The Office of the Auditor-General briefed Members on audit outcomes of North West and Free State local government. In North West, four municipalities had improved. Of these, two had improved from a disclaimer to qualified. Two had improved from qualified to unqualified. On the other hand there had been two notable regressions. 21 municipalities remained unchanged. Status of compliance with laws and regulations remained a challenge in North West, with material findings at 100% of the auditees. The underlying systems that drove the production of data to provide credible information for municipalities gave rise to issues in 100% of municipalities. Underlying systems had to be dependable, and function with integrity and in the manner in which they were designed to function. The Auditor-General of South Africa (AGSA) noted that, for any municipality or entity to function, there had to be strong leadership, supported by strong systems and controls, supported by effective oversight. The root causes of fundamental control problems included key positions remaining vacant or key officials lacking appropriate competencies, and a lack of consequences for poor performance and transgressions. A slow response by the political leadership in addressing the root causes had been found in 96% of the municipalities and entities.
The AGSA found a similar picture in the Free State, but saw some improvement towards achieving clean administration. There was a reduction in the number of audit disclaimers from 16 in 2010/11 to 12 in 2011/12. Some municipalities which had received qualified audit opinions had managed to move to unqualified opinions. However, some municipalities distorted the picture by regressing. There was one municipality that the AGSA was still unable to analyse, as its audit outcomes were outstanding for both years. The AGSA reviewed backlogs, movements, compliance with laws and regulations, annual performance reports, focus areas, quality of performance reports, human resource management, quality of submitted financial statements, information and communication technology controls, financial health, consultants, irregular expenditure, qualify of submitted financial statements, drivers of key controls, pervasive root causes, lack of consequences, slow response by political leadership, and assurance. The AGSA noted that despite the use of consultants, audit opinions tended not to improve. Twelve municipalities that used consultants still had disclaimers. The AGSA noted with concern the engagement of consultants only at a late stage. It was also concerned that municipalities did not take ownership of the consultants' work. The AGSA highlighted the delay in establishing municipal public accounts committees; 46% of municipalities had still not established public accounts committee. The committees that had been established in 54% of municipalities provided only a limited assurance.
The Chairperson observed that the National Treasury, provincial treasuries, the AGSA, the South African Local Government Association, and the Department of Cooperative Governance had invested in training, but one had to determine the best way to assess how the trainees improved with their training and if they could apply it. ANC Members asked what type of assurance the AGSA expected from oversight bodies, and why the AGSA had identified internal audit as an item only for 'the second phase of assurance'. A DA Member acknowledged that the AGSA's reports were colourful, but lacked detail. He asked if the CFOs appointed in the Free State had the necessary experience to do their jobs.
The MEC for Finance and Acting MEC for Local Government and Traditional Affairs, North West, briefed Members on the Local Government Support Programme. He reported on progress made on the Committee's recommendations, local government support programmes for 2012/13 and 2013/14, general challenges facing municipalities in the North West Province, support programmes by the North West Provincial Treasury, the eight municipalities benefiting from Phase 2 initiatives, GRAP 17 implementation, and other support provided by the Provincial Treasury to all municipalities. He noted that governance related problems in municipalities (political instability) affected the impact of provincial support programmes. There was general non-compliance with legislation and regulations. There were escalating levels of uncollected debt from consumers (currently estimated at R4.5 billion). There was a high vacancy rate in key positions and a high turnover rate affected the impact of municipal support programmes. A lack of skills and expertise in municipalities impacted negatively on the sustainability of municipal support programmes. He believed that none of the eight municipalities benefiting from Phase 2 initiatives would be disclaimed on assets. Support initiatives included a municipal financial health check questionnaire, an analysis and assessment of the 2011/12 audit action, engagement with the municipalities on financial management assessments, MECs’ engagement with municipalities to assess their readiness towards Clean Audit 2014, capacity building, training on Municipal Finance Management Act reforms, and a quarterly CFO forum. There remained an area of concern around documents and the issue of deviation from supply chain. There were specific tailor-made programmes for CFOs, who had also been trained on the Municipal Finance Management Act reforms. The situation in the North West might not be as bad as presented in the media. He was disappointed that the AGSA appeared to think that the provincial government was not providing sufficient assurance and support. North West was the first province to achieve submissions from all municipalities, and moreover had striven to improve quality of financial statements.
The MEC for Finance, Free State, who represented the MEC for Cooperative Governance and Traditional Affairs, briefed Members on the progress of Free State municipalities, acknowledged that it was unacceptable to continue with the majority of municipalities having disclaimers. Moreover, the lack of consequences was deplorable. There was a need to do things differently as there had been a substantial lack of political interaction on the financial management of municipalities. Thus the MEC had started a programme together with the Municipal Finance Management Unit of the Provincial Treasury to visit municipalities to share first hand information. She gave a report on progress on resolutions. No municipalities in the province were under Section 139 interventions. 1 200 toilets had been completed in Moqhaka Local Municipality. The Provincial Treasury and the provincial Department of Cooperative Governance formed a task team to support three municipalities (Kopanong, Matjhabeng and Moqhaka) that owed 55% of the unauthorised, irregular, fruitless and wasteful expenditure in the Province. Section 71 reports had been prepared to Provincial Legislature on struggling Municipalities. Agreement entered with Municipalities to fast-track payments to bulk service providers. Intergovernmental debt steering committee had reduced the government debt by 60 percent within the province. Support was provided by departments to municipalities to resolve technical audit and accounting matters. Provincial Treasury and the provincial Department of Cooperative Governance conducted budget bilateral meetings with 20 municipalities to strengthen their operational and capital budgets in respect of funding mix, capital budget in relation to integrated development plan priorities, operational budget (revenue and expenditure), and creditability of the budget. National Treasury had conducted meeting with the provincial Department of Cooperative Governance. The Department had noted the comments and would comply with the instructions of the Select Committee on Finance . She also briefed Members on the interventions from the perspective of the Free State Provincial Treasury and the provincial Department of Cooperative Governance and Traditional Affairs. In the latter, she referred specifically to the KPMG forensic report and Section 106 investigations (Selesho Commission).
Members' questions focused on audit disclaimers, strategy to deal with challenge, non-compliance issues, escalating uncollected debt, the 15 service providers, forensic investigation - Maquassi Hills, North West Premier's Office's payment of R16 million to Eskom, competencies of rank and file officials, outstanding audits, Clean Audit 2014, Nala and withheld funds, political oversight to include Chief Whips and the members of mayoral councils s for finance, acceptance of support, indigent register: removal and recouping, interventions, Department of Cooperative Governance and Traditional Affairs financial support, irregular, unauthorised, fruitless and wasteful expenditure, Matjhabeng, and Glassella (sp?) non-profit organisation status.
The MEC for Finance, Free State, replied that this entity was registered as a non-profit organisation. The registration certificate had already been provided to the Public Protector in April 2012. It was a separate non-profit organisation, not part of government. It did not involve public funds.
National Treasury explained the conditions for conditionally reviewing its decision to invoke Section 216 (2) of the Constitution. It also responded to a question on the legality of the financial support provided by the Free State Department of Cooperative Government and Traditional Affairs and to a question on the acceptance and support of provincial treasury officials delegated to municipalities. National Treasury also gave specific information on the status of Moretele, Kgetlengrevier, Moses Kotane, Tswaing, Mafikeng, Ditsobotla, Mamusa, Ventersdorp, Matlosana, and Maquassi Hills.
The national Department of Cooperative Governance agreed with the North West MEC whose presentation pointed to the critical issues which the Department had detected from engagements with municipalities across all provinces. The first step was to ensure appointment of permanent municipal managers and Section 57 managers. Acting positions did not assist municipalities to take ownership.
