SALGA, MDB & CRL Commission 2017/18 Annual Reports

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Cooperative Governance and Traditional Affairs

10 October 2018
Chairperson: Mr M Mdakane (ANC)
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Meeting Summary

Annual Reports 2017/18

The Portfolio Committee on Cooperative Governance and Traditional Affairs heard briefings on the Annual Reports by: South African Local Government Association (SALGA), the Municipal Demarcation Board (MDB) and the CRL Rights Commission. The Committee thanked and congratulated all the entities on their reports.

The briefing started with the SALGA’s presentation. The following were highlighted points raised in the presentation and discussion: Auditor-General (AG) municipal audit outcomes have shown regression. Of greater concern was the significant increase in the amount of irregular expenditure incurred. This indicates a lack of leadership accountability and also a lack of consequence management. The inability to collect debt from municipal consumers was widespread. In these circumstances, it is inevitable that municipalities will struggle to balance their books. In total, 31% of the municipalities disclosed a deficit – the total deficit for these municipalities amounted to R5.6 billion. The issue of electricity is still a problem, Eskom is providing 90% electricity in the country; at the same time electricity is expected to be bought in bulk and sold to subsidise other services. Members of the Committee asked how SALGA is handling the issue. One member of the Committee said some rural municipalities have no water at all. It is a huge challenge. Although SALGA cannot provide water, itcan facilitate an intervention to provide water in areas where there is no water. Other issues raised on SALGA’s presentation are as follows:

  • The challenges that SALGA is facing with the amalgamated municipalities;
  • The wasteful expenditure on community work programmes;
  • Competency of senior managers and the link between upper limits of remuneration to competency; and
  • The book published by SALGA.

The second entity to present was the Municipal Demarcation Board (MDB). The MDB obtained an unqualified audit opinion. The AG raised two findings related to performance information and five findings related to compliance with legislation.

The following are issues were raised by Members:

  • MDB failed to table strategic risk register on time
  • Management failing to respond with the required urgency to the AGs messages about addressing risks and improving internal controls;
  • Consequence management;
  • The Municipal capacity assessments;
  • Amendments made to the Municipal Demarcation Act; MDB may submit the amendments to the Chairperson of the Committee so that they can be processed through the Committee.

The last entity to present was the CRL Rights Commission. The Committee expressed that it is unfortunate that the CRL Commission has gone back from a clean audit to an unqualified audit opinion. It is really a concern to the Committee. Members asked for an explanation on the irregular appointment of consultant services and senior management officials were not employed following due process. Other issues included irregular, fruitless and wasteful expenditure. The CRL Commission in its defence explained that the change in leadership and the size of the organisation contributed to the delay in terminating contracts which then led to the unqualified report. Some members of the Committee have hope that in the next financial year the CRL will receive a clean audit.

Meeting report

Briefing by SALGA 2017/18 Annual Report

Mr Parks Tau, President, South African Local Government Association (SALGA) gave a brief introduction and explained that the presentation would focus on the task of transforming local governments, global commitments impacting on Local Government, key NDP imperatives relevant to local government, and SALGA priorities and key achievements for 2017/18.

Mr Xolile George, Chief Executive Officer (CEO), SALGA, said that developmental local government is one that is committed to working with citizens and groups within the community to find sustainable ways to meet their social, economic and material needs and improve the quality of their lives. This is done through:

  • Maximising social development and economic growth;
  • Integrating and coordinating;
  • Democratising development, empowering and redistributing; and
  • Leading and learning.

Developmental outcomes of local government include the provision of household infrastructure and services, creation of liveable, integrated cities, towns and rural areas, and local economic development. SALGA is expected to play a leading supportive role in the wholesale transformation of local government to be developmentally oriented and SALGA has potential to make a strong contribution to the development of municipalities in the country, through for example:

  • Provision of specialised services to strengthen capacity of Local Government
  • Research and information dissemination;
  • Facilitate shared learning between municipalities;
  • Human resource (HR) development; and Councillor training for leadership development

Further expansion of SALGA’s obligations is achieved through other legislations such as the Municipal Structures Act (MSA), the Intergovernmental Relations Framework (IGRF) Act, the Water Act, and the Demarcation Act.

The amalgamated municipalities inherited the following:

  • skewed settlement patterns,
  • Extreme concentrations of taxable economic resources,
  • Huge backlogs in service infrastructure,
  • Creating viable municipal institutions for dense rural settlements, and
  • Great spatial separations and disparities between towns and townships and urban sprawl.

Thus, local government has been given a new constitutional mandate to create and sustain humane, equitable and viable human settlements. It is doubtful whether local government – as presently designed - is adequately equipped to fulfil this developmental mandate. Local government has been democratised, but the local government system is still structured to meet the demands of the previous era. A fundamental transformation is required.

The key priorities and strategic goals for SALGA in 2017/18 formed part of its five year strategic plan (2017-2022). The strategic goals include sustainable, inclusive economic growth underpinned by spatial transformation, good governance & resilient municipal institutions, and financial sustainability of local government & greater fiscal equity. These goals are enabled by information and communication technology (ICT), data intelligence, innovation, research and knowledge management, effective and efficient administration, marketing and communication, and strategic partnerships.

The presentation discussed various key achievements of SALGA in the areas of:

  • Sustainable, inclusive economic growth underpinned by spatial transformation,
  • service delivery,
  • good governance and resilient municipal institutions,
  • efficient human resources,
  • sustainable labour relations,
  • good governance,
  • financial sustainability of Local Government and greater fiscal equity
  • Municipal cooperation,
  • Partnerships,
  • Knowledge and Information Sharing, and
  • Accountable SALGA Governance and Administration.

The Municipal Debt profile showed that municipalities are owed an aggregate amount of R143.2 billion as at 31 March 2018 inclusive of debt older than 90 days. The total collectible debt stood at R27.2 billion (debt less than 90 days old). Municipalities have written off R1.4 billion as bad debt of the R51.4 billion is owed by municipalities as at 30 June 2018. The relevant contributors of debt are as follows:

  • -Organs of state     5.5%
  • -Commercial           18.2%
  • -Households           71.2%
  • -Other                    5.1%

The major risk is that not all outstanding debt to municipalities of R143.2 billion is realistically collectable and this leads to a negative impact on Municipal Balance Sheet affecting municipal credit rating and related borrowing ability.

