Municipal Demarcation Board, SALGA, Municipal Infrastructure Support Agent, National Disaster Management Centre on their 2015/16 Annual Reports

Meeting report

The Chairperson said the presentations need not cover the details, rather it should cover the real issues that concern the entity. He congratulated Councillor Parks Tau on being elected as ‘mayor of the world’.

Municipal Demarcation Board (MDB) on its 2015/16 Annual Report
Ms Jane Thupana, MDB chairperson,  indicated that it key mandate involves determination of municipal outer boundaries, delimitation of municipal ward boundaries, assessment of municipal capacity, and rendering advisory services to stakeholders. She highlighted that MDB obtained its first clean audit in its history.

Mr Naresh Patel, MDB Chief Financial Officer, presented the audit report and the financial performance of MDB. Whilst MDB had a clean audit, there were some challenges concerning the usefulness and reliability of performance information. However these challenges have been addressed in the new 2016/17 Annual Performance Plan (APP) which has been reviewed by Auditor General South Africa (AGSA), the Department of Cooperative Governance and Traditional Affairs (CoGTA) and the internal audit.

MDB had irregular expenditure of R66 000 but this is being addressed and it was a substantial improvement from 2014/15 when it was R3 million. There was no fruitless or wasteful expenditure. MDB administrative costs increased from R17 million to R30 million and this was mainly due to the Section 22(2) Municipal Outer Boundary Redetermination project requested by the Minister.

Ms Thupana stated that MDB has been lamenting how to deal with strategic misalignment between resources and its mandate as well as legislative constraints. In this financial year, she reported that MDB made substantial progress and had taken steps to mitigate the challenges. She pointed to some examples of steps taken. She spoke about the conference in June which was a convergence of ideas on what areas of the legislation had to be amended and how. She pointed to major feedback from communities about the frequency of demarcations. ‘These have been so disruptive to local government systems because they do not take into account long term plans of municipalities’, she said. She proposed that demarcations be made after every ten years and not five years. In general she emphasised that the legislation needed a revamp.

Adv T Mekuto, Acting CEO of MDB, presented the performance outcomes of MDB for the financial year. She highlighted the strategic objectives which the MDB could not achieve and explained that this was mainly due to the Section 22(2) project which was requested by the Minister. The other reason for failure was the capacity constraints within the Human Resource department and the organisational restructuring process that is still ongoing. She spoke to some of the municipal boundary litigation that MDB was involved in during 2015/16 (see document). She explained the strategies to implemented to achieve good governance: 

She highlighted the key challenges that MDB faced:
- Legislative constraints and gaps
- Under funding which is incompatible with organisational strategy and mandate
- Perceived negative public perception due to lack of understanding of the MDB mandate
- Lack of regional footprint which creates disconnection with the public.
- Reliance on stakeholders, specifically municipalities, to provide venues and to extend public participation.

She concluded by proposing regionalisation for MDB as well as making the following legislative amendments to address the challenges;
- Enhancement of public participation and consultation processes
- Municipal and ward boundary demarcations should place in cycles of 10 years
- Enhancement and clarification of the demarcation objectives and criteria
- Review of the ward delimitation criteria, especially the variation
- Regulating timeframes for all stakeholders in the ward delimitation process.

Mr Patel presented MDB’s budget for the next three years. He lamented that historically the MDB has remained underfunded. For 2016/17, the MDB’s total revenue is R51.131 million. R50.631 million of this is from government while R500 000 is from other non tax revenue. The MDB has budgeted R30.459 million to be spent on compensation of employees, R15.147 million for goods and services, R1.394 million for Capex and R4.131 million on office accommodation. He indicated that the MDB needed an additional R32.818 million for the rollout of the regionalisation footprint. He stressed that some of the challenges already identified will be addressed by the regionalisation programme.

Ms Thupana concluded by appealing to the Committee for increased support as well as for increased levels of funding.

Discussion
Mr E Mthethwa (ANC) asked what constituted most of the MDB’s administrative costs. He wondered whether indeed it was an issue of underfunding or poor budgeting that the MDB faced.

