Cooperative Governance and Traditional Affairs (COGTA) Annual Report 2010/11: SCOPA hearings with Minister

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Cooperative Governance and Traditional Affairs

14 February 2012
Chairperson: Mr T Godi (APC)
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Meeting Summary

The Department of Cooperative Governance & Traditional Affairs was questioned on its Annual Report and Financial Statements 2010/11, with particular reference to irregular expenditure, fruitless and wasteful expenditure, and non-compliance with laws and regulations.

Members firstly asked who in the Department was to be held to account, given that the Director-General had recently resigned and the Acting Director-General had only just taken up office. The Chairperson ruled that whoever came in the position of Director-General, whether in a permanent or in an acting capacity, was accountable. He emphasised the importance of the political leadership and administrative stability.

Members interrogated the Department on why it had not developed systems to prevent irregular expenditure, investigations in progress, on progress with implementation of legislation, how the Audit Committee could work properly in the absence of a fully functional Internal Audit Department, if the Department's restructuring was completed, how the Audit Committee would rate the Department's internal control systems and risk management, to what extent there was oversight at the municipal level to ensure that the monies distributed were spent properly, if former Minister spent on items not voted for, and if the Department had implemented the recommendations of the Public Protector. Members observed that this was a Department in profound crisis, that only 60 of the 278 municipalities had achieved clean audits, and that there was a lack of reporting on the Municipal Infrastructure Grant between the spheres of Government. The national Minister should intervene. The service delivery protests were a hindrance to efficient government. Members asked if Municipal Infrastructure Grant funds were ring-fenced for specific projects, why there was a dramatic increase in the use of consultants, and when the Audit Committee would meet with the Minister.

The Minister of Cooperative Governance and Traditional Affairs said that the Audit Committee was part of his portfolio, and he would attend to it as a priority. It was necessary to address the Operation Clean Audit findings. He would provide support to the officials. The search for a new Director-General was in progress. However, there was some stigma attached to the portfolio. The closing date for applicants was 03 March 2012 and the selection should be finalised by the end of March. The Minister hoped for a further meeting with the Committee towards the end of March.


Introduction
The Chairperson emphasised the importance of the Department of Cooperative Governance and Traditional Affairs (COGTA); as one progressed towards 2014, this Department must remain a shining example. There should be no disjuncture with the ideal. Mr Elroy Africa, former Director-General, Department of Cooperative Governance and Traditional Affairs, had recently resigned and unfortunately would not be present. Ms Tumi Mketi, Acting Director-General, had taken up her new post only two weeks ago. Such was a challenge that affected not only the Department of Cooperative Governance and Traditional Affairs.

Discussion
 Dr P Rabie (DA) asked why Mr Africa was absent.

The Chairperson replied that Mr Africa was absent because he had left the Department.

A Member stated that Mr Africa should be present.

The Chairperson explained that in a past hearing, a former official of the Land Bank had been willing to attend but the department concerned had refused.

Dr D George (DA) asked, as he had done the previous day (14 February hearing with the Department of Public Works), who in the Department, in this kind of situation, was accountable. Who accepted responsibility?

A Member asked if the Minister and Deputy Minister had apologised.

The Chairperson replied that the Minister and Deputy Minister were at a meeting. Whoever came in the position of Director-General, whether in a permanent or in an acting capacity, was accountable. So Ms Mketi would be responsible as Acting Director-General. It was in this regard that one emphasised the importance of the political leadership.

Mr R Ainslie (ANC) said that unfortunately the Acting Director-General, even if she had been in the post for one hour, must take responsibility, but sometimes it was impracticable when he or she was completely new to the job. The Committee needed to meet the people who, for practical purposes, could answer.

Mr S Thobejane (ANC) asked how one could expect a response from someone who was new to the job. However, Professor Muzamani Nwaila, Director-General, Department of Traditional Affairs, had been in that post some time.

The Chairperson ruled that the matter was clarified. Ms Mketi had taken responsibility as Acting Director-General. The Department of Cooperative Governance (DoCG) was the major department under the portfolio of Cooperative Governance and Traditional Affairs (COGTA). Hence the Chief Financial Officer and Corporate Services were located there. Ms Mketi was the leading delegate. However, the Committee was not assisted by the instability in the leadership of so many departments.

Irregular expenditure
Ms S Mangena (ANC), noting the Department's fluctuating audit opinions, called on it to pull up its socks higher and higher. The Auditor-General had found irregular expenditure and this was the basis for his qualified opinion. However, she was especially worried that the Auditor-General had found insufficient appropriate audit evidence to the completeness of irregular expenditure of about R419.r million. Why had the Department not developed systems to prevent irregular expenditure?

The Chairperson asked if the Department had systems to detect irregular expenditure and, if not, why not?

Ms Tumi Mketi, Acting Director-General, Department of Cooperative Governance and Traditional Affairs (COGTA) (who also worked as Deputy Director-General: Institutional Support and Coordination, Department of Traditional Affairs) replied that, since the Auditor-General' findings, the Department had developed a post audit action plan, the focus of which was mainly to review some of the financial systems and to develop a detailed action plan to enable the Department to respond to the issues that were identified as matters of concern. She wanted to request the Chief Financial Officer to brief Members on this plan.

The Chairperson said that this was not an answer to the question. He asked why the required systems were not established.

Ms Mketi replied that the Department had been undergoing a process of restructuring, which had led to a large number of officials, particularly in finance, leaving the Department. Some of the senior officials, had, as part of the restructuring process, been moved to other positions. That had led to the collapse of systems.

The Chairperson found this explanation helpful in understanding the situation.

Ms Mangena asked how many cases of irregular expenditure had been identified.

Mr Mowethu Mtyhuda, Chief Financial Officer, COGTA, replied that the 200 instances of irregular expenditure comprised extension of contracts and non-compliance in the procurement of goods.

The Chairperson asked why staff were shifted around in this kind of 'cultural revolution'.

Mr Mketi replied that this was because the Department was being restructured. All senior positions were advertised in March 2011; the filling of those positions began around June and July 2011, but the recruitment process took longer than expected. The first appointees took up their posts in August 2011. The only effective position at the time was that of Director-General, which was occupied by Ms Mketi's predecessor, Mr Elroy Africa.

Ms Mangena asked who was doing the reshuffling in the Department.

Ms Mketi said that the then Director-General and the Advisor to the Minister communicated the decision in a meeting held on 12 February 2011.

Ms Mangena noted that monies for municipalities had ended up in the wrong accounts.

Mr Mtyhuda replied that money had been transferred on a date other than the date agreed between the municipality, the Department, and National Treasury. The Department had written to the National Treasury to ask for an amended payment schedule.

The Chairperson asked Mr Mtyhuda what had happened.

Mr Mtyhuda replied that the Department was not ready to make the payment on the due date. On that basis the Department wrote to Treasury, which responded that the delay was the Department's fault. The Department accepted Treasury's response. Then the Department made the transfer payment, but a day after the due date. The Auditor-General had determined that the transfer was not made in conformity with the Division of Revenue Act (DoRA). The Department obtained confirmation from the municipality concerned that it had received the money and used it for the purpose intended. The matter was now with Treasury to ask for condonement of this irregular expenditure.

In a second case, when the Department was about to transfer monies, the Department received a letter amending the schedule of bank accounts of the municipalities concerned. However, the letter was forwarded to the concerned officials too late, and they had already processed the payment. However, the municipalities concerned confirmed that they had received the monies and used them for the intended purposes.

Ms Mangena argued that if the Department had systems in place it would have realised that it was wrong.

The Chairperson asked the view of the Office of the Auditor-General of South Africa (AGSA).

Mr Andries Sekgetho, Senior Manager: Office of the Auditor-General of South Africa, replied that the Department had applied to National Treasury for a withholding, but without first informing the municipality to which payment was to be made; so Treasury refused the withholding, but advised the Department to make the transfer as soon as possible because it was now in non-compliance with the Division of Revenue Act (DoRA). Any payment not in compliance was deemed irregular. This was the situation with the irregular expenditure of R127 million.

The other irregular expenditure of approximately R19 million originated from the fact that an updated banking details schedule was submitted to the office of the accounting officer on 30 July 2010. However, the payments were only effected on the 04 and 05 August. Since the AGSA followed a risk-based audit approach, the Auditor-General informed the Department that it should take steps to ensure payment into the correct bank account.

The Chairperson was trying to establish the reasonableness of the responses.

Mr Sekgetho replied that the AGSA deemed that the Department had sufficient time to note the changes in bank details.

