Maluti-a-Pofong Local Municipality; with Deputy Minister
Cooperative Governance and Traditional Affairs
25 August 2020
Chairperson: Ms F Muthambi (ANC)
The Portfolio Committee was briefed by representatives from the national and Free State provincial Department of Cooperative Governance (DCoG), the South African Local Government Association (SALGA) and the Auditor-General of South Africa (AGSA) on the state of the Maluti-a-Phofung Local Municipality. All of the briefings indicated that the municipality was in a dire state, and much work needed to be done to overcome its shortfalls.
One of the challenges the municipality faced was its poor financial management. An important contributor to this was that it had a low revenue base, as it had been unable to collect electricity tariffs from customers, and several businesses had left the area. As a result, the municipality had been unable to service its substantial R5.3 billion debt to Eskom, and had been unable to invest in its ageing infrastructure. The national and provincial DCoG, with the assistance of National Treasury and the Department of Public Service and Administration, was working on a funding mechanism for infrastructure development in municipalities. This mechanism would leverage the Municipal Infrastructure Grants, and with this additional funding the municipality would be able to improve its wastewater infrastructure and build new boreholes, so that the residents of the community had access to clean drinkable water.
Members raised concern over the municipality’s debt to Eskom, and questioned why the Department had not revoked its right to electricity reticulation. The municipality indicated it had struggled to service its debt due to the high penalties and interest rates that Eskom had charged. It assured the Committee that it would continue to cooperate with Eskom on how it intended to service its debt to the entity. However, municipal debt to Eskom was a national problem, and the Inter-Ministerial Task Team had addressed this with Eskom in their meetings. Both parties were currently looking for a strategy to deal with this matter.
Service delivery had also been disrupted, and many young people had left and continued to migrate from the municipality. It could not be held accountable by the community for its lack of funds, as it had not submitted its financial statements for the past four years. Officials from the municipality said it had struggled to submit its financial statements because it did not have the internal capacity, which was why it had outsourced consultants. Members expressed dissatisfaction that the municipality still battled to submit its financial statements, even though it had spent R20 million on consultant fees, and described this as another sign of the municipality’s poor financial planning. The officials informed the Committee that despite its challenges, it had submitted its 2017/18 financial statements and would submit its 2018/19 and 2019/20 financial statements in December 2020 and February 2021 respectively. It assured the Committee that it would submit its 2020/21 financial statement on time in August 2021.
Two of the presentations indicated that the correct administrative processes for the appointment of both the Chief Financial Officer (CFO) and the Municipal Manager (MM) had not been duly followed. It was alleged by the provincial Department that the municipality had offered the two officials maximum salary packages before it had applied for a waiver from the Minister. There was confusion on whether the municipality had applied for a waiver or not, as it first indicated that it had applied for a waiver with the MEC, and then reported that no waiver had been applied for. Members accused the municipality of lying in Parliament, and said that was unacceptable. They asked the municipality when the two officials intended to pay back the additional money they had received, and how much would be returned. The municipality said that the matter was before the courts, and once it had been adjudicated, the two officials would return the additional money they had received. Members asked the provincial Department to provide a detailed report on the entire process, and if it found that the officials had acted in bad faith, criminal charges should be laid against them. The provincial Department said that the matter had already been referred to the HAWKS, and it would provide the details of the case and a report on the appointment process.
Chairperson’s opening remarks
The Chairperson said the Committee had to consider the findings of the Auditor-General’s (AG’s) report, which indicated that the municipality did not place importance on the submission of financial statements for auditing. The municipality’s last set of audited financial statements was five years ago. This was despite their hiring of consultants to the value of R20 million. The report from the municipality indicated that it was in the process of receiving the financial management letter and the audit report for the 2017-18 financial year. There had been three consecutive years of disclaimers, preceded by a qualified audit report in the 2016/17.
The municipality faced other challenges, such as political turmoil and dysfunctional working relationships, which had led to rapid financial decline. Recently Eskom had attached the municipality’s bank account, as it was owed R5.3 billion.
The budget and the Integrated Development Plan (IDP) were neither responsive, credible or sustainable. There was no asset register in the municipality. With so many challenges, the Chairperson wondered why the Provincial Department did not institute 139(1)(c), given the state of affairs. The intervention had begun in February 2018 and ended in June 2020, but despite the interventions, the municipality could not be held accountable for the lack of funds, due to the lack of the submission of its financial statements. The municipality was still in breach of its financial commitments, despite the intervention.
The Committee had considered whether the Department of Cooperative Governance (DCOG) should invoke Section 139(7) to deal with the challenges faced by the municipality, but had also noted that it had to also focus on the current legislation, to assist in addressing the issues. She urged the Department to table the Intervention, Support and Monitoring Bill to Parliament, so that the Committee could take action. She urged the Department to table the Intervention, Support and Monitoring Bill to Parliament, so that the Committee could deliberate on the Bill.