The financial analysis of SALGA revealed that the year-on-year net assets has increased by 5.3% to R161.8 million in 2017/18 from R153.6 million in 2016/17. The six year comparison indicates a growth of over 100% from 10.2 million to R161.8 million. In terms of liquidity the organisation’s ratio is at 209%, indicating that the organisation has R2.09 in current assets for each R1 of current liabilities. The year-on-year revenue comparison has remained steady at R605.6 million in 2017/18 compared to R609.7 million in 2016/17. The six year comparison indicates an over 100% growth in revenue from R293.3 million.

SALGA had received a clean audit in 2017/18.

All in all the major risks facing local government are as follows:

  • Energy dynamics presents a dwindling revenue source for municipalities;
  • Municipal debt escalation is unsustainable (Eskom and Water Boards);
  • Section 139 interventions should focus on Section 154 prior to the implementation of the Section 139;
  • Financial viability – Bill on the repeal of debt for low income earners (Similar process for municipalities is recommended);
  • Equitable share;
  • Amalgamated municipalities; 
  • Funding for district municipalities’ function; and
  • Non-compliance with SPLUMA will delay all land development projects and the effective delivery of basic services.

He concluded that SALGA recommends the Portfolio Committee to note the progress made by SALGA in transforming Local Government; reflect on the key major risks facing local government; and propose remedial actions to be undertaken by the relevant executive authorities (Ministries or Departments).

Mr E Mthethwa (ANC) asked what is the specific proposal that SALGA can give to the Committee to address the matter of debts. He suggested that the Committee can form a joint Committee with another Committee to address the matter because he believes that next year the debts will rise even to R76 billion. On the same matter of debts, he also asked what specifically causes the increase in the amount. Is it the interest on the debts or something else? Secondly, he asked about the issue of electricity, which is still a problem. Looking at the map in the presentation, it shows that Eskom is providing 90% electricity in the country; at the same time electricity is expected to be bought in bulk and sold to subsidise other services. How is this being carried out? Are there any discussions going on between SALGA and the Department of Energy around this matter? If there are discussions, he asked SALGA to then disclose what the problems with Eskom are and what is making Eskom not want to pull out of this area.

Ms B Maluleke (ANC) welcomed the presentation by SALGA and acknowledged that it was a detailed report but she expressed that she wishes municipalities could implement the initiatives that were spoken of in the presentation to help the municipalities to become functional. Though SALGA got a clean audit, it had a lot of under-expenditure. How was the R8.2 million under expenditure incurred? In addition to that she also asked SALGA to explain the fruitless expenditure of R14 000 and irregular expenditure of R1 million. Lastly, why has the audit fees of SALGA increased so much? For the 2016/17 financial year it stood at R2.5 million but for the 2017/18 it stands at R4.1 million.

Ms N Shabalala (ANC) thanked SALGA for a well presented report. She firstly spoke to issues of wasteful expenditure on community work programmes by the municipalities. The Committee believes that the work programmes are a vehicle driving away the problem of unemployment however things do not seem to be going well in that area. The detailed information concerning the wasteful expenditure on community work programmes is not covered in the Presentation; will SALGA provide more information at a later stage? Secondly, how is the performance of the different small municipalities in terms of money collections? Though it was highlighted in the presentation, SALGA needs to go deeper to bring to light what the types of challenges apart from water and electricity are. There is also another challenge of big business people acting unacceptably; forcing to be employed and do work that they are not supposed to be doing. She gave an example of some people who call themselves “Delangokubona”, or Members of the Federation for Radical Economic Transformation (FFRET) who have been in the media for wrong things, yet they are not behind bars. What mechanism is in place to resolve that matter of corrupt practices by business people in the municipalities?

Mr K Mileham (DA) said the Auditor General raised a concern about SALGA’s supply chain management, specifically relating to competitive bidding not being complied with. What steps are SALGA taking to deal with that? On the presentation, slide 34; where SALGA talks about regional electricity distributors. This was a project that ran from the late 1990s until 2010 and then it was shelved by National Treasury and other departments because there was no buy-in between SALGA on the one hand and the municipalities represented by SALGA and Eskom on the other hand. He remembers that it was a long way down the line with Grade 1 in Cape Town but there were disagreements over how it would be implemented; who would give up what, etc. But now, SALGA is pushing for it again. Does that mean that SALGA is willing to compromise and that there are discussions around the matter? What is the exact status of this proposal? He did not understand why the project was being resurrected when it was already stopped ten years ago.
The next question was on the appointment of senior managers. On slide 65 it was indicated that 474 vacancies were advertised; of 474 how many were appointed? On the next slide, SALGA spoke to competency of senior managers and the link between upper limits of remuneration to competency and SALGA said it should be done away with because it undermines retention and succession efforts. But one thing that concerns him is that the Committee has indicated time and again that the municipalities are not complying with the minimum requirements of competencies and many extensions have been made for those minimum competencies. He pointed out that by doing away with competency linked to remuneration; mediocrity is being promoted. South African municipalities are in a dire state. SALGA is doing well but the municipalities themselves are in a shocking situation. By doing away with competency is like saying qualifications, skills and experience are not important, but other things are; like who one is politically aligned or how long one has been doing the job. But it does not mean because you have been working for 20 years one is good at the job.

On the Section 71 analysis on slides 97 and 98, there are significant gaps and this is a great concern. SALGA does not seem to be aware of the gaps and has not proposed anything to remedy those gaps. For example, reporting of investment on municipalities, in other words where they are investing their money is not adequately addressed in section 71 and it has been seen in the whole Venda Building Society (VBS) Mutual Bank saga. Municipalities are getting away with putting money into banks that are not legally compliant with the Municipal Finance Management Act (MFMA) and the investment regulations of Treasury. Though Treasury tells them; the municipalities always fall back on the fact that their own by-laws allow that. SALGA should be taking a much firmer position on this. Municipal finances are the single biggest stumbling block to good governance in municipalities. In terms of the priorities of SALGA, It is a concern that the amount being put into good governance and financial sustainability is only R49 million rand; SALGA is putting in much more into partnerships. The problem however, is not international, what is SALGA doing to capacitate local municipalities? What is SALGA doing to capacitate municipalities to implement Municipal Standard Chart of Accounts (MSCOA). Because MSCOA gives standardised chartered accounts for all municipalities so it has to be implemented, but the municipalities need support in doing that.