Fruitless and wasteful expenditure
Ms Mangena asked about fruitless and wasteful expenditure of R2.1 million arising from the late payment of supplier invoices and taxes due to the South African Revenue Service (SARS). What happened to those people who were responsible?

Ms Mketi replied that the investigations into those cases had just started.

Mr Mtyhuda replied that the Department had systems in place for dealing with these issues. The Department had informed the relevant investigating officer in the loss control committee. All the findings on irregular fruitless and wasteful expenditure were now being investigated by the Department's internal audit unit. If officials were found to be negligent, the monies would be recovered from them.

Ms Mangena said that she had finished her questions.

The Chairperson asked for follow-up questions.

Ms F Bikani (ANC) questioned the Department's explanation on unavoidable payments.

Ms Mketi replied that the process of legal cases was always unpredictable. There was normally a budget for legal cases. However, the expenditure was dictated by the number of cases in a particular year. The Department had always incurred extra expenditure because it could not predict how legal cases might unfold.

Mr Thobejane thought that the Chief Financial Officer and the accounting officer were not telling the truth. He wanted to know the names of the persons concerned.

The Chairperson pointed out that there was an ongoing investigation. However, he would have expected a more honest response. There had to be a specific action against those officials. He asked what stage the Department had reached in the investigations referred to in paragraph 27.2.

Ms Mketi replied that what was unavoidable was the court ruling on the payment not the process against the officials involved. All the cases of irregular expenditure related to the report under review. It was a process that was just resuscitated recently, not by the Audit Committee, but by the Department's Internal Audit Unit.

The Chairperson asked Ms Mketi what she meant by 'recently'.

Mr Mtyhuda replied that the Internal Audit Unit started investigations in September, and a service provider had been engaged to assist from Monday, 13 February. It would take six weeks to conclude the investigation.

The Chairperson inferred that Mr Mtyhuda was just saying that the Department was investigating.

Mr Mtyhuda added that some 15 cases had been completed. The number of cases linked to the irregular expenditure was 200.

Ms Nonhlanhla Khumalo, Chairperson: Audit Committee, COGTA, replied that the Department had only a small internal audit unit and there were some vacancies. In 2009/10 there was a backlog.

Ms Bikani was not satisfied with the responses. Three quotations had not been received. She asked about the turnaround time.

The Chairperson asked about the quarterly meetings of the Department's Audit Committee.

Ms Khumalo replied that the Audit Committee had sought meetings with the previous Minister but had never succeeded. The Audit Committee had brought this issue to the attention of both Directors-General. There were now scheduled quarterly meetings with the accounting officer, the Acting Director-General. The Audit Committee was still seeking such a meeting with the present Minister.

Non-compliance with laws and regulations
Mr Thobejane referred to the Annual Report, page 16 (the three bullets). These matters had direct reference to his focus area of non-compliance.

Professor Muzamani Nwaila, Director-General, Department of Traditional Affairs (DTA), replied. The DTA's mandate was to review, monitor, and implement legislation. There was now the draft National Traditional Affairs Bill on which there had been extensive consultations with the stakeholders, but which had not yet come to Parliament. The Department was now consolidating the two pieces of legislation. The DTA's second responsibility was coordinate and monitor the review of legislation and policies relevant to traditional affairs by provincial and national Government Departments. The DTA had done much work in this area, for example the legislation on initiation. The DTA had begun functioning in January 2011. To build capacity, the Department had visited eight provinces to obtain feedback from all the stakeholders and finalised an implementation plan. Thus the three bullets.

Mr Thobejane was sure that the Director-General was aware that the Department was failing to do simple things. He questioned the Department on progress with implementation of legislation, in particular, the Traditional Framework Act. Where were the traditional councils? He asked why the Department was not doing what it had set out to do. It must implement before it reviewed.

Prof Nwaila replied that the DTA was indeed implementing. It was already establishing traditional councils. The President had announced the recognition of kings in July 2010. In terms of the Traditional Framework Act, the DTA was required to establish the kings' councils and it was now finalising the process of consulting the kings. The kings were the top category of traditional leaders, followed by the principal traditional leaders. The DTA was not responsible for the payment of traditional leaders. A recommendation had been forwarded to the Cabinet on headmen and headwomen. No determination had been made as yet. The Minister was putting together a team to look into the challenges. The Department was concerned about inconsistencies, if left in the hands of different provinces. There was work being done.

Mr Thobejane questioned Ms Mketi on non-compliance with supply chain management. What were the challenges that caused the Department not to comply with the prescribed procedures?

Ms Mketi replied that the challenges were that the Department had no programmes. The late submission to Parliament of the previous performance plan had been affected by the changes going on in the Department. The absence of senior managers delayed the completion of strategic planning.

Mr Thobejane refused to accept this reply. The Acting Director-General as the accounting officer was fully aware that in terms of the Public Finance Management Act (No. 1 of 1999) she was the main person concerned and had to take responsibility. He was not interested in stories but wanted to know why the Act was not followed. Why did the accounting officer fail to do the work?

Ms Mketi appreciated the role of the accounting officer. The reality was that the only permanent staff member at that time was the then accounting officer who was not present today. She was able to respond only on the basis of the information that she had.

Mr Thobejane found it hard to deal with this scenario. He could not pursue this question further. The buck stopped with the Director-General or the Acting Director-General. The other people were there to help the Director-General or Acting Director-General do the work. If they did not assist, then the Director-General or Acting Director-General should charge them. If the Director-General or Acting Director-General failed to charge them, it meant the Director-General or the Acting Director-General should be charged by the Minister.

The Chairperson said that Mr Thobejane was correct. This Committee was specific in looking for accountability for actions or failure to act. Equally, however, the Committee appreciated the position of Ms Mketi as she was now, while the then political head (the previous Minister), who should have acted, was not present.

Mr Thobejane's questions were interrelated.

The Chairperson said that it was the Cooperative Governance section of the Department that was in charge and in that section the only permanent person had been Mr Africa. The others had all been displaced.

The Chairperson reluctantly asked Prof Nwaila if there had been any enquires on the anomalies in the Department during 'the cultural revolution'.

Prof Nwaila was not in the Department in 2009/10.

Mr Thobejane was frustrated by these kinds of answers which prevented the Committee from doing its work, and closed his series of questions.

Audit Committee
Dr George questioned the robustness of the audit process, and asked when the Audit Committee would function properly.

Ms Mketi replied that the Audit Committee met regularly. There were, however, challenges with the Internal Audit Department, as the Chief Financial Officer had indicated earlier.

Ms Nonhlanhla Khumalo, Chairperson: Audit Committee, COGTA, replied that the Audit Committee was fully functional. Its members were from outside the Department. The Internal Audit Department on the other hand was not fully functional,

Dr George could not see how the Audit Committee could work properly in the absence of a fully functional Internal Audit Department.

Ms Khumalo fully agreed. The Audit Committee had raised the matter with the Director-General and wanted a meeting with the Minister.

Dr George questioned the value of the Audit Committee's meetings if the Internal Audit Department was dysfunctional.

Dr George asked about the people who were displaced. Was the restructuring completed? Could one look forward to an improvement?

Ms Mketi replied that the problem was partly addressed. There was some progress. The annual performance plan Department in the previous year was submitted on time, and it was on course to submit it on time in the next financial year. The outstanding issue was that some of the senior managers were appointed additional to the establishment. The Minister had made it his priority to ensure that those managers were ultimately placed permanently in the structure and removed from the 'additional list'. The Department was aligning the structure of the Department with a view to permanent appointments.

The Chairperson asked what the 'additional list' was.

Ms Mketi explained that if a permanent staff member was removed because of restructuring he or she might be appointed in the 'additional list', a pool of senior managers appointed additional to the establishment. The Department was attempting to bring them back into its permanent structure.

The Chairperson inferred that the Department was reversing the changes of its 'cultural revolution'.

Dr George asked if the Minister would come to the meeting. Heated views had been expressed on the Department's ability to function in a political vacuum. It was an environmental function that needed to be taken up with the Minister. The Audit Committee especially, which had not met with the Minister, was operating in a vacuum, and that was exceptionally difficult.

Internal control systems and risk management
Mr N Singh (IFP) asked how the Audit Committee would rate the Department's internal control systems and risk management.

Ms Khumalo replied 'Two out of 10'. The absence of processes to identify irregular expenditure was but one of the control deficiencies. To quantify the impact of the non-functional internal audit unit was another concern for the Audit Committee. This had not been translated into the financial statements, but all hope was not lost.