Current state of Maluti-a-Phofung municipality
Mr Mandla Tshabalala, Member of the Mayoral Committee (MMC): Finance, Maluti-a-Phofung municipality, briefed the Committee on the current state of the Maluti-a-Phofung municipality.
The municipality was situated in the eastern part of the Free State and had a population of 335 784 citizens. Of these, 39.5% (122 745) were between the ages of 15 and 35 years. However, due to the lack of job opportunities, the municipality’s substantial debt to Eskom and the high levels of community unrest, many young people were leaving the municipality. National Treasury had allocated R1.132 million to the municipality to combat Covid-19. A Covid-19 committee had been put in place in March to steer the municipality’s response. So far, it had spent R2.867 million on its Covid-19 response.
Due to ageing and weak infrastructure, the municipality had struggled to provide service delivery to its residents. Frequent electrical outages had had an impact on the local economy, as several industrial companies had abandoned the area, citing unreliable energy supply. Currently, the municipality’s debt with Eskom stood at R5.3 billion. To recover its money, Eskom had attached the municipality’s bank account, following a string of legal battles between the two, beginning in 2013.The municipality also cited its organisational structure and governance as serious problems. Part of correcting the organisational structure included the filling of vacancies within the municipality, the implementation of consequence management, and improving the level of skills and competencies within the current staff complement.
For the past four years, the municipality had failed to submit its financial statements to the AG. It was currently finalising the 2017-18 financial report, and anticipated that it would complete its 2018-19 financial report by December 2020. Financial management planning and implementation at the municipality had been poor. It was currently in breach of its obligations, as it had failed to meet its financial commitments. A minimum of R428 million had been classified as irregular expenditure.
The Chairperson asked that the official from the AG’s office brief the Committee on the municipality’s audit outcomes.
Maluti-A-Phofung municipality’s 2016/17 audit outcomes
Mr Luthando Mbandazayo, Acting Business Director, Auditor General’s Office in the Free State, briefed the Committee on the 2016/17 audit outcomes of the Maluti-A-Phofung municipality. The municipality was last audited in the 2016-17 financial year, as it had not prepared and submitted its financial statements to the AG. It was able to submit its 2017-18 financial year statements only in February this year. For this audit outcome, the municipality had received a disclaimer of opinion in several areas. To improve the quality of its financial statements, the municipality had spent R20 million on consultants, but even with the assistance of the consultants, the quality of the municipality’s financial statements had not improved.
As a result of political instability that prevented service delivery to the residents, the Provincial COGTA Department had intervened in terms of section 139 (1)(b) on 20 February 2018. Significant irregular expenditure had occurred as a result of the lack of supply chain management (SCM) implementation controls. Even while the municipality was under administration, it was unable to provide services to the community. As a result, the national government had taken over the administration of the municipality on 23 August 2019. From 1 April 2020, another provincial administration had been appointed, as the efforts of the previous administration had not yielded any results. It was found that the first administrators had not developed and implemented sustainable systems and preventative controls.
SALGA’s support to Maluti-A-Phofung municipality
Ms Olly Mlamleli, Chairperson: South African Local Government Association (SALGA) in the Free State, briefed the Committee on SALGA’s support to the municipality.
The provincial administration had decided to intervene in the municipality due to four failures --institutional, financial management, governance and service delivery. SALGA had supported the Section 139(1)(b) intervention by the provincial administration and participated in the technical intervention task team and work streams. For instance, it had played a key role in the dispute resolution of the South African Municipal Workers Union’s (SAMWU’s) labour protest. It had also hosted various workshops with the Municipal Public Accounts Committee (MPAC) workshops that looked at municipal reporting cycle, annual financial statements and municipal regulations on misconduct.
After a meeting with all Free State (FS) municipalities on Eskom debt, SALGA had committed to lobby for a review of debt, the provision of a debt write-off, and a review of service delivery agreements (SDAs).
DCoG on state of Maluti-A-Phofung municipality
Ms Silvia Gelderblom, Executive Manager: Monitoring and Evaluation, Department of Cooperative Governance, briefed the Committee on the state of the municipality.
She indicated that the municipality had faced several challenges, which included poor service delivery, poor financial management and governance instability. In light of these challenges, the National Department had decided to invoke a Section 154 intervention, due to the lack of improvement observed during the provincial administration of the municipality. It had been decided in August 2019 that a joint-intervention team would take charge of the affairs of the municipality, in the hope that stability would be brought to Maluti-A-Phofung. A turnaround plan was developed and served as the basis of the task team’s objectives.
