A litany of maladministration and corruption was laid bare before the Standing Committee on Public Accounts (SCOPA) when five municipalities with adverse audit findings from the Auditor General of South Africa (AGSA) were called to account for their poor performances. They were part of the 12 municipalities which were deemed problematic after consistently receiving disclaimer audit opinions. The Committee found a consistent thread of reasons, ranging from lack of political leadership, inadequate capacity and poor or non-existent systems, to human resource challenges, a reluctance to cooperate with the auditors to avoid possible scrutiny of malfeasance, and an absence of consequence management.
Mogalakwena local municipality was questioned about irregular appointments without following the selection and recruitment process, and about a case where the legal advisors were being overly used. Some of the key issues that had been flagged in the Auditor-General’s report were that despite the adverse and disclaimed findings, and non-compliance with supply chain management processes, no one had faced any consequences on non-compliance, and it was concerning that the officials who were involved in this non-compliance were still at the municipality. The Chairperson commented that corruption thrives when one creates a conductive environment.
The Committee found that Mopani district municipality had received adverse findings for four consecutive financial years. There had also not been any consequence management, despite non-compliance. It was informed that the municipality still owed R571 million to the Lepelle Northern Water board. The Committee said it would monitor the municipality until it could function effectively.
Thabazimbi local municipality had similar problems as other municipalities which have led to the collapse of the financial management of the municipality. One of the issues which the had AG raised was concern about whether the municipality was a going concern. In the year under consideration, there was excess expenditure of R16 million, and liabilities had exceeded assets by R204 million. SCOPA had requested a spreadsheet of all the issues that had led to this situation, and would be interacting with the Hawks and Special Investigating Unit (SIU).
Vhembe local municipality had paid R18.5 million to consultants in the 2017/18 financial year, yet there had been material misstatements identified in the annual financial statements which had resulted in a disclaimer audit opinion. The Council had also taken a decision to pay the former municipal mayor almost R1 million, even though the municipality had lost R300 million that had been invested in VBS bank under his leadership. The Committee found this concerning, as it depicted a lack of leadership in the municipality, and said it would further investigate the matter with law enforcement agencies.
At Joe Morolong local municipality, the financial information was not accurate enough for AGSA to perform a detailed assessment of the municipality’s financial health. The municipality did not collect debt from consumers, which had led to its inability to pay suppliers on time. SCOPA had also noted that the municipality was stubbornly refusing to hand over financial documents to the auditors, which it found very suspicious -- as if it was hiding something. The Chairperson commented that the role of the auditors was to assist the municipalities to do better – they were not there to catch people out. AG. A paradigm shift was needed in South Africa in the attitude towards auditors.
The briefing by the Phokwane local municipality, which is under administration, had to be rescheduled as the administrator could not attend owing to illness.
Hearings: Limpopo municipalities
Ms Beverly Gunqisa, Municipal Manager: Mogalakwena Local Municipality, said that the investigations being embarked were about irregularly appointing officials without following the selection and recruitment process. The other case was where the legal advisors were being overly used. In terms of litigation and labour, the labour could always be processed or constituted internally. They tended to use the external advisors to undertake the processes and finalise this on the municipality’s behalf, which they were investigating.
Mr S Somyo (ANC) highlighted that once one created a scenario which brings in those who were not within one’s own ambit, such as Treasury and the Department of Cooperative Governance and Traditional Affairs (COGTA), one was saying that one was an accomplice to the fact in the wrongdoing that one had discovered. He urged the municipality to come to the Committee with information about the percentage of those who were involved. The materiality of these issues was going to come back to haunt them. They needed to expose the Committee to some of the areas where they had difficulty. If a report was sent to Municipal Public Accounts Committee (MPAC) and it in that instance to they said they had been failed by MPAC, there would need to be appropriate action going forward.
Ms Gunqisa requested that the names be made available to the Committee so that the materiality in terms of the external support could be established, as well as the materiality of bodies internal to the municipality. It would not be good to leave this Committee implicating the Treasury and COGTA.
The Chairperson said that this information should be furnished today. By the time the meeting was adjourned, the information must have been presented to the Committee.
An MPAC representative said the Mayor was correct in saying that MPAC was not functional before. They were functional but not effective because there were reports referred to them to investigate, and at some point they were not achieving a quorum due to the toxic situation in the institution. Currently, there was a reconfiguration.
A Member expressed concern around the issue of consequence management. The municipal manager said that causes of the AG’s disclaimer was due to officials not cooperating with the AG’s office. Another worry was the capacity of the municipality to investigate these cases. Was there capacity to do this?
Ms Gunqisa replied that the municipality had the capacity to investigate these cases. It believed that issues that had been raised by AG previously had been able to point the municipality in the right direction. As a result, they had been able to investigate these matters further to determine what could have gone wrong.
The same Member continued and said that she was happy to hear that. The Committee would be able to determine this once it had received the municipality’s report. Furthermore, did the internal audit committee carry out the recommendations of the audit committee? If they had, why did they have this situation within this municipality?
Ms Gunqisa replied that there was an internal audit unit within the municipality. It was functional and effective. Reports were being taken to the audit committee on a quarterly basis. Recommendations were made by the audit committee after extensively deliberating on reports. They also reported back to Council on a quarterly basis to indicate their challenges and concerns in relation to what the municipality might be lacking. There were still gaps where the municipality was not implementing fully the recommendations made by the audit committee. The audit committee so far was very effective and they were able to guide in terms of what needed to happen in the municipality.
A Member was concerned that the performance of the municipality indicated that the recommendations were not being implemented. Were there any consultants in the municipality currently? If so, what were they appointed for?
Ms Gunqisa answered that currently the municipality only had consultants who were assisting in the preparation of the annual financial statements, but the financial statement compilation was done in-house. They were assisting, among others, with the information of prior years, collating information and ensuring that they created a paper trail for the AG. There were a lot of misstatements and errors in compiling and preparing annual financial statements. Those were the only consultants within the municipality. A lot of work was done in-house.
The Chairperson said that these financial statements were the ones that were not prepared consistently. How much did these consultants cost the taxpayer, and how much were they costing them now?
Ms Gunqisa said that the consultants who were appointed previously were the ones who had been consistently producing poor quality annual financial statements. The ones that they had now were newly appointed but they were not compiling. They were only assisting with the preparation of the annual financial statement (AFS).
Ms N Tolashe (ANC) said that she was battling to trust what the municipal manager was giving as a response because it seemed she had been quire inconsistent. Who had invited the Hawks? For a long time in this municipality, structures had not been working. However, money had been spent. Based on the answers received, there was nothing tangible that provided a better picture indicating that the structures in the municipality were indeed working. Was the municipality at any point under section 139 b or c? The audited unit was not functional. MPAC was not functional. What structures were functional within the municipality? The municipal manager spoke about the three financial years where they could not find the records, but later on they could get the records. The Committee could not even have one sight of those reports, yet she had committed to say that there were reports. If this municipality had been under section 139 b or c, was there a closing report from COGTA alleging that, at some point, some officials from both Treasury and COGTA did not assist? The Committee would need to get back to that report and the recommendations that were made.
The Chairperson asked for a response from COGTA on how did it had supported this municipality. At some point, the municipality had been run by a director of traffic.
Mr Tebogo Motlashuping, Acting Deputy Director-General: (COGTA), indicated upfront that the type of support provided to this municipality was in the form of the acting capacity deployed in this municipality. It was at the behest of the provincial COGTA. Officials from COGTA and Treasury were from the provincial department and treasury. Be that as it may, the kind of work that they did at national level to support this municipality, together with their provincial counterparts, was:
Firstly, because of the escalating problems that were in the municipality in relation to the divide in the two groups of employees in the municipality, they had to intervene at COGTA national and provincial. They even went to an extent of providing some sort of counselling to bring the two groups of work employees together. That matter was at some point finalised. The two groups in the work phase of the municipality managed to come back to the work place. There were serious physical confrontations between the two. As part of the on-going support, they also made it possible to ensure that the municipality recruited senior managers. The filling of the posts was a result of a collaborative effort by national and provincial COGTA to see to it that suitable and competent persons were appointed in those positions.
The Chairperson asked whether there had been a section 139 intervention?
A COGTA representative indicated that a support package that was implemented in the municipality in the 2015/16 financial year. There was no section 139 intervention.
Ms Andrina Matsemela, Mayor: Mogalakwena Local Municipality, confirmed that there was no section 139 intervention. The support package had been during 2014/15 and 2015/16, when she was not there.
The Chairperson stressed that the manner in which section 139 had been applied was questionable in terms of when one applies it and when one does not. At some point, there was a need to reach political convergence. If it was applied for political correctness, it did not help local government. In this case, one had findings that Council was not meeting. It was not stable. Adverse findings back this up. There was intimidation of auditors, parallel reporting structures (official and unofficial), political instability, there was fiddling of documents, big committees were not quorating, and one had a municipality run by two directors, one of who was a traffic manager. Yet, COGTA’s response was that there was a ‘package.’ Of course, the municipality would not have invited an intervention, because that would have been a vote of no-confidence. COGTA had to firm up. There was one municipality that had been receiving disclaimers for 10 years.
Ms Tolashe said that COGTA needed to be present at the next hearings. It was not only section 139, but section 154. If COGTA could not apply 154, then why was COGTA in existence? Was there now a new municipality, from the Mayor to the municipal manager? Their responses were so inconsistent. COGTA must understand its role very well. This was a three-tier government. There was a clear intergovernmental relations (IGR) process. If it continued as at present, they would be sitting here in five years hearing the same responses from all these municipalities. This would be very unfair to taxpayers. What was the state of the municipality at the present moment, politically speaking? The people were on the street every day. When one sits in on meetings, one comes to realise that this was the reason why people were sitting on the streets. Money had been spent. Big committees were sitting fraudulently. No one was going to ensure that service delivery was taking place.
Ms Matsemela stressed that it was not easy for the municipality to arrive where it was today, after finding it in a situation where there were no managers. That was brought about by in-fighting among the councillors. Out of that situation, those councillors were identified and removed from their positions. After that, the municipality had been filling the positions. They had hoped that since the municipal manager and other managers were in place, the municipality would come out of the pit of hell. They took the input of Members very seriously. When they returned, they would make sure that they were effective at the Council level, and would make sure corrective measures are implemented to ensure that this municipality operates like other municipalities.
Ms Gunqisa indicated that the majority of the issues that were raised by AG, particularly in the previous financial year and the year under review, had been addressed administratively. They were confident that with the quality annual financial statements that they had produced and submitted to the AG, they could really anticipate improvement, because a full complement and composition of management was on site. They were assisting each other and cooperating with the AG, ensuring that they received timeous information as and when they requested it. In terms of the internal controls, they had various standard operating procedures (SOPs) which had been lacking previously within the municipality, where processes were not followed. The implementation of these SOPs would begin to assist the municipality to adhere to the legal processes and conform and improve on their daily operations. Between herself and the chief financial officer (CFO), they were ensuring that indeed implementation really took place, and there would be a drastic and visible improvement from the municipality.
In relation to consequence management, they were putting some measures in place and they were being implemented on a continuous basis. They had started to discipline some of the officials within the municipality. More officials would be taken to task. Officials would begin to really want to do better within the prescripts of the legislation. Government structures were in place. They had a risk management committee. They also had oversight committees that were functional even though they had to tighten their effectiveness. They had a full complement of management in place.
Mr B Hadebe (ANC) stated that it was reported that the municipality was charged interest due to the time that it took to verify goods or services that were being supplied?
Ms Gunqisa confirmed this.
Mr Hadebe asked, on services delivered, whether this meant there was no client representative on site, the client being the municipality which acts as a project manager on behalf of the municipality? Did they wait until an invoice was delivered and only then on site and verify whether or not that service had been delivered on goods? Were they implying that there were no internal control measures in place upon the receipt of the goods? Were they that constrained in terms of human resources that these basics were not there?
Ms Gunqisa responded that what she was indicating was on the basis of the cumulative interest that had been incurred by the municipality previously. There were internal controls currently. The matters that the Member was raising indeed were there. However, previously, one would find that there were disputes between a client and the municipality. Further vigorous assessment and verification needed to be done and, as a result, they were charged interest. At this point, that was not happening because there were project managers who were ensuring that they did quality assurance.
Mr Hadebe continued that MPAC had said it was fully functional. How many cases were there, that were referred by Council? What was the progress to date? Was there a clear project plan in terms of dealing with those cases? Was the Mayor receiving quarterly reports from MPAC, and was she happy with progress to date? There had been no mention of whether senior officials had been put on precautionary suspension as per the regulation that governed municipalities. Some of the officials were still there. If, as leaders, they tolerated non-compliance there would be no change of attitude.
The representative from MPAC explained that previously MPAC was not functional. Now there were two reports that had gone to Council. The Council had referred them back for further investigation. MPAC had been reconfigured and was doing its job.
Mr Hadebe asked, as things stand, whether MPAC was dealing with only two reports.
The Chairperson asked for a schedule of matters that were before MPAC, or should be before MPAC, how many were in progress and how many had been finalised, and the reasons for the blockages in that regard.
Mr Hadebe said that if these cases were of a serious nature in terms of the regulations, they ought to apply precautionary suspensions. Why then had nobody been suspended?
The Chairperson asked for a full breakdown as to whether suspensions had taken place and the status of all the implicated persons. The functionality of MPAC was important to the Committee. Moving forward, that was its sister party.
Ms D Direko (ANC) asked how far the municipality was in terms of ensuring there was political and administrative leadership. When one looks at the findings of the AG, they show that those were the root causes of the challenges that they had. How far were they in terms of addressing unauthorised, irregular, fruitless and wasteful expenditure? 96% of municipalities were using consultants. According to the report, this municipality has only one. If they had the capacity to investigate, could they not use the very same capacity to come up with a revenue enhancement strategy that they would be able to implement as the municipality, instead of using consultants?
Mr M Dirks (ANC) stated, concerning consultants, that it was clear that there was a lack of capacity in this municipality. Why did they bring the consultants in at the tail end to come and compile the AFS to hand over to the AG? The whole financial year, the municipality was creating a mess and, at the end of the year, when the patient was dead, consultants were used? Why not use consultants from the beginning to assist the municipality?
Ms N Mente (EFF) said that she was not happy with the consequence management applied to the audit team as a whole. When they submitted the new information, how many of these bids that the AG had identified been issued fraudulently? Who was responsible? How much was involved? Were there services rendered?
Ms F Muthambi (ANC), echoing Ms Mente, stressed that the person must be identified and the consequence management must be applied. By now, there should have been some work done post the audit. What the Committee was interested in was the progress to that effect. The report that was brought to the Committee should update it on the steps that the accounting officer had taken in terms of section 62e. Her worry was that it was said that things had been sent to MPAC. It could be a matter of outsourcing the roles and responsibilities of the accounting officer. The law was very specific as to what must be done. They needed a detailed updated status of each case.
There was reference to a report on the progress of the implementation of the audit implementation plan. Could the Committee be furnished with the audit implementation plan so that it could follow up on whether it was being applied? The delegates should have come more prepared to this meeting. The presentation furnished could not contain all three years’ of information, especially when they were dealing with disclaimers.
The Chairperson said that the municipality was dealing with unauthorised expenditure of R339 million, irregular expenditure of R471 million, and fruitless and wasteful expenditure of R11.9 million. These figures on their own were the clearest indication of the magnitude of the problem. Addressing the Limpopo AG, he said the municipality indicated that an explanation was provided which the AG could not accept because it would have meant that it had to restart the process again. Could the matter be clarified?
Ms Gunqisa responded that, in terms of consultants, the consultant was appointed from April. They had made some strides and had worked really tirelessly to ensure that they did assist. Unfortunately for the 2017/18 financial year, the AFS was compiled with another consultant, so they could not really explain what the process was then. In light of the poor quality of financial statements that were completed, it showed that there was no cooperation or interactivity between the team and the consultants.
The Chairperson asked the name of the consultants and how much they cost the municipality?
Ms Gunqisa provided the name of the consultant, and said that for six months they had charged the municipality R1.7 million, and R946 000. The exact figures would be included in the report.
Mr Charles Malema, Chief Financial Officer (CFO): Mogalakwena Local Municipality, explained that in the 2018/19 financial year, when the 2017/18 financial statements were being prepared, they had charged R946 021. In the previous years, they had charged R797 495. The total for the two years was R1.7 million.
The Chairperson asked who was on site now, and how much were they costing.
Ms Gunqisa stressed that the current team that was on site was not necessarily compiling, but were assisting in preparing the documentation, correcting prior year errors and also ensuring that they did have a quality audit file that needed to be submitted to AG. They were called Future Chartered Accountants. They would be there for 12 months. The municipality had set aside R5 million for them. It may or may not be spent. They had only been there for three months.
The Chairperson asked whether the municipality’s internal capacity was not equal to the task of performing this work. If not, what were they paying the people in their employ for?
Ms Gunqisa indicated that colleagues had been brought on site to deal with all the audit outcomes throughout the financial years. For five consecutive years, they had been receiving disclaimers. In the last two financial years, they had been receiving adverse audit opinions. The consultants had been brought in to deal with all the prior year corrections and to ensure that there was a paper trail that could be made available for the Auditor General. They did have the skills and knowledge internally.
The Chairperson asked the municipal manager to answer the outstanding questions.
The municipal manager said that she was not sure what she was leaving out, other than to request that, in terms of the audit action plan, the municipality be given the opportunity to compile the report where they would specifically indicate to the Committee how far they had dealt with the plan. There was a presentation that gave a synopsis.
The Chairperson stressed that all was not well in this municipality. This was fundamentally clear. Progress had been made in filling the critical vacancies. Corruption thrives when one creates a conductive environment. That environment was to say let bygones be bygones, they were starting anew. The Committee would have to visit this municipality to have the full picture.
The Mayor said the municipality would welcome the Committee for a visit, and would gain strength from it.
The Chairperson said the reports of the Auditor-General indicate that this municipality was also in the league of adverse findings for 2015/16, 2016/17, and 2017/18. This was of serious concern to the Committee, and unacceptable by any measure or standard.
Mr Mente asked if the Mopani municipality had an audit team or committee.
Mr Quiet Kgatla, Acting Municipal Manager: Mopani District Municipality, confirmed this.
Ms Mente asked how long it had been in place.
Mr Kgatla responded that the municipality had had an audit committee since he joined the municipality, which was in August 2016. The audit team was there even before his arrival.
Ms Mente asked why, if the audit team had been there (being paid), the municipality had had adverse findings for three consecutive years?
Mr Kgatla said that at the heart of the findings there had been slow progress in terms of implementing what the team had been recommending to management.
Ms Mente said that the Auditor General gave Mopani an adverse finding in 2016/17, gave the reasons why, and advised on a way forward. Come the following year, the municipality still got the same finding and the same people were there. Could he explain what the slow pace was?
Mr Kgatla said ‘slow pace’ referred to a situation where management would be aware of exactly what the Auditor General had recommended, including the internal audit team. Management then draws up an action plan, a plan that intends to address the issues that have been raised. What occurs is that as the second round of the audit timeline approaches, some of the material issues have to still be concluded. While the hope was for the work to be done even a month before the arrival of the AG, addressing the issues that were there could even overlap with the visit of the AG.
Ms Mente responded that the problem was that Mr Kgatla was giving a blanket response, and not identifying the matters. If the audit committee was functional and effective, but the failure was within the management, there was something that was not linking together. Who was not doing their work to deal with the unnecessary, unauthorised, fruitless and wasteful expenditure of taxpayers money? Who was not implementing the AG’s advice?
Mr Kgatla updated the Committee on the developments in MPAC. In June, the team was changed. Even before the beginning of June, there was a team that started at about the end of 2017. Prior to the end of 2017, there was no real structure referred to as MPAC to do the work. The municipality started picking up momentum from 2017. An issue of skills arose when the AG referred to the municipality’s previous audit reports and was not satisfied with how the matters of involving the Unauthorised, Irregular, Fruitless and Wasteful (UIFW) expenditure were entertained by the MPAC. The municipality had decided to make capacity arrangements, to get MPAC to do what it had to do. There were many arguments around how MPAC needed to conclude on matters of regarding the UIF. As the municipality was climbing the ladder in terms of getting the team that got corrections from AG to do better, the latest change had kicked in. A graph goes up and down in the MPAC office, and it was reflecting throughout the period the effectiveness of dealing with UIFWs. If possible, structure was needed to iron out the issues consistently throughout, with a full understanding of when they started, how they developed in terms of movements, and the status at the time of entertaining those. These changes contributed.
