Deputy Minister of Cooperative Governance and Traditional Affairs on SALGA / KZN Local Government Association dispute raised by Auditor-General

Meeting report

Report-back by Deputy Minister of Co-operative Governance and Traditional Affairs
Mr Yunus Carrim, Deputy Minister of Co-operative Governance and Traditional Affairs, in his introductory remarks, said that a letter had been sent to the Minister since the meeting of 13 April 2010 informing him of the decision made in that meeting and the process to follow. The letter sent by the Chairperson to the two parties had an important impact on the speed with which they then proceeded to resolve the differences between them. He commended the Chairperson and the Standing Committee of Public Accounts on the quality of the work that they were doing, although he did not necessarily agree with all their decisions.

Mr Carrim said that MEC for CoGTA in KZN, Ms Nomusa Dube, had played a significant role in resolving this issue. She and her provincial officials had regular interactions with the political leadership of KWANALOGA and its officials.

In the short term, the Deputy Minister and the MEC would be attending to the audit and integration issues until it had been resolved, as requested in the letter from the Chairperson. In the longer term, they would continue working on the underlying political issues that had caused the fault in the first place, and there where timeframes and a deadline attached for that process.

By 19 May 2010, at a meeting in eThekwini, KWANALOGA had agreed to open their accounts to the Auditor-General and to proceed to integrate into SALGA. KWANALOGA, however, required from SALGA assurances that its outreach programs, which depended on it having a separate bank account would not be undermined as a result of integrating into SALGA. The process would require SALGA to make certain concessions as well. KWANALOGA had challenges around the Organised Local Government Act. The Deputy Minister and MEC told KWANALOGA that it had the right to make proposals to the Ministry and to its party. Those proposals would be considered in the later part of 2010, and if necessary, the Act would be amended. There were more issues around integration that KWANALOGA wanted addressed. The mediators and the parties concerned would come back to the Committee and report on them as they were addressed.

With regard to the integration of accounts, subsequent to the eThekwini meeting of 19 May, KWANALOGA asked for a meeting to be convened within the framework agreed to on 19 May that was done. That meeting happened on 21 May 2010 in the Ministry and was chaired by Mr Tozi Faba, Deputy Director General in CoGTA. They met again on 24 May with the Office of the Auditor-General represented by Mr Lourens van Vuuren who is present here.

On 26 May the parties met again to finalise and fine-tune the report. The report flowed from the meetings chaired by Mr Faba, with the Office of the Auditor-General present, and both parties contributed to the report. The political leadership of KWANALOGA could not attend the previous meeting or the current one. This report, however, was the product of concerted interaction amongst SALGA, KWANALOGA and CoGTA. All parties were present and could confirm that the report reflected accurately the sequence of events as well as the current status.

Comments by KZN MEC for Co-operative Governance and Traditional Affairs
Ms Nomusa Dube, MEC: CoGTA in KZN, said that SALGA and KWANALOGA had already exchanged the information on the accounts for putting together the audit, and that the Auditor-General in KZN and the Auditor-General’s national office was in dialogue on this issue. On Friday 28 May 2010, the last of the documentation would be exchanged in order to integrate the accounts.

In meetings scheduled for the 31 May and 3 June 2010, the consolidation of KWANOLOGA into the SALGA fold would proceed further. There would be a report on this before Parliament went into recess.

She said that this process had been a good opportunity to see how cooperative governance worked in practice and to improve the service delivery and accountability of elected representatives. She thanked the Chairperson and the Committee for the spirit in which the process had been overseen and conducted.

Comments by SALGA National Chairperson
Mr Amos Masondo, Mayor of Johannesburg and SALGA National Chairperson, confirmed what the Deputy Minister had said about the various stakeholders meeting, and that the report broadly represented their views. Secondly, he stated that SALGA and KWANALOGA were finding one another on key issues, and there was a much greater sense of agreement and cooperation between the two bodies. Thirdly he realised that the KWANALOGA books had to be open to the Auditor-General, and he apologised to the Committee for the inconvenience caused by the way in which matters had been handled in the past. He expressed his appreciation to the Chairperson and the Committee for the productive manner in which they had managed the process.

