Eastern Cape Department of Local Government and Traditional Affairs: briefing on municipalities

Meeting report

Opening Remarks
The Chairperson stated that the Committee would be receiving a report back from the Eastern Cape Department of Cooperative Governance (the Department) on progress made by municipalities in the province since the Committee visited them in 2010. He reminded Members that they were supposed to have made a follow up visit to the municipalities to receive feedback on their progress.  Unfortunately, because of conflicts with the Parliamentary programme, the Committee had been unable to schedule the visit. It was for this reason that the Superintendent-General (SG), Mr Stanley Khanyile, and Local Government and Traditional Affairs MEC, Mr Milbo Qoboshiyane, had been called before the Committee to give feedback on the issues Members had raised during the 2010 oversight visit.

Eastern Cape Department of Local Government and Traditional Affairs: Briefing
Mr Qoboshiyane welcomed the opportunity to provide the Committee with feedback. The Department intended to table quite a voluminous document as well, detailing the progress made by municipalities. The Eastern Cape Provincial State of Local Government Report reflected on the municipalities that were becoming vital cogs in the wheels of service delivery. Through the Department’s support, they were also trying to ensure that challenges within municipalities were being addressed. Department-led plans had contributed to the overall stability of municipalities in the province.

Major highlights included the implementation of key initiatives that were being championed by the Department, such as the Presidential Intervention Initiative in some of the municipalities, and the creation of a number of jobs. Service Delivery Agreements (SLAs) had been signed with all the mayors in the Eastern Cape. The same was being requested from administrative heads in all municipalities.

In the Department’s efforts to cap fraud and corruption in the province, 22 investigations had been conducted and tabled in municipalities for them to take action based on recommendations. In collaboration with the Office of the Premier, the Department had rolled out anti-corruption programmes in all municipalities. The Department had directed municipalities to appoint people with key qualifications and competence.

Mr Khanyile informed the Committee that the Department was turning the corner in strengthening the province’s local government system. The Department had provided municipalities with guidance on the importance of developing Spatial Development Frameworks, as well as the importance of working with their premiers.

Progress on the implementation of Select Committee resolutions:

Maletswai Local Municipality
The Committee had found that the municipality did not have a budget and treasury office, and was therefore in violation of Section 10 of the Municipal Management Act (MSA). The Municipality had been told to establish a budget and treasury office urgently.  This had since been achieved.

The Committee had found that the municipality was not Generally Recognised Accounting Practice (GRAP) compliant, which had resulted in a disclaimer audit opinion from the Auditor-General (AG). In the 2010/11 financial year, partial compliance with GRAP had been achieved, so the municipality had improved from a disclaimer to a qualified audit opinion. The municipality’s financial reporting had also improved, according to the Provincial Treasury.

Members had noted regular sewage spillages into the Orange River, owing to ageing infrastructure. The Provincial Water Forum was attending to the matter and the Department was championing a political intervention to reduce the on-going water shortages in the surrounding communities.

Although the municipality had claimed to have eradicated the bucket system in 2007, the community of Jamestown were still using the system as a form of sanitary relief. The Department was holding meetings to address service delivery bottlenecks and to accelerate the programme of eradicating the bucket system. Members had also noted a huge housing and basic services backlog, which the municipality had attended to – it had improved upon the provision of free basic services to the poor, with free basic energy and free basic refuse removal.

Inkwanca Local Municipality
The Committee had noted the municipality’s inability to produce financial statements, which had resulted in the use of consultants. The Department noted that the municipality was small and rural, with a low revenue base, which had resulted in a struggle to attract competent financial personnel. Currently, the municipality used financial interns paid out of the Finance Management Grant.

Members had noted that the municipality’s compensation of employee’s budget was 49% of the total operating budget, which was high. The Department, in collaboration with the Provincial Treasury, had advised the municipality to consider “right sizing” the organisation.

Nkonkobe Local Municipality
The Committee had noted that the municipality had not completely implemented its Supply Chain Management (SCM) policy due to staff shortages.  Since then, the municipality had employed two SCM officers and two SCM interns and was currently in the selection process for an SCM manager.

