Audits of Local Government in Gauteng, Free State and North West: MEC & provincial departments' briefings

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Meeting Summary

Representatives from the North West, Free State and Gauteng provinces briefed the Committee on the Auditor-General’s reports on municipalities within these provinces. By way of background, it was noted that all municipalities were expected to have clean audits by 2014, and that provincial government was expected to take steps to assist municipalities in achieving this. The presentations dealt with the audit outcomes for the 2010/11 financial year, and the measures that had been taken to address critical issues raised by the Auditor-General. Supply chain management problems were a continuing and consistent problem. The North West Province also highlighted problems identified by the Auditor-General with  human resources, predetermined objectives, information technology and financial systems and material misstatements. The steps that it had taken towards achieving clean audits included a records management project, capacity development project, the setting up of Municipal Public Accounts Committees (MPAC) and audit remedial plans. Sustainable and functional management plans were being drawn for records, training was being undertaken and the trained officials were to be optimally deployed, and ten municipalities with poor audit outcomes were asked to submit audit remedial plans to the Provincial Department.

The Department of Cooperative Governance and Traditional Affairs in Free State Province noted that in the 2010/11 financial year, out of the 31 municipalities, two received an adverse audit report, 15 had disclaimers, three had qualified audit reports, eight had unqualified audit reports and three had outstanding reports. The main causes of the problems included non compliance with supply chain management regulations, lack of capacity and technical expertise, critical vacancies in budget and treasury offices, internal audits and risk management. Service provider agreements were not up to scratch, making it impossible to enforce performance against stated deliverables, and some municipalities had appointed more than one service provider. Municipalities had in some instances failed to report and were not addressing the legacy audit issues. Interventions were required on budget allocations, accounting systems, into the executive Council and by deploying expertise, and the various specific interventions were described. This province had requested the Presidents’ Coordinating Council, for an additional R100 million for support to municipalities.

The Department of Local Government and Housing, Gauteng, noted that out of the 15 audited municipalities, nine had unqualified audit reports, and six had qualified audit reports, with two municipalities having regressed to qualified reports. The main concerns related to IT control breaches across all municipalities and supply chain management challenges. This Department was offering targeted and hands on support to address the issues raised, particularly in relation to  internal controls, assets, oversights, revenue management, capacity building, performance information and annual financial systems.

Members commended the North West on managing to ensure that all municipalities, in the current financial year, submitted their reports before due date, but questioned the quality of those reports. They noted their concerns that some municipalities either failed to properly interpret advice from this Committee, given during oversight, or ignored it, and said that this was the reason why so many found themselves in their current dire straits. They noted the training interventions but questioned whether suitably qualified candidates had been employed in the first place. Members asked exactly what role the MPACs played, and how they ensured daily monitoring by responsible officers. Members decried the AG’s reports on the Free State municipalities, which they found unacceptable, and wondered why specific delivery outcomes could not be set.  The Free State Member urged the Committee to indicate its objection to the request for R100 million from the President’s Coordinating Council, given the failure to address the problems that had been outstanding for years, as well as the failure to submit outstanding reports on corruption investigations, and the delay in finalising a clear-cut fraud case. They further commented that leadership in Gauteng was lacking on some issues. They agreed that decisive action must now be taken and called for reports before October on the outstanding issues.

Meeting report

Audits of Local Government in Gauteng, Free State and North West: Briefings by MECs and Provincial Departments of Local Government
North West Province briefing
Mr China Dodovu, MEC for Local Government, North West Province, anchored the presentation on the North West Province’s Department of Local Government and Traditional Affairs (the Department) action plan in response to the report drawn up by the Auditor-General (AG) on the audit outcomes of local governments. By way of background, he highlighted the critical issues raised in that report in regard to Supply Chain Management (SCM), Human Resources (HR), performance against predetermined objectives, Information Technology (IT) and Financial systems and material misstatements. The challenges the province faced included inappropriate or poor skills, poor performance reporting and management, and poor ownership by leaders.

The presentation highlighted the legislative mandate in regard to proper financial reporting and planning. The Operation Clean Audit programme encompassed a records management project, capacity development project, setting up of Municipal Public Accounts Committees, and audit remedial plans.

