COGTA; SALGA & Municipal Infrastructure Support Agent (MISA) on their 2014/15 Annual Reports, with Minister present

Meeting report

Briefing
Minister Pravin Gordhan said the 2014/15 year had started with national elections and was a transitional year for the Department which was stabilising itself and finding a new focus to its work especially around local government issues concerning social and economic development. The Department had started to look at local government not as individual entities but as a system and systems took time to develop. The status of traditional leaders was a recognised part of local governance and the Department was working to increase the traditional leaders developmental role and harmonise their work with municipalities. The year under review was characterised by the back to basics programme, the assessment of municipalities and the movement from a policy and regulatory role to a more hands on role in shaping the local government system and so the strategic plan and the APP had a slightly different focus. There were challenges in the local government system in finance, in governance and in a lack of responsiveness, but the Department was assisting provinces and local government in overcoming these challenges.

The Departments of Cooperative Governance and of Traditional Affairs and MISA then went through their presentations followed by a brief look at the financial performance of the Department.

Discussion
Mr K Mileham (DA) noted that the SA Cities Network (SACN) was referred to as an entity reporting to the Minister, yet there was no report on it in the briefing. He asked for an update on the CFO positions filled by people in acting positions in the Department of Cooperative Governance and in Municipal Infrastructure Support Agents (MISA). What steps had been taken to sort out the irregular and fruitless and wasteful expenditure? The Supply Chain Management (SCM) at the Department of Cooperative Governance and at MISA was a big issue and the quality of performance reports left a lot to be desired. The Office of the Auditor General had said that 94% of MISA’s targets were not reliable and 33% were not verifiable. The quality of the submitted financial statements before the AG’s intervention was not up to standard. The Minister’s commitment to have quarterly audits on the implementation manual of the CWP was not put in place or the commitment to receive monthly irregular expenditure reports from department heads. Internal and external audit findings that would form part of management agreements of the senior management team were not in place. The AG had highlighted the slow response of management and instability and vacancies in key positions in the Department of Cooperative Governance and MISA. The Department of Cooperative Governance and Traditional affairs website was unhelpful when searching for relevant documents. The criteria the Department of Cooperative Governance used when deciding whether an item was achieved or not, needed to be defined and he was concerned at the lack of evidence for MISA’s performance objectives, which lacked supporting documentation. He was concerned at the setting of priorities because for one strategic objective on capacity building, they would underachieve in one target for lack of funds while in another they would pump in extra money and overachieve. On the DCOG’s performance objectives, it was reported that only 29 out of 40 municipalities were non compliant regarding the Municipal Property Rates Act. This concerned him as this, for him, was a massive fail. He asked when the local government indicators would be finalised and implemented.

Mr Gordhan said Mr Mileham had not taken sufficient account of the transition period the Department was in, given that the predetermined objectives were determined by the previous administration. The Department was undergoing changes in what they wanted to do and how they wanted to do it. Part of the new approach was cleaning up the Department since the CFO had left. The Department then, was not irresponsible regarding vacancies in CFO posts; it was to ensure that the correct governance was put in place. Some of the issues raised were new in that the AG had not said the same things to the Department that were said to the Committee and the Department would raise this with the AG’s team.

The SA Cities Network was not quite an entity of the Department, it only made a contribution and Deputy Minister Nel was on the board of the cities network.

MISA was going through a period of reconstruction and cleaning up and the Department would be intolerant of any misbehaviour.

Mr Gordhan would ask the DG to contact the AG to clarify issues raised by the AG to the Committee on consequence management and that there should be consequences for gross underperformance.

He would look into the observations on the financial statements and into the monthly reports.

He thanked Mr Mileham for reminding him of his commitments and said that the Community Works Programme (CWP) quarterly audit manual was ready.

There were a few vacancies, but there was no instability. There was a new approved organogram aligned to the new way the Department wanted to work. The issue was not vacancies but the need for more money and more technical staff.

A new website was being worked on and the design was ready and it would start in November. Work on this was on going for the past six months.

Mr Carl Nel, Deputy Minister of COGTA said the SA Cities Network was not an entity reporting to the Department, it was an initiative of the Department, SALGA and other organisations. It was a separate legal entity and had its own independent board. Its activities were reflected in the Annual Report and historically covered the eight city metros and Msunduzi, but the Cape Town metro had left. It was hoped that they would return.

