The Committee considered a briefing report presented by the Auditor General entitled ‘Consolidated Local Government audit outcomes 2009-10: Municipalities and municipal entities’. The Auditor General noted that the biggest challenges for municipalities existed in the balance sheets, specifically revenue. These were repeat findings and more support was necessary in these areas as far as providing skills development. Service delivery, reporting and compliance were a challenge because municipalities had unqualified financial statements thus, could not be included in the clean audit. Most problems were related to supply chain management. This had resulted in irregular or unauthorised expenditure. The Auditor General identified four core issues that could improve audit outcomes: 1) Management and reporting of service delivery 2) Improved supply chain management 3) Information technology in government and 4) Human resources. The presentation highlighted the nine controls around municipal government that had given rise to municipalities struggling in performance. If the provincial executives and speakers wished to intervene in municipalities, intervention must be done with this level of specificity. (‘Assessment of commitments from key role players to address audit outcomes’ on page 21) There must be clear feedback that every one of them had gotten a good programme of strengthening internal controls and strengthening the behaviour in every municipality.
Members expressed concern at the picture that the report painted and also addressed the challenge of implementing new systems due to the lack of coordination between government spheres. They also enquired about skills transfer, if any sanctions were applied what role Parliament had to exercise oversight on what occurred in the municipality.
The adoption of minutes was postponed due to given the absence of several Committee Members. The oversight visits to
Mr Johnny Ramrock, Committee Secretary, announced that Dr G George (DA), Mr M Steele (DA) and Mr N Singh (IFP) could not attend the meeting as they were on an oversight visit with the Standing Committee on Public Accounts (SCOPA). Mr N Koornhof (COPE) was unable to attend as he was already at home.
The Chairperson tabled the report by the Auditor General on Municipal Audit Outcomes and introduced Mr Terrence Mncedisi Nombembe, Auditor-General (AG) to present the briefing.
Briefing by the Auditor-General of South Africa (AGSA) on the road show of the Municipal Audit Outcomes
Mr Nombembe noted that in local government, there was a specific reality that most of the councillors were new and therefore reports ideally came in handy to give guidance on where to pick up from the work of their predecessors. There was an appetite by the leadership to do something about local government. Understanding this reality, national and provincial levels can only offer support. The main drivers had to be the mayors, councillors and the sec.57 directorates in government.
The Chairperson added that the extent to which outcomes improved, degenerated or remained constant was a reflection of the paths of government and whether mechanisms were effective in terms of improving performance.
The Chairperson opened the introductory section of the presentation up to comments
Prof L Ndabandaba (ANC) asked how big was the contribution made by the office of the AGSA because his view was that it was extremely crucial and important for municipalities to be audited properly. Also, he asked if the road show was a once off exercise or if there would be follow up?
Mr Nombembe replied that this was a once-off investment in conjunction with the provincial leadership and that there had been quarterly engagements with the councillors and mayors to assess the adherence to good practice.
Ms F Bikani (ANC) commented that the presentation should continue in order to have more material to engage with in discussion.
The Chairperson concurred with Ms. Bikani and invited Mr Nombembe to proceed with the presentation
Mr Nombembe continued to present the briefing report and noted that the biggest challenges for municipalities laid in the balance sheets. Income statements had issues, but revenue was where the biggest problems were. These were repeated findings and more support was necessary in these areas as far as providing skills. Service delivery reporting and compliance were a challenge because municipalities had unqualified financial statements thus could not be included in the clean audit. Most problems were related to supply chain management. This resulted in irregular or unauthorized expenditure (ie: spending money that we did not have).
The Chairperson clarified the term ‘supply chain management’ to refer to the issuing of tenders
Mr J Matshoba (ANC) asked for clarification on the reason for the occurrence of irregular expenditure. Was this a departure from the norms and standards?
The Chairperson added, if it was a combination of factors, were we able to distinguish between outright theft, incompetence, and/or recklessness. Or did we take it as a whole?
Mr Nombembe replied that his Office only dealt with these issues as a whole because deviation of any kind from the process is irregular and the audit picked it up. Most of the processes were fundamentally flawed because people made decisions, issued contracts and/or issued tenders without following due process.
The Chairperson asked at what stage was the criminal element brought in. Once the finding was made, what was the next step? Should there have been a follow-up forensic audit to determine the appropriate charge. Did this finding help to get to that point, or was there need for a further audit?
Mr Nombembe replied that you did not get a sense of this because it raised red flags to say if these things happened who prevented the irregular expenditure from happening? It was an issue of discipline, when decisions were made, who oversaw the process, because out of that, there could be issues of mischief, incompetence, neglect and/or ignorance none of which were a defence for breaking the law.
The Chairperson flagged this issue (‘Unauthorised, irregular, fruitless and wasteful expenditure – Municipalities and municipal entities’ on page 11 in the briefing) as one that the Committee would return to and reflect on in future sessions.
