Documents handed out:
Committee research document on OR Tambo District Municipality
The meeting was convened in an attempt to resolve a problem experienced by the OR Tambo District Municipality in the Eastern Cape as a result of the stoppage by Treasury of R90 million that had been allocated in terms the Municipal Infrastructure Grant (MIG) for improvements to water and sanitation infrastructure in the municipality.
The Committee’s intention was to understand what had caused the stoppage of funds and to attempt to assist the municipality. Frequent reference was made to the fact that 80% of the OR Tambo Municipality consisted of areas that had formerly fallen under the Transkei administration where water and sanitation infrastructure had been virtually non-existent.
The Executive Mayor of OR Tambo Municipality explained the problem had arisen between the OR Tambo municipality and the provincial and national offices of Cooperative Governance and Traditional Affairs (COGTA) and the provincial and national offices of Treasury. The nub of the problem was the stopping of R90 million from the allocation to OR Tambo Municipality for the Municipal Infrastructure Grant (MIG). This would have far reaching implications for the municipality for both service delivery and payment of creditors.
COGTA said it was not in agreement with the municipality on the percentage of funding spent and after many efforts to resolve the matter, R90 million was taken from the municipality’s allocation and re-distributed, resulting in the municipality having a shortfall of R23 million, with on-site work expected to account for another R67 million in the 2016/7 MIG budget. The presentation indicated the ways in which officials from OR Tambo Municipality had failed to meet the conditions of the grant with non-submission of documentation and lack of spending according to the criteria.
The Chief Director of Local Government Budget Analysis at National Treasury explained that Treasury could not reverse the decision of stopping the R90 million as the financial year had come to an end.
COGTA offered the municipality the opportunity to participate in a turnaround programme in which a team of experts would work with administrative officials for at least two years
National Treasury agreed to attempt to re-allocate funds in the new financial year if there was underspending in the local government system, but it was stressed that it had to be via a legal process.
The Committee Chairperson instructed all parties to find consensus on the exact amount of money legitimately spent by OR Tambo Municipality on MIG in 2016/17.
Mr C de Beer (ANC; Northern Cape), Acting Chairperson, noted that the uniqueness of the National Council of Provinces (NCOP) was that it brought together the three levels of government and that the meeting was an exercise in intergovernmental relations as the presenters represented national, provincial and local government. The research document gave a good picture of the OR Tambo District Municipality. As the aim was to look at the funding allocation, it was crucial that members look at the Division of Revenue Act to see what they were dealing with and how much OR Tambo had received. In 2016/17, OR Tambo received R1.064 billion for Infrastructure and a total of R 1.7 billion with the equitable share being R609.73 million. In 2017/18, total allocations to the municipality were R1.837 billion, infrastructure funding was just over R1 billion and the equitable share was just over R700 million.
The District Municipality had to take the Committee step by step through what had happened with regard to the stopping of R90 million of the Municipal Infrastructure Grant (MIG) by Treasury. What had happened and when? Did the Municipality have the capacity to do the technical work in terms of the required reporting on the MIG? The purpose of the Select Committee was to promote and strengthen sound intergovernmental relations so an honest picture was necessary.
OR Tambo Municipality presentation
OR Tambo Executive Mayor, Ms Nomakhosazana Meth, made a presentation indicating the problem that had arisen between the OR Tambo municipality and the provincial and national offices of Cooperative Governance Traditional Affairs (COGTA) and the provincial and national offices of Treasury. The grant was for Water and Sanitation which was vitally important to the OR Tambo Municipality which encompassed 80% of the former Transkei. It had five local municipalities accounting for 2.7% of the South African population. It was highly rural and had inherited extremely poor water and sanitation infrastructure.