Mr K Mileham (DA) stated that he does not think that AGSA would have given MDB a clean audit if it had taken into account the performance measures of the MDB. From page 66 of the Annual Report, he pointed to the fact that what the MDB reported on was not what it had said it would report on. He reiterated AGSA’s finding that 67% of MDB’s targets were not specific and measurable and 67% of the indicators were not verified. All of those matters are within the MDB’s control. This is something that needs to be addressed.

He went on to inquire how many municipal capacity assessments were completed during the year under review. MDB concluded a number on demarcation decisions where it decided on a number of new boundaries. He asked how these decisions could be made without the municipality assessments. He said that many of the amalgamated municipalities should not have been amalgamated because they are not financially viable and that as a result, those municipalities are struggling.

On the money spent on Programme 2, MDB had budgeted about R1.3 million and it spent R411 000 on personnel costs and yet that programme has zero personnel associated with it for the year under review. He asked how R411 000 was spent on a project with no personnel.

He asked about the ward delimitation criteria particularly on the proposal to amend the variation from 10% to 30% above or below the norm. In a municipality, the norm is about 10 000 voters, 30% more would be 13 000 voters and 300% less would be 7 000 voters. Therefore in one ward 7000 voters elect a councillor and in the ward right next door you need 13 000 voters. In fact you only need a majority which is 3 500 and 6 500 voters respectively. He asked how such a proposal is democratic.

Mr N Masondo (ANC) congratulated the MDB on its achievements. He however cautioned them about irregular expenditure. MDB should point out how the challenges identified are being addressed in the medium and long term. He requested a high level summary of the litigation be provided to the Committee.

Ms Thupana replied that MDB is working very hard to address the performance matters in the audit. MDB did not have an HR component in the organisation. They have a large staff turnover. A large number of the challenges point back to lack of resources. Some of the critical positions are on contract and when people are on contract they want to leave immediately when they get a better offer.

On municipality capacity assessments, she indicated that the MDB would never make any determinations without being informed by extensive information that includes the capacity of the municipalities concerned. When MDB received the Section 22(2) proposals from the Minister we only had assessments that targeted the affected municipalities. MDB acted on only 13 of the 34 proposals where there was convincing evidence that the municipalities would be sustainable.

She pointed to the fact that the law provides that the wards are delimited for the purposes of voting purely and that is why the criteria leans towards voting and are not looking at other elements which the communities are raising. She added that MDB tries to maintain wards in order to maintain local government stability. People are unhappy about ward changes. She urged the lawmakers and the public to engage in order to find solutions.

Mr Patel responded that the administrative costs are largely unavoidable. MDB tries to save on costs but by and large they are the usual inevitable costs. There are drives to contain costs such as telephone and electricity. In terms of underfunding, he warned that if MDB does not receive more funding from government, the same challenges will inevitably persist. He noted the two instances of irregular expenditure and said procurement policies have been rectified and workshopped. The procurement procedures had been interrogated and aligned to necessary prescripts to resolve the challenge of irregular expenditure. There was a delay in the delivery of a server for IT. He said that as an independent institution, the MDB has to be very careful from which body it takes funding and so finding alternative sources of funding remains a challenge.

Ms Thupana explained that Section 25 contains a dozen criteria of which financial viability is but one of the twelve and it is not given any priority in the Act.  Some municipalities have a long way to go to be financially viable as they have no cost recovery. Those municipalities need to address the payments issue for services delivered. The idea is to see how one municipality can potentially cross subsidise the other as there are huge pockets of poverty we are dealing with in our municipalities.

Mr Mileham noted there had been no response to his question on Programme 2 expenditure where R411 000 spent on a project with zero personnel.  He stated that when looking at amalgamating municipalities, financial viability has to be the most important criteria whether or not it is prioritised in the Act. He wondered whom it benefits to take a financially viable municipality and amalgamate it with a financially unviable municipality and drag both of them down. He said that there is not enough thought being given to the long term effect of these amalgamation decisions.
Ms Thupana said she had mentioned the legislative constraints and that there are gaps. Parliament should not throw back to MDB problems that should be resolved by Parliament. She repeated that the legislation is problematic. She explained that the law does not say that financial viability is the overarching criteria. If they considered financial viability as the overarching factor, someone could successfully take them to court and win. She promised that when the lawmakers change the law, MDB will implement it. They looking forward to legislation certainty and that is why they are proposing a legislative review. The gaps are breeding instability and people are unhappy about consultation. For example, section 26 it says “notify” not “consult”. There are quite a number of contradictions and grey areas in the Act.

