Meeting with Mangaung Metropolitan Municipality, Masilonyana Local Municipality and Ngwathe Local Municipality

Meeting report

The Chairperson welcomed Mr Yunus Carrim, Deputy Minister of Cooperative Governance and Traditional Affairs and the representatives of the Mangaung Metropolitan Municipality, Masilonyana Municipality, Ngwathe Municipality, the Auditor-General of South Africa, the National Treasury, ESKOM, the Free State provincial authorities and the South African Local Government Association.

The purpose of the meeting was to establish what action was taken to assist struggling municipalities to provide municipal services to communities.  The Committee wanted to hear what action plans were put in place by the municipalities to address the adverse findings of the Auditor-General, what progress was made towards achieving clean audits, the filling of vacancies, the submission of reports to the National Treasury and the alignment of budgets to the performance plans of the municipalities.

The Committee was required to conduct oversight and to comply with the requirements of Section 154 of the Constitution and Section 34 of the Municipal Finance Management Act (MFMA).  The Committee would submit a report on the proceedings to Parliament and would make copies available to the stakeholders present at the meeting.

Briefing by the Mangaung Metropolitan Municipality
Ms Nthabiseng Mokotjo, MMC Finance, Mangaung Metropolitan Municipality introduced Mr Sandile Msibi, Municipal Manager, Mr Raymond Taye, Chief Financial Officer and Mr Luvuyo Ntoyi, Executive Director: Infrastructure.

Mr Msibi presented the briefing to the Committee (see attached document).  The municipality included the city of Bloemfontein, Botshabelo and Thaba Nchu and recently achieved metropolitan status.  The municipal area covered 6,863 km².  Bloemfontein was the judicial capital of South Africa and the capital of the Free State province.

The presentation included an overview of the structure of the municipality; the council committees and the alignment of the municipality’s Integrated Development Plan (IDP) with the Provincial Growth and Development Strategy (PGDS). 

A breakdown of the national and provincial grants allocated to the municipality for the 2010/11 fiscal year was provided.  The total amount of the conditional grants received amounted to R385.951 million.  An amount of R233.535 million was rolled over from the previous year.  R384.565 million had been spent by the end of June 2011.  The total underspent amount as at June 2011 was R234.921 million.  A breakdown of the variances (i.e. the underspent amount) for each type of grant was provided.  A summary of the application of the grants was included.  The adjusted capital budget for 2010/11 amounted to R797.711 million, of which R465.855 million (58.4%) had been spent by June 2011.

Details were provided of the municipality’s budget performance.  A breakdown of the sources of revenue and types of operating expenditure was included.  The 2011/12 budget for operating expenditure had increased by 23.53% to R3.691 billion and the budget for revenue had increased by 33.72% to R4.438 billion.  The reasons for the increased budget for the current financial year were provided.  Grants accounted for 25.52% of the budgeted revenue and 69.2% of the budgeted capital expenditure for 2011/12.

Employee salaries accounted for 24% of budget (R886.8 million).  Details were provided of the budget for repairs and maintenance of infrastructure and assets.  80.1% of the total budget for repairs and maintenance (R164.8 million) had been spent.

An analysis of the debtors account revealed that the municipality was owed a total of R1.2 billion in unpaid rates and services accounts.  72% of the outstanding revenue (R874 million) had been unpaid for longer than 120 days.  Domestic debtors accounted for R861.8 million, followed by businesses (R251.7 million), government entities (R72.1 million) and others (R36.6 million).  A breakdown of the government debt for rates and services was given.  The actions taken by the municipality to recover the outstanding amounts were summarised.

Details of the municipality’s complaince with the MFMA were given.  The Auditor-General had issued disclaimers for the previous three financial years.  An action plan and a dedicated committee were in place to achieve clean audits in future.

An overview of the service delivery challenges was included.  Electricity services were supplied by Centlec, a wholly-owned entity of the Mangaung municipality but it was doubtful that the entity would be sustainable in the long term.  Details were provided of the challenges faced and the current backlogs for the provision of water, sanitation, refuse removal, roads and storm water services.  The short-term cost of addressing the backlogs amounted to R2.3 billion.  To date, 36,000 indigents had been registered and received free basic services.

The briefing was concluded with an overview of the inter-governmental relations between the municipality and Centlec, ESKOM, Bloemwater, the Development Bank of South Africa (DBSA), other municipalities, sector departments and communities.  The importance of public participation in the municipal processes was emphasised.  Agreement had been reached with ESKOM to repay an outstanding amount of R143 million in four monthly installments.  The debt of R13.5 million would be repaid to Bloemwater in twelve monthly installments.  A turnaround strategy had been developed.

Input by the Deputy Minister of Cooperative Governance and Traditional Affairs (COGTA)
The Chairperson reported that the Committee had recently undertaken an oversight visit to the Free State province.  Several areas of serious concern had been reported to the Minister.  The major issue was the extent of municipal debt.  Municipalities accounted for 73% of the total amount owed to ESKOM.  The provincial department of COGTA had a bail-out program in place and had transferred R76 million to municipalities by the end of March 2011 to assist with the payment of outstanding accounts.  Nevertheless, COGTA had failed to provide the necessary support to ailing municipalities.  Reports were not being debated in municipal councils and the Democratic Alliance would be taking the matter to court.  Allegations of corruption had been referred to the Hawks for investigation.  Several municipalities were in a state of collapse, necessitating Section 139 interventions.  Government funding was subjected to auditing but funds from private sources were not subjected to the same level of scrutiny.  The number of vacant key posts in municipalities was hampering development.  Most municipalities experienced cash flow problems.  It was unclear how revenue deficits would be funded.  Other areas of concern were the under-spending of grants, the increase in expenditure, the increase in debtors, the increase in ESKOM tariffs, the failure to do proper budgeting, the failure to comply with supply-chain management criteria and the failure of officials to attend meetings, training programs and workshops.  The provincial Treasury offered training programs for officials but the municipalities had failed to take advantage of the assistance provided.  The Committee’s report to Parliament was nearing completion.  The Committee wanted to see what action plans had been developed to address the challenges in municipalities.

