Fiscal Challenges in Municipalities and Support/Interventions by COGTA and Auditor General

NCOP Finance

16 July 2014
Chairperson: Mr CJ De beer (ANC) (Northern Cape)
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Meeting Summary

The Select Committee convened to be briefed on the mandates, work and challenges of both COGTA and the Auditor-General of South Africa.

The Department of Cooperative Governance explained its fundamental mandate is to develop, promote and monitor mechanisms, systems and structures to enable integrated service delivery and implementation as well as to promote sustainable development by providing support to and exercising oversight over Provincial and Local government. The Department outlined the fiscal challenges faced in municipalities and the interventions put in place to combat them.

In the discussion that followed Members aired their concerns about the huge amount owed by other government spheres to the municipalities calling for clarity on who exactly the guilty departments were in each province. They asked how missing or non-existent asset registers are being dealt with and about the interventions put in place. They emphasised a need for sustainable interventions and serious inquiry into the consolidation of municipal debt.

In its reply, COGTA mentioned that it does have a Bill called the Intergovernmental Monitoring, Intervention and Support Bill in the making which will be introduced into Parliament fairly soon which seeks to elaborate on certain aspects of s100 and s139 interventions to attend to the shortcomings of these sections and ensure more clarity.

Following this, the Office of the Auditor General spoke about its mandate and function in relation to the Committee, the type of audits it does, the most recent audit outcomes, the key risk areas that have an impact on municipalities, the key drivers of internal control, oversight and what needs to be addressed in the financial year going forward to improve the outcomes.

In the discussion that followed Members asked for further clarity on the different types of audit opinions and on the type of recommendations given.

Meeting report

Opening Remarks
The Chairperson said today’s meeting is important as COGTA deals with intergovernmental relations. Section 154 of the Constitution specifically requires national and provincial governments to support and strengthen the capacity of municipalities. Provincial departments of cooperative or local government monitor and support the work of local government. The Committee will be dealing with COGTA throughout the next five years especially when they engage with the fiscal position of municipalities.

Mandate of COGTA
Mr Vusi Madonsela, Director General of the Department of Cooperative Governance, apologised for submitting the documentation late and they will ensure it does not happen again. He explained that the first part of presentation highlights the mandate of COGTA, and how the Constitution fits in, the equitable share, the Municipal Infrastructure Grant, debt management and challenges facing municipalities and the support measures put in place.

Dr Keneilwe Sebogo, Chief Operations Officer of COGTA, said it is made up of two departments, Cooperative Governance and Traditional Affairs. Key elements and the constitutional foundations of the mandate are chapter 3, chapter 2, chapter 6, chapter 7 and chapter 12 of the Constitution. With respect to chapter 3, the system of Cooperative Governance, the Constitution constitutes government as National, Provincial and Local spheres which are distinctive, inter-dependent and interrelated. Section 40(2) of the Constitution mandates all spheres of government to observe and adhere to the principles of cooperative government and intergovernmental relations as set out in section 41. Further chapter 7 provides for the establishment of municipalities for the whole of the Republic. Section 154 of the Constitution obliges National and Provincial government to support and strengthen capacity of municipalities to manage their own affairs, to exercise their powers and perform their functions. Sections 211 and 212 of the Constitution stipulate that the institution, status and role of traditional leadership, according to customary law, are recognised, subject to the Constitution. National legislation may provide for a role for traditional leadership as an institution at local level on matters affecting local communities. Section 30 and 31 of the Constitution outline that everyone has the right to use their language and participate in the cultural life of their choice.

She went on to say the Constitution contains a Bill of Rights and it enjoins the state to respect, protect and fulfil these rights. The municipalities are the platform at which the state should demonstrate its respect and fulfilment of the Bill of Rights and there is primary legislation to guide this, for example, the Municipal Property Rates Act, Intergovernmental Relations Framework Act, Local Government Municipal Structures Act, Local Government Municipal Finance Management Act, Local Government Municipal Systems Act and the Disaster Management Act. The Department of Traditional Affairs is guided by the Traditional Leadership and Governance Framework Act as well as the National House of Traditional Leaders Act. COGTA seeks to develop and monitor the implementation of national policy and legislation to transform and strengthen key institutions and mechanisms of governance to fulfil their developmental role. COGTA’s fundamental mandate is to develop, promote and monitor mechanisms, systems and structures to enable integrated service delivery and implementation, and promote sustainable development by providing support to and exercising oversight over provincial and local government.

