Audit outcomes for local government as at 31 March 2013; Committee Report on Department's Strategic Plan 2013

Meeting report

Briefing on Audit outcomes for local government
Mr Lourens van Vuuren, Municipal Audit Executive, Auditor General (AG), said a functioning internal audit unit had a positive impact on audits. Municipal executives needed to ensure that internal audit was capacitated and that it functioned daily. There were still significant challenges with regard to functioning audit committees, and this hampered effectiveness at the first level of assurance, making it likely that one would not attain a positive outcome. The audit committee should discuss internal audit findings with management as well as the leadership. This approach would enable municipalities to make the right decisions on the control environment.

The controlling departments had a role to play in the second level of assurance. These were the provincial treasuries and the respective provincial departments of Cooperative Governance and Traditional Affairs, and the Premiers’ Offices. It was important that these departments were involved in the second level of assurance.

The third level of assurance -- or external assurance providers -- was to municipal councils, legislatures, and portfolio committees. With the external audit process, the AG would provide the final assurance on whether the financial statements were a fair reflection of compliance, performance, and expenditure.

Discussion
The Chairperson recapped and said the indication was that out of 278 municipalities audited, only nine had received clean audit opinions. This was a regression from the 13 achieved the previous year. She sought clarity on whether the 20 municipalities that were not audited were the same as those who were not audited the previous year, on account of having failed to submit financial statements. What was the way forward at these municipalities?

Mr J Steenhuizen (DA) welcomed the simplified manner in which the presentation had been delivered. He said he shared the concerns on the outstanding audits. How many of the 20 municipalities had repeatedly failed to submit financial statements? There were a number of interventions that the Department was going to embark upon when the Committee flagged the issue last year. Did the interventions have any impact?  What sanctions would be put in place for the municipalities who continuously failed to submit financial statements?  He asked if the same approach meted out to Nala Local Municipality would be the way to go, in order to force compliance.

Mr Van Vuuren replied that he did not have the exact details on the 20 municipalities, but this would be sourced from the relevant section and forwarded to the Committee. In the North West, a significant effort had been made by National Treasury (NT) to eliminate the challenge of not submitting financial statements.  NT had indicated in April 2013 that following the interventions, all the backlog financial statements had been received and audited. The details on the outstanding 20 municipalities would be forwarded to the Committee, and the repeat offenders would be highlighted.

Mr Steenhuizen commented that the tendency had been to argue for the removal of consultants from the system. If that happened, it would lead to a total collapse of governance and financial management. Thinking should be around compelling the consultants to transfer skills. It was not in the interests of consultants to transfer skills, as that would knock them off the job market.  Had the office of the AG given any thought on how skills transfer could be facilitated or forced on consultants? It was concerning that officials were hired through a rigorous hiring process and yet they failed to perform their tasks. This was unfair on the public, who paid the salaries of the officials. It was important that the Committee prioritised how it engaged the Department and the government on the development of skills and capacity at the local municipal level.

Mr Van Vuuren replied that a number of things could be done to ensure skills transfer happened. Firstly, when municipalities decided to engage the services of a consultant, it was important that a skills transfer clause be addressed in the contract.  However, the entity should also make someone available to whom the skills could be transferred.  Departments had to ensure there were no vacancies; otherwise skills transfer would not happen. It was important to monitor the process, and to manage consultants in terms of deadlines.

Leadership had to ensure that whatever consultants did was left behind, especially when it related to software used to compile things such as asset registers.  It did not help to get an audit, but when the consultant left, he took the software and methodologies. The entity should be left with whatever software was used, as well as the methodology and policies. This ought to be easy enough to be integrated into the departmental systems so that the work could just continue. This related mainly to what was in the contract, and the intellectual property that had to be left behind with the municipality, department or entity.

Mr T Bonhomme (ANC) asked how staff challenges had occurred. He asked if municipalities had professional people to run the processes. The amount of R360 million spent on consultants indicated there were serious skills challenges. This was the reason that municipalities collapsed -- one could not have unskilled people employed at municipalities. There were staff on a “gravy train” who were clueless about what they were doing.  It was not sustainable that municipalities were operated by consultants who could leave at any time.

Nkosi M Mandela (ANC) commented that the lack of consequences for those who transgressed and performed poorly was concerning. This was the main challenge, together with the absence of accountability, when financial matters were addressed. Money was not being accounted for. The Department claimed it had won the fight against fraud and corruption and yet there were no cases being reported by the AG to corroborate such claims. What consequences were envisaged to deal with poor performance and transgressions?

