Operation Clean Audit by 2014: Department Cooperative Governance Progress Report

Meeting report

Operation Clean Audit by 2014: Department Cooperative Governance Progress Report
Mr Vusi Madonsela, Director General, Department of Cooperative Governance and Traditional Affairs, briefed the Committee on the status of the Local Government Turn Around Strategy (LGTAS) since its inception. He noted that this strategy commenced some years back, but the team was disbanded at the beginning of 2011, because the Department of Cooperative Governance and Traditional Affairs (COGTA or the Department) had been stagnant for a period of about eighteen months. Matters changed with the appointment of a new Minister, and the LGTAS again began to move forward. This strategy was focusing on 108 municipalities. It had been approved by MinMEC in May 2012.

He noted that the acceleration of the LGTAS was done through focus areas, that were mutually reinforcing, and that played a critical role in improving the audit outcomes of the municipalities. The priority areas included attention paid to accelerating service delivery, enhancing Good Governance, promoting sound financial management, fighting corruption and facilitating sustainable infrastructure development

The Operation Clean Audit (OPCA) was a plan that was originally conceived to try to achieve clean audits in all municipalities by 2014. In order to align the OPCA with the five priority areas, the Department visited all provinces from July to August 2012, to discuss the Provincial LGTAS Action Plans for the 108 municipalities. The Action Plan had now been finalised. The Action Plan had to take into account the critical findings of the Auditor-General. In the main, these highlighted three areas of focus, of governance, leadership, and financial management. The Action Plan was a collaborative effort that drew on the roles played by specific stakeholders in support of municipalities. It was refined in September 2012, when the Local Government MinMEC invited municipalities who consistently achieved a clean audit, those who showed improvements, and those who never submitted Annual Financial Statements to a convention, to illustrate and share success stories and highlight challenges.

At this MinMEC convention, municipalities that were consistently achieving clean audits indicated that the key to clean administration and good financial management included the following:
-leadership taking ownership of key controls
-consistent implementation of audit recommendations
-functional governance structures, which included Municipal Public Accounts Committees, Finance Portfolio Committees, Audit Committees and Internal Audit Unit Risk Management Committees
-development and proper implementation of action plans
-proper financial management skills
-proper record keeping

Factors that negated the achievement of a Clean Audit were also pointed out as including:
-lack of ownership by political leadership and management
-lack of financial management skills
-repeat findings that were not properly addressed
-availability of critical staff during the audit
-non-functional governance structures

In order to support municipalities, three priority areas were identified: governance, fighting corruption and financial management.

In the area of governance, it was reported that support had been given to the appointment of Municipal Managers and Chief Financial Officers (CFOs).  219 out of 278 Municipal Managers posts were filled as at end of September 2012. 278 CFO posts were filled as at the end of September 2012.

Draft Regulations for Municipal Senior Managers had been developed in order to govern the appointment and conditions of service for municipal managers and section 56 managers. Municipalities had been supported to develop and implement recruitment and retention strategies, and to develop technical skills. COGTA partnered with the Department of Social Development (DSD) to develop a programme for the 35 municipalities for Integrated Development Plan (IDP) interventions. Guidelines on the Establishment of Municipal Public Accounts Committees (MPACs) had been put in place, and to date 87% of MPACs had been established.

In the area of fighting corruption, COGTA was continuing to train municipal officials on ethics management. Four districts and their local municipalities had been trained, and had established Ethic Committees. These were the district municipalities of Cacadu, Alfred Nzo, OR Tambo and Overberg.

In the area of financial management, COGTA had supported municipalities on credit control and debt collection policies. 39 municipalities had been supported in KwaZulu-Natal and 18 in Northern Cape. A programme had been developed to roll this out to municipalities in other provinces.

Mr Madonsela noted that in order that municipalities improve municipal audit outcomes, municipalities had to develop and implement municipal audit remedial action plans by 20 July 2012. 89% of municipalities had developed their audit remedial action plans. Provincial Departments of Cooperative Governance and Provincial Treasuries were tasked to continuously monitor the implementation of the municipal audit remedial action plans.

Mr Madonsela then outlined various tables, graphs and figures on municipal audit outcomes from 2008/09 to 2010/1. He also presented statistics on municipal governance structures and municipal audit remedial action plans (see attached presentation for full details).

Mr Madonsela pointed out that the figures showing the 2008/09 and 2010/11 municipal audit outcomes, per province as well as nationally, did indicate that there had been improvements in the number of municipalities who received a financially unqualified audit opinion without findings, or a financially unqualified opinion with findings, from 42% to 46%. In the two previous financial years there was no improvement in municipalities that received adverse and disclaimer opinions.

Mr Madonsela was confident that the intervention of the Department would become evident in the 2011/12 audit outcomes. He also emphasised that the recent capacity assessment report by the Municipal Demarcation Board had given the Department a new impetus to accelerate the approval of regulations, so that competent personnel were appointed in this sphere of government. However, he warned that the target to have all municipalities achieve a clean audit opinion by 2014 was unlikely to be achieved.

Discussion
Mr C De Beer (ANC, Northern Cape) commented that it was the duty of the Director-General, through MinMEC, to roll out this programme. He noted that plans were often formulated, but at the end of the day the will to perform the tasks was the main issue. He urged that MinMEC must serve as a monitoring tool in all provinces. Furthermore, he indicated that there was mention of a Local Government Framework Fiscal Summit, but that had never transpired.

Mr Madonsela confirmed that there was still a need to determine when the Local Government Fiscal Summit would be held. COGTA had to look at both horizontal and vertical revenue generation of income by municipalities. A policy directive on this matter was awaited, so that the Summit could be held.

