Dr Beyers Naude Local Municipality: engagement with Municipality; AGSA; SALGA, DCOG

Meeting report

Dr Beyers Naude Local Municipality presentation
Mayor Deon De Vos of Dr Beyers Naude Local Municipality (BNLM) said the day before marked four years since the municipality was inaugurated, under very difficult circumstances on 18 August 2016. His presentation gave the background to the municipality which had merged the Camdeboo, Ikwezi and Baviaans Local Municipalities. He outlined BNLM's governance structures and financial status. One of the main concerns is the financial resources available to deliver services and address historical financial challenges of the previous municipalities as it inherited outstanding debt amounting to R65.3 million owed to Eskom, SALGA, Auditor General, amongst others.

He gave an overview of BNLM's financial position, current assets and liabilities, creditor management, analysis of income and expenditure. The challenges were as follows:
- Historical creditors were inherited on amalgamation which are still being paid off
- The average monthly billing of DBNLM is R13m as a result of not billing at cost reflective tariffs as the selling rate is less than the bulk purchase rate
- The monthly salary expense amounts to R13m
- Outstanding creditors as of 31 March amounts to R136m
- Redundant pre-paid electricity meters needs to be replaced.

Mayor De Vos outlined the unauthorized expenditure, irregular expenditure fruitless and wasteful expenditure.  Irregular expenditure is R165.46m. R79 million was inherited from Ikwezi but MPAC and the Provincial Treasury investigated and recommended its write-off in 2019/20. He noted
Covid 19’s impact on revenue and the Covid 19 relief grant which the municipality received.

Consequence management was discussed briefly before discussing the turnaround plan and urgent intervention for technical/finance immediate action. Largely this has to do with metering in the municipality. Lastly, the post audit action plan was discussed.

The presentation concluded by emphasizing the following points:
- Historical debts have crippled the amalgamated municipality
- For the municipality to survive, cost of supply findings must be implemented without fear or favor
- The organizational structure has to be revisited as a matter of great urgency
- The wheeling agreement with Eskom must be finalized as a matter of extreme urgency

Auditor General briefing
Ms Tracey De Wet, Eastern Cape AGSA Deputy Business Executive, addressed the audit outcomes for DBNLM. The presentation was titled the high cost of accountability in local government. The presentation covered the local government context in the Eastern Cape which was characterised by a regression in municipal audit outcomes. DBNLM had received disclaimers with findings for three consecutive years.

A lack of controls resulted in an authorised write-off of irregular expenditure:
A portion of the opening balance of Irregular expenditure is a result of irregular expenditure inherited from the merger of the municipalities of Camdeboo, Ikwezi and Baviaans in 2016. A further R24 million of irregular expenditure was incurred in the year under review (R50 million in the 2017/18 year) and R79 million irregular expenditure was written off.

AGSA noted that a large amount of the drought relief grant was unspent: The region experienced a drought and BNLM received a drought relief grant of R30 million. An amount of R5 million was spent and R25 million was unspent.

AGSA highlighted that the leadership of the municipality has failed to implement the discipline of financial controls over public funds, which further hindered the municipality from delivering services to the community. It said the municipality was under increasing financial pressure and had losses each year since inception. It concluded that there is a deteriorating state of affairs in local government in the province due to accountability failures at municipalities.

AGSA recommended that the leadership of the municipality should strengthen oversight over financial, performance and compliance reporting, as the annual financial statements, annual report and compliance reporting were not adequately reviewed before submission. They should also maintain a proper record management system for records. Furthermore, management should follow up the implementation of internal and external audit recommendations to address internal control deficiencies.

South African Local Government Association (SALGA) presentation
Mr Sonwabo Gqegqe, SALGA Eastern Cape Provincial Director of Operations, presented on its support provided to the municipality via MASP.

The three amalgamated municipalities of Dr Beyers Naude, Walter Sisulu and Enoch Mgijima have been limply struggling to show any prospect of generating sufficient revenue first to pay off debt, finance the amalgamation and show any prospects of viability and sustainability. Amongst the challenges was insufficient funding of the restructuring and amalgamation process as well as no provision made for historical debt.

BNLM was one of the top 10 indebted Eastern Cape municipalities owing Eskom, the Water Board and Auditor General.

On the audit findings, BNLM did not adequately investigate the irregular expenditure written off in the notes of the financial statements as required by section 32(2)(b) of the MFMA. This was because the municipality did not implement the recommendations of the municipal public account committee (MPAC) before writing it off. Consequently, irregular expenditure as disclosed is understated.

SALGA noted the support it had provided in terms of the Municipal Audit Support Programme (MASP) which is a newly adopted SALGA approach.