The South African Local Government Association (SALGA) advised that most of the issues raised, especially in respect of report on the Free State Department of Cooperative Governance and Traditional Affairs, represented efforts both of SALGA and the Department. There needed to be more coordination of efforts in future. SALGA agreed on the majority of the issues concerning the North West. However, there was no cohesion especially at the political level. There must be improvement. The SALGA national executive committee had approved capacity building on municipal public accounts committees. In this SALGA used its own staff who could give effective, practical assistance rather than engage outsiders without experience of local government who could offer merely theoretical advice.
The Chairperson proposed a joint meeting with the Select Committee on Cooperative Governance and Traditional Affairs to hear a presentation from the national Department on its programmes in terms of Section 154 of the Constitution to assist the local sphere of government with special reference to the North West and Free State. He acknowledged some progress. He noted that there must be respect for the Constitution on the part of the mayors and whoever served in those municipalities. Councillors must also uphold the Constitution. At the level of the provincial legislatures, there was need to focus on the quarterly reports of local government on the status of municipalities and the progress made.
The Chairperson advised SALGA to review its training programmes, as the same issues were being repeated every year.
The Chairperson asked the national Department of Cooperative Governance, in terms of Section 59 of the Constitution, to submit to the Committee a full report on its assistance in the North West and Free State in respect of the municipalities.
This meeting was a follow-up to the Committee's visit to the North West and Free State as an on-going process of monitoring the progress achieved in municipalities. The Committee was not a 'big brother'. Its concern was to see good governance and sound financial management. The Chairperson emphasised compliance with the Municipal Management Finance Act (No. 56 of 2003) (MFMA) as a step on the road to the objective of obtaining clean audits. This was an uphill exercise. He spoke for his own province as well. It was necessary to do things differently to reach the objective sooner. In terms of Section 154 of the Constitution, it had to be asked what the national and provincial departments had done to assist local government to deliver on their mandate as well as looking to Chapter 5 of the MFMA, Section 34 and 35, on capacity building and promotion of cooperative government by national and provincial institutions. Everyone had a role to play. This was not an exercise of pointing fingers. It was rather an exercise of analysis in order to see how to go forward.
There would be a local government week in August, in the National Council of Provinces (NCOP) and National Assembly chambers. This would be an important opportunity to assess progress in local government delivery.
AGSA Audit Outcomes of North West Local Government Presentation
Mr Liaquath Ally, AGSA Business Executive: North West, explained the outcomes for the North West. He indicated the overall outcomes for 23 municipalities and four municipal entities for the North West province. He dealt with 2012 as well as 2011. In response to the Committee's request, he also provided specific outcomes on ten municipalities. He referred Members to an annexure, which gave a summary of these outcomes.
Audit outcomes over the past three years
This gave a clear picture for all the municipalities in the province. Overall the picture depicted red, which indicated the number of audit disclaimers in the province. The purple talked to the number of qualified audit opinions. The yellow depicted the unqualified. As things stood, there were no clean audits. The diagram indicated that there had been minimal improvement in the province. The graphs indicated that overall the picture looked more or less the same, but that for the first time in the North West, the picture actually encompassed the outcomes for all municipalities. This was because of an initiative by the Premier's Office together with the MEC for Finance, whereby municipalities were requested to submit all financial statements for the current year as per legislative deadlines, as well as backlogs. These backlogs stretched in some cases for as long as four years, and all these submissions were done on 31 August 2012. Thus what Members had before them was a picture of 2012 but, more importantly, the comparatives as well. This facilitated a fair analysis of the outcomes and status. (Slide 4)
He gave an indication of which municipalities had had backlogs. (slide 5)
Movements of the 27 auditees reported on
Four municipalities had improved. Of these, two had improved from a disclaimer to qualified. Two had improved from qualified to unqualified. On the other hand there had been two notable regressions. 21 municipalities remained unchanged. (slide 6)
Status of compliance with laws and regulations
With material findings at 100% of the auditees, this remained a challenge. There had not been any municipality or municipal entity which had registered no findings. Thus every single municipality or municipal entity had a finding. These findings stemmed from matters related to the submission of financial statements and their quality. This meant adherence to standards and the accounting framework. The findings also stemmed from matters related to supply chain management (SCM), budget, and other things. As indicated in the diagram, there was no improvement. There was thus 100% non-compliance in the previous year as well as in the current year. (slide 7)
Quality of annual performance reports
Once again for the province as a whole there were material findings on the performance reports of 89% of the municipalities. In the performance reports the AGSA looked for relevance and reliability of information. The underlying data provided by the municipalities could not be relied upon to make decisions on service delivery. The findings talked to the fact that the AGSA could not formulate or base a conclusion on the information produced by those municipalities. The data was not relevant, reliable or useful in 89% of municipalities. (Slide 8)
Focus areas to improve audit outcomes
The AGSA's audit process covered six focus areas – supply chain management (SCM), quality of performance reports, human resource management, quality of submitted financial statements, information technology (IT) controls, and financial health (going concern). In SCM 96% of the municipalities had findings.
Human resource management
In this area, findings related to 96% of the municipalities, whereby the AGSA had issues with how human resource management function was dealt with in those municipalities. This related to appointments, leave, compensation, and other things.
Quality of submitted financial statements
100% had findings that the AGSA detected through the audit process. The AGSA had asked the municipalities concerned to make adjustments. In five cases, had there been no adjustments, the result would have been a change in opinion. He explained further. In some cases where municipalities did make adjustments, the result was an improvement in audit opinions. By and large, where those adjustments were not made, the outcome was clearly evident, so much so that in some cases there were qualified audit opinions and disclaimers.
The Chairperson asked Mr Ally to indicate which municipalities had not made adjustments.
Mr Ally undertook to produce this information subsequently.
Information and Communications Technology (ICT)
The AGSA found the underlying systems (that drove the production of data would result in credible information for municipalities) gave rise to issues in 100% of municipalities. Hence AGSA gave special attention to this focus area because of the large volumes of information that municipalities were processing. Therefore underlying systems had to be dependable, and function with integrity and in the manner in which they were designed to function. The AGSA found issues with the input of information into these ICT systems as well as the information produced, which was largely dependent on the information put in.
Financial health (going concern)
The AGSA had had issues around the ability of municipalities to meet cash flow requirements to enable municipalities to sustain themselves. Here 30% of municipalities had an issue. (Slide 10)
Correction of material misstatements
Due to corrections, 19% of municipalities were able to avoid qualifications. He would give the names subsequently.
What action should be taken?
This related to the fundamental controls in any municipality – leadership, financial management, performance management, and governance. In 75% to 80% of municipalities intervention was required. This statistic related to the number of audit disclaimers. 18 municipalities or municipal entities out of 27 had received disclaimers in the current year. For any municipality or entity to function there had to be strong leadership, supported by strong systems and controls, supported by effective oversight.
What were the fundamental control problems?
The root causes were three in number. Firstly there were key positions remaining vacant or key officials lacking appropriate competencies. This was a problem in 96% of municipalities or entities audited. Secondly, there was a lack of consequences for poor performance and transgressions. Unless something was done differently this year, there would be the same outcome. There had to be a change. A slow response by the political leadership in addressing the root causes had been found in 96% of the municipalities and entities.
