Municipalities’ poor performance and irregular expenditure: Committee Reports

NCOP Cooperative Governance & Traditional Affairs, Water and Sanitation and Human Settlements

26 November 2019
Chairperson: Mr T Dodovu (ANC, North West)
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Meeting Summary

The Select Committee met to consider and approve its reports on the poor performance of the Vhembe, Musina and Makhado municipalities in Limpopo province, and on the irregular expenditure of five municipalities identified by the Auditor-General (AG) as contributing up to 32% of the total R71 billion in irregular expenditure incurred by South African municipalities.

The reports on the Limpopo municipalities focused on several measures to improve their situation. These included the need for consequence management -- and who would oversee the process -- the tightening of supply chain management procedures, the restructuring of debt repayments, phasing out the use of consultants, and greater involvement by the Department of Cooperative Governance and Traditional Affairs (COGTA) and the South African Local Government Association (SALGA) in monitoring the leadership at the local government level.

The Chairperson gave a short summary on each of the five municipalities identified as the top contributors to irregular expenditure. They were the Nelson Mandela Bay Metropolitan Municipality, which had accumulated R12.5 billion of irregular expenditure, the City of Johannesburg (R2.7 billion), O.R. Tambo District Municipality (R4.3 billion), Matlosana (R2.7 billion) and Mogalakwena (R17 billion).

He quoted from the National Treasury report on the municipalities’ financial health status, and Members discussed the recommended actions that needed to be taken. They were in general agreement that strong steps needed to be taken against those responsible, irrespective of their rank within the municipality, although a Member commented that it was not right that the issue of consequence management was pinned on officials alone. Local leaders that had a responsibility for governing and applying laws in municipalities were not being held accountable.

Meeting report

The Chairperson welcomed representatives from the South African Local Government Association (SALGA), who were attending the meeting in anticipation that there would be representatives from the Johannesburg Metropolitan Municipality accounting for the irregular spending within the municipality. He explained that the Johannesburg Municipality was one of the top five municipalities in the country with over R2.7 billion in accumulated irregular expenditure. However, the Mayor of Johannesburg had resigned, and the city was in the process of electing a new Mayor. Therefore, only after the election would he invite the Mayor to explain the irregular expenditure.

He outlined the five items on the agenda for the meeting, and proceeded to the first item.

Vhembe District Municipality

The Chairperson said the Committee had visited the Vhembe District Municipality in September as part of their initiative to visit municipal districts, with the purpose of making assessments and evaluations on how the particular municipalities implemented action plans based on the report of the Auditor General (AG).

The Vhembe District Municipality had major problems. It was not performing well, especially in terms of administering its finances and providing water to the entire district, as it was responsible for providing water to the entire municipal area. The report of the Vhembe District Municipality gave an overview of the municipality and the challenges it faces, along with the report that was given by the AG on its performance, as well as a report on the district by SALGA. The report also consisted of recommendations from the Committee on how to solve the challenges the district faces, especially with regard to the irregular expenditure, indicating who must take accountability and in what manner the accountability should be taken, as well as who would oversee the process of the actions taken.

He asked the Members if they had any questions, additions or corrections.

Mr S Zandamela (EFF, Mpumalanga) expressed concern that his name had been omitted in the report, as if he had not been part of the Committee that visited the Vhembe District Municipality, and requested that his name be included.

The Chairperson reassured Mr Zandamela that he would personally ensure that his name was included in the report.

Mr I Sileku (DA, Western Cape) suggested that the inclusion of time frames on the recommendations in order for the process to be taken seriously by municipalities.

The Chairperson agreed with Mr Sileku, and suggested that the timeframe be set for the first quarter of 2020, and the Committee agreed.

He asked for a motion for the adoption of the report.

Ms S Shaikh (ANC, Limpopo) moved the adoption of the report.

Ms P Mmola (ANC, Mpumalanga) seconded the adoption.

The report was adopted.