The Section 154 was revoked by the Department in June this year, and a new provincial administration was placed in the municipality. The Department was awaiting a close-out report from the task team that would indicate whether the intervention had proved successful or not.
Ms G Opperman (DA) said that over R2 billion of the municipality’s debt to Eskom went back to October 2013. Schedule 4b of the Constitution referred to the constitutional right of municipalities to administer services related to electricity reticulation and domestic water and sewage systems, provided that it was done in an equitable and sustainable manner that was financially viable. If not, either the province or national government could revoke such rights. She asked why municipalities like Maluti-A-Phofung had been allowed to continue to incur electricity indebtedness, and why the Department did not revoke the municipality’s right to electricity reticulation.
Ms H Mkhaliphi (EFF) said that while the presentation made by SALGA had outlined the Labour Relations Act, it had not provided the outcome of strike between the South African Municipal Workers’ Union (SAMWU) members and the municipality. It was appreciated that SALGA had intervened in the matter. She asked for details on the resolution between the two parties.
It had been mentioned earlier by the provincial Department that a team would be sent to intervene at the municipality. She asked why the team would be sent, as she believed that the Committee was awaiting a close-out report from the province on the status of the municipality after the intervention. Having heard from both the municipality and the AG, it was clear that the challenges faced by the municipality had not been solved.
In two of the presentations, it had been shown that the administrative processes for the appointment of the municipal manager (MM) and the chief financial officer (CFO) on 22 March 2020 had not been duly followed. Furthermore, the two appointees had been given a remuneration package at the maximum level for the municipality, as per the Gazette. She asked if this could be explained in detail, as the municipality was struggling to generate revenue, and why it had remunerated these individuals with more than they should have been.
The Committee had not yet been briefed on how the DCoG intended to deal with the challenge of ageing and poor infrastructure. How did it intend to deal with his issue? If it did not attend to this matter, the municipality would continue to struggle with the provision of electricity and water to the community.
Residents of the town of Tseki had mentioned that the water tankers provided by the Department of Water and Sanitation (DWS) were unreliable. At times they were present and at other times they were not. She asked if the Department could confirm the allegations that the trucks supplying the water had been sabotaged.
When she had visited Qwa-Qwa, she had been informed by the community that the municipality’s challenges with Eskom had been there for several years. If this matter was not resolved, it would continue to hurt the community.
She asked if the provincial Department had noted progress in the municipality’s ability to compile its financial statements, as the AG’s report indicated that the municipality had been late in submitting its financial statements once again. To give the Committee a clear picture on whether the Section 139(1)(b) intervention was successful, the municipality’s financial statements needed to be submitted and audited. She asked why the municipality continued to outsource consultants if its ability to compile and submit financial statements had not improved. There had been no improvement despite the fact that the municipality for the past ten years had had a disclaimer. She suggested that all parties -- the municipality, the provincial Department, the national Department and SALGA -- should bring forward a solution to this challenge, as several people had left the municipality in the face of its financial crisis.
Ms Opperman asked SALGA whether the money invested in the municipality (besides human resources) was sufficient to address the issues the municipality faced during administration. She also asked if there was a post-intervention report that was available, and if it indicated that the intervention had proved successful.
She asked how the Department had mitigated the effects of the water crisis in Qwa-Qwa that had been caused by the long-term drought in the area. There should be greater focus placed on the water supply system challenges and the lack of water reticulation infrastructure by the municipality.
She also asked if Wards 28 and 15 still depended on water tinkering, and how far the process of refurbishing the Rangopane pipeline was.
Mr K Ceza (EFF) said that the AG’s report indicated that the intervention had not yielded results, and this was troubling. The provincial Department had not provided the Committee with a report on its turnaround strategy for the municipality and whether it considered if the intervention had been successful. He suggested that the report had not been provided because of the political infighting and the narrow interests of the provincial Department to use the administrators to steal from the public purse. This was disappointing, and he proposed that where there was a problem of this nature in the municipality, Section 159 (1)(c) must be invoked to allow for new elections to take place. This would provide members of the community the opportunity to hold their leadership accountable. This would also prevent the re-circulation of the same leaders within the municipality.
He asked what had happened to the R240 million that had been allocated by the DWS to the municipality. If it had been lost, who was responsible?
The municipality should have the internal capacity to investigate the reasons for its inability to compile and submit its financial statements on time, and it should not have to outsource the assistance of consultants to assist with this. He suggested that there was corruption involved in this.
He asked if there was a Municipal Public Accounts Committee (MPAC) report on the appointment of suppliers to the municipality without following due process, and if there was a report on the companies that were not part of the central database of the municipality.
Ms Mkhaliphi said that there was a video circulating, where a large number of people had gathered on a Saturday in Qwa-Qwa, despite the laws and regulations prescribed by the National Disaster Act. She asked if the Committee could be provided details on this, as people could not be seen to be disobeying regulations set by the government.
