Water Boards audit outcomes: AGSA briefing; with Minister

Water and Sanitation

05 March 2019
Chairperson: Mr M Johnson (ANC)
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Meeting Summary

The Portfolio Committee and the Department of Water and Sanitation (DWS) were briefed by the office of the Auditor General of South Africa (AGSA) on the current state of water boards.
They were informed that irregular expenditure had increased from R294 million in 2016/17 to R341 million in the 2017/18 financial year. In addition, in 2017/18 there were five water boards to which AGSA had given a financially unqualified opinion, with findings. Material uncertainty existed as to whether the Amatola and Bloem water boards could continue to operate in the future. The AGSA stated that Amatola, Lepelle and Sedibeng had an abnormally long creditor payment period. The filling of vacant posts at the Overberg water board was still in progress and would be finalised soon. There was major concern about Overberg, as they had not yet submitted their financial statements, which they were set to do by 31 March 2019.

The Committee was informed that an amendment to legislation was going to be effective from 1 April 2019, and this would give AGSA more authority to follow up on material irregularities that might exist, and bring about better accountability.

Members asked about the Strategic Infrastructure Project  and stressed the importance of ensuring that the water boards should be more accountable, and monitored consistently by the AGSA.

Meeting report

Chairperson’s introduction
The Chairperson said that some waters boards were doing well, but some were still struggling. The Auditor General of South Africa (AGSA) was the one that audited the work of the water boards, and making use of private auditors had been challenging. Having the AGSA had been very positive and had led to more tangible outcomes. Water boards needed to be more accountable. The financial year end period of water boards was different from that of the government and other entities but was synced with that of municipalities. The Mlathuze and Umgeni water boards would be presenting to the Portfolio Committee on 6 March 6.

Audit outcomes of water boards: Auditor General of South Africa
Ms Surette Taljaard, Senior Manager, AGSA, said that water boards played an important role in the water value chain when it came to service delivery and infrastructure. The quality of financial statements had regressed and there had been a slight increase in the quality of performance reports, from 33% in the 2016/17 financial year, to 44% in 2017/18. There had been a decline in respect of compliance issues in 2017/18 financial year, but irregular expenditure had increased from R294 million in 2016/17 to R341 million in 2017/18.

In 2017/18, the AGSA had five water boards that were classified as having a financially unqualified opinion with findings. The Bloem water board regressed from having a clean audit in the previous financial period to having an unqualified audit, with findings on compliance. The three water boards that had qualified opinions were Sedibeng, Lepelle and Mhlathuze.

The audit report for Overberg water board was still pending because they had handed in their reports late, and this would be released by 31 March. The main root causes for the non/late submission of the financial statements were because of the lack of presence of a board, the Chief Financial Officer (CFO) position was vacant, and the Chief Executive Officer (CEO) was acting as the accounting authority until such time that a new board was appointed by the Minister.

Regarding the status of controls at water boards, at Sedibeng there was not an effective leadership culture due to no oversight, inadequate filing systems and inadequate policies in place. At Overberg, the lack of a board was strongly affecting the water board. At Lepelle, the lack of proper record keeping, daily and monthly processing and inadequate information technology (IT) system controls were of major concern.

Four water boards -- Bloem, Amatola, Lepelle and Sedibeng -- experienced financial health concerns, with considerable difficulty in collecting debt. Their average collection period was long. Material uncertainty existed as to whether Amatola and Bloem could continue to operate in the future. Amatola, Lepelle and Sedibeng had an abnormally long creditor payment period. There was a delay in paying suppliers where the entity acted as an implementing agent on behalf of the Department of Water and Sanitation (DWS). The Department did not reimburse the entity timeously for claims on projects, resulting in a delay in settling the invoices of suppliers. Municipal debt consisted of 85% of total receivables of water boards.

In terms of fruitless and wasteful expenditure, the total for the 2017/18 financial year was R16 million, of which R11.9 million was related to litigation and claims at Rand Water. There was a need for accountability to take place at water boards. Internal control had to be strong and debt owed by municipalities needed to be paid.

The Chairperson asked the AGSA team how far they had gone with their amendment of legislation.

Mr Eugene de Haan, Deputy Business Executive Manager, AGSA, said that changes would be implemented from 1 April 2019. The approach application was still being investigated.

The Chairperson asked the AGSA to briefly inform the Committee what the amendment would do.

Mr De Haan said that the AGSA would have additional authority to follow up on material irregularities that might exist, to bring about better accountability.

The Chairperson said that in a nutshell, the AGSA had now been given teeth to bite and deal with water boards that were not performing well. The DWS needed to up their game and to realise that the time for playing was gone. He asked AGSA to indicate their thoughts about the Strategic Infrastructure Project (SIP) that had been imposed on the water boards. He said that the 30-day payment period of creditors was imposed on water boards by the government, and he wanted to know what the AGSA had discovered from this.

Discussion
Mr D Mnguni (ANC) said that water boards had a problem with compliance. Regarding the late payment of invoices, the government had a 30-day payment period, but sometimes the problem was with the contractors who provided the wrong invoices, and this led to fruitless and wasteful expenditure. He asked the AGSA to clarify what they meant when they said that appointments should be made at the board -- who was the board? Did AGSA also audit municipalities? He said that the AGSA needed to rate the water boards in some form of order.

Mr H Geyer (DA) asked when the top senior official positions at the Overberg water board would be filled
The Chairperson said that he was aware that Overberg had a chief executive, but he wanted to know if they had a full board.

AGSA and DWS responses
Mr S Maleka, Senior Manager, AGSA, said that in terms of SIP, irregularities were found in the procurement. No consultations had taken place over this. Water boards used their own methods of procurement. AGSA was still making a follow up to see which water boards were not compliant.

Mr De Haan said that the AGSA considered that water boards were asked to pay creditors within a 30-day period. The Department oversees the filling of vacant positions at Overberg.

A DWS official said that the appointment of the CEO at Overberg was in progress and near completion. The Department was expecting a final report soon on this. The chief financial officer (CFO) had been appointed in the current financial year, in August 2018.

Mr R Hugo (DA) said that he wanted clarity on the state of fruitless expenditure involving the Rand Water board.

Mr Mnguni said that he wanted to know more about the 11% level of the overall audit outcomes over four years at Overberg, which stated that they had been receiving disclaimers with findings. He asked if the water board had been showing signs of improvement.

The Chairperson said he would love to hear the Department’s input about SIP. If there were any consequences involved, they needed to be applied to the fullest.

A DWS official said that SIP issue was currently being investigated, and the Department was waiting for the outcome.

Mr De Haan said that at Rand Water, there was fruitless expenditure because of a contractor that performed work for Rand Water on behalf of the municipality and had been denied payment, and had held Rand Water liable for the payment. Overberg was yet to submit their full financial statement and only then woulld the AGSA be able to ascertain as to whether they had improved.

The Chairperson said he was interested in knowing about the concept of the value chain and how it left a grey area when it came to tariff setting. No government Department was taking an interest in this, and households were left exposed. There was not enough regulation around municipal tariffs and the supply of water. There was a need for collaboration between the DWS and the Department of Cooperative Governance and Traditional Affairs (COGTA).

Mr Gugile Nkwinti, Minister of Water and Sanitation, said he agreed with the Chairperson. Plans to regulate tariffs and service delivery were in progress. Reservoirs were challenging to manage currently, but a plan was in motion to ensure that better management took place.

The meeting was adjourned.

 

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