The previous year the structure and function of the CWP changed, based on an investigation the Department had commissioned. The way in which programmes functioned had changed and this required changes to the implementation manual. The manual had been handed to the implementing agents and was being printed.

The quarterly audits were not done because the CWP did not have the capacity to do so but this matter had been addressed and was now being undertaken. Under the new approved organisational structure of the Department, the CWP was now recognised as a branch of the Department.

Mr Madonsela said the post of CFO had been advertised and interviews would start soon.

Regarding the quality of performance information, there had been instances of a lack of a portfolio of information and in these instances the matter had been sent back to the managers to ensure that the quality was improved.

It was correct that the AG had raised the issue of material misstatements. This was because the Department had a number of stand-alone systems so information was not processed as speedily as possible to be available to the AG.

The issue of slow responses by accounting officers to AG queries had not been brought to the Department’s attention.

Regarding the performance objectives relating to the 29/40 municipalities, this should have read that only 29 were in compliance and Mr Madonsela agreed that the fact that so many were non compliant was a serious matter.

Mr Nwaila said the steps taken to prevent irregular and unauthorised expenditure was a general issue. This was an issue since 2010 and senior counsel and the Department’s legal team dealing with litigation cases were not appointed through the state attorneys, this was corrected in December the previous year and a new senior counsel was briefed.

Regarding an audit concerning the people who served on the Nhlapo Commission, these people were asked to support the senior counsel and the Department had not sourced three quotations. This had been explained to the AG.

On the issue of quality of performance reports, performance information was found to be accurate and reliable and the Department were given an unqualified opinion.

On the slow response to the AG’s enquiries to provide documents the Department had established a corporate shared service and in the process of establishing it, there were delays in service that occurred.

Mr Phillips said that advertisements for the CFO post had been run and interviews would take place in two weeks time.

The matter of irregular expenditure had been addressed by ensuring that Treasury prescripts were followed. Most of the unauthorised expenditure was due to the way in which it had been applying its Supply Chain Management (SCM) regulations. Most of the fruitless and wasteful expenditure identified by the AG related to the management of trainees and their payment after they had left, but these issues were now addressed and controls were tighter and the presence of the trainees at municipalities were now monitored.

He agreed that MISA needed to focus on performance information and that there was a lot of room for improvement. The formulation of Performance information targets needed improvement; they were not SMART enough because the goals were too vague and not realistic. For the coming year there would be proper descriptions for each indicator and a detailed set of business processes for each indicator, which would be monitored.

Regarding the seeming contradiction in capacity building targets, there were two reasons for this in that financial year. The CEO and not a financial delegation managed the budget, so programme managers were not sure of the budgets of their programmes. This had been addressed. The second was that they received and acted on a number of requests by municipalities, which resulted in a shortage at the end of the financial year for some programmes.

Mr Nel said the publication of the formula for the determination of the number of councillors was set for July but was only published in September. The Department could say that the target had been achieved even though it was late as it had had no negative impact as all the other deadlines in the process was met.

Regarding when the LG indicators would be finalised, Mr Gordhan said the provinces had the old set then moved to the back to basics programme and then on to the reporting template arising out of back to basics and were now looking at reconciling the indicators. The old indicators still applied but needed to be modernised, but account had to be taken that municipalities said they had too many indicators and that the indicators needed to be rationalised.

Mr T Fosi, COGTA DDG for Policy Research, said a set of indicators had been developed and legislation would have to be amended before applying the new indicators. The reporting framework for local government and provinces needed to be aligned. This process should be concluded within this financial year. The Department was working with Treasury on rationalising the reporting requirements of municipalities. The rationalisation would take time because the norms and standards of each sector and the financial and other reporting requirements on municipalities.

Mr Mileham asked about the mandate overlap of the Traditional Leaders Bill and the interim framework of regulations until the bill was adopted where the regulations had not been adopted; yet the bill was about to be adopted.

Mr Nwaila said municipal and traditional leaders were extensively consulted on a framework and this was changed into draft regulations that were not as yet finalised. It had to be finalised first before being placed on the website.

Mr Gordhan emphasised that there was no legal vacuum.

Mr P Mapulane (ANC) said he was happy with the reports of the Departments but he was concerned over the AG’s briefing note and he assumed the Department would have been given a copy of it. The AG in the note was concerned that targets were not according to the framework for managing performance information.  The AG had also said that the AG could not validate, in line with that framework, that certain results had been achieved. He recommended that the Department and the AG meet. His second issue was on the lack of compliance with SCM. Not being able to get three quotes was of concern and needed to be attended to. The AG had raised the issue of the identification of the implementation agent where contracts were awarded to bidders on points given for criteria that differed from those given in the original bid invitation. This was a concern and led to the Department getting an unqualified report with matters of emphasis. He wanted a progress report on problems that arose from the withholding of the equitable share allocation to municipalities.

