 which were not paid

Its financial reports didn’t reflect its full

financial activity

Effect on the presentation of its deficits
2. Lack of

registration

f obligations

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Flaws in the Activities of the Appointed Committee

Description Flaw

Between 2009-2014 the debts of the residents

increased by – 71% – to 100 million Euro

The rate of the collection – 12% per year
A considerable part of the assets - not

charged or charged with underpayment

Didn’t use collection and enforcement

proceedings against those with large debts

The burden on the rest - was increased
The principle of equality - was undermined
Decisions based on extraneous considerations
3. Collection
f Local

Taxes

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Flaws in the Activities of the Appointed Committee

Description Flaw

In 2014 – Erased 8 million Euro
Without authority and approval of the

Ministry of the Interior – Violation of the law

4. Erasing

resident’s debts

2007 – Feb. 2016 Without: Internal auditor,

Ombudsman and Council’s audit committee

The checks and balances – were broken
5. Lack of

control mechanisms

Several workers appointed in improper

procedures

Without the approval of the ministry of the

Interior

6. Appointment
f employees

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Flaws in the Activities of the Appointed Committee

Description Flaw

Contracted with consultants and suppliers

without a competitive process

Harms the public’s trust and raises suspicion
f bias in their selection
Agreements: Without written consents,

singed retroactively and without main details

7. Engagements

with consultants and suppliers

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Summary

Many severe management deficiencies – Even during the period in which the Ministry of the Interior was involved

The Deficiencies Presented Troubling and Disturbing Picture of the Functioning of the Government Ministries The Committee Didn’t Bring about the Needed Change in Norms that Led to the Collapse The Findings Raised Serious Concerns about the chances of success of the recovery plan and the use of the Ministry of the Interior’s Powers

Undermining Local Democracy and Possible Loss of State’s Considerable Financial Investment

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Recommendations

1. To Examine the Activities of the Government

Ministries - Real Recovery and correction in Financial and Organizational Management and a Long-term Adoption of Expected Norms.

2. To

Examine Whether the Government Ministries Developed Long-Term Growth Levers and Balanced Financial Conduct