Mr H Hoosen (DA) said that there was a common thread of poor financial management in municipalities that were brought before the Committee. This poor financial management had had an effect on service delivery. It was difficult to refer to Maluti-A-Phofung as a municipality, as it did not provide basic services such as water and electricity, there were cases of irregular expenditure, and it could not collect revenue.
The municipality had not informed the Committee what illness the absent Member of the Executive Council (MEC) had. He recommended that in future, if the political heads were not available, the Committee should postpone the meeting, as their absence made it difficult for the Committee to conduct its oversight mandate.
He was pleased that the DCoG decided to intervene in the municipality. He asked if the national Department could provide five areas which indicated that there had been progress in the state of the municipality. What were the areas that the Department was focused on improving, and the timelines of when it expected improvement in each area? If there was no improvement shown, the Committee would continue to receive reports from the AG indicating poor financial outcomes. It also seemed that no one took the findings and recommendations of the AG seriously. The municipality should prioritise improving its financial management, and then it would be better capacitated to perform its functions.
He asked how many municipal officials had been found to be doing business with the municipality, and how many had faced disciplinary action, as only disciplinary action would strengthen discipline and accountability.
He proposed that quarterly reports received from the DCoG on troubled municipalities should include progress reports on these municipalities to ensure that there was regular feedback for the Committee.
The Committee should not be surprised that many young people were relocating from the municipality, as governance was failing, and business was not attracted to investing in the area. There was nothing that the municipality had to offer, and this would only increase if the issues raised were not dealt with.
The municipality’s presentation had indicated that cases of irregular expenditure were in front of the courts. Could they provide details on how far the process was, and the reasons for charging the officials?
Mr I Groenewald (FF+) agreed with Mr Hoosen that if the Executive Mayor was not present, this exercise was futile. He wanted to address the Executive Mayor on the obligations set by Article 21, Section 52 of the Municipal Finance Management Act (MFMA).
He asked why the municipality’s liquidity ratio had worsened whilst it was under administration, and whether there had been public participation on the IDP and the budget for the 2019-20 financial year.
Had the municipality engaged the province on the outstanding debt of R200 million owed to it by the other organs of the state?
If the municipality was still struggling with submitting its financial statements after three years, then it was in serious trouble.
In light of Covid-19, hygiene and access to water was important, but this was not possible for the community as the municipality’s sewage infrastructure was in a poor state. Residents were subjected to inhumane and constant health hazards, such as abattoir waste (including animal blood) that flowed into the river. He asked what the municipality’s plan was to address pollution that was caused both by poor maintenance and the lack of action by the municipality.
Mr B Luthuli (IFP) asked why the Department had taken so long to intervene at the municipality. What measures did they have in place to prevent the theft of electricity cables? In the presentation, it had been mentioned that provincial executives were considering entering into a performance agreement. As there was an administrator at the moment, he asked why there was no performance agreement that had been agreed to between the municipality and the administrators.
Ms D Direko (ANC) asked what had prevented the municipality from submitting its financial statements on time to the AG.
She also asked when it would fill the three vacant director positions, and why it had taken this long to appoint someone who was responsible for town planning, as the municipality had faced challenges of water shortages and pollution.
Could the province confidently state that it had assisted the municipality, and whether the municipality was able to perform its tasks without further intervention?
The report presented had indicated that the municipality was technically bankrupt. How did the province plan to assist the municipality with financial relief and its consequence management?
The Chairperson asked for the municipality to provide the qualifications of the senior management team, particularly the financial officials. There was clearly a shortage of skills if the municipality still planned to utilise consultants, even with the AG finding that this had offered no improvement.
She asked for a figure on the additional amounts paid to both the MMC and the CFO on top of their salary packages.
Could the municipality provide a breakdown on the irregular expenditure flagged, and what consequence management had been imposed to address the problem?
As interviews with public officials were of public interest, why would the Executive Mayor and the Speaker have to be paid R10 000 each for an interview? The municipality had paid R70 000 for advertisements on the radio, at a time when could not ensure that there was safe and drinkable water for its residents. This seemed to be reckless spending on the part of the municipality.
Despite the joint Section 139(1)(b) intervention, the municipality’s debt to Eskom had increased significantly. She asked if this mechanism had produced positive results in other areas. What exactly had the national and provincial Departments tried to achieve with their interventions at the municipality?
She asked if Eskom had a role to play in South Africa’s developmental state agenda. If it did, why was it allowed to punish communities by charging municipalities for the maximum demand while they were trying to develop their communities? Why had it been allowed to charge uncontrollable rates to the municipality?
She asked the municipality to provide a breakdown of its R5.3 billion debt to Eskom so the Committee could analyse the impact of the maximum demand, and compare it to global figures.