‘Skills capacity’ had to be understood in terms of teams that had been changing all along. Some were fine, but later some teams were not active. Currently, they had a new team that also owned up to the mistakes of the past. They could see them coming into this space and wanting to correct the history. This was what was meant by ‘doubling the efforts.’ As management, they could have done better. The audit committee did not miss a single meeting. They were supported by the audit team. For the audit committee to really be effective as they had been, it meant the second team was as effective as the main team. The recommendations came to Council. They were very clear in terms of what needed to be done. Those that followed the municipality’s reports would see there was a relationship between what the audit committee was saying and what the AG had been saying. What had been lacking was the implementation phase. They could have done better in terms of implementing all that the AG said had to be implemented. One example was the action plan which, even if implemented, gets implemented more often than not at the start of the new cycle. Issues get carried over and the problems just recur and recur.
Ms Mente said that the responses were very inadequate. What was being implied was that the audit team was there, but there was ineffectiveness and there had been teams changing. Their starting point was that auditing was fine and that management was not implementing. From the audit team to management to the MPAC, there was nothing that was effective. The AG in the third year said the quality of the financial statements submitted for audit contained a lot of calculation errors, referring to the audit team that had been functional since 2016. The same mistake was being committed over and over. This was an audit team that had not submitted proper financial statements even when corrected, to say that a particular amount was misplaced. In terms of all three levels (audit, management and MPAC), MPAC would not be functional if the audit team could not compile the financial statements. It was not effective enough. Were the people who were in the audit team qualified to run audits if they could give misleading statements to the AG for three consecutive years -- and still be paid?
Mr Kgatla, by way of correction, explained that he used the audit team and audit committee and the internal auditors interchangeably, apologising as he did not think that the Committee was referring to the team and officials that prepare and manage the audit process, which was referred to the finance team. The audit team consisted mainly of the CFO, the managers reporting to the CFO, together with the lower levels. The team was not really there for the CFO in terms of the General,ly Recognised Accounting Principles (GRAP) matters. They were also not really there for the preparation of the AFS themselves. At Mopani, consultants were hardly used to prepare the AFS until late in the previous financial year. There had been a movement towards training the municipality’s own officials. Meanwhile, the technical expertise on the floor was lacking.
The Chairperson said that the CFO had stated that he was the Acting Municipal Manager. How long had he been the CFO, and had all these things happened under his watch?
Mr Kgatla answered that he had been the CFO since 2016, and it was his fourth year in office. He confirmed that what had been mentioned had happened under his watch. The auditing team was there. All that needed to happen was for the team to up its game in terms of its ability to produce a GRAP-compliant set of figures and the ability to compile proper working papers so that the findings that the AG raised about differences between schedules and the AFS were slowly arrested. In its close engagements with the AG, the municipality was in the process of graduating from the historic problem of not availing information, leading to the disclaimers. The municipality was grappling with this problem. The municipality was now in the space in which it needed to clear the issue of reporting errors. It was the aim, in this financial year, to progress to a qualification.
Ms Mente suggested to the Chairperson that the Hawks should have been invited to this meeting. The Committee was sitting with a culprit before it. All these adverse findings which were being referred to hade occurred under the watch of the current acting Municipal Manager. On note 25 of the financial statements, assisted by the AG, the auditor’s remuneration had been R2 million. Who was being paid for this? Furthermore, there was an audit committee allowance of R1.3 million, and consultation and professional fees at R12 million. These were the people who had to deal with the compilation of documents and the gathering of all information required, as per the Municipal Finance Management Act (MFMA). The CFO was part of authorising allowances and the payment of so much money to get paid. Yet, the municipality had had three adverse findings in three consecutive years. Who was being paid to do what?
Mr Kgatla said the payments were for the auditor’s remuneration, the AGSA, the audit committee’s allowance, and the audit committee members themselves, especially for travelling. The bulk of the consultant and professional fees went to the fixed asset register compilation. The district was dictated by the size of this municipality’s asset infrastructure. The municipality invests a lot, year in year out, in this space. The reason why so much money was spent in this area was because the municipality only had three officials in-house. It was a problem, however, which was being addressed. There was the manager in the office, the accountant and the assistant accountant. The municipality actually needed more personnel to deal with asset verification. Moreover, in terms of the arrangement in the distinct in so far as water provisioning was concerned, the municipality had outsourced certain functions in this area. This was where much of the money went. In the main, the consultants assisted the municipality with the assets and the water transactions.
Ms Mente referred to the three items mentioned, and asked for a breakdown of the expenses -- where they went to and the people who received them, including the payment to AGSA. It was very expensive to gather information on assets if it cost R12 million per year. On the same note, what could be added was a breakdown of the expenses for the Imbizo, which had been R2.5 million. What was the Imbizo for? Furthermore, the forensic audit of R2.5 million that was done by the municipality could also be broken down. Finally, the performance management amount of R0.5 million must also be explained. The electricity expense of R18 million must also be explained.
Mr Kgatla asked for the indulgence of the Committee in order to answer those questions where the information could readily be provided, and for time to submit the answers to various questions which may need to be verified.
Mr Mente did not accept the CFO’s excuse, saying that the financial statements were in his document and that she would like to demonstrate that the audit team -- which the CFO claims to be in existence and effective -- were ineffective. It showed how the AG came to the conclusion that the municipality’s financial statements were of a poor quality. Why did the municipality have R18 million of electricity costs under general expenses?
The Chairperson said that the Committee would see how far the CFO could answer the questions. However, there would need to be a breakdown of expenses for the Imbizo.
Mr Kgatla, starting with electricity, explained that the municipality was a rural district and that the main contributor to the water supply was the boreholes. These boreholes were electrified, and they supplied water to the entire district. Every borehole and connection had an account with Eskom. The electricity usage spoke to the water infrastructure. In the main, boreholes worked throughout the day. This hopefully eased the concern as to why the electricity expense was quite big.
PMS was an outsourced system that was managing the performance of the municipality internally. It was an electronic system, where officials log in, update their performance, and attached portfolios of evidence (POEs). It was a very comprehensive system. The municipality had a contract with the service provider, which explained that figure flagged by Ms Mente. The contractor was Action Assist. Each year, the municipality signed for R1.5 million. In the last financial year, they had not come for the full year.
With regard to forensic audits, there was an historic case on a sanitation project, where supply chain management (SCM) processes were not proper, to the extent that National Treasury gave an instruction to get a forensic investigator to come and audit it. The R2.5 million referred to the invoices that had to be paid in that particular year. The full budget, however, was R16 million. It was the figure that had been spent as and when the work was done.
The imbizos referred to the activities in the Office of the Executive Mayor, at the time she would visit communities and other municipalities. All these activities during the year get aggregated in terms of accounting.
The Chairperson interjected that the CFO must not offer such a simplistic explanation for the expense for imbizos. The CFO should tell the Committee how many imbizos took place, how much they cost, for and what the line items of each imbizo were. All of those should be below the prescribed amount in the MFMA, in terms of bidding. This was the level of detail the Committee was seeking. The CFO could report back to the Committee by next Monday at 12h00.
Ms Mente stressed that in presenting a breakdown of expenses for the Imbizo, the CFO should specify in detail how much was spent for items like transport, food and water. The nature of Imbizos did not require much, except perhaps for the petrol expenses. It defied understanding how the expense for imbizos was as high as R2.5 million. What type of imbizos were these? Regarding the auditors and management dealing with the performance management, how many people had been fired for the poor performance which had contributed to the financial statements not improving in three years?
Mr Kgatla responded that the municipality had not fired anyone.
Ms Mente retorted that the performance management system was failing in its quarterly assessment of government employees, even at the management level. The municipality had an additional system of performance, yet no one had been fired or suspended. Who was paying for the loss in terms of the financial statements?
Mr Kgatla replied that there was nobody co-funding for the losses. However, when the problem was picked up, an investigation was undertaken only to find out that, at an institutional level, the only performance monitoring that was in place was at the senior management level. It was only the municipal manager and the directors, currently senior managers, who were actually assessed at that level. It had been realised that one could not expect the senior management level to perform and get support if the level below was not assessed as well. Less than six months ago, a decision had been taken by Council to cascade down the performance to assess the lower levels. The benefits of these assessments had then been realised. The root cause was this inadequate former arrangement. There was a plan going forward to roll this out broadly, regardless of levels.
Mr Mente said that the CFO was misleading the Committee when he said that one could not do anything as a senior manager when his/her subordinates were not assessed. What did the municipality’s human resource management do? The CFO was implying that they do not have contracts, job descriptions etc. If senior managers fail in their line of management, be it finance, HR, SCM or whichever component in the municipality, they were failing. Whatever happens to their subordinates becomes their responsibility. In this case, the CFO was the one that was failing. Why was the CFO not charging people who were not doing their job, such as producing poor quality financial statements? Who were the people that were not doing their jobs in the audit team for management? If the MPAC was not doing its job, it must be stated.
Mr Kgatla reiterated that it was mainly the entire finance team. It started with the CFO, especially in that period, the managers below the CFO, and the members below the managers. However, it started with the finance team, the whole office. Everyone makes a contribution to the whole. If names were to be presented, the whole office needed to be mentioned. However, a complete list could be provided. With the seniority, it would make sense to categorise the team leaders and the support team. It was worth mentioning that the finance team would also consolidate activities that happen elsewhere in the institution. Without shirking responsibility, the issue of the AFS involved everyone.
The Chairperson interjected, asking how much the CFO trusted and cooperated with the AG?
Mr Kgatla said he trusted the AG very much and every time he could, he cooperated.
The Chairperson stressed that the AG was very clear that, in terms of assurance levels, senior management and the municipal manager had provided limited or no assurance. It was quite clear why the AG would say this, because it seemed to be lost on the CFO that he was at the very centre of this crisis. The Committee was used to this tendency where wrongs take place at senior management level and, in order to bypass accountability, lower management is treated as a scapegoat. Subordinates then have to walk the plank, and it was business as usual. The AG was very clear. There was a trust deficit between the Committee and management because of the AG’s frustration. In SCOPA, the AG was the principle wife of this Committee. In the end, the buck lands with the two offices the CFO occupies, and who had been there for four years.
Ms Mente asked the Mayor to give the Committee direction on what to do with the CFO if the CFO did not decide to resign and leave, because he served no purpose. The municipality was putting errors into its financial statements for the purpose of hiding corruption. There were two to three pages of errors in the financial statements, with big amounts all misplaced. For example, it had bought bulk water purchases for R296 million, the general expenses were R116 million, and employee-related costs were R321 million. It was hoped that the document unpacked the financial statements -- for example, breaking down the expense for bulk water. It had been said that the electricity expense was due to the electrification of bore holes. How many boreholes were there that the municipality was electrifying? Furthermore, it was also indicated that R100 million had been spent on boreholes. When the calculation was done, it resulted in R2 million per borehole. This data could not be deduced from the financial statements, because they were so ‘crookish.’ When speaking about irregular expenditure, the AG had concluded that there was a key project of Ventilated Improved Pit (VIP) toilets, and the irregular expenditure could not be clearly defined. Money had been spent for a purpose other than that for which it was intended. It was not clear on the financial statement.
The CFO had been in his position since 2016, yet he could not identify and place a project where it was supposed to belong in terms of the financial statements. When it came to fruitless and wasteful expenditure, the Committee could not have any sympathy for the wastage of people’s money. In total, the fruitless and wasteful expenditure was standing at R183 million. What was this for? The AG had stated that it could not see what the fruitless and wasteful expenditure was spent on. This was ‘thuggish.’ One could not have the AG struggling to make sense of fruitless and wasteful expenditure. The note was not clear in this regard. What was the total R183 million spent on? What was the R196 million of irregular expenditure spent on? Deviations occurred because of corruption. There was no service that was rendered by building a borehole for R2 million. What must happen to the CFO, who was the same person who had acquired these adverse findings? Nothing had been done in terms of consequence management, because he had been the one who was the problem.
Mr Kgatla referred to prior period errors, and explained that after AG had concluded an audit and it was very clear what errors had to be looked into, when the municipality walks into the next cycle, the first exercise was to make sure the opening balances were correct, mainly guided by what AG had said. It was in the interest of the municipality not to see the AG repeating certain issues. Regarding the bulk purchases, these were related to the water transactions where the municipality, which was supplied with water by Lepelle, sells it to communities. In the AFS preparation team, one would now and again encounter errors in the records which the AG would shine a light on. The municipality met with the AG, and now it had a note in the AFS wherein it was honest about these errors, regardless of size, and corrects and classifies them.
The reason why employee costs were so high was because there were people who were doing work on Mopani’s behalf at the local municipalities. The cost that was paid was not accounted for by the local municipalities. It was accounted for by the district as the principal. Regarding how many boreholes there were, he would need to go to his asset register to extract the list and share it with the Committee.
The Chairperson clarified that there were 4 802 boreholes. The CFO was not being of any assistance.
Ms Mente emphasised that the CFO was misleading the Committee. The AG’s statement, when addressing bulk purchases, highlighted that bulk purchases were overstated by R95 million. There was a resultant impact on repairs and maintenance, the VAT receivables and the surplus for the period. The CFO did not know his financial statements.
Mr Kgatla explained that his intention was to clarify why there were corrections of errors involving such big amounts. The corrections were issues that had been picked up by the municipality with the help of AG. They were errors that needed to be corrected. These corrections had been informed by discussions with the AG. The intention was that when the municipality went into the new financial year, it did not carry over issues.
The Chairperson said it was claimed that some of the employees were from local municipalities and that the municipality was cooperating with the AG. However, no comment had been made as to what the AG had made a finding on. The AG said that travelling and subsistence had been incorrectly included in employee costs instead of general expenses; there were differences between the employee costs recorded in the financial statements and the payroll records; there was insufficient appropriate evidence for the restatement done on the comparative figures; and no supporting documents for overtime claims. The CFO was causing very big problems, and needed to be cautioned.
Ms Mente said that the CFO was explaining what he had not explained to the AG. To say that the municipality was correcting what the AG had said must be corrected, when there was no documentation to prove the misplacement and unaccountability of expenditures, was the same documentation misplacement. In every finding, the AG had a problem with documentatary proof. For example, the AG also said that the municipality had made double payments to service providers. Neither the AG nor the Committee knows who? Why must the Committee not feel suspicious that it was not the CFO’s friends to whom double payments were being made? The problem was not that management was not implementing what the internal audit was advising on -- the problem was the CFO’s office and the CFO himself. There was nothing that was provided in terms of a supporting document to the AG, and the AG was not lying. The Committee trusts the AG. If the municipality did not trust the findings of the AG, it should have taken him to court. The municipality had not taken him to court. This meant that the AG’s findings were a true reflection of the reasons why, for a period of three years, the municipality had been sitting on adverse findings. The municipality did not care about spending money and keeping the books properly, providing proof, or putting the items according to their places in the financial statements. This municipality did not have a finance office.
The Chairperson asked for the Mayor to come in, because the Committee was not making any headway with the CFO. It would like to understand what had killed the patient. It thinks it had arrived at what killed the patient. What was going on in the municipality?
Mr Pule Shayi, Mayor: Mopani District Municipality, said he had joined the municipality on about 7 June 2019. The municipality was trying to rebuild. The CFO had not been doing the actual work on a full time basis, in the sense that in the past two years, a deputy CFO had been appointed. The internal controls were also basically in a state of collapse at that level. Even in terms of approval, it would go through the deputy CFO to the municipal manager. The municipal manager had resigned when the CFO came in. The municipality had tried to go back to the basics -- if one was appointed CFO, one must be able to do the work of a CFO in terms of the MFMA. That was partly why they had brought the CFO back to begin to do the work, and take responsibility for the work that was happening. The biggest commitment was to ensure that the management of the audit process was not disrupted. That was why it was felt that the CFO, acting as the municipal manager, would be able to take responsibility with everyone in this process so that when consequence management was applied, they would be able to link all this work to everything else without everything collapsing. They had reconstituted the mayoral committee, the portfolio had been reviewed, and there were various other activities just to ensure that everyone coheres at the level of the work of the municipality. It was important that when the municipality institutes consequences management, no one is excluded -- like the municipal manager who had left -- ‘jumped ship’ -- without the municipality trying to institute anything.
The Chairperson responded that the political consideration may be appreciated. The municipality’s irregular processes should have been placed on the record upfront. However, this still did not absolve the CFO, given the fact that he was still the CFO. If the deputy CFO had gone rogue with the municipal manager, that should at the very least have become the basis of an investigation when the mayor took office three months ago. The Committee would want to know if an investigation was taking place to deal specifically with all the transactions which were subjected to that questionable arrangement, where the CFO was bypassed by the deputy CFO to the municipal manager. That was already a pointer. Why was the municipality not investigating this matter now? It already knows where the problem is. All this corruption was structured. If this narrative was accepted, then the CFO was left in limbo, which we were still not convinced about, because nothing absolves the CFO from his responsibility because these things happened under his watch. To what extent would this administration investigate the transactions that were part of that questionable arrangement?
Mr Shayi answered that there was a Council item which had dealt with the investigation of the monies paid on the transactions around boreholes, especially during the drought relief. This was related to the work of the CFO and the many senior managers who were involved in the process. They had directed how those transactions should be attended to so that the acting municipal manager could prepare an item for the coming Council meeting, at which the municipality should be able to dispense with the matter and determine the course of action that must be taken at that level.
The Chairperson asked how much the boreholes cost?
Mr Shayi responded that National Treasury had given about R100 million for drought relief which, in terms of the report before the Committee, was used without proper SCM processes. When service providers who drilled boreholes approached the municipality and did not get joy in terms of payment, they complained that they were not being paid. The municipal manager had been approached and said that there was no paperwork. A report was prepared for Council in order to dispense with this matter, because that would be public money that was not properly accounted for and without properly engaging on the report. There was a sense that the money was not properly dispensed with through the SCM processes. On the basis of the impending report, the municipality could apply consequence management, bringing in MPAC to ensure that the actual culprits were found at that particular level.
The Chairperson stressed that it was important to lay a far more comprehensive roadmap on how the Committee should proceed with this municipality. The problems were very nuanced.
Ms Mente concluded that the MFMA had provisions for the Mayor in terms of section 173, part 2, under ‘criminal proceedings.’ Therefore, the Mayor should, as of this meeting, utilise section 173 of the MFMA.
Ms Mente read from section 173. The CFO had been there since 2016. All these adverse findings took place under his watch. Whether he never took charge, he was not there, or was occupying an acting position, he was CFO. Furthermore, it was not true that one could not do anything about the municipal manager who had left. He had to come back and answer. In the previous Parliament, the Act of the Auditor General had been amended. Now they could follow the previous municipal manager. Wherever he was, utilising the Act of the Auditor General, he had to come back, answer and pay all the money.
Something also had to be done about the CFO. One could not sit with three adverse findings against the same person, and no one was ever charged. There was irregular expenditure of R186 million. There was irregular expenditure where one borehole cost R2 million. There was money that went to Lepelle Northern Water for bulk water supply. This had to be looked into. By next Monday, the Committee needed a breakdown of the Lepelle Northern Water amount. How did Lepelle Northern Water get R296 million, and where was the distribution of water and the construction of boreholes? A breakdown was also needed on employee costs. There was poor record keeping all together in every aspect of the audit. There was nothing the AG could praise this municipality about. In fact, they struggled to compile a report because of the absence of supporting documents whatsoever. This was how corruption thrives -- hiding documents so that there was no proof of anything. There was no documentation to point to the trail of the money.
Lastly, there was a lack of skills in Mopani municipality. If, for three years, the same findings and advice could not be applied, all the wrong people had been employed. The Mayor’s office needed to deal with the qualifications of those who were employed in senior management, finance and HR. Based on the CFO’s remarks, there was no assessment going on from junior management down to the lowest level of employees in the municipality.
