The Chairperson said the Auditor General (AG) had recently approached the Office of the Speaker with a reminder that his term was coming to an end in November. Discussions had ensued, but it was not clear which Parliamentary Committee would be tasked with the matter. Presumably if an ad hoc committee was decided upon, it would be dominated by Members from the Standing Committee on AG (SCOAG). There had been no finalisation of discussions in that regard, and legislation was not explicit on how the process should be taken forward.
The Committee heard that the highlights of the report had been shared with all the concerned stakeholders, except for the Free State and Mpumalanga. There had been extensive discussion with the National Council of Provinces (NCOP) and the Cabinet. The previous day there had been a session with the Minister of Cooperative Governance and Traditional Affairs (COGTA).
The general trend in the audit findings had not changed; instead, some municipalities had performed worse. It had been established from discussions with stakeholders, and AG staff who had conducted the audit, that a lot had been done since the results were finalised in December 2012. The Office had agreed to request updated status on internal controls from some provinces. By the time the results were published in July, improvements would be reflected in the final report.
The number of municipalities who had attained unqualified reports had shrunk, while those with qualified opinions had increased. The reasons for this trend included that the Generally Recognised Accounting Practices (GRAP) system was now applicable to all municipalities. National Treasury (NT) was phasing this element in over a period of five years. Some municipalities had demonstrated a lack of readiness to respond to some of GRAP’s reporting requirements. Municipalities had been given an opportunity to beef up their resources to handle this system.
Nothing was wrong with engaging consultants to supplement the inadequacy of skills at municipalities. Consultants were worth using if this achieved compliance with the Municipal Finance Management Act and supporting regulations. But there had to be a way of ensuring that a skills transfer happened, so that reliance on consultants was reduced.
Members raised doubts about ever getting financial management at municipalities right. The report was worrying, because compliance with laws and regulations was mandatory. People should not behave like they were doing charitable work, and the performance of officials needed to be measured. When officials tried to bypass the system, this needed to be regarded as a serious case of fraud, which bordered on criminality. Why should there be no documents when requested? There could be only two reasons for absence of documentation-- either the officials were not serious about their work, or they intentionally destroyed the documents. Auditors could not do their work without source documents. The Committee should take a strong stand on these issues by writing to Parliament, recommending stringent action against transgressors.
The AG commented that the consequences for failure should be properly structured and based on the system of having first to invest in someone’s ability to do the job. It did not help to hit someone hard without first investing in their ability to perform, both at the level of political oversight, as well as in administrative ability. Investment in skills, as the first layer of intervention, had to happen.
He also requested that the process of finding a new AG be expedited as his departure loomed large. Parliament was really pressed for time -- if it missed the September deadline, as suggested to the Speaker, there was a possibility of jeopardising succession at the AG. Delays would create anxiety at the institution if it became leaderless in November..
The Chairperson apologised for the absence of ANC Members from the meeting. In the study group it had been thought that the meeting would be postponed because some agenda items had not yet been finalised. The Auditor General’s (AG) presentation was scheduled to be delivered way ahead and the study group had not discussed that. Some Members would not be present because of the understanding that the meeting was intended to be postponed. The AG’s presentation would, however, be received.
The AG had recently approached the Office of the Speaker with a reminder that his term was coming to an end in November. The approach the AG had taken was to facilitate the process of finding a new AG. Discussions had ensued, but it was not clear which Parliamentary Committee would be tasked with the matter. Presumably if an ad hoc Committee was decided upon, it would be dominated by Members from the Standing Committee on the AG (SCOAG). There had been no finalisation of discussions in that regard; legislation was not explicit on how the process should be taken forward.
There had also been discussions on how to take forward the Kader Asmal recommendations relating to Chapter 9 institutions. The expectation was that whatever the process, the Committee would be involved. Generally the report dealt with issues of governance and financial arrangements. This information was to update Members so they could be prepared for such developments.
The Committee Section should have included the Remuneration Committee (Remco) on the Agenda, as it had been pending for a while. He said he had instructed the Committee Secretariat to approach the Presidency, upon receiving correspondence from the Chairperson of Remco, to establish the progress made in that regard. The feedback at this stage was that a decision had not been made. The Speaker had undertaken to write to the Presidency on the Committee’s behalf on the matter. Hopefully it would be resolved before the incumbent’s term of office lapsed.