Mr Carrim extended the apologies of Mr Nathi Mthethwa, Acting Minister of COGTA, who was unable to attend the meeting.  He welcomed the oversight visit of the Committee to the Free State province.  The observations of the Committee painted a familiar picture.  COGTA had developed a turnaround strategy for local government, which translated to Outcome 9.  The success of the strategy depended on the involvement of civil society.  The challenges faced by municipalities were known but he was confident that the strategy would be successfully implemented.

COGTA was of the view that local government had to remain a sphere of government.  The three levels of government (i.e. national, provincial and local) had to become more integrated.  It was necessary to allow more active intervention and a shift in the balance of power might be required.  The powers and functions of the three tiers of government were not very clear in certain respects.  An example was the responsibility for planning.  The need for both municipal and district councils had to be reviewed.  GOGTA was currently working on the Green Paper and White Paper for local government.  The Parliamentary Committees would play an active role in the review of the policy, which was not driven by ideology but by the need to ensure a suitable environment for the developmental state.  The issues that had to be resolved included structural, systemic, policy implementation, leadership and service delivery failures.

Mr Carrim conceded that revenue collection was a major problem.  However, it was necessary to take into consideration that many jobs had been lost during the economic downturn.  The responsibility to provide support for the increasing number of indigents was not only that of local government.  The issue concerned the National Treasury and the provincial Members of the Executive Council (MEC) Finance as well.  It was essential that grants were spent as intended and grant funding must not be used for “tools of trade”, for example cell phones.  The National Treasury, GOCTA and SALGA were currently reviewing the municipal funding model and the rationalisation of the various grants.  A summit on local government funding was planned for February 2012.

Municipalities must have the capacity to spend the funding that was made available.  Additional funds would not be provided unless the relevant municipality was capable of spending it effectively.  The focus had to be on building capacity and on developing skills.

The referral of instances of corruption to the Hawks for investigation and prosecution was supported by COGTA.  The Department had established an anti-corruption unit to investigate allegations of corruption at local government level.

Two municipalities in the province had been placed under administration in terms of Section 139 by the provincial authority.  The Department would be bringing a Bill to Parliament that would allow the national government to intervene as well.  The system of intervention was under review.  The National Treasury dealt with issues of finance rather than with issues of governance.  COGTA had identified six key positions in local government and was aware of the current vacancy situation.  The Department was working on professionalising positions in local government.  For example, chief financial officers (CFO’s) must also be qualified chartered accountants (CA’s).  There had to be demographic representation in the appointment of officials.  COGTA was in the process of finalising the regulations applicable to the appointment of officials.

At least 5% of revenue had to be allocated to the repair and maintenance of municipal infrastructure.  It was noted that the Auditor-General had reported a ‘marginal but significant’ improvement in the financial management of local government structures.  Discussions were underway on tightening the implementation of supply-chain management (SCM) regulations.  The problem was not the rules but the following of the rules.

COGTA advocated a phased approach to implement turnaround strategies.  The financial as well as the societal issues had to be taken into account.  A substantial national effort was necessary to turn local government authorities around.  The subject was complex and he would be happy to provide the Committee with a dedicated briefing if required.

Discussion
The Chairperson thanked Mr Carrim for the insight provided.

Mr B Mashile (ANC, Mpumalanga) observed that there were certain short-term actions that could be taken by municipalities to improve their situation.  For example, the Auditor-General had commented on poor record-keeping and inadequate asset registers.  Municipalities had appointed personnel and must ensure that staff carried out their duties.  Municipalities had appointed audit committees and conducted internal audits yet were amazed when the Auditor-General issued disclaimers.  Officials and councilors had to be more committed to their responsibilities.

Mr M Makhubela (COPE, Limpopo) agreed with the comments made by Mr Mashile.  Many of the problems experienced by municipalities were the result of a failure of leadership.  He asked what strategies were in place to deal with the lack of proper administrative procedures.

Mr S Montshitsi (ANC, Gauteng) agreed that the interaction between the three tiers of government and the continued existence of different types of local government structures had to be reviewed.  The Committee had investigated financial management aspects in particular during the oversight visits to the various provinces.  Members had observed that a culture of ‘looting with impunity’ was prevalent at municipalities.  This was a serious matter and had to be addressed.  Members had noted that the senior officials responsible for financial management at the municipality did not attend the workshops arranged by the National Treasury.  Records were deliberately not kept because wrongdoing would be exposed.  It had been found that municipal officials had applied for tenders issued by other municipalities.  In certain cases, officials sat on tender boards and awarded tenders to their own companies.  The failure to deliver services had a negative impact on communities.  In certain cases, communities had demonstrated against corrupt practices in the municipality.  The protests put innocent bystanders at risk of injury or death.  Despite the availability of free advice from the National Treasury, municipalities had appointed external consultants at great expense to address the issues raised by the Auditor-General.  In certain cases, the municipality continued to receive adverse audit reports.  He questioned the need for Centlec to deliver electricity services to the Mangaung municipality.  He wanted to know why ESKOM could not provide electricity to the municipality direct.  COGTA, the National Treasury and the South African Police Service (SAPS) had to be involved in prosecuting officials suspected of corrupt practices.