To refurbish its water infrastructure, the municipality required millions of rands. It was fair to say that this was not what a municipality was supposed to look like. Could the provincial Department point to some of the achievements of the intervention, since it had been nearly a year since the new administration had taken charge? One should question whether the municipality should be trusted with its funds -- including the Covid-19 funds -- as it had displayed poor financial management.
She asked if the Committee could be furnished with a medical certificate for the Executive Mayor’s absence.
Mr Parks Tau, Deputy Minister, Department of Cooperative Governance and Traditional Affairs, said that in the past two weeks there had been bilateral discussions between the Department and the Department of Public Service and Administration (DPSA) on the Intervention, Support and Monitoring Bill. However, as the DPSA intended to introduce a similar bill -- except that it focused on Section 100, which dealt with interventions in provincial governments -- both had to resolve the overlapping features of the two bills. Further meetings were scheduled to deal with this matter, and the Department would update the Committee in the future.
As indicated in the presentation, the national Department had decided to support and supplement the Section 139(1)(b), which included assisting the province in reinforcing the administration’s team of administrators. Progress had been observed, and the Department had received the close-out reports from the previous administrators and the MM that had been assigned. A new administrator had been appointed in place of the previous MM, who had been appointed as a Deputy Director-General in another government department. Prior to his resignation, an initial extension had been granted, and he had completed his tasks. The municipality had initiated a process to recruit senior management before the MM vacated his position. This included the positions of CFO and MM, which were filled earlier this year.
The intervention had been revoked in June, and the Department had asked for the provincial Department to provide the close-out report, but it had still not done so. He clarified that Section 139(1)(b) was a prerogative that could be implemented by the province. The national Department would consider invoking Section 139(7) only once it had analysed the close-out report. However, the Department was concerned by the both the performance and state of governance in the municipality.
The first reason that the national Department had intervened was to stabilise the governance environment within the municipality, as the municipality did not have either a functional Mayoral Committee or Council in the previous year. Second, to ensure that the new elections could be held to fill in the vacant ward councillor positions.
The Department had partnered with other departments to assist the municipality with its challenges of service delivery. During the height of the administration, they had been able to procure vehicles to enable improved repairs to, and maintenance of, municipal services. With the provision of water tankers to the community, the Department had noted that there had been progress in dealing with the municipality’s water shortages.
Currently, the Department was working on a funding mechanism with the DPSA, the provincial Department and National Treasury, which would fund infrastructure projects in municipalities. This would leverage the municipal infrastructure grants (MIGs) that had been introduced. The focus would be placed on improving the quality of the treatment plants. A project plan had been developed, and the Council would be sitting soon to adopt the plan. Discussions had taken place on how to improve revenue collection within the municipality and identifying the challenges of revenue collection. A Smart Meter initiative, which included prepaid systems, would be rolled out with the assistance of the Department of Mineral Resources and Energy (DMRE) and Treasury, but these interventions had been delayed because the Department had still not received the close-out report.
Both the provincial and national Departments had supported the bilateral discussions between the municipality and Eskom to deal with the debt owed. The inter-ministerial task team on Eskom was focused on municipal debt, and debt owed to municipalities. With the assistance of SALGA and other government departments, the municipalities had been given support to deal with their challenges. It had been recommended that there should be the appointment of an ombudsman-type individual, who would deal with disputes in municipalities. The Department would provide an update to the Committee on the details of the close-out report.
Free State COGTA
Mr Mokete Duma, Head: Free State COGTA, said that during this financial year, the provincial Department had provided R13 million to the municipality for it to deal better with its audit turnaround strategy. The R13 million had been allocated in the previous financial year, but in two tranches of R8 million and R5 million, to deal with water related challenges. As a result, the municipality had been able to erect 25 boreholes.
The Department committed to provide a separate report to the Committee on the municipality’s debt to Eskom, as the details were extensive. Before the Inter-Ministerial Task Team intervened on issues relating to Eskom, the entity had used to charge municipalities 5% interest after the 15th day of each month. The Department had taken issue with this, as Eskom was a government entity that should comply with the Public Financial Management Act (PFMA), which prescribed that once an invoice had been received and proper process had been conducted, it must be paid in thirty days.
In 2014, the then Presidency had rolled out an electrification programme in areas which had no access to electricity. This included Maluti-A-Phofong -- only Phutaditjhaba had access to electricity prior to the rollout. When the electrification programme was rolled out in the municipality, there had never been a process for the municipality to review their agreement with Eskom. Once the 36 villages in the municipality were provided with electricity, Eskom’s capacity was strained, and it had to impose penalties of +5%. This penalty had been reduced, and was now fixed at 2.5%. He indicated that the Department’s report would include the consumption, MMD and interest, and he hoped that this would show that the municipalities were not negligent in servicing their debt to Eskom.