The Chairperson warned that if the same people remained, the Mayor was setting himself up for failure because he still had to function with the same staff complement. The only way to clean up was through consequence management. It needed to be prioritised. The only way for the CFO to absolve himself was for him to be at the forefront of that particular prevailing reality.
Mr Dirks referred to the issue of performance assessment, and asked whether the Mopani distinct municipality had paid Mr Kgatla, as CFO, or any other senior members, an annual performance bonus for the last three years.
Mr Kgatla said that annual performance bonuses had not been paid to these staff members.
Mr Dirks asked for the reasons for this, and whether an assessment was done?
Mr Kgatla answered that this item had gone to Council. There had been an attempt, but Council had not been happy with the performance.
Mr Dirks asked whether an assessment had been done, and the report had gone to the Council, which did not agree with it.
Mr Kgatla confirmed this. The assessments were done, year in and year out. There was a time when people felt they could be reimbursed. However, Council was not happy with the status of the municipality.
Mr Dirks asked who assessed the managers.
Mr Kgatla said that there was a structure set up through human resource management (HRM). The Chairperson of the audit committee was involved. There was another delegate, usually the municipal manager. COGTA also had a delegate.
The Chairperson asked whether their recommendation had been that the management had performed. What recommendation did the Council reject? What did the recommendation say?
Mr Kgatla explained that before items reached Council’s door, they went through council structures. It was the very same council structures which said that the recommendation could not go to Council. It was an individual’s performance that was scored. An A director would score to qualify to be rewarded, whereas a B director would not. It was those that passed the test that felt they needed to be rewarded. The global message was that this could not be entertained.
The Chairperson asked whether the municipal manager one of those who was going to be getting a bonus. What did the recommendations say about the municipal manager?
Mr Dirks asked what the report that was sent to the structures of the municipality said? What did these reports recommend? Did these reports recommend that certain managers must be paid?
Mr Kgatla said the answer was yes, but the municipal manager was not one of the managers that were recommended.
The Chairperson asked whether the CFO or future CFO had been recommended for a bonus.
Mr Kgatla said that the CFO was not recommended to receive a bonu,s and the future CFO was not assessed.
The Chairperson requested the names of those who were assessed and recommended for a bonus.
Mr Kgatla responded that, among others, the director in community services was recommended for an annual performance bonus. Members from corporate services were recommended, but no one from technical, the Mayor’s office, and water services was recommended.
The Chairperson said that management would not be recommended for a bonus because they had not performed.
Mr Kgatla clarified that some had performed. There were those who performed and who felt, in their individual capacity, they should be considered for a bonus. A global message was that this would not be appropriate.
The Chairperson requested the report, because the Committee would like to know who those members were who felt they deserved a bonus. Those that felt they deserved bonus and did not get it may try to find alternative means, such as corruption.
Mr Dirks stressed that all the municipalities that appeared before the Committee today needed, by the end of the meeting, to confirm whether or not any senior managers received performance bonuses. In conclusion, did the CFO drive or fly coming to Cape Town? If they flew, did they fly business or economy class?
Mr Kgatla confirmed that they drove to Oliver Tambo, and they flew economy class.
Mr R Lees (DA) referred to the borehole issue, and said that the media early in July 2018 had reported that two senior officials had been suspended. Over a year ago, two people were suspended. It was difficult to understand, then, why the Mayor was saying that there would be a report which would initiate other processes. On what basis were these officials suspended? Or was it a media error?
Mr Kgatla said that there had been no suspensions.
Mr Lees said that it must be a media error. Whoever wrote that article may be interested to hear that they had made that mistake. Furthermore, of the reported 4 820 boreholes a year ago, how many of these boreholes were dry? Regarding the case of the child that died in one of the boreholes, why were the contractors allowed to leave them exposed and not closed up?
Mr Kgatla, responding on the unfortunate incident with the child, explained that the report after the investigation was that when the work was done there, there was no water. After not getting water, the service provider, out of negligence, had not fillel up the hole after realising that there was no water.
Mr Lees said that the taxpayer had paid for a borehole that produced no water, among many others that were paid for. Was it true that the technical manager had authorised payment without checking that the borehole had water, or was closed up?
Mr Kgatla said that the municipality only paid when there was water in the borehole. It did not pay for dry boreholes.
Mr Lees asked, of the R100 million budget for the boreholes, how many dry boreholes and water producing boreholes were there, and if the whole R100 million got spent on them.
Mr Kgatla indicated that this was an area where the municipality had requested a specific intervention. So far, the municipality had collected the data. Through phone calls, people had complained that they had worked but were not paid. One of the recommendations that was put in the items that went to Council was that it should allow the municipality enough time to assess those works and ensure they were worth paying before the municipality started paying.
The Chairperson confirmed that the municipality did not know how many dry boreholes and water producing boreholes there were.
Mr Lees asked how much was currently owed to the Lepelle water board. What was the cost of the Nandoni Dam pipeline?
Mr Kgatla responded that the municipality owed Lepelle R571 million. The Nandoni project was a project by the Department of Water and Sanitation. The municipality did not necessarily have records on it.
The Chairperson inquired how much of the R571 million consisted of interest.
Mr Kgatla said that the municipality had an arrangement not to pay interest.
Mr Lees asked for a financial breakdown of this project included with the rest of the water data. In terms of the contract where the fatality occurred, who was the contractor?
Mr Kgatla replied that he would need to go back to his records. This was an old incident.
The Chairperson wanted the response to the question to be received today. It did not require a Monday 12 midday deadline.
Mr Hadebe emphasised that the report was very disturbing. It was also disturbing to hear that no one thus far had been held accountable. He read from the Act and the CFO Handbook for Municipalities in respect of the CFO’s and Mayor’s competencies, roles and responsibilities. They had appointed consultants to the tune of R24 million without following proper due processes according to the AG. Furthermore, there was a lack of skills. This meant that some of the competencies that were just highlighted were not there in the financial department. When it came to what the municipality ought to have prevented, this included irregular expenditure to the tune of 197 million, fruitless and wasteful expenditure to the tune of R18 million, and unauthorised expenditure to the tune of R154 million. The municipality’s action plan said that it would appoint consultants in preparing the annual financial statements. Based on what the municipality ought to possess and what had transpired, were there competent people in the municipality? Why had the municipality not acted in dealing with this matter? There was a saying that insanity was doing the same thing over and over and expecting a different result. Did the CFO think he fitted the description for the basic minimum requirements?
Mr Kgatla said that the Member was reading about items that he was not party to, and responded that he thought he was competent if he was given the opportunity. The Mayor would like to clear the frustrations, give the CFO the responsibilities, and work on the deliverables.
Mr Hadebe said that, in terms of the legislation, these were the areas where the CFO was required to perform in terms of the Act. What had the CFO been doing for the past four years if he was not party to these requirements?
The Chairperson asked, assuming that the Committee accepted the frustration of the CFO, when the deputy CFO had arrived.
Mr Kgatla responded that the deputy CFO had arrived in 2017.
The Chairperson asked whether the current CFO was not frustrated when he arrived in 2016?
Mr Kgatla commented that it had been a tough road.
The Chairperson asked why the CFO had been marginalised.
Being his first exposure to local government, Mr Kgatla said that he was marginalised by the environment and saw himself as someone who would need to adjust to a new environment.
Recalling a similar incident in the Department of Water and Sanitation, the Chairperson asked the CFO to take the Committee into his confidence to explain when the problems had begun.
Mr Kgatla remarked that there were times when he could have done better from an accountability perspective. He had even gone to the provincial Treasury for guidance. In a sitting, among the advice he was given was to open a case.
The Chairperson commented that there seemed to have been corruption. Had he taken the advice?
Mr Kgatla responded that he did.
The Chairperson said the Committee would like the details of the case. The key aspect was that the CFO had stayed and must have been very true to his convictions to have stayed right up to the bitter end. He asked him to take the Committee into his confidence in order to understand the prevailing challenges. It was those realities that would explain why the municipality was before the Committee. What was happening? What had the CFO signed off on, or was he just there observing? Why would the CFO have gone to Treasury? It must have been serious.
Mr Kgatla responded that key reason why he went to Treasury was that he knew what the MFMA said. Something had told him that one day he was going to be sitting here in front of the Committee. When Treasury was approached, he was fearful. It had been recommended that he open a case. Even before approaching Treasury, he had done my own record keeping. He was afraid that he would get people into trouble.
The Chairperson responded that the Committee was not delving into the merits or demerits of the case. This was for the Hawks. He was presenting on the practical lived experiences of that environment which had created this particular collapse of systems and given rise to corruption, which nobody could dispute. Take the Committee into his confidence. Do not tell the Committee what he told the Hawks. What he did was correct as a whistle blower. He would not be helping the Committee by closing up. He should be explaining how systems had collapsed.
Mr Hadebe stressed that he had been deliberate when he read schedule 2 of the Code of Conduct in terms of the Municipal Systems Act. This delved into what was expected of the CFO, what he had signed for -- to act in the best interests of the municipality and the community, with integrity, honesty and due diligence. These questions were asked deliberately. Now it was his opportunity to act according to the code of conduct. What were he doing if he was not doing his duties?
The Chairperson asked if there was anything else that the CFO would like to say.
Mr Kgatla said he did not.
The Chairperson thanked Mr Kgatla, and said that it had been the clearest indication yet as to why the municipality had this problem.
Mr Shayi explained that whether or not the municipality had competent senior managers, from an outcome point of view, the municipality was not delivering on the target. This had been the prevailing culture in the municipality. The immediate example was the Acting Municipal Manager. He was a chartered accountant (CA) drawn from the office of the AG, being there as the CFO. The expectation was that he would be able to help the municipality to turn around, working together with everyone else. Now they were sitting with this resource and using it to be able to make a breakthrough. These things were not happening. The embedded culture that was there needed a firmer approach in terms of how things were dealt with. What was even more worrying was that, when they arrived at the municipality, they had to introduce themselves to all the staff of the municipality. They had to go there with the former municipal manager. The employees had said that they did not know the municipal manager. They had never seen him, and he had been there for three years. Once the employees did not appreciate that there was an accounting officer being there and working with everyone else, that culture may not help if a breakthrough was needed. This was why, from a political point of view, when one had to consolidate a team, one needed to give staff space to do their work. They did have qualified people, but from an outcomes perspective, they were not performing, given what was obtaining at that particular municipality.
The Chairperson said that the response was appreciated.
Ms Tolashe said that the statement of the Mayor was reason to be more worried. He was speaking as if he was seated with the Committee. By way of appeal to COGTA, there was a need for the Committee to go to that municipality as quickly as yesterday. The Mayor was a politician and would love to see things implemented in the right way. However, he was not the implementing authority. The sooner COGTA did the visit the better.
Based on how the money was spent, were there conditions given by Treasury when the drought fund was distributed. Given that the former municipal manager jumped ship, was there a process to follow? He was in South Africa. They could still follow him. Additionally, in terms of the R1.5 that was spent on the Mayoral Imbizo, was the Mayoral Imbizo outside the Integrated Development Plan (IDP)? What else could be done in light of what the Acting Municipal Manager was saying? One could not wait for the next audit outcome. Lastly, could COGTA indicate in which municipalities they had taken a decision to intervene?
The Chairperson asked that the acting Municipal Manager to give the Committee the case number of the case in question so that the Committee could follow it up with the Hawks and ask the Hawks to give the Committee a briefing. The Committee would have to adopt this municipality until these matters arrived at a logical and functional conclusion.
Mr Kgatla, stated that the Mayoral Imbizos were within the IDP process. They were just unique in the sense that these Imbizos touched base with all the locals. In terms of the conditions of the grant from Treasury, the process was that the municipality applied for funding. The condition was that the municipality provide a project plan and a list with villages. Importantly, each project had to be kept below R540 000. It was for borehole development mainly.
The Chairperson asked what the terms of reference were for the R540 000 upper limit? Did the municipality spend that? could a breakdown be given of the R540 000? The value chain of the R540 000 could be broken down at a later stage.
Mr Kgatla responded that the municipality stuck to the R540 000, satisfying the criteria. The municipality did spend this amount, which was why the report went to Council. The only flaw was the SCM process. Practically, the works were even beyond R540 000. However, the municipality was very clear from the onset that costs needed to be cut, otherwise the municipality would have to fight with the funding officer. The claims were even bigger than the R540 000.
A COGTA official said it was clear that Mopani was one of the distressed municipalities in Limpopo, which the national department was supporting with the provincial department and treasury with a view to turning the municipality around. As was indicated to the Portfolio Committee last week, COGTA national needed to firm up, because the responsibility was often left to the provincial COGTA to oversee these municipalities. He was hearing this report for the first time. They had quarterly meetings where they assessed the performance of these municipalities. He was in a meeting last week where they were assessing the Mopani district, including the Mopani municipality. At these meetings, senior management were not actually articulating the challenges in that space, which was out of fear. Last week, there had interestingly been a different tone. It was clear that there were problems in that municipality. COGTA would go to that municipality and check its temperature. When SCOPA visited the municipality, by then COGTA would have done its best to lift it up and ensure that some of the things that had happened were not repeated. COGTA had been involved in addressing Mopani’s water crisis, and a key concern had been the use of consultants. This matter had been raised with the municipality. COGTA would engage more with these municipalities.
The Chairperson asked if the assessments were speaking to an improvement in Mopani or not?
The COGTA official said that the performance had been dismal, but there was hope, given that there was a new mayor in the space. There had been no improvement in performance.
The Chairperson requested a breakdown of the use of consultants -- their cost and why they came in.
A Member expressed her frustration in terms of how COGTA was functioning. The national and provincial COGTAs were working with a silo mentality. If one listened to how COGTA national was responding, it was not clear whether it was a section 154 intervention. It could not work like that. They were there to serve and assist municipalities. It was important that in future, the audit committees were invited. They were getting exorbitant amounts in relation to performance. They should come in future to account. She addressed both the Mayor and the Acting Municipal Manager, saying that if consultants were not monitored, they could be in a municipality for 10 years and more. Was there a monitoring mechanism? The audit action plan of this municipality would never address the root causes. The action plan of this municipality was about compliance. There were various reasons for the over-reliance on consultants, among which was the lack of capacity in the finance department. This meant that there was no seriousness in terms of addressing the root causes of the situation that municipalities found themselves in. This audit action plan was there only for compliance. Which processes did the municipality follow? If it followed the proper processes, it would not look like this.
Mr Kgatso replied on the monitoring mechanisms for the consultants, and said that when preparing AFSs in the finance department, the municipality took representatives from consulting firms and paired them up with the municipalities’ own audit people. Daily there was dependence on consultants by the municipal staff in terms of sharing information and submitting reports. At the same time, as they worked, the municipal staff could also learn how things were done. When the municipality had finance interns, as and when the municipality’s and the consultant’s employees were paid, they were also allocated an intern for continuity purposes, just in case someone went on leave, so that the intern could still take over. He had his own unstructured meetings. In the service level agreements (SLAs), there was also a clause that the municipality enforced that spoke to skills transfer as a compulsory measure. There was a plan that aimed to gather information around how that was happening that was normally updated. Regarding consultants in technical services, the municipality had technicians there. Every technician was allocated a consultant. The technicians had to be able to run projects at a technical level when the consultants were not there. The management at that level was also getting reports constantly from consultants. The two main areas where there were consultants were in finance and technical services.
A Member disagreed with the acting Municipal Manager. He had said that the reason for appointing the service provider that cost the municipality R12 million was because of its lack of staff. They had only three staff in the assets and water provisioning section. Now he was saying that staff members were being paired with a consultant. Given that there were only three officials, how were they going to be paired with consultants? The audit action plan was only for compliance. It did not speak to the root causes of the adverse report.
Mr Kgatso said that there was the asset manager, the accountant and the assistant accountant. There was a team of consultants who were there the whole year. There were an average four or five. At the end of the financial year, the consultants arrived in numbers in order to ensure that they became involved the work. At that time, the pairing would not be as perfect as during the year. Throughout the year, there was no consultant who would work in isolation. During asset verification, a team member had to be there. It was only the team members who knew where the specific items were.
The Chairperson responded that in the consultancy report that the Committee wanted, they should add the modus operandi to each one.
A South African Local Government Association (SALGA) official reminded the Committee that section 154 was about support and strengthening capacity within municipalities according to the Constitution of South Africa. A Section 139 intervention was what was happening within municipalities according to the MFMA.
The COGTA representative responded that the frustrations were justified. A practical example, since the ‘Back to Basics’ programme was launched and implemented, was that it was implemented differently because of the different dynamics in different provinces. In Limpopo, it had been religiously implemented. What was happening was that the programme was driven by a director. When issues were picked up, the provincial department was not following up and addressing them. The Minister had now given the national COGTA the assurance that it had responsibility over all these municipalities and all the provincial COGTA departments. The national COGTA, however, did not have authority because the first point of response was at the provincial department and municipal levels.
The Chairperson wanted the Minister to give these assurances in person. The adverse findings had taken place in the midst of the ‘Back to Basic’s programme. What the Member was saying was that these interventions did not seem to be anchored in law or regulation. This was the issue. The AG had flagged 48 municipalities that required intervention. The question to the Department and the Minister was that there was no plan yet for those municipalities. From the Committee’s perspective, there seemed to be no firm commitment in so far as this was concerned.
Mr Somyo asked COGTA if the Department understood why it existed. If it did, how long had it been working with the municipalities that were before the Committee today? The same questions that apply to this municipality, apply to COGTA. How could COGTA account for the mess that existed in these municipalities?
The Chairperson stressed that it was unacceptable that blame was being shifted to the provincial level of the Ministers and Members of Executive Council (MINMEC).
Mr Motlashuping said that in so far as COGTA’s understanding of its mandate was concerned, the Department was well aware of its mandate and what was expected of it in terms of section 154. In actual fact, COGTA’s own existence was as a result of section 154, which clearly explained what the Department needed to do to capacitate municipalities through legislation and frameworks which COGTA must be developing over years. This had been done. The issue that normally was discussed, and that became academic, was that before placing municipalities under 139, they must be placed under section 154.
Mr Somyo said that the response was inadequate. COGTA had been in that environment. There was the dead body before them. How could COGTA account for this? What was the Department’s responsibility? What was it that the Department had been doing since it entered this municipal environment?
Ms Muthambi said these matters have been thoroughly dealt with by the Portfolio Committee on Cooperative Governance and Traditional Affairs. In terms of section 154, they had left it mainly to the provincial COGTA’s to deal with the matter. Last week, it was decided that it would be lifted. The Department was responsible for championing cooperative governance. This was not happening within themselves as a Department. There had been an admission that they had failed to comply with section 154 of the Constitution. They had left this matter solely to the provincial department to address. Moreover, there was a predicament in terms of the Constitution. The MinMec issue had been raised sharply as well. Was it about people travelling to Cape Town to come and see the Minister? What was the agenda? It was within the IGR framework as well. There was an Act which dealt with this that then monitors the discussions of these MinMec meetings. Apart from this, there were also IGR forums where they meet from different districts. The matter then gets elevated to a higher level. As part of the Committee’s oversight, they needed to correct this anomaly. There was a lot that was at stake and these were the matters that were a priority for the Portfolio Committee on Cooperative Governance and Traditional Affairs.
The Chairperson confirmed that the PC COGTA would be allowed to deal with this issue.
Mr Somyo commented that officials had not been doing their work properly. They might be doing other things besides what they ought to. Furthermore, what was a deputy CFO?
Mr Shayi explained that, in terms of the organogram, the position was there and he had found it filled.
Mr Somyo asked whether the CFO had any authority as the individual who ought to account for the financials and other defined duties, as per the municipal framework.
Mr Shayi responded that when, among others, the budget was being passed, the municipality had to zoom into that space and rectify the hierarchy in terms of the reporting authority. He did have authority.
Mr Somyo queried whether this matter was dealt with only when they were faced with the budget.
Mr Shayi confirmed that this was the case.
Mr Somyo asked, when the Mayor was appointed, was his mandate spelled out quite clearly?
Mr Shayi confirmed this.