The Committee had also seen that the municipality was affected by poor financial management and was in violation of certain legislation. The Department had deployed financial and SCM specialists to support and assist the municipality in financial management. The municipality had since improved from disclaimer to qualified audit opinion in the 2010/11 financial year.

Mbhashe Local Municipality
The Committee had observed that certain government departments owed the municipality payments for rates. So far, a partnership between the Department and the Provincial Treasury had resulted in the recovery of R9.6m owed by government departments to the municipality.

The Municipality had received a disclaimer opinion due to the fact that financial records were not in place. Through Operation Clean Audit support, the municipality had improved from disclaimer to a qualified audit opinion in the 2010/11 financial year.

Joe Gqabi District Municipality
The Committee had noted that reports required in terms of the MFMA had been submitted later than the prescribed time. The municipality had since improved in the timely submission of financial reports, in particular Section 71 reports. The municipality had obtained an unqualified audit opinion during the 2010/11 financial year.

Ingquza Hill Local Municipality
Members had observed that the municipality’s budget for the compensation of employees was 42% of its operational budget, which was high. The municipality intended to improve revenue collection in order to reduce the current percentage of personnel costs.

The municipality had also been found not to be GRAP compliant. In the past two financial years, the Department had deployed specialists to assist the municipality to improve its audit outcomes. Since then, the municipality had obtained an unqualified audit opinion in the 2010/11 financial year.

Engcobo Local Municipality
The Committee had noted huge backlogs in grant spending. The Department had established that Municipal Infrastructure Grant (MIG) spending, as at the end of April 2012, stood at 82%.

Members had found that the municipality was not GRAP compliant, which was in violation of the MFMA. The Department informed the Committee that the municipality had started unbundling its assets in order to comply with GRAP.  A chief financial officer was also in the process of being appointed.

Makana Municipality
The Committee had noted that the municipality did not have qualified personnel in the electricity department. Since then, the municipality had employed four unqualified electricians, who still had to undergo trade tests. Seven posts for electricians had since been advertised.

Even though the municipality had claimed it had eradicated the bucket system, the Committee had observed that rural areas were neglected. Since then, waterless toilets had been erected in three settlements. Water was also ferried to most of the rural areas in municipal trucks at varied intervals.

Emalahleni Local Municipality
The Committee had seen that the municipality provided refuse collection in urban areas only, which had forced rural communities to dispose of their refuse illegally. The Department planned to use inter-governmental structures to deal with this problem.

Nxuba Local Municipality
The Committee had found that most farmers did not pay their rates. The problem had been resolved since then and farmers had started to pay their property rates.

Chris Hani District Municipality
The Committee had observed that the municipality had invested R150m, which should have been used to address backlogs. The Department had found that this was a short-term investment, which was not meant to negate service delivery.

The Municipality had also been found not to be GRAP compliant, which had resulted in the entity receiving disclaimers for three consecutive years. The Municipality had since completed the unbundling of its assets in order to comply with GRAP and improve its audit outcome.

Ngqushwa Local Municipality
The Committee had noted that the municipality’s inability to evaluate its assets had been the major cause of its not being GRAP compliant. Since then, the municipality had set aside R650 000 to complete the processes of valuation and "componentisation" of infrastructure assets. This was scheduled to be completed by June 2012.

Comments by Stakeholder: Fiscal and Financial Commission (FFC)
The entity noted that municipalities were owed monies for property rates by government departments. The biggest monies were owed by the Provincial Departments of Public Works. The Department and Provincial Treasury were continuously supporting and assisting municipalities to recover outstanding monies from government departments. As at the end of March 2012, R51,6m had been paid by government to the 12 municipalities. 

The FFC had observed that the majority of the municipalities were not GRAP compliant and record keeping was very poor. Non-compliance with GRAP was the main cause of the negative audit opinions received by municipalities. The Department assured the Committee that municipalities were in the process of finalising the valuation of infrastructure, including unbundling and componentisation of infrastructure assets. The department had deployed specialists in municipalities with disclaimers and adverse audit opinions, to improve audit outcomes and to realise the 2014 Operation Clean Audit target.

