Municipal Finance Management Act compliance: Phokwane & Renosterberg municipalities

NCOP Finance

13 May 2010
Chairperson: Mr C De Beer (ANC)
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Meeting Summary

The Committee received briefings from Phokwane and Renosterberg Municipalities on their compliance with the Municipal Finance Management Act (MFMA) and their challenges and successes. Both municipalities experienced challenges related to small rural towns such as inadequate revenue streams and lack of capacity and resources. Both also indicated that their salary costs took up a large slice of the budget, and that problems in staffing led to problems in service delivery. 

Phokwane Municipality, although badly affected by recent flooding, was unable to repair its roads as it had only one grader. It also had the challenge that it straddled two provinces, and that many of the agri-industries that supported the area were closing. It was heavily dependent on grants for capital projects. Eskom had refused to electrify some areas that were not fully occupied. However, it had managed to formalise some informal settlement areas, and most residential areas had access to water and electricity, and there was water and sanitation in informal settlements. Phokwane Municipality was attempting to comply with the Municipal Finance Management Act. There was high turnover of staff in the Finance division, and the municipality had struggled to fill the post of Chief Financial Officer for two years. It had some problems with supply chain delivery. 

Renosterberg Municipality was a small municipality that was made up of three towns, and it therefore had very few revenue streams. The majority of ratepayers were refusing to pay for rates at the Municipality. Eskom was now supplying electricity, which meant that one of the municipality’s revenue streams had been cut. Sewerage ponds were running at full capacity and maintenance of ageing electricity infrastructure was costly. Almost half the population was indigent and reliant on social grants. This municipality was attempting to comply with the Municipal Finance Management Act. A Supply Chain Management Policy was approved and a bid committee was appointed, but the adjudication committee appointment and establishment of internal audits was still in progress. Most of the personnel in the Finance division were not qualified.

Members were concerned about the high salary costs, the inability to appoint a Chief Financial Office, the fact that many staff were not qualified and that municipalities were not properly utilising the training that was available for the employees to upgrade their skills. They questioned the existence and functionality of ward committees and communication between Councils and residents, commented that spending was slow and requested clarity on the Municipal Infrastructure Grant spending and what was meant by the “surplus” at Phokwane Municipality, as well as what happened to resources at Renosterberg Municipality.  They also asked about debt collection, the existence of prepaid water meters, whether there was proper consultation with stakeholders, and suggested that the South African Local Government Association be called upon to assist these municipalities.

Meeting report

Municipal Finance Management Act compliance, challenges and successes of municipalities
Phokwane Municipality briefing
Mr Moeketsi Dichaba, Municipal Manager, Phokwane Municipality, said that his municipality was affected by the Taung floods, with some roads being badly damaged. Road maintenance was a huge challenge because the municipality was depended on one grader. He said that Phokwane municipality straddled two provinces. There were various challenges in human resources and delivery. The Finance department had a high staff turnover and currently even the position of the Chief Financial officer was vacant. The Human Settlements department was faced with a challenge of housing delivery. Some of the residential areas did not have electricity because Eskom had said that it could not electrify an area that was not fully occupied. Mr Dichaba explained that the Municipality was heavily depended on farming for employment but here too they faced a challenge since some agri-industries were closing down.

Mr Dichaba outlined that Phokwane had some achievements. These included the formalisation of some informal settlements. He said that most of the residential areas had access to water and electricity, except for Pampierstad.

In regard to the budget, he noted that property rental, traffic fines and electricity coupons retail were some revenue sources. Staff salaries represented up to 31% of budget, and the medical costs also accounted for a large slice of the budget. Phokwane Municipality was heavily dependent on grants for capital projects. Revenue collection was a huge challenge because some residents were not willing to pay for rates. Residents who could afford to pay rates were busy mobilising the poor to not pay for services. A private debt collecting company was awarded a tender for debt collection services.

The Phokwane Municipality had implemented a new financial system, and the staff had been sent for training. The Provincial Treasury was supportive in many ways, and the Development Bank of Southern Africa deployed two people for the finance division in municipalities. Organised agriculture had many initiatives that did not involve the Municipality, but when they encountered problems they would approach the municipality for assistance.

Mr Dichaba mentioned that the municipality had some problems with a rapidly growing old dumping site which encroached upon residential areas of Jan Kempdorp, posing heath hazards. The Department of Water and Environmental Affairs had allocated money for the removal of the dumping site and the informal settlement that sprung up from the site.

Mr Dichaba then outlined the municipality’s compliance with the Municipal Finance Management Act (MFMA). He said that the Phokwane Municipality had followed the correct procurement measures but there were minor problems with the supply chain management. It took the Municipality two and a half years to appoint a Chief Financial Officer, and this delay had affected the Financial department badly. An audit unit was established and there had been advertisements and filling of vacant audit posts.

In terms of service delivery, he noted that the municipality had a backlog in electrification of newly built houses. About 2 500 had access to clean water and sanitation in the informal settlements. Refuse removal posed a challenge, due to shortage of trucks as the whole municipality was serviced by only one tractor. He reiterated that the municipality was unable to do road maintenance on roads damaged by the floods because it only had one grader.

Renosterberg Municipality briefing
Ms Zondiwe Jack, Mayor, Renosterberg Municipality, briefly gave an overview of the major problems facing the Renosterberg Municipality. The shortage of staff led to delays in service delivery, Renosterberg was a small municipality that was made up of three towns, and it therefore had very few revenue streams. The majority of ratepayers were refusing to pay for rates at the Municipality, but instead had opened a separate account where they deposited the money. Salaries accounted for 52% of the overall budget.

Ms Nozuko Mvandaba, Chief Financial Officer, Renosterberg Municipality, explained that she could not report give a financial report for 2004-05 due to unavailability of archived records.