Department of Cooperative Governance (DCoG) presentation
Mr Themba Fosi, Acting Director General: DCoG, gave background to DBNLM and its governance structures and processes. He noted the audit findings outcomes of the last three financial years:
- Council failed to adopt an oversight report on its comments on the annual report as required by section 129 of the MFMA;
- Lack of an adequate record keeping system;
- Unreliability of performance information.

Mr Fosi covered municipal administration in terms of the Section 56 positions and the municipality's capacity levels. It was noted that Provincial COGTA is in the process of reviewing the organogram and other policies.

The audit findings on the municipality’s financial management included:
- Unauthorised expenditure was not investigated as required by section 32 of the MFMA.
- Irregular expenditure was written off despite inadequate investigation and MPAC recommendations not being implemented.
- Lack of consequence management due to unauthorised, irregular and fruitless and wasteful expenditure not being investigated.

The Department briefed the Committee on the municipality’s Financial Recovery Plan.

An overview of the poor state of the municipality’s service delivery was given on municipal roads, and water and sanitation services.

The Department presented the Municipal Infrastructure Grant (MIG) funding and projects. It discussed the challenges identified and support provided to the municipality.

It was noted that Graaff Reinet, Aberdeen and Willowmore are Covid-19 hot spots due to their location on the national route from Western Cape to Eastern Cape.

The Department reviewed the support provided by MISA such as:
- spatial development planning
- electrical network input into draft Spatial Development Framework
- needs analysis for Smart Meters
- technical support for drought eradication projects; MIG reprioritisation projects; installation of water projects and upgrading of Graaff Reinett sewer pump stations and reticulation.

Discussion
The Chairperson said that the AGSA presentation did not substantially cover the issues in the municipality. She would hope that AGSA would improve when dealing with the Eastern Cape. No proper background was provided as to what had caused the issues faced by BNLM in the last three years. The brevity of the presentation allowed no findings on procurement, the use of consultants or extensive assessment of consequence. She asked for the AG’s assessment on infrastructure issues in the municipality. This missing information was key and by excluding it AGSA was not assisting the Committee in its role of conducting oversight. She requested that AGSA resubmit its presentation with that information. The missing information is a serious concern for the Committee.

Mr B Hadebe (ANC) agreed. He asked BNLM to respond about not spending the Drought Relief Grant. Secondly, he asked about the back payment to municipal employees– the amount of which AGSA was unable to confirm. He asked the municipality how this was possible. He asked how BNLM was unable to have records of what they pay their employees. It was strange that there was no verification possible by AGSA. A paper trail had to exist. There must be proper systems in place even for back payments. He was struggling to understand why BNLM was unable to assist AGSA in conducting a thorough audit.

Mr Hadebe said that irregular expenditure was growing. This was due to consequence management not being implemented and the previous irregular expenditure not having been investigated. He asked to hear more from the municipality about this aspect. The municipality had received support from SALGA and COGTA through Municipal Public Accounts Committee (MPAC) training and capacity building of the municipality’s audit committee and councillor support training. COGTA had also indicated ongoing financial support with an official assigned to assist BNLM in financial recovery. With all this support, why had it received a disclaimer of auditor opinion for three consecutive years? He wished to get a sense from all that had offered support to this municipality whether their support was being reduced to a disclaimer. What needs to be done for us to be comfortable that the support offered is yielding positive results? Surely something is not genuine for this matter to have reached this point.

Mr Hadebe asked SALGA if in retrospect the decision to amalgamate the three municipalities was an incorrect decision. Perhaps the decision was met without the necessary support. He asked SALGA what it would advise the powers that be when dealing with similar situations. He asked if this a lost cause. Should we continue with the hope that things will get better? The report indicated a very bleak future. Would SALGA be able to put the Committee at ease with its honest assessment of the future?

Mr H Hoosen (DA) expressed dismay at what he heard in the presentations. The situation at BNLM was bad. The Committee had dealt with many municipalities but this one was a basket case. He was depressed by what he had heard. He noted, in particular, the lack of access to water by local communities as a result of the drought and Eskom having disconnected the municipality due to failure to pay. He mentioned the sewerage that was seeping into the Sundays River. He had spoken about this municipality during the budget debate due to the R25 million drought relief that had disappeared. The Committee has not seen a worst-case scenario than this municipality. AGSA had highlighted the lack of consequence management and the R101 million in over expenditure. SALGA mentioned that BNLM had twice the number of officials needed due to amalgamation. The irony was the municipality was paying twice the number of salaries but getting less than half of the job. The municipality cannot even collect its debt. 

Mr Hoosen said that the mayor and municipal manager had spoken proudly and convincingly as if everything is fine, however the reality on the ground is a mess. He asked the mayor why he was still holding office because nothing is right there. Why had the mayor not fired the municipal manager yet? Why did BNLM even have that chief financial officer (CFO). These people have responsibilities and duties based on their contract. We are still paying them salaries from people's taxes and the situation is not getting better. He had worked out BNLM had R355 million in irregular expenditure over three years. The leadership of the municipality had failed to implement the discipline of financial controls.