Fiscal Challenges in Municipalities and Support/Interventions by COGTA
Mr Muthotho Sigidi, Deputy Director General: Government and Intergovernmental Relations, COGTA, provided a summary of investments that flow directly and indirectly to provinces. Section 214 provides for the equitable shares and allocations of revenues raised nationally. These revenues are shared or distributed conditionally or unconditionally through the Division of Revenue Act which is passed annually. Section 227(1) of the Constitution provides for the entitlement of provinces and local government to an equitable share of national raised revenue. Even though the provinces and local government are entitled to this revenue, S26 provides some conditions to ensure they spend this money to provide basic services and perform their functions. Section 227(1) (b) further provides for allocations that may be received from national government revenue either conditionally or unconditionally. Local Government receives among others, the Local Government Equitable share which is not condition and the Municipal Infrastructure Grant which is conditional.

Chapter 13 of the Constitution sets out the guiding principles on intergovernmental financial matters including treasury control, the equitable division of revenue between the three spheres of government and the fiscal powers of provincial and local government. The South African Intergovernmental Fiscal System has been in place for the past 18 years. It allocates almost 9% of nationally raised revenue to Local Government and the remaining 90% is shared between national and provincial government. Some commentators are of the view the system has matured and needs some minor adjustments to address some of its rigidities. There is an alternate view, held especially by those in the Local Government sphere, that the system needs a thorough review. He listed the principles guiding the intergovernmental fiscal system such as consistency with the Constitution. The Medium Term Expenditure Framework (MTEF) allocation shows that the planning environment within the spheres is done to determine what they will need to be delivering within the next three years. The system must be implementable and administratively practical, powers and functions should be aligned to expenditure responsibilities, the system should allow for ease of regulation and oversight and provision must be given to essential or basic services.

He provided a broad overview of the total grants flowing directly or indirectly to the municipal space. The total amount in terms of conditional grants flowing to municipalities within the MTEF is about R130 billion, which he said begs the question as to how many conditions there are that municipalities have to adhere to in terms of implementing some of the priorities of national government. The Municipal Infrastructure Grant (MIG) is the highest standing at 14.6 billion. In terms of the equitable share within the MTEF, R279 billion is flowing to municipalities. If one looks at how it is distributed amongst provinces, it is clear that KZN receives the highest and this is due to the formula currently utilised which is based on the population dynamics of a particular area. There are certain other elements in the formula. For example, with the Northern Cape if one only looks at the population dynamics and not the settlement patterns, the cost per service is not the same as the cost per service in Gauteng and therefore the equitable share formula is going to be tipped in a way that even those provinces with low settlement patterns and populations will be catered for. The Municipal Infrastructure Grant, over the MTEF, will be R45 billion and will flow to 246 municipalities in the country.

Municipalities are supposed to be deriving revenue from their own trading services such as property rates, electricity, water, waste management, refuse removal as well as other avenues that they may have. He compared revenues generated by municipalities and the transfers that come from national government, saying one can conclude that rural municipalities are highly dependent on transfers.

Municipal Infrastructure Grant performance
He spoke about the performance of the Municipal Infrastructure Grant over the last four financial years. Generally, looking at the 2009/10 financial year the aggregate expenditure was 84.9% and the amount unspent was R926 million - in municipal terms this is a lot of money. In 2010/11 the expenditure was 86% and the remaining balance was R1.378 billion. In 2011/12 expenditure was 80% and in 2013 it was 81.5%. If one looks at the quantum of the increase in the Municipal Infrastructure Grant, every year there is an increase of R2 billion, which may indicate that the department has not up-scaled the capacity in the local government environment to allow them to absorb that amount of money. In 2013/14 at the end of May the expenditure pattern was at 75.7%, though they are still awaiting the final figures.