Mr Terence Nombembe, AG, said regarding the Remco matter, he had received a message yesterday that the President had signed a document that also required his signature. The document would be attended to over the weekend, and would be ready by Monday. But the President had finalised the issue regarding Remco.
The highlights of the report had been shared with all concerned stakeholders except for the Free State and Mpumalanga. There had been extensive discussion with the National Council of Provinces (NCOP) and the Cabinet; the previous day there had been a session with the Minister of Cooperative Governance and Traditional Affairs (COGTA), Mr Richard Baloyi, where he had hosted 160 municipalities which had received qualified audit opinions. Yesterday’s meetings sought to craft stakeholders’ response on the way forward. The AG still had to engage the Speaker’s Forum on the findings.
The general trend in the audit findings had not changed; instead some municipalities had performed worse. Deductions from discussions with stakeholders, and AG staff conducting the audit, were that a lot had been done since the results were finalised in December 2012. The Office had agreed to request updated status on internal controls from some provinces. By the time the results were published in July, improvements would be reflected in the final report.
The number of municipalities who had attained unqualified reports had shrunk, while those with qualified opinions had increased. Reasons for this trend included that Generally Recognised Accounting Practices (GRAP) was now applicable to all municipalities. National Treasury (NT) was phasing this element in over a period of five years.
Some municipalities had demonstrated lack of readiness to respond to some of GRAP’s reporting requirements. Municipalities had been given an opportunity to beef up their resources to handle this system. GRAP would be applicable to all municipalities in 2014, even the low-capacity ones.
Municipalities had the capacity to establish a trend of increasing qualified audit opinions only if they allocated sufficient energy and resources. About 27 municipalities had presented decent and auditable financial statements in the first set that had been received. Material omissions had been corrected during the time of the audit; which indicated that if an effort had been put in much earlier, better results would have been achieved.
Mr Nombembe said 55% of the municipalities had not reached a point where financial statements could not be modified. This was a pity, because there was no reason for municipalities to have failed, had they put enough resources in. There was an ability to get things done, although sometimes consultants had been roped in. Many municipalities – 170 – just lacked the in-house skills to respond to the requirements of GRAP. This was area where consultants had been called in, mainly to put together financial statements that were compliant with GRAP principles.
It was encouraging that nine municipalities had received clean audits with no findings. Six of these had achieved clean audits without the help of consultants. This showed it was possible for municipalities to respond to GRAP requirements. The nine municipalities had demonstrated it was possible to achieve clean audits by all municipalities. About 78 municipalities had received disclaimers of opinion and of those, about 85% had used consultants to prepare financial statements.
That municipalities still got disclaimers despite using consultants, emphasised the fact that consultants were no answer when basic records were not in order. Consultants could not help correct damage around infrastructure, revenue and assets – areas where qualifications were essential.
Municipalities tended to struggle with commitments -- or what was owed to third parties for work already done. Many municipalities did not know what kind of obligations or liabilities they had towards third parties. These were some of GRAP principles, and the advantage of accrual accounting was that it made municipalities aware of their balance sheets and income statements.
A considerable number of municipalities had used consultants and yet their statements had had to be changed during audit. If consultants had applied their minds, they could easily have picked up the issues raised by the audit; those issues could easily have been corrected. The audit report also raised the issue of optimising the support structures used to prepare financial statements at municipalities. The idea was to ensure there was value for the money paid out by municipalities.
It was important to look at value for money, because R360 million paid to consultants for the period under review was a large sum. In fact, the figure was much higher, if money paid by provinces on behalf of municipalities was included. The figure reflected only what municipalities had paid from their own coffers, as the focus had been on the Municipal Finance Management Act (MFMA).
Nothing was wrong with engaging consultants to supplement inadequacies of skills at municipalities. Consultants were worth using if this achieved compliance with the MFMA and supporting regulations. But there had to be a way of ensuring that a skills transfer happened, so that reliance on consultants was reduced. Government could never do away with consultants, because of their proximity to local government.
The skills situation had not changed much since last year, and this was not being addressed at the local government level. Another challenge was the slow response by political leadership to address the poor audit outcomes.
The AG had emphasised Speakers’ role in ensuring clean audits. To do that, Speakers should look at the credibility of information brought before councils. A number of players, including the Municipal Public Accounts Committees, auditors and internal auditors should assist. But most importantly, the executive and administrative leadership had to ensure internal controls were in place.
Councils were failing to ensure verification and validation when information was submitted. This continued to be the case, because councillors were neither wiser nor adequately equipped to play that role.