Mr Somyo asked the Mayor to cite one or two examples.
Mr Shayi explained that the overall strategic leadership of the municipality rested with the Mayor. This also encompassed all the functions which would lead the Mayoral Committee in terms of preparing for Council, but also in leading the implementation. This was the responsibility that the Mayor was appointed for.
How did the Mayor feel about the fears of the Acting Municipal Mayor in terms expressing the challenges?
Mr Shayi said that the feeling was not good, but he had found out what had just been revealed only while being seated here, especially the Hawks case.
Mr Somyo asked, given what had just been expressed by a very senior individual with whom the Mayor worked closely, what he could say to the Committee?
Mr Shayi replied that this, firstly, required the facts around the matter raised so that it could be dealt with in a manner to ensure the credibility of the municipality and accountability entrenched at that level. This was so as not to assume what action ought to be taken. There could be many other activities that also had to be shared. The appropriate actions ought then to be taken at that level.
Mr Somyo indicated that the Committee was dealing with a municipality at the highest level, which constituted the first line in the delivery of services, where the trust for such services comes from. They owed R15 million to one of their own municipalities. Was he aware of this?
Mr Kgatso explained that in terms of the water arrangement, he was aware of this situation.
The Chairperson asked whether the municipality had received a loan from Giyani? Did it not owe Giyani R15 million?
Mr Kgatso replied that the municipality did not owe Giyani R15 million.
The Chairperson asked whether they knew Witness Tiva, the former Mopani communications officer. What would he confirm to the media that the municipality took a loan from Giyani of R15 million, which the municipality acknowledged was illegal?
Mr Kgatso said that this was surprising.
The Chairperson explained that the Mopani district municipality, in October 2017, confirmed that Giyani had given it a R15 million loan. The municipality would want to investigate this matter because it was publicly confirmed by the municipality.
The Chairperson read the media report. So the Mopani district municipality was operating loans from municipalities.
Mr Kgatso clarified that he did not open a case against the municipality. It was against an individual. Mopani had an SLA with the local municipalities. Mopani was the service authority, they were the service providers. They ran transactions on the district municipality’s behalf. In terms of the SLAs, there was a clear provision in terms of what needed to happen with the collections that they made. There were realities on the ground where they said they were struggling with collections.
The Chairperson said that the key issue was the loan. Money was borrowed from Giyani, a local municipality.
Mr Kgatso said that they paid the district municipality what they owed. Mopani had not requested a loan.
The Chairperson advised Mr Kgatso to investigate this matter.
Mr Somyo concluded that if ‘Back to Basics’ was religiously implemented in this municipality, it was the religion that would take them to the grave. These municipalities needed to be resuscitated or adopt a better religion. COGTA must stand up and firm up its own operational angle, otherwise there would be more problems.
Ms Muthambi said that this was a water service authority for the entire district of Mopani. It was very worrying what had been said by the AG regarding the quality of the annual performance report. This left much to be desired. She asked the Mayor if the communities of Mopani had water now. Furthermore, a constant theme in the AG’s report was the need to implement consequence management. For the past three financial years, could there be a clear breakdown of the officials who had transgressed and the actions that had been taken? Unless there was a clean-up, this municipality would have a disclaimer for life. Moreover, could there be a skills audit for this municipality? In the annual report, the municipality had even gone so far as to create a special portfolio called ‘water services,’ apart from technical services. Yet, there was a situation where a child had fallen into a borehole and died. There were project managers in the value chain structure. How many people had died due to boreholes being left open by contractors? The action plan was not specific. It did not say anything. This was an issue of malicious compliance. Could the Committee be given the assurance that all these issues would be followed up? This municipality would be a priority during the next oversight visit.
Mr Shayi responded that there were communities that were consistently getting water from bulk reticulation into their yards. Currently, the municipality was experiencing drought, and the interim measure was the borehole. The majority of these boreholes had collapsed and were dry. There was a water backlog for many communities.
The Chairperson inquired whether the R2 million boreholes, which were costing R18 million forelectricity, had collapsed and dried.
Mr Shayi responded that they had.
The Chairperson again asked whether the municipality knew who the contractors were who were building collapsing boreholes?
Mr Kgatso replied that there was a list that he would need to go into and extract the dry boreholes.
The Chairperson wanted to know who the contractor was who never covered the dry borehole and which had resulted in the casualty.
Mr Kgatso replied that he was still awaiting a response from his office.
The Chairperson said that the Committee would not be adjourned until the contractor had been placed on record. Furthermore, how many other people had died in similar circumstances?
Mr Kgatso said there were no other cases.
Ms B Zibula (ANC) said that the community was not happy at all in that municipality. How would they restore public trust in that municipality? What processes were in place to combat the corruption? Poor service in this municipality was too prevalent.
Ms Tolashe said she had been a little bit worried when the acting municipal manager was explaining the relationship between them as the district and local municipalities, and the SLA that had been agreed upon. The legal framework that existed was enough for one to understand the role of the local municipality vis-à-vis the district. The worry was that there was a lot competition in terms of the role that was supposed to be played by the district in assisting local municipalities. Until this was addressed, there would be problems. They were behaving as if there was no legal framework that existed between local municipalities and districts.
To restore public trust, Mr Kgatso said that it had been agreed with the executive mayor that everything would be done according to the book. Importantly, this would be by ensuring compliance. An interim audit was being conducted in the spirit of being told upfront where this municipality had gone wrong. There was also a huge process that the municipality was currently finalising to ensure that in the executive mayor’s 100 days, the municipality was able to go into the communities and explain, among others, the projects that had been finalised within three months. In terms of addressing corruption, the Council item issue was one step towards ensuring that the municipality could preach the message.
Mr Hadebe asked if it had been deliberate to leave behind the deputy CFO, the person who ought to account for three consecutive adverse findings, in the municipality.
Mr Shayi said that, apart from the deputy CFO, other senior managers had also been left behind in the context of the cost containment measures. Despite the fact that there was no uniform expectation about the team that should be brought to Parliament, management felt that if the whole team were to be brought, the costs would just balloon.
The Chairperson responded that while this may be the politically correct answer, the practically correct answer was that the deputy CFO was signing and sending documents to the municipal manager. It was not clear whether the attendees had done justice to their own presence before the Committee. The one person who was the link between the issues that the Committee had was not present. The former municipal manager had jumped ship.
By way of conclusion, Ms Mente highlighted three areas. The Mayor, who was a deployee of an organisation and not an official, did not seem to take this issue seriously. It was easy for the Mayor to say that a turnaround strategy was being embarked on. There was one case that was sitting before the municipality. She asked the municipal manager, given that the consultants were being paired with the people of the municipality, if he was aware of section 83 of the MFMA -- whoever was employed had to have knowledge of the environment they were entering, be competent enough to carry out all the duties and had been vetted. Were there any consultants paired with senior management? These ones should be very competitive.
Mr Kgatso replied that there was no pairing with senior managers.
Ms Mente asked, if that was the case, why juniors were being paired with consultants. This meant senior management had the capacity to carry their components. Why did an outsider have to come and teach people who had supervision, and had the know-how of how to deal with the business of municipality?
Mr Kgatso explained that the municipality had to do a gap analysis, to identify what was lacking in each area. It was this exercise that informed what kind of service provider to bring in, and when they came in, who were the first ones to get paid in the spirit of improving the business going forward. It was in finance and engineering. Since there had been this intervention from outsiders, the municipal infrastructure grant (MIG) spending had started to improve. It had done its own assessment of areas that were lacking, and had asked for support from outside.
Ms Mente stressed that there was a manager who was competent and was a leader of a department, yet the people under the very same manager could not operate and did not have the required skills. Furthermore, the person in charge could not look after the people who were working under him in that particular department. It meant that person was useless if an outsider was needed to teach people under a very competent person who heads a department or component of a municipality earning a high salary and getting all the perks of a senior manager. Yet, they could not take care of their own component. This was not fair for the taxpayer. There was also evidence from the AG that they did not know how much the boreholes had cost, as well as evidence that there was no work done on the boreholes. The AG had said that payments had been made for boreholes without any evidence that work had been done. Some of the supporting documentation was incomplete. Had boreholes been constructed for drought relief? How many boreholes had been constructed? Furthermore, were the boreholes that had been alluded to part of the new boreholes that were meant to be constructed for the drought relief?
Mr Kgatso said that the drought relief was for the 2018/19 financial year. The findings alluded to in the report referred to boreholes that would have been drilled outside any grant by virtue of it being the municipality’s space to respond when communities needed boreholes. The AG was saying to the municipality that when it saw its payments, it did not have all the documents such as the requisition and the order. It was a series of missing documents from one case to another, culminating in a recordkeeping problem. As a result, the AG had concluded by saying that for it to satisfy its work, it would have required certain documents. The issue raised was that the supporting documents were not present and, as a result, AG was not sure that the work being referred to existed. It ended in this disagreement.
The Chairperson indicated that the challenge of the municipality’s recordkeeping was that there was no certainty that the borehole was consistent with the documents that were missing. The AG was right.
Mr Kgatso agreed. On the corrupt boreholes, the municipality would provide a full report. During asset verification, naturally and as a matter of course, they had picked up boreholes that had collapsed and they had been given a name for Council to consider writing off, because they would not come back again. There was a report that refers on a case by case basis to the boreholes that were dry, vandalised etc.
The Chairperson asked for this report by the Monday deadline.
Regarding the contractor who was responsible for not covering the borehole that had resulted in the casualty, Mr Kgatso said that, based on the information received, Mopani did not drill the borehole itself.
The Chairperson said that the acting municipal manager was playing games. This response was part of a bigger picture of the situation that had been painted so far.
The Chairperson stressed that the Committee was not happy with the Thabazimbi audit outcome.
Mr Lees highlighted that the AG had produced a very short report because there was very little that was not qualified. It was a total mess. There had been two interventions between February 2016 and March 2017. It was now under section 154. The situation up until the last financial year remained a major problem. One of the issues which the AG raised was concern about whether the municipality was a going concern. In the year under consideration, there was excess expenditure of R16 million, and liabilities exceeded assets by R204 million. How did it get to the point where the municipality spent R16 million more than its income and got to a position of complete bankruptcy? The newly appointed CFO had taken on the job with its history.
Mr George Ramagaga, Municipal Manager: Thabazimbi Local Municipality, said that he had occupied this position for almost two years, from late 2017. Thabazimbi was classified as one of the 55 dysfunctional and distressed municipalities in the country. They were in the process of moving away from the intensive care unit (ICU) to a normal ward. That was why they were here today. In terms of the preparation of the annual financial statements as the accounting officer, the municipality had experienced quite a number of challenges during this process, and two of the CFOs had resigned in one financial year. This was why the municipality had a third CFO today. It had hampered the quality of the financial statements that were prepared. AFSs have not been submitted on time for the past three financial years, including the financial year of 2017/18.
In terms of this municipality as a going concern, for this financial year 2018/19 the municipality had been able to submit on time. This was a positive note, considering where the municipality was coming from. Regarding the R16 million that was overspent, it was true that the municipality had experienced certain abnormalities. Regarding the current finance system that was being deployed in the municipality, issues were experienced around the budget that was approved by council. This had been resolved. This had been addressed when the municipality was preparing for the 2018/19 financial year when all the corrections for prior years were made.
The newly appointed CFO said that when he was appointed, he had looked at the AFS and the opinion by the AG. Looking at the numbers, considering that there were more than 15 disclaimer paragraphs, it was very difficult to even rely on these financials because they were just a thumb suck. These financials were just not up to scratch. Therefore, a new set of financials were prepared from scratch, using the supporting evidence verified by relevant officials within the municipality. Regarding the question of the going concern, the going concern was a calculation based on the numbers (that were not accurate) that had been presented to the AG. The municipality was unable to provide any evidence to the AG.
Subsequent to that, they had prepared a set of financials, and had managed to submit on time for the first time in many years. The financials that had been prepared make sense. They had been accepted by the audit committee. COGTA, together with Treasury, had been invited to go through those financials. They had reviewed them and gave inputs that were factored into the final document that was submitted to the AG. Over and above that, the audit file had also been submitted, which corroborated each and every number that had been submitted to AG thus far. As for the disclaimer, the financials that were audited by the AG did not make sense. It was just a thumb suck. They were provided by a service provider that had billed the municipality about R1.6 million. This R1.6 million had not been fully paid because of all these issues.
Mr Lees responded that it sounded like the service provider may not be paid, or that the municipality was still considering it. Regarding the figure of R204 million, where liabilities exceeded assets, what was the actual figure? A few years ago, the municipality was bankrupt to the point where assets were being seized by the sheriff and being sold off. One would have hoped that there had been some level of reduction in the liabilities, just by selling the assets. In this situation, where R204 million of liabilities exceeded assets, how did the municipality continue to operate without the assets? In some reports, various assets had been purchased. What was the real figure for the bankrupt state of the municipality if it was not R204 million?
The CFO said that according to the latest set of financials, the figure that could be categorically stated was that the total current assets amount to R163 million (rounded off), and the current liabilities were R81 million. However, the total assets were R875 million, with total liabilities of R460 million. There were accumulated net assets of R333 million.
Mr Lees asked whether the figure that the AG and the Committee were given had been complete nonsense? Based on what was said, the municipality went from R204 million, where liabilities exceeded assets, to accumulated net assets of R333 million -- a R540 million turnaround.
The CFO confirmed that this was the case. The figures that had been submitted could be corroborated. In terms of the financials that were submitted in the previous years, it was unclear where those numbers came from. Even the AG could not get information to support those numbers. In terms of the liabilities, the biggest chunk was Eskom, which was about R190 million, and the Magalies water board, which was about R60 million. However, the municipal manager would give more information on it. The municipality had been struck with a lot of litigation, so its contingent liabilities were quite high.
Mr Lees asked whether even in light of these key liabilities, the municipality was solvent. To the municipal manager, who must have known that the figures were nonsense, who was the service provider and what did the municipal manager do about it? It was hard to understand how this municipality switched from being bankrupt to a solvent municipality on paper overnight because a new CFO was appointed.
Mr Ramagaga, explaining the turnaround, highlighted that the municipality had a backlog when the new administration started its work. AFSs were never submitted on time. Even as the municipality was submitting in 2017/18, it had received the AG’s report for 2016/17 in September 2018. Subsequent to that, the municipality still had to submit for 2017/18, which was submitted in March 2019. That justified the quality of the information that was submitted to the AG, because the municipality had to rush in order to submit the AFS. The municipality wanted to catch up in terms of ensuring that come 2018/19, the municipality submitted on time so that it could go back and do the corrections on the prior years.
This process had already started. The municipality knew that the numbers were not correlating and there was also a challenge in terms of a limitation of scope. When the sheriff came to take documents and assets in the municipality, a lot of information went missing. Hence, a full audit was not done by the AG. There was an agreement to say that the municipality would need to sit down with the AG and write certain assets off. As a municipality, there were no supporting documents. Some of the officials that had left had taken the files with them. That was the process that had been started -- to ensure that from 2018/19, the municipality closed the gap from prior years and, moving forward, the outcome of the audit would change as the municipality had committed itself to the current audit process.
How the municipality had survived was through the money which was donated to the municipality by the mine. They had donated furniture and computers. The municipality was resuscitated last year to the extent that the municipality could even afford to buy its own assets. This was how the municipality managed to come out of the situation that it faced. They were in stable mode politically and administratively. They were fully functional and stable.
Mr Lees continued that surely a municipality was not run on the basis of financial statements. A municipality was run by management reports. Those management reports must also have been nonsense figures. Who was the consultant who produced the false figures? It was unclear who the sheriff would sell the files of documents to, and why they were seized. Presumably, there would have been backup computer files, and those were not seized. In the case of the documents, what efforts were made to recover them form the sheriff? Unless someone wanted to blackmail them, who would buy those documents at an auction? It was difficult to understand why all those documents had been lost, yet there had seemingly been no attempt to recover this information, or that there was any back up.
Mr Ramagaga explained that when the assets were seized, they took the filing cabinets as well. The challenge was that some of the information was in those filing cabinets, and they were unable to tracetem. Some of the information, however, had been left in the municipality. Similarly, some of the assets that were sold could not be recovered by the municipality. The consultants that assisted the municipality for 2017/18 were ARMS Audit, the same consultants who had assisted with the AFS within a very short space of time.
From the post audit action plan, 57 issues were raised by the AG. From 15 June, when the municipality received the report, 71 % of the issues were resolved. The other issues would be resolved during the course of this year. This was where the municipality was in terms of the post-audit action plan. In terms of backup, there was an IT server room that the municipality had in place. This server was one of the best available, where the municipality had the disaster recovery servers etc. Each finance system had its own back up recovery outside the municipality. Some of the information had been recovered, but some could not be recovered.
Mr Lees continued that it did not seem that the municipality had made any real effort to either stop the sheriff from taking documentation or to recover it. No court had been approached. The sheriff did not have the right to seize or confiscate that sort of stuff. There was apparently a councillor that did not declare that he/she was involved in a transaction with the municipality. Who was that councillor and what were the circumstances there?
Mr Ramagaga responded that he did not have the name of the councillor now. He would need to check the report to confirm the name of the councillor.
Ms Mente interjected that it was unacceptable that an accounting officer comes to the Committee without names which were mentioned in the report of the AG.
The Chairperson sustained Ms Mente’s request.
Mr Ramagaga asked the Speaker to assist.
Mr Bradley Joubert, Councillor: Thabazimbi Local Muncipality, confirmed that there was no such name in the audit report. That name was not identified.
The Chairperson responded that the Committee would like the name now. It meant that no action was ever taken.
Mr Joubert commented that important information that should be considered was that fact that in 2016, in August, September and October, the municipality had forced three senior employees to stop being in the municipality’s service by means of various methods.
The Chairperson interjected that these were normal interventions. The issue was that this councillor had been flagged by the AG and should form part of the municipality’s collective action. The municipality should know who they were dealing with. The municipality could still provide this information regarding the councillor and the transaction in question. The AG’s management letters had been received.
Mr Ramagaga responded that the name would be provided before the end of the meeting.
Mr Lees asked what the municipality could say about the bush clearing and grass cutting contract which were under dispute with a certain DK Towing and Scrapyard.
Mr Ramagaga said that, as was indicated earlier, the municipality had quite a number of litigations and disputes against it. There was an entire list of different service providers that had a dispute. All these happened before his appointment. Since assuming office, he had been dealing with all the new issues and he did not have any dispute under his watch as the accounting officer.
Mr Joubert continued that the Special Investigating Unit (SIU) was now busy with an investigation at the municipality which they had commenced at the end of 2016. Regarding the name which the Committee would like, there were 100 legal cases, of which 15 were default or summary judgments. That report would cover most of those. There was a legal register with the 100 cases that had been submitted to council. The municipality had worked it down from more than R200 million towards the 70s. The municipality was still confronted with down payments. The TK Towing case was not such a big case.
Mr Lees moved on to the amounts owed to Eskom and to the water board. How was the municipality dealing with those?
Mr Ramagaga replied that in October 2017, Eskom was owed about R236 million. At that point, there were routine electricity disruptions, where Eskom was disconnecting the municipality. Immediately after assuming office, the municipality had managed to sit down with Eskom a month later and develop a payment arrangement with them. They had a payment arrangement in place currently, where the municipality was paying a certain amount of the historical debt from the equitable share allocation. Lately, the mayor had met with Eskom to request them to reduce the R10 million which the municipality committed in the past, to R5 million so that the municipality was able to function and purchase assets that were required to deliver the services. That new payment arrangement must also be signed, and that from the equitable share allocation, the municipality pays Eskom only R5 million. The condition, however, is that the municipality must service the current account. So far, the municipality was servicing the current account and the last payment that was made was last week for R8.8 million. The municipality does not have any issues with Eskom. The municipality had been able to reduce the amount to R192 million as of 31 July. With Eskom, the municipality honours its payment arrangement.
The same applies with Magalies water board, which is the water services provider. The municipality met with the board. There was an agreement on a new payment arrangement. The previous arrangement, it was felt, was not assisting municipalities. It was agreed that the municipality could pay the board R3.5 million every time it, among others, services its current account, which takes place on a monthly basis by the 7th of each month. This arrangement was being honoured. This was how the municipality had managed to deal with these entities so far.
