Municipal 2009/10 audits: Department of Cooperative Governance, National Treasury & SALGA responses and operational plans

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Meeting Summary

The Committee received a briefing from the Department of Cooperative Governance and National Treasury on their operational plans and responses to 2009/10 audit outcomes in municipalities and municipal entities.

The Department had initiated the establishment of Provincial Coordinating Committees at a provincial level, with key drivers being the provincial departments responsible for local government, provincial treasuries, in some provinces with participation of Premiers’ Offices. The Provincial Coordinating Committees met quarterly and in some provinces monthly meetings took place as well. The Provincial Coordinating Committees exchanged information such as best practices and deliberated on specific matters requiring input; and considered progress made in supporting municipalities. Municipalities were also invited to present on progress they were making in implementing their audit remedial action plans that responded to qualification issues or matters raised by the Auditor-General in order to provide guidance or assistance where required. The assistance provided by the Department included the promotion of certain best practices such as the establishment of audit steering committees made up of senior finance officials and other senior officials in municipalities so as to inculcate the culture of municipal senior management prioritisation and ownership of audit matters.

The Department would endeavour to establish Municipal Public Accounts Committees and training in 2011/12. It would support municipalities to establish Internal Audit Units and Audit Committees and monitor implementation of municipal audit remedial action plans to address the 2009/10 audit outcomes. Based on the Auditor-General’s 2009/10 municipal audit outcomes, the Department had conducted a survey targeting 116 municipalities (including 48 municipalities cited for intervention by the Auditor-Genera) with regard to the establishment of Internal Audit Units and Audit Committees. 85 responses had thus been received. The Department was in the process of concluding formal supply chain management processes regarding a Memorandum of Understanding with one institution with a view to providing three-year training to Audit Committees in order to improve their functionality. The Department stated that a concerted effort was being made to improving municipal audit outcomes. With the Guide for establishing Municipal Public Accounts Committees having been concluded, the focus would be on municipal establishment of Municipal Public Accounts Committees.
 
The National Treasury would improve the ability to offer guidance and support through effective coordination, monitoring and reporting. The National Treasury highlighted the operational structures which it used to monitor the implementation of the Municipal Financial Management Act. The National Treasury provided support to municipalities on a wide range of Municipal Financial Management Act financial management reforms including budgeting, reporting, internal audits, risk management, and compliance. For macro-economic, fiscal and operational purposes municipalities the Municipal Financial Management Act implementation had been allocated differently with the largest 17 non-delegated municipalities reporting directly to the National Treasury while the rest reported to the Provincial Treasury (consolidated reports were shared). 263 municipalities had submitted Financial Management Grant Support Plans which addressed Municipal Financial Management Act implementation. A follow-up had been made with 15 municipalities to confirm Financial Management support plans. The support plans monitored were consistent with the Division of Revenue Act requirements. Major challenges remained with respect to municipal capacity, readiness to report on service delivery performance information and that could impact on the achievement of 2014 outcome targets. The National Treasury recommended that conditions of all support be absorbed by municipal officials for continuous improvements and that there be a concerted effort to appoint Municipal Managers, qualified Chief Financial Officers, and all Financial Management graduate interns once the training programme was completed. Municipalities were encouraged to replicate similar capacity strategies for all service delivery functional areas.

Members voiced unhappiness with the link between the plans presented and the reality on the ground at various municipalities. They expressed a strong wish to meet with senior political appointees within the Department. Some Members expressed their opinion that some municipalities were in fiscal trouble and needed closer inspection/monitoring.

Meeting report

Briefing by Department of Cooperative Governance
Mr Mawethu Mthuyda, Chief Financial Officer: DCOG and Mr Mizilikazi Manyike, Executive Director for Operation Clean Audit: DCOG were present to brief the Committee on its operational plans emanating from the 2009/10 audit outcomes in municipalities. Mr Mthuyda apologised for the absence of the Director-General as he was on leave and the Acting Director General who was in a meeting with the Portfolio Committee on Cooperative Governance and Traditional Affairs.

Mr Manyike briefed the Committee. The focus of the presentation would mainly be on providing a progress update on particular initiatives the Department had undertaken in light of the 2009/10 audit outcomes in municipalities.