Mr Mileham referred to the South African Revenue Services (SARS) idea and said it is a brilliant concept but unrealistic. Municipal billing systems are in a disastrous state. The municipal billing system would have to be linked to the SARS system and see where there is an amount outstanding to the municipality. He thinks it is a great idea but it is not feasible. He also said he agrees with the merit system for Chief Financial Officers (CFO) and managers, it is an inspired idea. On knowledge sharing; it looks like SALGA sits on a lot of information. It is very difficult to find information on the SALGA website. The search function does not really work, the knowledge hub and circulars are not linked to each other; the same consecutive document can get deposited into different places. The knowledge management is not where it should be as an organisation; a lot of work needs to be done on that and the functionality of the website. Lastly on slide 132, on major risks facing government.

Mr Mileham disagreed with SALGA on its comment on Section 139 interventions and Section 154 because by the time section 139 of the Constitution is referred to, it is very clear when a Section 139 intervention is required; when there is a serious breach of financial obligations. Prior to that, there should have been Section 154 and it can be argued that there is a Section 154, protection and capacity. Section 154 is not an intervention; it is an ongoing support and capacitation of municipalities. But Section 139 says that when it has been broken down, at that time there must be an intervention. SALGA was all in favour of the amalgamation of municipalities in 2016, however, would SALGA agree that it was not a good idea, as it has dragged the majority of those municipalities backwards? SALGA assisted 43 municipalities in terms of audit outcomes, how many did not improve? How many have regressed? He wanted to know if SALGA’s assistance is making a significant difference in those municipalities because if only seven out of the 43 municipalities have improved then it is a problem because it means there is no return on investments.

Mr N Masondo (ANC) firstly congratulated SALGA on a quality report as well as a clean audit, although there is always room for improvement. He spoke to the Small Town Regeneration (STR) programme and said it is a government wide programme which needs to be interrogated slightly differently all the time. SALGA should provide more information on the pilot projects; if there are any. Secondly, one of the issues that the President raised when he spoke to traditional leaders at the beginning of the year; was the notion of an agrarian revolution. If it is an intervention particularly in rural areas, we need to pose the question of how many of the towns are affected because this was not only raised by the President but also by SALGA. Since SALGA is an important player in the matter; it should be followed up. In addition, is the book published by SALGA available to the public or to the Committee? He also raised another point on major risks on slide 66 of the presentation. He requested SALGA to elaborate on the failure of the unemployed to pay for services. He then referred to slide 47, stating that households are responsible for 71.2 % of what is owed to municipalities. Unless there is innovation and creativity on the part of SALGA to come up with a way to sort out the issue based on a long term strategy; no one else will raise it. SALGA is too critical a role player and needs to refocus everyone’s attention on a matter so important. He also requested more detail around the issue of The Spatial Planning and Land Use Management Act 16 of 2013 (SPLUMA) and its related challenges. His last point related to the leadership programme that SALGA put in place to assist municipalities to move in the right directions. He asked how far the programme is and if there are any notable results.

Mr N Khubisa (NFP) first gave an apology for being late as he had a Chief Whip Forum to attend. He then congratulated SALGA on their comprehensive report and on their clean audit. He said what is of prime importance to the Committee is to see well-functioning municipalities in order for them to address issues of service delivery. SALGA’s role then is to facilitate programmes that will assist municipalities to change their service delivery trajectory. In a media briefing the Minister had identified municipalities that are malfunctioning. There have been some adverts and appointments to bring in scarce skills in those municipalities. He asked what tangible help is SALGA bringing to ensure that there are well functioning municipalities. When municipalities do not function, it has a detrimental effect on the economy of the country. Are SALGA’s interventions reaping dividends? Not to undermine the international interventions; but local interventions are more important. Secondly, what are the challenges that SALGA is facing with the amalgamated municipalities? Because some of them that were brought together came with different accounts; some were functioning well and some had no revenue at all; yet in line with demarcation they had to be together. Thus, what are the challenges and how can help be given? Mr Khubisa wants to see everyone contributing to the well-functioning of municipalities. Lastly, he spoke to the issue of water; usually it is a question of the district municipality working with the Water Board but local municipalities are having problems. Some rural municipalities have no water at all. It is a huge challenge; what is SALGA doing about it? Although SALGA cannot provide water, SALGA can facilitate an intervention to provide water in areas where there is no water.

The Chairperson gave an opportunity to SALGA to answer all the questions.

Responses from SALGA
Mr Tau was the first to answer. He responded that SALGA is participating in an inter-ministerial task team on electricity and an advisory team was appointed. The team has generated a report in which all the challenges concerning electricity distribution have been looked at; including issues of mandate responsibility. The aforementioned report has been circulated to members of the task team and he stated that the task team would be having a meeting on the coming Friday. He confirmed that cabinet process has started to address a number of issues related to electricity. The first being what SALGA considers, as a matter of the constitutional mandate and responsibility of local government as the primary distributor of electricity and the way the country has designed the local government system to enable electricity to cross-subsidise other services. There are many municipalities where electricity is not a revenue stream or a source of income of local government and there has been a debate as to how that is being resolved. Some of these issues have been raised in the inter-ministerial task team. A comprehensive report presented what needs to be done about the structure of the electricity distribution industry and the responsibility of local government. The debate has played an important role and SALGA says that whilst it recognises that this is a constitutional duty of local government, SALGA also accepts that the distribution industry involves both local government and Eskom as distributors. Therefore it is not always about taking over, but also about possibly entering into service level agreements with Eskom so that the issue of revenue for local government can be solved. SALGA hopes the inter-ministerial task team will resolve the matter and identify areas of legislation and policy that need intervention. There are also structural and systemic issues in terms of the electricity industry that require attention. For example, the interest rate regime that was referenced requires prime rate plus 5%; which is onerous on the local government and places huge pressure on them. So, a concession has been made to bring it down to prime rate plus 2.5%. The next point he touched on is the issue of the credit control regime, which requires that after 15 days that municipalities have not paid, there will be penalties. But in the MSA the cycle is 30 days so, particularly in municipalities where there are no reserves to mitigate the fifteen day gap in the cycle, it means after fifteen days the municipalities already generate interest as a penalty of prime plus 5% or prime plus 2.5%.The interest is also compounded so the situation just goes from bad to worse. SALGA is engaging the task team on that matter as well as the matter on notified maximum demand which requires that municipalities receive a particular amount of electricity and if a municipality exceeds this amount for one month, the municipality will be charged for 12 months as a penalty.

