Municipal Finance Recovery Service: National Treasury & COGTA briefing

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Cooperative Governance and Traditional Affairs

01 November 2017
Chairperson: Mr R Mdakane (ANC)
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Meeting Summary

The Committee met to be briefed by National Treasury and Department of Cooperative Governance on the Municipal Finance Recovery Service. Collectively, Government was found wanting where the Municipal Finance Management Act (MFMA) placed obligation on national and provincial governments to assist in resolving financial problems at municipalities. Often the step by step process of assisting municipalities in financial distress through the framework was not implemented effectively and timeously. Provinces, as the Committee was aware of, intervened through an executive decision. It was important to consider the reasons why an intervention would be put in place and how the process would need to be concluded after the problem was resolved, but there were mechanisms in the Constitution which required particular things to be lifted within six months for a continuation of the intervention after certain reasons. That was not happening as designed, unfortunately, as the law provided differently, where practically issues took longer to implement as the challenge was that appointing an administrator meant seeking someone who had the relevant skills to understand the issues.

National Treasury highlighted that if Government reviewed the processes of every intervention that was put in place at municipal level in terms of the framework, it would be evident that the first challenge always was governance, and not financial. Implementation of the code of conduct, council sittings when they were required and decision making, as well as the appointment of people when they were required and other processes, needed to unfold at the earliest when problems arose. Between 12 months before an election, there was a performance dip from administration to councilors on oversight and many other areas. 12 months after the election the same thing happened. Therefore, in a 5-year municipal council and administrative cycle, there were two years which were spent inefficiently. It was indicative that there were contracts of particular senior managers which were terminating, and National Treasury understood that it was linked to a life cycle of a certain council, but National Treasury was concerned as to why the council cycle had to affect the administration of a municipality. The question was whether the municipal space could be professionalized such that a change of council did not affect the administration of services.

The Department of Cooperative Governance and Traditional Affairs Department (COGTA) were using the Back to Basics (B2B) approach to unlock challenges it already knew about, and re-institutionalizing monitoring and evaluation to improve municipal performance. To date, a structure was established between COGTA, National Treasury, the Department of Monitoring and Evaluation (DPME), Statistics SA (StatsSA), the Auditor-General South Africa (AGSA) and the South African Local Government Association (SALGA). This structure already started engaging provinces to integrate the multiple reporting requirements which were burdening municipalities. Additionally, COGTA was looking at what it needed to include in its indicators to remedy the challenges it identified in terms of section 43 of the Municipal Systems Act (MSA), using the B2B pillars so that COGTA could get credible data which would inform its decisions. COGTA already developed regulations for senior managers which had particular competencies for said managers. Also, COGTA was far advanced in developing regulations for all staff below section 56 managers. COGTA consulted professional bodies and submitted a draft of regulations to the Chief State Law Advisor before submitting to Parliament. There were competencies for posts of cleaners up to the most senior managers in municipalities.

COGTA always proposed that section 56 managers had to be appointed permanently to deal with the two-year slump in administration pre-, and post-local government elections. COGTA also observed that the indigent registers were not credible; therefore, COGTA signed a memorandum of understanding (MoU) with the South African Revenue Service (SARS) that once the indigent registers at district and provincial levels were submitted to COGTA, those would be submitted to SARS to verify the credibility of the data submitted in the indigent registers. On the amalgamating of municipalities after demarcation occurred, COGTA learnt from Tshwane Metro and established a grant to be used post-demarcation for amalgamations as COGTA realized that debt would often be brought into an amalgamation. COGTA was paying the money in tranches where it also delegated the monitoring of how that grant money would be used to a unit within its organogram. Currently, no municipality oversaw determining salaries for its employees as legislation evolved to restrict such occurrences. To date, the bargaining council determined salaries for all staff below senior managers after mechanisms and variables were set-up. The Minister determined salaries for senior managers annually, as well as for councilors, in terms of what category a municipality fell under.  Any payment outside of those three regimes was considered irregular but COGTA was monitoring all that as well.