The Department had assisted with the municipality’s infrastructure master plans. Both the Department and the municipality had identified models to assist with the municipality’s challenges. The Council would sit tomorrow to discuss the master plan, and a proposal would be presented and discussed with the DCoG on 2 September. The Private Service Plan (PSP) focused on the rollout of smart meters, the prevention of electricity cable theft, and improved of wastewater infrastructure. There were eight wastewater treatment plants in the area, but none of them was functional and this had allowed pollution in the Vaal and Wilge rivers to increase.
Referring to the delay in the submission of financial statements, he said that in July 2017, the municipality had taken a decision to write-off R758 million in municipal debt without conducting a quality assurance exercise. This meant that consumers who were able to pay had their accounts written-off, which had decreased the municipality’s revenue. During the administration, the Department had reinstated the accounts and ensured that the community was billed.
Currently the HAWKS were investigating a contract where a service provider had been appointed and been paid R9 million instead of the R5 million stipulated. The subsequent confiscation of files and computers by the sheriff had also contributed to the municipality’s delay in the submission of its financial statements.
He said that the R140 million had not been deposited with the municipality, as promised by the Minister of the DSW.
There was consequence management at the municipality. The previous report of the Department had indicated that the some of the previous SCM officials were facing charges, and the Department was waiting for the court outcomes. Disciplinary processes involving certain staff members were under way. He agreed with the Deputy Minister that a close-out report would indicate whether the intervention had yielded results.
The Chairperson said that whilst the Committee appreciated the progress made, it had taken note that the municipality’s debt had increased from R3.2 billion to R5.3 billion during the administration. This created the impression that not only had the intervention not worked, but it had actually worsened the state of the municipality.
Maluti-a-Phofung Local Municipality
Mr Tshabalala said that a medical certificate for the Executive Mayor’s absence would be provided to the Committee.
The municipality did not have proof of the alleged sabotage of truck drivers in the Tseki area.
The municipality had identified a number of officials who had done business with the state, and this had been reported to MPAC. Once they had concluded the investigation and presented it to Council, a report would be provided to the Committee.
A festival had taken place over the weekend, and the municipality had received a report from the South African Police Service (SAPS) indicating that a number of people had been arrested.
There were cases of corruption within the municipality that were currently with the courts. Recently, court subpoenas had been submitted to employees who would act as witnesses in September and October.
The municipality had not had face-to-face contact consultations for the IDP because of Covid-19, but it had advertised through the media and had had online communication with stakeholders.
Council had planned to sit and discuss the PSP document. During this sitting, the turnaround strategy would be presented, and it would include the municipality’s severance programme.
It was true that the R140 million promised to the municipality by the DWS to pay the contractors of Sedibeng Water had not been provided.
The municipality would address the matter of the three director vacancies in the Council, and afterwards would begin the advertisement process for the positions.
All the interventions and costs related to the municipality’s water challenges could be found in the presentation.
The appointment of consultants had been related strictly to the unbundling of the asset register. The CFO would explain what this meant. Under normal circumstances, the municipality was against the outsourcing of consultants. Since the appointment of the CFO and the MM, the compiling of financial statements had been done internally. Due to the backlog, the municipality had been unable to submit its financial statements on time. Financial statements for the 2018-19 financial year would be submitted in December and the financial statements for the 2019-2020 financial year would be submitted in February 2021.
The municipality was still awaiting the final audit report for the 2017-18 financial year so that it could create a final audit reaction plan. To settle its debt with Eskom, it had signed a service maintenance agreement (SMA), which tasked it to deliver 100 bulk users who would pay directly to Eskom. There were 140 registered electricity users in the municipality, and only an average of 20 000 customers who had paid their electricity bills. This was a problem, as the municipality was using more electricity but collecting less revenue. The municipality had tried to correct this matter, but had faced challenges. For instance, the municipality had received a report that in Tseki, the auditors had been chased away by business people.
Both the CFO and MM had been appointed according to the advert issued by the national administration. Their salary packages had been characterised into minimum, midpoint and maximum. To qualify for maximum, the individual had to have a degree and at least 10 years’ experience. The current MM had two Master’s degrees and had 20 years’ experience. The CFO had an accounting degree, a national diploma in accounting, an MBA and 27 years’ experience. Both exceeded the requirements. The Executive Mayor had had to enter into negotiations with Council, and during these negotiations it had been decided that they would be remunerated at the maximum salary package. The rural allowance was not included in this amount.
Ms J Mazinyo, Chief Financial Officer (CFO), Maluti-a-Phofung municipality, said that the current bill ran from 2013. The average consumption of the municipality ranged from 65 million to 100 million kWh. This was due to the illegal connections in Qwa-Qwa. Only 20 000 customers paid their electricity bills, so revenue collection was low.