The Chairperson registered his dissatisfaction at the absence of the political leadership of KWANALOGA.

Reading of Progress Report by Deputy Director General for Corporate Services in CoGTA
Mr Tozi Faba, Deputy Director General for Corporate Services in CoGTA, read out the Progress Report. (see document). The report served to indicate progress to SCOPA on the process to re-integrate KWANALOGA with SALGA. The report highlighted outcomes of various meetings of the technical teams, from both parties, facilitated by the Department of Cooperative Governance and Traditional Affairs. The teams were lead by Mr Faba as an independent person agreed to by both parties. The report further outlined agreements that were reached in the interim, and the process for dealing with outstanding issues.

On 12 May 2010 the SALGA National Assembly members met and passed a resolution that KWANALOGA had to be re-integrated into SALGA with immediate effect.

On 19 May 2010, the Deputy Minister, MEC and KWANALOGA met. During this meeting it was agreed that the Auditor-General would have access to KWANALOGA’s accounts. There was also agreement that KWANALOGA would continue to use its own constitution until the 2011 elections. A KWANALOGA team had been established to work with a similar SALGA team on outstanding issues that formed part of the integration process.

On 21 May 2010 a technical team met. This meeting agreed that issues about the constitution, affiliation and programs, were political in nature and would be dealt with by the full task-team consisting of both politicians and technocrats. The technical team would, in the meanwhile, process audit-related issues and meet with the Auditor-General to develop a framework for complying with the audit process. At the meeting it was agreed that the technical teams will develop individual proposals on how to deal with outstanding issues and would meet prior to the meeting with the political principals to consolidate a joint report to guide that meeting.

The Chairperson of the Portfolio Committee for Cooperative Governance and Traditional Affairs, Mr Lechesa Tsenodi, was kept abreast of developments.

On 24 May 2010, the Technical Team met the Auditor-General. The parties agreed to exchange information required by each in order to submit the KWANALOGA financial statements to SALGA National. This would enable SALGA National to prepare its financial statement for audit. The date of separation from SALGA would be determined by the audit statements. KWANALOGA would have a set of statements for before-the-split from SALGA and another set for after-the-split. The Auditor-General would proceed with the audit as soon as it received financial statements from SALGA National. The Auditor-General advised the parties that it was crucial to resolve legal issues surrounding the cancellation of the MOU in order to have clean audits.

In evaluating the process it was felt that meaningful progress had been made in getting both organisations audited for the 08/09 and 09/10 financial years. Outstanding information for audit purposes would be exchanged between SALGA and KWANALOGA by 28 May 2010. The technical teams would meet to finalise a report on the administrative issues of integration on 31 May 2010. The report of 31 May 2010 would be presented to the SALGA and KWANALOGA political office bearers on 2 June 2010. The report would be submitted to SCOPA on 4 June 2010. The broader issues of political integration would be taken further in mid-June and an interim report would be finalised by mid-August.

Discussion
The Chairperson asked the SALGA CEO whether there were any omissions or additions to the report.

The CEO of SALGA, Mr Xolile George, confirmed that the report was a true reflection of the events and situation.

The Chairperson asked a representative of KWANALOGA whether the report was accurate.

Mr Sandile Cele, KWANALOGA Chief Executive, said that the report reflected the discussions and resolutions that were agreed upon.

The Chairperson handed the floor to the representative of the Office of the Auditor-General.

Office of the Auditor-General comment
Mr Lourens van Vuuren, Acting Business Executive of the Office of the Auditor-General, said that the process was at a point where there was all-round agreement that the Auditor-General should have access to the accounts. It was very important that the Auditor-General was at this stage presented with financial statements to audit. The outcome of the initial auditing processes would determine how the rest of the process would proceed. A situation had to be avoided where there would be double accounting. If the Auditor-General was presented with one set of financial statements for SALGA and another for KWANALOGA, it would have immediate negative auditing implications.