The nub of the problem was the withdrawal of R90 million from the allocation to OR Tambo Municipality for the Municipal Infrastructure Grant (MIG) for 2016/2017. The OR Tambo District municipality was allocated R 609 098 998 for the MIG. The Municipal Project Implementation Plan was submitted late due to capacity constraints and thereafter there was inadequate communication between the municipality and the Department of Cooperative Governance and Traditional Affairs (COGTA) and Treasury. The Municipality and COGTA were not in agreement regarding the percentage of funding spent as COGTA had disallowed certain expenditure. After many efforts to resolve the matter, R90 million was taken from the municipality’s allocation and re-distributed, resulting in the municipality having a shortfall of R23 million, with on-site work expected to account for another R67 million in the 2016/7 MIG budget. The reallocation or withholding of the MIG funds would have far-reaching implications for the municipality for both service delivery and payment of creditors.
Eastern Cape MEC for Finance presentation
MEC for Finance in the Eastern Cape, Mr Sakhumzi Somyo, noted that the dispute could unfortunately not be resolved earlier, which indicated that there was something wrong. His Office only became aware of the matter when they were copied in on correspondence – this indicated a problem, especially as the Provincial Treasury made every effort to ensure that municipalities managed their finances correctly. They had received a list of municipalities which would be forfeiting money and OR Tambo was on the list. Provincial Treasury arranged a meeting to explain the situation and to assist municipalities that needed help to prepare for a meeting at National Treasury but the OR Tambo municipality had not attended the meeting.
A meeting was held at National Treasury at which the Provincial Treasury discussed the removal of the money and the MEC had told his staff to push for the reallocation of the R90 million to OR Tambo. The MEC had told his officials that they should present a provincially united front. He also asked officials not to let the funds leave the province if they could not be returned to OR Tambo. He did not want a crippled municipality to lose out on due to the slip-up of officials. National Treasury offered a Municipal Infrastructure Support Agent (MISA) official to assist them but they did not accept the assistance. At the Pretoria meeting, money was not lost to the province but OR Tambo, which had a serious need for water, had lost R90 million from their grant for water infrastructure. He was still looking for ways to get the money back to OR Tambo and to control the roll-overs. The Premier himself was concerned about the water situation in OR Tambo. He pleaded for OR Tambo to get the money that had been allocated to it.
The Acting Chairperson noted that everyone had to be aware of the implications of their actions on the people and, in this case, it was about water, which was vital.
Department of Cooperative Governance and Traditional Affairs (COGTA) presentation
COGTA had prepared a detailed presentation that showed the principles of MIG and the performance of municipalities. The COGTA presentation was made by the MISA Acting CEO, Mr Ntandazo Vimba. He explained that the allocation of MIG funds was governed by the 2016 MIG Framework. Specific conditions had to be adhered to by municipalities by December 2016: spend at least 40% of the total MIG allocation; spend at least 60% of the previous transfer (made in October 2016), and/or comply with reporting provisions before the transfers were made. If not, “the Transferring Officer may evoke stopping and reallocation procedures”. The presentation continued to indicate the ways in which OR Tambo Municipality had failed to meet conditions of the grant with non-submission of documentation and a lack of spending according to the criteria. COGTA wanted to safeguard the money within the programme and would be willing to assist the municipality rather than punish municipality, or the communities.
COGTA recommended that a multi-sectoral team comprising of the District Municipality, National and Provincial COGTA, National, Provincial Treasury and the Department of Water and Sanitation be convened to support and assist the municipality with an Acceleration Plan for improving the performance of the District with regards to the water and sanitation projects and review the 2017/18 draft Implementation Plan received by COGTA to address the readiness gaps and assist with matters related to project registration, alignment of MIG with the Regional Bulk Infrastructure Grant (RBIG), reporting, and vacancies within the Project Management Unit.