Mr Lees asked if the equitable share was being used to redeem this debt. Was this a monthly payment, or when the municipality received the equitable share? How long would it take to pay off the debt?
Mr Ramagaga indicated that it would take about seven years to pay off the debt of the historical amount, because the municipality was paying off the current amount.
Mr Lees commented that it seemed like an arrangement that was incredibly favourable to the municipality. The hope was that this municipality did not default like other municipalities did. What it meant was that Eskom and the water board became a bank or lender to the municipality, and effectively all South Africans have just lent them some money because South Africans kept giving bailouts to Eskom. It was a vicious cycle. It was difficult to understand how Eskom and water boards enter into these agreements. They should be forcing the municipalities to go to a real lender of money to borrow the money, assuming this extended credit facility was interest free.
Mr Ramagaga indicated that the payments were interest free provided the municipality stuck to the payment arrangement.
Ms Muthambi aligned herself with the findings of the AG. They had appointed a service provider to reconstruct the asset register. At the same time, there was a CFO that had been appointed. At what cost was this service provider being utilised? At what point would there, if at all, be a skills transfer? In terms of the unauthorised and fruitless and wasteful expenditure, could the Committee get a spread sheet for the past three years, especially in line with the roles of the accounting officer in terms of section 62 1(e)? They should not just hand over responsibility to MPAC, which was established for a specific reason. There were fiduciary duties proscribed by the law. Once there was an audit report, there was a need to follow up.
The Committee would like to understand how many disciplinary procedures had been conducted and how much was recovered. It needed more than what the municipality was recommending. What the municipality was meant to be presenting was a progress report on what the municipality had done since it received the audit reports. These were the issues that needed to be outlined by Monday 12 midday. Furthermore, with regard to the municipal assets that were seized and disposed of by the sheriff, what was the extent of the litigation? Did the municipality manage to pay what it owed thus far? Moreover, could the municipality simply say that it had settled all the debts that the sheriff issued? Could it give assurances that the AFS would be submitted on time? Would the AFS be conducted in-house, or would it be outsourced? Could the Committee be assured that the audit outcome would look different from what it had been? In terms of the AG’s comment that there was no official that was dedicated to preparing annual performance reports and reviews, what was the status now? Were the people of Thabazimbi getting services from the municipality?
Mr Ramagaga referred to the UIFW expensditure, and stated that there was a report on irregular expenditure for 2017/18 that had been finalised by MPAC that would be sent to the Council on 26 September. That report was being completed. On a quarterly basis, the municipality reported to Council on irregular expenditure. Council then referred those reports to MPAC to conduct the investigation. The municipality had the report for the whole financial year that would be served to Council with the recommendations.
Ms Muthambi asked, if someone did not comply with the supply chain regulations, what did MPAC have to do with it, save for the municipality to say that this official had to be disciplined?
The Chairperson stressed that the Committee had asked for a spread sheet containing all the disciplinary action that had to be submitted by Monday, 12 midday. The Municipal Manager must stick to the questions that had been asked.
Mr Ramagaga said that the municipality would provide the spread sheet on the UIFW expenditure for the last three years. In terms of the litigation register, the municipality had a spread sheet that it updates regularly. It was standing at R122 million. So far the municipality, had paid R11 million. There was R85 million outstanding. There were payment arrangements in place. The sheriff had not seized anything for more than 12 months. There were payment arrangements with the cases outstanding. Some were being paid as little as R50 000 per month. The spread sheet would be provided to the Members.
Ms Mente indicated that the document on Thabazimbi municipality showed there was clear evidence that they were not looking into what they were doing, but they were just complying for the sake of SCOPA. Unfortunately, the Committee should have demanded the details upfront. They had come with very high level information. For example, how could they say that MPAC was investigating fruitless and wasteful expenditure? The people who transgressed were known. The AG said leadership inaction created a culture of no consequences. Council did not investigate prior years’ unauthorised expenditure and fruitless and wasteful expenditure. It was a lie that MPAC was investigating. They had never done anything about the five years of adverse findings. The municipality needed to provide a report of what it had done before it leaves.
Mr Ramagaga said that Council took a resolution in 2014 to investigate UIFW in relation to non-compliance with the supply chain. That report was tabled in Council where a forensic investigation was done. Action was taken against the municipal manager and the former CFO, who left the organisation. In 2017, the same Council requested the intervention of the national Department for a forensic investigation. A proclamation was made by the Presidency to institute an investigation through the SIU. The investigation ran from 2012 up to 2017. The municipality had communicated with COGTA National because previously it had communicated with the Office of the Presidency. The outcome of the SIU investigation was requested so that it could come to Council, and Council could start to implement the recommendations. Part of the investigations was related to maladministration, misconduct and SCM-related issues. At this point, it was requested that this report be forwarded to the municipality so that action could be taken against the culprits. It could not institute a parallel process because the SIU was already on site and it had done an investigation for the last two years. The situation at the moment was to address the previous years’ concerns.
Ms Mente indicated that it was highly impossible that SIU was investigating the whole amount of unauthorised and fruitless and wasteful expenditure. It was investigating specifics that had been identified as maladministration. What had happened to the rest of the cases that did not require the SIU? There were specified cases that had been handed over to the SIU. What had happened to other cases?
The Chairperson asked that a report be provided on all the other matters that required investigation or had been investigated.
Mr K Ceza (EFF) asked why it was a culture in the reports that had been received, that the Committee was not receiving proper details. Why was it inheriting a culture of complacency? All the municipalities that had been asked for details had not provided them. They had either deferred it to a later date or later on today. How prepared were they to be answerable to this House? Furthermore, how did they run a municipality that had as high an unemployment rate as Thabazimbi? How did they generate their own revenue against such challenges, and what could be done about it? What were the mechanisms in place for the day to day running of the municipality? Finally, was there the political will to actually drive transformation, thus speeding up basic service delivery? Was there leadership in this municipality?
Mr Ramagaga confirmed that the municipality had a high unemployment rate, particularly the youth at 40% and the general population at about 26%. There were interventions in place to curb the unemployment with regard to the number of mining houses that were operating within the municipality, to reduce unemployment. The Mayor was taking the matter of unemployment personally and it was something that was close to his heart. There were different revenue streams in the municipality that were being employed, as well as engaging with the Magalies water,board, to negotiate with them so that a surcharge could be added to areas where they were supplying water directly. The municipality had quite a number of mines that were operating, and all the bulk services were either being supplied by Eskom or the water board. The municipality was negotiating to take over some of those functions, and for the water board to act as the municipality’s agency in those areas.
With respect to the general monthly payment rate, the municipality was sitting at 80%, which was way below the 95% on a month to month basis. In relation to basic service delivery in the last financial year (2018/19) and the current financial year, the municipality was able to capacitate internally to enable it to start implementing the projects in-house without the assistance of the district or the province. The municipality was receiving conditional grants from government, provincial and national. There were various other grants that were being received -- for example, the municipal infrastructure grant (MIG) allocation and the Distressed Mining Town funds. There were quite a number of projects that were running to enhance service delivery, more particularly in the water-related area. It was a very serious issue in municipalities. There were projects that were close to R100 million that were currently under way for capital projects. In terms of the stability in Council, there was a commitment, both administratively and politically, to take this municipality to another level.
Mr John Michael Fischer, Mayor: Thabazimbi Local Municipality, responding to whether the municipality was confident that it was servicing its people, said it was not 100%, but was at least 70%. One could imagine what it was like to have a municipality that did not have even one vehicle. How did one expect to service people in this situation? In the past two months, the municipality had acquired three bakkies to begin the process of service delivery.
On the issue of unemployment, after taking office in December last year, he had convened all the mines. They were engaged on a social labour plan. He had said to all the mines that there was a need to look at the procurement. In Thabazimbi and the Moses Kotane municipalities, mining takes place. When these municipalities came together, it was decided that there would be one verification committee, with the understanding that the issue of unemployment would be addressed. The mines are very cooperative. When there is an opportunity, they usually request the office of the mayor for employees. At the same time, the municipality was also assisting locals with small, medium and micro enterprises (SMMEs) and linking them with the mines in terms of job creation. There were monthly meetings at various wards to check how far the municipality was in terms of job creation. With regard to political management and the leadership of the municipality, the municipality was doing very well.
Mr Lees concluded that this had been an interesting engagement. There were still answers that were needed. In terms of the relationship with the SIU, would the Committee be able to assist the municipality to get this report? The SIU had been conducting an investigation which had been going on from 2012 to 2017. Two years later, that report had not been made available to the municipality. Could the Committee intervene and ensure the report was obtained?
The Chairperson said that the Committee would do that. It would interact with the Hawks and the SIU. In the interim, the Committee could dispatch correspondence to get information from them first to know what was going on. Any matter that had been raised for submission, needed to be submitted by next Monday 12 midday.
The Chairperson commented that the Committee was not happy with Vhembe’s audit outcomes. Why had there been an Acting Municipal Manager for almost one year?
Mr Dowelani Nenguda, Mayor: Vhembe District Municipality, explained that there were officials that were in a disciplinary hearing. The municipal manager and the CFO had both resigned. Ms T S Ndou was appointed as the acting municipal manager.
Mr Dirks asked how long the mayor had been in office.
Mr Nenguda said that he joined the team on 24 May 2019.
Mr Dirks stressed that a constant theme thus far was that municipality officials seemed to not be serious. There was a lack of seriousness on the part of municipality officials. There would be consequences after these hearings. It was not business as usual. Legislation had been amended in order to give the AG some teeth to deal with issues. Regardless of seniority or political affiliation, there would be follow-ups and consequence management. SCOPA had one voice. There were disclaimers for Vhembe’s 2015/16, 2016/17 and 2017/18 audit reports. The overall message of the AG was that the municipality had been getting repeated disclaimers for the last three financial years. This was due to requested information to support financial statements not being submitted. It was very clear that the AG was unable to audit the municipality because the municipality was providing no information. For the last three years, the municipality had failed to submit financial statements to the AG. Did the municipality believe that it would be able to submit financial statements in this financial year to the AG? There was simply no intervention in this municipality from COGTA year in and year out. Why was there no intervention?
Ms Ndou, Acting Municipal Manager: Vhembe District Municipality, said that the issue of poor record keeping had been there for the past three years and more. However, the municipality did manage to submit the financials on time this year. Out of 108 findings, the municipality had managed to resolve about 95.5% of them. The municipality had done some spade work in terms of addressing poor record keeping. They were trying to establish a centralised record management system. This was a problem initially, as documents were scattered all over. This made it impossible for auditors to get information in time. However, because the process was still ongoing, the municipality had allocated one official per department to be the dedicated person dealing with record management. When information was requested from auditors, there was a specific person in every department who was responsible for the submission of information.
The COGTA national representative said that there had been support from the provincial COGTA in this municipality. The Department sent a senior official in 2016 to be the municipal manager of Vhembe. That senior official was then withdrawn after six months. Another one was sent through by Treasury who took over as acting municipal manager. COGTA national had been working with this acting municipal manager to assemble the top management as soon as the elections of 2016 were completed. They were able to assemble the full complement of the administration. There was traction in terms of their performance. They were able to arrest all the issues that affected the performance of the municipality in the past. With the VBS scandal, that effort seemed to have fallen through.
The Chairperson stressed that the VBS saga was a new phenomenon, and the disclaimers were from three years back. What traction could be spoken of when the municipality had been tripping from disclaimer to disclaimer? The pressing question was on intervention. The temptation should not be to use VBS as a scapegoat. SCOPA was aware of it and it would be dealt with. VBS arrived on top of the disclaimers, which were historic.
Mr Dirks said that the Committee was asking COGTA national what the various interventions were? The first year was a disclaimer, and now assistance was given to the municipality. The second year was another disclaimer, and there was also no assistance given. There was also no assistance given with the third disclaimer in the third year. Why had the Department not intervened when there were these disclaimers?
The COGTA national representative said that the provincial COGTA was the first port of call to do the intervention. At the time, they had opted to second officials to the municipality. They had not opted for the route of carrying out section 139.
Mr Dirks highlighted that even though the provincial department had seconded officials to the municipality, this did not prevent further disclaimers. Municipalities were failing to give financial statements to the AG. This was a tactic of covering up corruption in the municipality, and this was why they did not give the documentation to the AG -- so that they could not be audited. They would rather get a disclaimer than being exposed for corruption. In terms of the audit findings on procurement, contracts were awarded to suppliers who were in the service of the state. Who were those councillors or officials, and had they been charged? Furthermore, tenders were awarded without being advertised. The whole procurement supply chain book had been violated.
Ms Ndou said that these officials were not in the employ of the municipality. They were officials from other departments. While they did not have the names, the municipality had since written to the department concerned. Moreover, the municipality did not have a system in place to help the municipality to detect whether the person was in the service of the state or not. However, the municipality had requested the system which would enable it to check whether or not a person was in the service of the state. It had disclosed everything this year in the financial statements, and submitted everything to the AG. There should not be a problem with the disclosure of information in the financials.
Mr Dirks continued that it was said that because of VBS, and the R300 million invested, this had affected service delivery. Was this correct?
Ms Ndou confirmed that it was.
Mr Dirks asked, if this was the case, why the municipality was returning 100% of the grant funding that was given by national government. Why was it not being spent on service delivery in the municipality?
Ms Ndou said the problem was that there was instability in the municipality. From last year October to February this year, the municipality had been having disagreements with the organised labour unions. Employees were not working. The problem was resolved because the local labour forum was now functional. If there were issues, they were resolved within the structure of government. The problem was that during that period, the municipality could not do anything because there were strikes. Some of the projects could not be implemented, or done in a manner which satisfied the community. With the new leadership, communities and local structures had been approached to resolve whatever problems there were. It was unlikely that this problem would be present in the 2019/20 financial year.
Mr Dirks asked who invested R300 million in the VBS bank. Were they still in the municipality?
Mr Ndou responded that the persons who invested money were the former municipal manager and the former CFO. They were no longer in the municipality.
Mr Dirks asked whether they were paid out when they were removed.
Ms Ndou answered that the municipality had reached an agreement with the municipal manager. However, the CFO had resigned and there was no settlement agreement.
Mr Dirks asked how the municipality had reached an agreement with the municipal manager when he was responsible for the loss of R300 million for the municipality. His package should have been held back. How do they let him go like that?
Ms Ndou said that the municipal manager reports directly to the executive mayor. The person who was supposed to be disciplining the municipal manager was the executive mayor. In this case, it was the former executive mayor who reached an agreement with the former municipal manager.
Mr Dirks asked whether he was charged and disciplined.
Ms Ndou responded that he was charged. However, during the disciplinary proceedings, an agreement was reached.
Mr Dirks continued that he was not charged, because an agreement was reached. When the money was invested in VBS bank, commission was paid. Who received the commission, which was millions of rands?
Ms Ndou did not have any knowledge about the payment of commission.
Mr Dirks asked whether the municipality should not have made it its business to find out the details of the investment. Who received the commission?
The councillor and chairperson of MPAC responded that the matter was usually referred to MPAC by the councillor. This matter was not referred to MPAC.
Mr Dirks asked whether the councillor did not see it fit to refer the matter to MPAC?
The chairperson of MPAC confirmed this.
Mr Dirks stressed that the Committee needed to have a meeting with the SIU and the Hawks. These matters needed to be investigated. SCOPA needed to know who the commission was paid to, and why the municipal manager was not charged. It was not acceptable that no one was charged and the municipal manager got a golden handshake. It was very difficult to speak to the municipal manager and the mayor because they had just arrived there this year. The people who were involved were not there anymore.
The Chairperson asked whether the former municipal manager had left on the basis of an agreement concluded by the municipal manager and someone else.
Ms Ndou explained that according to the disciplinary code of conduct for senior managers, the municipal manager reported directly to the executive mayor.
The Chairperson inquired if the matter was taken to Council.
Ms Ndou said that after the settlement agreement, the matter was taken to Council, and Council had adopted it.
The Chairperson asked whether the municipality had agreed to pay someone who had lost it R300 million.
Ms Ndou confirmed this.
The Chairperson asked if nobody saw anything wrong with this. The issue was fundamentally how the Council arrived at this decision. What prevented Council from taken this proposal and throwing it off the nearest cliff? They were in a situation where the municipality’s finances were upside down and it was acceptable to give the former municipal manager a golden handshake. If there was one agreement that needed to be investigated, it was this particular one. It needed to be flagged for referral. Were there any investigations that were taking place in the municipality internally and otherwise on discipline or consequence management?
Ms Ndou said that the municipality was busy investigating the UIF internally for the 2017/18 financial year. After the municipality had investigated, there would be disciplinary processes. There was no one currently facing disciplinary processes.
The Chairperson stressed that this was a big concern. There were so many disclaimers and yet there had not been anybody that had been disciplined. This was fundamentally problematic. They were still dealing with the same staff complement that was at the forefront of the bad performance.
Ms Ndou said that the municipality did manage to establish a financial misconduct board in 2018. The municipality was investigating the UIF situation. After the investigations, the necessary steps would be taken. This was an initiative for the municipality to get out of the disclaimers.
The Chairperson interjected that, although a body had been established, the Committee would like to see consequences. Although there was compliance, did that compliance yield consequences? It became a cosmetic compliance. They were still sitting with the same people who were the root cause of the problems.
Mr Somyo referred to the procurement component, and said that there were contracts that were awarded to suppliers who were in the service of the state. The challenges were highlighted by the municipality around this issue. Yet the AG had managed to report on the contracts that were awarded irregularly. What sort of trend did the municipality want to establish in terms of accountability, more so as an accounting officer? Furthermore, in the same instance, the municipality awarded tenders without them being advertised. How was the municipality going to measure the kind of service that ought to have been delivered? The risk was huge that the service would not be delivered.
At the same time, the municipality said it had a risk unit. The internal audit was somewhat functional. What was the functionality of such structures measured against? All the factors that relate to the municipality’s ability as a water services authority were of great concern and spoke of misallocation. The fact was that this municipality could not account for the asset base of what it ought to be looking after.
Lastly, there was an indication that no investigations had taken place in regard to unauthorised, irregular and fruitless and wasteful expenditure. There was an indication that from 2014 to 2017 there had been no municipal manager. At that time, COGTA and Treasury were responsible for the municipality in terms of their own support. Equally, COGTA and Treasury at that level were to blame when it came to the situation of that municipality. All those ills were a reflection of the quality of support that had been given to this municipality.
Ms Ndou, in terms of contract management, said that internally the municipality did have a system to detect whether a person was in the service of the state. It was centralised under the legal department, which was not the case before. At this point, the municipality was trying to collect all the service level agreements and contracts for the services and contractors that had been updated. Regarding the tenders that had been awarded without following procedure, it was a matter involving the council attorneys that were appointed by the municipality. When a tender was advertised, these attorneys were appointed. The auditors queried how the municipality had appointed a council attorney who had already been appointed through the normal tender process.
The Chairperson asked whether it was just the one tender that was awarded without following due process.
Ms Ndou confirmed this.
Concerning the issue of water services, internally the municipality had been having a problem in that it was unable to make reconciliations of the accounts on a weekly basis or monthly basis. At this point, the municipality had developed a system wherein reconciliations would take place. This was where the water services statements were coming from. The municipality had given itself a deadline to complete the bank reconciliations on the 10th of each month.
Regarding the unauthorised, irregular and fruitless expenditure, the municipality did not have the internal structures to conduct investigations. There were cases that were being investigated internally and later were withdrawn. With the financial misconduct board, the municipality was trying to establish a system that would allow the municipality to proceed with consequence management. At some point in the future, the municipality would be in the position to charge employees in the appropriate manner.
The COGTA national representative said that complicity of Treasury and COGTA in Limpopo was possible. The Department would address them on the matters raised by the AG and ensure that those responsible face repercussions.
Mr Somyo requested a detailed report from COGTA of a plan to begin to get closer to the affected municipalities, to improve the way they were attending to issues.