The FFC had found that even though municipalities had established Budget and Treasury Offices (BTOs), many of them were not effective and/or adding value, owing to capacity constraints. National and provincial treasuries were in the process of ensuring that municipal officials within BTO went through an accredited training programme that would ensure they achieved a minimum competency level in financial management by 2013.

Support on Financial Policies
The Department had provided 13 municipalities with financial policies regarding credit control and debt collection, traffic policies, revenue management, and asset management.

Intergovernmental Relations (IGR) as a Lever for Accelerated Delivery
Provincial Municipal MECs (MuniMECs) were fully functional.  Strategic agenda issues discussed at these sessions were mostly informed by relevant stakeholders, while resolutions were implemented and progress reported accordingly to the provincial MuniMec meeting. The Provincial MuniMEC had grown to be a flagship of functional IGR systems, to be emulated by other Provinces.

The Roadmap Ahead
The Department hoped to improve upon political administrative stability in municipalities for improved local government performance, to strengthen district co-ordination to become a tool for accelerated delivery of services, to fast-track participation of traditional leaders in local governance, uproot fraud and corruption in local government, address the concept of sound financial management in the Department and municipalities for improved audit outcomes, and monitor the  implementation of delivery agreements.

Discussion
Mr S Montsitsi (ANC, Gauteng) stated that the Committee had visited all the municipalities and had noted the lack of capacity to manage finances. Audit reports done on the municipalities had been very unfavourable. The presentation had shown that three officials had been dismissed, and one senior official as well. The problem with dismissals was that people did not account for their wrongdoings – there were no consequences for these people, except that they were dismissed from their jobs. This was a major problem. The Department had shown that capacity had been developed to tackle the scourge of corruption in municipalities. An investigation into corrupt practices in municipalities had taken place over the past 24 months. He asked how many people had been arrested for corruption in this time, and how many had been convicted so far. He wanted to know if the Department had a relationship with the Office of the Public Protector or if they relied only on their internal capacity to conduct additional investigations. Did the Department have a relationship with the National Prosecuting Authority (NPA)?

Mr M Makhubela (COPE, Limpopo) asked if the SLAs signed with the mayors were linked to service bonuses. He wanted to know what the Department intended to do with so-called “non-starters” that did not reach their targets. In the presentation, it had been shown that Inkwanca Municipality relied on consultants because they could not produce financial statements owing to a lack of expertise.   How was the Department going to rectify this situation? The municipality was located in a small, deep rural area. The Department spoke about a post that had already been advertised for Makana Municipality. He asked when the interviews would take place and when the person would be appointed. He wanted to know for how much longer Chris Hani, Engcobo, Emalahleni and Inkwanca municipalities were going to share an audit committee. What steps was the Department going to take to ensure that municipalities received clean audits by 2014?

Mr Qoboshiyane replied that SLAs had been signed with the mayors. There were issues of accountability that had to be raised, especially since mayors were operating in an executive and legislative environment. 

Mr Khanyile answered that Inkwanca Municipality was a small, rural municipality that was struggling to find people to appoint. The reality was that small, rural municipalities found it difficult to get people to work there permanently over a long period of time. Once these people got experience, they moved on. The Department’s view was that there had to be a different financial or fiscal regime for such municipalities.

In terms of the post advertised for Makana Municipality, the Department would follow up on the matter. Mr Khanyile stated that he did not have an answer for the Committee yet. When municipalities were ready to conduct interviews, they usually contacted the Department.

Mr Khanyile addressed the issue concerning the shared audit committee used for the four municipalities. He said that the Department’s view was that they could not run away from the shared service model. It had to be done properly. The Department’s role was to measure and monitor the effectiveness of these audit committees. It was better to have the district municipalities supporting those smaller municipalities. The question was how to monitor the effectiveness of the shared service model. He had no qualms about the shared service model – it had to exist for as long as small municipalities were unable to sustain themselves. However, its effectiveness had to be monitored.