Municipal Infrastructure Support Agent (MISA) support
Municipal Infrastructure Grant expenditure over the past four financial years has always been above 80%. The MIG allocation quantum has been increasing over the years and the unspent balance has always been a concern. They have introduced various support initiatives such as Siyenza Manje, that they have also looked at challenges contributing to under-expenditure and that they have established a special purpose vehicle to support municipalities to spend on their infrastructure and it is known as the Municipal Infrastructure Support Agent.

Some of the expenditure challenges which have been confirmed by MISA are the lack of municipal readiness to address extension of basic services to areas where there are no services especially with regards to project prioritisation and registration, the lack of information regarding basic service backlogs per ward/village in targeted municipalities, non-functional water schemes which result in an inconsistent water supply, outdated sector plans to direct future Municipal Infrastructure Grant and other funds to areas of high priorities, poor project preparation and packaging to achieve efficiency and attraction of alternative funding. Also there is often no alignment between projects run by sector departments and municipalities, there is a lack of contract and project management skills, and poor financial management threatens the sustainability and viability of most municipalities. There are poor supply chain management processes with regard to procurement leading to delays in project implementation and poor spending on infrastructure grants and the lack of infrastructure asset management practices in particular GRAP 17 asset registers.

Additional challenges are the overloaded waste water treatment works, the urgent need for road classification, the deteriorated conditions of both provincial and municipal roads, unlicensed landfill sites, and the lack of operations and maintenance plans, high levels of vandalism of infrastructure assets and high water and electricity losses due to illegal connections. Further challenges are the severe lack of skilled personnel, the lack of credible master plans for the development of service delivery infrastructure, inadequate focus on maintenance of existing infrastructure, the inability to attain blue drop and green drop water certification, and the lack of implementation of municipal by laws and the prevalence of governance problems affecting delivery services.

MISA’s primary role and responsibilities are to support municipalities to conduct effective infrastructure planning, support and assist with the delivery of infrastructure in municipalities, support and assist with operation and maintenance of infrastructure in municipalities and to build the capacity of municipalities to undertake effective planning, delivery, operations and management of municipal infrastructure. In municipal spaces there is the Integrated Development Plan which is sort of a strategic plan for the 5 year term. The processes of planning should indicate what projects will be rolled out over the course of the next five years, so therefore it does not make sense why municipalities cannot advertise for design and planning in the first year when they already have a view of what the finances will be. So MISA looks to determine how municipalities can be assisted when it comes to aligning their infrastructure plan with their financial plan to mitigate some of the challenges discussed.

So far support has been provided to 129 municipalities in the country and of these, a total of 92 is from the 108 municipalities prioritised by Cabinet and an additional 29 identified by the provinces themselves. There are 69 technical consultants across municipalities, 63 which are allocated within provinces. There are a total of 33 professional service providers (PSPs) currently supporting municipalities in various areas of infrastructure planning, development and management. There are also a number of interdependencies which show that it is not just a question of deploying a particular skill to a municipal space, the municipal environment must also be conducive to receiving and benefiting from that support. These interdependencies are things like skills and governance relating to proper oversight and recruitment practices. MISA is providing technical support to municipalities in key areas of infrastructure planning, implementation, operations and maintenance. Types of support offered to the municipalities were numerous (see document).

Debt owed to municipalities
Aggregate municipal consumer debt stands at R93.4 billion as of 31 March 2014. This is money municipalities have been unable to collect. Government share of this debt is R4.1 billion - this may look immaterial but this money could realise a lot of change in some municipalities. The largest component comes from households who owe R57.5 billion, commercial or business owe R19.3 billion and other debtors owe R12.5 billion. Debt over 90 days old amounts to R73.6 billion, debt under 30 days amounts to R12.4 billion. It is important to note that Gauteng has the highest total amount outstanding with R40.9 billion.

Operation Clean Audit
In 2009 they had hoped to see all municipalities achieve an unqualified audit opinion by 2014. The latest results show that 48% of municipalities achieved unqualified opinions against the 2013 target of 75%. Adverse audit opinions and disclaimers have not been eliminated and these were set to be eliminated by 2011. Only three provinces have managed to reach the 75% target for 2013, Gauteng, Kwazulu Natal and the Western Cape.