With regard to record management, the objective was to achieve proper record management for clean audits in 2014 and beyond. This would be done by establishment of sustainable and functional record management procedures and practices, within priority municipalities, by development and implementation of approved municipal record management file plans, and attempts to improve municipal audit outcomes by 2014. In relation to capacity development, the province had embarked on a drive to train municipal officials at different levels, and was ensuring that all trained officials were used optimally in the offices of municipalities, to address audit queries and revenue enhancement projects. It was noted that Municipal Public Accounts Committees (MPACs) were set up in all 23 municipalities, in November 2011, and the AG, in partnership with the province, conducted induction and orientation work sessions. Another round of work sessions was also conducted in partnership with Provincial Treasury (PT) and the Association of Public Accounts Committees (APAC), in May and June 2012. Annual work plans had been provided for each MPAC, for adoption and implementation by Council. The progress of MPACs in the various municipalities was outlined (see attached document).

The interventions for Audit Remedial Plans were outlined, noting that the ten municipalities that received poor 2010/11 audit outcomes had completed and submitted audit remedial plans to the Provincial Department, which was now in the process of finalising section 131(2) reports for the 2010/11 audits. It had also submitted section 131(2) reports for 2007/08, 2008/09 and 2009/10, as required by legislation. The Department planned to use the Vision Clean Audit 2014 as an intervention mechanism to move municipalities from their present challenges to future improvements and finally excellence in democratic governance, basic service delivery, infrastructure development, financial sustainability and economic growth.

Free State Province briefing
Mr Petrus Bacha, Director: Municipality Support, Department of Cooperative Governance and Traditional Affairs, Free State Province anchored the presentation for this province. He also highlighted the Clean Audit Vision 2014 and the audit outcomes, for each municipality, over the period of 2008/09 to 2010/11. In the financial year 2010/11, out of the 31 municipalities in the province, two received an adverse audit report, 15 had disclaimers, three had qualified audit reports, eight had unqualified audit reports, and three had outstanding reports. It was evident that despite efforts by both the provincial Department and the Free State Provincial Treasury, municipalities had failed to meet the targets for Operation Clean Audit and these ultimately put the 2014 Clean Audit Vision at risk.

The main root causes for the disclaimers and qualified audit opinions were identified. They included non compliance with supply chain management regulations, lack of capacity and technical expertise, critical vacancies in budget and treasury offices, internal audits and risk management. Some service provider agreements for consultants that were used by some municipalities were not of the desired standard, making it impossible to enforce performance, as no deliverables were set out. At some municipalities, more than one service provider was appointed, and coordination was neither included in the agreements nor was properly managed. There was inappropriate timing for migration to new Financial Management Systems. Prior year audit issues were not always resolved in time and ultimately impacted on the current year audit findings. Municipalities failed to report to the Mayor and Provincial Treasury, in terms of the Key Control Matrix, and solutions to address legacy issues raised by the Auditor General were not fully implemented.

This provincial Department had identified the need for intervention in relation to budget allocations, provincial support for compliance with the accounting systems, including the Generally Recognised Accounting Principles (GRAP), the need to deploy expertise, and to make executive council interventions.

A total of R24.388 million was received for Operation Clean Audit in the 2012/13 financial year. The allocation was inadequate to address all challenges and constraints facing municipalities that prevented them from achieving clean audits by 2014. For this reason the Premier had requested the Presidents’ Coordinating Council, in March 2012, for an additional R100 million for support to municipalities, and was awaiting feedback. The Department and Provincial Treasury had also concluded partnerships with other role players to support municipalities towards Clean Audit 2014.

In relation to the Provincial support, it was noted that during the 2010/11 and 2011/12 financial years, the  CaseWare software was rolled out to district and local municipalities, as part of Operation Clean Audit.  Training and implementation for provincial entities was conducted between 3 and 18 May 2012 and training and implementation for municipal entities was conducted between 28 May and 1 June 2012. In relation to the GRAP compliance, partnerships were concluded with Provincial Treasury and Institute for Municipal Engineering of South Africa (IMESA) in 2011/12, for an infrastructure asset management system solution. Kopanong, Masilonyana and Moqhaka Local Municipalities were selected as pilot municipalities, and the rollout to other municipalities commenced in June 2012, when the Clean Audit/IMESA Memorandum of Understanding (MOU) was signed with those municipalities. The Department would sponsor the rollout.