This is extremely onerous on local government, thus the notified maximum demand needs to be revised. SALGA’s view on regional electricity distributors is that in the work that was done around the rates, there is valuable information that needs to be extracted to ensure electricity is distributed optimally and economic models need to be looked at. The issue that was at the core of SALGA’s argument at one time was about ownership; to transfer the electricity industry into national government it would take a significant portion of revenue away from local government. If that happens, local government will continue to having enough resources and capacity to deliver. SALGA suggests that the issues of ownership and structure need to be debated. The presentation showed that SALGA hosted an energy summit to make specific recommendations around the need for a comprehensive review of electricity and energy supply taking into account technology evolution. One of the threats that were identified is that many customers moving off the municipal grid, particularly major industry, commercial enterprises and buildings. Thus the responsibility is shifted to the domestic users, which places a greater burden for sustaining our local government. The energy summit outcomes are available for engagement.

SALGA indicated that on the matter of water, the work being done with the Dutch is normative. There are three municipalities that have been identified for support, but the support should be normative and applied to all other municipalities. SALGA also accepts that it cannot assume the responsibility of governmental departments or take over functions of the departments. The partnerships should enable SALGA to generate policy and normative systems to be able to use them as mechanisms before changes in legislation and policy.

On the matter of amalgamation, the President of SALGA welcomes the comment that SALGA should provide necessary support to local government. SALGA cannot assume responsibility of line function national departments, taking into account SALGA’s mandate and resources. SALGA has been asking National Treasury to support the amalgamation of some municipalities with the necessary fiscal support and the transition of the amalgamation must be managed. Lastly, the report generated, on the book published, is available and can be made available to members of the Committee. Whilst SPLUMA as an intervention has been valuable, it gave a number of lessons to see how it can be reviewed to function optimally. There is room for improvement in terms of the policy intent of SPLUMA.

Ms Zandile Gumede, Deputy President, SALGA, said that she wanted to deal with the issue of Delangokubona Business Forum members and how SALGA has set out to resolve it. She said SALGA invited Minister of Police through Ministers and Members of Executive Councils Meeting (MINMEC) and the Minister of Cooperative Governance and Traditional Affairs is also on board. SALGA is trying to look at different provinces, especially because it seriously affects tourists, the economy and service delivery. SALGA has not turned a blind eye, there are forums that are sitting and the issue is being dealt with. People need to be empowered but the way it is being done is a threat to society. Security agencies have also been advised to get to work because the acts of the Delangokubona are uncalled for. As much as it is being said that people need to be empowered and be given the opportunity to do business, the way that group of people are doing it has become a threat to the entire society. Secondly, on the issue of the exchange programmes and its value; it is important to note that they have been very helpful in issues of the environment. She asserted that the programmes should be looked at in a positive light.

Mr Memory Booysen, Executive Mayor, Garden Route District Municipality (GRDM), and NEC member, added on to what Mr Tau said about the electricity issue. Currently one of the challenges is that Eskom provides, because local government uses electricity distribution as their credit control policy. Where municipalities distributes and cuts off services when households do not pay, within hours people come up with the money and make arrangements to pay. But, Eskom does not allow the municipalities to do that, so the debt just increases in those areas and people continue not to pay because the municipality has no control or incentives to lead households to pay. Secondly, he spoke to the issue of water, referring to the GRDM not being a water authority however according to its mandate in the constitution it is expected to play that role. He made an example of two municipalities, namely Kannaland and Oudtshoorn, who have water crises at the moment and call on the GRDM for help. The problem however, is that the GRDM is not a water authority, they do not even have engineers and the best way they can help is to send tankers through, which is not enough. So, Mr Booysen said that it is important for municipalities to look into what is constitutionally required and get capacitated in that matter.

Mr Bhekumzi Stofile, National Executive Committee (NEC) member, started by pointing out that Mr Tau and Mr George did report to the NEC of SALGA, to say that there is a concern in terms of SALGA’s priorities. The NEC understood that priorities are set by members, because the association is member driven. As members deliberated on the report that was submitted by Mr Tau, the NEC members found nothing wrong with members deciding on what should be done. The focus of priorities is thus informed by the members. He also dealt with the issue of the Section 71. He said it is not mandatory for SALGA to receive Section 71 reports and that it is the full responsibility of the Department of Cooperative Governance and Traditional Affairs (COGTA) and the National Treasury. SALGA, with its understanding of the system called Section 71 is to be able to at earlier stages of development pick up possible dangers and risks, and then there should be some assistance which can be called Section 154. The National Treasury research work, confirmed what SALGA said during the local government week; that is, the usage of Section 139 does not yield results but makes municipalities worse off. What can SALGA do extraordinarily if the trusted authority also has gaps and problems? There needs to be an innovative way of dealing with Section 139; it is important for the Committee to look into this matter. Lastly, he spoke to the issue of the billing system. He was told that the constitutional drafters were very strategic not to create tiers of government but to create spheres of government, interdependent and inter-related. How can the same government have a different system managed by SARS which makes both national and provincial government be effective in terms of their collections, but the same system cannot be used at the local government stage where collection capability needs to improved? It is important for the views not to be confined at the local stage only, but what could be the role of other spheres of government in assisting the local government. Another issue is that the legislation stipulates there should be no councillor who owes the municipality. But the legislation does not say that there should be no public office bearer or senior officials employed in other levels of government that owes public services. It applies also to businesses that owe the municipality and get away with it, and continue to do business in other areas. He suggested that the legislatures should consider a possibility of finding a way that is unitary and beneficial even for local government.