Mr Singh thought that if it had taken the Department 17 years to reach 'two out of 10'; it might take 70 years to reach 'eight out of 10'.

The Chairperson feared that the Department might be heading down the same road as the Department of Public Works (DPW) which had been interrogated the previous day, 14 February 2012. The situation was grave. People did, and they accounted for themselves later.

Mr Singh said that COGTA was the mother department of municipalities. If one wanted to improve municipalities' financial capabilities one had to start at the top. The bulk of the Department's budget (99%) was transfers and subsidies. There was sometimes fiscal dumping (see Annual Report, pages 28-31). He asked to what extent did the Auditor-General or the Department have oversight at the municipal level over funding (conditional grants, MIG, etc) that the Department gave to municipalities to ensure that the monies distributed were spent properly. What controls existed?

Mr Mtyhuda replied that the Department worked with National Treasury in monitoring the expenditure. The Department transferred money in accordance with the agreed payment schedules, but, before it did so, there was a unit which monitored the expenditure.

Mr Ricardo Hansby, COGTA Deputy Director General: Infrastructure and Economic Development, replied that his branch was responsible only for the Municipal Infrastructure Grant (MIG) portion of the Division of Revenue Act, not the normal transfer payments.

The Chairperson asked how the Department monitored expenditure on the MIG.

Mr Hansby replied that the management of the MIG was split over three branches of the Department. His particular branch dealt only with the planning component of the MIG when municipalities applied for projects to be funded. It did not deal with the monitoring and compliance afterwards.

Mr Singh wanted to pursue this matter. R43 billion was transferred out of this Department to municipalities. Service delivery protests took place at municipal level but the money was transferred through COGTA. Therefore accountability started at the national level. Was it in 2010/11 that the former Minister allegedly spent funds on activities not voted for? Was there any investigation by the Department, since it was the Department's vote?

Ms Mketi replied that the alleged expenditures by the former Minister took place during the 2011/12 financial year, and the findings of the Public Protector would be reflected in the next Annual Report.

The Chairperson asked if the Department had done anything about it.

 Mr Mtyhuda replied that the Department had interrelated with the Auditor-General and had submitted a report to the President. The Department had drawn up a plan on how to respond and implement the findings of the Public Protector and recover the amount of R600 000. The Public Protector had accepted this plan. The Department was currently implementing the plan.

Mr Mtyhuda added that the Department had provided the former Minister with the option to return the money to the Government.

Mr Singh asked how, in terms of reporting, when the Department reported percentages of conditional grant monies unspent by the municipalities (Annual Report), the Department took account of the fact that the municipal financial year ended in June when the Department's ended in March. Did the percentages reflect the Department's financial year-end, or the end of the municipal financial year?

Mr Mtyhuda replied that it was always a problem when the Department did final reporting. However, what appeared in the Report was what the Department had transferred and what the municipalities had spent at the end of the Department's financial year in March. The Department was working with National Treasury on this matter.

Mr Singh asked how far the Department had proceeded in the matter of the South African Local Government Association (SALGA), to which the Department gave money, with regard to uncollected fees from KwaZulu-Natal.

Mr Mtyhuda replied that SALGA had sought funds from the Department because its membership had dropped and because KwaZulu-Natal then took a decision not to be part of SALGA. KwaZulu-Natal's decision had been rescinded and the province was now part of SALGA again.

Mr Ainslie asked about the under-expenditure of municipal capital budgets. This represented R12.4 billion unspent, or 29.3% of capital budgets. Such under-expenditure was a prime cause of the service delivery protests. Did the Department agree with these figures from the South African Federation of Civil Engineering Contractors and the Consulting Engineers South Africa? He shared Mr Singh's concerns with the Department's controls over the money transferred. What active intervention was taken to make sure that the municipal infrastructure system grants were spent correctly. He referred to page 191 of the Annual Report, and asked about Municipal Systems Improvement Grants, in particular, Mpumalanga, and the low expenditures.

Mr Mtyhuda replied that the Department was not happy with the under-expenditure.

Mr Ainslie said that it was not Mr Mtyhuda's job to be happy or unhappy but to take action. How would the Department assist municipalities to spend the monies correctly?

Mr Hansby replied that it was a serious concern. The Department agreed with some of the figures but would have to verify them. Over the past year and a half the Department had worked on establishing a municipal infrastructure support agency (MISA). It would be a Government component. Essentially it would take over the Siyenza Manje project that had been run by the Development Bank of Southern Africa (DBSA) where the Department had deployed technical capacity at municipal level to assist municipalities firstly with appropriate planning for municipal infrastructure and capital projects. This was the first step that needed to be taken. MiSA was geared to that. There were 88 engineers deployed across the country for that specific purpose. The Department had also found that contract management was a problem at that level. This was also part of MISA's role. The Department was also establishing monitoring and evaluation mechanisms to ensure that the money was spent on the purpose for which it was intended. This touched on the earlier issue of whether the Department knew where MIG money was flowing. Part of this was a MIG audit that the Department was putting together to verify if some of these projects actually existed. Many municipalities reported on MIG expenditure but the money actually went into operational expenditure like salaries rather than the actual projects for which the funds had been intended. In addition, the Department was taking a holistic view on financial management. It was necessary to ensure that procurement processes were followed, and that there was efficiency in procurement. The colleagues in the Intergovernmental Relations Branch were examining some of those interventions. They and other colleagues in the Department were assisting municipalities in that regard. It was also necessary to ensure that there was coordination of grants between the departments concerned. COGTA was responsible for the MIG, but there were other grants in the hands of other departments. At present the disjointedness did not help municipalities to implement projects effectively or at the scale required. This was why we did not see the desired impact at local level.

Mr Ainslie said that until now there was no effective monitoring on transfers to municipalities to ensure correct spending of these funds.

The Chairperson said that the Department had R419 million for procurement that was deviant from the rules of Supply Chain Management. The Department wanted municipalities to have clean audits by 2014 but the Department itself had a qualification. It was challenged to put its own house in order.

Dr Rabie observed that this was a Department in profound crisis. One of the reasons was the lack of strong political leadership in this Department. On the other hand, the Minister of Public Works had given a very good impression the previous day. It was unfair to cross-question the officials present. The Committee needed the Minister or the Deputy Minister of Cooperative Governance and Traditional Affairs to appear. In their absence, the Committee could not exercise proper oversight of political office bearers, especially in view of the fact that only 60 local authorities out of 285 had achieved clean audits. The previous Director-General, Mr Africa, had handed a report to this Committee. The sooner COGTA got its house in order the better. It was not complying with the Public Finance Management Act (No 1 of 1999). Failure to comply was bound to result in problems in a department. He returned to the subject of the MIG. Mr Hansby had said that there was a question of boundaries ['turfs']. There was a lack of rapport between local, provincial and national government. Mr Hansby's response did not hold water. The national Minister should intervene and tell these people to get their acts together. At the moment inadequate service delivery was one of the great hindrances to orderly government. Were there any plans to streamline the rapport between local, provincial and national spheres?

Mr Hansby replied that indeed the Minister was busy with the programme to meet with his provincial counterparts, the Members of the Executive Councils (MECs) for local government, and also to go on a road-show throughout the country under the banner of the local government turnaround strategy to ensure that the Department picked up on the core elements of turning local government around. The Minister had already met with some of the MECs, notably the MEC in the Western Cape the previous week, to speak to the principles of cooperative governance and intergovernmental relations. At the core of this the Minister placed access to basic services.

The Chairperson bemoaned the fact that one always seemed to be starting from zero, as if Government had only sprung up in September 2011. There was nothing wrong with the Department's programme, as outlined above, but the Department, as an institution, had existed for 18 years already. This was the Committee's frustration.

Ms G Saal (ANC) noted that COGTA was one of the most important departments and asked if MIG funds were ring-fenced for specific projects.

Ms Saal asked secondly how the senior management dealt with the outcome of the internal audit. In her own experience, internal audit had been done regularly at the level of the municipality.

Ms Saal asked if MIG funds could be used, in case of emergency, to supply water.

The Chairperson noted Ms Saal's question on internal audit had been replied to. Ms Hansby had indicated that part of the problem in municipalities was the use of the MIG fund for other purposes. Could the MIG fund be used in emergencies to supply water?