The Committee asked why National Treasury allowed municipalities to proceed with unfunded budgets and why there were no interventions by provinces; why did Minister Des Van Rooyen not take any action yet? Was it COGTAs responsibility to develop policies which would force the Member of the Executive Council (MEC) to act on governance and financial failures at municipalities or could National Treasury, having received AGSA audit reports and municipal annual reports, instruct the provinces to act on struggling municipalities? They asked whether the MFMA or Municipal Financial Recovery Service (MFRS) were aware that the Umtshezi/Estcourt Local Municipality/Inkosi Langalibalele Municipality (KZN) vehicles were seized by the sheriff. Was there nothing that Parliament could do in that regard? Members also wanted to know what COGTA meant when it said section 139 administrators needed support, when speculation was that there were administrators that were enriching themselves when appointed, instead of fixing broken municipalities. How was COGTA dealing with such situations and what criteria and competencies did COGTA use as standards to qualify an individual to be an administrator? It also worried the Committee that section 139(5) of the Constitution seemed to never be taken to its logical conclusion. Where a municipality did not implement a Financial Recovery Plan (FRP) why was it not dissolved? 

Meeting report

Briefing on Municipal Financial Recovery Service (MFRS)

Mr TV Pillay: Chief Director: MFMA Implementation, National Treasury, said that the development of an intervention framework came about even before the MFMA. He said that collectively, Government was found wanting where the MFMA placed obligation on national and provincial governments to assist in resolving financial problems at municipalities. He said that quite often the step by step process of assisting municipalities in financial distress through the framework was not implemented effectively and timeously. Provinces intervened through an executive decision. It was important to consider that NT did not see a specific condition for an intervention; reasons why an intervention would be put in place and how the process would need to be concluded after the problem was resolved, but there were mechanisms in the Constitution which required things to lifted within six months for a continuation of the intervention after certain reasons. That was not happening as designed, unfortunately, as the law provided differently whereas practically issues took longer to implement, as the challenge was that appointing an administrator meant seeking someone who had the relevant skills to understand the issues. He said that when looking at the framework clearly and respecting the constitutional framework, and the three spheres of Government with the attended processes, at some point Government had to possibly take a different view on how to handle some of financial crisis issues. Currently, the dynamics were that there were hung councils which created scenarios very different from the norm in the municipal space. Sometimes, the general political climate impacted directly on the success or failure of an intervention.

He then spoke about the resolution of financial challenges i.t.o. Chapter 13 of MFMA. He said that if Government reviewed the processes of every intervention that was put in place at municipal level in terms of the framework, it would be evident that the first challenge always was governance and not financial. Implementation of the code of conduct, council sittings when they were required and decision making as well as the appointment of people when they were required and other processes, needed to unfold at the earliest when problems arose. Therefore, the criteria set in chapter 13 would be followed after the above interventions would have occurred.

He said that the criterion for serious or persistent financial problems included municipalities failing to make payments as and when due and this was spreading wide and fast, from Eskom non-payments to water board non-payments. Also, actual current expenditure exceeded the sum of its actual current revenue plus available surpluses for at least two consecutive years. He said that when the above happened, letters would be sent to municipal Mayors and National Treasury reviewed that municipality’s budget once or twice a year. The response from the municipality would be “thank you for your comment but let us proceed”. This meant that municipalities were digging themselves deeper into debt as they would be spending money which they did not have.

Mr Pillay said that currently municipalities owed more than R300 million in audit fees to AGSA and NT received reports to that extent where it asked Municipal Managers (MMs) to deal with such matters as failure to do so would result in the manager being charged with financial misconduct in terms of his/her own councils activities; however, councils would not charge managers though the MFMA provided for that. The AGSA then withheld an opinion or issued a disclaimer due to inadequacy in Annual Financial Statements, missing records or serious financial problems. He said there were 30 municipalities where the AGSA issued a disclaimer in its last audit findings.