Mr George commented on areas that had not been responded to. One of which is the issue of senior managers in municipalities that have been recruited, as well as an update on the issue of the relationship with payment of salaries. The convention of the use of competency assessments is for developmental purposes but uniquely in local government they are used as a basis to attach one’s salary scale. It creates problems and exerts a lot of pressure on the bottom up aspiration of municipalities to recruit people. SALGA thinks that competency assessments are not an appropriate determination for a salary. It is not to say that those who are incompetent should be appointed. The understanding is that experience, track record and qualifications must be looked at through a universally acceptable system. SALGA supports competency assessments for the purpose of development and it supports general professionalization of local government but other instruments carry unintended consequences around that.

In terms of the areas of VBS Bank scandal; it has been publicised and measures are being taken by curators around it. The leadership of SALGA has expressed that it is significantly weakened because all the information of Section 71 goes to National Treasury then it goes to COGTA. SALGA is not in the loop for information thus does not know who invests with whom. SALGA asks that the amendments of the MFMA and the system should allow SALGA to receive information so that it knows when Water Boards are facing liquidity issues and so forth. Reports of Section 208, 201 and 71 must be made available to SALGA; it supports any mechanisms being put in place to prevent this issue going forward. In terms of the programmes internationally are directly linked to municipalities and they are not about broad linkages but are specific programmes on governance, building capacity, financing, climate proof investments and so forth. Thus, there is a direct correlation of programmes regardless of whether it is funded nationally or internationally. SALGA however, welcomes ideas on how it can reprioritise funding where there is a major pressure in a certain province in governance, and a reflection in resources to respond. MSCOA is welcomed but arriving at an institution where the capacity is so low it corresponds as such, so SALGA runs sessions with municipalities on the Municipal Standard Charter of Accounts (MSCOA) support working with Treasury. There are teams that are in different areas on generic advice but also on specific enablers so that MSCOA determinations support municipalities, so SALGA truly supports that issue. There is a need to look at the re-examination of instruments around targeting support to municipalities. When one looks at the grant structure for local government, before it was 23 grants and then restructured to 15. He zoomed in on one grant called municipal system support grant; why is the grant not modelled in a way that it looks at the system that is underpinning the ability of municipalities to collect revenue? The improvement of billing systems in municipalities needs to be a target. It is important that some of them be re-tailored as opposed to a demand request from a member. SALGA should be able to point out the municipalities with collection weaknesses and ensure that the grant directed to them is aimed at that specific issue. This should happen in order to limit the scope for using the grant for other purposes.

Mr George then confirmed that SALGA will provide their Framework as well as the study of Treasury that was referred to in terms of Section 139 in detail. On the amalgamation of municipalities; there is ongoing work that SALGA is doing on the support areas. In the main report SALGA says that they must be preceded by a very detailed report. It is important to know what underpins a certain amount of amalgamations because some municipalities are amalgamated but there is no capacity to manage even records. There is no transition mechanism tooled by the AG; SALGA wants to have a robust instrument to determine what needs to be funded.  

SALGA agrees with Mr Masondo on the area of detailed work on the STR programme. SALGA is currently piloting the programme, which it started in Vaal Triangle and a regional scale programme has been chosen. SALGA is in De Aar in the Northern Cape, as well as other provinces and core indicators of development have been finalised. Some Premiers are ready to give resources to some of the improvement areas around those developments. As time goes on, SALGA will share results with the Committee as it is still at an early stage. SALGA is working with the Department of Agriculture and Land as well as the COGTA branch of traditional leaders to look at the area in terms of agrarian reform because there is an agri-belt, coastal belts and mining belts in all core interventions. So the STR programme takes into account various typologies that will be used to support development which the agrarian reform will also form part of. He repeated that the SALGA book will be made available to the Committee. On the question of SALGA’s direct support to municipalities, Mr George responded that SALGA has had a focus on generic support.

In response to the question of whether there is a return of investments in the area of the 43 municipalities, he replied that these are red zone municipalities and there are dividends and results seen for the work SALGA has been doing there. SALGA has flagged 18 municipalities according to its mandate, and out of 18, seven have shown improvement.

With regard to the internal financial management and on the area of irregular expenditure, Mr George confirmed that SALGA did incur irregular expenditure on a transaction that pertains to acquisition and SALGA was required to follow a transversal contract. SALGA looked at the principles of Section 217 of the Constitution, and then went to the manufacturer and found an offer that enables a discount structure. SALGA acquired it and reported that. National Treasury then said that in future SALGA must follow transversal contracting and be able to show it has taken action on the officials that had well intended intentions in mind but have made mistakes. However there was no intended criminality and officials are being trained to avoid such mistakes in the future.

Mr Nceba Mqoqi, CFO, SALGA, responded to operating suppliers of R8 million contributing to under-expenditure. He highlighted that SALGA does not get a grant that fully funds it, 90% SALGA’s revenue come from membership fees. SALGA has written to Treasury as there are time lapses for invoices and collections. In terms of Section 53 of the Public Finance Management Act (PFMA), National Treasury provided the organisation with approval to accumulate surpluses which are intended for bridging a gap between when invoices are issued, and in terms of the SALGA constitution those invoices are payable 120 days later. This is to ensure that SALGA has adequate cash flow. Lastly, as an organisation that is focused on cost containment and reducing cost base, the NEC has approved an asset acquisition strategy. Based on the 90% revenue, time is needed to acquire cash back reserves which relinquishes the organisation from further recurring expenditure and operating leases for administrative buildings. In regard to the R14 000 that was incurred in fruitless and wasteful expenditure, the organisation views it in serious light. In every instance where the organisation has incurred wasteful expenditure that ordinarily arises due to late payment of a creditor; it arises due to cash flow management as well as timing difference of when a supplier issues an invoice and when the payment is actually made. SALGA does recoup those and pursues sale with the suppliers. In regard to audit fees, when one compares the previous year to the reporting year, the accounting standards require that expenditure needs to be approved. However in terms of South African Institute of Chartered Accountants (SAICA), audit fees cannot be approved so it is important to make sure that a liability is correctly measured. Due to the timing differences that occur, the audit fees for the year appear to have increased. 