The further details on deployment of expertise included the fact that agreements had been concluded with individuals and service providers, for deployment to selected municipalities, to strengthen and expand available capacity to try to achieve and maintain clean audits. This would address the major financial areas where support was needed. In relation to the Executive Council interventions, it was noted that municipal audits were discussed at the Premier’s Coordinating Forum (PCF), and the PCF benchmarks were then discussed with provincial departments audit outcomes, to demystify the municipal focus. These stressed that there should be consequences for poor performance. 

Gauteng Province briefing
Ms Itumeleng Motake, Deputy Director General: Local Government and Support, Department of Local Government and Housing, Gauteng, presented the action plan of her province in response to the Auditor General’s report for the 2010/11 financial year in Gauteng. She highlighted the background, legislative and policy mandates of the Department. She then set out the audit outcomes, namely that of the 15 audited municipalities, nine had unqualified audit reports, six had qualified audit reports, and there were no disclaimers or adverse reports. However, there were two regressions as Randfontein and Nokeng local municipalities regressed from unqualified to qualified audits. Key issues of concern were raised around IT control breaches across all municipalities and supply chain management challenges.

Targeted and hands-on support was offered  across the municipalities to address the issues raised by the AG. The primary focus areas of support were internal controls, assets, oversights, revenue management, capacity building, performance information and annual financial systems. The progress made in different municipalities was discussed in detail (see attached presentation). It was noted that the hands-on support included establishment of the Operation Clean Audit Coordinating Committee, internal audit and audit committee shared services, asset management support, implementation of the scarce and critical skills strategy, human resource and performance management, and joint initiatives by the Department of Local Government and Housing and Gauteng Provincial Treasury.

The presentation also highlighted identified measures to ensure the success of Operation Clean Audit. Support systems already in operation would continue, with a view to achieving improved quality of financial statements and to facilitating more effective and efficient interim audits whilst there was also support for improving IT controls, enterprise-risk-management support, and an emphasis on internal controls, especially in the areas of HR and supply chain management (SCM). There was also support being given to improve the reporting on performance information, support for reducing distribution losses in water and electricity, provision of additional support on revenue enhancement, with a particular focus on the revenue value chain, and strengthening of the provincial departmental capacity to support municipalities.

Discussion
Mr C De Beer (ANC, Northern Cape) remarked that it was impressive that the North West municipalities had submitted all financial reports before the due date.

Mr S Plaatjie (COPE, North West) agreed that while it was commendable the North West municipalities had submitted financial reports before the due date, it was essential that the reports submitted were quality reports.

Mr De Beer noted the Auditor General’s remarks regarding the non-availability of documents to substantiate claims, and said this seemed to indicate that there had been underhand and unethical practices around the bidding for tenders. Stricter governance practices, and a commitment on the part of leadership, were important to address these issues.

Mr Dodovu responded that only nine out of 24 municipalities in the province had submitted their financial reports on the due date in the last financial year, and that was the reason why, in this year, the Department had insisted that all must be submitted. In relation to the quality of the reports, he commented that the Provincial Department had appointed service providers to help municipalities to improve their reports, and bring them up to standard. The biggest challenge was to ensure that audit information was available at the time of the next audit, and that steering committees, led by mayors, met weekly up to the time of the audit. The North West MEC remained hopeful of further improvements on the outcomes. It was, however, unfortunate that municipalities’ leadership was not taking a serious enough view of the problems. It was important that mayors and municipality managers must took responsibility for their actions. He was committed to looking further into the issue.

Mr De Beer remarked that the absence of financial and non-financial information, as reported by the AG for the Free State, meant that there had been a lack of both financial and non-financial management. Career placements within municipalities should recognise this and focus on it.