Eskom was charging the municipality penalties on the Notified Maximum Demand (NMD), which ranged from R284 000 in February 2013, to R4 million in August. The penalties had continued to increase over the years, as it had imposed a penalty of R7.4 million in June of this year. In the 2019-2020 financial year, the interest charge had increased to between R25 and R45 million -- the bulk of it debt service penalties and interest. The municipality estimated that interest charged ranged from R60 million to R100 million. Following an agreement reached between the municipality and Eskom, the municipality had paid 20% of their collection to the entity. Collection had been done up until June 2020, but it had contributed very little to settle the debt.
The municipality had recognised that it had reached its maximum demand with Eskom. On 27 May, the municipality had had a meeting with Eskom where it had requested three months to draw up a payment plan. On 16 July, after the receipt of the equitable share, over R2.5 million had been paid in June, bringing the total amount paid to Eskom to R72 million. However, on 17 June, the papers had been filed to attach R134 million of the municipality’s account.
The municipality had entered into a service level agreement (SLA), where Eskom would install 100 large power users, which should contribute to the monthly consumption of the municipality.
The AG had classified the municipality’s transactions in the 2016-17 financial year as irregular expenditure, as not all the proper processes had been followed. The municipality would not be able to present a document of each supplier used in the 2017-18 financial year, as it was extensive. Internal audit had performed an ad hoc audit to find cases of irregular expenditure in the 2019/20 financial year. An independent audit section had been provided with the asset register to confirm its accuracy.
The municipality was dealing with the challenge of late submissions of financial statements. The 2017/18 financial statement had been submitted, and the 2018/19 financial statement would be submitted on 10 December because it had to consolidate it’s the financial statements, and this would be finalised on 10 September. At the end of August 2021, the municipality would submit its 2020/21 financial statements. In line with section 133 of the MMFA for late submissions, it had submitted the reasons to Council for late submission, and this would be provided to the AG and the provincial Treasury.
The 2017/18 financial statements had been submitted without an asset register, as the municipality had used the disclaimer approach, and this would be used in the 2018-19 financial statements as well. The 2019/20 financial statements would include the asset register, as the municipality was at the adjudication stage for the service provider to unbundle its assets. The unbundling of assets required the municipality to have financial and technical expertise. This process would be finalised with working documents that would be submitted to the AG.
Mr F Mothamaha, Municipal Manager: Maluti-A-Phofung Local Municipality, responded to the issues in Kopane and Tseki. He said that Sedibeng Water had been able to attend to a pipe that had burst. A large borehole had been identified to provide water to the people of Tseki.
Mr Tshabalala clarified that a payment of R10 000 was not paid to the Mayor, but had been paid to Qwa-Qwa Radio for its slot. This station had been used because it had many listeners.
The Chairperson said she had not received a proper response on the question of salaries paid to the MM and the CFO. It was not proper procedure for the officials to have been paid rural allowances. She asked the provincial Department to explain this.
She was surprised that the municipality paid the radio station R20 000, instead of using this money for other measures to assist with Covid-19.
Free State COGTA
Mr Duma said that once the matter of salaries had been brought to the Department, he had personally written a letter to the MM advising that the salaries paid were inconsistent with the regulations. As Regulations 17 of 2014 had been nullified by the court in 2019, the Minister had issued interim measures which stated that only the Minister could approve a waiver. Thus, he had advised the municipality to submit an application to the Minister for a waiver for why the salary package should be placed at the highest level. In discussions with the MM, he had been assured that the municipality would follow this process, but to date he had not received a response on whether this had been done. If the Minister approved the waiver, the officials would be paid in retrospect to when they had first been appointed.
The Chairperson asked what the amount of the additional funds paid were, and how long the two officials had paid themselves prior to approval from the Minister. This had been done in gross violation of the regulations. She asked what steps had been taken by the MM and the Council to address this issue.
Ms Mazinyo said that in line with the Local Government Municipal Systems Act of 2000, section 57, a person appointed as a manager directly accountable to the MM may be appointed to that position only in terms of a written employment contract, and subject to entering into a performance agreement within 60 days with the Accounting Officer. This did not apply to her. When they were appointed, the municipality was still under administration. As such, the CFO had been requested to enter into a contract with the administrator. As Section 139(1)(b) did not give the province all functions, she had indicated to the administrators that the MM was being appointed, and the CFO must enter into the performance agreement and negotiate her salary with the Accounting Officer in line with the Act.
The Chairperson asked for clarification on whether the MM had been appointed by the Council in line with the Act. In the advert, there had been a specific salary package, yet the CFO had been paid more than what was listed. She asked that they clarify how much extra they had paid themselves, and for how long, as this was wasting the time of the Committee. When would the money be paid back? How much had the CFO paid to the MM?