Extensive assurance should be provided by the key role players
It was necessary to ask who should take action. He illustrated the assurance levels that the municipalities should have built inherently in their capacity to ensure that at the end of the day, information produced by the municipality or entity was credible. It was imperative that the municipality or entity be able to generate information that was credible and reliable for Council to be able to make the correct decisions. The graph indicated the levels of assurance at the municipality. Between 50% and 60% had limited or no assurance by those particular role players. In 63% to 67% of cases, information reaching the mayor lacked relevance, reliability or credibility. The mayor relied on this information to make decisions. Furthermore, the oversight mechanism – the internal audit that was supposed to function on a continual basis was found wanting in 59% of cases with regard to the assurance provided. Similarly there was little assurance of the reliability of the information which reached the audit committee. As of 2012, the coordinating ministries provided no assurance in 75% of cases. The external independent assurance and oversight – the municipal public accounts committees (MPACs) were ultimately reliant on information provided by the municipality on a monthly basis. By consequence they were unable to make qualitative decisions or resolutions. (Slide 13)
Information in response to the Committee's specific request on ten municipalities
In summary, nine of the ten municipalities remained with audit disclaimers. One had improved to a qualified opinion.
Chairperson's advice to the South African Local Government Association (SALGA)
The Chairperson advised SALGA to review its training programmes, as the same issues were being repeated every year.
AGSA Audit Outcomes of Free State Government Presentation
Mr Odwa Duda, AGSA Business Executive: Free State, said the picture was similar to that in the North West. However, in the Free State one saw some improvement towards achieving clean administration. There was a reduction in the number of audit disclaimers from 16 in 2010/11 to 12 in 2011/12. Some municipalities which had received qualified audit opinions had managed to move to unqualified opinions. However, some municipalities really distorted the picture by regressing. There was one municipality that the AGSA was still unable to analyse, as its audit outcomes were outstanding for both years.
The AGSA had to consult National Treasury on whether an entity's financial statements should be consolidated with those of its municipality and on the reporting framework that the entity should use. The outcome was that the statements did not have to be consolidated. The municipality would now prepare the financial statements and submit them.
One municipality had managed to obtain a clean audit opinion, maintaining this from the previous year. There were two municipalities which improved their audit outcomes. The other six municipalities maintained the same unqualified audit outcome. Six municipalities improved from disclaimers to qualified opinions. Two municipalities regressed to a disclaimer.
Compliance with laws and regulations
The Free State experienced challenges similar to those of the North West. Only one municipality did not have findings.
Annual performance reports
Only two municipalities in the province complied with the AGSA's requirements. The AGSA was cooperating with them to get them to share their good practices with other municipalities.
SCM was still a challenge in the province. Only one municipality had no findings.
Quality of performance reports
Only two municipalities met the AGSA's requirements.
Human resource management
Only three did not have findings.
Quality of submitted financial statements
Only one municipality had no findings.
All municipalities had findings, except three which were not audited because they were small entities.
With 54% of municipalities, the AGSA did not see much threat to their 'going concern' status. The AGSA was very concerned with the other 46%.
The AGSA had done a study to see if the use of consultants had an impact on the audit outcomes. The picture currently did not look good, as illustrated by the graph. Despite the use of consultants, audit opinions tended not to improve. 12 municipalities that used consultants still had disclaimers. The AGSA noted with concern the engagement of consultants only at a late stage. It was also concerned that municipalities did not take ownership of the consultants' work.
There was an increasing trend, year on year. In 2011/12 it had increased to more than R1 billion. The MEC for Finance was working on getting the municipalities to come to account in order to promote the idea of consequences for irregularities in expenditure.
Quality of submitted financial statements
For all but one of the municipalities the financial statements had to be adjusted to enable the AGSA to form an opinion.
Drivers of key controls
In most instances the AGSA indicated a red bar, which indicated that an intervention was required. There were some municipalities, those indicated in yellow, which were really showing progress.
Pervasive root causes
These were the same as identified in North West. However, the Free State had taken the initiative to appoint qualified CFOs. However, there was still a challenge with the competencies of support staff.
Lack of consequences
This could be traced to the trend towards increased irregularities in expenditure.
Slow response by political leadership
The AGSA had undertaken the training of all municipal councillors so that they understood clearly their oversight responsibilities.
He highlighted the delay in establishing MPACs. 46% of municipalities had still not established an MPAC. The MPACs that had been established in 54% of municipalities provided only a limited assurance.
Also with regard to the provincial legislature and its portfolio committee there had been challenges with distributing the resolutions on time. This resulted in lack of assurance.
The Chairperson observed that much time and money was spent on training. There had been programmes as far back as 2006, and the Committee had discussed it in meeting after meeting. It would be interesting to do a calculation of the money that the National Treasury, provincial treasuries, the AGSA, SALGA and the Department of Cooperative Governance (DoCG) had invested in training, and the results. It was clear that it was necessary to look at the integrated approach in order to succeed. Moreover, SALGA and the AGSA had to ask themselves, when they trained councillors, the best way to assess how the trainees improved with their training. Did the trainees write an examination or do a case study? Could they apply their training?
Mr T Chaane (North West, ANC) appreciated the AGSA's reports. He asked what type of assurance the AGSA expected from oversight bodies such as this Committee.
Mr Chaane asked North West if, like the Free State, it used any consultants, and if such use had any effect on irregular expenditure trends.
Mr Chaane asked if the AGSA could tell Members the status of audit committees in the Free State municipalities. Audit committees should play a meaningful role. If they existed, were they resourced with capable people and at what cost?
Mr Chaane said that in the Free State only one municipality had appointed consultants because of vacancies. Other municipalities had staff members but had appointed consultants. He assumed that this was because those staff members were somehow incapacitated. He asked if the AGSA could give figures on the comparative cost of salaries of financial section staff as against payments to consultants. In a situation where there were both consultants and staff members, what were the latter doing?
Mr B Mashile (Mpumalanga, ANC) welcomed the submission of financial statements by municipalities in the North West. The Committee's push to ensure such submission of documents was a step in the right direction. Now there would be a need to improve the quality of financial statements.
Mr Mashile noted a contradiction in those municipalities where there was good performance, but problems with ICT. Yet it was ICT that was used to generate the information to compile the performance reports.
Mr Mashile appreciated the assurance reports which was a good tool to identify gaps and need for special attention. They indicated an apparent lack of need for the MPACs, as the information on which they would work was in most cases useless.
Mr Mashile asked why the AGSA had identified internal audit as an item for 'the second phase of assurance', yet internal audit was a primary function on a daily basis for senior management working with internal controls.
Mr Mashile asked if SALGA was involved with the training of councillors in the Free State.
Mr A Lees (KwaZulu-Natal, DA) acknowledged that the AGSA's reports were colourful, but lacked detail. This made it hard to do oversight. This was a disappointment.
Mr Lees noted Mr Duda's statement that the Free State had appointed qualified CFOs. He acknowledged the Chairperson's comment about the quality of professional education. He took the Chairperson's analogy of a pilot a step further. Before one could fly a Boeing aircraft one needed 1 000 hours experience despite the fact that one might be qualified as a pilot. He asked if the CFOs appointed had the necessary experience to do their jobs or if they simply had an academic qualification.
Mr Lees asked Mr Duda in particular, but also Mr Ally, about 'the trusts'. What were these trusts doing? Who was establishing them and for what purposes? Had the AGSA been able to audit a certain trust that it had been unable to audit the previous year?
Mr Lees referred to the Committee's recommendation to the AGSA to investigate more deeply certain instances of fruitless and irregular expenditure. What progress had the AGSA made?
Mr Lees referred to the Committee's recommendation to the National Treasury to examine the legality of provincial treasuries' financial support to municipalities. He asked for a report on the outcome of the investigation.