Mr Neels van Rooyen, Member of the Free State Provincial Legislature and Chairperson: Public Accounts and Finance questioned the role played by SALGA.  The Association was aware of the challenges faced by municipalities but was not doing anything to assist.  SALGA was invited to all the discussions between the provincial and local government authorities but had only attended once.  SALGA had recently arranged several conferences during a four week period, which meant that municipal managers were absent from their posts for three weeks.

Mr SJ Mohai, MEC for Finance, Free State Province welcomed the review of the three levels of government mentioned by the Deputy Minister.  Many poor municipalities had no revenue base and needed a great deal of assistance to address the problems caused by aging infrastructure.  The opinion of the Auditor-General was taken seriously by the provincial authority.  He agreed that local government entities had to comply with the legal requirements and with the regulations.  Forensic investigations into the affairs of a municipality bred uncertainty amongst officials.  Budgets that were not achieved were not considered to be credible.  A major issue was the balancing of the need for services with the availability of adequate funds to provide the services.  The province had identified the key focus areas of the mayor and senior municipal officials.  A review of the service delivery model had revealed a gap between the strategies that had been developed and the implementation thereof.  It was unnecessary to change the model but it was necessary to strengthen the delivery of services.  The fund administered by the Office of the Premier of the Free State had been properly structured in accordance with good governance criteria.  The fund was utilised to provide financial assistance to municipalities.  Financial statements and reports were available.  The mayors of all the municipalities in the Free State were invited to attend the provincial lekgotla, during which the issue of municipal debt would be addressed.

The Chairperson said that the intention of the meeting was not to point fingers but to engage with all the stakeholders involved in resolving the challenges currently faced by local government entities.  Members of the Committee had conducted oversight visits to five of the nine provinces and had a good idea of all the major issues concerning municipalities.

Mr Carrim agreed that the lack of proper record-keeping could be dealt with speedily.  The proper accounting for assets was more complex and required more time to implement.  He had no answer to the problem of getting municipal employees to work harder.  All had a role to play in changing the culture to one which encouraged a work ethic.  The incumbents of the six key local government positions would be required to belong to professional associations and would have the required qualifications and skills but these criteria would not guarantee that the person also had a positive work ethic.  He agreed that the performance of SALGA had been unsatisfactory.  He hoped that the recent change in leadership at SALGA would result in a significant improvement in the near future.  COGTA had investigated the amount of money spent on training since 2005 versus the actual outcome but had found that the result was negligible.  The frequent changes in political affiliation had resulted in many municipal managers not completing their terms of office.  Municipalities suffered from the instability caused by frequent changes in management.

The Chairperson thanked Mr Carrim, who was unable to attend the entire meeting.  Further discussions with the Ministry had been scheduled for November 2011.

The Chairperson said that the Committee had observed that refuse removal in Mangaung municipality was a major cause for concern.  He asked if the municipality had the necessary capacity, in particular sufficient competent personnel, to implement its strategic plans.

Mr Makhubela said that a strategy to have a stable leadership structure in place was necessary.  He asked why persons without the required skills had been appointed in key positions at the Mangaung municipality.  Expenditure on electricity was a large percentage of the total operational expenditure.  He wanted to know what strategy was in place to address the increasing cost of electricity.  He asked what had been done to address the challenges concerning refuse removal.  He asked who had compiled the briefing document to the Committee.

Mr Mashile asked if the rolled-over grants from the prior financial year had been approved by the National Treasury.  He asked if Centlec provided electricity services to other municipalities as well.  He wanted to know if the relevant skills were available to ensure that the full amount of grants would be spent.  He asked how much had been spent on legal fees.  He noted that an amount of R30 million in donations from the public had been received.  He asked who had donated the funds and for what purpose.  Although the annual financial statements and reports to the National Treasury were submitted in time, the quality of the reports had been questionable.  He asked if the audit committee reports were submitted to the municipal council and if the internal audit function was properly carried out.  He noted that 36,000 indigents had been registered but wanted to know what the percentage of the total population was classified as indigent.  He asked if enough had been done to ensure that all indigents were registered.  He noted that an amount of R28 million had been earned in interest on internal investments.  He asked how much had been invested and how it was possible for a municipality that owed ESKOM R143 million had funds available to invest.  He asked what the level of participation by ESKOM, COGTA and other stakeholders was in the IDP process.

Mr R Lees (DA, KwaZulu Natal) asked if the debt to ESKOM of R143 million included the R70 million that was repaid in September 2011.  The Auditor-General had reported that an amount of R43 million was unaccounted for during the 2009/10 fiscal year.  He noted that the revised salary budget for 2010/11 had been increased to almost R800 million but only R730 million had been spent.  He asked what the reason was for the failure to implement the recommendations of the Select Committee on Public Accounts (SCOPA).  He asked if the municipality paid service providers within 30 days, as required.  The report did not indicate the amounts spent on salaries of councilors and external contractors.  He queried the accuracy of the budget amounts for bulk purchases.

Mr B Mnguni (ANC, Free State) asked if senior officials had been present during the audit by the Auditor-General.  He noted that the municipality had five interns and had received a grant for training.  He asked how many persons were being trained in financial management.  The municipality was owed R72 million by government.  He asked if a breakdown could be provided of the amounts owed by the national and the provincial government authorities.  He wanted to know what action was taken by the Free State MEC Finance to ensure the outstanding debt was paid.  He asked for comment on the legal challenge of installing pre-paid water meters in poor areas.  He asked what progress had been made in establishing ward committees by the end of October 2011.  He asked how many trainees had successfully completed the training courses and if any action was taken if trainees failed to complete a course.