Musina municipality

The Chairperson said the report on the visit to the Musina municipality was also a follow-up to the Auditor General’s report for the financial year that ended on 30 June 2018. The Committee had gone to Musina municipality to engage with the office of the Auditor-General, the Department, the province and the municipality. From the presentations from the particular offices, the Committee had identified that the indicators in the Musina annual report were not inclusive of the service delivery and budget implementation plan of the municipality, which had been a problem. The quality of the annual report had been of concern, as the AG had found in his report that the municipality was not taking the necessary steps to prevent irregular expenditure, which amounted to R21.7 million.

The Chairperson said that the Committee’s report also included its major observations that the leadership of the Musina municipality had to ensure that it attended to all the concerns that were raised by the AG. The presentation from the Department had indicated how it had assisted the municipality with the re-structuring of its debt payments, as well as a financial recovery plan, and it had given technical support to the municipality. Therefore the report consisted of further recommendations from the Committee on how the Department could continue to support the Musina municipality.

Regarding the presentation by the Musina local municipality, the Chairperson said that there were lots of concerns expressed in the municipal audit action plan. These concerns were rooted in the opinion that the financial misconduct board was not doing a good job in investigating the irregular expenditure within the municipality. Based on this information, the Committee had made some observations in the report, stating that the Department, as well as SALGA, must assist the municipality in monitoring the leadership of the municipality and ensure that the municipality prepared quarterly and annual financial statements. These stakeholders must continue to support the municipality in terms of political leadership, ensuring that all the structures of the municipality were functional, as well as provide assistance in terms of ensuring that the municipality regains its status as a water service authority.

Mr Sileku asked the Chairperson if the issue of debt collection would be considered as an addition to the Committee’s recommendations in the report, in order to be able to track down progress being made by municipalities in terms of debt recovery, and to see if there was a need for an interjection and assistance by external entities.

The Chairperson agreed that the issue of debt collection was important, and added that it was a point that had been raised as a recommendation in the previous meeting.

Mr Zandamela pointed out that an issue had been raised about a section 106 investigation that the provincial department of Cooperative Governance and Traditional Affairs had conducted, and suggested that a report must be provided regarding officials that had allegedly been involved in corrupt activities, and whether or not they had been cleared of those crimes.

The Chairperson agreed.

Ms Mmola added that the Chairperson must stress the importance of the involvement of SALGA in assisting municipalities.

The Chairperson agreed, and asked for a motion to adopt the report.

Ms Mmola moved the adoption of the report.

Mr K Motsamayi (EFF, Gauteng) seconded the adoption.

The report was adopted.

Makhado municipality

The Chairperson said the report on the Makhado municipality consisted of the objectives of the visit to the municipality, and referred to those who the Committee had engaged with. The Committee had outlined their observations of the report on the Makhado Municipality, based on the presentations that they had received from the Auditor-General for the financial year ending on 30 June 2018, as well as the report from SALGA.

One of the AG’s major observations had been that the municipality had irregular expenditure that amounted to R31 million, and unauthorised expenditure of a R164 million Rands. The root causes of this problem included the lack of asset management systems, failure to prepare regular, accurate and complete financial and performance reports by the municipality, as well as its failure to keep timeous records of its expenditure. The report also covered the recommendations made by the delegates on the situation in the Makhado Municipality, as well as the urging of the Department of COGTA to continue to support the municipality. He noted that the municipality had improved from an adverse audit opinion to a qualified audit opinion in the financial year that ended on 30 June 2018.

The report also consisted of a presentation by SALGA on how the Association had assisted the municipality through providing a provincial sanitation task team to deal with issues of waste water treatment works, as well as ensuring that they were in good condition. He also noted that SALGA also assisted the municipality in terms of job creation and evaluation. The report also stipulated that the municipality needed to work towards improving their audit opinion, and ensure that as it prepared for audit reports and post-audit action, it must be credible. In addition, the report suggested that the municipality employ a supply chain management (SCM) checklist so that it could monitor the performance of the municipality. This was because the SCM was a problem, and non-compliance was also a problem at many municipalities, including Makhado. In the recommendations, it was stipulated that SALGA and the Department of Cooperative Governance and Traditional Affairs (COGTA) must continue to monitor the situation in the municipality, and that there should be a forensic investigation into all officials and politicians who had participated in the investment of the VBS Mutual Bank.