He also wanted to clarify a statement in the report in order to avoid a misunderstanding.

On page three, under the heading: Meeting Interim Resolution, Point 2 stated that: ”No decision has been reached on the effective date of separation as this would be determined by audit statements”. This could be misinterpreted to mean that the Auditor-General would determine the date of separation. He clarified that it meant that during audit, the financial statement would show the effective date of separation, by the information contained in it. He said that the next step in the process would be the submission of the financial statements.

Discussion
Mr M Steele (DA) said that the report was owned by the National Ministry and the officials of KWANALOGA, but how could the Committee obtain surety that it had been owned by the political leadership of KWANALOGA?

Mr Steele asked the Auditor-General for clarity on Point 5, under the heading “Meeting Interim Resolution” on page three, which read “the Auditor-General advised the parties that it is crucial to resolve legal issues surrounding the cancellation of the MOU in order to have clean audits.” He wanted to know what those legal issues were.

The Deputy Minister said that the whole leadership was present at the meeting at eThekwini. Throughout the process, the officials were instructed to brief the politicians on developments. Mr Faba had been briefing the Deputy Minister. The Deputy Minister was in constant touch with the MEC. The political leadership of KWANALOGA was committed to the process, in theory, at least. He registered what the Chairperson had said about their absence but the leadership of KWANALOGA displayed a certain disdain for this Committee. The Deputy Minister said that he would write to KWANALOGA in order to address the absence of the political leadership, as no one was above the law. He agreed that their absence signalled something and he undertook to write a letter on behalf of the Minister to express the displeasure of the Ministry.

The MEC, Ms Dube, said that she did not think that the absence of KWANALOGA meant anything negative. The politicians were on board. The principles had been agreed upon. There had been a miscommunication and the politicians had come on Friday, only to be told that it was a technical meeting. She was certain that they were on board, and wanted to give them the benefit of the doubt in this instance.

Ms Dube said that the process was looking at the legal issues, amongst others the status of the books, vis-à-vis the memorandum between SALGA and KWANALOGA and all other associations. It was an area where the process would be guided by the law. The Organised Local Government Act did recognise the provincial entities as such, but in the spirit of the MOU, there was the agreement that KWANALOGA would still use its constitution until 2011.The process was still verifying the legality of pulling out of that MOU without discussions having happened properly.

The Auditor-General had an issue with double accounting and the books overlapping. The books that would be audited by the national Auditor-General would be the books before the MOU was cancelled. There would be another period where KWANALOGA was not part of the MOU anymore. There was an acceptance that the outcome of the audit would probably not be without qualifications, but that there was an intent and an undertaking to correct the things that had gone wrong in the past.

The Chairperson asked whether Mr Faba had anything to add.

Mr Faba asked if the Office of the Auditor-General wanted to add anything, pertaining to the legal issues.

Mr van Vuuren said that the MEC had referred to this issue. The challenge was that, in terms of a MOU entered into in 2005, all assets and liabilities of KZN SALGA were transferred to a national unitary body. There the risk of double accounting might have come in. There might be a building of KWANALOGA that was transferred to SALGA National. It could be on the books of both organisations. If anything changed, it had to be agreed upon by both parties, in writing, and that was where the challenge was.

Mr N Singh (IFP) thanked the Deputy Minister, the MEC and the officials for the progress made thus far, but said that he was dissatisfied with the situation as it stood. He was extremely unhappy about the fact that the political leadership of KWANALOGA was absent from the meeting. He thanked the Deputy Minister for expressing his own unhappiness with their absence. The chairperson of KWANALOGA was also an office bearer in SALGA, and that situation amounted to a conflict of interests.

He asked if the Deputy Minister and the MEC were looking at the underlying reasons why KWANALOGA decided to go UDI? According to him, legally, KWANALOGA did not exist. The Committee should have been dealing with SALGA only. It would be difficult for SCOPA to interrogate the Auditor-General’s report if it did not know from where figures came and how they related to each other. SCOPA was there to look at SALGA’s Annual Report, not KWANALOGA’s. He wished the Auditor-General well with the process of meshing together the existing Annual Report of SALGA with the annual report of KWANALOGA.