Mr Van Rooyen said that the provincial authority was aware of the Constitutional Court case that questioned the constitutionality of pre-paid water meters.  The province had passed several resolutions on the issue of Centlec.  The question from the Member concerning the reasons for the failure to implement SCOPA resolutions was valid.  He expressed concern over the credibility of the report submitted by Mangaung as the report contained incorrect figures and contradictions.  He had personal experience of the faulty billing system and had received an account of R6,000 for water.  The matter was eventually resolved but people were extremely frustrated by the practice of cutting off the supply of services even if there had been an error in the billing system.

The Chairperson asked what the average monthly income, expenditure and revenue deficit was.  He asked for clarity on the ‘other’ items reflected in the reports on revenue and expenditure.  The Committee would like to see the budget for the previous three years to allow Members to establish trends.

Mr Lees observed that the bulk of the outstanding debtor accounts were owed by domestic ratepayers.  He asked what was being done to recover the money owed to the municipality.

Mr Msibi responded that five critical posts were recently advertised and the municipality was in the process of interviewing the applicants.  The incoming political leadership had felt that changes needed to be made.  The budget for training had been inadequate.  More than five interns required training but the funding made available by the National Treasury was sufficient for the training of only five persons.  The training objectives had not yet been achieved but progress was being made.

Mr Msibi advised that the issue of Centlec had been the subject of lengthy debate in the municipal council.  The municipality was reviewing what framework for the provision of electricity services was used by other metropolitan municipalities in the country in order to establish what was most effective.  He agreed that the problems experienced with electricity services were the result of poor management and a lack of maintenance of the infrastructure.  The amount of revenue had remained static despite an increase in the number of electricity connections.  Discussions with ESKOM on the tariffs were being held.  The assistance of ESKOM was required to ensure that customers were charged the correct tariff.  The Mangaung municipality was in debt to ESKOM but the accounts of other municipalities were paid to date.

Mr Msibi recalled that a wildcat strike was underway during the visit of the Committee to the municipality.  There were problems with the vehicles used for waste removal.  The workforce was highly politicised but the municipality was engaging with employees to determine the reasons for their dissatisfaction.  The introduction of shifts was being considered.  He was unaware of the non-attendance of senior officials at workshops and asked that such instances were reported to him without delay. 

In response to the questions about the actions taken to address the audit findings, Mr Msibi said that the comments concerning the late submission and the quality of reports were taken seriously by the municipality.  The problems experienced with the retention of supporting documents were acknowledged.  The matter was being addressed by scanning all documentation.  The audit committee had met on two occasions in 2011 and had issued reports.

Mr Msibi explained that the municipality had provided free basic electricity to all residents prior to June 2011.  As from that date, free basic electricity was only provided to registered indigents.  The register was continuously updated but it was a challenge to identify all the indigents in the area.

Mr Msibi said that the relationship between the municipality and other government entities was good.  There was ongoing engagement and assistance had been provided to address the challenges with inadequate internal capacity.  Centlec had a stand-alone financial system, which allowed the municipality to achieve better audit results.  Costs were reduced by sharing information technology (IT) and the municipal vehicle fleet with Centlec.  Quarterly reports on the progress made by the five interns were submitted to the National Treasury and there was a retention strategy in place.

Mr Msibi said that pre-paid water meters were installed on request.  The municipality had found that the more affluent areas preferred the pre-paid metering system, which ensured revenue and saved on staff costs.  He understood that the Johannesburg metropolitan municipality had won the appeal and that the system was widely used by other municipalities.  The municipality was sensitive to the issues affecting poor communities but also had to collect revenue to fund the provision of services.

Mr Msibi advised that the guidelines for the establishment of the ward committees had been approved by the council and deadlines had been set.  He conceded that there might be errors in the reports.  He agreed that there had been problems with the billing system.  There had been errors in recording the meter readings and in certain cases, the meters could not be found or the meter-reader had been denied access to the premises.  The municipality investigated complaints and communicated with the community on the need to report problems.

Mr Taye responded to the questions from Members concerning the municipality’s capacity to effectively spend the grants that were received.  He agreed that currently less than 60% of the total grants were spent and that assistance was required to establish the reasons for the under-spending.  The municipality had appointed five interns to undergo financial management training and had established an audit compliance unit staffed by Bachelor of Commerce graduates in an effort to address the disclaimers issued by the Auditor-General.  Assistance was required to apply the accounting standards imposed by the National Treasury.

Mr Taye advised that the reports and turnaround strategy had been compiled in-house.  The application to roll-over unspent grants had been submitted to the National Treasury during August 2011 and the approval was awaited.  The MIG grants were for ongoing projects.  A grant of R150 million was only received from the National Treasury in June 2011 and could not be spent before the end of the financial year.  The reports to the National Treasury were compiled in the required format.  An amount of R300 million in unspent grants had been invested to earn interest until the funds were required.  He conceded that service providers were not always paid within 30 days.  Certain SCOPA recommendations had been implemented.  The information on the trainees that had failed to complete their courses could be made available to the Committee.

Mr Taye explained that the ‘other’ revenue and expenditure items included income derived from the lease of municipal property, the sale of land, the auctioning off of obsolete equipment, et cetera.  He undertook to provide a detailed breakdown to the Committee.  The bulk of the domestic debt was for the provision of water to households and he expected that most of the outstanding amounts would have to be written off.  He had attended the training programmes arranged by the provincial treasury.