National and Provincial Treasury presentation
National Treasury had prepared a combined presentation with Provincial Treasury. The Provincial Treasury presentation was made by Ms Bulelwa Nqadolo, Deputy Director-General for Municipal Finance Governance in the Eastern Cape Treasury. The Provincial Treasury presentation largely agreed with the scenario described by COGTA. Ms Nqadolo mentioned specific instances where help was offered to OR Tambo officials but they did not avail themselves of the assistance. Provincial Treasury had requested OR Tambo to attend a meeting in East London but they did not attend the meeting. Documentation requested from the municipality did not meet requirements. Provincial Treasury’s recommendations included improvement of reporting in the three government spheres; municipalities should comply with MIG framework (reporting); critical technical posts had to be filled; planning and procurement had to be done in advance and the provision of adequate financial resources was necessary to enhance monitoring and support to municipalities.
Mr Sello Mashaba, National Treasury Director: Governance and Intergovernmental Relations, indicated that National Treasury had worked together with the Provincial Treasury and national and provincial COGTA. The second tranche for the MIG was transferred to OR Tambo on 22 December 2016. COGTA National had requested stopping of MIG payments to a number of municipalities. National Treasury had written to the municipalities informing them of the situation and asking for response. OR Tambo explained that there was a misunderstanding and that they had spent over 40% but that expenditure had included non-registered projects. OR Tambo had shown that the late transfer of money to the municipality was a reason for the slow spending. National Treasury had since been communicating with OR Tambo and most of the issues had been addressed. The main concern was that expenditure was 22% and not 46%. Expenditure that may have occurred above 22% was not in line with MIG.
Mr Jan Hattingh, National Treasury Chief Director: Local Government Budget Analysis, explained that National Treasury could not reverse the decision about withholding the R90 million to OR Tambo as the financial year had come to an end and all monies provided for MIG had to be spent in that financial year.
National Treasury’s intention was to support MIG and to move money where necessary to assist the project. He suggested that National Treasury sit down with OR Tambo as it was not a lost cause and there would be money available in the future. National Treasury found that they had had two separate reports and they had believed that they had to stop the payment following the reports. The money had been re-allocated to other municipalities in the Eastern Cape to ensure that the province did not lose out. He emphasised the importance of credible and timeous information which was essential for decision-making. His office managed 257 municipalities and 22 grants and therefore needed all parties to respond on time. He also pointed out that National Treasury was going to require municipalities to produce procurement plans before the start of the financial year.
The decision to stop the money was correct, although they could perhaps find other monies for OR Tambo in the current year. He explained the technicalities of stopping of an allocation versus roll-over. Roll-over could only happen when a municipality had had the money in its possession and had not spent it. Stopping an allocation meant that the money was no longer available as it had been re-allocated.
The MEC suggested that National Treasury could perhaps assist OR Tambo with additional funds.
The Acting Chairperson informed the OR Tambo Municipal Manager that when he was called to attend meetings, he should attend. If he absolutely could not attend, he should send someone who was able to take decisions, not a junior official. He was to take that as a rule. The Municipality had to supply comprehensive information when asked to do so. The Chairperson went back to the question he had asked in his opening remarks: did the municipality have the capacity to do the reporting and so on? Water was essential to the people of Transkei. The people needed drinking water in the house, in the clinic, in the school. He also advised the presenters to develop an action plan with dates, names and actions. It had to include oversight. The plan in front of him had no dates, no names and no oversight.
Mr T Motlashuping (ANC, North West) commended the MEC on cautioning the officials to do the job that they had been appointed to. He agreed that people must do the job that they were paid to do. He advised the Mayor and CFO that there were certain powers that they could not delegate. They had a special responsibility in respect of providing water. OR Tambo had such a backlog in water infrastructure and yet the CFO had not attended an important meeting. The major factor revolved around the failure of the municipality to do its job. Government was paying for water for the poorest of the poor. He asked the Mayor what they had done to address the lack of capacity, especially as they had 5% of the grant available to address capacity problems. What had they done to date to ensure that capacity was at the required level? Only on the basis of reports, could they show exactly what they had spent. Even though the expenditure was over 40% according to the municipality, some of the projects were still in the design stage and not registered. That was not an active project. The Municipality was named after a leader of excellence and it was disturbing to hear what was happening in the municipality.