He said that Government never carefully looked at how viable re-demarcation of an unviable municipality with a financially viable would be; and the experience was that re-demarcation failed as there were other issues that emerged. He said that in the 25-year New York (NY) Recovery, the United States appointed a controller, which was equivalent to an administrator, but the controller had powers that an administrator in the South African scenario did not have. In the Johannesburg intervention from 1996, Government appointed a committee of 10 councilors from different political parties represented at that time to make strategic decisions. At the time, that committee went before the arbitrator for labor relations and put forth the state of Johannesburg and labor understood that the city of Johannesburg had a crisis. An agreement was reached on how to manage the wage negotiations and the transition to the city, from the smaller local municipalities at the time, in far better way. That three to four-year process was what was lacking in current interventions. At the intervention at Msunduzi, there was a loan planned for that municipality where the process started to turn around the system. Financial problems hindered the loan being finalized, besides those problems there challenges with governance and service delivery. Eventually the challenges were fixed but to date, the municipality regressed, and old issues resurfaced which was indicative of memory retention as the political cycle and administration changed, the same matters were arising for the second time.

Mr Pillay said that before the 2016 local government election, everything went into limbo. When National Treasury conducted research in 2000, it found a recurrent problem which still pervaded local government. Between 12 months before an election, there was a performance dip from administration to councilors on oversight and many other areas. 12 months after the election the same thing happened. Therefore, in a 5-year municipal council and administrative cycle, there were two years which were spent inefficiently. This was indicative that there were contracts of particular senior managers which were terminating, and National Treasury understood that they were linked to a life cycle of a certain council, but National Treasury was concerned as to why the council cycle had to affect the administration of a municipality. The question was whether the municipal space could be professionalized such that change of council did not affect administration of service? That remained a perennial challenge which generations to come would be thankful for if service delivery could be sustained consistently during a change of administration. The dips were happening over the last five cycles and they could not be blamed on demarcation or transformation, as it was happening for quite a while; the problem was systemic and institutional.

With regards to the training of municipal staff, he said that possibly the Committee had to ask why there was no minimum competency for other service delivery sectors as was the case with finance. Mr Pillay asked himself over the years why there was no qualification for someone who knew how to operate sewerage plant or water works, what qualification was there for the repair of potholes? If there were such minimum standards in place that was good but, and if they did not exist that had to be fixed.

Ms Thalitha Cossa, Head MFRS Unit, NT, presented the financial recovery plans. She said that some of the municipalities which the MFRS assisted at the time were under section 179 intervention. Some proactively requested assistance though they were not under intervention.

Mr Pillay said that the powers and functions of municipalities remained a point of contention during and before intervention. He said that Mahikeng was the capital city of the North-West hosting that provinces government. The water function sat with the district and the electricity function sat with the municipality.  It was concerning that there was a full or partially full structure in Mafikeng, such that over a decade, Mahikeng had rolling interventions without ever concluding because of those functional issues not being addressed. Addressing the matter had to be a decision whether Mahikeng was de-established so that the functions went to the districts or local municipalities, but the situation could not continue where functions were mixed there as that created serious and real problems as the MFRS and MFMA units already experienced.  

He said that in Limpopo, there was a district and a local municipality which happened to have a mix match of water services. When the MFMA unit asked for the Service Level Agreement (SLA) between the district and the local municipalities, and who would be receiving the equitable share, something else would emerge. He begged the Committee to examine the issue. He said that there were very high salary scales in the system as NT found that out during research on scales differences between national, provincial and local governments. When one saw 26% of municipal contributions going towards pension funds of municipal employees, then it would become apparent to one what was going on. Therefore, there were a lot of other things that the current administration inherited.

Discussion

Mr K Mileham (DA) asked whether the MFMA or MFRS units flagged problem municipalities to COGTA, for intervention at national or provincial level. He wanted clarity whether there needed to be an administrator for a municipality to adopt a financial recovery plan.

He said that he was concerned by the MFMA unit encouraging municipalities to draw their own MFR plans when in fact the MFMA mandated the MFMA unit to draw-up all FRPs and the fact that a FRP would be instituted because a municipality would have failed to handle its own finances in the first place. He was worried also that section 139 (5) of the Constitution seemed to never be taken to its logical conclusion; where a municipality did not implement a FRP why was it not dissolved? He asked National Treasury to comment on the triggers that were supposed to invoke the implementation of a FRP.

Mr Mileham said that he was troubled by municipalities that often had unfunded budgets; why did National Treasury allow municipalities to proceed with unfunded budgets and why was there no interventions by provinces. Why did Minister Des Van Rooyen not taken any action yet?