Mr Ntoyi confirmed that Bloemwater had been paid to date for water services.  The municipality had disputed the penalty amounting to R8 million levied by Bloemwater but had agreed to repay the outstanding amount.

Mr Msibi added that the council had approved the guidelines for the establishment of ward committees two weeks earlier.  The members of the committees had not yet been appointed.  The audit steering committee met twice a week to ensure that internal audits were done.  Senior officials were members of the steering committee.

Mr Taye explained that private developers were required to contribute to the cost of providing infrastructure for services in the case of new developments.  A breakdown of the payments received from private individuals and the legal fees paid by the municipality could be provided to the Committee.

Mr Van Rooyen asked for a written explanation of the reasons why the SCOPA recommendations had not been implemented.

The Chairperson remarked that the Auditor-General had commented on the failure to implement the SCOPA recommendations.  He asked for a written report to be submitted to the Committee.

Ms Mokotjo agreed to provide the reports.

Briefing by the Masilonyana Local Municipality
Mr Stephen Koalane, Mayor of the Masilonyana Local Municipality introduced Mr Mohanoe Mpakane, Municipal Manager, Mr Itumeleng Tlatsi, Chief Financial Officer and Mr Chris Mokomela, Administrator.

Mr Mokomela presented the briefing to the Committee (see attached document).  He was appointed the Administrator in 2009, when the municipality was placed under administration.  At the time, the municipality owed R6 million to ESKOM, had an overdraft of R6 million, had not paid employees and had not spent the grants that had been allocated.

The presentation included a summary of the budgeted and actual revenue and expenditure for the 2010/11 financial year and the growth in the budget for 2011/12.  The pre-audit total operating revenue for 2010/11 was R154.298 million.  Total expenditure for the period was R134.046 million.  The municipality was highly dependent on grants for its operating and capital funding requirements.  Revenue collection during 2011/12 was 52%.  Salaries accounted for 29% of the operating budget.  5% of the operating budget was spent on repairs and maintenance but needed to be increased to at least 10% as the infrastructure had deteriorated to the point of collapse.

An overview of the municipality’s compliance with the MFMA was provided.  The municipality had no supply-chain management unit, bid committee, budget office, internal audit unit or audit committee in place.  Annual financial statements and Section 71 reports to the National Treasury were submitted on time.  100% of the conditional grants totaling R41 million had been spent.  Details were provided of the achievements of the various grants.  A breakdown of the projects and service commitments per sector department was given.

The municipality provided basic services to 4,580 registered indigents.  Details were given of the electricity, water, refuse, sanitation and roads services currently provided to households and the targets that were set for 2011/12.  The municipality faced capacity constraints in the areas of financial management, roads, water and sanitation and refuse removal.  Payment for electricity services provided by ESKOM was up to date.  The major challenges were the sustainable delivery of services, the lack of vehicles for waste removal, ambulances and SAPS and bulk sewerage services.  The municipality had formed partnerships with the mining industry to create more jobs.

The briefing was concluded with an overview of the alignment of the municipality’s IDP with the provincial growth and development strategy.  Action plans to achieve clean audits, a clean municipality and good governance had been developed and details could be made available to the Committee.

Discussion
The Chairperson asked Mr Mokomela what his qualifications were.

Mr Mokomela replied that he was a qualified teacher and had a teaching diploma, a degree and a post-graduate degree in psychology.

The Chairperson explained that the reason for asking the question was that the objective was to appoint municipal managers who had competency levels that were equal to those of an administrator.  The appointment of competent municipal managers was part of the solution to turn around struggling municipalities.

Briefing by the Ngwathe Local Municipality
Mr Jonas Ramokhoase, Mayor of the Ngwathe Local Municipality advised that the municipality was in crisis.  The municipality had recently suffered a strike by employees; the municipal manager had been suspended, pending an investigation by the Hawks and investigations by the Office of the Free State Premier and the provincial treasury had been conducted.  The provincial authorities had provided support to address the disclaimers issued by the Auditor-General.  The senior financial officer had resigned.  An acting CFO had been appointed but was unable to function for seven months as he was not given the necessary powers and authority.  There was a great deal of tension between the CFO and the municipal manager, to the extent that the persons concerned refused to talk to each other.

The report to the Committee had been compiled by Mr Ramokhoase, with the assistance of junior personnel.

Discussion
Mr Mashile asked if Mr Ramokhoase placed any value on and believed in the report to the Committee.

The Chairperson said that the credibility of the presentation document was being questioned.  He asked what the current position of the CFO was.

Mr Ramokhoase replied that the CFO was appointed the Acting Municipal Manager when the incumbent was suspended.  The municipal council was currently debating the matter and would decide if the CFO would continue as the acting municipal manager.  He was appointed as the mayor two months earlier and was not in a position to vouch for the information contained in the report.  However, he was prepared to take full responsibility for the state of affairs at the municipality.

Mr Mashile suggested that Mr Ramokhoase was allowed the opportunity to engage with the municipal officials and given time to verify the information in the report to the Committee.  It was clear that the municipality was in trouble but the Committee wanted to ensure that the necessary assistance was provided to rectify the situation.  Senior officials had to be put in place and much work needed to be done.  He doubted that Mr Ramokhoase was currently able to respond to questions from Members.

Mr Mnguni agreed with the comments made by Mr Mashile.  The municipality was in tatters and he would like to know what the position was of the Free State province and what action had been taken.