She noted that Eskom had been supplying prepaid electricity to the informal settlements, and this affected the revenue collection of the municipality, which had supplied electricity in the past. The majority of residents were unemployed. Out of a total of 2 424 people 1 084 persons were indigent, and this posed a great challenge for the municipality because its population were heavily depended on grants.

Ms Mvandaba reported on compliance with the Municipal Finance Management Act. The municipality had approved a Supply Chain Management Policy. The Bid Committee had been appointed, but the adjudication Committee had not yet been appointed. The establishment of internal audits was in progress.

She said that there were capacity challenges in the Finance Department because most of the personnel were not properly qualified. After the amalgamation of two municipalities the salaries had to be adjusted to achieve parity. The percentage of the amount allocated for salaries had increased significantly, up to 43%.

In terms of service delivery, she reported that sewerage ponds were not fenced, and they were running at full capacity. The maintenance of ageing electricity infrastructure was costing the Municipality a great deal.

The Chairperson asked why the Phokwane Municipality took a very long time to appoint a Chief Financial Officer (CFO).

Mr Vuyisile Khen, Mayor, Phokwane Municipality, said that the municipality had experienced internal political in-fighting that affected the appointment of the CFO.

The Chairperson enquired about the existence and the functionality of ward committees, asking if there were proper communication channels between the Council and the residents.

Mr Khen replied that the ward committees existed in Phokwane Municipality and people were consulted on many issues. However, he also acknowledged that some ward committees were not functional due to the vastness of some wards and long distances between them. The Municipality was busy formulating a policy on stipends so that ward committees could work effectively.

Mr T Chaane (ANC Northern Cape) enquired about the reasons that a financial report was not submitted by Phokwane Municipality to the Auditor General while the Acting CFO had held office.

Mr Chaane asked for clarity on the high amount spent by Renosterberg on salaries, pointing out that wealthier municipalities spent lesser amounts.

Ms Hestele Basson, Acting Chief Financial Officer, Phokwane Municipality, explained that the high salary cost was occasioned by the fact that the municipality paid people working in the Municipal Holiday Resort. The municipality was looking at means of privatising the resort. Other salaries were those of the accountant, cashiers and meter readers. Most people who were working in the Finance department were not qualified but they worked as interns to minimise costs.  

Mr Chaane enquired about the progress in upgrading informal settlements in Phokwane. He complained that Phokwane Municipality was not spending sufficient money; it was left with only 40 days to spend its allocations.

Mr Clement Pitso Technical Manager, Phokwane Municipality, replied that upgrading of informal settlements required the municipality to start with the civil engineering work and then proceed to the mechanical work of installing storm water drains and sewerage. Phokwane was depended on grants. The Municipal Infrastructure Grant (MIG) money would not be allocated unless at least 60% of the previous allocation had been spent. It was difficult to upgrade all informal settlements at the same time.

Mr T Harris (DA, Western Cape) asked for clarity on the Municipal Infrastructure Grant.

Mr Harris also reiterated the earlier question about the reasons why it had taken so long to appoint the CFO in Phokwane. He also asked the reasons for the resignation of the previous CFO.

Mr Dichaba replied that the previous CFO was awarded a tender to work as financial consultant for three municipalities, and had then resigned, because he found it easier to work as a consultant rather than account to politicians.

Mr Harris criticised the high salary bill for Renosterberg Municipality, and asked the CFO to explain it.

Mr Harris asked why proper credit controls and debt collection were not enforced at Phokwane Municipality.
Mr Dichaba noted that debt collection was depended on the voluntary response of the person who owed money. Some residents, who owed more than R10 000, would decide to pay R100 a month. The MFMA stipulate that a municipality could only demand up to a certain amount. Other ratepayers would threaten to protest rather than pay their debt.

Mr Harris asked whether both Municipalities had been using prepaid water meters.

Mr Dichaba said that Phokwane Municipality had installed prepaid water meters but most houses were using the old system of post paid water.
Mr M Makhubela (COPE, Limpopo) asked the reason that unqualified employees were paid by the municipality Finance department.

Mr Makhubela asked for clarity on the surplus.

Mr Pitso explained that the surplus in Phokwane referred to money that was not spent and was therefore left over.

Mr Makhubela said that it was not clear what happened to the resources and money of Renosterberg Municipality

Mr Makhubela said that Phokwane Municipality had the potential to be exemplary, and a good role model for rural municipalities, but the potential was becoming lost in the detail. He suggested that the Mayor and municipal management should look for proper accredited training to equip themselves with relevant skills. He suggested that the Department of Cooperative Governance and Traditional Affairs could help with capacity enhancement.

The Chairperson assured the delegations from the two municipalities that the Committee was attempting to assist in solving the problems, rather than criticising.

Mr S Montshitsi (ANC, Gauteng) asked whether the two municipalities were working and cooperating with stakeholders.

Mr Dichaba explained that the Phokwane Municipality consulted with stakeholders around issues like the budget process. Some stakeholders would attend but they could not make a meaningful contribution. 

Mr Montshitsi found it surprising that Eskom was not willing to electrify certain areas, as it had agreed to electrify all residential areas when it met with the Committee in the Northern Cape.

Mr Khen explained that Eskom said that the Department of Energy stipulated that Eskom should only electrify homes when 80% of these homes were occupied.

The Chairperson said that the South African Local Government Association (SALGA) was available to assist struggling municipalities. Councillors should do oversight work over management. He indicated that he was aware of the problems that affected the two municipalities, particularly that one straddled two provinces. He indicated that in some cases the border line of provinces in fact could cut directly through a person’s home.

The meeting was adjourned


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