Mr Patel promised to get back to the Committee on the issue of the R411 000 of which R350 000 was allocated to personnel on Programme 2 which appears on page 56, which in fact had zero personnel. He would rather research this and get back to the committee secretariat with a more structured response in writing.
In reply to a question, Ms Thupana explained the forensic investigation on the tender awarded in 2014 found a number of irregularities. When MDB asked the party to withdraw, they resorted to threats of litigation so a forensic investigation had to be conducted. They only withdrew thereafter. A copy of the forensic report exists and they matters it raised have been addressed.

South African Local Government Association (SALGA) on its 2015/16 Annual Report
Mr Subesh Pillay, a Member of the National Executive Committee of SALGA, conveyed apologies from the SALGA chairperson, deputy chairperson and CEO who were unable to attend. He indicated that SALGA was still in a transitional period having concluded the local government elections on 3 August. There has been an incremental increase in terms of performance and 2015/16 was the second consecutive year that SALGA received a clean audit. He reported that the financial position of the organisation has improved for the better.

Mr Lance Joel the Executive Manager: Parliamentary Affairs, indicated that SALGA plans for a five year period based on the election cycle and that the year under review was the fourth. The annual performance plan for 2015/16 was focused on streamlining the plan towards greater performance and so the strategic goals were reduced. He reported performance improvement of 100%. He said that SALGA had to play a role in the transition of municipalities as well as in mergers of municipalities.

There has been an increase in access to electricity, piped water, and sanitation amongst households but that the demand was going to increase as up to 800 000 new households were projected for the next three years. SALGA has done a study with the Financial and Fiscal Commission (FFC) on the cost of municipal services. He urged members to read the report to understand the cost of providing municipal services. SALGA played a central role in engaging with Eskom on the debt owed by municipalities to Eskom but no consensus has been reached. He stated that there has been the establishment of internal audits in all municipalities through the support given by SALGA. SALGA has the deliberate intention of dealing with corruption and has been very active in this fight.

He indicated that SALGA has made significant progress on the training and welfare of councillors. It launched the SALGA Centre for Leadership and Governance to ensure learning, reflection and sharing among administration and politicians to improve capacity. SALGA has developed over 23 000 councillors over the past five years and in the last financial year it trained about 3 500 councillors and 300 officials SALGA ran an extensive integrated councillor induction after the 2016 local government elections in which 8 000 councillors have been trained on what the expectations are for councillors. This training involved 700 traditional leaders. With regard to challenges, the debt owed to municipalities remains a challenge.

Mr Nceba Mqoqi, SALGA Chief Financial Officer, presented the accounts of SALGA. In general the financial performance of the entity was adequate. He pointed out that the asset coverage ratio has increased. He noted that the overall total liabilities increased more than the total assets but overall revenues increased.

Discussion
Mr Mileham indicated that some of SALGA’s outcomes are soft and vague. SALGA needs to get specific with its outcomes and key performance indicators. He said that training of councillors is not an outcome; the outcome is whether they can do their jobs in the municipality. He inquired about SALGA’s remuneration policy. He noted that Mr Xolile George, the SALGA CEO, attends no less than 12 board meetings annually for PRASA. He inquired if this does not affect his efficiency. SALGA should link its salaries to the levels agreed in the collective bargaining agreement. He inquired about the staff levels of SALGA, noting that SALGA has 488 employees. He asked what all these people do.

He asked if it was proper for SALGA to trumpet about a specific municipality right before an election. He stressed that Councillor Tau is not the mayor of the world, that he is not even a mayor anymore. He was elected as the president of the United Cities and Local Governments Association. He warned about congratulating him on being elected as mayor of the world. He wondered why the Committee was even talking about this.

He wrapped up by recommending that councillors should not receive a stipend from SALGA since they receive a salary from the council. He suggested that other council representatives represent the municipality at SALGA rather than the mayors or speakers because their absence affects service delivery in those municipalities.

Mr Masondo inquired as to who the temporary employees were.  He inquired as to the top managers of projects and how suited those projects were to meet SALGA’s goals. He spoke of media reports that the Democratic Alliance was intending to establish a separate body.