Mr Sileku added that the Committee would like to see a plan of action on how the municipalities aimed to phase out the use of consultants, and raised a question about the capacity within the office of the Management Performance Assessment Tool (MPAT) to fulfil its role, and how to make sure that these offices were fully capacitated to do their required jobs.

The Chairperson agreed that Mr Sileku had raised an important issue to be included in the report and stated further that the use of consultants by municipalities in preparation for presentation of the annual financial statements did not help.

Mr Zandamela requested that on the observations, the report should include an investigation into the fact that the former Mayor -- who had resigned -- was now a councillor of the municipality, and was also listed among those who were involved in the VBS Mutual Bank saga.

The Chairperson agreed with Mr Zandamela, and said that the forensic report must investigate everything regarding both politicians and officials. He then proposed a motion to adopt the report.

Ms Mmola moved for the adoption of the report.

Ms Z Ncitha (ANC, Eastern Cape) seconded the adoption.

The report was adopted.

Top five municipalities who contributed to accumulated irregular expenditure

The Chairperson explained the background of the report to the Committee, and then named the top five municipalities which had contributed to the accumulated irregular expenditure. The municipalities included the Nelson Mandela Bay Metro Municipality, the O.R. Tambo District Municipality, Mogalakwena Local Municipality, and Matlosana municipality. He explained that the report was based on only four municipalities, due to the fact that the Johannesburg Metropolitan Municipality was excused for the time being. The Auditor-General had identified these particular municipalities as the major contributors to the irregular expenditure, with a combined contribution of up to 32% of the R71 billion in irregular expenditure. This statistic was the reason why the municipalities in question had been invited to Parliament, so that their representatives could present their financial documents and audits in order to find where the problem was, and to devise solutions.

The Chairperson gave a short summary of each municipality as per the report from the Auditor-General. Nelson Mandela Bay Metropolitan Municipality had accumulated R12.5 billion of irregular expenditure, the City of Johannesburg R2.7 billion, O.R. Tambo District Municipality R4.3 billion, Matlosana R2.7 billion, and Mogalakwena R17 billion.

He quoted from the National Treasury report on the financial health status of the municipalities. Going through each municipality, he said that Mogalakwena municipality was struggling and was not collecting revenue correctly. There was an outstanding debt in the municipality. In OR Tambo district municipality that there was an increase in debt, the municipality was not collecting revenue, and was dependent on the infrastructure grant from the national government. In the Nelson Mandela Bay Metropolitan Municipality, there was political in-fighting which had destabilised supply chain processes, while at the same time the municipality had a lot of vacant leadership positions. Lastly, the Matlosana municipality had serious problems in respect of its financial health -- cash recovery was very slow, and the municipality owed Eskom R450 million and the Midvaal water company about R300 million.

Based on these figures, the Committee had made some recommendations on what each municipality needed to do. Starting with O.R. Tambo, he said that the municipality should establish a committee in terms of Section 32 of the Municipal Finance Management Act (MFMA) to investigate historical irregular expenditure and ensure the implementation of consequence management, and the government of the Eastern Cape as well as the Department of COGTA should monitor the implementation of Section 32, among other solutions. In Mogalakwena, the Council of the district must fast-track the process of considering and adopting the report of the MPAT and implement the recommendations of the Council. In Nelson Mandela Bay, the municipal council should consider the procurement of an external forensic auditor to unpack the historic irregular expenditure, specifically focusing on value for money and consequence management, and the Eastern Cape provincial department should monitor the selection and procurement of an external forensic investigator. Lastly, in Matlosana, the recommendation was that “Open Water,” the company that was appointed by the National Treasury, should fast-track the process of finalising disciplinary processes against other officials accused of incurring irregular expenditure for the municipality, and National Treasury should assist the municipality on how to address the process of handing in documents, which had been a problem.

