Situation of Mataliele: Briefing by the Department of Cooperative Governance; Progress report on Operation Clean Audit and Section 32 reports.

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Cooperative Governance and Traditional Affairs

13 August 2012
Chairperson: Ms Nlhengethwa, D (ANC)
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Meeting Summary

Prior to the 2006 local government elections, Matatiele and its rural villages of Maluti, located under the Alfred Nzo District Municipality, were cross-boundary municipalities administered jointly by the KwaZulu-Natal and Eastern Cape provinces.  The enactment of the Twelfth Constitution Amendment Act, 2005, had abolished cross-boundary municipalities and these municipalities were now exclusively administered by the Eastern Cape Provincial Government. The abolition of cross-boundary municipalities had led to Matatiele being incorporated into the Eastern Cape.
The Matatiele Local Municipality had challenged the constitutional validity of the Twelfth Amendment and the Repeal Act, and the matter was heard on 14 February 2006. The court had discovered that there were procedural issues in relation to the correctness of the consultation/public participation process. On 18 August 2006, the court had ruled in favour of the municipality and ordered the National Government to satisfy the requirements of public participation within a period of 18 months, which the province had adhered to. The Matatiele community had filed another court application on 10 October 2008, challenging its incorporation into Eastern Cape Province. The Constitutional Court had ruled against their application. The Constitutional Court ruling did not deter the government from looking at the grievances that were raised by the community. Government had received the report on the consultation processes with communities of Matatiele Local Municipality and other aggrieved communities during April 2009. The Minister of Cooperative Governance and Traditional Affairs (on behalf of government) had conducted further consultation with the affected communities.

Following this, an in-depth consultation in the form of a survey had been conducted in the Matatiele Local Municipality from 28 to 31 October 2009. The results were to be considered with other factors in order to enable the government to make an informed decision on the complaint. A reason for the incorporation by the communities included access to services – for instance, the distance from Matatiele to Bisho was far, compared to travelling from Matatiele to Pietermaritzburg.  Another reason was service delivery, as communities cited poor or lack of service delivery in the Eastern Cape Province, while they believed they would get better services in KwaZulu-Natal, and the historical location of Matatiele area was between the former Natal and Cape provinces.
The way forward was that the government would pronounce on the matter in due course. The Minister would advise the Portfolio Committee on the status of this matter in three months.
The presentation on Operation Clean Audit and Section 32 reports revealed that there were seven municipalities that had not submitted their Annual Financial Statements (AFS).  ). These were from Free State (Nala local municipality), Northern Cape (Renosterberg) and North West (Moretele, Kgetleng River, Ditsobotla, Mamusa and Kagisano-Molopo. The National and Provincial Treasury had sent finance experts to assist with the compilation of AFS in Free State and North West, while the North West Provincial Treasury was providing support to the five local municipalities through the deployment of Municipal Finance Management Act (MFMA) practitioners.