Mr A Matlhoko (EFF) felt that there was not a transition but it was still a continuation of programmes from the previous administration. He said immediate strategies were needed to get a clean audit. Back to basics was not a new programme; it was a continuation of the old programmes but focused on the implementation of the programmes. He was concerned that the implementation had to be compliant with all policies and Treasury regulations, especially MISA, which was at the coalface.

Ms Maluleke (ANC) asked what the Department was doing to assist municipalities to spend on the MIG.

Ms N Mthembu (ANC) asked what the causal factors were for the resignations from the Department and what was MISA’s retention strategy to address this issue?
 
Mr Khubisa (NFP) said the AG‘s recommendations were very important. The AG had referred to inadequate financial statements and a lack of adequate review of by management of financial statements, and a lack of capacity in the internal audit unit. How far had the Department addressed these issues?

Mr E Mthethwa (ANC) said the proposal that the Department to meet with the AG was important. Regarding MISA, a huge sum of money was overspent as well as non-compliance on a number of issues.

Mr Gordhan said regarding Mr Mapulane’s question, that they would look at the point regarding targets.
The dialogue between the AG and the Department was not happening the right way. The DGs would have to ensure that the SCM laws were being applied.

There had been management issues regarding the implementation agents. The Department’s audit committee had provided feedback that there were poor management attitudes but the DG had dealt with it.

Regarding the equitable share, all issues had been addressed in a forum which included Eskom and arrangements to pay were made but some of the municipalities had chronic problems so answers to the structural problems had to be found rather than stop gap measures.

He said Mr Matlhoko might have misinterpreted his use of the word transition, the Minister said he was trying to say that the Department was in transition because the Department was undergoing changes.

In financial terms nothing problematic was found during the audits but they would strive to get a clean audit.

Regarding immediate strategies the Department could undertake, the back to basics programme was the immediate intervention. The way section 139 was structured left the initiative to provinces to get things implemented and this was a problem because national was held accountable so this was an issue that needed to be looked at.

The same applied to MISA where there had been problems and where tough decisions had been taken.

Under spending in MIG was a municipal challenge. The question should now be put to municipalities as to why were they not doing what they were supposed to do. Municipalities were not always incapacitated or in need of guidance. The focus should be to bulk up capacity at district level.

Regarding people resigning at MISA, Mr Phillips said it was mostly trainees who got jobs at municipalities.

Mr Gordhan said the approach would be to get full time engineers and planners to work on projects rather than hiring them on a job to job basis.

Regarding internal audit capacity, the Department was now in sourcing additional internal audit capacity.

Regarding the financial statements, he himself would look at where the problems were to make sure the Department had the capacity to do the statements correctly.

Had the Department received the AG’s report to the Committee, the Department could have included its responses in this presentation.

Mr Madonsela said the AG was not happy with the Department saying it would ‘support’ municipalities and this was a matter of discussion and debate and there were instances where the Department felt it had to insist that the AG take the departments point of view.

Mr Gordhan said that in his experience the lower level staff of the AG sometimes did not understand the department’s business and therefore could not help to define a target and consequently whether a target was acceptable or not became a matter of opinion.

Mr Madonsela said the CWP, by its design was intended to support NPOs. All the implementing agents were NPOs. The agents served 180 sites across the country for which they had to procure goods and services while the Department remained accountable for the monies spent. These NPOs did not follow the procurement procedures; it was not officials in the Department that were not following procedures.

Regarding what the Department was doing to support municipalities spend on MIG, the Department had focused on those that were under spending and had achieved its target in that respect. The Department was also putting people on the ground to see that what was reported to have been spent on infrastructure actually existed.

Mr Nel said the CWP was an important programme. The target was to create one million work opportunities by 2019 with the recognition that a fiscal ceiling would be hit soon and that the fiscal administration needed to be strengthened. The DPSA had approved the organisational structure. The Department was engaging intensively with Treasury on the budget. The Department had consulted with the implementing agents to hear from them what the obstacles were that they experienced. The number of implementing agents had been reduced from 50 the previous year to nine. Previously the implementing agents were responsible for paying the participants but now the departments was responsible. On the question of goods and services, weaknesses had been recognised and the Department was training the agents in doing things the PFMA way.