A support plan has been developed by the department. The National Plan has been broken down into provincial plans so that every province has an audit outcome committee that is comprised of the provincial treasury and the department of cooperative governance and traditional affairs. They monitor and support municipalities in addressing all the issues that have been raised by the Auditor General.

The Chairperson asked for clarity on the role and functions of district municipalities. He has concerns about the fiscal position of municipalities especially looking at the spending of the Municipal Infrastructure Grant in the Northern Cape which is down to 60%. Municipality management and leadership must be taught to plan in the three year cycle. He noted government share of outstanding debt is R4.1 billion. He asked which departments owe municipalities what in each province. As representatives of provinces, they must know so when they go back to their provinces they can address this.

Mr M Sigidi replied that they can provide a breakdown per province of the R4.1 billion, and they will send a written response on the amount owed per province per department to the Committee.

Mr E von Brandis (DA; Western Cape) asked for more background on the debt age analysis. The Western Cape is the second highest in the 0-30 day category, which means it is sending out its bills and the other provinces look bad compared to this.

Mr Sigidi replied that debt that is no more than 30 days old is called current debt and they believe the municipalities can collect that amount within 30 days since that is the standard process.

Mr von Brandis interrupted to ask if the Western Cape billing department is partly at fault.

Mr Sigidi said that could be part of the problem but he cannot say for certain.

Ms T Motara (ANC; Gauteng) commented that the Select Committee will be working with COGTA on an ongoing basis. They need to reflect on what the department has said then address those key areas in detail.

Mr J Munyu, the SALGA representative to the NCOP, said about the large amounts owed that there is no way there will not be protests when R93 billion is owed to them - because they cannot achieve their mandate. He asked which departments in the provinces owe these municipalities so much money so people can focus on the problem areas.

Mr V Mtileni (EFF; Limpopo) asked what the department is doing and has done so far to address these large amounts being owed to municipalities. He asked about Community Development Work personnel who are being paid more than R15 million in salaries but are not effectively put to work. He wondered if this may be due to a lack of proper management because they appear to keep getting shifted from department to department. He asked if they feature in the COGTA department and if there are plans to ensure they assist ward councillors, speeding up service delivery issues.

Mr Sigidi replied that they have looked at the debt in two ways. Firstly there is the debt prior to the devolution. These are the bills from municipalities which they are trying to channel to the department of public works to pay. Secondly there is the debt after the devolution, in which case each department has to pay for their own services. They have debt management committees in all the provinces which give COGTA information on who owes what to whom. They ask the guilty department why they cannot pay their individual debts. They also allow MECs to present on why they cannot pay municipalities. One major challenge is when the department contests the bill itself, saying they do not think it is authentic. Another is when the department of education is not aware that a school owes money and the school principal is unable to utilise the money appropriated by the school to service that debt. These are the types of issues the task team is dealing with. This is their plan to deal with these large outstanding amounts. At a national level the task team consists of COGTA, Treasury, Public Works and Department of Performance Monitoring and Evaluation (DPME). They have gone so far as to say if the bills are authenticated, they can go to Treasury and it will pay the municipalities what they are meant to receive. However this did not become popular. On the Community Development Workers, the programme is run by the Public Works Department. He does not have information on whether or not they are fully utilised and the Department of Public Service and Administration would probably best answer this.

The Chairperson said the provincial week comes up in September / October where they will engage with their respective provincial COGTA departments and Mr Mtileni must raise his question in that setting as well.