The South African Local Government Association (SALGA) had been party to efforts in trying to resolve this issue. It had been indicated to them that training for councillors was crucial, and that they needed to understand the role of being a councillor. Until such training happened, the qualified audit opinions were likely to drag on a little longer. Although training was provided for the Municipal Public Accounts Committee members, this was impacted by the turnover rate. There had to be commitment to ensure that oversight by well-trained councillors was done.
The area of reporting on performance, financial controls, and IT were all affected by the shortcomings. There were horror stories when linking supply chain management and information technology (IT). He explained how easy it was for officials to effect double payments to suppliers. There was a need to find controls that would address these issues.
The analysis that the vast majority of municipalities were still viable was questionable. The AG was not sure how reliable such a statement was if there were this much disclaimers. Compliance with laws and regulations was still a big issue and most municipalities regularly deviated. The cost of deviations from the laws was too heavy to bear.
He concurred with the Director General (DG) of the National Treasury that laws were put in place for a reason, and the attitude that they were not important had the potential to erode the confidence placed in municipalities by the public. Supply chain and financial fiscal discipline were the main areas where deviations had occurred.
The AG had discussed at length the results contained in the report with stakeholders, including the South African Local Government Association (SALGA), the provinces, the Premier’s Forum, the National Council of Provinces (NCOP) and the Cabinet. The Speakers Forum would be briefed in the next four weeks, and that would complete the series of consultations. In some provinces, the AG had decided to engage only the Premier, the MEC of Finance, the Speaker and the provincial Portfolio Committees.
Mr N Koornhof (COPE) commented that the presentation had been powerful, and asked what hope there was of improving the audit opinion of municipalities. Would there be changes next year, and if so, what needed to be done in the immediate future?
Mr Nombembe replied that the first step was to engage with municipalities, although the results were ready. This was part of the process of facilitating a decisive response on the results. Municipalities should be given a chance to respond, before the results were made public. The question of whether there was hope would depend on the plans that were in place to respond to the issues. The discipline of submitting information on time was also important. However, unless the skills question was addressed there would never be hope. The skills issue was serious, and could be resolved only if the question of consultants was dealt with effectively. NT had indicated it was looking into developing a standard practice on how local government should be assisted in dealing with consultants. This would centre on when the engagement of consultants was done, and also around payments. It was important that payments were not just made, but effected only when there had been deliverables. This was an interim measure, because skills might take a little while to be developed.
Another issue was how councillors were empowered to effect proper oversight. This was dependent on political parties to make the point that those serving on councils must be adequately equipped to perform the job. Capability for councillors should be on the agenda of political parties. This would not happen in the short term, but could definitely happen in the medium term. For too long the local governance structure had been left too loose in terms of adequacy to perform tasks. The country knew what to fix, so there was hope.
Dr D George (DA) sought clarity on the outstanding audits. What was happening with the 20 outstanding audits as at 20 March 2013?
Ms Tsakani Maluleke, National Leader of Audit, AG, replied that many of the outstanding audits were in the Northern Cape (NC). Late submissions in other provinces had largely been dealt with. There were major improvements in the North West (NW), and the submissions had come through even though the outcomes were still largely adverse. The improvements were as a result of the interventions by the provincial and national treasuries.
The Chairperson sought clarity on whether it was correct to conclude that one of the reasons people failed to submit was the realisation that they were headed for a disclaimer.
Ms Maluleke replied it would be difficult to say with certainty what led people to submit late. One should look at what happened in the NW, where NT had put in stringent measures such as withholding grant funding, to force submission by municipalities. Support was also provided to those municipalities in terms of helping them compile the financial statements. And yet the outcomes were disclaimers which would indicate there were genuine challenges on how the finances of those municipalities were being run. It appeared there were similar kinds of challenges in the NC.
The Chairperson asked how many Parliamentary Committees had been briefed on the audit performance findings on the use of consultants, and if that had been done, what were the indications from such Committees to addressing issues raised in the report?
The Chairperson commented that the Committee had not reported to Parliament on the report, and needed to look at how Committees had approached some of the issues. He believed the issue of value for money would emerge out of the performance audit report. Was the AG able to extrapolate how much value for money had been achieved?
The Chairperson sought clarity on whether there were not legitimate situations that warranted the use of consultants, as opposed to appointing full-time people.