The overview of the Municipal Audit Outcomes for a total of 278 municipalities was that 5% had received a clean audit in the 2010/11 period, compared to 2% in 2009/10 and 0.3% in 2008/09.  The Committee was provided with a detailed listing, by province, of all municipalities’ audit ratings – clean, unqualified, disclaimer or adverse.  Lack of progress in audit outcomes was mainly due to two factors, stagnant and regressing municipalities.  Nationally, 89% municipalities had Municipal Audit Remedial Action Plans to address the 2010/11 Municipal Audit Outcomes.
There were five focus areas in which the government needed to get things right to achieve effective, efficient and accountable local government.  These were governance, financial management, service delivery, infrastructure and fighting corruption.  In terms of governance there were 84% of municipalities with Municipal Public Accounts Committees (MPAC), 91% with Audit Committees and 79% with Implementing Agent units.  72% of municipalities had the Municipal Manager positions filled, while 28% were still vacant as at March 2012 and 78% of municipalities had filled the Chief Financial Officer position. In terms of financial management, most municipalities were grant dependent. There was a high level of consumer debt and non-adherence to regulations, especially in the area of Supply Chain Management (SCM).  In terms of Service Delivery, the conditional grants were used in certain municipalities for operational activities like salaries. There was under–spending on conditional grants and a shortage of skills in various municipalities.  In addition, there was vandalism of infrastructure by communities during protests.  With regard to Infrastructure delivery, municipalities were inadequately budgeting for repairs and maintenance and the quality of infrastructure delivered was also very poor. Lastly, in fighting corruption, SCM processes were not being followed and corruption was not being dealt with.
One of the solutions to assist in the challenges being faced by municipalities had been the establishment of the Municipal Infrastructure Support Agency (MISA), where 108 municipalities had been identified using the diagnostic analysis of MISA and provincial plans that focused on areas mentioned above. Another solution was the deployment of service delivery facilitators to municipalities to deal with governance matters. There were also 75 financial experts deployed by National Treasury (NT) to municipalities that required assistance and the majority of these experts were in municipalities that had obtained unfavourable audit opinions.
Members commented that nothing had been done for six years with the Matatiele issue, so what difference would three months make?  The Committee decided not to accept the Department’s three months request, and insisted the report be made available with immediate effect.  In addition, the Committee stated its view that the Department’s targets of every municipality achieving a clean audit opinion by 2014 would not be met. The Department should therefore set more realistic targets. Also the Committee stated that there should be consequences for poor performance at municipal level.

Meeting report

Briefing on the situation of Matatiele
Mr Sigidi Muthotho, Acting Director General; Department of Cooperative Governance (DCOG) said that prior to the 2006 local government elections, Matatiele and its rural villages of Maluti, located under the Alfred Nzo District Municipality, were cross-boundary municipalities administered jointly by the KwaZulu-Natal and Eastern Cape provinces.  The enactment of the Twelfth Constitution Amendment Act, 2005, had abolished cross-boundary municipalities and these municipalities were now exclusively administered by the Eastern Cape Provincial Government. The abolition of cross-boundary municipalities had led to Matatiele being incorporated into the Eastern Cape.

The Matatiele Local Municipality had challenged the constitutional validity of the Twelfth Amendment and the Repeal Act, and the matter was heard on 14 February 2006. The court had discovered that there were procedural issues in relation to the correctness of the consultation/public participation process. On 18 August 2006, the court had ruled in favour of the municipality and ordered the National Government to satisfy the requirements of public participation within a period of 18 months, which the province had adhered to. The Matatiele community had filed another court application on 10 October 2008, challenging its incorporation into Eastern Cape Province. The Constitutional Court had ruled against their application. The Constitutional Court ruling did not deter the government from looking at the grievances that were raised by the community. Government had received the report on the consultation processes with communities of the Matatiele Local Municipality and other aggrieved communities during April 2009. The Minister of Cooperative Governance and Traditional Affairs (on behalf of government) had conducted further consultation with the affected communities.

Following this, an in-depth consultation in the form of a survey had been conducted in the Matatiele Local Municipality from 28 to 31 October 2009. This had been conducted in a manner that afforded the community an opportunity to record and view the results, published on a daily basis for the duration of the consultation. The results were to be considered with other factors in order to enable the government to make an informed decision on the complaint. A reason for the incorporation by the communities included access to services – for instance, the distance from Matatiele to Bisho was far, compared to travelling from Matatiele to Pietermaritzburg.  Another reason was service delivery, as communities cited poor or lack of service delivery in the Eastern Cape Province, while they believed they would get better services in KwaZulu-Natal, and the historical location of Matatiele area was between the former Natal and Cape provinces.
The way forward was that the government would pronounce on the matter in due course. The Minister would advise the Portfolio Committee on the status of this matter in three months.

Discussion

Mr P Smith (IFP) asked what the government’s options were in terms of Matatiele, as this was a decision made by the Demarcation Board.