Mr T Motlashuping (ANC; North West) thanked the department for their report which was very comprehensive. However he commented on the late submission of documents saying, it is important to submit on time as it enables the Committee to participate fully. He asked why there was no presentation by Traditional Affairs as his province, the North West, has traditional leaders and there are serious challenges in terms of disputes despite there being a committee set up to deal with this. He asked to what extent COGTA is interacting to ensure the speedy resolution of such disputes. He asked about the interventions launched by COGTA in municipalities, whether they can be made more sustainable so that municipalities can stand alone after the intervention. He noted there are a lot of problems with regards to MIG spending. This is a critical component which the department has tried to address through MISA and he is happy the department has alluded to the remedial actions though not specifically addressing all the challenges identified. He too was concerned about the municipalities being owed so much money - how they can be expected to render basic services under such circumstances? In his province there have been sporadic protests partly due to the financial status of municipalities. He asked why the North West provincial equivalent of COGTA is called the North West Department of Local Government and Traditional Affairs. One of the greatest challenges facing municipalities was an asset register of their ground infrastructure - that has been a problem for years. He asked how far COGTA municipalities were with this because it causes an adverse audit outcome for municipalities. With regard to local municipalities, people always say there is a problem with skills, that people are not qualified or conversant enough for the positions they are placed in. The national and provincial departments sit on the recruitment committees, they appoint someone but two months down the line, the municipalities say they are not appropriate.

Mr Madonsela replied on why the Department of Traditional Affairs did not present, saying it is a department separate to the Department of Cooperative Governance although they are part of the same ministry.

The Chairperson added that that was his instruction to COGTA to present on local government. Questions on traditional affairs devolve to the Select Committee dealing COGTA where some of their committee members were serving.

Mr Madonsela replied to the question on S139 interventions and S154 support, saying these are matters they briefed the COGTA Select Committee the day before. Had they known the committee would be interested in that they would have made that document available. It is something they can interact with the committee on in detail if they invite them back because they would need more time to go over it. He cannot account for why the province chose to name the department the way they did, there is no standard for what this department is called in the various provinces. As far as he knew, only Gauteng had named its department, COGTA.

Mr Sigidi replied about land infrastructure, saying that when one goes to a municipality, it is difficult for it to indicate where its assets are. There are issues around asset registers and this has a negative outcome on the audit of these municipalities. Part of the problem is that when people resign they take some of the plans with them which causes huge problems for the municipality in indicating where certain infrastructure is.

The Chairperson commented that they need an analysis from National Treasury. COGTA may not be in a position to answer fully the questions being raised

Mr S Mohai (ANC; Free State) referred to the intergovernmental fiscal system, asking for elaboration on the meaning behind the statement “commentators are of the view that the system has matured and needs minor adjustments to address some of its rigidities”, who are these commentators. With respect to the statement “some people have called for a review”, he asked for the reason behind the call for the review. With respect to the MIG, he noted progress and saw the significance of MISA. However there must be discipline within departments with respect to planning, it is a non-negotiable to achieve certain outcomes, there has to be consistency with a particular plan. The National Development Plan (NDP) needs to be institutionalised, it is part of the guiding long-term plan. The President had announced Operation Phakisa to accelerate the NDP which is based on the planning system of Malaysia. Its aim is to simplifying planning and implement what is planned. He asked how far they have gone in this regard.

Mr Sigidi replied that when implementing a system for ten years, you have to review the actual outcomes of using that system. The intergovernmental system falls under both COFTA and Treasury and they would like to do a review because municipalities feel that they are not improving, in light of their dependency on transfers. They have received less than 10% of nationally raised revenue every year for the last 18 years and there are calls for them, from SALGA for example, to direct more to local government than perhaps provincial government, since they fall under the most pressure in terms of service delivery. These people feel that local government will never become sustainable on their current allocation in the long run. One may need to look into differentiating and allocating 9% to some but allocate perhaps up to 20 or 21% to those who really need the boost. The only review done so far is on all the conditional grants flowing into municipalities and this will be presented to the budget committee and if this is approved by the budget committee it will be incorporated into the division of revenue for the next financial year.

Mr Madonsela replied about Operation Phakisa, saying COGTA had recently presented to both the select and portfolio committee their Annual Performance Plan and Strategic Plan, both of which are predicated on the National Development Plan. The MTEF draws from the National Development Plan and seeks to give effect to it. Their strategic plan resonates strongly with the intentions of the National Development Plan. Whilst the National Development Plan is a long term plan, the MTSF is a five year plan and the APP seeks to annualise that plan, indicating how they plan to achieve their objectives so all these matters are embodied therein. If the Committee wishes them to elaborate on this further they certainly can.