He appealed to the Minister and Deputy Minister to get rid of the leadership in the municipality. It was not working, and that money was being wasted by paying these people to give grief. He felt sorry for the community in BNLM because it could not get worse than what it is. The situation is the way it is because of lack of consequence management. He expressed concern that there would be no consequences faced by the mayor and municipal manager. He advised the residents of BNLM to drive these people out of the municipality. This should include the councillors who were responsible for protecting the interests of the residents but failing to do so. The councillors were not conducting oversight. He asked for an explanation on what had happened to the R25 million from Drought Relief Grant.

Mr K Ceza (EFF) said that the situation was indeed at a crisis point. Local municipalities represent an important sphere of government due to the proximity to the communities they serve. In cases such as this one it is the residents that are at the centre of suffering. Massive structural deficiencies and incapabilities were defining local government. The greatest problem in local government is the division of revenue and funding of a municipality. The way municipalities are funded reproduces the structural and spatial inequalities that existed prior to 1994. Local government is designed with the view that citizens have employment to allow them to pay rates and taxes to sustain BNLM. In this case there is 28% unemployment in the municipality. He asked how BNLM would collect sufficient revenue. Most municipalities are incapable of generating  income due to high levels of unemployment, poverty and lack of economic activities in their locality. He suggested that this be reconceptualised with the aim of driving a developmental agenda which would bridge the gap between rural and urban municipalities. The dependency of municipalities on conditional grants from national government is unsustainable in a politically polarised environment. Those who control these conditional grants often use them to pursue a narrow political agenda and to reinforce fading political fortunes.

Mr Ceza agreed with Mr Hoosen that the picture was very bleak. He asked what BNLM was proposing. He referred to the slide in which the municipality had stated that insufficient revenue collection, faulty meters and the unsustainable salary bill were due to the amalgamation. However, it was the municipality which agreed to the amalgamation and it has been four years since the amalgamation. The Committee was looking at a three-year report of the AG’s findings. The Adendorp community had complained that their refuse had not been collected. Only one refuse collection truck was serving the communities of Steytlerville, Jansenville, and Klipplaat. He asked how many trucks BNLM owned and how many were functional. He asked what the status quo was of BNLM’s service delivery capacity. He asked COGTA for details about what has been done under the Back To Basics municipal recovery programme of supporting municipalities in distress. He asked AGSA what measures are in place to ensure the R102 million in accruals is resolved when BNLM does not have the capacity to collect revenue.

Mr Ceza asked if BNLM had been tabled to the Inter-ministerial Task Team (ITT) particularly the municipality’s debt to Eskom. He asked what the proposed intervention was to meet the challenges. He referred to complaints received from Graaff Reinet residents about the drought last year. He referred to the missing drought relief funds. Auditor General Makwetu had commented that he was gravely concerned about the R24 million in drought aid that had disappeared. AGSA could not determine on what the money had been spent as no records had been kept by BNLM for the period under review. There are several allegations from the Graaff Reinet Economic Development Forum that the relief funds were used illegally to pay creditors. It has also been alleged these funds were used to pay the salaries of the municipal manager and mayor. Had BNLM succumbed to the pressure of creditors to use this money dedicated to drought relief. If they had not succumbed to pressure, what agreements had the municipality made with the creditors? Where is the money coming from to pay debts monthly?  

The Chairperson referred to the AGSA report that the municipality does not have metering installed to keep track of electricity consumption. The municipality relies solely on Eskom for usage details. This is revealed in BNLM's post-audit action plan. However, on slide 14, BNLM claims that the municipality calibrates electricity meters every seven years to ensure accuracy. This information is inconsistent with the municipality coming into existence in 2016 and not have metering installed. She asked how the municipality reconciles this inconsistency.

COGTA indicated that MISA has undertaken a needs analysis of meters in the municipality. She asked what the findings were of this analysis. In the 2018/19 audit, AGSA could not establish if BNLM did in fact pay R18.5 million in back payment to align salaries of employees inherited from the merged municipalities. This is a classic example of the municipal leadership demonstrating a failure to implement the discipline of financial controls. She asked for assurance that it did indeed pay the back payments otherwise this would further drain finances.