The Department had initiated the establishment of Provincial Coordinating Committees (PCCs) at a provincial level, with key drivers being the provincial departments responsible for Local Government, provincial treasuries, in some provinces with participation of Premiers’ Offices. The PCCs met quarterly and in some provinces monthly meetings took place as well. The PCCs exchanged information such as best practices and deliberated on specific matters requiring input; and considered progress made in supporting municipalities. Municipalities were also invited to present on progress they were making in implementing their audit remedial action plans that responded to qualification issues or matters raised by the Auditor-General (AG) in order to provide guidance or assistance where required. The support provision was dictated to by the nature of challenges faced by specific municipalities or municipalities within the province and was varied across provinces. Some of the assistance appeared operational while others appeared strategic.
The assistance provided by the Department included the promotion of certain best practices such as the establishment of audit steering committees made up of senior finance officials and other senior officials in municipalities so as to inculcate the culture of municipal senior management prioritisation and ownership of audit matters. The assistance also included advice to municipalities that Internal Audit Units and Audit Committees be requested to have the audit queries as standing items on their meeting agendas as a means of tracking adequacy of remedial measures and progress made in resolving such queries and that members of the PCCs attend some of the meetings of Audit Committee meetings.

The assistance provided further dictated that there be tracing and providing supporting documents and vouchers, annual financial statements preparation, including bank reconciliations; and that there be the deployment of finance experts by the National Treasury or province on site to give direct assistance to municipalities across a range of their financial management constraints such as addressing the Auditor General’s audit queries, and putting financial management systems into place amongst other aspects.

The Department would endeavour to establish Municipal Public Accounts Committees (MPACs) and training in 2011/12. It would support municipalities to establish Internal Audit Units and Audit Committees and monitor implementation of municipal audit remedial action plans to address the 2009/10 audit outcomes.
Thus far the Department had held workshops on the establishment of MPACs in all provinces and 103 MPACs had been established prior the Local Government elections. Following the elections all municipalities, including those that established MPACs, had to establish or re-establish them. The DCOG-National Treasury joint Guide on establishment of MPACs had been presented to the Local Government MinMEC on 12 August 2011 and would be issued to municipalities during the week, and training initiatives with Association of Public Accounts Committees (APAC) and the South African Local Government Association (SALGA) would be embarked upon.

Amongst some of the MPACs primary functions would be the following:
•To consider and evaluate the content of the annual report and to make recommendations to Council when adopting an oversight report on the annual report;
•To assist with the conclusion of matters that may not be finalized; information relating to past recommendations made on the Annual Report, must also be reviewed. This related to current in-year reports, including the quarterly, mid-year and annual reports;
•To examine the financial statements and audit reports of the municipality and municipal entities, and in doing so, the Committee must consider improvements from previous statements and reports and must evaluate the extent to which the Audit Committee’s and the Auditor General’s recommendations had been implemented.
•To promote good governance, transparency and accountability on the use of municipal resources;
•To recommend or undertake any investigation in its area of responsibility, after reviewing any investigation report already undertaken by the municipality or the Audit Committee (emphasis added); and
•To perform any other functions assigned to it through a resolution of council within its area of responsibility.

Based on the Auditor-General’s 2009/10 municipal audit outcomes, the Department had conducted a survey targeting 116 municipalities (including 48 municipalities cited for intervention by the AG) with regard to the establishment of Internal Audit Units and Audit Committees. 85 responses had thus been received. The purpose of the survey was to establish the reasons for either non-establishment of these or poor establishment in order to provide recommendations for addressing the challenges. Some of the preliminary findings were that some municipalities had outsourced the function relating to internal auditing, some even up to 2014.

The Department included information on municipalities in the different provinces and how many had undertaken audit remedial action plans (RAP). The Eastern Cape had 45 municipalities recommended for RAP and all 45 had undertaken RAP. The Free State had 24 recommended with only five complying thus far; the relevant Member of the Executive Council (MEC) had been alerted. Gauteng had 12 recommended, of which 11 had complied. KwaZulu-Natal had 61 recommended, of which all had complied. Limpopo had 30 recommended and 29 had complied. Mpumalanga had 21 recommended and 20 had complied, pending confirmation. The Northern Cape had 32 municipalities recommended, of which 23 had complied with outstanding audits. The North West had 23 recommended and 11 had complied with outstanding audits. The Western Cape had 30 recommended with 25 having complied.

The Department was in the process of concluding formal supply chain management processes regarding a Memorandum of Understanding (MOU) with one institution with a view to providing three-year training to Audit Committees in order to improve their functionality.