Lastly, there was money that had gone to contractors which had been identified by the AG. What were they saying about what had happened irregularly for the municipality to cleanse itself of all the debt in terms of her responsibility as the accounting officer? Could the Committee have a guarantee that there would be redress for all the money that had been lost due to fruitless and irregular expenditure? This money should have been used for service delivery.
Ms Ndou responded that the municipality would have to conduct investigations into the unauthorised, irregular and fruitless expenditure. Having conducted these investigations, the municipality would have to determine if someone would need to be referred to MPAC for further investigations.
Ms Muthambi pointed out that a consultant had been used to assist with the AFS. The cost was R18.5 million, and still the statements were not accurate. What was the Mayor’s and the Chairperson of MPAC’s reaction? That had been done without following the procurement supply chain regulations. The issue of VBS had been discussed at length at SCOPA’s meeting. While other municipalities that invested money had disciplined and fired their municipal managers, in this case they had given the municipal manager a golden handshake. SCOPA was still going to visit this municipality. For it to be told that this was discipline from the mayor was concerning. The accounting officer had a fiduciary duty to advise council whenever they take decisions. The accounting officer was the custodian of the fiscus in terms of in terms of section 194 of the MFMA. In that council resolution, did the acting municipal manager advise that what they were doing was wrong? One does not pay someone for wrong doing.
Ms Muthambi read from 95 F, which states that it was the responsibility of the accounting officer to discipline anyone who had been involved in financial misconduct. In this case, someone was given a golden handshake. The Committee needed to be furnished with that council resolution. That council may need to be dissolved. One could not have a council which was so reckless. What informed the decision to give the former municipal manager a golden handshake? The fruitless expenditure had rocketed to R1.2 million. There was a sense of lawlessness. Apparently Council was still to appoint a committee to investigate the municipal public accounts. This was shying away from responsibility. Where was consequence management throughout? The chairperson of MPAC had also indicated that matters were not being referred. SCOPA had been told that there was an audit committee that was functional, but the challenge was that the recommendations were not implemented. Who were these members of the audit committee? How long had they been there? How much had they been paid? There was also an audit steering committee that was reporting to the mayoral committee. What was happening in this mayoral committee? There was also a person from the department in the internal audit committee. How much was this person being paid to do nothing?
On accountability and consequence management, do they think that they would be able to discipline any employee, because they were creating precendents. They initiate a disciplinary measure, then they withdraw it, and now there was a financial misconduct board that was established. However, as an accounting officer, she had the responsibility to discipline officials. Moreover, there was a forensic investigation into certain agricultural land. Council had adopted the recommendation, disciplinary processes were instituted and later withdrawn. There was a problem of withdrawal of disciplinary processes in this municipality. Forensic investigations do not come cheaply. It was malicious compliance. There was money involved there, but who was following this money at the end of the day? This was a municipality that was a water service authority. In some places in this municipality, people were collecting water from a hole in the ground. This was very worrying.
Mr Nenguda responded that with regards to the provision of water, certain areas were cause for disappointment because so far people were not getting water as expected. They were trying their level best to supply them using tankers. Unfortunately, the bulk water supply from Nandoni dam was taking a long time to be completed. There were quite a number of areas that were not getting water. The municipality was ashamed. It receives many calls from the community indicating that there is no water, and is taking this matter very seriously. The Nandoni dam is full to capacity, so the municipality wants an intervention from the Department of Water and Sanitation to help. It was going to make sure that these challenges were addressed as expected.
Ms Ndou referred to the R18.5 million which was paid to consultants, even though there was a disclaimer, and said that when the municipality investigated, the consultants were doing the financials on their own without any involvement of the officials.
The Chairperson asked who the consultants were?
Ms Ndou answered that it was Protea Consultants. This was a contract that was acquired through section 82. It was from another municipality. This service was not procured through the normal supply chain management processes.
Regarding the functionality of the structures within the municipality, it was true that the structures were there but some of them were not functional. The audit steering committee, for example, was not functional. The aim was for the audit steering committee to meet bi-weekly so that the departments ensured that whatever issue was raised by the auditors was discussed and addressed. The internal audit did investigations but what occurred was that the recommendations that were made were not implemented by the departments. As a remedy to that, at each and every management meeting, the heads of the departments were expected to report on the internal audit matters that were recommended by the internal auditors, together with, among others, risk management.
Referring to the golden handshake and the investigations that were conducted, she said it was true that money was spent on the investigation into the VBS investment. An internal investigator was appointed by council, and R276 000 was spent. For the investigation into the abuse of petrol cards, R6.5 million was spent.
The Chairperson asked who did the investigation?
Ms Ndou responded that it was a Council agency.
The Chairperson asked how much was abused?
Ms Ndou said that she did not have the figure on hand. It would be in the report that was submitted on Monday.
She said that the agricultural investigation had cost R3.5 million.
The Chairperson asked who did the investigation.
Ms Ndou said that it was Vudlela and Associates, the same service provider that investigated the abuse of petrol cards.
The Chairperson said that the municipality had paid this organisation up to R10 million for two cases.
Ms Ndou continued that, in so far as the forensic investigation into the abuse of petrol cards was concerned, the recommendations had been taken to Council and were adopted for implementation.
The Chairperson asked whether the recommendations had involved any consequence management.
Ms Ndou said that there were no consequences.
The Chairperson stressed that there was abuse of petrol cards, and R6.5 million was spent on the investigation, yet there was no consequence.
Ms Ndou confirmed this. Some who were called to appear never came. On the agricultural depot, the municipality started with the investigation. When the employees were about to be disciplined, there had been a problem which resulted in the municipality not continuing with the disciplinary process. Time lapsed while the municipality was busy with the processes.
The Chairperson said that R3.5 million had been wasted. Who caused the 90 day lapse? How did that happen?
Ms Ndou answered that the lapse occurred because of the internal engagement between the political component and the labour union.
The Chairperson asked why cases were being discussed with unions.
Ms Ndou said that the political component was discussing the case with the unions.
The Chairperson asked whether the former mayor, who was party to the golden handshake, had been part of this political engagement.
Ms Ndou said that it was the mayor before the one to which the Chairperson was referring.
The Chairperson asked in what capacity Ms Ndou arrived at the municipality in 2018.
Ms Ndou said that she was the general manager of corporate services.
The Chairperson asked if the municipal manager who received a golden handshake left while she was acting?
Ms Ndou confirmed this.
The Chairperon asked what advice Ms Ndou had given to Council.
Ms Ndou said that a letter had been received from COGTA after the resolution had been passed to say what should have been done. She personally went to the executive mayor to say that they were not supposed to do that.
The Chairpeson asked whether there was anything official to back up the claim that she did this?
Ms Ndou confirmed this.
The Chairperson said the Committee would want to get proof of that. The Committee would assume that Council had on record Ms Ndou’s advice.
Ms Ndou said she wrote to the executive mayor. She wrote to the person she was reporting to.
The Chairperson asked what Ms Ndou’s reaction was when the matter came to Council?
Ms Ndou said that her reaction was to forward the letter to the person that she reported to.
The Chairperson responded that something seemed amiss. What matters had Council referred to MPAC?
Ms Ndou responded that the unauthorised, fruitless and wasteful expenditure had been referred.
Ms Muthambi said that the question that was not fully addressed was the concern raised about the agricultural depot -- that the matter had lapsed. Ms Ndou was the accounting officer at the time. There was money that was appropriated to do the investigation. The chairperson of MPAC and the head of the financial portfolio committee were here. This was a matter that had to be followed up and the money recouped. In so far as the VBS saga was concerned, did Ms Ndou report that matter to Treasury? Apart from COGTA writing her a letter, this was an anomaly. She submitted to this Committee that she wrote to the mayor to say that what he was doing was irregular. She had a duty to report it to the provincial treasury. Had she done this?
Ms Ndou said she did not write to treasury.
Ms Muthambi said the explanation for the R18.5 million spent on the financial statements was that the consultants were doing their work without the involvement of the officials. There was somebody who was supposed to do oversight here in terms of contract management. Furthermore, given that the AG said that there was no value for money, what efforts had there been to recoup the money? Yet there were people without any water. There was a certain river from which people were taking raw water. People were bathing there, yet this water was being fed to the municipality. The implications were very dire.
Deputy Minister’s comments
Addressing Mr Parks Tau, Deputy Minister, COGTA, the Chairperson said SCOPA was not happy with both the provincial and national Departments. It was not feeling the firm hand of COGTA to get these municipalities working. The fact that they were sitting here with adverse findings that were historic in nature should really trigger COGTA into some action.
Mr Tau referred to the support and intervention made by COGTA both provincially and nationally to assist or intervene whenever there were problems in municipalities, and said that in terms of audit outcomes and the manner in which section 139 was implemented, it was important to indicate that the Department shared the Committee’s observations with regard to the limited support and interventions it had been making, together with its provincial counterparts.
There were various issues that have emerged as important that COGTA itself had to address with the provincial counterparts. Firstly, in so far as the implementation of section 139 was concerned, COGTA’s observation was that there had not been a uniform implementation of this section. All the sections of section 139 were not being implemented, including that the department should intervene timeously. Considering the various scenarios talked about today, in the first instance section 139 1(a) provides that COGTA, through the MEC, may issue a directive to a municipality that was failing to execute executive obligations. In this scenario, the expectation would have been that there was a directive which referred to the negative audit outcomes and required an audit action plan. The responsibility of both Council and COGTA would have been to review and determine that the audit action plan would enable the municipality to deal with the issues that had been raised in the audit opinion. The observation was that COGTA had not employed section 139 1(a) as the first point of intervention that issues a directive that requires the municipality take the appropriate action. It tended to intervene a few years later through section 139 1(b), where COGTA sends in an administrator. Even then when it intervenes, it does not treat section 139 1(b) as an opportunity to zoom into a particular matter.
The law allows COGTA in fact to intervene on audit outcomes alone. It does not need to deal with everything else. The municipality might be functional and providing services, but the audit outcomes are negative and require an intervention. Secondly, on a related note, regarding the joint responsibility between COGTA and Treasury at the provincial and national level, one would observe in the various reports that, based on a comparative analysis between the various provinces, there was no uniform forms of support. In certain instances, it was Treasury that takes responsibility for providing support and intervening, particularly on matters relating to the finances of the municipality, and in particular the audit outcomes. In certain instances, it would tend to be the provincial COGTA. This lack of uniformity had compounded the problem. An attempt had been made to put in place an MOU where there could be clarity and delineation of responsibility between COGTA and Treasury. Our observation was that even this had not been taken to its most logical conclusion with regard to who one holds accountable, and at which point, for the support that was being provided and the different levels of support being provided.
Concerning the Cabinet decision that was made in relation to the resolution of the Eskom situation and municipal debt to Eskom, it was not being implemented in a uniform way. The decision was in the 5th administration, and possibly in the current calendar year. The way in which municipal actors were responding to the issues was not uniform, particularly when it comes to complying with the decisions that had been made by Cabinet. It was something that required a resolution. This process also involved two water boards. COGTA was not at the same level of decision making with regard to water boards as it was with regard to Eskom. It was part of a process that was being managed through a consolidated approach to dealing with municipalities that were indebted to water boards and Eskom. At the appropriate time, when all municipal arrangements with Eskom would be reviewed, COGTA would like to give, at least to the Portfolio Committee, an overarching report of what had happened to the Cabinet decision, and what the fault lines were with regard to the implementation of the decision.
Mr Tau said there was a need to provide a consolidated plan with regard to both COGTA’s and National Treasury’s involvement in municipal activities. COGTA would return, having considered intervening to date, with a plan going forward. There were already recommendations that it was already putting together.
Finally, one of the things that the Department had identified as important was almost reverting to section 154 of the Constitution as its first point of call. This was with regard to COGTA’s national and provincial Constitutional obligation to assist and support local government. Its responsibility collectively should be about providing support not only at the point at which there was a problem. It should be continuous support that was provided so that it was able to mitigate and anticipate any problems that emerge. It needed to shift emphasis to ensuring that it provided proactive support to local government. This was something that it was trying to elevate in terms of the work it was doing. This should be an all-of-government approach, including COGTA, Water and Sanitation, Energy, Waste Management etc. It was taking the Constitution to its logical conclusion. In light of the Committee Members’ observations, the commitment of COGTA was to change its orientation and to be more proactive.
The Chairperson said that the Committee would factor in what Mr Tau had said, and thanked him for his contribution.
Vhembe: Further discussion
Mr Hadebe commented that the report before the Committee suggested that the position of the accounting officer and that of the CFO had often been vacant. There was a certain prohibition for an acting person -- they could not act beyond a certain period of time. If one exceeded that, one needed approval from Council. Once that was exceeded, one needed approval from the MEC. It was not clear whether that had been adhered to. Furthermore, in terms of the Municipal Systems Act regulation that regulates the filling of vacancies (section 7.1), it was very clear that the mayor, upon becoming aware of a vacant position, sought approval at the next Council meeting to fill it. How was it that 12 months had lapsed without these vacancies being filled?
Mr Nenguda responded that it was true that the two vacancies have not yet been filled. With regard to the position of the municipal manager, they were at the final stage of appointment. Any time before the beginning of October, the municipal manager would be appointed. Regarding the position of CFO, by next week the municipality would start conducting the short-listing process so that the recruitment of the CFO could be fast-tracked. Concerning the extension of terms in respect of acting appointments, the municipality had extended these appointments through resolutions of the Council in terms of the new amendment from the Constitutional Court.
Mr Hadebe said the report also suggests that there was a 38% vacancy rate, with 52% being in the financial department. How did they expect to provide services to the people that they were serving if 40% of their staff was not there? Were they coping? Why was there such a large number of vacancies? Vhembe was one of those municipalities that were contributing to the rate of unemployment in this country. Were all these positions funded and, if so, why were they not being filled?
Mr Nenguda admitted that the municipality was not happy with this situation. In the finance department, the municipality had been receiving resignations from officials. It was also important to indicate that since the killing of two officials, it was only now that these two positions were being advertised. There had been disagreements between the organised labour unions and the employer. So far, there was tranquillity and stability within the municipality. Hence, the municipality would advertise most of the vacancies that were funded, such as the ones that were just being referred to. There were seven that were funded that had been advertised this week. The rest would follow.
Mr Hadebe said that a number of problems had been highlighted -- the problems with organised labour that had resulted in the loss of two lives, the unrest in protest actions that had led to some of the projects not being implemented and, as a result, money being returned to National Treasury. The mayor was generalising and not being specific enough. The Committee needed to find out what had killed the patient in order to prevent further patients from dying. It was also mentioned that there were issues with public project steering committees. It was a clear indication of a lack of public participation. Had they been able to resolve those problems? Did they have a clear strategy or document to prevent such problems in the future? What lessons had been learned? Were they aware of the nature of the problems that they had experienced that had led them to not spending 100% of the national grant?
Mr Nenguda said that the ‘hullaballoo’ in the municipality was caused by the VBS saga. The labour union members were very vocal against the manner in which the VBS saga was ended. Protests erupted, and it took a long time to bring the two parties together. With the new administration, they had been able to sit with both the organised labour unions to discuss issues of stability and there had been agreement. One other issue which caused disruptions in the municipality was the question of placement, where workers and officials had wanted to be placed correctly. So far, in their relationship with the local labour forum and the unions, they were dealing with the issue of placement. There was a placement committee which was all-inclusive, so there was stability in the municipality. There had been a series of meetings with internal stakeholders as well as external stakeholders to discuss the issue of stability in particular. All the meetings were bearing fruit, because they were able to operate peacefully now as a municipality.
The Chairperson referred to the problem of vacancies, and said the Committee required a schedule of the posts that were vacant and the timelines. Organised labour did seem to have a stranglehold, and the Committee may want to unlock this through a tracking process. There could be a monthly report until the Committee had satisfied itself that all the issues that had arisen were dealt with. This schedule should be submitted by Monday.
The Vhembe Member of the Mayoral Committee (MMC) for Finance commented on the unspent national grant, saying that one other contributing factor was a situation that had been created in 2016. When the new Collins Chabane local municipality was established, there were areas where people had not agreed to being integrated into another area. This had caused a lot of unrest in these areas. As a result, the municipality was unable to spend money on projects that were allocated. This was one of the complicating factors why the municipality did not spend 100%. Moreover, the executive mayor indicated that ever since he had been appointed, there had been meetings with traditional leaders in that area so that these projects could at least be unlocked.
Ms Tolashe said that she was concerned whether this futuristic approach would have the desired effect of plugging holes in this municipality. What he had said was what had been raised -- where was COGTA in all of this? There were two issues that needed to be concluded. In terms of the VBS saga, SCOPA had come to learn that nothing substantial was happening in investigating this matter. Furthermore, the fact that the municipality had acting people from the municipal manager position downwards was very concerning. The municipality had always been trying. Even today they had said they would try. However, the Committee needed to hear how they were going to ensure that service delivery went to the people. They had to find a way to monitor these municipalities. There was a need to understand whether more would come the Committee’s way so that it could say that at least in the second financial year in the sixth term there should be some progress recorded, because SCOPA would be interacting more closely with municipalities than it was at present. In the next round, it should be compulsory for the provincial COGTAs to be represented.
The Chairperson explained that this matter would be raised with the political principals, but the Committee had experienced a certain resistance in respect of the standard operating procedure used by the Committee.
Ms Mente wanted clarity on the unauthorised, irregular, fruitless and wasteful expenditure. It was said that the steps that had been taken included that MPAC was investigating. It was problematic that the whole matter just went to MPAC. MPAC dealt with even management line functions. It was very strange. Did the municipality determine what it should be dealing with and what MPAC should be dealing with?
Ms Ndou explained that the municipality had had its audit committee meeting on the AFS. It was aware of the need for referring the unauthorised irregular fruitless and wasteful expenditure to MPAC. However, there was a Council meeting that should have considered that report, for Council to investigate. This was why the municipality was forming internal structures to investigate the matter. It was referring these matters, raw as they were, to the ethics committee so that they would be dealt with internally by management.
Ms Mente asked for clarity regarding where there was an ‘amount condoned,’ whether it was condoned or going in for condonement.
Ms Ndou said that it was a typing error. As a municipal council, they were not allowed to condone. Only Treasury could do the condonement. These were write-offs that were referred to MPAC.
Ms Mente stressed she had a much bigger problem then. In terms of item 4, was she saying that the council wrote it off? One could not take the whole amount as it was for a write off when there were people who had actually embezzled funds, especially through fruitless and wasteful expenditure. The money spent in vain had been taken to council for council to write it off, when it was the responsibility of a person who actually did not care.
Ms Ndou stressed that the amount of money that was written off was after the investigations had been conducted. In the council resolutions, there were employees who were no longer working for the municipality. This was the amount of money they were supposed to be writing off as the municipality. The process was ongoing to recover money, as per its UIFW register.
Ms Mente responded that it should then be stated very clearly what the total amount written off was, and the total amount that needed to be recovered. As it appeared now, it seemed like the entire amount had been written off. Furthermore, could the Committee have the full details of the internal investigations that were in progress? How did it incur, who was responsible and what actions were taken? As it was currently presented, it was not clear who was responsible. The Committee needed a tracking record that was clearer as to what had been finalised and what was still ongoing.
The Chairperson asked for the responses to be included in the report on Monday.
Mr G Mpumza (ANC) said that based on the AG’s report, almost R300 million had been lost by this municipality by being invested in the VBS Mutual Bank. Was the decision to invest into the Mutual bank account, other than into the primary municipal bank account, sanctioned by Council? Or had the municipality delegated that particular function to management?
Ms Ndou replied that the municipality was not given the authority to go and invest money by Council.
The Chairperson asked who gave the instruction.
Ms Ndou said no one was given the instruction to invest.
The Chairperson asked, how then did the money leave the municipality?
Ms Ndou responded that it was between the CFO and the municipal manager.
Mr Mpumza said that the MFMA was very instructive to municipalities about investing with their primary bank accounts. There had been absolutely no remedial action in light of this gross transgression of the law. When a law was utterly violated by officials and the municipality had not acted up to this time, it was an indication that the necessary leadership was not being provided in that municipality. Regarding the challenges that had been identified on water provision, the mayor had indicated that as part of their response and intervention they had just deployed a tanker service. Was that service sustainable? Was it internally or externally sourced?