The Chairperson referred to the meeting held between previous COGTA Minister, Dr Zweli Mkhize, and the municipality’s leadership on 25 April 2019. In this meeting Dr Mkhize had applauded the municipality’s financial recovery plan and turning around its finances. The Committee sits a year later with Mayor De Vos and the municipality shows signs of severe financial distress. She asked Mr Fosi what follow ups had the Department made to support BNLM with its financial recovery plan since April 2019. She asked SALGA in view of the disclaimers for three years, if it has taken measures to review, re-evaluate and recalibrate its support to the municipality to progress to better audit outcomes. Lastly, BNLM wrote off the irregular expenditure incurred for the year ending June 2019,  before implementing MPAC resolutions. MPAC has resolved that the municipality should reinvestigate the irregular expenditure as there was insufficient evidence to write it off. Someone wrote off the irregular expenditure before implementing this resolution. What steps has Mayor De Vos taken against the accounting office who submitted financial statements with the unidentified irregular expenditure?

Response
Mayor De Vos replied that he appreciated the AGSA presentation which highlighted the challenges which may have made it impossible to move from an audit disclaimer, which was a true reflection of the challenges experienced at the time. AGSA has a clear understanding of where the municipality is coming from based on the backlog of audit findings inherited from the previous municipalities.

Mayor De Vos replied that the municipality received the R30 million drought grant on 28 March 2019. The financial year end is 30 June so it was impossible to spend all the money in three months. The municipality applied for the money to be rolled over and this was approved only in October 2019. National Treasury requires cash in the bank to approve a roll over. At the end of the financial year, the municipality had only accounted for R5.9 million because that is what the municipality had been able to spend within those three months. He asserted that he had engaged with AGSA on this matter. The roll-over was approved and the rest of the money, R24 million, was spent in the next financial year. The municipality is prepared to prove the spending of the R24 million with invoices and even site visits if verify these invoices need to be verified.

Mayor De Vos specifically did not wish to politicise the challenge that the municipality faces when it comes to the amalgamation. Baviaans had been a DA-governed municipality and Ikwezi an ANC-governed municipality and they both faced the same challenges. They were both in debt and near collapse. One the new municipality’s councillors who came from Baviaans had openly declared that the audit was not worth the money that AGSA had requested. It was for this purpose that this former municipality did not pay AGSA an amount of up to R8 million. The new municipality wanted to at least pay back R6.5 million to AGSA. The municipality was dealing with the challenges it had inherited but that there should be a little bit of understanding of where we are coming from and what we are trying to do. The municipality had indicated in the report that cash flow problems and financial sustainability have directly impacted service delivery. They were also lacking needed plant and equipment.

The municipality had written a letter to the provincial department and requested plant and equipment for assisting in refuse removal. The municipality was trying as much as possible and although service delivery was not as regular as they would want it, they are doing so as far as possible. Now that the municipality had a full complement of directors appointed, things may improve. At the time of amalgamation, the municipality had inherited a debt of over R150 million. The municipality had put mechanisms in place to deal with revenue collection and improving the debt. He agreed that Mr Ceza was right in saying that there needs to be a development programme in place in the municipal area. The main source of employment was tourism and agriculture. The drought had severely impacted the agricultural industry in the municipality. 33% of the 28% unemployment is youth unemployment. A development programme could assist economic growth. The shortage of plant and equipment influences the municipality’s ability to deliver services and the municipality was trying its best with the limited resources at its disposal.

Mayor De Vos replied about the calibration of electrical meters saying that was what the municipality had listed in its report was as to what should be happening in a normally run municipality. It is not what has been done but what the municipality intends to do. Two pages of the report was dedicated to what the municipality intends to do with electricity and metering.

On irregular expenditure, Mayor De Vos replied that BNLM requested the support of Provincial Treasury to help with an investigation. Recommendations would be made from the findings of this investigation and from MPAC. Those are the issues to which he could respond.

The Chairperson asked about the R79 million in irregular expenditure written off despite MPAC recommendation's for effective consequence management.

Mayor De Vos replied that the R79 million is still under investigation and comes from the former Ikwezi municipality. Those individuals involved with this irregular expenditure had to be held accountable, notwithstanding the fact that they may have long since left the municipality. The municipality would follow up on the MPAC recommendations.

The Chairperson responded that the Mayor had not understood the question. MPAC had recommended that the irregular expenditure must be reinvestigated as there was insufficient evidence for the amount to be written off. AGSA indicated this and it is on record. BNLM, led by the accounting officer, wrote off the irregular expenditure. The question is very simple, Mayor De Vos, what steps has the municipality taken against the accounting officer who approved and submitted financial statements with a write off of irregular expenditure despite what the MPAC had recommended? The MPAC chairperson should confirm these recommendations. She asked Mayor De Vos to provide a straightforward answer.

Mayor De Vos replied that he would respond but he wanted the dispute to be clearly explained as there was a misunderstanding. The MPAC chairperson was not present in the meeting.

The Chairperson reprimanded the Mayor for not introducing his delegation from the municipality. AGSA would still come in and comment because this issue had raised with him. She asked the Mayor who was with him on the virtual platform.