Mr O Terblanche (DA) noted that the Committee was dealing with both positives and negatives. The specific community was in desperate need of water and it was a serious problem that they had been allocated the money but had lost it. He had heard a lot about “meetings” but he had not seen an implementation plan. The lack of performance of the municipality had deprived them of water. The municipality and whoever was going to assist them had to ensure that the municipality had the capacity to execute the job. They needed a project plan and a project manager. There were a lot of people around the table but they needed someone to “do the job”. It was perhaps good that the municipality had now learnt that there were consequences for not executing. The situation could no longer be tolerated. The meeting was really not necessary. If people on the ground had done their job, Parliament would have been dealing with more urgent matters. His plea was that they go back and revisit the programme to see what can be done. The money that had been claimed to be spent was a matter of concern for the Committee. Had there been value for money? On what was the money spent? Money could not have been spent and yet there was no running water. Perhaps the people should be brought back when they had positive feedback.
The Acting Chairperson declared that the Committee should go to the Municipality and see how the people live there in the hills and the valleys. The meeting formed part of the Committee’s oversight. Monitoring the spending of the MIG on a quarterly basis was important. They would have to make time for monitoring.
Mr L Gaehler (UDM) thanked the MEC for ensuring that the funds remained in Eastern Cape. Officials had to do their work. All the reports that day noted that officials had not done their work and action had to be taken against them. Action had to be taken against those who went to the meeting in Pretoria and did not do their work. Who were they and what had they done? It was a huge loss for OR Tambo. He wanted National Treasury to look at the capacity of the municipality. What had they done about building capacity? And what had been done to address the high rate of vacancies? The way forward proposed by National Treasury had to include action against officials.
Ms T Motara (ANC) spoke broadly owing to the oversight role of the Committee. COGTA and National Treasury needed to understand when withholding the funds that there might be underlying issues. What had National Treasury done to resolve the problem of getting inadequate reports? It was unfair to complain that they were not getting appropriate reports. Timeous reports would have prevented the current problem. A chronic under spender of the COGTA National Department budget had been water and sanitation. It was not because everyone had running water and sanitation but because municipalities had not been assisted to plan for the budget. What was National Treasury going to do about the irregular expenditure that would more than likely appear in the municipality’s audit report? How would they mitigate that? However, until they got proper processes and planning in place, those negative audit findings would not necessarily allow for the money to come back. How was Provincial Treasury going to assist the municipality to get the money back? She said to the Municipal Manager that a request for intervention was not a sign of weakness. They should not lose the money because they could not get it right to spend money correctly and to report on it correctly.
The Acting Chairperson asked the municipality whether they had adequate capacity. Secondly, he asked if COGTA’s recommendation meant that they would put someone in the municipality to coach the municipality over two to three years. The report of this committee meeting was, in fact, a case study and could suggest a remedy for how to deal with the situation. How do they get to improved performance? The Mayor could respond or indicate who would reply to the questions.
The Mayor said she was tempted to respond by reacting to the presentations. There had been a meeting, but they had not invited OR Tambo. She had only received reports from the Municipal Manager and no one else had reported to her. She was in the dark regarding the issues reported on about reconciling figures etc. She had been told that they were at 118% expenditure of the MIG. She would ask the officials to report on technical matters regarding capacity.
The Acting Chairperson reminded the presenters that it was not about a blame game. The Committee was there to assist and perhaps all the role players should make use of the meeting room until 3pm to work out a way forward. They did not have to arrange another meeting. They needed to meet today.
The Mayor agreed that they should meet but COGTA and National Treasury had to be at the meeting.
