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
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
SAI Israel - Scope of Audit About 1,500 Audited Bodies The State Economy The Government Offices Property Enterprises, Institutions or Finances Corporations of the State Obligations Local Authorities Administration Other Bodies
The State Comptroller Examines LEGALITY ORDERLY EFFECTIVENESS MANAGEMENT EFFICIENCY ECONOMY MORAL OTHER INTEGRITY MATTERS
Scope of Audit Local Government Bodies Legal Entity Legal Entity Land and Active Every Local Financed by a Urban Through a Authority Local Planning Local Authority Bodies Authority Supervision of the Local Government Audit Division of SAI Israel
The Local Government in Israel One of the Most Important and Influential Public Sector 53 75 128 Regional Municipalities Local Councils Councils 256 Local Authorities
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
Financial and Management Crises of Local Authorities Many Local Authorities have been Facing Financial and Management Crises - Very Large Financial Deficits 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
Financial Crises Affects the Functioning of the Local Authorities Affects the Quality of the Services they Provide to the Residents Leads to Intervention in the Administration of the local Authority Intervention that Violates the Principle of Local Democracy Supervision and Control to Detect as Early as Possible Financial Crises Even Before they are Exacerbated
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
Among the powers available The Power In order to … Use of Power • Appointment of an accompanying Control its expenses • accountant Ensure that the budget is balanced • Check the cash flow • Update on exceptional events • Appointment of a government Collect municipal taxes official • 2004 – 150 Formulation and implementation- Rehabilitate the local authority • 2016 - 50 monitoring of a recovery Ensure that the expenses do not programme exceed the income • Settle past debts • 2013 – 32 Dismissal of the head of the local Replacing them with a committee 2016 - 9 authority and the elected council to administrate the local authority • Imposing a personal charge on In respect of an expenditure from elected officials and employees the local authority's budget that was unlawfully made
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 of the Interior in Relation to Local Authorities - Audited by the Local Government Audit Division of SAI Israel
A Case Study – Taibeh Municipality • About 40,000 residents – 100% Arab • One-third of all local authorities are Arab • Suffered from financial crises and organizational 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)
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
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
Exceptional Situation Provide residents with the The The services Major delay most budgets were in basic used for reduced infrastructure services – covering development No deficits normal life
Audit Actions of SAI Israel • October 2015 – February 2016 • Examined Various Aspects of the Functioning of 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
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)
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
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
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
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
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
Flaws in the Activities of the Appointed Committee Flaw Description • In 2014-2015 the municipality operated 1. Budget Not Approved without an approved budget • Large deviation in expenditures • Ultimately approved by the Ministry of the Interior • The municipality didn’t record all its 2. Lack of registration liabilities in 2013-2015 which were not paid • Its financial reports didn’t reflect its full of obligations financial activity • Effect on the presentation of its deficits
Flaws in the Activities of the Appointed Committee Flaw Description • Between 2009-2014 the debts of the residents 3. Collection of Local increased by – 71% – to 100 million Euro • The rate of the collection – 12% per year Taxes • 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
Flaws in the Activities of the Appointed Committee Flaw Description • In 2014 – Erased 8 million Euro 4. Erasing • Without authority and approval of the resident’s debts Ministry of the Interior – Violation of the law • 2007 – Feb. 2016 Without : Internal auditor , 5. Lack of control Ombudsman and Council’s audit committee • The checks and balances – were broken mechanisms • Several workers appointed in improper 6. Appointment of employees procedures • Without the approval of the ministry of the Interior
Flaws in the Activities of the Appointed Committee Flaw Description • Contracted with consultants and suppliers 7. Engagements with without a competitive process consultants • Harms the public’s trust and raises suspicion and suppliers of bias in their selection • Agreements: Without written consents , singed retroactively and without main details
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