Mr X Ngwezi (IFP) said that he noticed over the years that section 139 of the Constitution of South Africa was abused because there were instances where provincial government implemented the section prematurely and in order to fight political battles for example, that uMkhanyakude District Municipality had financial problems emerged four years ago. The problems started because of procurement of bulk water pipes for R60 million which were still not used to date. There was still no water in that district and only in recent months was an administrator appointed through section 139 by the KwaZulu Natal (KZN) provincial government.  He asked if it was COGTAs responsibility to develop policies which would force the Member of the Executive Council (MEC) to act on governance and financial failures at municipalities or could National Treasury, having received AGSA audit reports and municipal annual reports, instruct the provinces to act on struggling municipalities.

He said that in uMzinyathi there was an administrator that was appointed whose contract was ending in November 2017. Was the administrator required to publish a report on whether the municipality improved its performance, as the perception surrounding administrators was that they were political deployees of provincial governments, especially when provincial government was different politically, from the ruling political party at a municipal level? He asked whether the MFMA or MFRS were aware that the Umtshezi/Estcourt Local Municipality/Inkosi Langalibalele Municipality (KZN) vehicles were seized by the sheriff. Was there nothing that Parliament could do in that regard?

Mr J Dube (ANC) said that from the presentation there seemed to be no willingness from politicians to take decisions in terms of implementing section 139 and following through with FRPs. He asked whether Umjindi, a local municipality of the Ehlanzeni District, did not have its own capacity seeing that its amalgamation with Mbombela Local Municipality, the administrative area of the Ehlanzeni District, seemed to be affecting the FRP which was being implemented in Mbombela.

Ms J Maluleke (ANC) asked whether National Treasury regularly monitored expenditure of grants.

Mr C Matsepe (DA) said that the political climate, in which local government found itself in, was that which where fair was foul, and foul was fair. All the problems which were being reported by the MFMA and MFRS Units were plaguing local government for several years already, but Mr Pillay unpacked the challenges quite well for the first time. He said that in the MFR plans there were monies which were not being accounted for, which were those which councils condoned annually. For example, in Sekhukhune district, in the Elias Motswaledi Local Municipality, R200 million was reported unaccounted for by AGSA.

He said that there was a phenomenon in local government where during the elective conferences of the ruling party, the Mayors, councilors and MMs would be told by senior officials of the party that they had to support a particular candidate during the conference, or a report containing misconduct by said officials or politicians would be released to investigative authorities or the media. The phenomenon became so endemic that even administrators were being forced to loot at local government. The burden then to recover those lost monies would be passed onto the consumers where tariffs and rates would be set way above the country’s inflation rate. High salaries and their caps was a legislative amendment issue because municipalities could not be allowed to continue determining their own salaries. How was it possible that a senior politician could be appointed a MM when he was senior to the mayor and councilors, because it would seem that such appointments were politically motivated? He agreed with the proposals by the MFMA and the MFRS that COGTA, with all its MECs and provincial treasuries, be called to account to the Committee and for the Committee to follow-up on recovery of lost monies where FRPs were being implemented.

Mr Pillay said that as he emphasized, some of the problems needed tripartite cooperation as they related to political, administrative and the separation of politics from the administration of municipalities. Therefore, he would defer some question to the COGTA delegation, especially those which touched on the Municipal Systems Act (MSA). As he noted, government needed a monitoring framework, which was effective for all the legislation governing local government and not only the MFMA.  

He said that the issue around how the MFMA was implemented was a function of how the Constitution of South Africa was enabled through the MFMA. He said that the Local Government Budget Analysis team, together with the MFMA and MFRS units, put building blocks in place including publishing information and getting provincial treasuries to respond to Mayors more directly on unfunded budgets. Secondly, the Committee would have heard about the municipal Standard Chart of Accounts and other things which were implemented; such mechanisms stopped the fudging of numbers and information. As Members knew, when speaking of large amounts of money, grant money would go into a primary bank account, where it would get allocated to certain project, which was where fudging started. Those allocations were not in the system similar to the provinces, departments and national Government which NT could monitor as municipalities all had different systems. A new mechanism which had the potential to reform that flaw was changes to the system itself which was what Ms Cossa was involved with.