Mr Nenguda responded that the tanker service was insourced. The municipality had its own tanker trucks to supply water to its communities. This was just a short-term action. The National Department of Water and Sanitation had been invited to intervene because if the bulk water supply from Nandoni dam was completed, the issue of a water crisis would be history. in our district. Besides water tankering, there was a programme of boreholes that were going to be drilled in some of the areas. He appealed to the Committee to contact the Department of Water and Sanitation to speed up the project, which had started in 2007. People were still waiting for water.
The Chairperson said the SCOPA and the COGTA portfolio committee would deal with this matter. There was a joint venture which SCOPA and Water and Sanitation would be embarking on.
Mr Mpumza stressed that the MFMA makes adequate provision for early warning systems. Municipalities were requested to submit certain reports monthly, which land in the office of COGTA and Treasury at the national level. If they were doing justice with the submission of these reports, why had it not been possible for Treasury to detect the investment of R300 million into VBS Mutual Bank?
The COGTA national representative said that this was another gap that had been picked up, because the section 71 reports were submitted to Treasury and were processed by the National and Provincial Treasuries. Going forward, COGTA would collaborate with Treasury in the processing of those section 71 reports.
Mr Dirks stressed that it was very clear that SCOPA had to meet sometime next week with the Hawks and the SIU in order for them to pursue criminal charges and investigations within the municipality. Included in the report on Monday had to be why the municipality agreed in the 2015/16 and 2016/17 financial years to pay senior managers -- the municipal manager and the CFO -- performance bonuses when this municipality had been receiving disclaimers.
The Chairperson asked how much had been paid to the municipal manager involved in this irregular agreement when he left.
Ms Ndou said she did not have the exact amount, but it was more than R100 000.
The Chairperson asked for this detail to be included in the Monday report.
Hearings: Northern Cape municipality
The Chairperson indicated that, like the other municipalities’ audit outcomes, Joe Morolong’s audit outcomes were concerning, with disclaimers for three consecutive financial years. This was totally unacceptable it did not inspire confidence. SCOPA had taken the unprecedented step to interact with the municipalities on the basis that this situation could not continue. The AG had flagged 48 municipalities that required intervention. This municipality, among others, fell within the category of being a serial offender in so far as adverse findings were concerned. There was a dedicated Member who would be responsible for this municipality in the Committee until it was satisfied that the issues were receiving attention and that the solutions were fast coming.
Ms B van Minnen (DA) stressed that it was really concerning that there had been such negative findings released over the last three years. The Mayor, the Municipal Manager and senior management did not appear to have heeded any of the findings or recommendations over the last few years. The AG had also pointed out that the municipality did not collect debt from consumers, which had resulted in its inability to pay suppliers on a timely basis, which had a negative impact on these suppliers. The cash flow difficulties experienced by the municipality were also evident in the fact that the municipality was in arrears with Eskom. Why had the senior executives of the municipality not taken heed of the previous recommendations of the AG? Why, for the 2017/18 financial year, did this municipality have yet another adverse finding with the same problems coming up time and time again?
Mr Tebogo Tlhoaele, Municipal Manager: Joe Morolong Local Municipality, acknowledged what Ms Van Minnen had reported. He said that during the 2015/16 financial year there had been 79 findings; in 2016/17 there were 143 findings; and during the 2017/18 financial year, 163 findings. However, in terms of addressing prior issues, the findings had reduced drastically. During the 2016/17 financial year the findings went up to 143 mainly because prior to that, the municipality had appointed a service provider to assist the municipality in providing water services. The municipality took over from the water board. When it took over, it acquired a lot of assets which were not properly recorded, dating back to the time of Bophuthatswana. This was mainly the reason why the findings had increased. During the 2017/18 financial year, the findings went up mainly due to the issue of vacant posts for the senior managers. A number of senior managers had left and as a result, there was a bit of instability during the financial year. The CFO also left during that time. There were also vacancies in the Budget and Treasury Office (BTO). There was a manager for expenditure, who was appointed by Council to act. There was only one other managerial position that was filled. The rest of the managerial positions were vacant, including other critical posts. This was mainly the reason why the municipality regressed. There were a lot of interventions which, through the support of Council, the municipality managed to put in place. He was very positive that the 2018/19 audit report would be an improvement due to the interventions that had been put in place.
Ms Van Minnen said that the issue of vacant posts and the difficulties in filling these posts had been common themes today. Acting posts tended also to last for a very long time. What steps were being taken to proactively fill those posts? Compared to this time last year, how many of those posts had not been filled on a permanent basis?
Mr Tlhoaele said that he had been appointed by the municipality in October 2017. What they did was to review the organogram, which Council approved before the end of March, together with the draft. By the end of May, the organogram was approved. Unfortunately, when they were about to fill those vacant posts, the unions had taken them to the Council for Conciliation, Mediation and Arbitration (CCMA) and had managed to get an order which prevented them from filling those posts. As a result, they could not fill other critical posts. The senior managers’ posts did not fall in the ambit of the bargaining council, so they were not affected. However, there were other reasons why they were not filled.
Ms Van Minnen asked for a vacancy report by Monday so that the Committee could see what was happening. It was a common theme that unions were preventing posts from being filled, which was having a negative effect on the audit outcomes.
Regarding the recommendations of the AG, especially those related to the inheritance of assets from previous administrations, one of the things that was picked up was that the asset register was wholly inadequate. A recommendation was that an asset register be prepared that agreed with the financial statements. Firstly, was this being done? Secondly, given what was said about vacancies, did the municipality have the capacity to put together an asset register? Thirdly, if not, how did the municipality intend building the capacity to do so?
Mr Tlhoaele responded that a consultancy with a very positive track record had been appointed, as it had assisted another municipality in a similar situation and managed to turn around the situation from a disclaimer, to qualified, and to unqualified. They had managed to start the asset register from scratch, and there now was a very good asset register. With regards to the capacity to fill in the vacant posts, the AG had made it clear that the municipality did not have capacity internally and would need a consultant to turn around the situation and transfer skills. However, it would be a futile exercise to appoint consultants without ensuring that the critical vacant posts were at least filled so that the consultants would be able to transfer skills. He had had to submit to Council to approve the filling of critical posts, especially in the BTO. They had managed to get someone on contract for manager of budget and manager for revenue. They had also managed to fill two posts in the indigent register unit. Council had also appointed a CFO, who had been working closely with these officials.
Ms Van Minnen asked whether, in light of the consultants that had been appointed, there would be a skills transfer so that the municipality would be able to move to a point where the municipality would be able to do jobs itself in-house without consultants? What was also worrying was that even though these consultants were allegedly good, they had not been able to prepare the financial statements correctly and there was still a large amount of irregularities in terms of the MFMA.
Mr Tlhoaele said that the plan was to attend to all of these issues in-house in the foreseeable future. They should have capacity to deal with all of these issues without the consultants.
Ms van Minnen continued that one very critical issue with the recommendations was the concern that the revenue system would need to be reconstructed. There appeared to be a problem that not all properties were placed in the revenue system. They were not built, valued or zoned correctly. This had an enormous effect on revenue, generation and billing. Being one of the poorest municipalities in the Northern Cape, if one was not billing correctly and getting the revenue in, this would cause an enormous problem with the financial management of the municipality. What steps were being taken to correct this at this point, given the fact that there were so many vacancies?
Mr Tlhoaele said that one of the posts that Council had to give the go-ahead for was the post of manager of revenue. What informed the need to fill this post were the challenges that the municipality was experiencing with its revenue. They had managed to find someone who was very experienced who had been working as an assistant manager in one of the municipalities. He had also been acting as a CFO for almost a year at that municipality. It was someone who was very knowledgeable in the area of revenue management. They had ensured they appointed somebody with the relevant experience.
On the issue of revenue, this municipality housed nine mines, of which only one was paying rates and taxes. On average, it was paying about R920 000. One could imagine how much the municipality was losing through the non-payment of rates and taxes from other mines. Some of these mines were big, with a very high turnover. There was a potential, on a monthly basis, to be earning an income of about R12 million once the municipality ensured it cleansed the database and the billing system was working. This was what the revenue manager was currently dealing with. There had been tremendous progress in that regard. After a number of years, this year they had managed to get their rates sorted out, following all the correct procedures. The municipality had a number of farms as well, some of which were not paying.
The Chairperson interjected to ask why the eight mines were not paying. Was it a shortcoming in the system, or was it resistance on the part of the mines?
Mr Tlhoaele said it was due to some shortfalls in the system. They did not bill the mines because their billing system was in tatters. There was also an issue with the valuation roll, but a service provider was assisting with that.
The Chairperson asked how long the municipality had been allowing this to go on.
Mr Tlhoaele said that it had been going on for years, even before his joining the municipality.
The Chairperson said that there was a fundamental management flaw at play, and that this issue needed to be ventilated before leaving. If they had known that there was R4 million available, that should be the first port of call of any municipality.
Ms Van Minnen said that if there were nine mines and only one of them was paying, that was more than an oversight. They needed a report on why this was happening.
Mrs Boipelo Dorcas Motlhaping, CFO: Joe Morolong Local Municipality, said that the issue of the mine went as far back as when the municipality was still under the district municipality. Most of the mines did not apply for zoning. In their system, those mines were still zoned as farms, not as businesses. They municipality had asked the Department of Mineral Resources (DMR) to send them a list of the mines and the approved licences. They had then had a meeting with the mines to say that they had failed to apply for zoning when they acquired those farms, and in terms of land use, they were mining illegally. They were supposed to apply for zoning. They were in the process. Some of the zoning had been approved and they had agreed that they would have to pay the municipality as far back as when they had started mining.
Ms Van Minnen queried whether the municipality had the intention of actually collecting arrears once that was rectified. Did they have any timeframes by which they believed it would be rectified?
Ms Motlhaping said they did. They had compiled a supplementary roll which would assist the municipality with this. These supplementary valuations have been sent to the mines, and they had not objected. They had waited for the 30 day period to lapse and had sent them letters last week to have a meeting with them. They had already done the calculations for each mine to determine how much they owed the municipality.
Ms Van Minnen continued that there appeared to be certain overpayments in respect of employee and council remuneration. One of the causes was that there were no employment contracts so that they could ascertain a way of dealing with overtime. What would the municipality do about this and were there measures to reclaim the money that had been overpaid?
Ms Motlhaping clarified that the overpayments were actually the travel claims received by the officials and councillors. What happened was that the municipality wanted the travel claims to be taxed, and had included the claims as part of the employee-related costs. She believed this could have been avoided if the auditors and municipalities at that time had agreed on what could have happened and explained it to the auditors. It was very unfortunate. During the audit, she was not at the municipality. It was something that should have been resolved during the prior year audit.
Ms Van Minnen asked how she proposed it could be resolved.
Ms Motlhaping said it would be resolved because, based on the management report, all the overpayment related to the travel claims. It would be resolved when the auditors came to audit and there was agreement on what had led to the overpayment. If there was not agreement, the matter would be taken up with the councillor and official for recovery.
The Chairperson queried whether these overpayments were within policy.
Ms Motlhaping answered that these did not constitute overpayments, as such. It was within the policy because they had to claim to be reimbursed for the travel.
The Chairperson asked why the AG had flagged it.
Ms Motlhaping responded that she believed it was flagged because management did not respond adequately to the AG’s request by not submitting the required information at that time of the audit.
The Chairperson asked whether the municipality was incurring findings because it was not complying with AG processes. It spoke fundamentally to cooperation in the auditing process.
Mr Tlhoaele confirmed that it was mainly because of that. She had been the CFO for the previous five years. When her contract came to an end, she had been given an extension and had left just before the auditors arrived. There were a number of vacant posts. Council had had to appoint a manager for expenditure to act as the CFO.
The Chairperson interjected that the issue was whether there was a policy. The AG was auditing and she had there was a failure to hand over information for audit. Whoever it was, they had failed to comply or cooperate with the audit process which landed the municipality with a finding. If it was deliberate, the question became why? If it was within policy, why was the municipality failing to be transparent about it? Somebody should have done something which they did not do. It called into question this policy, and made it suspect.
Ms Van Minnen continued that the lack of records and recording of financial statements was very concerning. If one looked at the figures for the audit, the operating budget was 70.1% overspent. The capex budget was 32.51% underspent. Wasteful expenditure was at 43.73%. It was very difficult to actually determine what the irregular and unauthorised expenditure was, because there were no clear records. Why were there no clear records? What was the issue that the records were either not there or not presented?
Mr Tlhoaele said the municipality realised they were doing very badly in respect of document management. The intervention was to make sure they improved their systems. They had a system that was currently being used for document management. In terms of the supply chain management, they had an electronic system which ensured that everything that was captured in that system was scanned so that at least if they lost hard copies, it was scanned. They had a payment management utility. This was also an electronic system which ensured that documents were stored in the system in case of fire. There were a number of utilities that were addressing document management. This would not be an issue anymore due to the systems that had been put in place to address these issues.
Ms Van Minnen stressed that there did not seem to be a system yet to investigate misconduct or to deal with unethical behaviour or financial misconduct. What steps were being taken to change this and to ensure that there were policies and systems to investigate misconduct and to actually find out what and who was killing the patient?
Mr Tlhoaele conceded that they had not been doing well with consequence management. It was a concern for Council and management. It was a matter that would be addressed as a matter of urgency.
The Chairperson said that the concern was misplaced. Mr Tlhoaele could not be the one who was meant to implement consequence management and be concerned about it. Why was he not processing issues? He was concerned about something that he was supposed to be doing. Why was he not doing it? Management letters were coming before him, so he was the one who needed to take action. Why was he not effecting consequence management?
Mr Tlhoaele acknowledged he was supposed to be leading the process of taking action against those officials that were responsible. He had been working on it. Only formal disciplinary steps had not been taken yet. As the accounting officer, he was looking at all these matters in their totality. They had many vacant positions. There were no adequate systems in place. As a result, this process had exposed officials to some misconduct. They had systems in place now, and he would definitely be working on addressing these issues.
Ms Van Minnen concluded that, while it was said that the municipality was working on it, for three years there had not been any change. In section 62 1(e) of the PFMA, in terms of record keeping, risk management, and irregularities, it states that disciplinary must be taken against any official if they did not comply. Why had no action been taken? This was the law and action must be taken.
Mr Tlhoaele said that there had been instances where action was taken in the form of warning letters. There had not as yet been formal disciplinary action. There were some that were in process.
Ms Van Minnen asked for a report on the disciplinary issues. The municipal manager would by next month have occupied that position for two years and it was concerning that in those two years, nothing formal had actually happened.
The Chairperson pointed out that the municipality had for three consecutive years received disclaimers. Surely, given the AG’s report, there were numerous instances where disciplinary action was required, but none had been taken. He had not explained to the Committee convincingly and clearly as to why consequence management had not taken place. Why were people not being disciplined?
Mr Tlhoaele said that the disciplinary measures that have been taken were not formal disciplinary steps. There had been warning letters issued. There was evidence to this effect. There were two processes relating to two cases that had already been initiated. The evidence of this would be attached to the report that would be submitted on Monday.
The Chairperson said that this explanation did not fly.
Mr Lees requested enlightenment on the VAT issue, and the fact that the municipality does not prepare monthly VAT reconciliations. What was the risk? Did the municipality overpay or underpay VAT? The AG writes that the municipality did not have adequate systems in place to account for VAT.
Ms Motlhaping responded that the reconciliations were performed for the whole financial year. It had been a failure by the municipality to submit those documents to the AG during the audit. It was part of the limitation of scope.
The Chairperson stressed that it did not make sense that the only problem was that the information was not handed over.
Mr Tlhoaele said that this matter had been addressed.
The Chairperson stressed that the Committee supported the future plans, but the explanation of the CFO did not suffice.
Mr Lees queried whether the municipality was or was not doing monthly reconciliations.
Ms Mothlaping responded that the monthly VAT reconciliations were done. The issue that came out of the audit was that the information requested by the AG was not submitted during the auditing process. The municipalities did not submit the entire 12 months’ reconciliations performed because the reconciliations were performed together with the assistance of the consultants who were doing the recovery for the municipality.
Mr Lees asked if SARS did an audit at any stage.
Ms Mothlaping said SARS had. They also had all 12 months’ statements from SARS for the reconciliations submitted to SARS.
Mr Lees said that SARS did not require reconciliations, they required returns. When they did their audit, they would require reconciliations. Did they ask for all the reconciliations for the full 12 months?
Ms Mothlaping said that when SARS did the audit, they required all the VAT returns. The municipality performed the reconciliation of VAT so that they could submit the supporting documents to SARS.
Mr Lees explained that when SARS does a VAT audit, they audit a single period at a time. Was she saying that they did 12 periods in one audit?
Ms Mothlaping insisted that the municipality does the VAT reconciliations every month of the input and output on the system, and then also made the submission to SARS. It was just that she believed they were not submitted to the AG during the audit.
Me Lees asked which period SARS had audited and what was the outcome. Did they accept their reconciliations?
Ms Mothlaping said she did not remember the exact audit. In past years, there were times when the municipality owed SARS, and others where the municipality needed to be refunded.
Mr Lees continued that there had been errors in some reconciliations which were done monthly.
Ms Mothlaping confirmed this, and said the municipality had corrected these errors.
Mr Lees asked whether there were penalties that had to be paid where VAT was underpaid. If so, how much were these penalties?
Ms Mothlaping confirmed this. The last penalty was less than R100 000.
The Chairperson said that the municipality needed to arrive at a point of convergence. The AG had said that the municipality did not have adequate systems in place to account for VAT, which had resulted in VAT being overstated by R335 000. In addition, there was no sufficient, appropriate audit evidence to confirm the balance of the VAT receivable. It was a statement of fact that the municipality did not prepare monthly VAT reconciliations. What was the root cause of this? One of the recommendations made by AG was that reconciliations must be performed on a regular basis by adequately trained officials. Was she in dispute with that finding?
Ms Mothlaping said she did not agree with the finding, because if she was there, the reconciliation would be performed for each month.
The Chairperson said that the CFO was not there and would not know if these monthly reconciliations were done. The AG who was there auditing said it was not done. Was she in dispute with what the AG was saying?
Mr Tlhoaele said that during the financial year, the CFO was there. She left only at the end of August. During the time of the actual audit, she was not there. This was the time that the municipality needed to respond to the issues raised by the AG.
The Chairperson asked whether she stood in contradiction to the finding of the AG.
Ms Motlhaping said that the municipality did have the reconciliations for every month.
The Chairperson stressed that the AG said that the municipality does not prepare monthly reconciliations. Was she in dispute of that finding?
Ms Motlhaping confirmed that she was.
Ms Mente asked who did not submit the reconciliations to the AG. There was a person responsible for what was supposed to be done and had not done it. She had not taken the AG’s findings to court or challenged them anywhere legally.
The Chairperson asked whether the annual report that had been signed off had raised a dispute with what the AG had said.
Ms Motlhaping responded that the report had not raised a dispute because the municipality knew for sure that the documents had not been submitted to AG, even though the reconciliations had been compiled.
The Chairperson interjected that the CFO was skating on what he could only call thin ice. The AG had submitted a report which she would have included in her annual report and signed off on it. How many of the AG’s findings was she in agreement or disagreement with? She was cherry-picking the findings to suit he narrative. SCOPA takes the AG very seriously. There was a sense that the municipality did not take the AG seriously. It was part of the hostile auditing environment which they had picked up prevailing in municipalities. If she had signed off on the report and accepted it, what basis did she have for saying that she disagreed? She needed to go back and relook at her commitment to cooperate with the AG. The Committee was not going the cherry-pick the findings of the AG which she had signed off on. Assuming that he accepted her narrative, the fundamental question was why she was not giving the AG documents? The AG could not audit on the basis of her terms and conditions.
Ms Dineo Leutlwetse, Mayor: Joe Morolong Local Municipality, said that the report was presented to the municipality by the AG. They had accepted the report as it was. It was just unfortunate that the AG had been on site during the absence of the CFO. The Council had had to step in and appoint an acting CFO. The fact was that the AG’s report was final and, as Council, they had accepted it as it was. This was why they had referred the report back to MPAC, and MPAC had come back to us to come up with remedial actions.
