Division of Revenue Bill: Submissions From Auditor General & Buffalo City Municipality

Meeting report

FINANCE SELECT COMMITTEE
11 March 2003
DIVISION OF REVENUE BILL: SUBMISSIONS FROM AUDITOR GENERAL & BUFFALO CITY MUNICIPALITY

Chairperson: Ms D Mahlangu (ANC)

Documents received:
Buffalo City Powerpoint presentation
Division of Revenue Bill [B9 - 2002] includes Explanatory Memo and all Schedules
Municipal Finance Management Bill - as of 10 January 2003

SUMMARY
The Auditor General and the municipality of Buffalo City appeared before the committee. Discussions with the Auditor General centered on the problem of collecting audit fees from municipalities and the definition of "a serious or persistent material breach" in the legislation.

Since the inclusion of municipalities in the Division of Revenue, Buffalo City is the first municipality to present its business plan for 2003/4. One of its complaints was that there are provincial and national departments in arrears with payments owed to Buffalo City.

MINUTES
Auditor General's comments on the Division of Revenue Bill
The Auditor General, Mr S Fakie, spoke to the committee on the extent of his office's involvement in the shaping of the Bill and on whether their inputs have been adequately taken care of. He remarked that the discussions and negotiations with the Treasury have been going on for almost a year and that the Treasury has done a lot to accommodate their concerns. He was happy with the provisions set out in Section 20 (Duties of the Auditor General) of the Bill.

Mr Fakie noted that there still remain some concerns for him. One area of concern is the problems they have in collecting audit fees from government agencies. He was also worried that the Bill is not strong enough on proper governance. He was however satisfied with the disclosure and accountability arrangement. He added that this Bill significantly improves the disclosure of financial statements.

On the recovery of audit fees from local government he said that the original intention was to recover persistent nonpayment. The Auditor General's office had wanted to use Section 22 (Withholding of payments) to recover payments straight from National Treasury before they allocate the money to that local government. This had been turned down as being unconstitutional. They have conceded the issue and are now looking for other mechanisms to strengthen the Auditor General's hand.

After lengthy discussions and inputs it was decided that the nonpayment of fees constitutes financial misconduct. They have requested the insertion of a clause in the Municipal Finance Management Bill to include this provision and there has been a lot of debate around this. He expressed his concern on the practicality of that Bill in its current format.

Mr Fakie stressed that they were concerned about the lack of a clear definition of "serious or persistent material breach" in Section 22 of the Division of Revenue Bill. He was worried that it put the responsibility on the Auditor General to determine what constitutes a "serious or persistent material breach". He added that the Auditor General's first priority would be the recovering of audit fees and therefore he was not sure whether his office could be objective in determining what constitutes a "serious or persistent material breach".

The Auditor General said that nowhere in Section 5(6) of the Bill does it say that the nonpayment of audit fees is a statutory commitment and that it constitutes a "serious or persistent material breach". He would like that to be added to this clause.

Discussion
Mr Ralane (ANC, Free State) enquired after the number of municipalities that owe audit fees and how much they owe. He also asked what recourse the Auditor General's office has to recover the money.

Mr Taabe (ANC, Mpumalanga) asked whether the Auditor General has a proposal for clearly defining what constitutes a "serious or persistent material breach".

Dr. Conroy (NNP, Gauteng) queried whether the nonpayment of fees would constitute a "serious or persistent material breach".

A representative from SALGA (South African Local Government Association) stated that Chapter 13 of the Municipal Finance Management Bill contains the criteria of what is a "serious or persistent material breach".

Mr Fakie replied that he did not have the exact numbers with him but stressed that certain provinces are big problems for him: the Free State and the Eastern Cape were the worst. In the Free State between 42% and 45% of municipalities owe money. They have issued legal letters to them although it is not something the Auditor General's office wants to do. Mr Fakie said it goes against the spirit of corporate governance. They have a constitutional mandate to audit even when not paid. They cannot just stop the service like a normal creditor. He reckoned that they are owed ± R100 million which creates serious cash flow problems for the Auditor General's office as well as taking up much time and effort to chase down the fees. He added that they did not want to become debt collectors.