Mayor De Vos was accompanied by Municipal Manager Dr Edward Rankwana; Acting CFO Ms Delphine Rose Thorne; Directors Ms Zoleka Kali, Mr Bennie Arends and Mr Gewnynne Hermanus.

The Chairperson repeated her question about the steps the municipality had taken against the accounting officer.

Mayor De Vos replied that no measures were taken against anyone because no one acted against MPAC’s recommendation. No one has written off R79 million without the investigation as recommended by MPAC. The only time R79 million was written off was after investigation by MPAC supported by Provincial Treasury. It was written off based on a recommendation.

The Chairperson said that she would still follow up on irregular expenditure because she doubted that was the truth. She asked Mayor De Vos to hand over to his team to answer the remaining questions.

Mr Gerard Meyer, BNLM Chief Auditor Executive, replied on the matter of equalisation that when AGSA wished to audit the listings they were not in a presentable form. There are listings and reports and they have since been summarised and reconciled.

The Chairperson told Mayor De Vos that AGSA would have to speak to authorising the write-off as the Mayor disputes the MPAC recommendation.

Ms De Wet of AGSA replied that the R79 million was shown in the financial records to have been written off. AGSA went and consulted the minutes from the meeting were the write-offs were approved. In the minutes it was noted that MPAC said that that amount should be reinvestigated as the investigation was not complete enough to determine that it should be written off. However, in the financial statements it still showed a write-off of R79 million.

The Chairperson asked Mayor De Vos if he still stood by what he had said.

Mayor De Vos replied that the write off was approved by MPAC. It was put in the wrong financial year and it was not supposed in that year which AGSA is referring to but the next financial year. There was approval and investigation by the Provincial Treasury and MPAC. MPAC made a recommendation based on this investigation for the write off.

The Chairperson asked Mayor De Vos if he was disputing the AG’s findings.

Mayor De Vos hesitated to say whether he was disputing the AG’s finding. He said rather that it may just be a misunderstanding. He would let his auditor executive comment on the matter.

The Chairperson asked the Chief Auditor Executive to explain as AGSA is very eloquent on this.

Mr Meyer replied that everyone agrees that the write off by council appeared in July 2019. The other processes took place in the prior year and that is why there is confusion about the drafting of the annual financial statements (AFS). What needs to appear in the financial statements is that the write-off is reflected in the correct financial period.

The Chairperson asked if Mr Meyer was in dispute with what AGSA had said.

Mr Meyer replied yes that was correct.

The Chairperson said that the municipal team had been wasting the Committee’s time by not answering in a straightforward, timely manner. She asked them to treat the Committee with respect. She asked the municipality to submit a clear written explanation on this matter. Her sense was that the municipal council had done nothing to remedy the situation. She asked for solicited written information from MPAC on this matter. She did not see the mayor’s commitment to rectifying the matter.

Mr Meyer replied on equalisation that the listings provided to AGSA from the prior year were not agreeing with the payments made and the bank statements. AGSA was unable to audit because they could not agree on the amounts. What BNLM had done in the current year was to take the listings, summarise them, taken out the necessary information and reconciled it back to the statements. They are now ready to present AGSA with the listings and the bank statements.

Mr Fosi replied to Mr Hadebe’s question about all the support given to BMLM had led to an audit disclaimer. Mayor De Vos and Councillor Stofile had already covered the context of the amalgamation and the challenges it caused. The reality is it is like starting a new municipality. The kind of support the Department was providing to the municipality was not support that will not resolve the challenges in the short term. The municipality has systemic problems that resulted from amalgamating unviable municipalities. There were several municipalities across the country facing the same problems as this municipality. The whole system of how municipalities are demarcated and the criteria used needs to be reviewed. This municipality is not alone in the systemic problem it is facing. Regardless, the Department continues to provide support although it may not fundamentally change these systemic challenges now. Rather, over time, this support will assist in putting systems in place to create revenue management. For example, a simplified revenue plan, data analysis, and physical verification of properties.

Mr Fosi referred to former Minister Mkhize’s intervention to stabilise BNLM. The financial recovery plan in collaboration with National Treasury’s Municipal Finance Improvement Programme (MFIP) was used. He would try and get the progress report from the Treasury’s intervention which has a unit dedicated to providing support on audit findings and financial management.

Mr Fosi replied that overall the type of support being provided is part of the Back to Basics. COGTA supported BNLM in setting up the organogram and working with SALGA as part of amalgamation. MISA could respond about the needs analysis. All the support being provided is part of the local government support programme. This could come in different ways in terms of infrastructure, working with Treasury on financial management, and institutional matters. He asked that the COGTA Executive Manager on Municipal Governance add any points about governance as he assisted with the transitional phase of the amalgamation. He asked MISA also to comment.