Mr Sigidi Muthotho, Acting Director General; DCOG, replied that the mandate of the Demarcation Board was to deal with municipal boundaries and not necessarily with provincial boundaries.  The starting point, which was making the matter complex in terms of how the Department dealt with it, was that the matters affecting Matatiele and other such places were defined within the 12th Amendment, which was a constitutional amendment.  When a constitutional amendment had been made, only the Matatiele community had challenged it. That was why the matter had gone to the constitutional court and the constitutional court had ruled that in effect, the power that government had was that it was the Executive that needed to implement what the Act stipulated. The only option at the moment was to recommend the matter back to the Portfolio Committee, because the Act was a product of the Legislature. The Department was seeking to put a memorandum to Cabinet, and once Cabinet pronounced, that would be communicated to the Portfolio Committee.

Mr J Steenhuizen (DA) asked about the forms of consultation taken by the Minister

Mr Muthotho replied that the role of the Department would be defined within what was stated by the constitutional amendment.  After the Twelfth Amendment, and the implementation of Matatiele being moved to the Eastern Cape, the case was supposed to have been closed. Cabinet had decided that despite Matatiele losing in court, consultations had needed to be conducted with the communities by DCOG.

Mr Steenhuizen asked what methodology had been used when conducting the survey. It would be proper for the Committee to look at the questions and findings.

Mr Muthotho replied that the copy of the results of the in-depth consultation would be made available to the Members.

Mr Steenhuizen observed that three years down the line there was no finality. What form of engagement did the Department have from 2009 to date with the community?

Mr Muthotho replied that the former Minister had engaged thoroughly with the community from Matatiele. The Minister had moved around in these areas even before the Twelfth Amendment had been put in place.

Ms I Ditshetelo (UCDP) stated that the people had rejected the move to the Eastern Cape. Why did the Department not listen, because government was for the people, by the people?

Ms M Segale-Diswai (ANC) asked why the Minister was asking for three months, when the issue had already been delayed for so long. 
Mr J Matshoba (ANC) also wondered why the Minister was requesting three months when the issue had been delayed.

Mr Muthotho replied that the view of the Department was that in the three month period, the process of informing Cabinet would be finalised.

Ms W Nelson (ANC) stated that nothing had been done for six years, so what difference would three months make? The Committee should not accept the Department’s three months request. The Committee was asking for the report with immediate effect.

The Chairperson stated that the recommendation of three months was not acceptable. The matter was before the Committee. The Committee would make a recommendation.

The Chairperson stated that the Committee needed time to go through the judgement and documents that had been brought before it in order to make informed decisions for submission to the Department. The Committee would invite the Department to communicate its decision.

Progress report by the Department of Cooperative Governance on Operation Clean Audit and Section 32 reports
Mr Mauyike Mizilikazi, Executive Manager; DCOG, presented a comparative state of municipalities on audit outcomes for the financial years 2010/2011, 2009/2010 and 2008/2009, with a view to allowing the Committee to analyse the currently released Auditor General’s 2010/2011 outcomes. The overall performance should be viewed against the background that government had set a target in terms of one of the Turn-Around Strategy Projects: Operation Clean Audit, which had directed that no municipality should achieve a disclaimer or adverse rating by 2010/2011, at least 60% of the 278 municipalities should receive an unqualified audit opinion by 2011/2012, municipalities achieving unqualified audits opinions should increase to 75% by 2013, and all municipalities should achieve a clean audit opinion by 2014.
The detail of the audit outcomes was the situation as at 27 July 2012. There had been seven municipalities that had not submitted their annual financial statements (AFS). These were from Free State (Nala local municipality), Northern Cape (Renosterberg) and North West (Moretele, Kgetleng River, Ditsobotla, Mamusa and Kagisano-Molopo. The National and Provincial Treasury had sent finance experts to assist with the compilation of AFS in Free State and North West, while the North West Provincial Treasury was providing support to the five local municipalities through the deployment of Municipal Finance Management Act (MFMA) practitioners.