The Chairperson said the Select Committee on Finance and other relevant parliamentary committees are engaging in the Limpopo intervention in terms of section 100(1)(b) and section 100(2)(c) of the Constitution. Section 100(3) refers to regulations to give direction to the intervention. That was one of the committee’s findings when they engaged with the province over two years, and the intervention is still ongoing. He asked how far the department is with the regulations giving directives for such interventions.

Mr Madonsela commented that the meeting agenda was addressing specific matters to do with the fiscal challenges facing municipalities. Some of the questions have focused on matters different from that. Addressing the Chairperson’s last question, he said that currently there is a tug of war between COGTA and the Department of Public Service and Administration as to who is responsible for the administration of section 100 because it is not clearly allocated in the Constitution to any particular ministry. This can only happen by way of proclamation by the President. There is no dispute as to who is responsible for s139 interventions. They do however have a Bill in the making which they will be introducing to parliament fairly soon which seeks to elaborate on certain aspects of s100 and s139 interventions. It will attend to the shortcomings of these sections to ensure that there is more clarity. They are not at the stage where they can talk about regulations from their end as contemplated in S100 (3). They are bringing what they call the Intergovernmental Monitoring, Intervention and Support Bill to Parliament. They can then investigate matters relating to the regulations.

Mr Sigidi added that they have not developed any regulations yet because they cannot do so until that Bill has gone through Parliament and been assented to by the President.

The Chairperson said if there is anything they cannot reply to now they can reply in writing and the reply will be distributed.

Mr Madonsela thanked Members for their constructive questions, saying that with Minister Gordhan, a man who has achieved so much at the helm, they should be able to realise their objectives.

The Chairperson thanked the Director General and his team, and commended the work done by Minister Gordhan.

Auditor-General South Africa (AGSA) presentation
Ms Sharonne Adams, AGSA Acting Business Executive of the Western Cape Business Unit, spoke about its mandate, the type of audits they do and the previous audit outcomes, the key risk areas that have an impact on municipalities, the key drivers of internal control, the oversight function and what needs to be addressed in the financial year going forward to improve the audit outcomes.

The key reason for AGSA’s existence is to build public confidence and they have a constitutional mandate to strengthen the country’s democracy. They are governed by certain legislation such as the Public Finance Management Act, which says the accounting officer has a responsibility to ensure proper record keeping and to prepare accurate and complete financial statements for audit. These are submitted at a specific time during the financial year and then they are permitted to audit them and submit a report to the accounting officer. Their mandate is further entrenched when it comes to the Constitution where it indicates that in terms of section 188, they must audit and report on accounts, financial statements and financial management of government institutions. Also, the Public Audit Act says the Auditor-General must prepare an audit report containing an opinion or conclusion on financial statements and financial position (which contains the position statement, performance statement, cash flow statement, a budget reconciliation statement, notes to the financial statement) and then they indicate that the information disclosed is true, they do not offer 100% assurance of this however. They must report on compliance and financial management and predetermined objectives (PDOs) known as service delivery. When they report on performance indicators, they try to ensure these indicators are useful, that the information is consistently presented and that the indicators selected are relevant to the municipality and measurable. For example if they indicate they will build 20 house the question is, is it clearly defined where they will build those houses. AGSA ensures they comply with the legislation outlining what must be reported on. Secondly when looking at predetermined objectives, we look at reliability , so we look to confirm the information that has been presented by way of evidence so we can establish the information is reliable. This constitutes a regulatory audit.

Other products of AGSA are performance audits which evaluate measures to ensure economic procurement of resources and efficient and effective application of these. This is a discretionary audit. These audits normally relate to specific areas across all departments and entities which pose a risk. For example we have being conducting a performance audit into infrastructure in municipalities. There is an investigation unit which is discretionary and is an independent process to prevent or detect fraud or crime in the public sector. Additionally there is an audit of predetermined objectives which provides assurance on the credibility of an auditee’s report on their performance. When they audit they audit in terms of the specific framework used by the institution, so for example with municipalities, they use generally recognised accounting practice and based on this framework they must comply with specific policies and procedure.