He asked if SCOPA would have access to KWANALOGA’s accounts that would be submitted to the Auditor-General. SCOPA would also like to express a view after the Auditor-General had expressed a view on them.

He appreciated the report given by the DDG, but a report was not a legally binding agreement. He accepted the report as a way forward, but SCOPA could only accept a document with the signatures of the political leadership of KWANALOGA as a legally binding commitment to the process.

He did not want to introduce politics into the debate, but he wondered if KWANALOGA were a Democratic Alliance entity, whether SCOPA as an executive would have soft-pedalled around the relationship between SALGA and KWANALOGA as had happened in this case.

The Chairperson said that the last sentence of the report answered the question whether the underlying political issues would be investigated. It stated “The broader issues of political integration will be taken further in mid-June and an interim report will be finalised by mid-August”.

Mr M Malale (ANC) said that the Public Audit Act stated that if somebody refused the Auditor-General access to public accounts or did not cooperate, that person committed a statutory criminal offence. He wanted to know whom the individuals were who had initially made it impossible for the Auditor-General to access records. This issue he was raising was a separate, but parallel issue to the one being discussed. The process being discussed had merit as an exercise in cooperative governance, but it was distinctly different from the issue that he had raised. There had to be intellectual gestation within his mind on what to contribute to the debate when the Committee reflected on the action that should be taken in this regard.

Mr P Pretorius (DA) said that KWANALOGA depended on moneys paid into its bank account by its affiliated municipalities. In terms of the agreement, when would these municipalities stop paying into KWANALOGA’s bank account and into SALGA’s bank account? Would there be job losses during integration?

Ms M Matladi (UCDP) echoed the sentiments of her colleagues by thanking the Deputy Minister and all the parties concerned for resolving a difficult issue amicably. She said that the issue of the exact date of separation had to be resolved.

Mr Steele stated unambiguously that SCOPA was united behind the view that it wanted to see integrated accounts that would be audited by the Auditor-General for SALGA.

The MEC said that that was exactly what the meeting was about. It was about SALGA’s books being audited by the Auditor-General. If the impression was created that KWANALOGA was treated with kid-gloves it was wrong. It was made clear that integration and the auditing of SALGA’s books by the Auditor-General was non-negotiable. The parties were now looking at the practical implementation. The 28 May 2010 was the deadline for the final submission of documents. The issue of money being paid into the account of KWANALOGA was part of the integration process and how it was going to happen. It had been agreed that KWANALOGA could keep its account and provinces in general could open accounts, but that the accounts would be linked to that of SALGA and SALGA would be able to access and monitor it.

She continued that on the issue of the date of separation, the Auditor-General wanted to know the status of the entities since the separation. All parties were very clear about the fact that they had to account for whatever was in their possession. As integration was happening, the Auditor-General had to look at the 2008/09 year and close it off and then go on to the 2009/10 year. The Office of the Auditor-General in KZN was continually communicating with the National Office of the Auditor-General to pass on information. The process was on track. There was no turning back.

Ms Dube said that KWANOLOGA was recognised as an association of SALGA under the Organised Local Government Act. It did exist in law under that Act, and was recognised as such. Within Organised Local Government, there was an understanding that if it wanted to achieve the bigger picture, in terms of redistribution and sharing of resources, skills and information, there had to be a pooling of resources. That was where things went wrong. KWANALOGA developed the perception that some of the goals that it had set for itself, which involved matters that were particular to the province of KZN, would not be achievable within the national setting. Through this process KWANALOGA was brought to the understanding that their goals were still achievable within the broader setting. The business plans of SALGA and KWANALOGA could be synergised in order for both to achieve their objectives within the sphere of local government. The bigger political issues were being addressed in these discussions. She and the Deputy Minister had mapped out the way forward with deadlines for both SALGA and KWANALOGA for the outstanding steps to happen. Thus far they had stuck to the schedule and it would be monitored in order to make sure that the process continued as a matter of urgency.