The overview of the Municipal Audit Outcomes for a total of 278 municipalities was that 5% had received a clean audit in the 2010/11 period, compared to 2% in 2009/10 and 0.3% in 2008/09.  The Committee was provided with a detailed listing, by province, of all municipalities’ audit ratings – clean, unqualified, disclaimer or adverse (see presentation).
Lack of progress in audit outcomes was mainly due to two factors, stagnant and regressing municipalities.  Two municipalities that had received clean audits in 2009/10 did not in 2010/11. The third had been disestablished.  Out of the 278 municipalities to which audits had been issued in 2010/11, 15% had improved, while 63% had remained unchanged and 16% had regressed, and audits pertaining to 6% had not been issued. From 2008/09 to 2009/10, 57 municipalities had improved, while 165 had remained unchanged and 15 had regressed (refer to presentation for breakdown per province). All municipalities in Eastern Cape, Gauteng Province and KwaZulu-Natal had Municipal Audit Remedial Action Plans to address the 2010/11 Municipal Audit Outcomes. In Free State, 96% had Municipal Audit Remedial Action Plans. In Limpopo Province 90%, in Mpumalanga 95%, in Northern Cape 78%, in North West 43% and in the Western Cape 83%.  Nationally, 89% municipalities had Municipal Audit Remedial Action Plans to address the 2010/11 Municipal Audit Outcomes.

The observations of the Department regarding all this, was that the Municipal Audit Outcomes had been instructive for the Department.  It would have to work harder if it were to succeed in realising the objectives set of achieving audit ratings that would speak of a model municipality.  There were five focus areas in which the government needed to get things right to achieve effective, efficient and accountable local government.  These were governance, financial management, service delivery, infrastructure and fighting corruption.  
An analysis of the local government state of affairs in these five areas revealed that in terms of governance there were 84% of municipalities with Municipal Public Accounts Committees (MPAC), 91% with Audit Committees and 79% with Implementing Agent units.  72% of municipalities had the Municipal Manager positions filled, while 28% were still vacant as at March 2012 and 78% of municipalities had filled the Chief Financial Officer position.
In terms of financial management, most municipalities were grant dependent. There was a high level of consumer debt and non-adherence to regulations, especially in the area of Supply Chain Management (SCM).
In terms of Service Delivery, the conditional grants were used in certain municipalities for operational activities like salaries. There was under–spending on conditional grants and a shortage of skills in various municipalities. In addition, there was vandalism of infrastructure by communities during protests.
With regard to Infrastructure delivery, municipalities were inadequately budgeting for repairs and maintenance and the quality of infrastructure delivered was also very poor. Lastly, in fighting corruption, SCM processes were not being followed and corruption was not being dealt with.

One of the solutions to assist in the challenges being faced by municipalities had been the establishment of the Municipal Infrastructure Support Agency (MISA), where 108 municipalities had been identified using the diagnostic analysis of MISA and provincial plans that focused on areas mentioned above. Another solution was the deployment of service delivery facilitators to municipalities to deal with governance matters. There were also 75 financial experts deployed by National Treasury (NT) to municipalities that required assistance and the majority of these experts were in municipalities that had obtained unfavourable audit opinions.
The Department concluded the presentation by stating that the political leadership in the municipal environment needed to take a keen interest and provide regular oversight on issues raised in the management letter. If this was achieved, then competent management would be applied and in many instances would deter certain unacceptable practices.  
Discussion
Ms Segale-Diswai asked what remedial actions had been taken for municipalities that performed badly.

Mr Mizilikazi replied that some municipalities had been prioritised at a political level. There was assistance being rendered to Municipal Public Accounts Committees after the audit outcomes by the Auditor General (AG) raised issues which needed to be addressed.  Municipalities were required to develop Municipal Audit Remedial Plans which provided a roadmap on how issues raised would be addressed.

Ms Segale-Diswai asked if audits correlated with service delivery

Mr Mizilikazi replied that the Department had mapped out in the presentation audit outcomes against service delivery protests. The result of this was a ‘mixed bag’. It was difficult to come to a conclusion by looking at the trend. One could not conclude authoritatively that protests went in hand with audit outcomes.

Mr Smith stated that the Department’s targets of every municipality achieving a clean audit opinion by 2014 would not be met. The Department should set more realistic targets.