Mr A Gxoyiya (ANC, Northern Cape) raised an observation that in all the reports, the issue that cut across all Members, regardless of positions, was the issue of consequence management. He proposed that the Committee should add its recommendations immediately after each of the reports, whether from the Auditor-General, SALGA or COGTA, in order to ensure an easier flow of the presentation. COGTA must report to the Committee on the support they provide to the municipalities, as well as the feedback that they receive from the municipalities. He said municipalities must not be allowed to outsource annual financial statements, especially when there was a chief financial officer (CFO) in place.

Ms Z Ncitha (ANC, Eastern Cape) added that in the report of the Nelson Mandela Metropolitan Municipality, it should be highlighted and recommended that the issue of the non-availability of senior staff be looked at, with a time-frame.

Mr Sileku said it was not right that the issue of consequence management was pinned on officials alone. Local leaders that had a responsibility for governing and applying laws in particular municipalities, were not being held accountable. He suggested that the law makers should find a way of making consequence management stricter.

The Chairperson agreed with the Committee Members, saying that consequence management cut across the politicians, irrespective of the position they held in the municipality, as well as the officials. It was also important to consider what action should be taken when there was an irregularity.

Mr Motsamayi added an observation on the rampant looting of government resources that was perpetrated by people occupying senior positions in municipalities, saying that when they were invited to Parliament, they were often reluctant explain their actions.

The Chairperson acknowledged Mr Motsamayi’s concern and made a suggestion that when the Committee invites municipalities to Parliament, the Mayors and municipal leaders should lead their delegations. The Committee agreed to this.

The Chairperson called for a motion to adopt the report.

Ms Ncitha moved the adoption of the report.

Mr Motsamayi seconded the adoption.

The report was adopted.

Committee minutes

The Chairperson took Members through the Committee minutes of 19 November page by page.

Mr E Mthethwa (ANC, KZN) pointed out that part of the resolution that was put down by the Committee, was that there should be an inclusion in the report of case numbers, names and details of the criminal offence. He believed that this was too detailed and could affect an individual’s right to privacy and safety. He suggested that it was unnecessary and dangerous to put all the details of criminal cases in the report, and that it should rather give a holistic approach while leaving out the finer details of the cases.

Mr Zandamela disagreed with Mr Mthethwa on the basis of the need to know.

Ms Mmola suggested that the investigation task be left to the investigators, and that the Committee should not interfere with investigations. She proposed that when inviting municipalities to submit presentations, the Chairperson must point out that the municipalities needed to submit the presentations seven days prior to the presentation in order for the Committee to be able to prepare comments and questions.

The Chairperson agreed with Ms Mmola on setting a timeframe for the submission of presentations by municipalities.

Mr Sileku suggested that the issue with giving punishment to an individual, and leaving out the details of why the individual was punished in the report, did not help with solving the problem at the end. It was important to have those particular details in order to prevent another individual from committing the same crime, and he agreed with Mr Zandamela on the need to know. He also stressed that the inclusion of the individual’s name in the report was not necessary, thereby supporting Mr Mthethwa’s concern.

Mr Gxoyiya said that this particular matter had already been agreed upon and concluded at a previous meeting, and suggested that if it still needed to be debated, it should be brought up as an agenda item for another meeting.

Ms Ncitha suggested that the Committee needed legal advice on this matter, but in the meantime the reports should include the charges laid against the individual, as well as the police stations where the cases were reported for the purpose of being able to do follow-ups on the cases, without getting the names and case numbers of the individuals.

Mr Mthethwa agreed with Ms Ncitha, and added that he was not wrong to challenge the minutes of the meeting, as they were not yet adopted, which meant that he was entitled to challenge and question the minutes if he was uncertain about a particular matter.

The Chairperson concluded the debate by agreeing further with Ms Ncitha, and said that the reports should include the nature of the cases that were reported to the police, as well as the police stations at which they were reported, together with the case number, the nature of the investigation and how far the investigation had progressed. However, because these were still ongoing investigations and people were innocent until proven guilty according to the law, the names of the individuals must not be revealed.

Ms Mmola moved for the adoption of the minutes.

Mr Gxoyiya seconded the motion.

The minutes were adopted.

The meeting was adjourned.


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