Mr Owen Hlazo, OR Tambo Municipal Manager, addressed capacity. He noted that National Treasury had indicated that OR Tambo had had a bad spending pattern until 2014 but at that point there was a change in the municipality, but that was when five project managers resigned from the Project Management Unit. They had to follow recruitment processes for appointing people. The Director for Water and Sanitation had started only on 1 June 2017 so the post was vacant for some time. He himself had been the Director but had been promoted and the post was vacant for six months as competent people did not want to work in the very poor area as they want to work in Johannesburg where they had good working conditions. The Project Management Officer started in December 2016. There had been a gap in the CFO’s office but that had been addressed. He did not want to dispute the presentations. What he wanted to do was to discuss the 59% with all the role players of COGTA and Treasury. The value for money issue was important to him as he believed that the projects were good. He always invited stakeholders to visit and they identified projects for inspection at random on arrival in the municipality. National Treasury knew that OR Tambo implemented quality projects. He welcomed whatever support would be offered. The presentations all showed that OR Tambo had been interactive and he hoped that all role players would form a team so that they would come, even to the Committee meetings, as one.
The Acting Chairperson said that everyone had to be on the same page and to share reports. They had to communicate.
OR Tambo Councillor Madodana Socikwa suggested that they should look at the genesis of how they had got to the current position. The regulations and discrepancies in reports had caused the problem. The leaders needed to reflect on problems and to deal with the discrepancies.
OR Tambo Municipality CFO, Mr Moabi Moleko, spoke on the technicalities. He did not want to blame but would try to be objective. OR Tambo was sitting with unauthorised expenditure, unfortunately. All the money had been transferred and they had overspent by R23 million. They had to pay but they would be depleting their cash resources when they received invoices in June as they approached the year end. If they could not meet their commitments to creditors within 30 days, they would be in trouble.
Mr Moleko said that he saw in the COGTA Report, for the first time, why the R90 million had been deducted, i.e. that the projects were not registered. That was not true as by the end of April, they were at 77% expenditure. His team had a control person and a reporting person who submitted the COGTA report every month. The people were under his command and so they reported on his figures. Unfortunately, COGTA had de-recognised some of the work. He had seen the projects and the Minister had seen the projects and they were continuing. He did not know how to put it, but it was causing OR Tambo to regress. The MIG cash balance was finished and if contractors submitted R70 million invoices, he had no money. He wanted to know if he had to tell contractors not to submit invoices.
The Acting Chairperson told him to be proactive and meet with COGTA and National Treasury to balance the figures.
Councillor William Msozi, responsible for water in the OR Tambo Municipality, said that, as an elected politician, he had to ensure that there was money and services. The people were following the case in the province, and they would react badly. The Chairperson was correct to say that the officials should sort it out as the people would know from the newspaper reports that there was a problem and the contractors would come wanting their money. The Municipality had overspent. He did not think that it was right to take away the money. He was appealing; otherwise they would see an uprising of the community. He appealed for help in resolving the problem. He needed the money otherwise people would toyi-toyi in the area and there would be an uprising.
Ms Meth emphasised the fact that they would not have been here had they been working together instead of as separate departments. She hoped that officials would work together as if they were from a single government. Early warnings to municipalities had to be issued in time. The implications were serious. By the end of the month, they had to pay contractors. They had improved their financial processes from a disclaimer to a qualified audit and now the Municipality would have another irregularity in their expenditure, which was unnecessary. She had met with Mr Hattingh in November 2013 and they had discussed the issue of capacity. The Municipality had approached all offices as they had not had an organogram since 2011 and officials took so long that they could only start deploying in 2016. They had been outsourcing for accountants as well as for the water and sanitation units. So, capacity was still a problem. They were an un-delegated municipality so they did need support. When the Municipal Manager was appointed, all the project managers resigned. They had non-executive chairpersons of committees to provide for oversight and they had their own internal auditor. Even the Minister from the Presidency had been impressed. They were still waiting for a response from the Minister of Cooperative Governance and Traditional Affairs. They were a poor municipality so they needed the money. They would have a procurement plan for 2017/18. They were still convinced that it was unfair to take their R90 million. It would be said that they had failed. She praised the competency of her staff.