In terms of the Division of Revenue Amendment (DoRA) and the MFRS not acting and whether in every instance there was no need for an administrator, he agreed with Mr Mileham that not in all instances was there a need for an administrator. If the institution had a well skilled MM or Financial Officer or a person to deal with a recovery, there would be traction, implementation, monitoring and reporting, there would be success at least in that regard. Quite often however, the MFRS and the FRP were required because such capacity was non-existent. The council would then appoint an acting person for three months as per the MSA; the individual would flap around for the three months and pass the baton to another acting official and the cycle would continue. That was why the two units of NT suggested as per its presentation the appointment of an administrator immediately and for councils to not waste 12 months appointing and changing acting persons. Moreover, NT was emphasizing the appointment of a skilled administrator as it occurred in the Msunduzi FRP where things turned around but because the term ended, challenges returned.

Section 141 provided that only in a mandatory case could the MFRS kick in but the hierarchy that Mr Pillay mentioned earlier which included first line defense which was the council; legislation required that the council had to act appropriately first as it would have been voted in. Parliament could certainly change that which would make things easier to fix because as it was the MFMA and MFRS units had to wait for councils and when councils failed to act, provinces had to act and that required time. By the time the MFRS was brought in by province after six to twelve months, the hole would have already enlarged. The recovery would then take longer and would be far deeper. There was a principle underlying why the council had to be allowed to act first because that council would be voting itself out of office if it did not act.

He said that there were triggers and when those occurred there were the coordinators meetings’ where agenda items on financial recovery would be discussed and acting on financial loss by a province would be considered as well. That was because if that process did not occur that way and NT just went into a municipality it would be a constitutional matter where a province would bemoan usurping of its authority by NT. Parliament could make provisions to the effect that if a municipality did not act within 30 to 60 days then the next step could kick-in, following that, NT could go in through the MFMA and the MFRS to fix issues as that was not legislated to date.

Mr Mileham interjected that what Mr Pillay was suggesting was already provided for by NT as the MFMA unit resided within that Department.

Mr Pillay replied that as the proposal in the conclusion section of his presentation indicated, there were legislative amendments needed to the framework. NT knew that if matters were failing, local git had to be determined whether the failures were legislative or practical implementation related because legislation without there being a will to implement meant little. If the MECs were raising the issues in terms of budget sizes through letters which the MFMA had, it also had copies of its responses which it sent to mayors but, the provision in the Constitution said that councilors had the power to adopt a municipal budget; the municipal council could tell NT that it could not be instructed by NT how to adopt its own budget. The only thing left for the MFMA unit to do was to write more letters commenting and cajoling municipal council to not continue with unfunded budgets. At some point NT stopped the equitable share and other grants; the Committee on COGTA told NT to release the monies. He reiterated that the FRP interventions failed because they were lifted to soon without concluding logically.

He said that the Special Investigations Unit (SIU) investigations were done in terms of section 106 of the MSA but the reports were never availed to the two units at NT before the Committee. An alternative view was that a lot of allegations went out regarding municipal finance misconduct of governance failures but that did not mean people were guilty. The Committee had to be cautious because there were due processes that had to be followed which it was party to legislating. What NT did to date was to bring in a structure called financial misconduct provision and a disciplinary board structure, which was independent from councilors. In the MFMA, NT issued a financial misconduct regulation which was sent to Parliament for scrutiny as well. Since the regulation was being implemented without a council body, an investigation would be done by municipal administration whether internal or external for an objective view; an audit committee member would be responsible and external parties would come into the disciplinary board structure where after conclusion of investigations they would make recommendations. The final decision to charge or whatever resided with the municipal council.

Mr Pillay said the MFMA unit would follow-up on the KZN issues raised by Mr Ngwezi. He said that regarding Mr Dube’s concerns, there was an acting MM in Mbombela currently and acting Chief Financial Officer (CFO) from the Ehlanzeni district. There were other people that were supposed to be appointed in 2016 which was not to date. If Mr Dube could put pressure for those competent appointments to occur, that would have assisted everyone. Currently, the MFMA was helping to consolidate the financial statements of Umjindi and Mbombela municipalities respectively as they were being amalgamated. The MFMA issued a guide for the transition and amalgamation process for demarcation which was supposed to have occurred a week after the 2016 local government elections. The guide was issued to all provincial governments, provincial COGTAs, and municipalities affected by amalgamations.