Mr Hansby replied that the MIG was indeed ring-fenced and there was a formula. At the heart of MIG municipalities needed to plan in advance for their projects, and based on their allocation as per the equitable share they were allowed to submit projects within that allocation to the Department. Then the Department would consider submissions according to the projects. For situations where water was required immediately it was actually the Department of Water Affairs' that dealt with such needs through its funding mechanisms. MIG was not that flexible. This was part of the problem faced in South Africa. There was need for a dedicated fund to respond to immediate requests of that kind, since these requests arose more and more frequently. When it came to the spending of MIG itself, it was not that the Department did not have systems in place to monitor MIG expenditure, because the municipalities had to report on that expenditure, it was just a question of the physical verification of all MIG projects that the Department needed to attend to, while ensuring that it improved the monitoring of MIG projects. It needed to go and see them for itself.

Mr Singh followed up on Mr Hansby's earlier response. Mr Singh noted that the percentages would not be correct since one financial year ended in March and the other in June. However, the statement that it was a lack of capacity and because of deployment of engineers and consultants in municipalities was unsatisfactory. If one really looked at the tables provided here, and for this reason he wanted Mr Ainslie to look this up in his constituency, one could see that a municipality like Ethekwini which was allocated R595 million, spent 38%. One could not convince Mr Singh that this municipality lacked capacity. Msunduzi municipality spent 18%. Another municipality spent 25%. It was not a question of capacity. Rural municipalities had spent 100%. Something else was wrong. Moreover, these were conditional grants, and these needed to be investigated.

A Member asked if traditional councils were still going to be employed, and when.

Dr George noted that the internal audit department was not functional and this prevented the Audit Committee from doing its work properly. When would the Audit Committee meet with the Minister?

Mr Ainslie asked why there was a dramatic increase in the use of consultants and out-sourced services, given that the Department had a full staff complement (Annual Report, page 159).

Ms Mketi replied that at that time the community works programme had been transferred to the Department. While the establishment process was under-way, these business and advisory services people were appointed to assist municipalities with the work that her colleague had referred to earlier. That was the problem.

The Chairperson inferred that the engineers that referred to were consultants, not Departmental employees.

Mr Mtyhuda replied that the Community Work Programme (CWP) was transferred from the Presidency to the Department. As part of the transfer, the Presidency gave the Department the service providers that it had been using. As part of the package they were being paid project management fees, which in the Annual Report were classified as consultants' fees. It was something that came to the Department in April 2010, and it was a first time expense; this was why.

Mr Hansby replied that these service providers were actually non-governmental organisations (NGOs), because part of the objectives of the Community Work Programme was to strengthen the NGO sector. So they were not like normal service providers.

The Chairperson said that an NGO was an NGO by any name.

Mr Hansby said that there was a distinction between what the Department had referred to earlier with the engineers placed in municipalities. This related more to the Siyenza Manje programme which had been run by the Development Bank of Southern Africa (DBSA), rather than to the Community Work Programme (CWP).

Mr Ainslie said that a huge sum of money was involved. The Committee required a more comprehensive explanation and analysis of how the money had been spent and for what purpose. He wanted to know what the engineers were doing. Were the engineers sitting in their offices advising the Department or working in the field fixing pumps and pipes? If this kind of expenditure was to remain on the Department's books, the Committee, next time, would expect a more comprehensive explanation.

The Chairperson asked for an analysis within two weeks.

Ms Mangena asked if the Department was not talking about consultants who were brought in to train staff. By the time such consultants left, the Department should be well-skilled.

The Chairperson advised awaiting the analysis. He referred to the Annual Report, page 159, on business and advisory services.

Prof Nwaila replied that the traditional councils were now being reconstituted. When they were reconstituted they would be realigned. Having been aligned they would no longer be traditional authorities but traditional councils. When the councils were transformed that way, not less than one third of the members elected to them must be women. Moreover, those elected must be ordinary members of the community, not only the royal families. The former minister had gazetted a formula for the reconstitution process. At present all the provinces were expected to begin that process. When the provinces had completed that process, they would be able to elect the new members to serve at a national level in the National House of Traditional Leaders. The Free State and the Eastern Cape did not have local houses of traditional leaders, because they had not reconstituted. The Minister was working to finalise that process.

Ms Salle emphasised the importance of local government and the commitment of the staff of COGTA and local government n ensuring basic services such as water, sanitation and electricity.

Questions to the Minister of Cooperative Governance and Traditional Affairs
The Chairperson welcomed the Hon Richard Baloyi, Minister of Cooperative Governance and Traditional Affairs and expressed the Committee's concerns. Firstly, the Committee required that the political leadership should give support to the management of the Department to act firmly and decisively to ensure compliance. In the final analysis, accountability to Parliament was political. He noted the Committee's recent visit to Denmark where at meetings of the Public Accounts Committee the officials largely kept silent while the minister concerned responded, and where the auditor-general largely relied on the internal audit of the department in question. Political leadership was key.

Secondly, as to administrative leadership, there was no stability in the Department. It had been a challenge to talk to the accounting officer, the Acting Director-General, as she had been in her post only two weeks, and she had been expected to tell the Committee 'why the patient died' rather than what she would do in the next few months. The Committee's work was review. The forward view was the concern of the Portfolio Committee and the Standing Committee on Appropriations. So if the Committee was faced with new people, the engagement became very difficult to manage. There was need for a stability and a permanent Director-General, and to have all senior posts filled by permanent appointees. How long would it take? It seemed to the Committee that, after 18 years, one was starting from scratch again.

Thirdly, without internal controls everything else was meaningless. In one year there were transactions worth R419 million that were suspect or irregular. This showed the people thought they could act but account later. What was the cost? The internal audit function of he Department hardly existed. How could one ensure that this unit was capacitated as soon as possible. Even the work that it was doing to investigate the irregular expenditure was just part of the unit' scope, and he feared that it would become so preoccupied with the current investigations that when it had finished there would be another pile of irregular expenditures to investigate.

Also, the Audit Committee had very limited, if any, interaction with the executive authority. This was very limiting to the political leadership. A common complaint of audit committees was a lack of response to their recommendations. The Committee had argued before National Treasury that it would want as a standard practice that the reports of the audit committee also be sent to the minister concerned, so that he or she knew what the audit committee was reporting to management. This was another issue that required urgent attention.

Fourthly, the management of the MIG was a concern. This constituted the bulk of the budget of the Department, and if the bulk of the money in the hands of the Department was transferred, but after transfer there were no proper systems to monitor and manage them, this was a great concern. This lack of monitoring led to MIG's being used to pay salaries and for all kinds of purposes that were not allowed.

The Chairperson asked how the Department was implementing the Public Protector's recommendations. The Committee had heard that the Department had a start, but it would be helpful to know exactly what was being done.

Some other issues raised by Members of the Committee had not strictly been within the ambit of the Annual Report, but on the portfolio run by Prof Nwaila. However, the Chairperson had allowed them to be raised.

The Minister of Cooperative Governance and Traditional Affairs' response
The Minister fully agreed that he should lead the Department's team in the Committee's engagement. He fully agreed with the Chairperson's position on the accountability of the political leadership.

As to the functionality of the Internal Audit, and the outstanding meeting with the Audit Committee, when one came into office, one inherited one's commitments lock, stock and barrel. Meetings with the Audit Committee were part of the portfolio by regulation, and he gave the Chairperson his commitment to attend to them as a priority.

He agreed that it was hard to get the municipalities to achieve clean audits when the coordinating Department was itself not clean. He was ready to provide political support to the officials.

He agreed with the Committee's observations on the need for administrative leadership and stability. It was intended to appoint a permanent Director-General soon. However, there was some stigma attached to the portfolio, and potential applicants might fear that appointment to the position might jeopardise their future career prospects. The closing date for applicants was 03 March 2012. The selection should be finalised by the end of March.

There had been some 'double parking' in senior positions where officials had had to occupy new positions while still holding their old positions.

The issue of the suspect R419 million was being examined. In any portfolio through which transfers took place, one could not afford to behave like a traffic light. There needed to be active interest in how the money was actually spent. The Department currently lacked a dedicated monitoring mechanism. However, the Minister had a plan to deal with such inadequacies.

The Public Protector's report had been referred to him in his previous position, and when he was to attend to it, he was moved to his present post. COGTA was working on that issue.

He apologised if the Departmental team had been reluctant to answer questions about previous years. The Department should be willing to respond to all the Committee's questions, even if they fell outside the year in focus.

In order to deal with key performance areas, the Minister had begun to align the Department with its key responsibilities.

The Department owed it to the Committee to put its house in order and to explain its plans to do so. He hoped to have an opportunity to talk to the Committee about the situation at the end of March.

It was not possible in a democracy to play hide and seek.

There was room for improvement in the filling of vacancies.