Operation clean audit 2014 was a national initiative to help all municipalities achieve clean audits by 2014. There had been improvement in some of the municipalities’ audit outcomes. It was not as exciting as he would have liked it to be, but some municipalities had moved from having disclaimers to having qualifications or unqualified audit opinions. If one looked at the 45 municipalities in the entire province, 13 municipalities had received unqualified audit opinions in 2010/11, which was an improvement from nine in the previous financial year. The reason why there were certain problems in municipalities was due to a number of other issues, such as political and administrative challenges. There were people in positions for which they were not qualified. The Department had told municipalities to capacitate and train their employees because they were already in the circle.  However, municipalities were also warned to start employing people with the necessary skills and competencies required going forward.

Mr C De Beer (ANC, Northern Cape) noted that his municipality in the Northern Cape was in the same position as Inkwanca Municipality in terms of audit outcomes, but they had engaged with the National Treasury and the Development Bank of South Africa (DBSA), and the municipality was turning things around. The National Treasury and DBSA had a pool of expertise in the finance and technical areas that they could help the Inkwanca Municipality with.  He asked what the National Treasury and the National Department of Cooperative Governance and Traditional Affairs had done to help municipalities in the Eastern Cape.  According to the Constitution, these entities were supposed to support local government. The oversight role of councillors was very important.  Were these addressed during the Department’s interventions?  This was an area that needed more attention. The Eastern Cape Province was fortunate enough to have four universities. He asked how the Department made use of the expertise in these academic institutions to enhance and advance specific financial management in local government. The Department had a golden opportunity to make use of these resources.

Mr Khanyile thanked the Member for his advice about Inkwanca Municipality. The Department noted the advice and would make arrangements to interact with the National Treasury and DBSA.

He agreed that the role of councillors was very important; however, it was a challenge as well. He believed that some of the councillors in the Eastern Cape did not have the necessary knowledge and skills to play an oversight role. The government needed to ensure that councillors were able to ask the administrative officials from municipalities difficult questions.

Mr Khanyile also agreed that the Eastern Cape was blessed to have four tertiary institutions. The Department had recently met with Fort Hare representatives. The Department, as well as the municipalities, were not making optimal use of the universities.  However, some inroads were being made. The Department wanted to formalise its relationship with the tertiary institutions.

Mr B Mashile (ANC, Mpumalanga) noted that the Department had made reference to specialists that had been deployed to specific municipalities to close up gaps affecting the entities’ functionality. He asked if the specialists were there on contract and if they would leave after their work was complete, or if they were there permanently.  He wondered how the Department would ensure that the systems put in place by these specialists were credible and would be sustained going forward.  On the issue of corruption – what sort of corruption was prevalent in the municipalities?  Had individuals been arrested already?

Certain actions had been taken by the Department to assist municipalities, but when one looked at the performance in terms of the audit outcomes, there was no relationship. The Department had assisted municipalities to employ certain individuals, and to unbundle their infrastructure in order to comply with GRAP, but the audit outcomes did not reflect this. More than 50% of the municipalities were in the same position as the previous year. Some had regressed.  He asked why there was no improvement in the audit outcomes after the Department had assisted them so much.  He addressed the matter of the Municipal Infrastructure Grant (MIG). It looked like expenditure on MIG was problematic for most municipalities. How was the Department going to deal with this matter? He wondered how the audit committees in the municipalities functioned. If they functioned properly, it would be reflected in the audit outcomes.

Mr Khanyile explained that two years ago, the Department had felt that it did not have the necessary capacity to be at each and every municipality where there were problems. The Department had then made the decision to recruit “specialists”. They were very clear about which competencies and skills the specialists should have. These went above issues of finance. The Department had been driven by the belief that they had to look further than the need for just financial management if they were going to turn municipalities around. These specialists had to have knowledge and skills in different areas, which were used to assist municipalities. The specialists were deployed to municipalities over a period of three years. They were asked to sign performance-based agreements that were reviewed annually. Specialists were given targets that they had to achieve. However, even though specialists were deployed to municipalities, the Department often found that there were matters that were beyond the specialists’ control, and in some cases, they were unable to meet their targets.