The Chairperson suggested that the Committee meets with other portfolio committees, specifically the Committees on Energy and Water, because of the major risks involved. This meeting should be in a workshop setting and an invitation should be extended to SALGA to talk about those specific major risks. He concluded that SALGA is doing very well to the point where it is even when sometimes it is taken as a department and is expected to fix all problems in local government. He gave an opportunity to the President of SALGA to give concluding remarks.

Mr Tau concluded that SALGA understands its responsibility to continue to work with government on municipalities and service delivery and is ready to continue engaging with government. There are still many opportunities to resolve problems.

Briefing by Municipal Demarcation Board (MDB) Annual Report 2016/17

Ms Jane Thupana, Chairperson, MDB, presented on the highlights in the 2016/17 annual report. She presented the highlights of the MDB for 2016/17 which included hosting a conference on Demarcation and Spatial Transformation; developing a new Municipal Capacity Assessment model; submitting proposed Legislative amendments to COGTA; and developing a Regional Operating Model (Regionalisation) to enhance public participation.

The programmes carried out and their strategic objectives were as follows:


  • Determination and re-determination of municipal boundaries
  • Delimit wards to facilitate local government elections

-Research & Knowledge management:

  • Capacity assessment of metropolitan, district and local municipalities
  • Research & knowledge management to improve advisory

-Finance & Management Accounting:

  • Ensure good financial planning and management
  • Provide and maintain a stable and secure ICT environment

-Corporate Services:

  • Ensure good Corporate Governance and efficient Board support
  • Build and maintain institutional capacity
  • Enhance public participation and stakeholder engagement

These programmes achieved an overall of 65% of its collective targets.

Ms Thupana concluded by indicating to the Board that this year is the last tenure of the current Board and a new one will begin in February 2019.

Mr Sigidi Muthotho, Chief Executive Officer, MDB, highlighted the MDB obtained an unqualified audit opinion. The AG raised two findings related to performance information and five findings related to compliance with legislation. Measures are being instituted to curb the recurrence of the findings. These include implementation of Standard Operation Procedures (SOP) for performance information, and improvement of supply chain management (SCM) controls to ensure compliance to prescripts.
There was under expenditure during the financial year. The underspending mainly related to, amongst others, positions budgeted for, but were not filled, and projects were not implemented on time, these included:
Revised methodology for categorisation of metropolitan municipalities;
Framework on the application of the demarcation criteria;
Evaluation studies of 180 local municipalities to determine if they still meet demarcation criteria. 

Ms Tintswalo Baadjie, Chief Financial Officer, MDB, spoke to the 2017/18 Medium Term Expenditure Framework (MTEF) budget and the budget programme structure for 2017/18.

Ms Thupana, then spoke to the MDB’s key challenges which include:
Lack of a clear plan on configuration of the local government landscape, for example, perpetual debates on the future of the two-tier system, secondary cities and long-term plans on the rationalisation of municipalities.
Provincial boundaries that impede MDB’s work, for example, Moutse, Dipaleseng, Ba ga Mothibi, Matatiele, etc.
Inadequate funding of MDB: constraining effective public participation and establishment of regional presence.
Spatial discrepancies concerning traditional community areas exacerbated by lack of proclamations thus resulting in misalignment of municipal boundaries.
The proposed interventions were for COGTA to expedite work towards a coherent policy framework on local government architecture relating to the future of two-tier system of local government, rationalisation of municipalities, secondary cities, and so forth. Another intervention was for COGTA to collaborate with the Department of Justice and Constitutional Development to facilitate matters relating to provincial boundaries. Amendments to legislation governing the demarcation process was also important. The MDB has already submitted proposals for legislative amendments to COGTA which includes among others: triggers of re-determinations, frequency of demarcation cycle, public participation in the demarcation process, and the demarcation appeals mechanism. Furthermore, the Departments of Rural Development and Land Reform and Traditional Affairs need to facilitate the survey and proclamation of all traditional community areas to give certainty over boundaries of Traditional Councils. Lastly, review of the MDB funding model to ensure that the demarcation process is appropriately resourced.

Mr Ashraf Adam, Deputy Chairperson, MDB, lastly highlighted issues of investigations. He reported that an investigation was conducted into possible improper procurement of the accommodation lease. MDB is in the process of implementing the recommendations. A decision has been taken by the Board to investigate possible conflict of interest and irregularities in the procurement of a service provider used in the arrangement of the MDB conference. The Board is currently implementing the recommendations relating to HR and hearings are planned for October 2017. He concluded that an increased level of funding and implementation of the regionalisation model, are key to effective and efficient execution of the mandate of the Board.

Mr Mthethwa thanked MDB for their report and said the day before the meeting there was an AG report presented to the Committee that had reflected that money was asked for to carry out a capacity assessment. However, according to the AG, MDB did not use the money for the 81 municipalities; why is this? It is hard for the Committee to trust MDB’s information because it stated a certain need for the money, but the money was used for something else. In addition, MDB failed to table strategic risk register on time, he remarked that it is odd because now MDB has a fully-fledged staff.  So, why is the MDB not submitting documents on time?

Mr Mileham raised a few concerns, the first related to the actual audit report. The AG highlighted that one of the root causes of the qualified report finding is “management, i.e. accounting officers and senior management, did not respond with the required urgency to our messages about addressing risks and improving internal controls”. In other words, the AG would present an issue but the MDB would not respond to that issue. The other thing that the AG identified as a problem was that there were no consequences for findings of the investigation of previous years relating to SCM findings by MDB.

Mr Mileham said the consequence management of the MDB is lacking. In the AG report, it talks about the status of internal controls and it is stated that at the MDB, the leadership, financial and performance management and governance are of concern. The chairperson and the CEO of MDB need to take these issues on board going forward to the next year. The municipal capacity assessments, at this late stage, where funding has been given for it, have been left to the very last quarter to implement and that is why it has not been achieved. He suggested that implementation should be done much earlier in future because it reflects as not achieved on the report findings.