A minister had to take full responsibility. There was no honeymoon period in politics. However, the ground that you hit might be running faster than you yourself, or alternatively moving in the opposite direction.

Chairperson's concluding remarks
The Chairperson said that the strength of the political leadership was most important. It was vital that the political leadership took responsibility for getting things right in the portfolio. Based on future engagements, if that sense could become the trend, it would be possible to resolve all these issues that still afflicted some of the Government departments. Then one would be able to focus more on the service delivery issues and enhance the quality of services delivered, while using the appropriated monies for the right things in the right way.

The Chairperson noted that the Minister had taken up his new position after this Annual Report had been published, and yet he was still able to talk about it and take ownership of it. There could not be anything better than that.

The Committee would wish to be able to afford the Minister the opportunity to meet the Committee again. As the Minister had correctly pointed out, the Committee's objective, as the Chairperson had mentioned at the beginning, was to exchange information and for the Committee to assist. Ultimately, the Committee's aim was to work itself out of its job. It was therefore in the Committee's interests to get things done the right way.

The meeting was adjourned.



Meeting report

Introduction
The Chairperson emphasised the importance of the Department of Cooperative Governance and Traditional Affairs (COGTA); as one progressed towards 2014, this Department must remain a shining example. There should be no disjuncture with the ideal. Mr Elroy Africa, former Director-General, Department of Cooperative Governance and Traditional Affairs, had recently resigned and unfortunately would not be present. Ms Tumi Mketi, Acting Director-General, had taken up her new post only two weeks ago. Such was a challenge that affected not only the Department of Cooperative Governance and Traditional Affairs.

Discussion
 Dr P Rabie (DA) asked why Mr Africa was absent.

The Chairperson replied that Mr Africa was absent because he had left the Department.

A Member stated that Mr Africa should be present.

The Chairperson explained that in a past hearing, a former official of the Land Bank had been willing to attend but the department concerned had refused.

Dr D George (DA) asked, as he had done the previous day (14 February hearing with the Department of Public Works), who in the Department, in this kind of situation, was accountable. Who accepted responsibility?

A Member asked if the Minister and Deputy Minister had apologised.

The Chairperson replied that the Minister and Deputy Minister were at a meeting. Whoever came in the position of Director-General, whether in a permanent or in an acting capacity, was accountable. So Ms Mketi would be responsible as Acting Director-General. It was in this regard that one emphasised the importance of the political leadership.

Mr R Ainslie (ANC) said that unfortunately the Acting Director-General, even if she had been in the post for one hour, must take responsibility, but sometimes it was impracticable when he or she was completely new to the job. The Committee needed to meet the people who, for practical purposes, could answer.

Mr S Thobejane (ANC) asked how one could expect a response from someone who was new to the job. However, Professor Muzamani Nwaila, Director-General, Department of Traditional Affairs, had been in that post some time.

The Chairperson ruled that the matter was clarified. Ms Mketi had taken responsibility as Acting Director-General. The Department of Cooperative Governance (DoCG) was the major department under the portfolio of Cooperative Governance and Traditional Affairs (COGTA). Hence the Chief Financial Officer and Corporate Services were located there. Ms Mketi was the leading delegate. However, the Committee was not assisted by the instability in the leadership of so many departments.

Irregular expenditure
Ms S Mangena (ANC), noting the Department's fluctuating audit opinions, called on it to pull up its socks higher and higher. The Auditor-General had found irregular expenditure and this was the basis for his qualified opinion. However, she was especially worried that the Auditor-General had found insufficient appropriate audit evidence to the completeness of irregular expenditure of about R419.r million. Why had the Department not developed systems to prevent irregular expenditure?

The Chairperson asked if the Department had systems to detect irregular expenditure and, if not, why not?

Ms Tumi Mketi, Acting Director-General, Department of Cooperative Governance and Traditional Affairs (COGTA) (who also worked as Deputy Director-General: Institutional Support and Coordination, Department of Traditional Affairs) replied that, since the Auditor-General' findings, the Department had developed a post audit action plan, the focus of which was mainly to review some of the financial systems and to develop a detailed action plan to enable the Department to respond to the issues that were identified as matters of concern. She wanted to request the Chief Financial Officer to brief Members on this plan.

The Chairperson said that this was not an answer to the question. He asked why the required systems were not established.

Ms Mketi replied that the Department had been undergoing a process of restructuring, which had led to a large number of officials, particularly in finance, leaving the Department. Some of the senior officials, had, as part of the restructuring process, been moved to other positions. That had led to the collapse of systems.

The Chairperson found this explanation helpful in understanding the situation.

Ms Mangena asked how many cases of irregular expenditure had been identified.

Mr Mowethu Mtyhuda, Chief Financial Officer, COGTA, replied that the 200 instances of irregular expenditure comprised extension of contracts and non-compliance in the procurement of goods.

The Chairperson asked why staff were shifted around in this kind of 'cultural revolution'.

Mr Mketi replied that this was because the Department was being restructured. All senior positions were advertised in March 2011; the filling of those positions began around June and July 2011, but the recruitment process took longer than expected. The first appointees took up their posts in August 2011. The only effective position at the time was that of Director-General, which was occupied by Ms Mketi's predecessor, Mr Elroy Africa.

Ms Mangena asked who was doing the reshuffling in the Department.

Ms Mketi said that the then Director-General and the Advisor to the Minister communicated the decision in a meeting held on 12 February 2011.

Ms Mangena noted that monies for municipalities had ended up in the wrong accounts.

Mr Mtyhuda replied that money had been transferred on a date other than the date agreed between the municipality, the Department, and National Treasury. The Department had written to the National Treasury to ask for an amended payment schedule.

The Chairperson asked Mr Mtyhuda what had happened.

Mr Mtyhuda replied that the Department was not ready to make the payment on the due date. On that basis the Department wrote to Treasury, which responded that the delay was the Department's fault. The Department accepted Treasury's response. Then the Department made the transfer payment, but a day after the due date. The Auditor-General had determined that the transfer was not made in conformity with the Division of Revenue Act (DoRA). The Department obtained confirmation from the municipality concerned that it had received the money and used it for the purpose intended. The matter was now with Treasury to ask for condonement of this irregular expenditure.

In a second case, when the Department was about to transfer monies, the Department received a letter amending the schedule of bank accounts of the municipalities concerned. However, the letter was forwarded to the concerned officials too late, and they had already processed the payment. However, the municipalities concerned confirmed that they had received the monies and used them for the intended purposes.

Ms Mangena argued that if the Department had systems in place it would have realised that it was wrong.

The Chairperson asked the view of the Office of the Auditor-General of South Africa (AGSA).

Mr Andries Sekgetho, Senior Manager: Office of the Auditor-General of South Africa, replied that the Department had applied to National Treasury for a withholding, but without first informing the municipality to which payment was to be made; so Treasury refused the withholding, but advised the Department to make the transfer as soon as possible because it was now in non-compliance with the Division of Revenue Act (DoRA). Any payment not in compliance was deemed irregular. This was the situation with the irregular expenditure of R127 million.

The other irregular expenditure of approximately R19 million originated from the fact that an updated banking details schedule was submitted to the office of the accounting officer on 30 July 2010. However, the payments were only effected on the 04 and 05 August. Since the AGSA followed a risk-based audit approach, the Auditor-General informed the Department that it should take steps to ensure payment into the correct bank account.

The Chairperson was trying to establish the reasonableness of the responses.

Mr Sekgetho replied that the AGSA deemed that the Department had sufficient time to note the changes in bank details.

Fruitless and wasteful expenditure
Ms Mangena asked about fruitless and wasteful expenditure of R2.1 million arising from the late payment of supplier invoices and taxes due to the South African Revenue Service (SARS). What happened to those people who were responsible?

Ms Mketi replied that the investigations into those cases had just started.

Mr Mtyhuda replied that the Department had systems in place for dealing with these issues. The Department had informed the relevant investigating officer in the loss control committee. All the findings on irregular fruitless and wasteful expenditure were now being investigated by the Department's internal audit unit. If officials were found to be negligent, the monies would be recovered from them.

Ms Mangena said that she had finished her questions.

The Chairperson asked for follow-up questions.

Ms F Bikani (ANC) questioned the Department's explanation on unavoidable payments.

Ms Mketi replied that the process of legal cases was always unpredictable. There was normally a budget for legal cases. However, the expenditure was dictated by the number of cases in a particular year. The Department had always incurred extra expenditure because it could not predict how legal cases might unfold.