The Chairperson said that time would not permit Dr Naidoo to address the Committee. It would be arranged at a later date. She invited him to speak about the lessons learned and to answer the question whether amalgamation was working.

Dr Kevin Naidoo, COGTA Executive Manager: Municipal Governance, raised that the amalgamation process has been the topic of discussion not only for the municipality in question. He would provide the Committee with the background of how the process occurred. It started with the new administration in 2014. In September of that year Back To Basics was launched and that December there was a request from COGTA to provinces to submit cases of municipalities whose boundaries should be re-determined. This request was made specifically with view to optimise financial viability. In response to this request, eight provinces made submissions to COGTA. In total, 34 proposals were submitted to COGTA. Five of these 34 requests had come from the Eastern Cape. On receipt of these proposals, in terms of Section 22 of the Demarcation Act, COGTA engaged with the Municipal Demarcation Board (MDB) and submitted the 34 proposals for its approval. MDB looked at each proposal and applied the criteria in section 25 of the Demarcation which must be considered when redrawing. MDB approved 13 of the 34 cases. What the MDB implied was that Dr Beyers Naude Local Municipality would be a viable municipality. Neither COGTA nor SALGA could have answered the question of whether it would go on to be a viable municipality. It was the MDB which had originally applied the criteria to determine BNLM's viability.

Dr Naidoo said that the MDB should also respond to how its decision had been arrived at and why the 21 other municipalities were not considered viable for establishment. The thinking behind amalgamating three municipalities into one, is that you would end up getting the best municipal manager.  From the three CFOs, you would end up with the best CFO. And so too with all the other section 56 managers reporting to the municipal manager. The point was made  by Mr Gqegqe of SALGA that as it was a new municipality, it ought to have one organogram for the new entity which provided a consolidation of positions. It ought to have been subjected to a work study process. It should not have gone automatically from a grade one to a grade three. Unfortunately, the amalgamation of Dr Beyers Naude Municipality was only confirmed on 21 October, it was then subject to litigation and this happened eight months before the next local government election. He referred to the statement made by the SALGA Eastern Cape Provincial Director of Operations on what the outcome would have been if the status quo of the three municipalities had remained unchanged and had not been amalgamated. Would they be viable municipalities? This was a question one needs to consider. In 2000, the number of municipalities moved from 843 municipalities to 284. That was a much larger re-demarcation process. What has happened over the last 15 years? He accepted the Chairperson's request to present to the Committee on the lessons learnt from the 13 redeterminations that had occurred in 2016.

The Chairperson thanked Dr Naidoo but said that the more that she hears the more depressed she gets about the situation in the municipality. The MDB must present to the Committee.

Mr Ntandazo Vimbo, CEO: Municipal Infrastructure Support Agent, replied about the needs assessment findings. MISA had implemented a general functionality assessment of the energy function and the infrastructure in 2018 in BMLM. The report is available for the Committee. BNLM did not have operations and maintenance plans and MISA committed to assist the municipality on these. MISA presented terms of reference to the project management unit (PMU) for budget purposes so the operations and maintenance plans could be developed and implemented. As the mayor indicated, the municipality is constrained in terms of resources and unfortunately the maintenance plan was not developed as MISA recommended. MISA identified that BNLM did not have a five-year energy management plan and this funding was supposed to be sourced and a consultant appointed to assist with the plan development. MISA identified that the pre-paid meters were to become redundant in 2022. MISA identified aging infrastructure. MISA assisted the municipality with a meter audit which the municipality is sourcing itself. BNLM appointed a consultant and MISA’s electrical engineer is part of the team implementing this project. It is a work in progress as MISA does not currently have findings from the meter audit.

The Chairperson asked for the MISA report to be submitted by latest 25 August.

Mr Gqegqe replied on whether it was the correct decision to amalgamate the three municipalities. SALGA had gone on record saying they were against the amalgamation. The previous SALGA chairperson said that it was "putting their graves together". SALGA had denounced the prospect of the proposed new municipality to be viable and sustainable. A big factor is that of geography – which is a political factor. Some municipalities are battling to perform in terms of revenue. The disparity is based on the structural limits of the economy and the revenue base is a problem. The second issue is that in the proposed restructuring framework there needs to be sufficient funding once a demarcation has been finalised. SALGA proposes that there should be recognition of historical challenges of municipalities – for example, the debt owed to various entities by disestablished municipalities. SALGA has argued that it is not an amalgamation; it is a creation of a new municipality – therefore, historical debt should be cleared so that the new municipality can start from a better position.

Mr Gqegqe replied that it was overreach on his part to comment on whether this municipality has prospects of being viable and sustainable. However, SALGA is of the opinion that had the municipality’s historical debt been cleared, it would have started from a better position and some of the current challenges would not have developed. One issue that needs to be attended to is Eskom has been allowed to create more problems for municipalities all these years. Eskom is financially punishing municipalities for maximum demand.