The four types of audit opinions are:
- unqualified without findings on compliance or predetermined objectives. This audit opinion states that the financial statements presented are a fair and true representation of the performance of the institution.
- qualified audit opinion. The financial statements are materially misstated, or are not a true reflection of the institution’s performance because for example there is a disagreement with management or a limitation of scope which is not so pervasive it amounts to a disclaimer.
- disclaimer, which is the worst opinion one can get. This is when the auditor is unable to give an opinion on the financial statements because there in insufficient audit evidence.
- adverse opinion. This occurs when there is a disagreement with management over how they have presented their financial statements, confirming that it is not a fair reflection of the performance of the institution - it is both material and pervasive.

As part of their audit they do emphasis of matters where they highlight matters disclosed by managers in the financial statements. It is key to note the root causes of what went wrong. For example with adverse opinions or disclaimers, they contextualise it into three key areas: leadership, financial management and performance, and the establishment of audit committees.

On the oversight function, when the Standing Committee on Public Accounts (SCOPA) passes resolutions the relevant parliamentary committee in both Houses will have the responsibility to do oversight to see how rigorously the resolutions are followed up on. The key thing to be highlighted in terms of this committee, is that AGSA will submit their report to Parliament and will brief SCOPA on the audit report. SCOPA will then conduct a hearing and the Auditor-General will assist with any recommendations and insights required from their side. She highlighted the services AGSA is offering to parliamentary committee which include pre-briefing before oversight visits, briefing after the Municipal Finance Management Act (MFMA) general report tabling, briefings before hearings with departments/municipal entities and a roadshow after the MFMA cycle. She asked the members if there are any additional services they would like or if they have any questions.

Mr Munyu asked about the audit opinion. In the State of the Nation Address, the President said 11 municipalities out of 278 had clean audits, and she did not refer to this in her presentation. He would like to know why an unqualified audit is different to a clean audit. Secondly he thought the disclaimer is worse than the adverse opinion because the AG cannot form an opinion on the findings but it seems as though an adverse opinion might be worse, he asked for clarity on this.

Ms Adams replied that a clean audit is basically an unqualified audit and she agreed that the President did mention those in the State of the Nation Address. Between the disclaimer and the adverse opinion, the disclaimer is the worst one.

Mr Mtileni asked for examples of recommendations given in past audits and the history of those recommendations being acted on. He ask why they are unable to obtain appropriate audit evidence which results in a disclaimer. He asked if anything is happening to address individuals who squander taxpayers’ money, what has been done and what is looking to be done in the future.

The Chairperson said Auditor-General South Africa does not hire or fire people, Parliament and its committees have a role to play in that.

Ms Adams replied that it is management’s prerogative to implement the recommendations and there is usually a slow response to implement them. It is one of the internal control deficiencies that they usually report on. When the audit finding action plans are developed by management, it is important that it properly addresses the root causes so the audit findings do not reoccur. Secondly, it is important that officials are held accountable. One of the key root causes is the lack of consequence management for transgressions, guilty employees hop from municipality to municipality or simply go unpunished in their original municipality. Another root cause is the vacancies in key positions. On the question about finding appropriate evidence, she has to confirm the reliability of the assets claimed, and this can be difficult when there is no asset register or it is lost or when a municipality does not keep careful account of its invoices. COGTA has raised the issue of infrastructure asset registers, which is a key problem in municipalities. National Treasury receives is looking to directing funds at solving the issue of asset management.

Mr Motlashuping asked what they are auditing when they audit performance indicators.

Ms Adams said when they are at municipalities they look at targets and how the objectives which lead to targets have been set and it is important for the person reading the target to understand what it means and it is important to be able to reproduce the work. For example, “percentage of the budget spent on building houses” is not a proper indicator for service delivery which should be “number of house completed”. Often when it comes to service delivery, the structure in ineffective as the person in charge of service delivery does not report to the municipal manager or there are not enough officials working in service delivery in the municipal environment.

Mr Mohai said Parliament has had a good relationship with the Auditor-General and it has a good image and reputation in the country. He hopes that this will continue and they will have rigorous engagement with the institution in the years to come.

The Chairperson agreed with Mr Mohai and said the Auditor-General reports highlight what is right and what is wrong and it is up to Parliament to take action and ensure that action is taken.

The Committee then discussed its programme.

Meeting adjourned.

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