Mr Van Vuuren said the issue of consequences had been discussed and was linked to human resource practices and performance management. There had to be a robust performance management system at all levels in municipalities. Performance contracts should be in place, agreed upon and measured. There was also a link between vacancies and the use of consultants, as well as officials occupying positions without the necessary skills.  Training interventions for deployees at municipalities were necessary.

The Chairperson asked if there was any piece of legislation in place to deal with transgressors, and what sanctions were applicable to poor performance. Was there any guidance in the Municipal Finance Management Act (MFMA) in that regard?

Mr Van Vuuren replied there were sections that could be invoked in the MFMA. These sections addressed issues of irregular, fruitless and wasteful expenditure, and required that they be investigated and appropriate disciplinary action taken, if necessary. If the sections were applied, departments could then use the approved policies in terms of the disciplinary processes. The legislation was clear in saying that if one was found responsible for unauthorised or irregular expenditure, the funds could actually be recovered from that person. The challenge was the implementation of the legislation.

Mr Steenhuizen sought clarity on the kind of pressure or sanctioning that could be applied by the Department for non-compliance for those municipalities that were not submitting their financial information.  He asked how many of those non-compliant municipalities were currently under administration.

The Chairperson commented that the question could be dealt with in the report that would be submitted to the Committee on the breakdown of the 20 municipalities. She also sought clarity on how the Generally Recognised Accounting Practices (GRAP) functioned in relation to the outcomes. A complaint had been that the system was too focussed on accounting standards.

Mr Van Vuuren explained that with the introduction and changing of accounting standards, it was important that there was also an investment in the official who would administer the GRAP system. It was important that in the budget and training plans for all entities there was money and time allocated for the personal development of officials. Standards were first published as drafts for comment, and then later approved. They became effective after this process.   Entities normally had about a year to 18 months to prepare for the implementation of a standard. It was important that the finance unit teams were aware of the standard and pertinent changes. Head office management also alerted entities to whatever changes that would be applicable in a financial year. This was sometimes a challenge, but planning was the best way to deal with changes in standards.

Mr G Boinamo (DA) commented that Members struggled to figure out the kind of action that could be taken. He asked if it was possible for the AG to advise municipalities, based on the kind of findings made at a particular municipality, with a view to improving performance. The AG might be in a position to indicate why a certain department had experienced problems.

Mr Van Vuuren replied the AG had two initiatives.  This first was called “Simplicity, Clarity and Relevance of Messages”, and the second was “Visibility of Leadership”. The two initiatives were captured in the AG’s strategy. Each of the 283 municipalities was visited four times a year, where an assessment of the key controls was performed. The interactions not only gave management the state of controls, but also alerted municipalities on possible findings when the audit was done.

The Visibility of Leadership programme ensured conversations with everyone involved in the municipal management, including the Mayor, MECs, Municipal Managers and CFO’s.  In those interactions, the AG made sure it highlighted the root causes for qualification. However, there would also be a formal communication by way of newsletters, where recommendations were spelt out. Ultimately the accounting officers had to ensure the necessary action was taken, in line with the MFMA. It was important from an oversight perspective that there were commitments – especially from the Committee – on how the audit outcomes for municipalities were changed.

Budget vote report deliberations
The Chairperson said she hoped Members had received the report, which contained all the inputs from entities that accounted to the Committee. The report needed to indicate that wherever a reference was made to “we”, it meant “the Committee”. She proposed that Members went straight to the recommendations. There were gaps that had to be filled in the recommendations.

The Chairperson pointed out that page 17 clarified her point about “we”, particularly bullet 8 on performance progress. It said “out of the target of ten we managed to support 14 districts” -- it was the Department that “managed to support.” She asked Members to start focussing on page 25, where last year’s recommendations were contained.

The Chairperson read the recommendations.

Mr Steenhuizen commented that following the presentation by the AG in the morning, the recommendation on the fight against corruption should read: “ensuring full compliance with the MFMA and PFMA in the course of a financial year in all municipalities. Ensuring criminal charges were pursued, using the multi-agency approach. Identify four priority cases and report back to the Committee on a quarterly basis on progress of each case.”

Members agreed with the recommendation.

Nkosi Mandela proposed that the recommendation on under-spending, and its impact on local governance, be generalised in such a way that emphasis was placed on the need for provision of technical skills by the Department. There would always be challenges of capacity, but the Department had a mandate to provide assistance to municipalities.

The Chairperson requested that she be allowed to revisit the recommendations of the Financial and Fiscal Commission (FFC) that had been presented at a previous meeting. The recommendations highlighted an issue about some of the proposals in the equitable share disadvantaging poor municipalities. She said she wanted to go through the FFC recommendation and see how to phrase the recommendation.