Mr Lees was perturbed that all municipal portfolio committees were reported as incompetent or failing to do their jobs.
To Mr Chaane on consultants
Mr Ally replied that the purpose of the slide was to indicate the amount expended on consultants. For the North West, the AGSA's January report had a figure of approximately R31.5 million for expenditure on consultants for the purpose of preparing financial statements. Consultants were not present at the beginning of the year and had been appointed at a point in time. For the consultants to have the desired impact, they would have to be there throughout the period. In terms of statistics, consultants were employed because of vacancies in 11% of instances of employment of consultants. Consultants had been employed because of a lack of technical skills in 89% of instances. Consultants employed later in the year would not necessarily have that desired impact. Hence the AGSA was aware that National Treasury had instituted the process of having these consultants at these municipalities at the next phase whereby they would address systems and controls.
To Mr Lees' question on whether the CFOs had the necessary experience
Mr Ally replied that this was a difficult question. There should be something that came out of an outcome. He had not audited to determine experience versus qualifications. This could come up as a qualitative assessment based on what one saw. He would refrain from answering until he had underlying data to substantiate his comments.
Mr Jan van Schalkwyk, AGSA Business Executive noted repeat findings for a number of years on CFOs. Most CFOs had the qualifications, but not the expertise to improve these findings. Also the CFO position required managerial expertise.
Mr Duda added that National Treasury had done an assessment on the competences of the CFOs. Not all the CFOs had been tested, but those that had been tested were found to be competent. However, as Mr Ally had said, it was difficult to perform an audit of experience. However, most of the CFOs appointed in the Free State had the minimum qualification.
To Mr Lees' question on fruitless and wasteful expenditure
Mr Ally replied that the AGSA was not asked to investigate fruitless and wasteful expenditure in Madibeng but it had highlighted this matter in its audit report.
To Mr Mashile's question on poor information available to MPACs
Mr Van Schalkwyk replied that even the portfolio committees in the North West were not working effectively. There was one training session offered, with places for 60 participants, but only three turned up.
Mr Van Schalkwyk added that the AGSA could provide further information if required. He had a total of 30 slides.
The Chairperson asked Mr Van Schalkwyk to provide these slides to the Committee as a master copy.
Mr Lees said again that the slides gave much colour but not enough detail. He accepted, however, that not everything could be presented in 20 minutes.
Mr Ally undertook to support the slides with notes, together with all the figures.
The Chairperson gave Mr Ally two minutes to complete his responses.
To Mr Lees' question on irregular expenditure
Mr Ally acknowledged that irregular expenditure had occurred. He would submit that information to the Committee.
To Mr Chaane's question on the status of audit committees
Mr Ally replied that 21 municipalities had audit committees in place. However, being in place was one thing. Having the necessary impact was another. Because they lacked adequate information, they did not have the desired impact.
To Mr Mashile's question on the discrepancy between ICT deficiencies and the quality of performance reporting
Mr Ally replied that 100% of findings related to ICT. In three municipalities there were compensating controls which enabled the municipalities concerned, in the absence of adequate ICT, to produce reliable reports.
To Mr Mashile's question on why internal audit was in 'the second phase'
Mr Ally replied that the first level of assurance spoke to producing information. It was the second level of assurance that spoke to reviewing and overseeing the information that was produced at the first level of assurance.
To Mr Chaane on consultants
Mr Odwa Duda, AGSA Business Executive: Free State, replied that consultants, when appointed, were not provided with credible and accurate information. Hence the lack of impact on the financial statements. Some municipalities used consultants to perform day-to-day functions and did not own the consultants' work. If the Committee wanted full diagnostic information on consultants, the AGSA could provide this together with the other additional information already requested.
To Mr Chaane's question on the cost of audit committees
Mr Duda replied that the AGSA had not done the full analysis of the cost. He suggested that the Committee ask National Treasury or the Department of Cooperative Governance if they could provide that information.
To Mr Mashile's question on the discrepancy between ICT deficiencies and the quality of performance reporting
Mr Duda added to Mr Ally's earlier response that the AGSA was more concerned about the controls around ICT and with the performance reporting it was concerned with the municipalities reporting on whether they delivered on their objectives as stated in their integrated development plans (IDPs). Provided that municipalities could provide supporting documentation, even if they had problems with ICT, the AGSA accepted their information.
To the Chairperson's observations on the training of councillors
Mr Duda replied that the AGSA had held consultations with SALGA, provincial departments of cooperative governance, and provincial treasuries. SALGA was aware of the training provided to councillors on oversight. However, SALGA had had some leadership challenges, so the AGSA had gone ahead with providing the training without SALGA.
In response to Mr Lees' question on the 'trusts'
Mr Duda's response was not clear.
North West Department of Local Government & Traditional Affairs Local Government Support Programme
Mr Paul Sebegoe, MEC for Finance and Acting MEC for Local Government and Traditional Affairs, North West, outlined the presentation which dealt with the background, Finance Select Committee recommendations on the 2011 engagement and progress made, local government support programmes for 2012/13 and 2013/14, general challenges facing municipalities in the North West, and conclusion.
Progress made on the Committee's recommendations
MEC Sebegoe presented information in tabular form on recommendations, progress made, and comments.
Through the local government turnaround strategy, seven out the ten municipalities that had been targeted had received support from the Department of Water Affairs, the Economic Development Department, the provincial treasury, and the Department of Human Settlements. The support was ongoing and the Departments were expected to intensify their support. He commented that the other three municipalities would seek support through other programmes.
Section 139 close-out reports were submitted to the offices of the mayors of Tswaing, Madibeng, Mafikeng, and Moses Kotane. Reports for the Select Committee were available.
Some of the municipalities still maintained that they never received the reports, despite officials in their offices having acknowledged receipt of the reports. (slide 4)
(See slides 5-10 for further details of progress.)
Local government support programmes for 2012/13 and 2013/14
The North West Department of Local Government and Traditional Affairs (DLGTA) implemented support programmes under the Local Government Turnaround Strategy in 2012/13 in records management support, revenue enhancement, provincial infrastructure grant projects, and MPAC support ( See slides 11-18; see especially table, slide  for provincial infrastructure grant allocations 2009/12).
General challenges facing municipalities in the North West Province
Governance related problems in municipalities (political instability) affected the impact of provincial support programmes. There was general non-compliance with legislation and regulations. There were escalating levels of uncollected debt from consumers (currently estimated at R4.5 billion. There was a high vacancy rate in key positions and a high turnover rate affected the impact of municipal support programmes. A lack of skills and expertise in municipalities impacted negatively on the sustainability of municipal support programmes.
Support programmes by the North West Provincial Treasury
MEC Sebegoe provided a detailed report on the assistance and support provided by the Provincial Treasury to all municipalities in the province. He highlighted, in Part 1, the Provincial Treasury's tailor-made support to specific municipalities in the province which had been identified as lowest in terms of capacity and also the worst in terms of the AGSA's reports. Part 2 dealt with other support provided by the Provincial Treasury to all municipalities. (See slides 20-28)
Included in this detailed report on the assistance and support provided by the Provincial Treasury were the following:
The eight municipalities benefiting from Phase 2 initiatives
The eight municipalities benefiting from Phase 2 initiatives were Kgetlengrivier Local Municipality, Ventersdorp Local Municipality, Tswaing Local Municipality, Kagisano Molopo Local Municipality, Ditsobotla Local Municipality, Moretele Local Municipality, Mafikeng Local Municipality, and Maquassi Hills Local Municipality. (Slide 24)
MEC Sebegoe believed that by the end of the audit period, none of these municipalities would be disclaimed on assets.