The Department stated that a concerted effort was being made to improving municipal audit outcomes. With the Guide for establishing MPACs having been concluded, the focus would be on municipal establishment of MPACs.

Discussion
Mr A Matila (ANC, Gauteng) commented that the Department was not providing sufficient leadership. He asked whether the Department existed mainly to ensure that there was compliance with regulations at a local government level or to secure service delivery on the ground. He said that he knew for a fact that Tshwane municipality was in financial trouble and that municipalities in the Eastern Cape were in similar trouble. He sought an explanation from the Department on how it intended to address the issues. The Department’s remedial plans were not good enough. The relevant leaders within the Department were avoiding the Committee. The report was empty and unhelpful in providing information on what was happening on the ground in municipalities. He asked what the Department had done to address existing problems in municipalities prior to the local government elections. If the Department was being effective on the ground then there would not have been service delivery protests across the country.

Mr Manyike replied that the Department took note of all the comments which had been raised. Some of the issues which had been raised could be jointly answered with the National Treasury. The broader issues which had been raised would be best answered by the Department when it had more representatives present with the ability to answer political questions posed. The questions raised were relevant but not within the parameters of the briefing the Department had been asked to present on.

The Chairperson said that Members should remember the remit of the agenda of the meeting. The meeting had been convened to discuss the technical aspects of the 2009/10 audit outcomes in municipalities and municipal entities. The meeting had not been convened to discuss political type issues which could only be responded to by political appointees rather than technocrats.

Ms B Nesi (ANC, Eastern Cape) commented that the report did not address some of the issues affecting certain municipalities such as the billing problem in Johannesburg. There was no information on the MPACs and how they were constituted. On the basis of the report, the Department was not in touch with the reality of the situation on the ground in municipalities. He asked what impact the Department’s policies had on the ground. He asked how the Department ensured that effective service delivery was being undertaken on the ground. The report had highlighted elaborate structures which seemed to have no effect on the ground.

Mr Manyike replied that the Department took note of all the comments which had been raised. Some of the issues which had been raised could be jointly answered with the National Treasury. The broader issues which had been raised would be best answered by the Department when it had more representatives present with the ability to answer political questions posed. The questions raised were relevant but not within the parameters of the briefing the Department had been asked to present on.

The Chairperson reiterated that Members should remember the remit of the agenda of the meeting. The meeting had been convened to discuss the technical aspects of the 2009/10 audit outcomes in municipalities and municipal entities. The meeting had not been convened to discuss political type issues which could only be responded to by political appointees rather than technocrats.

The Chairperson said that the Department’s presentation had addressed technical issues but Members' questions were political and could only be responded to by political appointees.

Mr Matila suggested that the Committee reject the briefing it had been given on the day. The Committee should request that senior management in the Department brief the Committee at the next available date.

The Chairperson responded that the report had reported on what was on the agenda for the meeting and should therefore not be rejected. The report fulfilled the technical request of the Committee but the Department representatives present could not answer political questions which the Members had asked.

Ms Nesi agreed with the Chairperson that technically the Department had done its part in the report as the agenda had set out; however the political appointees within the Department needed to report to the Committee.

The Chairperson said that the report presented had been accepted by the Committee. He said that the Committee would request a meeting with the Department, with its political appointees, in the coming weeks ahead.

Briefing by National Treasury
Mr T Pillay, Chief Director for Municipal Financial Management Act Implementation: National Treasury (NT) briefed the Committee on the National Treasury’s operational response plan to the audit outcome of municipalities in the 2009/10 fiscal year.

The NT would improve the ability to offer guidance and support through effective coordination, monitoring and reporting. The National Treasury highlighted the operational structures which it used to monitor the implementation of the Municipal Financial Management Act (MFMA). The MFMA Coordinating Structures included National Treasury, Provincial Treasury, DCOG, Local Government, SALGA, and the Auditor General which met quarterly and updated progress on all MFMA related activities. There were Provincial Accountant-General Forums, Municipal Regional MFMA Chief Financial Officer (CFO) Forums (Chaired by Provincial Treasury). The Provincial Clean Audit Committees focused on audit outcomes in order to assist with audit action plans, and monitor audit action plans. The structure of the Committees was made up of representatives from Provincial Treasuries and Provincial Local Government departments; it held regular meetings with office of the Auditor-General.