Mr Bacha responded that the non-financial information referred in the Auditor General’s report indicated that the predetermined objectives were not always clearly defined, measurable or quantifiable.

The Chairperson questioned the expression ‘service delivery was not always quantifiable’

Mr Bacha responded that this was because the service delivery aims were not always quantifiable.

The Chairperson disagreed. He noted that the Public Protector had been able pinpoint shoddiness in some specific areas of service delivery. He wondered why the municipalities in the Free State could not do the same. There should be measurable yardsticks to determine delivery.

Mr De Beer queried the attitude of municipalities to the guidance that this Committee had offered when doing oversight visits to the municipalities. Either, the information was incorrectly interpreted, or the municipalities chose to ignore the information, and that was the reason why they found themselves in dire straits. They could only get themselves out of the problem if the Province put in place the right internal control measures, and addressing many of the issues internally, including monitoring cash flow, carrying out constant internal audits and ensuring monthly reports. The municipalities needed to learn from each other and replicate success models.

Mr Plaatjie felt that the presentation from Gauteng seemed contradictory. Ms Mokate had suggested that the plan was not necessarily a response to the AG’s report although the title was “Action Plan in response to the AG’s Report”. He asked for clarification.

Ms Mokate responded that the plan presented was the plan that was intended to respond to the 2010/11 findings of the Auditor-General. However, for the last three years, the Gauteng Provincial Department of Local Government and Housing had been working with the municipalities already, around issues of clean audits, as part of its ongoing support work to the municipalities. Every year, the Department met with municipalities to ensure that the support provided aligned with new and recurring issues that the AG had raised.

Mr Plaatjie noted that the plan to train staff, outlined by all three provinces, was necessary, in order to ensure sustainable provision of services. He, however, questioned the training, and asked whether in the first place suitably qualified candidates had been employed to fill vacancies.

Mr Bacha responded that the training referred to in the Free State’s presentation was geared to the Local Government Account Certificate, for entry level officials. He noted that there was a high turnover of staff that necessitated constant retraining. In some instances, there had been relaxation of job specifications, such as experience in GRAP, to attract staff, but this meant that the staff had to be trained after they were employed.

Ms Mokate said that in Gauteng, training was also a continuous process, and she too commented on the  high turnover rates of staff at the municipalities. The province was working to ensure that persons filling vacant posts were suitably qualified. However, she also agreed with the need for continuous training, particularly in relation to new procedures such as the GRAP 17 and new supply chain procedures.

Mr Plaatjie questioned how MPACs ensured that daily monitoring procedures were carried out by responsible officers. He stressed the need to ensure discipline amongst municipality officials in record keeping.

Mr Dodovu responded that many of the MPACs were put in place late last year, with oversight roles. MPAC committees still needed to be properly capacitated, with correctly-skilled personnel, to ensure proper monitoring. Provincial legislation was also needed to help empower MPACs. He also added that his presentation basically covered the 2010/11 outcomes and the current situation was different.

The Chairperson questioned exactly what role the MPACs played. Mr Plaatjie added that in order for this Committee to assist the MPACs fulfil their mandate, Members needed information on the quality of discussion, such as minutes of meetings and agendas.

Ms Mokate agreed that new MPACs were established only recently. Hence, there was a need to retrain new MPAC members. She promised to send the Committee some samples of minutes of meetings, and also to facilitate attendance of committee members at MPAC meetings, if they wished.

Mr A Matila (ANC, Gauteng) noted with dismay that the presentation from the Free State Province was no different from previous presentations and there had been no indication of improvements across most of the province.

Mr Bacha apologised that more specific information was not included. He gave a commitment that future presentations from the Free State would be more specific.

Mr Matila commended the progress made so far in the North West, within the past four months from the time that the new MEC was appointed, and urged that this progress be continued.

Mr Matila remarked that the Committee still awaited reports from the North West and Free State on the recommendations it had made during oversight visits.

Mr Bacha responded, in relation to the Nala Municipality issue, that there had been some administrative stability achieved lately, that the billing crisis had been resolved, and the municipality was now billing its consumers, whilst the AG was in the process of concluding the municipality’s arrear financial statements. The three main issues that affected the audits in the North West were misstatements, compliance issues and limitation of scope.