GRAP 17 implementation
MEC Sebegoe said that the Department was assisting municipalities to comply with the GRAP 17. (Slide 26)
Other support provided by the Provincial Treasury to all municipalities
These support initiatives were a municipal financial health check questionnaire, an analysis and assessment of the 2011/12 audit action, engagement with the municipalities on financial management assessments, MEC's engagement with municipalities to assess their readiness towards Clean Audit 2014, capacity building, training on MFMA reforms, and a quarterly CFO forum (slide 27).
MEC Sebegoe noted that there remained an area of concern around documents and the issue of deviation from supply chain, as well as some spending of money which a municipality did not have. However, the Department was working very hard to correct these problems. The Department had trained most of the officials in all these municipalities, especially in finance. There were specific tailor-made programmes for CFOs, who had also been trained on the MFMA reforms.
The Provincial Executive Committee (EXCO) had resolved to place three local municipalities under Section 139(1)(b) intervention and progress would be provided on the intervention’s impact on a continuous basis.
MEC Sebegoe said that the situation in the North West might not be as bad as presented in the media. He was disappointed that the AGSA appeared to think that the provincial government was not providing sufficient assurance and support. North West was the first province to achieve submissions from all municipalities, and moreover had striven to improve quality of financial statements.
The Chairperson commended MEC Sebogoe for setting a good example for political heads of departments whether at national, provincial or local spheres of government.
Free State Progress of Free State Municipalities Presentation
Progress on resolutions
Ms Elzabe Rockman, MEC for Finance, Free State, acknowledged a need to do things differently as there had been a substantial lack of political interaction on the financial management of municipalities. So the MEC had started a programme whereby the MEC together with the municipal finance management unit of the Provincial Treasury visited municipalities to meet the mayors and members of the mayoral committees (MMCs) for finance specifically to share first hand information. It was unacceptable to continue with the majority of municipalities having disclaimers. Moreover the lack of consequences was unacceptable. Cooperation was maintained with the Free State Department of Cooperative Governance and Traditional Affairs. The programme began with Kopanong, Matjhabeng and Moqhaka. She briefed Members on the recommendations, progress made, and comments.
Recommendation: The Provincial Department of Cooperative Governance and Traditional Affairs should consult National and Provincial Treasuries as well all relevant departments before implementing any section 139 interventions
Progress made: No municipalities in the province were under Section 139 interventions.
Comment: Before implementation of Section 139, implementation the Department would consult with National Treasury, DCOG, Provincial Treasury and SALGA.
Recommendation: The Moqhaka Local Municipality should address the issue of open toilets as a matter of urgency, as this matter impacted on the dignity of the community.
Progress made: 1 200 toilets had been completed.
Comment: The political leadership was visiting each household affected to improve delivery.
Recommendation: The Provincial Treasury and the Provincial Department of Cooperative Governance and Traditional Affairs should take appropriate actions with regard to the report that Matjhabeng Local Municipality was responsible for 50% of all fruitless and irregular expenditure in the Province of Free State during the 2009/10 financial year.
Progress made: FS Provincial Treasury and COGTA formed a task team to support three municipalities (Kopanong, Matjhabeng & Moqhaka) that owed 55% of the unauthorised, irregular, fruitless & wasteful expenditure in the Province.
Comment: Provincial Treasury had requested three municipalities to establish the Sub Committee of Council as per National Treasury Circular 68.
Recommendation: The provincial Department of Cooperative Governance and Traditional Affairs, the Provincial Treasury, and the South African Local Government Association should coordinate and establish a task team that would include all sector departments and assist the municipalities to deal with all challenges identified in this report.
Progress made: Section 71 reports had been prepared to Provincial Legislature on struggling Municipalities. Agreement entered with Municipalities to fast track payments to bulk service providers. Intergovernmental debt steering committee had reduced the government debt by 60 percent within the province. Support was provided by departments to municipalities to resolve technical audit and accounting matters.
Recommendation: Municipalities should take cognisance of the fact that tariff structures should account for repairs and maintenance other than provision costs only, particularly in light of the fact that municipalities are charging electricity tariffs that were below the cost of provision.
Progress made: Provincial Treasury and CoGTA conducted budget bilaterals with 20 municipalities to strengthen their operational and capital budgets in respect of funding mix, capital budget in relation to IDP priorities, operational budget (revenue and expenditure), and creditability of the budget.
Comments: Bilaterals Conducted in 14-27 May 2013
Recommendation: National Treasury should interact with the Provincial Department of Cooperative Governance with regards to the legality of the financial assistance that the latter Department gave to municipalities.
Comments: National Treasury had conducted meeting with CoGTA. The Department had noted the comments and would comply with the instructions of the Select Committee on Finance (SCOF).
Free State Provincial Treasury
MEC Rockman, MEC, briefed Members on the MEC’s intervention, municipal budgets, municipal compliance and supply chain management (SCM), municipal revenue and debt, municipal risk and internal audit, municipal accounting services, unauthorised, irregular, fruitless and wasteful expenditure, and support at Nala Municipality. (See slides 6-46)
Free State Department of Cooperative Governance and Traditional Affairs
MEC Rockman, who also represented the MEC for Cooperative Governance and Traditional Affairs, Free State, briefed Members on municipal public accounts committees (MPACs), the management support programme, Caseware and IMESA projects, audit outcomes, timeframes for the implementation of valuation rolls; appeals against property valuations, property rates policies and by-laws, legal services, Municipal Infrastructure Grant (MIG) expenditure – 30 April 2013, KPMG forensic report – Nala, Ramanthe-Fivaz forensic report, and Section 106 investigations (Selesho Commission) – Matjhabeng. (See slides 48-99)
The Chairperson asked MEC Rockman what the situation was with regard to certain decisions taken about Nala municipality. Compliance was necessary to ensure release of funds.
The Chairperson said that when a consultant was deployed to a municipality, the Accountant-General must take note. Had a letter been sent to him?
Mr M Makhubela (Limpopo, COPE) asked both MECs how they were going to implement measures to avoid audit disclaimers.
Mr Makhubela asked North West if a bachelor's degree was relevant to the job of director of corporate affairs.
Mr Makhubela asked North West what strategy it was going to implement to avoid the situation described in slide 19.
Mr Makhubela asked North West about the history of non-submission (slide 21). The non-submission was continuous, so why did North West describe it as a history?
Mr Makhubela asked North West how much it paid for the panel of 15 service providers that it had appointed to assist in the preparation of annual financial statements.
Mr Makhubela asked Free State what it meant by 'briefly filled by irregular appointments' (slide 97).
Mr D Joseph (Western Cape, DA) said that the Committee must examine if the provinces had applied themselves to all the Committee's recommendations.
Mr Joseph asked North West for details of the forensic investigation and suspension of staff. More details of the numbers involved were required.
Mr Joseph understood that the report received was as a result of the task team established. It was good to see the progress but the status of the municipalities in terms of legislation still required a great deal of work.
Ms S Faku (Eastern Cape, ANC) said that municipalities must understand that financial management was not only for CFOs and MMCs. She appreciated the Free State's political oversight committee's project, but recommended that the project include also the Chief Whips and the MMCs for Finance. She valued this as all the audit reports cited issues of leadership and governance. She recommended such project teams as examples of best practice to be copied. She was hopeful that if these could be used effectively one could see progress.
Ms Faku also commended the Free State MEC's hands-on approach to municipalities. Otherwise, however, the picture was bad.
Mr Lees apologised for misdirecting some of his questions to the AGSA rather than to National Treasury.