Mr Mileham acknowledged that the MDB will fund their activities out of the surplus, but the surplus is not that great. Therefore given this reality, he asked how exactly MDB will carry out ward delimitations, public consultations and the remainder of capacity assessments on every single municipality. There are clear financial constraints under which MDB is operating. He suggested that maybe money is being spent in the wrong places, perhaps too much on operations or maybe too much staff that has been employed. Or MDB is investing in a building that it should not be investing in. How will MDB fix things in order to free up funding so that MDB can deliver on activities? Even if it means some activities should be outsourced. Right now it seems increasingly unlikely to have more funds to do the ward delimitation. There are two years left to finalise ward delimitation; it is a very urgent matter. On the amendments made to the Municipal Demarcation Act, according to the information that the Committee has received, none of the recommendations of the MDB has been brought forward to Parliament. The Committee does not know what amendments are required and until they can be processed on the Committee’s side it is basically a non-issue for the Committee. He suggested that maybe waiting on COGTA is going to be too long a process; MDB may submit the amendments to the Chairperson of the Committee so that they can be processed through the Committee. The Committee has power to introduce a Committee Bill; this does not have come from COGTA.

Responses from MDB
Ms Thupana responded to Mr Mileham’s suggestion and said as the Board the only thing they knew was that they had no mandate to table that. The route of working through the Committee probably could have been explored on time. That is what MDB will then do. There are a number of issues that may be misunderstood and the CEO and CFO will respond to that. The major problem pertaining to the issue of consequence management once findings are reported is that, by the time recommendations are tabled to MDB, most of the people implicated have left the organisation. The investigation takes time; it is only one instance where criminal charges were laid against a former CEO. So the time length of the finalisation of the investigations is the main problem in implementing consequences. The benefit to the organisation is that lessons are learnt through such instances.

Ms Baadjie responded that with regards to the capacity assessment, additional funds from National Treasury will be used for that programme and nothing beyond that will be used. Initially MDB only had enough funds to carry out assessments for 81 municipalities, then from the R7 million received from National Treasury MDB decided to carry out the assessments on all municipalities. This will take time since funds would only be received in October. Thus, the process could not be finalised by the end of the financial year so no funds have been moved around. She apologised on behalf of MDB for causing confusion in that regard. On the question of the strategic risk register, she said there was a workshop carried out with the Board, and it was assumed that that would be sufficient. However it later emerged that according to MDB’s technical indicators, the very same risk register had to be given to the Board to be approved, but the Board was part of the workshop. It is not because there was a delay or lack of capacity; it was just a misunderstanding and an error on their part. In terms of the budget, rather than using the word ‘surplus’ it is better to refer to the money as reserves. There is R120 million as reserves which are meant to be used to cover liabilities including leave and building liabilities. It is not proper accounting to deplete those reserves in case of any liabilities incurred, even though the chances are low. But in the past liability reserves were depleted and it led to the entity being regarded not financially viable. The MDB has been pleading with Treasury but no assistance has been given and it can lead to a very dangerous situation where liabilities will not be able to be covered.  

The Chairperson said he thinks MDB has answered all the questions from the Members

Mr Mthethwa replied that the questions are not covered. In reality, by the end of February 2018, the strategic risk register was not submitted at all. According to the AG report, it was not submitted, that also including the five issues that MDB said will make a collaboration agreement on for researchers; was not done. However MDB put it mildly.

Mr Sigidi said the strategic risk register is what the Board should normally put forward for management to implement. The Board sat around November and put forward a strategic risk register; hence the reason why MDB reported early this year and it indicated a performance of 91% on pre-determined objections. But the technicalities were on what is termed the ‘technical indicator description’, which required the board resolution to state that the strategic risk register served in the Board. MDB thought it was done by the Board, as a resolution of the Board, thus there was a misunderstanding. This led to the Board deciding to have it as something that has not been achieved as they realised too late about the misunderstanding. It is the same with memorandum of agreements, MDB stated that it was meant to enter into five agreements, three have been formalised but two were not achieved because by the end of the financial year they were not formally signed.

The Chairperson said since there were no other issues raised by the members, the MDB could give concluding remarks.

Ms Thupana said she wanted to give comfort to the Committee about the issues raised by the AG on consequence management. They may not have been pointed out in the current annual report but definitely the consequence management is one of the issues that the Board emphasised to the accounting officer to make sure it happens. A senior manager has already been dismissed as a result of consequence management.

Mr Adam said it has been a robust period and he really appreciated having to account to the Committee as it has kept the MDB on its toes. He commented that it is very easy to destroy an organisation administratively and it takes a long time to fix it up. MDB however, has managed to get competent people on Board and results can already be seen through the quality of financial information and the improvement of the quality of reports and the action taken against people. He concluded by thanking the Committee for keeping MDB on its toes.

Mr Mileham said since there will be a new Board elected; it would be very valuable if the current Board provides a transitional handover document.

The MDB confirmed that it will do so.

The Chairperson thanked the MDB for always coming to present to the Committee.

Briefing by the Commission for the Promotion and Protection of the Rights of Cultural, Religious and Linguistic Communities (CRL Commission) 2017/18 Annual Report
Mr David Masomo, Deputy Chairperson, CRL Rights Commission, spoke to the audit outcomes. The CRL Rights Commission attained an unqualified report with no matters of emphasis for the year under review. All programmes of the commission attained their set targets in 2017/18 financial year. He also highlighted in the 2017/2018 Impact Analysis, the CRL Rights Commission continued to have a strong presence in the media in the year under review. This media presence assisted the Commission to follow the conversation and issues on matters of culture, religion and linguistics. It has afforded the Commission an opportunity to respond or share information in respect of cultural, religious and linguistic issues.
He stated the CRL focused on the following areas in 2017/18:

  • 18 capacity building engagements with community councils - to build their capacity on good governance and ethics;
  • 12 nation building dialogues;
  • 18 awareness campaigns on cultural, religious and linguistic rights;
  • Discussions and debates on challenges and problems of male initiation;
  • The role of women in Christian religion; and
  • Deaths at initiation schools (which started in 2016/17 and concluded in the year under review).