Mr Kimi Makwetu, Deputy AG, replied that the AG had indeed interacted with Portfolio Committees on those departments who had been selected. In addition to that, there had also been an interaction with the Finance and Appropriations Committees. A meeting had been proposed with the Chair of Chairs, so that there could be appropriate attention given to the issues that had been raised, but the meeting had not happened. The AG hoped time would still be found. It was encouraging to see other Portfolio Committees taking proactive steps following the findings in the report.
Mr Makwetu said there were areas that warranted the use of consultants, but the report emphasised the need for monitoring mechanisms that would monitor the work of consultants closely. Municipalities had to ensure consultants delivered what they were being paid for. The discussion ought to be about ensuring value for money, and not whether the consultants were required. A huge chunk of the R320 million spent by municipalities on consultants was spent on getting the financial management correct, and yet some municipalities had been left in a worse position than before they engaged the consultants. It was important to acknowledge there were people outside of the public sector who could be used to improve the situation, but what was required was to manage them better to get the required results.
Ms S Shope-Sithole (ANC) commented that the report was worrying. Compliance with laws and regulations was mandatory. People should not behave like they were doing charitable work, and the performance of officials needed to be measured. When officials tried to bypass the system, this needed to be regarded as a serious case of fraud, which bordered on criminality.
Ms Shope-Sithole asked why there should be no documents when requested. There could only be one of two reasons for absence of documentation-- either officials were not serious about their work, or they intentionally destroyed the documents. Auditors could not do their work without source documents. The Committee should make a strong recommendation on these issues by taking a stand and writing to Parliament, recommending stringent action against transgressors.
Training would never help to develop officials who intentionally broke the law to cover their tracks. This behaviour needed to be stopped, otherwise what would be the point of making laws if people were allowed to get around them so easily.
Mr Nombembe replied that the consequences for failure should be properly structured and based on the system of having first to invest in someone’s ability to do the job. It did not help to hit someone hard without first investing in their ability to perform, both at the level of political oversight, as well as in administrative ability. Investment in skills, as the first layer of intervention, had to happen.
Professor L Ndabandaba (ANC) asked how the use of consultants by municipalities compared at a provincial level.
Mr Makwetu replied that this exercise had not been done. The AG was starting to look at the components of internal audit services. Internal audit units should start considering informing the Municipal Managers and the Chief Finance Officers early when deviations had occurred. The AG’s office believed most consultants were more than qualified to deliver what was required. All that had to be done was to entrench the discipline of making sure they were held to their responsibilities.
The Chairperson sought clarity on the capacity of smaller municipalities. There had been discussions on reorganising the municipalities in line with their ability to generate their own revenues. Linked to this issue was the culture of payment versus non-payment for services. This was an important tool for municipality to generate income and be able to ensure delivery. He was not sure how the audit outcomes could be used to put forward a firm recommendation at a political level, calling for intervention.
Mr Nombembe commented that the issues were explicit and did not need a further diagnosis of what needed to be done. It was a matter of implementing solutions to respond to the diagnosis. Last year, the Cabinet had called on Minister Baloyi for a specific role in responding to the skills challenge. The Minister was working on this, and the proposed interventions were contained in a report that would soon be released. An indication had been that the report encompassed other issues that would respond to some of these observations. There was a need for an engagement with the Minister and his team, so that all the thoughts were incorporated in the report.
An indication was that the Minister was still in the consultation process on what the report contained, in order to ensure it was not only theoretical but also implementable. There had to be a convincing response to the situation, indicating when fiscal discipline governance would begin to emerge and be sustainable. The report would be tabled in Parliament.
Mr Nombembe requested that the process of finding a new AG be expedited, as his departure loomed large. Parliament was really pressed for time; if it missed the September deadline, as suggested to the Speaker, there was a possibility of jeopardising succession at the AG. Delays would create anxiety in the institution if it became leaderless in November. He pleaded that the matter be seriously considered and given priority, especially as Parliament would go into recess between now and September. With a drawn out appointment process -- with advertising, nominations, and interviews – there was little time.
The Chairperson said the study group had informally made a recommendation to the Speakers. It might also be that the Committee would consider reconstituting itself as an ad hoc Committee. The process was with the Speaker’s Office, to then table a motion in the House for the formal referral of the task. But the matter was being treated with the urgency it deserved, and there had been discussions with the officials in the Speaker’s Office in that regard. Within the next few days, something concrete would be tabled.
The meeting was adjourned.
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