Mr Mizilikazi replied that most people had observed that the targets were very ambitious. However, at government level there was a feeling that in order to be purpose-driven, there was need to do all that could be done to meet those targets. This was the message government was putting across. It was better to work on those targets, even if they were not achieved completely.  

Mr Smith observed that the rate of improvements in audit outcomes was really slow. How would the improvements be accelerated?

Mr Mizilikazi replied that things were starting to move marginally. This called into question the mere fact that all were needed to be involved -- the municipalities, the Department, political machinery and administrative machinery.
Mr Smith stated that officials at municipalities that regressed should not be given their performance bonuses.

Mr Muthotho replied that currently there was no policy from the Department.  His personal view was that if a building in a municipality got burnt and there was no information about it, the municipality would receive a disclaimer, but could one then say that officers there should not get their bonus because a building was burnt and the outcome was a disclaimer? The second scenario was that there was a realisation that even in municipalities with clean audits, there were service delivery protests. If there were service delivery protests on a daily basis and the municipality had got a clean audit, would performance bonuses be given or not?  The tool, therefore, was difficult to implement.

Mr Steenhuizen stated that there should be consequences for poor performance. What action had been taken to remove incompetent and corrupt officials?

Mr Muthotho replied that when the Committee approved the amendment of the Systems Act, it was meant to deal with this particular matter. The Department was monitoring this aspect and there were two provinces where MECs were reporting as required. These were KwaZulu-Natal and Western Cape. The Department was looking at monitoring mechanisms that would be utilised.

Mr Steenhuizen pointed out that there was no capacity in some of the municipalities. There were Chief Financial Officers with Matric.

Mr Mizilikazi replied that the Department was looking at training for Audit Committees in order to assist with the problem of capacity. National Treasury was also looking at other aspects related to internal audit.

Mr Steenhuizen said it was easy to get a clean audit and not do anything, as the Municipal Finance Management Act (MFMA) was not tailored towards service delivery.

Mr T Bonhomme (ANC) pointed out that there was no commitment to rectifying shortcomings.

Mr Muthotho replied that this was very difficult, because commitment could not necessarily be measured from the side of the Department, but it was an issue that was noted. 

Ms Nelson asked how the Department had helped municipalities besides MISA.  Where was Monitoring and Evaluation (M&E)?

Mr Mizilikazi replied that the municipalities were being assisted through the turnaround strategy and all its critical areas, and Mr Muthotho added that MISA was one of the interventions. Secondly, the Department had managed to have plans from all municipalities on the five areas it was focusing on. The Department would be monitoring the municipalities in those five areas and where the Department had action plans with municipalities, it would continue to monitor these.

Ms Nelson stated that the Committee wanted to know municipalities in which the Department had made interventions. This was so that the Committee could see whether interventions were having an impact on audit outcomes.

Mr Muthotho replied that the Department needed to really look at this issue because there were quite a number of interventions that had happened. The Department might need to analyse what kind of impact had occurred. Even after deploying auditors, one needed to ensure that the environment was conducive for the auditors to work in.

Ms Nelson asked what the Department was doing about municipalities sitting with Acting Municipal Managers (Section 56 & 57 Managers).

Mr Muthotho replied that there were certain areas where the Department was intervening, but the results of the intervention were yet to be obtained. One area was in Nelson Mandela, where the Department had met with the MEC to look at what had been happening there.

The Chairperson pointed out that there were some municipalities that had not provided documents for audit to the AG for the third year running. What was the Department doing about this?

Mr Muthotho replied that Mamusa local municipality was one of those identified as having this problem. The Department had requested the municipality to appear before the MinMEC so that the Mayor could explain why they were not submitting. The Department had also invited Ehlanzeni District Municipality, which had obtained a clean audit in two consecutive years, and eMadlangeni, which had moved from qualified to clean audit, to come and share their experiences. These were some of the steps that had been taken after the analysis of the report by the AG.

The Chairperson closed the meeting by stating that the Department should double its efforts. In the next presentation the Department should present a programme of action.

The meeting was adjourned.

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