Ms Mente commented that AG could not determine whether the municipality had further adjusted their commitments. Was there a shortfall on the commitments for the upcoming financials that had been tabled to Council, since it was promised in the beginning that all was well in the financials? In financial year 2018/19, there had been a R39 million shortfall.
Mr Tlhoaele answered that this matter had been addressed. Some of the invoices that were lying there just before the end of the financial year had now been captured as creditors in the system. It was their way of addressing this matter.
Ms Mente said that if they were being classified as creditors, would the municipality not end up with unauthorised expenditure?
Ms Motlhaping said the municipality created accruals in the system. They had addressed the shortfall that was raised by the auditors for the financial year 2017/18.
Ms Mente asked where the money had come from?
Ms Motlhaping continued that the commitment was on the projects. It was accounted for in the financial year where it occurred.
Ms Mente said that the municipality had a shortfall of R39 million, which previously was R48 million. The CFO had said that she had now created a situation where it led to accruals. This meant that it would overlap into the following year’s budget. They were effectively creating unauthorised expenditure on your commitment. Had they not committed more than what they had budgeted for? Who then would be responsible for that?
Mr Tlhoaele responded that the municipality was encountering some challenges with regard to the cash flows. Towards the end of the financial year, work would be done by the service providers. Because of the cash flow, they were not able to process the payments. There was no cash to process. It normally happened towards the end of the financial year in the last month.
Ms Mente answered that if they were being honest, they were effectively creating an unauthorised expenditure for the following year. They were spending money that must be appropriated to the municipality in the future. They were committing themselves with money that they did not have. They had a R61 million shortfall and were now betting on the following appropriation. That was unauthorised expenditure. Who must be responsible for such carelessness? If one commits oneself to paying money one did not have, it meant that a road somewhere in Joe Morolong would not be done, water provisioning must be stopped etc. One thing that would not stop was their salaries. There would be another finding until they stopped this.
Mr Tlhoaele said that the R61 million should be understood in the correct context in terms of the report that was tabled to Council. It was not just money for the service providers. Some of the R61 million included the intention to pay after the one-year period lapsed.
The Chairperson responded that Mr Tlhoaele must juxtapose this matter with the question of the overdraft.
Ms Motlhaping said that the amount of R61 million referred to the projects. It stated clearly in the notes that these were commitments in Joe Morolong. They appoint contractors for projects. If it was a sanitation project, they appoint them for three years. It meant that for this financial year, the budget for sanitation would be a certain amount from the MIG grant. What had been disclosed was that in terms of the commitment register, they had not clearly indicated how much would be budgeted for the succeeding financial years. It would be rolled over for three years. That was the mistake that they had made when they disclosed this amount.
Ms Mente asked why those statements were not given to AG to explain what had just been explained. What the AG had said was that it had been unable to confirm disclosure by alternative means. This meant that the AG had tried to get information, but even with alternative means, he or she could not determine whether or not there were further adjustments to the commitments that were stated in the financial statements. Where was this document of the project they were referring to?
Mayor Leutlwetse indicated that Joe Morolong found themselves in a predicament when the AG was on site last year, because they did not have a CFO. When it was indicated that the AG did not receive enough supporting documentation, it basically meant that someone could not provide the AG with the relevant documentation. Council believed that their audit outcome would have been different had this unfortunate incident not happened.
The Chairperson stressed that the problem with this was that institutions were built around individuals and that there was no skills transfer. That explanation complicated the problem, highlighting the extent to which mistakes and shortcomings arise because one person is the system. This had the potential of individuals holding institutions and municipalities to ransom. It also becomes a breeding ground for corruption when one person was the alpha and omega of the audit process. It begs the question, what were other people doing then?
Ms Muthambi indicated that she was finding it difficult to proceed with the line of questioning. There was a procedure to follow if one had a dispute with another organ of state, particularly the AG. But one did not do that before one arrived before the audit committee. It made the life of the committee very difficult. It was all about record keeping. There were issues of irregular, fruitless and wasteful expenditure that were not investigated to determine if anyone was liable for the expenditure. Could the CFO explain what she had done, and also share with the Committee the spreadsheet with the amount -- who the culprits were, and what consequence management had been performed? The need for consequence management was clear. It was all about the appetite to comply, and these were simple, straightforward matters.
Ms Motlhaping indicated that most of the UIFW issues were unavoidable. They had been presented to the municipal manager and Council for investigation to ascertain the reasons why they could not recover the funds. For example, Joe Morolong was a very rural where most of the roads were gravel. When there were ward meetings, for example, the registered companies for transport do not want to transport people there. This was an issue that AG was aware of. Joe Morolong had to resort to bakkies to ferry ward committees to a meeting. It was indeed irregular, because they were not complying with the requirements of the law. These companies were not registered on the Central Supplier Database (CSD). For this financial year, they had come up with a solution to avoid those kinds of irregular situations.
Ms Muthambi said that her question was still unanswered, unless the CFO was disputing the findings of the AG on the issue of unauthorised, fruitless and wasteful expenditure. There had been a lack of action to address the lack of action weaknesses in the financial and supply chain management which had resulted in non-compliance with the applicable legislation. This gave rise to unauthorised, fruitless and wasteful and irregular expenditure. What the CFO was saying to them was that these issues were a non-issue. This kind of attitude was not assisting the Committee save wasting its time. The municipality must avoid sending everything to MPAC. There was a responsibility which she had as a CFO and accounting officer. The MFMA was very clear as to what needed to happen. What had she done to discipline those officials that had been found wanting for contravening the MFMA? A spread sheet for the past three financial years was needed, because that had been an issue throughout.
The Chairperson responded that if the irregular expenditure was now due to the transportation of ward committee members in bakkies, citing one example, she was creating problems. The issue concerned a particular principle. The irregular expenditure as at 30 June 2018 was R126 million. This matter had to be unpacked in a schedule. She had cited an investigation that had been referred. Let the Committee get the status of that investigation so that they could speak factually. The Committee would like a progress report on the progress of the matter that would clarify matters.
Ms Motlhaping responded that, when they looked at all the issues that came into the report of the UIFW, they had realised that with some of the issues they could recover funds from officials due to other reasons. This was why they had been referred to MPAC. Inclusive in that big figure were the contracts. If they appointed a service provider and failed to submit the required documentation to the AG, the whole contract amount becomes irregular.
The Chairperson interjected that this was fundamentally the issue -- the municipality’s inability, non-cooperation, and non-compliance in submitting documents. What was being hidden in these documents? She was not helping. In all the findings, the fundamental principle was that the municipality was not submitting documents. He did not sympathise with the narrative that this was caused because she was not there.
Mr Tlhoaele stressed that the municipality was not disputing the findings of the AG. The CFO had given an example of one of the causes. A second cause had been that three years back there had been a break-in at the municipality. Some of the irregular matters had occurred because of the break in and due to missing documents. The projects were three-year contracts. This meant that whatever document had been misplaced or stolen during the break in, for the following audit years, if the documents were not there, it would remain an issue.
The Chairperson interjected that this was not what had been said previously. It had been said that the documents were there, but the municipality was unable to hand them over. Engage with the Committee honestly. This explanation would be suppressed, because it complicated things in an unwarranted manner. If the Committee accepted this break in explanation, the AG should also have pointed this out to us. Irregular expenditure was R126 million, fruitless and wasteful expenditure was R4 million, and unauthorised expenditure was R495 million as at 30 June. Break that down in a proper schedule.
Ms Muthambi said that once the Committee had received the schedule, it would deliberate on the next course of action.
Ms G Opperman (DA, Northern Cape) said that, according to the AG, they were billing non-existent customers and were paying staff more than their contractual salaries. How did this happen? What had they done to address this matter?
Mr Tlhoaele said that most of the municipality’s debtors were in the mining and farming area. That area used to be called a district management area (DMA). It was part of the district municipality. It got incorporated into Joe Morolong municipality. When they inherited that area with its mines and farms, it came with a lot of challenges, as there were no proper records, billing system etc. In that system, some of the debtors that existed there maybe did not exist anymore. They were in the process of rectifying that data base. Some of the debtors that were in the system that the municipality inherited did not exist.
Ms Motlhaping responded to why they were paying officials more than their contractual salaries, and explained that this applied to officials who were reimbursed for travel claims. They had included those costs as part of their employee-related costs. This was why it looked like they were paid more than what they were contracted for. They were supposed to properly explain this with supporting documentation to the AG. To the AG, it was a misclassification, but the municipality wanted the officials to be taxed on their travel claims.
Ms Opperman asked what the status was of the current irrecoverable debt? What did it amount to? Could she unpack the strategy for turning the problem of poor debtor management around?
Ms Motlhaping said that the municipality had done a reconciliation of its general valuation roll to get the true reflection of its debtors on the approved roll versus the system. They were clearing all the historical errors that appeared on the system. After that, they would be able to indicate how much was being owed to the municipality, and also take steps to recover the amounts.
Ms Opperman asked whether the eight mines which were not paying their rates and taxes were coming to the table in terms of their social labour plans, so that the respective communities could at least benefit from these projects. If not, how were they going to enforce and ensure that they did?
Mr Tlhoaele said the municipality did not have challenges with the social labour plans at all. All the mines were contributing as they were supposed to. However, the municipality felt they were not contributing as much as they were supposed to, because they were supposed to contribute a percentage of their net profits. They were working on ensuring that they contributed accordingly.
Ms Zibula asked whether the Mayor had discussed the AG’s report with the Executive? If they had, what had been the take of Executive management? Furthermore, in audit findings, staff were paid more than their contractual salaries. Who were those workers? Why were they paid so much?
Mayor Leutlwetse responded that upon receiving the AG’s report, they did have an EXCO meeting where the report was discussed before it was tabled at the Council. They had made it very clear to management that they were not happy. They had therefore made a commitment as EXCO and Council, that they were going to give them all the necessary support, as their role was to play the political oversight role in the municipality. They had given the municipal manager an opportunity, despite the fact that there were challenges in the unions. He had been given a clear directive to do what was supposed to be done as a municipal manager. As a leader, one would have to take unpopular decisions. Referring the matter to MPAC was to allow them to go further into the report so that when Council gives the municipal manager a task to improve as the accounting officer, they would have done their part of playing that oversight role.
Mr Tlhoaele continued that the current consultants had been attending to the classification of employee costs. A contract would say that one did not pay R400 000 per annum, but with the claims, the system would show that they had paid R450 000. The auditor would request a fine from the employees. What had happened in the past was that when there was a salary increment, the files were not updated. What should happen was that the files, whenever there was an adjustment, should also be updated.
The Chairperson said that this was an HR matter. Whenever there was an adjustment, this should be reflected in the files.
Mr Tlhoaele said that the municipality was updating the files. With the travel claims, the municipality was aware of the situation, and was addressing the matter.
The Chairperson asked who the consultants were, and what were they doing, so that SCOPA could determine whether it could place its trust and confidence in them?
Mr Tlhoaele said that in June, at the time when the AG was presenting the report to Council, the AG made it clear that the municipality did not have capacity among its officials. It needed consultants to assist with all of these matters. The municipality had stressed the point that upon appointment, they must make sure that they transferred skills. One of their responsibilities was the compilation of financial statements, and for turning around the municipality, issues of revenue and other related matters were also addressed. As they did their work, they were going through all the queries raised by the AG.
The Chairperson inquired how much the consultants were costing the taxpayer.
Mr Tlhoaele responded that CCG Systems had been appointed for a period of three years at a cost of R12 million.
The Chairperson asked for a detailed breakdown of that contract, and the costs involved.
Mr Somyo referred to the AG’s comments on the surplus versus the overdraft. They had an overdraft of about R9 million. Could the municipality comment on this? Furthermore, how did the question of staffing stand in the finance department? This was in light of the claim that those who were left behind had failed to produce the appropriate documents for AG, so that the AG could doubt the existence of the number of systems in the municipality. Lastly, with the staff complement, how long had the CFO been part of the staff in that position? How could the Committee remain confident that the situation would change? The audit was based on a file or document. If the audit structures existed, one would first have approved the financials before forwarding them to the AG. What happened in this case in the municipality? Did the internal structures or Council look at the financials before they were forwarded to the AG?
Mr Tlhoaele conceded that it was clear that the municipality was lacking in terms of document management. The AG did not audit officials, but documents. If officials went, the documents should remain so that the AG could access and audit them. One way of addressing this, among others, was to ensure that the municipality implemented an electronic document management system. They had decided to take that route. They had systems that had evidently worked in other municipalities, allowing them to obtain unqualified reports and clean audits. The electronic document system started in the supply chain. Quotations were scanned and saved electronically in the system. The tender documents were also scanned in the system. Tomorrow, there would not be an excuse that there was a break in, because those things were always stored electronically on the server.
Mr Somyo interjected that when the server or CFO were not there, the municipality paid officials whose expertise was to be involved in the audit. The audit was not related only to the CFO. There were managers in various areas who ought to account for such instances as they related to their own area of operation. The document management system did not replace those who were employed in the municipality in the absence of the CFO.
Mr Tlhoaele admitted that the municipality could have done better. In the whole department, they had only two managers, and one of those managers had been appointed as the Acting CFO. The rest were junior officials. They had a lot of senior positions that were vacant. Even under those circumstances, they could have done better, but had done their level best to address those challenges.
The Chairperson removed the entire argument off the table. The instance of the absence of the CFO was one year, but the disclaimers were year on year. These were not first time offences. Moreover, while the CFO was not present, she was not the institution. There was something far bigger at play than the absence of the CFO. Furthermore, the CFO was there for five years.
Mr Pumza said that in terms of the audit findings, the municipality was in serious difficulties. Had management developed a credible financial recovery plan that would turn the situation around? Furthermore, the audit findings indicate that there was no performance management system in that institution. The law required that, after the adoption of the budget, the municipality must present to the Mayor a service delivery plan. Was this suggesting that there was no service delivery plan in the municipality? Did they understand the veracity of these findings? It suggested that there was an absence of managerial oversight. What did this mean to the Municipal Manager? The law required that the accounting officer establish adequate systems of performance and reporting. Lastly, the findings say there was a lack of decisive action to mitigate risk. It not only reflected on management, but the leadership. How robust was the oversight that was being were exercised over administration? Do they have the structures in place to oversee all structures? Had they developed, going forward, a post-audit action plan? If they were there, could they be supplied to the Committee?
Mr Tlhoaele replied that in terms of a financial recovery plan, in June the municipality had submitted to Council a report on the financial status of the municipality. Among the recommendations submitted was that the municipality must develop a financial recovery plan. They were currently in the process of developing the plan. The municipality did not have an adequate performance management system. Some of the functions of performance management were being carried out by the Planning and Development Directorate, even though there was no specific person with expertise in performance management. They had reviewed the organogram and had now created a post of performance manager. They would appoint someone who was an expert in that area so that they could facilitate the management of performance in the correct way.
When he arrived at the municipality, he had realised they did not have a risk manager or officer, and had now created the post. This was one of the critical areas that needed to be addressed. With the help of Council, they had reviewed the organogram and created the post for an internal audit manager, as well as for two internal auditors and a risk officer. For this financial year, unfortunately, those posts were not created. They were only appointed last year after the last month of the financial year.
Ms Van Minnen said she would wait for the reports to come in on Monday, noting that the next audit report would be coming in October. It would be interesting to see if any of these representations were carried through into improvements. If they were not, SCOPA may have to consider potential oversight visits and further investigations. It was too vague to make any findings at this point.
The Chairperson said that auditors were an enabler to assist the municipality to do better. Sometimes the assistance was not kind, but was necessary. At all material times, SCOPA would be on the side of the AG. It understood the difficulties with which auditors were working. The environment was not conducive. A paradigm shift was needed in South Africa in respect of the outlook people had. Auditors were not out to catch them -- they were only processing what had been done. That was what catches people out.
Mayor Leutlwetse thanked the Committee. For them, it had been a learning experience.
The Chairperson said that the Committee may conduct an oversight visit -- announced or unannounced.
The Chairperson repeated that the same dissatisfaction that applied to the other municipalities applies to this municipality. The Committee took a dim view of disclaimers and adverse findings.
Mr Joseph Gomba, CFO: Phokwane Local Municipality, said that the municipality was under section 139 of the Constitution. The administrator could not make it to the meeting, and was not well.
The Chairperson said he was not comfortable with this arrangement. Given that the municipality was under administration, the fact that the administrator was not present did not auger well for the meeting. There must have been a reason why this municipality was under administration. This particular arrangement puts a spanner in the works.
After some deliberation, it was decided that Phokwane should be scheduled for another day. Only the administrator could give SCOPA direction as to what the progress was in terms of resuscitating this municipality.
Mr Crockett Adams, Mayor: Phokwane Local Municipality, apologised for the administrator not being present. This was a very serious interaction. They appreciated SCOPA’s invitation to attend today. They had to account as councillors and as the administration of Phokwane, but respected the decision of the Committee to postpone the meeting.
Mr Bentley Vass, MEC: Co-operative Governance, Human Settlements and Traditional Affairs (Northern Cape), agreed that this meeting needed to be rescheduled. The NCOP would be visiting the province as well next week. It was important that the challenges facing Phokwane municipality were tackled.
Chairperson inquired whether there was an indication how long the administrator would be on sick leave.
Mr Crockett said that the municipality would be ready next week.
The Chairperson stressed that the circumstances of the municipality dictated that SCOPA spoke to the administrator.
Mr Somyo appreciated that the MEC of the province had seen fit to be part of the delegation.
Mr Hadebe asked, if there was an administrator, what happened to the accounting officer? If they were still part of the municipality, what then becomes his/her role? In the event that the administrator was not well, did the accounting officer continue to resume his responsibility?
The Chairperson asked why the municipality was under administration, being under section 139 1(b).
The MEC explained that the decision to put the municipality under section 139 1(b) was based on a number of challenges facing the municipality. There was intervention on the side of provincial government, through COGTA and Treasury, to assist the municipality with its challenges. The municipality lacked a municipal manager and senior managers. Furthermore, based on the financial position of the municipality, it owed the water authority as well as Eskom. Moreover, there were political challenges facing it. Additionally, there was the failure of the municipality to adopt a budget. At the Provincial Executive Council (PEC), they had to adopt a draft budget, and had until the end of January to adopt it. There were serious challenges facing the municipality. This was why the decision was taken to put it under administration, because it impacted on service delivery, the provision of water, and other services. A written report could be given to the Committee to explain in detail why this decision was taken.
The Chairperson said that the financials of this municipality were outstanding. When did he see those financials being submitted?
Mr Gomba responded that the financials for 2017/18 were due on 13tSeptember. The AG had agreed to put together a team that would come to the municipality to start with the audit. For the 2018/19 financials, they would be ready to audit those financials from 1 February 2020 up to the end of March. This would give the municipality time to work on its financials for the year 2019/20 by 31 August 2020.
The Chairperson asked for a progress report on how far that auditing process was. This did not mean that the issues that were already there did not need the attention of the Committee. There were serious issues confronting this municipality in terms of its financial management. SCOPA would communicate a date for the hearing.
Mr Vass stressed that the provincial government was not happy with the performance of local government, especially in terms of the outcome of the AG. They were of the view that the municipalities needed to take the findings of the AG more seriously. Council should discuss the findings of the AG. It should be a standing item on the agenda of the municipalities. It would enable them to reflect and deal with the challenges facing them. The issue of consequence management was a serious concern. They welcomed the firm steps of the PAA in respect of accountability. Municipalities need to make sure they fill the vacant positions as soon as yesterday to make sure that they dealt with these challenges. The lack of political oversight in the municipalities was also a challenge. This was one of the matters that they needed to look into to ensure that they hold the administration accountable.
There was the issue of municipalities failing to deal with the concerns raised by the AG. They were not responding to the issues, and this was a serious matter of concern. From the side of the Department as well as Treasury, they had entered into an MOU to give the municipalities the necessary support. They had to make sure that they changed the picture in terms of audit outcomes across the municipalities.
The Chairperson thanked everyone for their participation in the meeting.
The meeting was adjourned.