Mr A Madau (ANC) asked if SALGA assists councillors after their term of office. He asked what SALGA can do to help with the many legal cases against municipalities which were leading to financial loss.

Mr C Matsepe (DA) directed his question to the debt owed by municipalities, part of which was owed by councillors. He asked what SALGA was doing about this.

Mr Subesh Pillay replied that the law makes it unlawful for councillors to be in debt for more than three months. SALGA’s system has been that as councillors assume office, they have to make arrangements to settle whatever debts they owe to the municipality. He stated that SALGA has not received any formal indication that DA intends to establish its own organisation outside of SALGA.  He reported though that there is a process to engage DA-run municipalities. There was a deliberate effort in making sure the adverts by SALGA do not advantage or disadvantage any municipality. He stated it was to strengthen democracy and reaffirm public confidence in the local government system by profiling best practices. On the remuneration of the CEO, he said that it is never a consideration where else one serves, in determining remuneration. There is a remuneration policy in place and the CEO is remunerated according to that policy.

Mr Lance Joel replied that SALGA was giving training to councillors that could be used after their term in office. The programme was accredited and the councillors could use the credits towards a tertiary qualification and other future opportunities. He explained that the programme was an integrated capacity induction programme which starts with an entry level induction followed by portfolio based training. He explained that the temporary employees were interns. SALGA has 10 offices in all the provinces. The 488 employees are spread out across the ten offices.

Mr Mileham clarified that the DA is not establishing an alternative organisation and that the media reports are merely speculative.

Municipal Infrastructure Support Agent (MISA) on its 2015/16 Annual Report
Mr Themba Dladla, Acting Chief Executive Officer of MISA, indicated that the Annual Report is still in draft form because there is no final audit report from AGSA. However MISA has received communication from AGSA that the audit will be finalised before the end of October 2016.  He reported that MISA is still in a transformation process and that there is an ongoing review of the organisational structure that was signed off by the Minister. As part of the refocusing strategy, MISA has been looking into how best to perform. Its main focus has been on infrastructure planning as well as implementation. This has led to the introduction of the Project/Programme Management Office (PMO). MISA has adopted an approach to conditionalise support given to municipalities by providing for a fixed period and a clear focus on support areas that need to be looked at.

The Head of Capacity Development presented MISA’s performance on its predetermined objectives. MISA’s mandate is rendering technical service, and rendering advice and support to municipalities. This is done by supporting municipalities to plan, deliver, operate and maintain municipal infrastructure. For 2015/16, MISA had four strategic goals. His presentation however focused on two of those which were in line with technical support and capacity building to municipalities. MISA had 11 key performance indicators on the two strategic goals. Nine out of 11 key performance indicators were achieved. The two that were not achieved come from the capacity development programme. The first was on supporting 60 graduates towards professional registration which was not achieved. He explained that a management decision was taken not to recruit because there was a backlog on sending apprentices to on-the-job training and so the money was diverted to address this backlog. The second was giving 170 experiential learners work place exposure in municipalities. This was not achieved. MISA only managed to support 42 learners who were already in the system. His explanation was that a management decision was taken in this case not to recruit learners. In conclusion, he indicated that MISA’s performance for the year stood at 78% which was a decline of 1% from the previous year.

Ms Fezeka Stishi, Chief Financial Officer of MISA, presented MISA’s accounts. MISA had R206 million as income. The expenditure incurred was R291.7 million. There was a decline in contractual services because of the contracts that terminated during the period under review and because some of the consultants resigned. The current liabilities increased to R49.2 million due to a drought relief programme that was undertaken towards the end of the financial year.

The Chairperson said there was no need to present an itemised breakdown of the accounts. He urged that the presentation should focus on the general status of the account and what the problems are. He would prefer to give more time for members to pose questions.

The Chief Financial Officer wrapped up her presentation by stating that the biggest challenge faced is capacity constraints. Even though AGSA has not concluded the audit report, MISA’s financials indicate that MISA is headed in the right direction.

Discussion
Mr E Mthethwa (ANC) recommended the Committee should wait for the final report from AGSA. They should not engage the report being presented. He was afraid to engage on an incomplete report.