Mr Thobejane thought that the Chief Financial Officer and the accounting officer were not telling the truth. He wanted to know the names of the persons concerned.

The Chairperson pointed out that there was an ongoing investigation. However, he would have expected a more honest response. There had to be a specific action against those officials. He asked what stage the Department had reached in the investigations referred to in paragraph 27.2.

Ms Mketi replied that what was unavoidable was the court ruling on the payment not the process against the officials involved. All the cases of irregular expenditure related to the report under review. It was a process that was just resuscitated recently, not by the Audit Committee, but by the Department's Internal Audit Unit.

The Chairperson asked Ms Mketi what she meant by 'recently'.

Mr Mtyhuda replied that the Internal Audit Unit started investigations in September, and a service provider had been engaged to assist from Monday, 13 February. It would take six weeks to conclude the investigation.

The Chairperson inferred that Mr Mtyhuda was just saying that the Department was investigating.

Mr Mtyhuda added that some 15 cases had been completed. The number of cases linked to the irregular expenditure was 200.

Ms Nonhlanhla Khumalo, Chairperson: Audit Committee, COGTA, replied that the Department had only a small internal audit unit and there were some vacancies. In 2009/10 there was a backlog.

Ms Bikani was not satisfied with the responses. Three quotations had not been received. She asked about the turnaround time.

The Chairperson asked about the quarterly meetings of the Department's Audit Committee.

Ms Khumalo replied that the Audit Committee had sought meetings with the previous Minister but had never succeeded. The Audit Committee had brought this issue to the attention of both Directors-General. There were now scheduled quarterly meetings with the accounting officer, the Acting Director-General. The Audit Committee was still seeking such a meeting with the present Minister.

Non-compliance with laws and regulations
Mr Thobejane referred to the Annual Report, page 16 (the three bullets). These matters had direct reference to his focus area of non-compliance.

Professor Muzamani Nwaila, Director-General, Department of Traditional Affairs (DTA), replied. The DTA's mandate was to review, monitor, and implement legislation. There was now the draft National Traditional Affairs Bill on which there had been extensive consultations with the stakeholders, but which had not yet come to Parliament. The Department was now consolidating the two pieces of legislation. The DTA's second responsibility was coordinate and monitor the review of legislation and policies relevant to traditional affairs by provincial and national Government Departments. The DTA had done much work in this area, for example the legislation on initiation. The DTA had begun functioning in January 2011. To build capacity, the Department had visited eight provinces to obtain feedback from all the stakeholders and finalised an implementation plan. Thus the three bullets.

Mr Thobejane was sure that the Director-General was aware that the Department was failing to do simple things. He questioned the Department on progress with implementation of legislation, in particular, the Traditional Framework Act. Where were the traditional councils? He asked why the Department was not doing what it had set out to do. It must implement before it reviewed.

Prof Nwaila replied that the DTA was indeed implementing. It was already establishing traditional councils. The President had announced the recognition of kings in July 2010. In terms of the Traditional Framework Act, the DTA was required to establish the kings' councils and it was now finalising the process of consulting the kings. The kings were the top category of traditional leaders, followed by the principal traditional leaders. The DTA was not responsible for the payment of traditional leaders. A recommendation had been forwarded to the Cabinet on headmen and headwomen. No determination had been made as yet. The Minister was putting together a team to look into the challenges. The Department was concerned about inconsistencies, if left in the hands of different provinces. There was work being done.

Mr Thobejane questioned Ms Mketi on non-compliance with supply chain management. What were the challenges that caused the Department not to comply with the prescribed procedures?

Ms Mketi replied that the challenges were that the Department had no programmes. The late submission to Parliament of the previous performance plan had been affected by the changes going on in the Department. The absence of senior managers delayed the completion of strategic planning.

Mr Thobejane refused to accept this reply. The Acting Director-General as the accounting officer was fully aware that in terms of the Public Finance Management Act (No. 1 of 1999) she was the main person concerned and had to take responsibility. He was not interested in stories but wanted to know why the Act was not followed. Why did the accounting officer fail to do the work?

Ms Mketi appreciated the role of the accounting officer. The reality was that the only permanent staff member at that time was the then accounting officer who was not present today. She was able to respond only on the basis of the information that she had.

Mr Thobejane found it hard to deal with this scenario. He could not pursue this question further. The buck stopped with the Director-General or the Acting Director-General. The other people were there to help the Director-General or Acting Director-General do the work. If they did not assist, then the Director-General or Acting Director-General should charge them. If the Director-General or Acting Director-General failed to charge them, it meant the Director-General or the Acting Director-General should be charged by the Minister.

The Chairperson said that Mr Thobejane was correct. This Committee was specific in looking for accountability for actions or failure to act. Equally, however, the Committee appreciated the position of Ms Mketi as she was now, while the then political head (the previous Minister), who should have acted, was not present.

Mr Thobejane's questions were interrelated.

The Chairperson said that it was the Cooperative Governance section of the Department that was in charge and in that section the only permanent person had been Mr Africa. The others had all been displaced.

The Chairperson reluctantly asked Prof Nwaila if there had been any enquires on the anomalies in the Department during 'the cultural revolution'.

Prof Nwaila was not in the Department in 2009/10.

Mr Thobejane was frustrated by these kinds of answers which prevented the Committee from doing its work, and closed his series of questions.

Audit Committee
Dr George questioned the robustness of the audit process, and asked when the Audit Committee would function properly.

Ms Mketi replied that the Audit Committee met regularly. There were, however, challenges with the Internal Audit Department, as the Chief Financial Officer had indicated earlier.

Ms Nonhlanhla Khumalo, Chairperson: Audit Committee, COGTA, replied that the Audit Committee was fully functional. Its members were from outside the Department. The Internal Audit Department on the other hand was not fully functional,

Dr George could not see how the Audit Committee could work properly in the absence of a fully functional Internal Audit Department.

Ms Khumalo fully agreed. The Audit Committee had raised the matter with the Director-General and wanted a meeting with the Minister.

Dr George questioned the value of the Audit Committee's meetings if the Internal Audit Department was dysfunctional.

Dr George asked about the people who were displaced. Was the restructuring completed? Could one look forward to an improvement?

Ms Mketi replied that the problem was partly addressed. There was some progress. The annual performance plan Department in the previous year was submitted on time, and it was on course to submit it on time in the next financial year. The outstanding issue was that some of the senior managers were appointed additional to the establishment. The Minister had made it his priority to ensure that those managers were ultimately placed permanently in the structure and removed from the 'additional list'. The Department was aligning the structure of the Department with a view to permanent appointments.

The Chairperson asked what the 'additional list' was.

Ms Mketi explained that if a permanent staff member was removed because of restructuring he or she might be appointed in the 'additional list', a pool of senior managers appointed additional to the establishment. The Department was attempting to bring them back into its permanent structure.

The Chairperson inferred that the Department was reversing the changes of its 'cultural revolution'.

Dr George asked if the Minister would come to the meeting. Heated views had been expressed on the Department's ability to function in a political vacuum. It was an environmental function that needed to be taken up with the Minister. The Audit Committee especially, which had not met with the Minister, was operating in a vacuum, and that was exceptionally difficult.

Internal control systems and risk management
Mr N Singh (IFP) asked how the Audit Committee would rate the Department's internal control systems and risk management.

Ms Khumalo replied 'Two out of 10'. The absence of processes to identify irregular expenditure was but one of the control deficiencies. To quantify the impact of the non-functional internal audit unit was another concern for the Audit Committee. This had not been translated into the financial statements, but all hope was not lost.

Mr Singh thought that if it had taken the Department 17 years to reach 'two out of 10'; it might take 70 years to reach 'eight out of 10'.

The Chairperson feared that the Department might be heading down the same road as the Department of Public Works (DPW) which had been interrogated the previous day, 14 February 2012. The situation was grave. People did, and they accounted for themselves later.

Mr Singh said that COGTA was the mother department of municipalities. If one wanted to improve municipalities' financial capabilities one had to start at the top. The bulk of the Department's budget (99%) was transfers and subsidies. There was sometimes fiscal dumping (see Annual Report, pages 28-31). He asked to what extent did the Auditor-General or the Department have oversight at the municipal level over funding (conditional grants, MIG, etc) that the Department gave to municipalities to ensure that the monies distributed were spent properly. What controls existed?

Mr Mtyhuda replied that the Department worked with National Treasury in monitoring the expenditure. The Department transferred money in accordance with the agreed payment schedules, but, before it did so, there was a unit which monitored the expenditure.