Regarding corruption, Mr Khanyile said that the Department had people that had been dismissed. Whether a matter was reported to law enforcement agencies depended on the nature of the offence that had been committed.  However, the primary focus was to recover what had been lost by the state.  In terms of the Department, this loss had been recovered.  The Department could make available to the Committee a list of officials that had been arrested as a result of their interventions. The Department was certainly moving forward in its effort to address this matter – they believed it was the right thing to do. 

He agreed that one of the major problems was that municipalities spent their MIG on other purposes. The Department had told municipalities that the MIG was not supposed to be used for operational expenses, yet this still happened in some municipalities. The problem was with the entire administration and the challenges that they had. This was why there was a local government turnaround strategy that would at addressing these problems over the long-term. He did not doubt that these challenges would be resolved.  

More than any other province, the Eastern Cape should not have had any funds going back to the National Treasury.  Unfortunately, this had happened with OR Tambo District Municipality, where R106m had had to go back to the Treasury at the end of the financial year because it was unspent. The Department had started to insist that municipalities give them expenditure trend reports so that they did not have to wait until the end of the year to be told that municipalities were not spending their budgets. There were certain things that could be done by the Department, but there were other things that had to be done by municipalities to ensure that they spent their budget.

He understood that Members were saying that if audit committees were effective, there would not be so many disclaimers in the audit outcomes. This was true – there should have been greater improvement. This was something that the Department acknowledged and was committed to address. However, he reiterated that it would take many forms of interventions to help municipalities turn the tide.

The Chairperson said he understood that the Department had all 45 audit reports from municipalities, but he wanted the Department to focus on the ones that the Committee had visited. Time permitting, the Committee would be going back to interact with the municipalities they had not been able to visit on their last oversight visit to the Eastern Cape in 2010. There was a major concern raised by the Auditor-General (AG), which was the failure of leadership in municipalities to take ownership of control issues, as well as the lack of consequences for transgressions. There was a tendency for government employees to commit all kinds of transgressions, knowing full well that there would not be any consequences. What was the Department doing to ensure that convicted officials suffered the consequences of their actions? 

Mr Khanyile replied that one of the challenges the country had, was to understand that there was a limited role that the provincial department could play over municipalities. The Constitution required that there were three spheres of government, and there were things that the Department would have liked to have done, but due to restrictions imposed by the Constitution, they could not carry them out. However, the Department was steadfast in ensuring that, where they could, they told municipalities what should be done. Directives were given to municipalities to ensure that the Department’s recommendations were carried out. The Department made sure that these issues were followed up on, but municipalities also had to take it upon themselves to ensure that the proper actions were being taken. In many cases, not enough aggression was applied when convicting people who had transgressed the Municipal Finance Management Act (MFMA).

Mr Qoboshiyane commented that the Chairperson was correct about the issue of controls. What the AG was reflecting was correct. If the Department was in the position to give the Committee figures of the wasteful expenditure in the province regardless of which municipalities were guilty of doing it, then Members would see what a concerning matter it was. This was a cost to the public purse. The province needed good municipal managers who were not scared to approach their councils.  Municipalities also had to address the issues of tenders and supply chain management.

Mr J Bekker (DA, Western Cape) stated that he had not been part of the Committee that had visited the Eastern Cape in 2010, but he had read through the oversight report. He had been upset about everything that was going on with the municipalities, but this presentation had given him hope. He was happy with the way that the Department was tackling the challenges. He supported the Department and believed that the country needed people like Mr Khanyile and Mr Qoboshiyane.  He thanked them and wished them good luck.

Mr De Beer thanked the MEC and SG as well. He noted that the SG had alluded to legislation that hindered the Department from taking the necessary steps to intervene in municipalities. He asked the Department what they wanted the Committee to do about it – and what would make it easier for the Department to monitor municipalities. This information had to be forwarded to the Committee.

Mr Mashile added that the Department should intervene in the Maletswai Municipality, where people were still using the bucket system. This was a human dignity issue that had to be resolved as soon as possible.

The Chairperson thanked the Department for a job well done.  He appreciated the progress that had been made so far. He asked them to keep up the good work. The Department had given the country hope that similar challenges in other provinces could be tackled effectively. The country had to work together to achieve more.

The meeting was adjourned.