Mr Nombembe agreed with the flagging of the issues of irregular expenditure and service delivery, as this was consistent with the AGSA’s findings that these were the two areas holding back the municipalities from having clean administration. Mr Nombembe highlighted the nine controls around municipal government that had given rise to municipalities struggling in performance. If the provincial executives and speakers wished to intervene in municipalities, intervention must be done with this level of specificity. (‘Assessment of commitments from key role players to address audit outcomes’ on page 21) There must be clear feedback that every one of them had gotten a good programme of strengthening internal controls and strengthening the behaviour in every municipality.
The Chairperson opened the floor up to discussion
Mr Matshoba remarked that he was concerned with the picture that the report painted regarding irregular expenditures incurred, uncompetitive or unfair procurement processes and inadequate contract management.
Ms Bikani stated that it was difficult to get systems into place and that there was a problem of non-coordination in the different spheres of government. Increased coordination between the different spheres of government would have been helpful to work towards a cleaner audit.
Ms Bikani raised the issue of skills transfer and asked what the outcome of the Treasury’s skills development training programme in municipalities was on financial management systems and of what use was the programme in governance if at the end of the day they were still going to be in the red? To what extent were sanctions applied to ensure that there are lessons learned in the process of improving in terms of the audit report each of the municipalities. How much coordination was there in the monitoring and evaluation commission vis a vis treasury, public service administration and COPTA? How far and to what extent could the relevant changes be influenced? Ms Bikani stated that she was sceptical and asked what was the solution if the process was going to repeat itself?
The Chairperson raised an anecdote about a trip he took to
Mr Nombembe agreed with the sentiments that had been raised by the Members. The report was gong to raise a lot of questions with a detailed analysis of the status quo to illustrate by province, which province had bigger problems than others. The report acknowledged that coordination has been a problem. What did oversight do? To what extent did Parliament engage with the right people? The people responsible for imposing all the sanctions and making the appropriate assessment of the level of capacity that government had, were the ministers. Other than presenting budget votes, what other communication was there between ministers and Parliament in the form of robust debate? This issue needed to be resolved so that accounting officers did not have to bear the brunt of the limitations if the ministers did not open up the opportunities for them to perform. This is why the AGSA office elevated their engagement to the level of ministers.
Ms Bikani added that the governance clusters together with relevant stakeholders such as Mr Nombembe, th Public Service Commission, and the Planning Commission should have come onto one platform because the change was too slow and could have been detrimental by the time results and outcomes were needed. There needed to be strategy as to how to take things forward in the next five to ten years to improve the state of affairs in the report. Ms Bikani expressed scepticism that the oversight model that the Chairperson spoke of would bring about a change.
The Chairperson stated that there were currently three reports before Parliament that needed go back to the Rules Committee: 1) The Assessment of Parliament report-analysing the effectiveness of Parliament 2) Report on the Oversight Model- implementation to beef up Parliaments oversight capacity 3) Report on the legislative process. Hopefully these reports would show how Parliament institutionally reflected on itself, to what extent has the constitution been instituted and how the constitution has failed. These issues were way beyond the mandate of this committee. But there was no harm in raising these issues.
Mr Matshoba expressed his support for the Chairperson’s remarks and added that the NCOP had been given certain powers by the Constitution to intervene in municipalities. It needed to be established if those powers were not being exercised.
The Chairperson stated that Parliament has just passed the Municipal System Amendment Bill to be signed into law soon by the President. The point was to limit political interference in the administration of municipalities especially at the level of hiring and firing practices to enhance job security and build a stable bureaucracy.
Mr Nombembe identified four issues that can take the government in a different directions 1) The management and reporting of service delivery 2) Supply chain issues 3) Information technology in government-the status, how efficient it was and how are the controls around it 4) Human resources. In January, the AGSA office explored what would be the ideal intervention that would perfect these issues.
Mr Kimi Makwetu, Deputy Attorney General (DAG), AGSA, highlighted that the municipal public accounts committees (MPAC) were not yet in place. If oversight to the municipalities could not occur directly from the Committee, perhaps it could influence the speed and direction with which MPAC were established. The DAG flagged the huge concentration of outstanding debt owing to the office by the huge number of municipalities. Mr Makwetu asked what level of support the Committee could provide to ensure that mechanisms were created for the AGSA office not to struggle with the collection of outstanding revenues. He stated that this issue was to be revisited when SCOAG returned for the annual report
The Chairperson replied that this issue was identified in the last annual report process. In conclusion, the Committee needed to crystallize the core issues raised in the meeting and move towards consolidating the issues succinctly at which point a decision could be made on how best to process the information, perhaps by tabling a report to Parliament.
Update on oversight visits to
Mr Ramrock stated that more information would be provided to members because there was a slight problem with dates. Initially the dates were to be the end of July/ first week of August upon return from recess. The DAG informed the Committee that it would clash with other work being done so there was a question mark regarding this visit.
The Chairperson replied that the intention for the visit was to target the
Mr Nombembe stated that there needed to be greater coordination from Parliament on oversight visits as the NCOP was also planning its own visit. The lack of coordination weakened the impact of these visits.
Update on International Study Tour to
Mr Ramrock stated that the Committee was aiming for the first week of October for the international study tour to
The Chairperson stated that the focus was on
The Chairperson postponed the adoption of outstanding minutes, given that many colleagues were absent.
The meeting was adjourned.
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