What could be done was to strengthen grant conditions because there was over R110 billion in municipalities through the grants system which Parliament voted for. The DoRA had a framework which required some conditions one of which was for the grant process to be audited. That function was fulfilled by AGSA, but the challenge was that though that condition was there, there was no army of officials sitting at the grant transferring Department which could go to each grant recipient and check every rand spent.

Additionally, AGSA also did interim audits but the audit fees for the public sector to date went to above R3.5 billion.

He said that most of the issues raised by Mr Matsepe were MSA issues specifically the appointment of competent officials and that system of delegations were handled in coherent and constructive ways and the ethos around public officials. As recommended in the presentation, joint committee meetings would better serve the issues of local governments, instead of the Department of Water and Sanitation (DWS) briefing another Committee in isolation about water affairs when the entire local government system was affected.

Ms Cossa said that already the MFRS was approached to review the Mbombela FRP, now that Umjindi would be amalgamated with Mbombela, however, Mbombela did not recover to an extent that it was honoring all its financial obligations as there remained some financial arrangements which Mbombela were considering for bulk supply of water.

Regarding grants, there was already a monitoring process underway where the MFRS would recall grant monies when it observed that they were not being spent however; that was not assisting as it affected service delivery whereas the aim was to improve delivery.  

Mr Mileham proposed that the Committee could set aside a week before the State of the Nation Address (SoNA) 2018 when joint meetings with provincial COGTAs and treasuries took place to consider the financial situations in municipalities across all nine provinces in all day meetings. The Committee could standardise what it would be requiring in the briefs as that would go a long way in addressing the challenges and recommendations from the presentation by Mr Pillay and Ms Cossa.

The Chairperson concurred that was in order and that would be planned for.

Mr Pillay asked if within the briefs sent out and the actual briefings governance at municipal level could be covered as well.

The Chairperson acceded to Mr Pillay’s request.

Dr Charles Nwaila, Acting Director-General, COGTA, introduced his delegation and said that COGTA did not have performance and monitoring for quite some time. There was the Interministerial Committee on service delivery for outcome nine of the National Development Plan (NDP) as well as Back to Basics (B2B) at national level. Because COGTA found duplication in that regard, it set the monitoring and evaluation unit to champion integration process of that work.

Ms Mohanuoa Mabidilala, Chief Director: Monitoring and Evaluation, COGTA, said that COGTA was using the B2B approach to unlock challenges it already knew about, and re-institutionalizing monitoring and evaluation to improve municipal performance. To date, a structure was established between COGTA, NT, the Department of Monitoring and Evaluation (DPME), Statistics SA (StatsSA), AGSA and the SA Local Government Association (SALGA) where that structure already started engaging provinces to integrate the multiple reporting requirements which were burdening municipalities. Additionally, COGTA was looking at what it needed to include in its indicators to remedy the challenges it identified in terms of section 43 of the MSA, but using the B2B pillars so that COGTA could get credible data which would inform its decisions. That was also why StatsSA was included in the structure and COGTA started with the metropolitan municipalities (metros) in terms of the NT cities support programme to roll out that work. The structure was co-chaired by COGTA and NT where the integration was that of city support programme with the Integrated Urban Development Framework (IUDF) to curtail two separate reporting reforms. The structure started with a corset of indicators which where parallel; there were indicators for metros for a differentiated approach where the indicators were almost finalized. The first phase would be implementation of the corset indicators in metros in 2018/19 were cities would follow and the full roll-out would be implemented in 2020/2021. That would help COGTA monitor municipal performance quarterly so that it could act quickly when challenges arose.

Mr Tebogo Motlashuping, Acting Deputy DG: Institutional Development, COGTA, said that COGTA already developed regulations for senior managers which had particular competencies for said managers. Also, COGTA was far advanced in developing regulations for all staff below section 56 managers. COGTA consulted professional bodies and submitted a draft of regulations to the Chief State Law Advisor before submitting to Parliament. There were competencies for a cleaner up to the most senior manager in municipalities.