Mr Lees asked National Treasury about the legality of the provincial treasury providing financial support to the municipalities.
Mr Lees thanked the MECs for the detailed presentations.
Mr Lees asked how the North West Premier's Office had paid R16 million to Eskom (MEC's presentation, slide 5). Was this through an adjusted budget? Was the Premier's Office's budget so large?
Mr Lees asked whether the NCOP had been informed within 14 days of the Section 139(2) intervention in Matlosana.
Mr Lees noted that the Free State's MEC Rockman might be new but in assuming office took on all responsibility, past, present and future. Could she explain to the Committee this private Glassella (sp?) fund. What private monies went into it? Who administered it? Was it administered outside the province? If that was the case, he would stop asking questions about it. However, if there was any connection to the province, he wanted details of what funds went into it, who administered it, who bore the cost of administration, and the purpose of the fund.
Mr Mashile concurred with Mr Lees. If public officials managed private funds, this must come under scrutiny, as public expense was incurred whenever public resources, including the use of officials' time, were used.
Mr Mashile emphasised the importance of competent support staff for CFOs and other key officials, such as municipal managers.
Mr Mashile asked if part of the function of the 15 service providers was to evaluate the incumbents.
Mr Mashile was not sure from the report from North West if the province was not expecting clean audits until later than 2014. Were clean audits achievable in North West?
Mr Mashile observed resistance in North West where it was necessary to put a team of administrators in the municipalities that required Section 139 interventions. Who was resisting? Was it the administration or the politicians?
Mr Mashile observed that the Free State was deploying a significant number of officials from the Provincial Treasury. Were those officials accepted and supported in the municipalities to which they were sent? Was there any means of checking whether they were really being accepted and supported?
Mr Mashile observed that the Free State MEC had not mentioned recouping resources from the councillors and officials who were on the indigent register. If they were on the indigent register they could not be paying their service charges. If there was fraud, legal steps and disciplinary measures must be taken.
Mr Mashile observed that the Free State MEC had held a session with the councillors on corporate management and ethics and said that the session was well received. What informed this self-evaluation? If no test was given to the participants at the end of the session, how could one evaluate the results?
Mr Chaane thought that the Free State report had not given a focused response to the Committee's recommendations, whereas the North West report was more focused.
Mr Chaane said that much of the Free State's report was on meetings held with municipalities, but did not say enough about the outcomes.
Mr Chaane asked the Free State MEC what the status of interventions mentioned in slide 59 was. How were the interventions approved? Was the MEC merely being generous in giving hands-on support? If the staff were out in the municipalities, who was left to run the office?
Mr Chaane asked about time lines for Nala. What were the challenges?
Mr Chaane asked when Circular 27 was issued by the [Free State] Provincial Treasury and what the response was.
Mr Chaane observed that the [Free State] province was still in the process of establishing a committee to investigate reasons for escalating fruitless, wasteful and irregular expenditure. Yet over a three year period it had been gradually been going up. Now that it had gone beyond the R1 billion mark, the province had still hardly done anything, but was still in the process of establishing a committee. Was this not worrying? Why target only three?
Mr Chaane observed that the Free State MEC was new in her position, but not new in the province's government.
Mr Chaane asked why the Free State government was delaying investigating all these irregularities.
Mr Chaane observed concentration on reporting progress on implementation of measures in Nala, but there was no reported implementation in progress in Matjhabeng. What was the challenge to taking Matjhabeng head-on? Matjhabeng was the worst performing municipality in the Free State, in his opinion. Everybody seems to be afraid to touch Matjhabeng.
Mr Chaane observed that the North West, his own province, had largely satisfied the Committee's requirements.
Mr Chaane asked the North West MEC to share with the Committee the end result of the ratepayers association issue.
Mr Chaane asked what the impact of the presence of administrators in Maquassi Hills was in particular with assisting in the financial statements.
Mr Chaane asked with regard to resistance to Section 139(b) interventions. One would assume that nothing was happening since those municipalities were put under Section 139 interventions. The administrators had not resumed their responsibilities. What was the status of those interventions now? How long would this situation of resistance be allowed?
The Chairperson asked the Free State MEC to reconfigure her replies in line with the recommendations in the Committee's own reports, as the North West had done. This would assist the Committee's staff. He required that information by Friday morning. The information would already be in the Free State's system.
The Hon. Paul Sebegoe, MEC for Finance and Acting MEC for Local Government and Traditional Affairs, North West, replied that the province had acted to ensure that all municipalities submitted their annual financial statements. It was also trying to resolve all the audit queries.
Strategy to deal with challenges
The province regularly engaged with municipalities to deal with governance issues. (Slide 9)
There was continuous monitoring. A technical committee had been established to visit municipalities. There would be engagement on a monthly basis with the possibility of workshops.
Escalating uncollected debt
A revenue enhancement strategy had been put in place, with specific municipalities targeted. There was already improvement, for example, Mafikeng had improved its rate of collection. The same applied to Naledi.
Not enough may have been done in the past, but there had been improvement.
15 service providers
To date the 15 service providers had cost the province R13 million, as against their account of 'R31 million' which they had spent 'in trying to address similar issues without sufficient progress'. They had been appointed since March 2012. They had assisted in preparing the annual financial statements and resolving audit queries.
Their terms of reference did not include the appropriateness of public officials. Appropriateness of skills was dealt with under the minimum competency regulations. The service providers focus was on financial compliance and sustainability.
Forensic investigation: Maquassi Hills
He noted that the Committee was interested in examining other forensic investigations. The province had been able to deal with some of the other issues when the Special Investigating Unit (SIU) had raised them. However, it was still awaiting the SIU's final report. One of the reasons for invoking Section 139 was the reluctance of the council to implement the recommendations of the forensic report.
North West Premier's Office's payment of R16 million to Eskom
Eskom had issued a final notice, and the province had no alternative but to make the payment.
Rank and file officials
Almost 180 municipal finance officials had attended the national qualification forum framework level three in order to improve their skills in local government accounting. Some of them graduated in 2012 through the Local Government Sector Education and Training Authority (SETA) as well as through the SAICA programme. About 111 officials had been enrolled for national qualification level four since September 2012.
There were about 106 graduates who began the national qualification framework level six in 2011. There were also 22 Bachelor of Commerce graduates who were deployed in 14 municipalities.
No outstanding audit
All 23 municipalities had submitted. All issues raised by the Auditor-General were receiving attention. However, it was important to criminalise areas such as deviation from supply chain management.
Clean audit 2014
MEC Sebegoe was very confident about achieving clean audits in 2014.
Nala and withheld funds
MEC Rockman thought that perhaps National Treasury might prefer to respond.
Political oversight to include Chief Whips and the MMCs for finance
MEC Rockman accepted this point. MMCs for finance were already included, but the Chief Whips were not yet included.
Glassella (sp?) NPO status
MEC Rockman replied that it was very far from municipalities but it was registered as a non-profit organisation. The registration certificate had already been provided to the Public Protector in April 2012. It was a separate NPO, not part of government. It did not involve public funds.
MEC Rockman replied that [she had also provided information] to the Public Protector in 2012. The entity in question Glassella (sp?) was a separate non-profit organisation, was not part of government, and did not involve public funds.
The Chairperson said that the AGSA: Free State had issued a report in 2010 or 2011. He would expect an answer from the Free State on this question in due course.
MEC Rockman therefore said that she would defer this issue of this particular entity but the answer would not change.
Mr Lees said that there was no answer.
MEC Rockman said that the answer was that the entity in question was an NPO. This closed the matter as this NPO did not involve public funds.