The Acting Chairperson stated that there were processes and there were laws. If the processes and laws had to be reviewed, they could be reviewed in Parliament but they would need representations and they should come from SALGA or the Provincial Treasuries. The process had to start. The MEC could ensure that it happened.
The Acting Chairperson noted that COGTA and National Treasury had, in their presentations, shown what had to be done.
The MEC noted that Treasury had suggested that an improved performance on the MIG 2017/18 would qualify OR Tambo for an additional MIG through the stopping and reallocation process. He would say to the Municipal Manager that he should make it happen, and his team had to make it happen. They needed to get done what they were supposed to do. He had taken an oath that he should follow the law and that the people should not suffer. There was a need for an analysis of cause and effect so that they could do better next time. He would discuss the hard facts in the Budget Council and he and National Treasury would influence one another.
Mr Timothy Seroka, COGTA Chief Director: MIG, emphasised that there was the DoRA Framework which scheduled dates for provision of information and it was key for the municipality to comply with the dates. In addition, there were always letters of reminders about required submissions. OR Tambo had been receiving support from government for a very long time. They needed to improve administration. In response to the question of whether teams would be deployed to coach officials, he informed the meeting of a turnaround programme in which municipalities would be supported for at least two years, perhaps a total of five years, and OR Tambo would be one of the municipalities that would be part of the programme. The team would consist of a Chartered Accountant, a financing specialist who would give support regarding infrastructure finance and planning, an HR specialist who would give support around HR issues, and a change management specialist who would deliver management change strategies. A water specialist would also be a member of the team. The team would be in OR Tambo before the end of the month. In addition, support would be provided for municipalities, including OR Tambo, that were struggling with MIG. A special fund would facilitate such support.
The Acting Chairperson confirmed that the municipality would have support to manage processes before the end of the month. But they still had to reconcile the contested figures. The teams could use the room until 17:00.
Mr Hattingh explained that provinces published the Section 71 results monthly. That information was ticked by provinces as part of the MEC’s process to the Executive Council and they had structures where they engaged and shared information as part of the early warning discussion. It was a routine practice. National Treasury published the information for all municipalities quarterly, and he would like to invite everyone in the room to read the figures for the third quarter that the municipalities had signed off. All the work done in respect of support and reforms could be presented to the Committee if they were provided at least a day, or even a week. There had been many reforms that he himself had initiated. He also wanted to propose that they looked at the Coffee Bay water project given to Amatola Water Board. It was a R202 million project. Only R33 million had been spent to date. They might underspend significantly. The financial year had closed and DoRA had been published so National Treasury could not cancel the stopping. He believed there would be under-expenditure as local government always underspent so they could find money in the system. They operated within the legal framework and Treasury would help where they could within the law. Last year under-expenditure on capital projects had been over R14 billion. There was money in the system but it was a question of how it could be done. He complimented OR Tambo on the improvements from 2010/11 and wanted to assist them. The issues of not talking to each other and not attending meetings could easily be resolved.
Mr Motlashuping noted that the municipality had come to the Select Committee to receive help with the issue. He hoped COGTA and National Treasury would find a way to assist them.
The Chairperson said that the Select Committee had the full picture but the Committee would have to get advice as they were dealing with the law. A Committee Report would be drafted and in that report the legal advisor would advise on the legal way forward. He noted that the way in which they did their monitoring and evaluation was crucial. The municipalities had to report on a monthly basis. They should pick up the problems early. The report would be drafted as soon as possible. The Committee would pay a visit to OR Tambo after 60 days. The Committee would have to amend its programme to deal with the serious matter.
The Committee reviewed and adopted its Committee Report on the Early Childhood Development Grant Business Plan and Financial Plan for 2017/18 and 2018/19. The Department of Basic Education would be requested to report back in four to six months. The Minutes of 30 May 2017 were read and Ms T Motara (ANC), seconded by Ms B Matevula (EFF).
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