Mr de Beer made the point that the viability of municipalities had to be reviewed.

Mr Madonsela commented that the Department still had to look at the determination of viability and non-viability of municipalities. The demarcations had complicated the issue because some municipalities should not have been set up. In some rural municipalities, 80% of the population was reliant on social grants. That was a policy discussion that should be pursued between the Department and National Treasury.

Mr de Beer still felt that the appointment of Municipal Managers and CFOs was taking too long. Their role in terms of the Municipal Finance Management Act (MFMA) should be closely monitored. Lastly, he said he was tired of hearing that there were no skills available and therefore no capacity in municipalities. He strongly suggested that COGTA should approach and recruit high school students, and give them bursaries and contracts to ensure that they would, on completion of their studies, come to work at municipalities.

Mr Madonsela referred to delays in the appointment of senior managers, and explained that the legislation prescribed that the vacancies of the top six managers should be filled within six months. Many times, however, this issue was dependent on the political leadership running the municipality.

Mr Madonsela welcomed the comment and suggestions in relation to critical skills, and welcomed the idea of recruiting local students, which the Department would look at further. He highlighted that there had been a secondment of engineers into certain municipalities, from Municipal Infrastructure Support Agency (MISA), a government component. However, there remained some challenges since these engineers were not employed by municipalities, did not understand the dynamics within municipalities and did not appreciate why they had to attend municipal meetings. They only concentrated on figures and designs, and not on the whole picture.

Mr A Lees (DA, KwaZulu Natal) remarked that the reason why municipalities were struggling to achieve clean audits was because they seemed to be concentrating on structural issues. The matter was, instead, about leadership. The main focus should be on human capacity management and leadership. He took the Western Cape municipalities as an example, noting that some had fewer structures but were performing well, with good personnel.

Mr Madonsela expatiated that in fact a combination of all elements was needed, including a structural approach and personnel building. The matter should not be seen as an “either / or “ option. There should be an emphasis on building personnel capacity, but there should also be people exercising oversight.

Mr Lees wanted to know why the Department was not focusing on those provinces that were not managing well in relation to credit control and debt collection policies.

Mr Madonsela said that there was a concentration on KwaZulu Natal and Northern Cape, and programmes of action were in place. The plans would begin in the Western Cape and would then be rolled out to all provinces.

Mr Lees asked COGTA to explain what it meant by monitoring government structures, and questioned if performance was being monitored.

Mr Madonsela responded that monitoring was being done in relation to the capacity of provinces. He noted that the Northern Cape Province was deploying people from their provincial roles to fill municipal roles, because the municipalities were struggling to recruit and retain personnel. However, this was then leaving a gap in the provinces.

Mr J Bekker (DA, Western Cape) commented that the problem remained around implementation, which was simply not happening. The plans were in place, but there was insufficient action.

Mr S Montshitsi (ANC, Gauteng) remarked that the revival of the LGTAS was showing that the government was taking action, and that this process hinged on what the Constitution said – namely, that people shall govern.

Mr Montshitsi did not believe that it was correct for senior managers to send junior staff to training programmes, especially in the area of capacity building.

Mr Madonsela explained that in all the LGTAS workshops that were conducted in provinces, Heads of Departments and CFOs had attended. That was a sign that they were taking the matter seriously.

Mr Montshitsi wanted to know why there were fluctuations in those municipalities that got unqualified findings.

Mr Madonsela said there were no scientific reasons for these fluctuations. He noted that some municipalities had managed to graduate to the position where 5% were now achieving clean audits. This percentage was below target, but it was an improvement on the position in 2009.

Mr D Bloem (COPE, Free State) commented that National Treasury and the Auditor-General were not providing any consequences for people who done the wrong things. For example, Nala Municipality was always in the news, and the former Municipal Manager had been appointed to a senior post in the Office of the MEC, despite his wrongdoing. Mr Bloem stated strongly that as long as “crooks” were not rooted out, and if they were in fact being awarded with senior posts, the issue of corruption would never be solved, and nor would the need for capacity building. He said that he had, some time ago, written to the Minister about this municipality, but the Minister had only ever stated that he was investigating the matter.

Mr Madonsela indicated that COGTA planned to meet National Treasury to discuss the possibility of withholding funding if the municipality was not cleaning up its matters. A delegation had been sent to look into the matter mentioned. If an official was found guilty of wrongdoing, the law would take its course.

The Chairperson remarked that non-compliance by municipalities on legislation was rife, as had been highlighted by the Auditor-General. At some point he wanted COGTA to explain progress made on this matter, because COGTA had not indicated how it planned to address the issue of non-compliance. He also suggested that there was a need to closely mentor those municipalities that were not performing, until they showed improvements, as he felt that this was the only way in which the LGTAS could be implemented successfully in order to achieve clean audits.

Mr Madonsela elaborated that Operational Clean Audit Committees have been established in all provinces, precisely to address the non-compliance and there were support plans that were to be monitored by the Treasuries. These Audit Committees were manned by officials from Provincial Treasuries, Provincial COGTAs and municipalities.

The Chairperson wanted to know why the establishment of MPACs was below 50% in the Free State and Western Cape.

Mr Madonsela replied that Free State had already started the process and recorded 42% progress so far. The Western Cape had still to decide if it would call these structures Municipal Public Accounts Committees, and it had structures, but they were possibly to be titled differently.

Mr Madonsela added that the use of consultants was being monitored very closely. It had been found that, in some municipalities, officials were appointed but would then ask consultants to do their work. The Department was looking at ways of recruiting experienced and qualified people.

The meeting was adjourned.