Mr Van Rooyen agreed with the Committee.  It was unfair to hold Mr Ramokhoase accountable at the present time.  He suggested that the presentation document was withdrawn and that the contents of the report were not made public.

The Chairperson agreed to the withdrawal of the presentation document.  The copies that were distributed to the attendees at the meeting were returned.

Discussion on the Masilonyana presentation
The Chairperson said that the Committee would like to hear more about the Extended Public Works (EPW) projects, the involvement of Brandfort Water and the appointment of external service providers by the Masilonyana municipality.

Mr Makhubela asked if the Masilonyana municipality would achieve a clean audit, given the extent of the capacity constraints that were mentioned.  The municipality clearly had no capacity for refuse removal.

Mr Mnguni observed that the municipality lacked expertise at the senior levels.

Mr Van Rooyen questioned the credibility of the report submitted by Masilonyana.  The Auditor-General had remarked on the fact that the annual financial statements were not submitted on time.  The municipality aspired to achieve a clean audit but did not have the necessary structures in place.  He was of the opinion that the report submitted to the Committee did not accurately reflect the true situation.

Mr Lees asked for clarity on the ‘other’ revenue and expenditure items listed in the report.  He asked for an explanation of the negative amount of R1,089 million in the adjusted budget for ‘other’ service charges (see page 2 of the presentation document).  He asked for an explanation of the interest earned and dividends received and for more information on the budget for finance charges.

Mr Mashile noted that the municipality had been under administration since 2009.  He was concerned that the placing of municipalities under administration in terms of Section 139 did not have the desired results.  He had noticed a trend since 2001 of municipalities failing to implement simple administrative procedures such as record-keeping, the failure to establish the necessary committees, a tendency to terminate the services of personnel and an increase in the number of vacancies.  He asked how the municipality managed to spend 100% of the conditional grants if no supply-chain management mechanism was in place.  He wanted to know what progress had been made in getting the municipality to function properly so that the administrator could be withdrawn.  He was most concerned that the municipality continued to spend money despite the fact that the required systems were not in place.

The Chairperson wanted to know what assistance was provided by SALGA to the municipalities.  The oversight responsibility of the mayor and the councilors was very important and these officials were accountable to the community.

Mr Mokomela replied that the grants had been spent by the unit appointed by the DBSA.  The unit was responsible for the increase in spending the grants from 12% in the previous year to 100% in the current year.  The MIG grants were ring-fenced and utilised for the payment of salaries and electricity.  Funds received were transferred to interest-bearing call accounts until payment had to be made.  The dividends were earned by the short-term investment of unutilised funds in an approved investment vehicle.  He denied that the 2009/10 and 2010/11 annual financial statements were submitted late.  The municipality was addressing the problem of refuse removal by improving the management of the vehicle fleet.  The municipality shared the services of the audit committee with a neighbouring municipality.

Mr Tlatsi explained that the municipal manager was appointed at the same time as the administrator.  The clean audit plan was known as Operation 2014 Clean Audit and had been recently compiled with the assistance of the councilors.  The process of establishing the required compliance committees was underway and had to be completed by the end of November 2011.  Personnel had been re-deployed to the financial management department.  He conceded that not all the required internal control procedures were in place but progress was being made.  The necessary procedures and systems were being developed and would be implemented as soon as possible.  One of the challenges was that incorrect data had been captured on the system.  Efforts were being made to rectify the supplier and asset data.  The necessary staff capacity was available to do the necessary clean-up of records in the short term.

Mr Mashile said that the Administrator held all the executive powers and controlled the entire operation on behalf of the mayor and the municipal manager.  The situation had prevailed since 2009 and he wanted to know why it had not yet been resolved.  He asked why the municipality had not appointed an external service provider to install the necessary systems and procedures.  No information was provided on the training plans to develop the required capacity or on any succession plans.  There was no evidence of the Administrator playing a mentoring role before he was withdrawn.  In his opinion, the intention of the Section 139 intervention at the municipality was not being achieved.

Mr Van Rooyen conceded that the Auditor-General had in fact commented that the annual financial statements were submitted in time but had not complied with the quality requirements.

Mr Mokomela explained that the report did not include a description of the situation at the time the municipality was placed under administration.  There had been no organogram and it had been necessary for him to determine what needed to be done and to engage with the staff.  The process had taken a long time to resolve.  There were only two employees in the finance department.  It had been necessary to establish the required structures and systems from scratch and to ensure that adequate staffing was put in place.  He currently had a team in place and progress could now be made.

The Chairperson asked what the timeframe was for finalising the process.

Mr Mokomela replied that the process would be completed by the end of September 2011.  He anticipated that a further three months were necessary to monitor the operations before he was withdrawn.

Mr Makhubela suggested that the Committee arranged an oversight visit to the Masilonyana municipality as it would appear that little had been achieved over the previous two years.

Mr Mnguni expressed doubt that the necessary systems would be in place and functioning properly within three months.

Mr Koalane said that the municipality had seen significant change since the Administrator was appointed.  He had relinquished his powers to the Administrator and allowed him to operate without interference.  There had been constant engagement between his office, the council and the Administrator.  The Administrator had been apprised of the issues that he had wanted to be addressed.  The council had an anti-corruption strategy in place.  It became clear in 2008 that an intervention was necessary but the Section 139 intervention was delayed to the following year.  The intention of a Section 139 intervention was restoration rather than a punitive measure.  He was committed to the eradication of fraud and corruption in the municipality.  Allegations of corruption were taken seriously.  All accusations of corruption would be investigated and prosecuted and reported to the Special Investigations Unit (SIU).  It was essential that the Auditor-General’s findings regarding fruitless and wasteful expenditure were addressed.  The municipality was committed to achieving clean audit reports in future.