An official of the Department said there had been 59 municipalities whose equitable share had been withheld. 58 had received their full tranche and entered into agreements with Eskom, but 27 of these were defaulting on these agreements because some of the agreements had not been realistic. 

Mr Gordhan said the hands on approach was beginning to pay dividends. The Department’s interaction with traditional leaders was extensive and they were involved in development work. The Department should work harder at the coming initiation season and to stop illegal activities in this field. Other areas, from a systems perspective, were spatial planning and integrated delivery planning between municipalities and provinces. Making sure that free basic services were provided across the country as well as economic development at a local level were areas that would be addressed.

SALGA
Chairperson Councillor Thabo Manyoni said SALGA had set a priority to influence the legislative review process of local government to contribute to a more functional local government and also the deployment of part time councillors to the NCOP. SALGA invested substantially in the discourse around corruption at local government level and developed a consequence and an accountability framework. SALGA was also looking at getting feedback from police after cases were referred to the police. SALGA had established a centre for leadership to transform local government and had launched a municipal support programme. A highlight was that SALGA had successfully lobbied for a transitional grant at the 2014 budget forum to assist municipalities affected by the demarcation process.

He said there were two matters of concern, the Eskom issue and the funding of SALGA.

Mr Xolile George said the SALGA report covered the work done in 2014/15. A Stats SA report pointed towards an upward trajectory and stability in labour relations in municipalities was important for SALGA and augured well for the transition in local government following the elections in the coming year. SALGA had made an investment in capacity building in the leadership strength of mayors and municipal managers as well as an uptake in consequence and accountability by municipalities to almost 50% of municipalities, according to the AG’s report. SALGA was supporting, together with COGTA nationally and provincially, those municipalities that remained vulnerable.

Eskom remained a challenge. The issue of concluding operating arrangements between the municipalities and Eskom remained unresolved and there was a need for a regulated mechanism to normalise the working relations and a service level agreement between Eskom and SALGA. SALGA sought the assistance and support of the Committee in this regard.

SALGA was readying itself to manage the transition for the next cycle of local government as well as on proposed demarcation issues. In December SALGA would be hosting a pan African gathering of cities across Africa and would profile local government.

Councillors should have a dispensation that reflected an equitable model across all three spheres of government because it remained inadequate in certain areas.
           
Discussion
Mr Mthethwa asked SALGA about their work in Africa. 

Ms Maluleke said she appreciated SALGA’s work.

Mr Mapulane said he would appreciate if another meeting could be arranged with SALGA because very little time was allocated for thorough engagement.

Mr Mileham had two questions, one on the massive increase of R900 000 in one year in the CEO’s salary and the other on the reduction in the total remuneration.  Why and how did they arrive at the salary of the CEO and why had the total salary bill been reduced in the past year?

Mr Manyoni said SALGA had a remuneration committee consisting of independent members who made recommendations.

He said SALGA since its inception had been dealing with unifying all local governments on the continent.

Ms Flora Maboa-Boltman said the question on the salary had already been asked and the Minister had given replies in Parliament. Salaries were not static and were influenced by bonuses. She would not respond as to why the total remuneration had decreased.

Mr Mileham said the CEO had received a R900 000 increase in one year which was more than the highest paid municipal manager in the country, earning R1m more than the manager of the city of Johannesburg.

Mr Manyoni said if the Member was saying it was illegal to give this increase to the CEO then the illegality of the action must be dealt with. Otherwise there needed then to be a framework of limitations. The remuneration committee could be brought to explain its decision.

Mr Mileham said he was not saying it was illegal but if it was benchmarked against local government salaries then it was exorbitant. If it was benchmarked against the President’s salary then it was exorbitant. How did the remuneration committee come up with such a high salary? The city manager of Cape Town and Johannesburg earned R2.1 and R2.6m respectively per year while the SALGA CEO earned R4.4m per year. How was this justified especially when the taxpayers and ratepayers of South Africa was paying for it?  He could not agree to a SALGA budget that included such salaries. The CEO’s salary was R4.4m and the next closest person in the organisation earned R1.9m i.e. double what the nearest senior manager was earning, which was unheard of anywhere in the world. This was for a non-revenue generating, support entity.

Mr Manyoni said that the remuneration committee’s report needed to be presented so that the matter could be looked into.

The Chairperson said a date would be found to meet with SALGA.

The meeting was adjourned.