Mr Mileham disagreed, saying they have to work with the information in order to finalise their recommendations. He directed his question to the irregular expenditure. He stated that 46% of MISA’s expenditure was irregular. ‘Irregular expenditure is bad even if it is condoned’, he said. Some of these things are avoidable if MISA puts in place the proper checks and balances.

The Chairperson stated that according to MISA’s interim report, there were major problems about fruitless and wasteful and irregular expenditure. What is MISA’s strategy going forward?  Despite the unqualified audit opinion, he stated that the Committee should wait for the final report from the AGSA before discussing the financial intricacies in too much detail.

Mr Mthethwa noted that although the report presented by MISA was not yet official, it served to acclimatize the Committee to the key areas of concern, particularly considering the Committee’s forthcoming Budget Review and Recommendations Report (BRRR). He highlighted that according to the interim report, there is little improvement year-on-year with regards to fruitless and wasteful expenditure, however the Committee should await the AGSA’s final report to confirm this.

Mr Mileham (DA) stated that he respectfully disagreed, arguing that the Committee would have to engage with the interim report, as the information contained would be vital in finalising the release of the Committee’s BRRR later this week. According to the interim report, R136 million of MISA’s R291 million total expenditure was irregular, amounting to 46%. He referred to the incident of the agency not advertising a R113 million tender for 21 days, calling for greater organisational capacity and transparency within MISA. Further, he noted that R26 million of travel expenditure was signed off by an individual not authorized to do so. In this instance, he argued, the nature of expenditure was unauthorized, rather than irregular. If MISA had sufficient checks and balances to regulate spending, this level of irregular expenditure could have been avoided. Considering the lack of year-on-year improvement, what is MISA doing to correct this?

Mr Masondo (ANC) questioned MISA on how tenders were being awarded without being properly advertised, as well as how written quotation requirements in awarding tenders were not met. These were signs that MISA was heading in the wrong direction with irregular expenditure, and that there was much to reflect on.

Mr Mudau (ANC) asked how MISA’s debt would be dealt with at a later stage, considering the irregular channeling of funds within the agency. He said that the audit report would reveal whether sufficient checks and balances were in place. Further, he noted that a comparison with the previous financial year reveals the situation is deteriorating.

Ms Stishi replied that the classification for irregular expenditure had been adjusted by the AGSA in 2015, after consultation with National Treasury. Around R78 million classified as non-compliant in the previous financial year was now treated as irregular expenditure as a result of these updated guidelines. The escalating level of irregular expenditure could partially be explained by the capacity constraints in supply chain management. On MISA’s strategy to address its deteriorating financial position, she noted that MISA had revised both its standard operating procedures to enhance internal controls and its internal policy to cater for new regulations stipulated by Treasury. Although tenders were not advertised for 21 days, they were still advertised for a shorter period of time. She concluded that although there was improvement in enhancing internal controls, the fundamental challenge of capacity constraints is still central.

The Chairperson questioned why tenders were advertised for a shorter period of time, considering the amount of money (R113 million) to be awarded. Furthermore, it was noted that information technology services were not procured through the State Information Technology Agency (SITA).

Mr Dladla replied that the data in the interim presentation may be misleading, as many of the figures were a result of actions in previous financial years, not necessarily the financial year in question. To this extent, he stressed that the picture is not as grim as it would appear to the Committee, as MISA too awaits the final report from AGSA.

Mr Ntandazo Vimba, Head of Technical Support for MISA, pointed out that the financial figures reflect the majority of contracts procured in 2013.

Mr Masondo interjected “It is now 2016, we have to move forward”.

Mr Vimba replied MISA had been proclaimed in 2012, and has since made considerable improvements in internal controls, despite having no approved organisational structure since its inception. A revised structure awaits approval from the Public Servants Association (PSA) and the National Treasury. As a result, the supply chain had previously been manned by individuals not qualified for such a position.

Mr Masondo interjected once more, stating “This is a serious problem. The question that arises is do we really need this MISA thing?”

The Chair addressed Mr Masondo’s question himself by stating that it is not appropriate question to be answered by MISA employees, and that the matter should rather be considered by Minister Van Rooyen. He added that if local authorities have built sufficient capacity, there truly is no need for MISA. The fact that there has been no approved organisational structure since 2012 reflects a lack of clarity in MISA’s political administration.