Input from the National Treasury
Mr Vincent Malepa, Director, National Treasury was concerned over the increase in the debtors account of the Mangaung municipality.  Although the municipality was attempting to address the matter, significant progress was not being made in recovering the amounts owed.  The National Treasury had expertise in revenue management, which was made available to the municipality.  Asset management was another area of concern and the Auditor-General had issued many disclaimers on asset management by municipalities.  The Treasury was currently sourcing expertise to provide assistance with the establishment and management of asset registered.  The Treasury also provided assistance with the implementation of financial management systems at municipalities.

The National Treasury was reluctant to allocate more funding to municipalities but could assist with sourcing the necessary expertise.  The DBSA was a source of expertise.  Mangaung had submitted a credible budget for the 2011/12 fiscal year, which was drawn up with the assistance of an external specialist.  He urged municipalities not to wait until the situation had become a disaster before approaching the Treasury for assistance.  The National Treasury was reluctant to intervene in the Masilonyana municipality when the required senior management was not in place.  He invited the municipality to approach the Treasury for assistance as soon as the key vacancies had been filled.  The Treasury would provide hands-on assistance to the Ngwathe municipality as soon as the situation there had been stabilised.

Input from the Free State Provincial Treasury
Ms Anna Fourie, Provincial Accountant advised that the provincial Treasury had arranged training sessions for municipal officials on the preparation of budgets and tariff determination with the National Treasury.  The training program would commence in September 2011 and should be attended by the municipal CFO and the heads of the budget, revenue and expenditure departments.  The provincial Treasury had done presentations at municipalities on the subject of municipal budgets and technical assistance had been made available.

The provincial Treasury had completed the assessment of the questionnaires that were sent to municipalities and had a good understanding of the problems of municipalities.  Meetings had been held with SALGA and the various government departments to resolve the issue of government debt.  A guide for the collection of outstanding revenue had been compiled.  The National Treasury had issued new guidelines for the compilation of annual reports.  The provincial Treasury had provided assistance to six municipalities to compile the 2010/11 annual reports.  There were thirty indicators to determine compliance with the MFMA.  The provincial Treasury had assessed all the municipalities in the Free State province and used the results to provide dedicated support where required.

The Mangaung municipality had an agreement with Bloemwater, which was not honoured and Bloemwater had levied penalties and interest.  The shift of responsibility from the municipality to Centlec was not properly planned.  For example, people could not buy pre-paid electricity, Centlec did not have sufficient staff, it was unclear which entity would receive any profits and what the impact of the arrangement would be.

The management of the Masilonyana municipality was in place.  The provincial Treasury had provided additional assistance to compile the annual financial statements for the previous three years.  An area of concern was that little skills transfer had taken place because the municipality had lacked a CFO.

A finance committee had been established for Ngwathe municipality.  Representatives from the provincial Treasury, COGTA, the municipal council, SALGA and the MEC Finance sat on the committee.  The committee commenced proceedings in August 2011.  The posts of CFO and municipal manager were vacant and officials had been appointed in an acting capacity.  However, there was a problem with the relationship between the two officials concerned and the officials refused to cooperate with each other.  The key posts at the municipality remained vacant, there was no audit committee and no internal audits were conducted.  The provincial Treasury had compiled the charters for municipal committees.  She was pleased to hear that the municipality had given the assurance that the required committees would be established by October 2011.

Input from the Free State Provincial Department of Cooperative Governance and Traditional Affairs (FS COGTA)
Mr Kopung Ralikontsane, Head of Department welcomed the discussion.  It was necessary to understand the historical background in order to put the current situation of the municipalities concerned into context.

The Mangaung municipality was in transition.  There was a need for a special grant to assist new metropolitan municipalities to get the necessary systems in place and to absorb the costs of the other municipalities in the metropolitan area.  The provincial COGTA monitored the governance of municipalities and was concerned over the way the restructuring at the senior level had been done.  Systems needed to be in place to allow the municipality to take on additional responsibilities, as outlined by the Deputy Minister.  The necessary capacity to establish the specialist committees and to implement the provincial objectives had to be available.  For example, the municipality had to be fully accredited to develop human settlements programs.  The strategies of the municipality and the provincial local government authority had to be aligned and the necessary monitoring and reporting procedures had to be in place.  Public participation in the municipal processes had to be strengthened.  Support was available to improve governance performance.

The provincial COGTA had provided assistance to the Ngwathe municipality.  COGTA was dissatisfied with the appointment of the CFO and the municipal manager.  The result had been a toxic situation with a suspended municipal manager and an incapable CFO.  He suggested that the municipality dismissed both the incumbents and instead made use of the resources available from COGTA.  The responsibility of the provincial COGTA was to regulate, monitor and provide support rather than performing the functions of a municipality.

Mr Ralikontsane agreed with the Members’ questioning of the efficacy of the Section 139 intervention in the Masilonyana municipality.  The intervention was not budgeted for and relied on the cooperation of municipal staff.  In the case of Masilonyana, the staff had been unhelpful and uncooperative.  The Administrator worked closely with the mayor, municipal manager and reported to the council.  The Administrator should not be regarded as a ‘lone ranger’.  The provincial COGTA wanted to terminate the Section 139 interventions as soon as possible.  A period of at least three months was necessary for hand-over and the assistance of the provincial COGTA was available. 