Mr Ricardo Hansby, COGTA Deputy Director General: Infrastructure and Economic Development, replied that his branch was responsible only for the Municipal Infrastructure Grant (MIG) portion of the Division of Revenue Act, not the normal transfer payments.

The Chairperson asked how the Department monitored expenditure on the MIG.

Mr Hansby replied that the management of the MIG was split over three branches of the Department. His particular branch dealt only with the planning component of the MIG when municipalities applied for projects to be funded. It did not deal with the monitoring and compliance afterwards.

Mr Singh wanted to pursue this matter. R43 billion was transferred out of this Department to municipalities. Service delivery protests took place at municipal level but the money was transferred through COGTA. Therefore accountability started at the national level. Was it in 2010/11 that the former Minister allegedly spent funds on activities not voted for? Was there any investigation by the Department, since it was the Department's vote?

Ms Mketi replied that the alleged expenditures by the former Minister took place during the 2011/12 financial year, and the findings of the Public Protector would be reflected in the next Annual Report.

The Chairperson asked if the Department had done anything about it.

 Mr Mtyhuda replied that the Department had interrelated with the Auditor-General and had submitted a report to the President. The Department had drawn up a plan on how to respond and implement the findings of the Public Protector and recover the amount of R600 000. The Public Protector had accepted this plan. The Department was currently implementing the plan.

Mr Mtyhuda added that the Department had provided the former Minister with the option to return the money to the Government.

Mr Singh asked how, in terms of reporting, when the Department reported percentages of conditional grant monies unspent by the municipalities (Annual Report), the Department took account of the fact that the municipal financial year ended in June when the Department's ended in March. Did the percentages reflect the Department's financial year-end, or the end of the municipal financial year?

Mr Mtyhuda replied that it was always a problem when the Department did final reporting. However, what appeared in the Report was what the Department had transferred and what the municipalities had spent at the end of the Department's financial year in March. The Department was working with National Treasury on this matter.

Mr Singh asked how far the Department had proceeded in the matter of the South African Local Government Association (SALGA), to which the Department gave money, with regard to uncollected fees from KwaZulu-Natal.

Mr Mtyhuda replied that SALGA had sought funds from the Department because its membership had dropped and because KwaZulu-Natal then took a decision not to be part of SALGA. KwaZulu-Natal's decision had been rescinded and the province was now part of SALGA again.

Mr Ainslie asked about the under-expenditure of municipal capital budgets. This represented R12.4 billion unspent, or 29.3% of capital budgets. Such under-expenditure was a prime cause of the service delivery protests. Did the Department agree with these figures from the South African Federation of Civil Engineering Contractors and the Consulting Engineers South Africa? He shared Mr Singh's concerns with the Department's controls over the money transferred. What active intervention was taken to make sure that the municipal infrastructure system grants were spent correctly. He referred to page 191 of the Annual Report, and asked about Municipal Systems Improvement Grants, in particular, Mpumalanga, and the low expenditures.

Mr Mtyhuda replied that the Department was not happy with the under-expenditure.

Mr Ainslie said that it was not Mr Mtyhuda's job to be happy or unhappy but to take action. How would the Department assist municipalities to spend the monies correctly?

Mr Hansby replied that it was a serious concern. The Department agreed with some of the figures but would have to verify them. Over the past year and a half the Department had worked on establishing a municipal infrastructure support agency (MISA). It would be a Government component. Essentially it would take over the Siyenza Manje project that had been run by the Development Bank of Southern Africa (DBSA) where the Department had deployed technical capacity at municipal level to assist municipalities firstly with appropriate planning for municipal infrastructure and capital projects. This was the first step that needed to be taken. MiSA was geared to that. There were 88 engineers deployed across the country for that specific purpose. The Department had also found that contract management was a problem at that level. This was also part of MISA's role. The Department was also establishing monitoring and evaluation mechanisms to ensure that the money was spent on the purpose for which it was intended. This touched on the earlier issue of whether the Department knew where MIG money was flowing. Part of this was a MIG audit that the Department was putting together to verify if some of these projects actually existed. Many municipalities reported on MIG expenditure but the money actually went into operational expenditure like salaries rather than the actual projects for which the funds had been intended. In addition, the Department was taking a holistic view on financial management. It was necessary to ensure that procurement processes were followed, and that there was efficiency in procurement. The colleagues in the Intergovernmental Relations Branch were examining some of those interventions. They and other colleagues in the Department were assisting municipalities in that regard. It was also necessary to ensure that there was coordination of grants between the departments concerned. COGTA was responsible for the MIG, but there were other grants in the hands of other departments. At present the disjointedness did not help municipalities to implement projects effectively or at the scale required. This was why we did not see the desired impact at local level.

Mr Ainslie said that until now there was no effective monitoring on transfers to municipalities to ensure correct spending of these funds.

The Chairperson said that the Department had R419 million for procurement that was deviant from the rules of Supply Chain Management. The Department wanted municipalities to have clean audits by 2014 but the Department itself had a qualification. It was challenged to put its own house in order.

Dr Rabie observed that this was a Department in profound crisis. One of the reasons was the lack of strong political leadership in this Department. On the other hand, the Minister of Public Works had given a very good impression the previous day. It was unfair to cross-question the officials present. The Committee needed the Minister or the Deputy Minister of Cooperative Governance and Traditional Affairs to appear. In their absence, the Committee could not exercise proper oversight of political office bearers, especially in view of the fact that only 60 local authorities out of 285 had achieved clean audits. The previous Director-General, Mr Africa, had handed a report to this Committee. The sooner COGTA got its house in order the better. It was not complying with the Public Finance Management Act (No 1 of 1999). Failure to comply was bound to result in problems in a department. He returned to the subject of the MIG. Mr Hansby had said that there was a question of boundaries ['turfs']. There was a lack of rapport between local, provincial and national government. Mr Hansby's response did not hold water. The national Minister should intervene and tell these people to get their acts together. At the moment inadequate service delivery was one of the great hindrances to orderly government. Were there any plans to streamline the rapport between local, provincial and national spheres?

Mr Hansby replied that indeed the Minister was busy with the programme to meet with his provincial counterparts, the Members of the Executive Councils (MECs) for local government, and also to go on a road-show throughout the country under the banner of the local government turnaround strategy to ensure that the Department picked up on the core elements of turning local government around. The Minister had already met with some of the MECs, notably the MEC in the Western Cape the previous week, to speak to the principles of cooperative governance and intergovernmental relations. At the core of this the Minister placed access to basic services.

The Chairperson bemoaned the fact that one always seemed to be starting from zero, as if Government had only sprung up in September 2011. There was nothing wrong with the Department's programme, as outlined above, but the Department, as an institution, had existed for 18 years already. This was the Committee's frustration.

Ms G Saal (ANC) noted that COGTA was one of the most important departments and asked if MIG funds were ring-fenced for specific projects.

Ms Saal asked secondly how the senior management dealt with the outcome of the internal audit. In her own experience, internal audit had been done regularly at the level of the municipality.

Ms Saal asked if MIG funds could be used, in case of emergency, to supply water.

The Chairperson noted Ms Saal's question on internal audit had been replied to. Ms Hansby had indicated that part of the problem in municipalities was the use of the MIG fund for other purposes. Could the MIG fund be used in emergencies to supply water?

Mr Hansby replied that the MIG was indeed ring-fenced and there was a formula. At the heart of MIG municipalities needed to plan in advance for their projects, and based on their allocation as per the equitable share they were allowed to submit projects within that allocation to the Department. Then the Department would consider submissions according to the projects. For situations where water was required immediately it was actually the Department of Water Affairs' that dealt with such needs through its funding mechanisms. MIG was not that flexible. This was part of the problem faced in South Africa. There was need for a dedicated fund to respond to immediate requests of that kind, since these requests arose more and more frequently. When it came to the spending of MIG itself, it was not that the Department did not have systems in place to monitor MIG expenditure, because the municipalities had to report on that expenditure, it was just a question of the physical verification of all MIG projects that the Department needed to attend to, while ensuring that it improved the monitoring of MIG projects. It needed to go and see them for itself.

Mr Singh followed up on Mr Hansby's earlier response. Mr Singh noted that the percentages would not be correct since one financial year ended in March and the other in June. However, the statement that it was a lack of capacity and because of deployment of engineers and consultants in municipalities was unsatisfactory. If one really looked at the tables provided here, and for this reason he wanted Mr Ainslie to look this up in his constituency, one could see that a municipality like Ethekwini which was allocated R595 million, spent 38%. One could not convince Mr Singh that this municipality lacked capacity. Msunduzi municipality spent 18%. Another municipality spent 25%. It was not a question of capacity. Rural municipalities had spent 100%. Something else was wrong. Moreover, these were conditional grants, and these needed to be investigated.