The Deputy Minister said that one could look at the process as being insufficient. He would however disagree, because everything that the MEC and he had been tasked with had been achieved well before the eight week deadline. It was necessary to probe the reasons for the withdrawal as well as the lessons that could be learnt from it, so that it did not happen again, but that could go into the SCOPA report. He agreed that it bordered on being a crime to refuse to cooperate with the Auditor-General. The Executive, which also had an oversight function over SALGA, would have to include this issue and an analysis thereof in its final report which would be due in August 2010.

The Deputy Minister stated emphatically that job losses as a result of the integration would be avoided at all costs. He would put pressure on the officials, who were negotiating the technical arrangements, that it did not happen.

On the question of having access to KWANALOGA reports submitted to the Auditor-General, the Deputy Minister said that it was public documents and that SCOPA had the right to view them.

On the point that the interim report was not a binding agreement, the Deputy Minister replied that the report was not meant to be a binding agreement. Obviously Mr Singh was a politician and there were political issues at stake but these things could not be done overnight. He found the process very instructive and felt that the lessons learnt should prevent the same thing from happening again, not only in SALGA, but also in any situation where public funds were at stake.

The Chairperson, Mr Godi, pointed out that the main issue was integration. However, the interim report dealt more with the issues around the audit, which were mere symptoms of the main issue. The process of engagement should have been the first issue, now it was the last. He thought that once there was agreement on integration, the rest of the process was purely administrative matters.

Mr Godi said that SCOPA certainly did not want a situation where provinces had the space to decide to withdraw from the organs of state. When SALGA appeared before SCOPA three years previously, it stated that part of its challenge was the integration process. Once the integration process was complete, it would have better control over its financial affairs. The KWANALOGA episode was a set-back in terms of that integration process to ensure that SALGA gained control over its affairs.

Mr Malale raised a red flag by raising the issue of the Public Audit Act. The question should be asked why the Auditor-General did not invoke that section of the Act, when it was refused access to the accounts of KWANALOGA. The Auditor-General could be accused of a dereliction of responsibility, as a result of its failure to invoke the Act. The Auditor-General became political, instead of remaining administrative. Had the Act been invoked, KWANALOGA would not have had the administrative space to do what it did, and the whole episode could have been avoided. The underlying issues would have still existed, and it still would have had to be addressed. The situation should never have been allowed to deteriorate to the extent that, irrespective of what the law stated, there was a de facto situation on the ground that government had to negotiate with, in order to make the situation manageable within the law again.

Mr Malale said that it was essential and correct to have had this particular briefing session in order to take stock of the progress to re-integrate KWANALOGA into SALGA. It was necessary to inform the Committee and all the parties concerned about the history, the progress, timeframes and deadlines for outstanding issues to be finalised. He expressed his appreciation what had been achieved and the fact that the process was continually moving forward. He felt that there was cause for satisfaction and that the process should be allowed to unfold. He said that a clear message should be sent to all provinces that the position of SCOPA was: No succession from SALGA, under any circumstances or for whatever reason.

Mr Malale asked the Deputy Minister whether the financial statements of KWANALOGA would be submitted to the Provincial Legislature. It was something to think about. He corrected the opening statement of the document. Under the heading “Introduction” the second sentence read “negotiations between KWANALOGA and SALGA” , but should read “negotiations between SALGA and KWANALOGA”.

Mr van Vuuren said that the Auditor-General had taken up the matter when KWANALOGA refused access to its accounts. After internal processes were followed, a letter was written to KWANALOGA to inform it that it had no option but to give the Auditor-General access to the information. What then happened was that the information was not given to SALGA to integrate into its financial statements. At that stage there would have been no sense in auditing KWANALOGA’s books because it could not be audited to any set of figures that were taken up in a financial statement. The Auditor-General did act at that stage and it did get the agreement from KWANALOGA to make its books available.

The Chairperson thanked all the parties concerned.

The meeting was adjourned.