Mr Fakie remarked that they have offered a proposal for the definition of a "serious or persistent material breach". He was not exactly sure what is in the latest draft of the Municipal Finance Management Bill. He emphasized that he would also like to see legislation stand on its own and not have to be read in accordance with another piece of legislation.

He reiterated that his office is not scared of taking the responsibility, as long as a "serious or persistent material breach" is clearly defined.

Mr Botha (DP, Free State) commented that a statutory service should have statutory payments.

Mr Durr (ACDP, Western Cape) asked the Auditor General to provide the provincial breakdowns and specific amounts that are owed.

Ms Makgato (ANC) asked about municipalities that cannot afford to pay. She emphasized that there might be a willingness to pay but an inability to do so and that in such cases the Treasury must help out.

Mr Kahla (Legal advisor, Treasury) commented that during deliberations on the Municipal Finance Management Bill it had been decided not to define a "serious or persistent material breach", but to deal with it in actual practice. He added that it is important for the committee to note that it is a "serious or persistent material breach".

Mr Fakie took note of the request to provide a provincial breakdown and would supply it to the committee. This consisted of small and big amounts, none of which he could specify at this stage. He agreed with Ms Makgato that there has to be a willingness to pay. He remarked that the Treasury had made a once-off payment to help out the Auditor General's office. He emphasized that this would not happen again as Treasury cannot be held responsible for nonpayment by local authorities. They also did not want to create the impression that if you do not pay, Treasury will pay for you.

Ms Sithole (ANC) stressed the importance of the Auditor General's independence.

Ms Mahlangu asked the Auditor General for a list of concerns in writing for the members to go back to their provinces and investigate the matter further.

Buffalo City presentation
Mr Maclean (Mayor), Mr Tsika (City Manager), Mr Shepherd (Chief Financial Officer) and Mr Badenhorst (Portfolio Head, Finance) represented the municipality of Buffalo City. See document for their presentation. Mr B

The Chairperson explained that previously municipalities had not been included in the Division of Revenue. Therefore those municipalities had not had enough time to plan ahead as they had not known what their equitable share would be. Buffalo City is the first municipality invited to appear before the Committee with their business plan.

Mr Durr asked how people who have electricity meters in their homes get their free electricity subsidy every month. He wondered whether a culture of dependence is being created through grants and subsidies. He questioned whether people lose a sense of value of the services they enjoy. There is a case to be made for paying a little for these services for the people's self worth. He added that it might lead to better maintenance of public assets.

Ms Shiva Makatoko (SALGA) asked why rural homes are not receiving the subsidy. She also wanted to know what the level of under-allocation to poor households is in Rand terms.

Mr Ralane asked Buffalo City if they owe fees to the Auditor General.

Mr Badenhorst replied that those people using meters could go to any outlet where they sell electricity and receive their subsidy there once a month. A computer system registers them. He added that a dependent society is a real issue and that they have discussed it. Therefore they do not dispense electricity if the account is in arrears. They have recently started a system where when if an account is in arrears, R40 from every R100 paid for electricity goes to paying the arrears.

Mr Tsika added that they do not owe the Auditor General anything. Buffalo City pays all account within 30 days. He added that they were owed about R25 million by provincial and national government. He explained that the provincial departments of Health, Education, Arts and Culture, Sport and Public Works owe them money. The national department of Public Works also owes them. They have written letters to the departments and have asked the MECs for help. He stressed that they did not want to go to court about this.

Ms Botha commented on the 250 000 rural inhabitants. She asked whether they have done a valuation of the areas and whether they have a projected income.

Mr Maclean answered that they are doing a valuation but that it is difficult to estimate amounts at this stage.

Mr Tsika commented on the complex arrangement the municipality has with Eskom and the Amatola Water board. He added that their biggest problems with extending free basic services relates to them. Eskom has its own stringent requirements and does not want to make provision for free basic services. Negotiations are still ongoing and the municipality is trying to take over those services. He added that the situation is the same with the water board. Currently the rural areas are not paying for water and it would be very difficult to make them pay.

Ms Mahlangu thanked the delegation from Buffalo City for their presentation and adjourned the meeting.