A Member asked if traditional councils were still going to be employed, and when.

Dr George noted that the internal audit department was not functional and this prevented the Audit Committee from doing its work properly. When would the Audit Committee meet with the Minister?

Mr Ainslie asked why there was a dramatic increase in the use of consultants and out-sourced services, given that the Department had a full staff complement (Annual Report, page 159).

Ms Mketi replied that at that time the community works programme had been transferred to the Department. While the establishment process was under-way, these business and advisory services people were appointed to assist municipalities with the work that her colleague had referred to earlier. That was the problem.

The Chairperson inferred that the engineers that referred to were consultants, not Departmental employees.

Mr Mtyhuda replied that the Community Work Programme (CWP) was transferred from the Presidency to the Department. As part of the transfer, the Presidency gave the Department the service providers that it had been using. As part of the package they were being paid project management fees, which in the Annual Report were classified as consultants' fees. It was something that came to the Department in April 2010, and it was a first time expense; this was why.

Mr Hansby replied that these service providers were actually non-governmental organisations (NGOs), because part of the objectives of the Community Work Programme was to strengthen the NGO sector. So they were not like normal service providers.

The Chairperson said that an NGO was an NGO by any name.

Mr Hansby said that there was a distinction between what the Department had referred to earlier with the engineers placed in municipalities. This related more to the Siyenza Manje programme which had been run by the Development Bank of Southern Africa (DBSA), rather than to the Community Work Programme (CWP).

Mr Ainslie said that a huge sum of money was involved. The Committee required a more comprehensive explanation and analysis of how the money had been spent and for what purpose. He wanted to know what the engineers were doing. Were the engineers sitting in their offices advising the Department or working in the field fixing pumps and pipes? If this kind of expenditure was to remain on the Department's books, the Committee, next time, would expect a more comprehensive explanation.

The Chairperson asked for an analysis within two weeks.

Ms Mangena asked if the Department was not talking about consultants who were brought in to train staff. By the time such consultants left, the Department should be well-skilled.

The Chairperson advised awaiting the analysis. He referred to the Annual Report, page 159, on business and advisory services.

Prof Nwaila replied that the traditional councils were now being reconstituted. When they were reconstituted they would be realigned. Having been aligned they would no longer be traditional authorities but traditional councils. When the councils were transformed that way, not less than one third of the members elected to them must be women. Moreover, those elected must be ordinary members of the community, not only the royal families. The former minister had gazetted a formula for the reconstitution process. At present all the provinces were expected to begin that process. When the provinces had completed that process, they would be able to elect the new members to serve at a national level in the National House of Traditional Leaders. The Free State and the Eastern Cape did not have local houses of traditional leaders, because they had not reconstituted. The Minister was working to finalise that process.

Ms Salle emphasised the importance of local government and the commitment of the staff of COGTA and local government n ensuring basic services such as water, sanitation and electricity.

Questions to the Minister of Cooperative Governance and Traditional Affairs
The Chairperson welcomed the Hon Richard Baloyi, Minister of Cooperative Governance and Traditional Affairs and expressed the Committee's concerns. Firstly, the Committee required that the political leadership should give support to the management of the Department to act firmly and decisively to ensure compliance. In the final analysis, accountability to Parliament was political. He noted the Committee's recent visit to Denmark where at meetings of the Public Accounts Committee the officials largely kept silent while the minister concerned responded, and where the auditor-general largely relied on the internal audit of the department in question. Political leadership was key.

Secondly, as to administrative leadership, there was no stability in the Department. It had been a challenge to talk to the accounting officer, the Acting Director-General, as she had been in her post only two weeks, and she had been expected to tell the Committee 'why the patient died' rather than what she would do in the next few months. The Committee's work was review. The forward view was the concern of the Portfolio Committee and the Standing Committee on Appropriations. So if the Committee was faced with new people, the engagement became very difficult to manage. There was need for a stability and a permanent Director-General, and to have all senior posts filled by permanent appointees. How long would it take? It seemed to the Committee that, after 18 years, one was starting from scratch again.

Thirdly, without internal controls everything else was meaningless. In one year there were transactions worth R419 million that were suspect or irregular. This showed the people thought they could act but account later. What was the cost? The internal audit function of he Department hardly existed. How could one ensure that this unit was capacitated as soon as possible. Even the work that it was doing to investigate the irregular expenditure was just part of the unit' scope, and he feared that it would become so preoccupied with the current investigations that when it had finished there would be another pile of irregular expenditures to investigate.

Also, the Audit Committee had very limited, if any, interaction with the executive authority. This was very limiting to the political leadership. A common complaint of audit committees was a lack of response to their recommendations. The Committee had argued before National Treasury that it would want as a standard practice that the reports of the audit committee also be sent to the minister concerned, so that he or she knew what the audit committee was reporting to management. This was another issue that required urgent attention.

Fourthly, the management of the MIG was a concern. This constituted the bulk of the budget of the Department, and if the bulk of the money in the hands of the Department was transferred, but after transfer there were no proper systems to monitor and manage them, this was a great concern. This lack of monitoring led to MIG's being used to pay salaries and for all kinds of purposes that were not allowed.

The Chairperson asked how the Department was implementing the Public Protector's recommendations. The Committee had heard that the Department had a start, but it would be helpful to know exactly what was being done.

Some other issues raised by Members of the Committee had not strictly been within the ambit of the Annual Report, but on the portfolio run by Prof Nwaila. However, the Chairperson had allowed them to be raised.

The Minister of Cooperative Governance and Traditional Affairs' response
The Minister fully agreed that he should lead the Department's team in the Committee's engagement. He fully agreed with the Chairperson's position on the accountability of the political leadership.

As to the functionality of the Internal Audit, and the outstanding meeting with the Audit Committee, when one came into office, one inherited one's commitments lock, stock and barrel. Meetings with the Audit Committee were part of the portfolio by regulation, and he gave the Chairperson his commitment to attend to them as a priority.

He agreed that it was hard to get the municipalities to achieve clean audits when the coordinating Department was itself not clean. He was ready to provide political support to the officials.

He agreed with the Committee's observations on the need for administrative leadership and stability. It was intended to appoint a permanent Director-General soon. However, there was some stigma attached to the portfolio, and potential applicants might fear that appointment to the position might jeopardise their future career prospects. The closing date for applicants was 03 March 2012. The selection should be finalised by the end of March.

There had been some 'double parking' in senior positions where officials had had to occupy new positions while still holding their old positions.

The issue of the suspect R419 million was being examined. In any portfolio through which transfers took place, one could not afford to behave like a traffic light. There needed to be active interest in how the money was actually spent. The Department currently lacked a dedicated monitoring mechanism. However, the Minister had a plan to deal with such inadequacies.

The Public Protector's report had been referred to him in his previous position, and when he was to attend to it, he was moved to his present post. COGTA was working on that issue.

He apologised if the Departmental team had been reluctant to answer questions about previous years. The Department should be willing to respond to all the Committee's questions, even if they fell outside the year in focus.

In order to deal with key performance areas, the Minister had begun to align the Department with its key responsibilities.

The Department owed it to the Committee to put its house in order and to explain its plans to do so. He hoped to have an opportunity to talk to the Committee about the situation at the end of March.

It was not possible in a democracy to play hide and seek.

There was room for improvement in the filling of vacancies.

A minister had to take full responsibility. There was no honeymoon period in politics. However, the ground that you hit might be running faster than you yourself, or alternatively moving in the opposite direction.

Chairperson's concluding remarks
The Chairperson said that the strength of the political leadership was most important. It was vital that the political leadership took responsibility for getting things right in the portfolio. Based on future engagements, if that sense could become the trend, it would be possible to resolve all these issues that still afflicted some of the Government departments. Then one would be able to focus more on the service delivery issues and enhance the quality of services delivered, while using the appropriated monies for the right things in the right way.

The Chairperson noted that the Minister had taken up his new position after this Annual Report had been published, and yet he was still able to talk about it and take ownership of it. There could not be anything better than that.

The Committee would wish to be able to afford the Minister the opportunity to meet the Committee again. As the Minister had correctly pointed out, the Committee's objective, as the Chairperson had mentioned at the beginning, was to exchange information and for the Committee to assist. Ultimately, the Committee's aim was to work itself out of its job. It was therefore in the Committee's interests to get things done the right way.

The meeting was adjourned.

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