He said that COGTA always proposed that section 56 managers had to be appointed permanently to deal with the two-year slump in administration which Mr Pillay alluded to pre- and post-local government elections. He said that a further proposal was that the person whose tenure had to be linked to political office was the MM. COGTA also observed that the indigent registers were not credible therefore COGTA signed a memorandum of understanding (MoU) with the South African Revenue Service SARS that once the indigent registers at district and provincial levels were submitted to COGTA, those would be submitted to SARS to verify the credibility of the data submitted in the indigent registers.

On the amalgamating of municipalities after demarcation already occurred, COGTA learnt from the Tshwane metro and established a grant to be used post-demarcation for amalgamations as COGTA realized that debt would be brought into an amalgamation often. COGTA was paying the money in tranches where it also delegated the monitoring of how that grant money would be used to a unit within its organogram. Currently, no municipality oversaw determining salaries for its employees as legislation evolved to restrict such occurrences. To date, the bargaining council determined salaries for all staff below senior managers after particular mechanisms and variables were set-up. The Minister determined salaries for senior managers annually as well as councilors in terms of what category a municipality fell under.  Any payment outside of those three regimes was considered irregular but COGTA was monitoring all that as well.

COGTA received many referrals and correspondence regarding allegations of financial misconduct and misappropriations of funds regarding section 106 reports. The Minister wrote letter to affected MECs to investigate so that COGTA could follow up; COGTA received some reports in that regard and steps were taken resulting from the findings in those reports. However, the response from MECs was not always good when the Minister wrote to them to investigate. The SIU reports were submitted to COGTA and after analysis, some were referred to the Directorate for Priority Crime Investigation (DPCI), National Prosecution Authority (NPA) and others were still pending. COGTA could certainly share the reports with the NT if needed.

Dr Nwaila said that as Mr Pillay indicated, since the MFMA focus was on financial misconduct and a focus on that alone, it had the potential to leave the problem unsolved as it could be elsewhere. COGTA had a three-legged approach through B2B. Therefore, he agreed that governance was the biggest challenge at local government and with COGTAs sectoral outreach programme to distressed municipalities. The intention was to intervene and support municipalities as sections 100, 139 and others were implemented over the period without yielding any good result which indicated that the human resources were the issue instead of the provisions. He said that when he was the DG in the Free State (FS), the province decided to appoint chartered accountants as MMs, so that skilled personnel would deal with municipal challenges. Those individuals did not last because government was addressing symptoms of a larger systemic problem of governance which was political in nature.

On 19 October Minister Van Rooyen engaged Minister Malusi Gigaba to strengthen COGTA and NT collaboration regarding financial management and revenue functions. Four provinces shifted their functions from COGTA to provincial treasuries for various reasons since then. The remaining five provinces retained their functions at provincial COGTA though their collaborated with provincial treasuries. The Western Cape (WC), Northern Cape (NC), Mpumalanga (MP) and the Free State (FS) shifted financial management functions from provincial COGTA to provincial treasuries, though the WC always had that arrangement. In the remaining five provinces where the functions were shared responsibilities between provincial COGTA and treasuries, COGTA would engage the responsible MECs of COGTA to review the arrangements without dictating what needed to happen.

Dr Nwaila read with the Committee through the presentation on plans to improve. He said that the pillars to support local government remained the same since Project Consolidate (2003/05). He said that before the summit, COGTA did not have capacity for the IUDF but since pooled capacity. He said that walking the walk and talking the talk required fortitude and discipline of execution which spoke to coordination with other departments, provinces and municipalities in holding all accountable. During its roadshows, COGTA was saying to municipalities that it had to stop saying ‘putting people first’ when its systems were broken.

Discussion

Ms Maluleke said that she hoped what was presented would be followed by a checklist to ensure that whatever was recommended and proposed as per the COGTA presentation was followed through.

Mr Dube asked what COGTA meant when it said that section 139 administrators needed support when speculation was that there were administrators that were enriching themselves when appointed, instead of fixing broken municipalities. How was COGTA dealing with such situations and what criteria and competencies did COGTA use as standards to qualify an individual to be an administrator?

Mr Matsepe asked what the progress was of the amalgamation of Fetakgomo with Greater Tubatse Local Municipality. What were the challenges and what financial injections going into that amalgamation?