Mr Lees asked who administered it.
MEC Rockman replied that private individuals administered it, such as with any other NPO. As such it was not her role to talk about private individuals who wanted to contribute to the Fund. 'I contribute to the fund [this NPO]; if you do not contribute to the Fund, that is your prerogative.'
MEC Rockman wanted to continue, but the Chairperson interrupted her to say that the Committee would pursue the facts of the situation. He called on Mr Duda to assist.
A Member pointed out to the MEC that Members expected relevant answers in order to deal with grey areas. When questions were posed, it was not as if Members were picking on the MEC as an individual. Instead, the questions had a bearing on the province itself.
The Chairperson asked the MEC to complete her responses.
Acceptance of support
MEC Rockman replied that there were not the same problems when it came to the acceptance of support offered by either Treasury or CoGTA in municipalities. There really was no political opposition. In fact whatever the Department had tried to do to bring the political leadership of municipalities on board had been received enthusiastically. She had sought to avoid the situation of the potential for conflict where there were personal relationship issues between officials. She did not try to force people to work together in a team when the individuals concerned were incompatible. In this regard, the Free State's situation was quite different from that of North West.
Indigent register: removal and recouping
MEC Rockman replied that the important starting point was identification of councillors or officials who were on indigent registers. Thereafter one would deal with the process.
MEC Rockman replied that many of the interventions were new at the political level, whilst others had been ongoing throughout the past financial year. The effect thereof would probably be seen in the audit outcomes of the current financial year 2012/13.
CoGTA financial support
MEC Rockman replied that this was taken up in CoGTA's budget and gazetted. This had been the case in the past as well.
Irregular, unauthorised, fruitless and wasteful expenditure
MEC Rockman replied that it had been decided to start with Matjhabeng, Phumelela, and Moqhaka local municipalities. This was because these local municipalities contributed 55% of the province's irregular, unauthorised, fruitless and wasteful expenditure of the combined municipalities. Of that 55%, 45% was attributable to Matjhabeng. She could not say why Treasury or CoGTA had not had specific interventions, except that it remained the responsibility of the specific municipality to deal with the situation.
Its issues were complex and there were many legacy issues, complicated by the fact that some of the former municipal managers (MM s) had passed away.
Irregular appointment of a CFO
A company had been involved. One of its directors had become the CFO and was later dismissed. The matter had been concluded in the Labour Appeals Court in favour of the municipality. Matjhabeng must proceed, and this had been emphasised. Phumelela had normalised the situation and must appoint a CFO .
A number of compliance issues remained to be looked at.
The province was focusing primarily on the six focus areas. She acknowledged that the area lagging most behind was ICT controls. It was a similar situation to financial management capacity in municipalities, in that some municipalities would not even have an ICT technician, let alone an ICT person who was able to run a financial system. It would be necessary to design a specific intervention for this area.
Mr Chaane asked MEC Rockman, if it was difficult now to deal with Matjhabeng, for the reasons that she had given, what the purpose of this team to investigate irregular and wasteful expenditure would be. In any event, the team would have to examine the period in which former municipal managers had died. This made it hard to the MEC to act now.
MEC Rockman replied that she had made it clear that the reports must go to the Council. Where value had been received, irregular expenditure must be condoned and written out of the books. Fruitless and wasteful expenditure still had to be dealt with. A new process should have results.
Glasella (sp?) NPO status
Mr Duda replied that the AGSA had received written confirmation from the Free State provincial government that the NPO in question Glassella (sp?) was a totally private fund. However, he undertook to prepare a complete report for the Committee.
The Chairperson expected the report by the end of business that day.
National Treasury input: Free State
Mr Vincent Malepa, National Treasury Director: Local Government /Municipal Financial Management Capacity Building (MFMCB) Project, replied that there were some eight conditions that National Treasury set so that it could conditionally review its decision to invoke Section 216 (2) of the Constitution. The first condition was that of the municipality compiling annual financial statements that were long overdue. The municipality's budget and treasury office had no capacity whatsoever. As a result, these statements were being compiled by consultants. Of course, these consultants were procured on behalf of the municipality by the Free State Department of Cooperative Government and Traditional Affairs and the Free State Provincial Treasury. Of course, National Treasury was worried that whatever progress was made in compiling and submitting annual financial statements may not be sustainable, because there was no staff member in post to whom to transfer the skills of compiling those annual financial statements, since the municipality in question had no permanent CFO. Therefore National Treasury had given the municipality in question until the end of May 2013 to employ a CFO in order to release the gentleman from CoGTA. One would have to wait and see whether the municipality would be able to meet that deadline. However, failure to meet the deadline would not necessarily result in National Treasury's deciding to invoke again Section 216(2) of the Constitution, as National Treasury recognised that the municipality had made progress. At the same time, National Treasury was worried that this progress might not be sustainable.
Of course, there were other conditions. There was the condition that related to the municipality's having to repay all conditional grants that it had used to fund its day-to-day operations. The municipality had since given National Treasury a written undertaking to repay all the conditional grant money that it had used to fund day-to-day operations. For whatever conditional grants the municipality was able to repay, National Treasury was willing to give to the municipality an equivalent sum in order for it to do what it was supposed to do with the conditional grants in the first place to address whatever backlogs that it had.
There was another condition that related to monies paid to contractors for unfinished work that they abandoned. National Treasury had asked the municipality to trace those contractors and recover the money from them. Much as the municipality was trying to do so, National Treasury acknowledged that this was a big challenge for the municipality, as there was no supporting documentation to confirm which contractors were paid and how much. Of course, some of these contractors were no longer in existence. He confirmed that National Treasury, along with the Free State Department of Cooperative Government and Traditional Affairs was supporting the municipality in this effort.
There was a condition on the review of the organogram. The municipality had met the deadline of 31 March 2013 and had assured National Treasury that its organogram was with the Council. National Treasury would visit the municipality in the first half of June to see the organogram and discuss with the municipality how it would implement the organogram.
There was another difficult condition. The KPMG report had implicated a number of officials and councillors in fraud and corruption. So far the municipality had successfully dealt with officials. However, the municipality had not yet dealt with the councillors implicated in the report, except that the Speaker of the Council had been asked to repay R10 000 that she had allegedly spent for personal purposes. Then there was the mayor who had allegedly spent some money on a wall. That former mayor had given an undertaking to repay that amount. However, National Treasury felt that this was a mere slap on the wrist, whereas officials had gone to prison while councillors were being dealt with lightly. Therefore the National Treasury had asked the municipal council to cooperate with it in investigating those councillors implicated in the KPMG report. The Nala municipal council had given an undertaking that it would cooperate. This matter was now with the office of the Accountant-General in the National Treasury.
The municipality was really doing its best to meet all conditions, despite all its capacity problems. So rather than allowing that municipality to regress to where it was a year ago, National Treasury would try to give it as much support as possible and saw light at the end of the tunnel.
National Treasury: legality of the financial support provided by the Free State Department of Cooperative Government and Traditional Affairs (Mr Lees' question)
National Treasury had raised this issue with the municipality in August 2011, just after the Committee had met with the Free State municipalities in Bloemfontein. National Treasury had made it clear that this support was illegal, as, notwithstanding the Free State DCGTA's assertion that these municipalities had a small revenue base, these municipalities were receiving grants. National Treasury had detected that there were certain issues of a financial management nature that were not being addressed. If these issues were to be addressed, there would be no need for Free State DCGTA to bail out these municipalities.
(In response to Mr Chaane) Unfortunately not every assistance to these municipalities had been stopped.