The NT provided support to municipalities on a wide range of MFMA financial management reforms including budgeting, reporting, internal audits, risk management, and compliance. For macro-economic, fiscal and operational purposes municipalities the MFMA implementation had been allocated differently with the largest 17 non-delegated municipalities reporting directly to the NT while the rest reported to the Provincial Treasury (PT) (consolidated reports were shared). Officials from the NT and PT rendered direct support, where resources allowed. Further support was rendered through a Technical Assistance Programme which currently operated in 67 municipalities. Conditional grant support was rendered to all municipalities with the NT and DCOG sharing information on a regular basis. The NT had Support Teams geared for 17 large municipalities; it had advisors supporting 67 municipalities, and 1 300 Financial Management graduate interns appointed in municipalities.

263 municipalities had submitted Financial Management Grant (FMG) Support Plans which addressed MFMA implementation. A follow-up had been made with 15 municipalities to confirm Financial Management support plans. The support plans monitored were consistent with the Division of Revenue Act (DORA) requirements. NT and PTs would monitor the implementation of the support plans as confirmed with municipalities.

The NT had overseen the establishment of a programme of support for Financial Management (FM). The NT and Provincial Treasuries were working together with DCOG, SALGA and the AG to address issues in municipalities. Weaknesses which had been identified in Audit Outcomes also informed support and action plans. Major challenges remained with respect to municipal capacity, readiness to report on service delivery performance information and that could impact on the achievement of 2014 outcome targets. The NT recommended that conditions of all support be absorbed by municipal officials for continuous improvements and that there be a concerted effort to appoint Municipal Managers, qualified CFOs, and all FM graduate interns once training programme completed. Municipalities were encouraged to replicate similar capacity strategies for all service delivery functional areas.

Discussion
Mr Matila welcomed the presentation by the National Treasury. He commented that the points which had been raised should be taken up by DCOG to avoid problems in the administration of municipalities. The reports which had been referred to in the presentation should be sent to the Committee. The reports did not seem to match the disastrous situation on the ground.

Ms Nesi commented that the report from the NT was useful; the plans included in it were very good but needed to be closely monitored to ensure that they were properly implemented.

The Chairperson asked that the Committee be provided with the Municipal Finance Management Act in its current form with incorporated amendments. It was important for the Committee to have copies to assist it with its work. The existence of minimum standards in municipalities was important in order to ensure that they were fulfilling their duties. Political will was needed to avoid the retrogression of municipalities. More needed to be done to prevent wastage and excessive spending and use of government resources.

Mr Pillay responded that joint sittings with the Finance Committee might be beneficial for the Committee and assist it in keeping up to date with developments which related to municipal finance management. Joint sittings would be one of the best ways to tackle the occurrence of financial mismanagement at a municipal level. He said that Section 139 interventions could be improved if more dialogue took place between municipalities and the NT and in that way the Section 139s could be more effective in stopping excess expenditure and mismanagement. The NT had a Municipal Finance Recovery Unit as part of Chapter 13 of the Municipal Finance Management Act. He suggested that all relevant documents and reports from the NT and DCOG be tabled at one sitting so that finance and service delivery could be combined and assessed at the same time rather than separately. The NT was in the process of getting progress reports from the Johannesburg and Tshwane municipalities on their progress and what assistance they needed. The reports and documents that the Committee needed would be provided to them by the NT.

Mr Matila commented that the NT and DCOG should coordinate and work together towards addressing municipal issues. There was a new position of deputy municipal manager in certain municipalities which had been touted. It was alarming that municipalities in financial difficulties continued to create positions to spend more money than they could afford. It was a new trend which needed to be addressed.

Mr Mthuyda said that DCOG had taken note of the comments and questions raised and they would be addressed by the Department’s principal appointees.

The Chairperson commented that it was unacceptable to have a situation where salaries were paid to people who either did not exist or do their jobs properly. There was a situation in the North West Province where an MEC was being paid without doing any work. DCOG should look into the matter. Section 139s were important and uniform legislation was needed to tie the Section into a broader law to address when to apply the Section.

Mr Manyike said that the North West was progressing and issues in the province were being addressed due to DCOG’s intervention in the province. There was greater interaction between the provincial government and DCOG and the province was complying with financial management rules. The Department was in support of Section 139 legislation and a draft was in the process of being produced.

Mr Matila disputed Mr Manyike’s claim on the North West province.

The Chairperson said that he did not want to reopen debate on the issue. He thanked all who were present in the meeting.

The meeting was adjourned.



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