Mr Dladla said that the revised organisational structure has indeed improved internal controls, and is aligned with the demands of local authorities. He stated that all key stakeholders appreciate the challenge.

The Chairperson called for the delegates to have a discussion amongst themselves on a political level to assess the long-term goals of MISA. When assessing the capacities of local authorities, he added, do they need an entity to assist them? He stated that AGSA would decide if MISA is capable of acting according to recognised accounting practices. Despite the considerable issues raised by the delegation, the lack of clarity and direction within the agency remains an area of concern for the Committee.

Mr Vimba addressed the question of MISA’s strategy going forward, stating that recent structural improvements include enhanced technical capacity through the procurement of engineers in the bid specification and evaluation committees. Moreover, enhanced training of personnel in these committees in the standards for infrastructure procurement and regulations of National Treasury provides further room for optimism.

The Chairperson noted that further discussion will be enabled when MISA returns for the presentation of the final audit report by AGSA.

Mr Dladla expressed appreciation for the chance to engage with the Committee, particularly in highlighting critical weaknesses within MISA. He reassured the Committee that the new organisational structure would soon be approved, and that the agency was committed to making improvements where needed.

Natural Disaster Management Centre (NDMC) on its 2015/16 Annual Report
Mr Ken Terry, Head of NDMC, reminded the Committee that this annual report does not include a financial report, as this was presented to the Committee in the previous week. He stated that one of the NDMC’s highlights of the last financial year was the conclusion of the Disaster Management Amendment Act 2015, assented to by the Presidency during December 2015. The major issue during the period was the drought, the first major natural disaster since the new legislation was introduced. As a result, the processes of the NDMC in addressing the disaster were necessarily recalibrated.

Mr Jurgens Dyssel, Senior Manager: Legislation, Policy and Compliance Management at NDMC, said that coordination with the Ministry has produced substantative progress in recent years, with amendments to the Disaster Management Act, the creation of an integrated urban development framework, and facilitating a coordinated response to disasters such as the drought and other smaller incidents. The NDMC undertook monitoring of various prevention and mitigation initiatives during the period, including the introduction of the International Day for Disaster Reduction (IDDR) commemoration in 2015, where they visited disaster management stakeholders across the country. On this occasion the NDMC was able to engage with communities on how traditional knowledge systems can, with science, help inform disaster management systems.

NDMC’s challenges in implementing disaster management include the poor functionality of Disaster Management Advisory forums, the failure of stakeholders – including local governments - to report on and implement disaster risk reduction measures, non-responsiveness of the state to prescripts to respond to disaster occurrences, and the lack of funding for awareness programmes. Details on the state of disasters show that the Western Cape and Eastern Cape are the only regions where a provincial state of disaster has not been declared, while the Northern Cape was most recently declared in January 2016.

Discussion:
Mr M Mileham (DA) said that he is concerned with the lack of reporting from local and provincial government entities. This is a statutory requirement, and the Committee should engage with the Auditor-General to include this in their yearly compliance checking procedure. None of the metros in South Africa have submitted a disaster management plan for 2015/16. In terms of the disasters declared and classified, he noted that all related to drought, and expressed concern that several provinces were declared so late. He asked about the disproportionate travel expenditure occurred during this period, considering the small scale of the NDMC organisation.

Mr Terry replied that since the time of reporting, the President has approved the Interim Committee on Disaster Management (ICDM), making the reporting of natural disasters a statutory requirement. NDMC does not feel it is necessary to submit new disaster management plans yearly, but rather to review and update existing plans. He noted that committee meetings regarding the drought are ongoing, and that the South African Weather Service recently reported positive predictions for higher-than-normal rainfall beginning in November. Despite the low levels of the Vaal dam, flash-flooding has caused water levels to rise in some areas. Water restrictions have been relatively successful in reducing water wastage. Water levels at many of the larger dams were dropping by around 1 percent per week before restrictions were introduced. Since then, the figure has been reduced to 0.2 percent per week. On travel expenditure, Mr Terry replied that the NDMC does not attend conferences, although some members occupy leadership positions within international organisations requiring their presence. He reassured the Committee that NDMC does not attend any conference unless it is totally necessary.

The Chairperson thanked the NDMC for their briefing, as well as the positive rain predictions.

The meeting is adjourned.