Ms J Segale-Diswai (ANC) commented she had observed some municipalities had challenges with the equitable share because properly qualified people were not appointed to head the finance units. It had always been claimed that the provinces helped the smaller municipalities, and yet it was not evident. Visible interventions to help smaller municipalities with their equitable share should be proposed.

Mr M Matshoba (ANC) said that it was not proper to propose that the Department should intervene. If provinces had skilled personnel, they should provide them to municipalities.

The Chairperson said she would look into the recommendation.

Mr Steenhuizen proposed, on “grant spending”, that the Department needed to come up with a rollout plan for the Municipal Infrastructure Grant (MIG) spending at those municipalities which were not covered by the Municipal Infrastructure Support Agency (MISA). A flagging system should also be used during the year to identify obstacles. Such a system should assist and address the obstacles timeously, if money had not been spent.

The Chairperson agreed and said that the Committee could not wait for MISA to be rolled out to outstanding municipalities.

Mr Matshoba commented that the Committee had failed in its job of oversight. The tendency had been to wait until the last moment.  Members were supposed to invite municipalities to get progress reports quarterly on grant spending. It was likely that even the metros were not spending.

The Chairperson replied that the challenge was with the Parliamentary programme. The Committee’s programme would have to be rearranged to allow for more oversight visits. The challenge with that approach was that Members were also expected to be present when the House was sitting.

Mr Steenhuisen commented that the recommendation on disaster grant funding needed to be supplemented, especially as municipalities complained that although they were advised that disaster funding would be approved, the money was not made available. The Committee should request regular updates on transfers to date. KwaZulu Natal (KZN) was still waiting for the money for a fire that happened four years ago. It had been approved as a national disaster, but it had never been paid.

Mr Boinamo commented that the recommendation on traditional leadership should stipulate that chiefs needed to have a duty list, so that what they were doing was known. The chiefs were paid salaries and -- teasingly referring to Nkosi Mandela -- said Government could not pay money when there was no work done.

Nkosi Mandela replied that what chiefs did was all in the Act. They presided over judicial councils and chaired meetings. It was stipulated in the Act.

Mr Boinamo pointed out that the councils did not sit every day. Nkosi Mandela was always in Parliament.  When was the council sitting?

Nkosi Mandela retorted that he was a Member of Parliament, and that his mother was the acting chief. Traditional leaders were not allowed to hold two positions at the same time. He said he resigned the chieftaincy a month after taking up a seat in Parliament. Traditional councils, as stipulated in the Act, sat twice or thrice a week. Chiefs were also expected to attend meetings with the local municipalities, because they sat on mayoral committees. These were some of the duties traditional leaders performed to earn a salary.

Ms Segale-Diswai said the recommendation needed to propose standardised remuneration for all traditional leaders.

The Chairperson indicated that the Department and the House of Traditional Leaders would be invited to Parliament to brief the Committee on all the pertinent issues they wanted resolved.

Another Member commented that this had been dealt with by the remuneration commission, including the latest Seriti Commission. The recommendations of the Commission included the traditional leaders.  They were in the category of office bearers.

Mr Matshoba said that the remuneration of traditional leaders was still unclear, especially as other kings earned far less than the Zulu king, Goodwill Zwelithini.  KwaZulu-Natal (KZN) claimed other people could not be involved, as it was their province. This needed to be looked into.

The Chairperson said that at national level, there was uniformity, but provinces could decide how they wanted to remunerate their chiefs.

Ms Segale-Diswai interjected and said it did not matter where one was from, the fact was that chiefs and kings had to be remunerated the same way.

Nkosi Mandela said a distinction needed to be made between kings and chiefs. However, it was a fact that there was preferential treatment in respect to Zwelithini in that the Department did not have a fixed amount, and paid him exorbitantly and hid behind the statement that “provinces decided on how they paid chiefs”.  In KZN, the king was the only king and the only beneficiary, whereas in the Eastern Cape (EC) there were three kings -- Zanozuko for the amaMpondo; Dalindyebo for the abaThembu, and Zwelonke Sigcau for the amaXhosa.

On the eve of SA’s democracy, former President FW de Klerk and Prince Mangosuthu Buthelezi had enacted a law that enabled Zwelithini to be the sole beneficiary of the Ingonyama Trust. All other kingdoms did not have such a trust, to which Parliament could and did appropriate funds. When it came to tools of trade, all other traditional leaders were at a loss.

Kings were afforded their own premises to be in a place of their choice, whereas in KZN there were seven households that had been accorded to Zwelithini, and were a responsibility of the state. This was over and above the army of 107 police officers who provided Zwelithini with security. These were services that were not rendered to any other king. These inconsistencies by the Department had to be questioned. At the level of chiefs, the approach was standard -- they were all afforded the same treatment throughout the country.

The report was adopted.

The meeting was adjourned.