SALGA thinks this municipality can be sustainable but what needs to happen is the substantive implementation of a differentiation approach when it comes to providing support to municipalities. Municipalities that have a smaller revenue base must be recognised and whatever support that is provided must consider that reality. The municipalities that have been put together have far less economic activity than other parts of the country, even if they had not been amalgamated, they would still be grappling with the same challenges. One issue which requires the Committee's attention is recognising if a ward councillor in this municipality is presiding over a ward which geographically is much larger than the wards in urban areas. Should we provide a differentiated support for that ward councillor who uses more resources to serve his constituency than a ward councillor in an urban area? He would leave the question of politics to Councillor Stofile.

Mr Lance Joel, SALGA COO, replied about SALGA’s response to the current situation in municipalities and the audit outcomes as announced by the Auditor General recently. He wished to indicate what SALGA has done since the Auditor General's announcement of local government audit outcomes in July 2020 and what is likely to unfold over the next couple of months. SALGA was not surprised by the results as it had engaged extensively with AGSA prior to the formal announcement. On the same day SALGA issued a statement, available on the SALGA website. The first key emphasis is on extracting accountability and consequence management. This is central to SALGA’s approach to dealing with the audit outcomes going forward. This pertains to the questions raised in this meeting and the meeting in Polokwane. The SALGA NEC directed SALGA to conduct its own analysis and directly engage with each municipality. Direct engagement must be treated through customised letters based on each municipality’s audit outcome. SALGA is enquiring on key aspects of these audit outcomes with a focus on getting the municipalities to provide SALGA with their audit action plans. SALGA will assess these plans on a quarterly basis through its partnership with National Treasury and COGTA. Secondly, SALGA NEC engaged with AGSA on 13 August. Following this engagement, SALGA has requested two critical pieces of information needed to approach audit outcomes.

Firstly, SALGA had requested information on municipal staff and councillors who are conducting business with the state. SALGA requested what municipalities these officials are in and in what capacity have they done business with the state. This will be used to supplement the letters that SALGA has sent to mayors. Municipalities will be requested to give SALGA an understanding of how they intend on dealing with these instances. Secondly, SALGA requested information from AGSA on the use of consultants in municipalities. SALGA wishes to know from AGSA who these consultants are who are providing services without any positive impact being seen. SALGA met with the South Africa Institute of Chartered Accountants (SAICA) two weeks prior and discussed how to hold SAICA members accountable who are municipal staff members or consultants. SALGA asked SAICA how it holds its members accountable for what these members do in the municipal space. SALGA wants to know how SAICA intends dealing with SAICA members identified by AGSA as having a negative impact on municipalities. National Treasury would provide added value to this conversation as they provide a lot of direct support to municipalities.

Mr Bheki Stofile, SALGA NEC Member, reiterated Mr Joel’s point appreciating the Committee driving accountability and consequence management. Four years ago, when Dr Beyers Naude Municipality was established there was no oversight from Parliament to check on the decision taken in terms of its impact and challenges. It has been SALGA’s view that the decision to amalgamate, or the putting together of graves, without human resources support and financial support is expecting miracles. He referred to the comment by Mayor De Vos that the municipality after amalgamation has not had any assistance in providing leadership during the time when it is needed most. The presentation by the Department shows that it is only after SALGA had been demanding that the Department investigate this that assistance has been provided. SALGA feels ignored by COGTA and their concerns go unheard. Former Minister Mkhize understood the importance of going to the municipality and interacting to understand the complexity of the challenges in that area. Where was National Treasury in the process after amalgamation?

Mr Stofile said it was easy to put the blame on the municipality, but the reality was that it was left on its own without help from national government. There was no follow up after the amalgamation and this is the case in other amalgamated municipalities across the country where "graves have been put together". SALGA believes that the work done by the Committee is helping them to understand the details of the challenges faced by the municipality, which helps in all parties working  together in terms of section 154 of the Constitution. Cooperative governance is the answer to the challenges. It was his view that the decision to amalgamate the three municipalities was incorrect and unscientific.

Mr Stofile asked about the role of other departments. Who was supposed to provide financial services to address equalisation and policies in the structure so that you have a municipality that can focus on service delivery? Who was supposed to look out about the Treasury allocation which was far less than the sum given to the three former municipalities? Everyone must ask themselves where the cooperative governance is in this process. On the developmental state, it was as if the state was being punished for developing instead of receiving cooperative governance, planning for the unforeseen, and implementing in the interest of the public. Instead of supporting the instrument, it uses the weaknesses to benefit. He spoke of a serious disjuncture in the understanding of the concepts being employed. One speaks of developmental local government however other state entities operate how they wish in this area. No one is asking the question who is paying Eskom servitudes to municipalities throughout the country. How much money is owed by Eskom to these municipalities since the dawn of local government? These are critical questions.