National Treasury: provincial treasury officials accepted and supported in municipalities (Mr Mashile's question)
The difference between the officials in the Free State Provincial Treasury and officials in other provincial treasuries was that the officials in the Free State Provincial Treasury were not office-bound but were like field workers who went out to try to capacitate municipal officials. National Treasury was happy with this, but regretted that Section 57 managers in municipalities did not make time to confer with the Free State Provincial Treasury officials when they visited. As a result the officials had the opportunity only to capacitate junior staff. He gave the example of the situation in Matjhabeng, which was even worse because the CFO could not even compile a budget, yet when the officials visited the CFO gave them only interns to train.
The Chairperson asked who appointed this CFO and how.
Mr Malepa apologised that he did not have this information.
The Chairperson affirmed the Committee's determination to ensure that only competent staff members were appointed. The President had elaborated on this subject in the State of the Nation Address (SONA). It was repeated by the Minister of Finance. It was repeated in the Budget Council and agreed to by all MECs. He and Mr Chaane attended the Budget Council. This was a very serious matter, and he thanked Mr Malepa for raising it.
Mr Malepa said that he was responsible for the Free State, while his colleague was responsible for the North West.
MEC Rockman clarified that there was no CFO appointed in Matjhabeng. There were two people who served in rotation for three months on an acting basis.
National Treasury input
Mr Sadesh Ramjathan, Senior Economist, National Treasury, said that National Treasury's Local Government Budget Analysis Unit, together with the North West Provincial Treasury had held various sessions with municipalities to help capacitate them with budget compilation and reporting on Section 71. Each year, the Local Government Budget Analysis Unit embarked on a benchmark exercise and a midyear visit to the 17 municipalities. The same was replicated by the North West Provincial Treasury. Indications were that this was a fruitful exercise.
At the end of the third quarter 2012/13, the municipality had a surplus of R6.5 million but owed about R66 million to creditors. This extended over 90 days. Capital grants given to date amounted to R77 million. The CAPEX expenditure was R62 million, which was 55% to date. This was not a sustainable position.
There was a deficit of R5 million. Total owed to creditors was R5 million. 48% of debt was over 90 days. Conditional grants given amounted to R20 million to date. CAPEX expenditure was R22 million. Debts owed to the municipality amounted to R120 million. This was not a sustainable position.
With a surplus of R284 million and creditors to whom it owed R3.5 million, this municipality was in a highly sustainable position.
With a deficit of R5.1 million and creditors to whom it owed R37 million. Capital grants amounted to R7.5 million. Expenditure on CAPEX was R17.5 million. There were no debtors recorded to date. This municipality was not in a sustainable position.
This municipality was in a sustainable position.
This municipality had a surplus of R3 million. No creditors were submitted to the database. There were no investments. There was debt owed to it amounting to R225 million. There might be a situation of sustainability.
The municipality had a surplus of R27 million but there were huge gaps in its reporting. This municipality's sustainability was questionable.
This municipality had a surplus of R32 million. It owed R33 million to creditors. Capital grants to the municipality amounted to R31 million. CAPEX expenditure was R21 million. Debtors owed R45 million to the municipality. There were no investments and the municipality was not in a sustainable position.
This municipality had a surplus of R257 million. It owed R49 million to creditors. Capital grants to the municipality amounted to R124 million. CAPEX expenditure was R54 million 'which was only 25% at the end of the third quarter. Debtors owed R993 million to the municipality. On the basis of these facts, the municipality was sustainable.
This municipality had a surplus of R41 000. It owed R44 million to creditors. Capital grants to the municipality amounted to R33 million. Expenditure to date on CAPEX was R33 million. No investment was recorded. The municipality was not in a sustainable position.
He had mentioned CAPEX as money for capital expenditure was probably used for operational purposes.
Department of Cooperative Governance input
Mr Mzilikazi Manyike, Chief Director: Intergovernmental Fiscal Relations, national Department of Cooperative Governance, concurred with the North West MEC whose presentation pointed to the critical issues which the Department had detected from engagements with municipalities across all provinces. The first step was to ensure appointment of permanent municipal managers and Section 57 managers. Acting positions did not assist municipalities to take ownership.
In liaison with the North West province, the Department would have to deal with the utilisation of the municipal infrastructure grant. The municipal managers and CFOs must be involved in those engagements.
The Chairperson asked the Department, in terms of Section 59 of the Constitution, to submit to the Committee a full report on its assistance in the North West and Free State in respect of the municipalities.
SALGA input: Free State
SALGA advised that most of the issues raised, especially in respect of report on the Free State Department of Cooperative Governance and Traditional Affairs, represented efforts both of SALGA and the Department. There needed to be more coordination of efforts in future to include all those processes as outlined by the Free State MEC for Finance.
SALGA input: North West
SALGA agreed on the majority of the issues raised by the MEC. However, there was no cohesion on other issues, especially at the political level. There must be improvement. The SALGA national executive committee had approved capacity building on MPACs, together with a manual on MPACs and on Section 57, to be rolled out in the next financial year. In this capacity building SALGA used its own staff who could give effective, practical assistance rather than engage outsiders without experience of local government who could offer merely theoretical advice. SALGA was also building capacity in North West municipalities to deal with Section 32 of the MFMA, and encouraging municipalities to work together to follow examples of the best practice. SALGA hoped to improve its communication at the political level.
Mr Mashile deplored the tendency of the Department of Cooperative Governance, especially at national level, to come to such meetings unprepared. It was not enough just to express agreement with what the provinces had said, or to say, as had happened the other week, that the Department was just present to take notes. What's more, the Department sometimes gave the unfortunate impression that its visits were just an opportunity for a holiday beside the sea.
He recalled the words of the late Minister who had said that the Department was to be the conductor of the choir. This meant giving direction in all areas in which the Department was involved.
The Chairperson proposed a joint meeting with the Select Committee on Cooperative Governance and Traditional Affairs to hear a presentation from the national Department on its programmes in terms of Section 154 of the Constitution to assist the local sphere of government with special reference to the North West and Free State.
The Chairperson acknowledged some progress in these provinces since the Committee in its present form had first engaged with them in 2010.
The first aspect was compliance with legislation. The other aspect was political. His concern was with the first aspect. He noted that there must be respect for the Constitution on the part of the mayors and whoever served in those municipalities. Councillors must also uphold the Constitution, in accordance with the oath that they took when sworn in. They must renew their oath every year to remind themselves of their obligations.
At the level of the provincial legislatures, there was need to focus on the quarterly reports of local government on the status of municipalities and the progress made. The Committee would be calling back these provinces, together with the Northern Cape, at the end of September, or, at the latest, in the fourth term. If there was space in the programme, the Committee would call the MECS for Finance and for Cooperative Governance of the other provinces too.
The meeting was adjourned.
- SC Finance: Free State & North West on progress made in municipalities since last visit of Committee to those provinces 2
- SC Finance: Free State & North West on progress made in municipalities since last visit of Committee to those provinces 1
- SC Finance: North West & Free State Municipalities: progress reports by Auditor-General & MECs 1
- SC Finance: North West & Free State Municipalities: progress reports by Auditor-General & MECs 2
- Annexure 2: Five year audit outcome history
- Annexure 1: Auditees' audit outcomes, areas qualified, findings on predetermined objectives, non-compliance, specific focus area
- AGSA Audit Outcomes of North West Local Government 2011-12 MFMA presentation
- Audit outcomes of North West Local Government
- North West Department of Local Government & Traditional Affairs Local Government Support Programme
- Municipal Finance Directorate
- Free State Municipalities progress report
- We don't have attendance info for this committee meeting
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