Currently, only two legislative options were available to deal with struggling municipalities, i.e. Section 106 of the Municipal Systems Act and Section 139 of the Constitution.  Investigations in terms of Section 106 had been done at Ngwathe.  The results of the investigations had to be presented to the National Council of Provinces (NCOP) and to the Minister and permission to intervene had to be obtained.

The Chairperson remarked that it was necessary to speed up the process for providing the necessary assistance to struggling municipalities.

Input from the Auditor-General of South Africa (AGSA)
Mr Willem Opperman, Senior Manager, AGSA advised that the Auditor-General followed up with the National Treasury and COGTA on the implementation of SCOPA resolutions on a monthly basis.  The auditor checked the implementation of the resolutions at the beginning of the audit and subsequently followed up on outstanding matters with the entity concerned on a quarterly basis.  The audit of Mangaung municipality had commenced in January 2011 but AGSA was asked to halt the audit in February 2011.  The audit recommenced in July 2011.  The annual financial statements of the Masilonyana municipality were received on time but there were a number of problems with the statements and it had taken much longer to finalise the process.

Ms Maureen Bubb, Manager, AGSA explained that the audits were delayed because of municipal strikes.  The Premier of the Free State province had requested an audit of Ngwathe in February 2011 but the CFO had ignored all the e-mails from AGSA.

Input from the South African Local Government Association (SALGA)
Mr Mayur Maganlal, Executive Director: Economic Development and Planning, SALGA said that a Section 139 intervention was a legal process.  SALGA was involved in task teams on an ad-hoc basis.  SALGA played a role in the induction of new councilors.  One day of the induction course was dedicated to financial management.  SALGA was currently developing an induction program for new mayors and senior finance officials.  SALGA convened provincial conferences and clarified the involvement of municipal managers in decision-making.  SALGA worked closely with the National Treasury on compliance with the MFMA.  SALGA participated in district forums and the provincial budget but did not intervene in municipalities.

The change in the status of the Mangaung municipality required the entity to become more involved in the built environment.  The National Treasury and the World Bank had developed the City Support Program to assist metropolitan municipalities with the development of human settlements.

The extent of the municipal debtors account was a major concern.  The total amount owed to municipalities had increased to R54 billion and escalated at a rate of R10 billion per annum.  SALGA had made recommendations to address the issue of municipal debt.  Mangaung had registered only 36,000 indigents but at least half of the total population was very poor.  Municipal debt included the cost of providing free basic services.  More than 70% of the total amount owing had been outstanding for longer than 120 days but had not been written off.  SALGA had requested the National Treasury to provide guidelines for municipalities to write off debt.  ESKOM provided electricity services to certain areas, resulting in a lost opportunity for the municipality to generate revenue from surcharges on the electricity tariff.  The municipality had no leverage to ensure that the fees charged for water and sanitation services were paid.

The Chairperson asked SALGA to submit a detailed, written action plan to address the challenges faced by municipalities by the following week.

Mr Maganlal said that a meeting with the Committee had been arranged for a later date.  SALGA would be preparing a briefing to the Committee on the subject.

Input from ESKOM
Ms Marion Hughes, Regional Sales and Customer Services Manager, ESKOM advised that the matter of the R143 million owed by the Mangaung municipality to ESKOM had been discussed and an agreement was reached to repay the outstanding amount over a period of three months.  The debt would be repaid by the end of November 2011.

ESKOM provided tariff and technical assistance to municipalities and participated in the development of IDP’s.

Payment for electricity services to the Masilonyana municipality was up to date and only the current account was outstanding.  ESKOM had noticed an improvement in the payment of accounts since the municipality was placed under administration.  ESKOM preferred payment arrangements to be made on an annual basis and played a role in ensuring that a municipality was financially sustainable.  The issue of the penalties levied by ESKOM for late payments was a major area of disagreement.  ESKOM had reservations that the Ngwathe municipality would be able to honour the agreement that had been reached between the two parties.

Input from the Department of Water Affairs (DWA)
Mr Tseliso Ntili, Head of Department: Free State Province said that the Department was most concerned over the issue of water security.  The DWA assessed the management of water resources, the changes in population, the supply of water and the demand for water and made its recommendations accordingly.  The Department also considered water conservation measures, infrastructure, the processing of waste water and the quality of the water supply.

The DWA monitored the performance of water service providers such as Bloemwater and the relationship between the service provider and the municipality.  An assessment of the water supply at the Mangaung and Masilonyana municipalities had been done.  Ngwathe municipality was assessed three years earlier and the DWA had completed a project to provide the water supply to new areas that had been developed.  The Department provided assistance to municipalities to maximise the available aquifer and ground water resources.  The DWA had short-medium and long term plans in place for the entire country.

Discussion
Mr Mashile referred to the report on the unspent grants of the Mangaung municipality.  The municipality could not be regarded as a fully functional metropolitan authority until it was able to spend the grants that were allocated.  He urged COGTA to provide the necessary assistance to Mangaung.  He asked the National Treasury if it was acceptable that the municipality had invested unspent grants amounting to R300 million.  He wanted to know if the unpaid debt to ESKOM affected the level of electricity services that were provided.

The Chairperson was concerned that the municipalities had rejected the support that was available from the national and provincial government entities.  It was clear that municipalities needed training on team-building and committed leadership.  The NCOP and the provincial authorities both played a role in conducting oversight over the performance of municipalities.  The Committee planned a follow-up oversight visit to the Free State during early 2012.  It was important that the negative perceptions of local government entities were turned around.  Workshops on the millennium development goals would be held and municipalities were required to develop strategies to reach the national objectives.

The meeting was adjourned.