Dr Nwaila said that as reported by the MFMA unit about political appointments at local government, the intention of appointing an administrator was laudable but like anything else an administrator could be used differently. If Mr Dube had information about the allegations, he could share it with COGTA so that it could be followed up. Attributes of an administrator were ideally to diagnose what was wrong first with a municipality so that COGTA could look for skills to match the challenges. An ideal candidate would be someone that understood systems, structures and organizational operations with a proven successful track record of running organizations. In the outreach programme, COGTA was raising the issue of sending a team of skilled personnel during a FRP instead of a single administrator. However, the conditions were if there were too many vacancies, the temporary personnel would not go in there to fill posts because at the conclusion of the intervention when said personnel left, the situation would revert.  

Mr Motlashuping said that if municipalities were following the regulations and competencies for senior managers, as set-out by the provinces and COGTA, there would be no challenges where there would be no tracking on progress made by administrators. Accordingly, the administrator was legislatively required to report monthly on the work which would have been done and if that was not happening, the same problem would manifest where a municipality would regress at the exit of the administrator. The first thing that an administrator had to ensure was to see to it that all vacancies were being filled, implement the FRP and to report monthly on progress of completion of the necessary tasks. Doing things differently was to ensure that an administrator would be sent in with dedicated staff with a multiplicity of skills and expertise and to ensure that all reports would be submitted to the provincial and national COGTAs for them to verify and track that the imposition of section 139 of the MFMA would be bearing fruits. COGTA further established technical teams in that regard to support the administrator.

He said that municipal demarcation was a function of the Municipal Demarcation Board (MDB), and COGTA only entered the terrain as and when it was required to assist, in terms of the incorporation of Fetakgomo into greater Tubatse. As earlier indicated, COGTA established a grant for all re-demarcated municipalities including greater Tubatse, to look at the systemic challenges of the two to four municipalities which were being amalgamated; the restructuring of the organogram of the larger and new body and finally the disparity of salaries which would result from the amalgamation. Failing all that, the challenges currently faced by COGTA in Ekurhuleni resulted from disparity of salaries after so many years, since Ekurhuleni was established. COGTA also had challenges in Limpopo were local municipalities were saying that when amalgamated with bigger municipalities, staff from local municipalities salaries had to be equal to the salaries of the greater municipality into which the local municipality was being incorporated. COGTA in that regard were reviewing organograms of all municipalities but prioritizing municipalities affected by re-demarcation to ensure that incorporation and restructuring of organograms would speak to the needs of the region and area.

Mr Matsepe said that when council would take resolution during public participation, regarding the raising of rates, where the agreement would have been the percentage of 6.9 but upon application the increase became 45%, his belief was that, that would be done deliberately by the said municipality to recover misappropriated funds within its ranks. How then could all that be reversed?

Mr Pillay said that it would help if the MFMA unit was provided with the name of the municipality where that occurred. Secondly, what normally happened would be a municipal official and CFO would say that the 6.9% increase would be attached to a review of the property value and that would be increased through the normal municipal valuation roll. That had happened to a lot of citizens, and when the valuation came up, the valuation of one’s property would be increased so that the 6.9% increase would be on the rate of the rand; that the numerator and denominator would not be the same.  Therefore, R10 by the 6.9% would be 69 cents but if the same R10=R200 because of property valuation, then 6.9% by R200 became a challenge. What the MFMA was asking municipalities to do for tariffing was to do tariff modeling for various types of households so that when marketing tariffs to a council or ward meeting, the officials doing the marketing would be open and transparent in telling the communities about the average price of a property in different wards in a particular municipality. Therefore, the bill average would increase by 6.9% which was different form Mr Matsepe’s question.

The challenge raised by Mr Matsepe related to how tariffing was communicated, calculated and ran through the municipal system, and the reason for the tariff possibly going up to 45% in trying to recover misappropriated funds the MFMA unit could not answer. What the MFMA observed over the years was that municipalities started using property rates to subsidize other services. If a municipality offered water and was to increase it by 5% or reduce the water tariff by 2%, forgetting that money would have to be made up somewhere else, it would have to be made up in the property rates; for instance, if the same municipality decided to not charge refuse removal, the property rates would have to pay for the refuse removal as well. That was called cross subsidization which was a budgeting tool.

The meeting was adjourned.                               

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