Ms De Wet said that AGSA noted the comments made by the Committee about the re-submission of the report with the added detail that the Committee requires. AGSA tried to condense the report into the most significant to the municipality. She also offered the disclaimer that there was much that AGSA could not verify. She hoped that addressed the Chairperson’s concern.

The Chairperson said that her concerns were addressed.

Mr Hoosen said that he took the point made by SALGA on systemic problems over the years. However, there is one thing that the Committee cannot forget and that it that the committee’s responsibility to hold elected officials accountable for the work that they have to do. When AGSA says that the leadership of the municipality has failed to implement financial controls, it comes down to the collective responsibility of the leadership in the municipality to implement these controls. So whatever systemic problems over the years, the basics are not being implemented by the leadership. The leadership promises the people results when it is election time but when they come to this Committee there is a list of reasons why they have not achieved these results. Granted the systemic issues are contributing factors, however the greatest contributing factor was the lack of consequences for elected officials. BMLM is a basket case because of the political leadership. He was satisfied with mayor’s response that the R24 million could be accounted for, and that the mayor knows what it was spent on and it would be reported on in this financial year. He asked the mayor to tell the Committee what the balance of the R24 million was spent on.

Mr Ceza asked the Committee to agree that the amalgamation process presented here in this case study characterises the issues of local government. He wishes to know more about the Municipal Demarcation Board (MDB) in terms of its criteria to amalgamate the municipality. Particularly, the capacity assessment the MDB undertakes to fulfil its mandate to make recommendations on if to amalgamate the municipality. The Committee should arrange a time for the MDB to explain what informs an amalgamation. He asked for a detail explanation of how this process was meant to bridge the gap between the capacities of rural and urban municipalities. This raises concern about how these decisions are being made in terms of capacity assessment. He questioned if this is a sustainable way for local government go if there are no means to assess historical debt as SALGA has alluded to. The Committee needs to assess this to determine the viability of municipalities. He emphasised that this municipality is at a crisis point as there is no service delivery, no water, and no consequence to the loss of R24 million. He urged the Committee to sit with MDB to understand what informs the decision to amalgamate. He asked how service delivery would be brought about in the context of these amalgamated municipalities. If leadership is suffering in terms of accountable and financial management, then this will not translate to service delivery, in fact it will get worse. The Committee wants to see solutions to ensure viable municipalities. He asked for his questions on unemployment, Eskom debt, and on revenue collection to be answered.

The Chairperson said that given the time constraints the municipality should submit their answers to the second round of question in writing. She applauded SALGA and MISA for being consistent in attending the meetings of the Committee. She agreed that the Municipal Demarcation Board would need to sit with the Committee. She asked for the reasons for amalgamation. She noted Councillor Stofile’s statement about the budget of the three previous municipalities being cut and agreed on this point of limited resources. The information on consultants was requested by Mr Joel from AGSA was also necessary to assist the Committee in their engagement going forward. She expressed her frustration on the lack of emphasis put on cooperative governance, as highlighted by Councillor Stofile, and the misconception that COGTA was the Department of Municipalities, which is wrong. COGTA needs to deal with all three spheres of government not local government alone. The Committee needs to speak to the value chain of cooperative governance and how the Department is responding to that in line with its mandate.

Ms D Direko (ANC) said that although she has concerns about the municipality, she was covered. The Committee is always told the same thing, that when issues are meant to be resolved the excuse is that the municipality is still new and having the challenges. She suggested that municipalities submit a 5-year strategy for their challenges.

The Chairperson ask for the municipality to submit answers to the questions in writing to the Committee. This is the most depressing presentation that Committee has seen since May. The issues raised needed to be attended to as matter of urgency. The Committee would continue to engage with the municipality. She had told Mr Fosi that COGTA needs to give special attention and support. COGTA needs to bring together all stakeholders and public enterprises, Eskom, Water, Sanitation and Human Settlements. The new ministerial team that has been designated as the Champions of the Eastern Cape need to go the municipality and tell the Committee what their assessment is. She suspects that this municipality will be one of those that the Cooperative Governance MEC, Mr Xolile Nqatha, will be presenting on to the Committee. The Committee will continue to monitor this despite its limited resources but there was much to be done. The Committee will find a way to resolve the challenges across the municipality. The position of MPs was not only desktop positions but required checking the realities on the ground. The comrades on the ground are quiet, they succumb, and they suffer. The Committee wants these comrades to comply because they have a lot of legislation with which they need to comply. The Committee shall end this meeting on this note, no matter how depressing it is.

Meeting adjourned.