Mr Matila remarked that the disciplinary processes outlined in the presentation by Gauteng were commendable, and worthy of emulation by other provinces.

Ms Mokate responded that Gauteng further intended to strengthen performance management, to ensure that erring officials were disciplined and held responsible, and also to monitor performance.

Mr Matila noted that Gauteng seemed to have less engagement with the Committee other than in respect of the legislative issues, and urged the province to improve in this regard.

Mr D Bloem (COPE, Free State) disagreed with Mr Matila’s assertion that the North West had made remarkable progress over the last four months, and said this could not be judged until the new MEC had been in office for at least a year, when it would be appropriate to review and comment on his achievements.

Mr Bloem decried the outcome of the Auditor General’s report on the Free State. Most of the high capacity municipalities showed audit disclaimers for years  on end, and this was unacceptable. Two reports on investigations in the Free State had been withheld, and remained unpublished, despite the fact that the investigations had been finalised. Corruption was rife in the Free State, including cover- ups of corrupt practices and officials, whilst corrupt officials were rewarded with promotions. It was time the Committee took decisive action against this type of behaviour in the Free State.

Mr Bacha responded that the reports of the investigations were now documented, had been handed over to Council and were available in the public domain. The affected public officials had resigned and criminal charges had been instituted. The HAWKS would be visiting the municipality in October to further probe into the matters. All municipalities formerly under administration in terms of Section 139 were no longer under administration.

The Chairperson interjected that the Committee had made some recommendations to the Mayor in respect of section 139 interventions, but the Committee was yet to receive any response. The Committee wanted the issues it raised to be addressed, rather than ignored, by municipalities. Parliament would henceforth make use of all the powers it had, to ensure compliance.

Mr Bloem requested that reports from Nala and Matjhabeng be officially tabled before the Committee. He questioned why it was necessary to wait till October for the HAWKS to visit Nala, when there was clear evidence of criminal activity that required a police officer to make an arrest. The official who tried to cash the R600 000 across the counter had been identified, and the cheque, which formed the critical evidence, was available. He asked why there was such a long delay in making the arrest and prosecution, since this offence had taken place almost two years ago.

Mr Bacha responded that the official implicated in the cheque fraud was also implicated in the report. He was unaware why it had taken this long to arrest and prosecute the offenders.

Mr Bloem was dissatisfied with Mr Bacha’s answers, and asked if another Free State official could enlighten the Committee further.

Mr Teboho Taka, Director, Provincial Department, declined to make any further comments on the issue.

Mr Plaatjie stated that the correct official must provide the Committee with a proper written report on the issues.

Mr Matila urged that all requested reports must be made available to the Committee by the first week of October.

Mr Bloem remarked that Gauteng also suffered leadership deficiencies, as there were no genuine efforts on the part of the leadership to address the issues that had plagued the province for so long.

Ms Mokate responded that the concerns regarding leadership were noted and would be communicated accordingly.

Mr Matila commented that it was essential that politicians at the provincial and municipal levels must change their mindsets and deliver results as soon as they were elected. There was no time for the luxury of undergoing extensive training.

Mr Bloem referred to the request by the Premier for additional funding of R100 million, from the Presidents Coordinating Council. He felt very strongly that this Committee should indicate its disapproval of this request, and stop it being approved. Several municipalities in the Free State had received disclaimers or qualified reports, and the allegations of gross misappropriation of funds were yet to be dealt with. In his view, the request for more funding was not appropriate.

The Chairperson stressed the need, in future presentations and during oversight visits, for presenters to include clear specific deliverables and time frames in their presentations. The issue of billings needed to be clarified by the MECs during follow up meetings. In relation to Supply Chain Management challenges experienced by municipalities, he noted that the Municipal Financial Management Act had very specific provisions on roles and responsibilities, as well as the consequences attaching to financial misconduct. The provisions of the Act must be adhered to and defaulting municipal officials must be brought to book. It was time to move from lamenting the woes in municipalities to effecting corrective measures.

The meeting was adjourned.

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