Mr Cornelius Smuts, CFO, CRL Rights Commission, spoke to issues of expenditure. He emphasised that the CRL Rights Commission received additional funding from the Department of Traditional Affairs to the value of R2 million. The CRL Rights Commission closed the year with R558 000 cash in the bank account and these funds were insufficient to settle all the creditors at year end. These outstanding invoices were settled in the new financial year, which will impact on funds available for service delivery in the new financial year. The CRL Rights Commission would not have met the targets as reported without the additional funding made available. The CRL Rights Commission exercises prudence in the utilization of financial resources as demonstrated by the efforts to remain within the budget allocation, notwithstanding the pressure in respect of the implementation of its strategic plan. The expenditure forecast revealed that the CRL Rights Commission will not be able to fill any vacancies during the 2018/19 financial year. The proposed adjustment to the baseline allocation is insufficient to support the current performance of the CRL Rights Commission, therefore the CRL Rights Commission will have no option, but to downscale its strategic plan. The CRL Rights Commission will receive the next Commission during the 2019/20 financial year, which will require the hosting of the first National Consultative Conference (NCC) of that term. This requirement is currently not funded in the baseline allocation.

Finally, the challenges the CRL Commission faced were:

  • Noncompliance with the CRL Act 19 of 2002 Section 24 (1) (a) states:
  • The Commission must convene two NCCs during every term of the Commission, the first of which must take place within the first 12 months of a new term of the Commission.
  • The small establishment of the CRL rights Commission consisting of 30 staff members inhibits service delivery severely.

Prof Masomo remarked that although under severe financial constraints, the Commission is doing all it can in giving service to communities in line with its mandate.

Mr Mthethwa commented that it is unfortunate that the CRL Commission has gone back from a clean audit to an unqualified audit opinion. The Committee is concerned. There was also irregular appointment of consultant services. What plan does the CRL Commission you have to address such issues? It is also unfortunate that the appointment of senior officials is not happening according to the correct procedure and it should be explained to the Committee why this is happening. There was no indication of the expenditure trend at the time the AG report was compiled. He acknowledged that it has now been presented but improvement is needed on complying and submitting documentation on time, the AG has also alluded to that.

Mr J Dube (ANC) said it looks like CRL is having challenges though it is trying to improve. He said he has no doubt that things will improve in the next financial year. He asked for the CRL to give an indication of the officials who are involved in the irregular and fruitless expenditure and what steps are being taken by the Commission to address the issue of the R1.1 million. Another question was asked in connection with the audit fees; technically, if the report looks like this, it is wasteful expenditure. How can the Commission budget for people who are failing? These people are meant to assist the commission, but they cannot assist the Commission to submit the report to the AG in time. It is wasteful expenditure because the members of the Audit Committee are not helping the Commission to improve.

Responses from CRL Commission
Mr Masomo responded to a few issues. In terms of issue of appointments of consultants and senior officials not following due process, his responsibility is to ensure all issues of internal audit are taken care of. When it was close to the end of the year, close to the time when the audit process was meant to be done, he was of the impression that the Commission would receive a clean audit again. The matters that have been raised actually do not begin in the current financial year; the matters have to do with contracts that were signed before the arrival of the current leadership. Termination periods of contracts were not respected and the current leadership did not pick them up on time to be able to reverse it, hence the current challenge. When the current leadership took over, challenges were dealt with and a clean audit was achieved. An investigation was launched in order to get more information. The names of individuals involved in this can only be made available after investigation is concluded, which is expected to be in October.  

Mr Smuts said the regression is a disappointment to CRL management and they do take note. Management has already terminated contracts and are in a process of procuring alternative contracts following due process. The management is confident that next year the situation will not stay the same. Although some of the expenses will carry over, those will most probably need to be raised as irregular expenditure and the amount needs to be determined to see where the contracts were closed off. On the issue of consultants and senior officials, the CRL Commission now follows recruitment processes that include vetting and competency assessments prior to appointment. The processes have been corrected; vetting is received from the state security agency for the Commission appointments. Lastly, expenditure trends are available, and the auditors had free access to them and according to his records, everything that the AG asked for was provided. However he will make sure no gaps were left. Investigations are being finalised for those who were involved in irregular expenditure. The nature of the irregularity has also been considered. When people left the institutions and new people came in, some things were not correct relayed and some unintended mistakes were made but are now being dealt with. The CEO had a meeting with the internal audit function, and he discussed the matter with them. Improvement strategies were implemented to ensure the same gaps do not continue. The bulk of the responsibility is not only with the internal audit function, as management also played a role. Everyone needs to work hard in order to get a clean audit again.

Mr Dube said that the CFO indicated that the accumulated amount seen as  wasteful expenditure was due to an internet connection contract , and further indicated that new staff has taken over the office. Normally there is a hand over process to brief a newly employed person. Then they can know when a contract should be terminated or renewed, to avoid such mistakes. Why is a proper hand over process not being followed?

Mr Mthethwa said he heard disturbing news from National Treasury, saying that CRL Rights Commission did not prepare accurate and complete financial reports. What happened to the finance department in this regard?

Mr Smuts responded that the handover process is problematic due to the small size of the structure of CRL. For example, there is only one person in the IT department; when that person gets a better job, he/she gives notice in 30 days. It is impossible to recruit another person and have a proper hand over process within those 30 days. The unit has two bodies; there is a senior manager is in charge of the unit and the procurement officer also plays a big role. Thus, should someone leave the organisation, there will be someone else to recall for example that there are contracts that need to be dealt with. In response to the regression; during the audit process, statements were done completed similar to the prior year. But during the audit process, discrepancies that happened many years ago came to light. The Auditor General took a strong retrospective look and then it required material adjustments to be made on the statements. It is not that the financial statements were done incorrectly but it was because things were not reported fully.

Mr Masomo added that the Commission never knew that there were contracts signed that needed to be concluded. The Commission needs to have a contract register available at the office of the CEO. If it was known that the contracts existed; the contracts would have been terminated.

The Chairperson of the Committee said the problem is being addressed and the Committee expects a clean audit. The Committee will continuously engage with the CRL Rights Commission because religion and culture are permanent.

The meeting was adjourned.


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