Ms Mazinyo said she had to give background information to provide clarity. The specifications on the advert were clear, and the CFO had negotiated with the MM on her salary package level. Subsequently, she had been offered the maximum salary package provided by the municipality, which was in line with the advert in the City Press. The MM had negotiated with the Executive Mayor and was paid accordingly. Once the court had adjudicated on the matter, she would pay back the amount.
The Chairperson said that it was against the law for both officials to have negotiated with one another, especially as the CFO and the Accounting Officer had an obligation to advise Council. She asked if the Council had provided a resolution to that effect.
Ms Mazinyo said that Council had provided that resolution, which adhered to Section 57 of the Municipal Structures Act. The Gazette had been signed by the Minister on 20 March 2020.
The Chairperson said that the Committee was aware of the Gazette, and asked if she had received concurrence from the Minister.
Ms Mazinyo said that the Gazette did not state that she had to obtain approval from the Minister. However, she had received approval of the concurrence from the MEC.
The Chairperson asked that the provincial Department clarify this matter, as two different accounts had been provided to the Committee.
Mr Duma said that the MEC did not have the authority to concur on a waiver, only the Minister. The MEC acknowledged the receipt of the application. That was why the Department had informed the municipality what documents needed to be compiled for the Minister to consider the application.
The Chairperson asked why the CFO had said that the MEC had approved the concurrence. She informed her that lying to Parliament was a criminal offence. She again asked why the two officials had paid themselves without an approval of the waiver.
Ms Mkhaliphi said that the two officials should provide the proof to the Committee on how much each was paid.
Ms Direko was surprised that the municipality was unable to differentiate between concurrence and acknowledgement. In the face of this, how could the Committee be sure that the exercise of reading the legislation would assist the municipality?
As the two officials had robbed the municipality, how could the Provincial Department be certain that the decision to revoke the Section 139(1)(b) would benefit the municipality? She asked when the two officials would pay back the money.
Ms Mkhaliphi said that the two officials had treated the Committee as a playground, whereas this was a space to provide oversight on behalf of the citizens of the country. It was unacceptable that the CFO had said that she would pay back the money only once the court had adjudicated on the matter. There were court cases pending for the former CFO, the MM, the Director of Public Safety and the finance manager. Each had been charged for abuse of power in the municipality. It was unacceptable that a new official had conducted herself in the same fashion as her predecessors. She asked when the provincial and national Departments would file charges against both officials, as the Committee was exhausted with people hiding behind court cases. The official had clearly lied to the Committee, but she was pleased with the fact that the Committee was united on this issue. The officials should inform the Committee when they intended to pay back the money, and how much would be paid back.
On the challenge of the water infrastructure, she asked for timeframes on when the boreholes would be functional. She was pleased that the provincial Department had indicated that it would provide a report on the electricity situation at the municipality. She asked when the Department would return before the Committee again.
The Department should not have waited for a response from the municipality, as it had to be seen to be proactive in the fight against corruption. She hoped that the Deputy Minister had taken note of this.
Mr Hoosen agreed with the sentiments of the other Members. If an individual was paid what he/she was legally not obliged to receive, it was fraud. He asked that the provincial Department commit to laying charges of fraud against both officials. He also asked if the officials could provide details of the MEC’s alleged concurrence on this.
Mr Ceza said that strong and visible action must be taken against the two officials by either the municipality or the provincial Department. It was clear that the municipality did not have the capacity to report on the conditions on the ground, as previous visits to the municipality had indicated that nothing had been done.
The AG’s reports had found that in the Metsimaholo municipality, R2.7 million had been spent to build a sports ground, but to date only a fence had been erected. The EFF had opened a case against the individuals who were alleged to be responsible for this matter. Irregular expenditure and corruption were not challenges faced only by Maluti-A-Phofung, but by all municipalities in the Free State. The Committee must continue to hold such individuals accountable.
Mr Luthuli asked the municipality if the advert had indicated the salary package per annum of both posts.
The Chairperson asked the municipality to provide the Committee with a document including all the details, as there was no privileged information when public officials were present in Parliament. She asked when the two officials would be charged by the municipality. She expressed disapproval that the two officials had paid themselves before they had approval from the Minister. The Executive Mayor should have been present so that the municipality could be held to account. If the municipality faced such challenges, then it should have been placed under Section 139(1)(C).
Mr Duma said that this matter had been reported by the last administration to the HAWKS, and the Department would provide the details of the case to the Committee.
The Chairperson asked officials from the national Department if they had received the documents for the waiver application and if it had, why it had not responded. She asked the MMC how these acts had been permitted under his guidance.
Mr Tshabalala said the municipality had been guided by the advert to determine how much should be paid to the officials. The municipality committed to engage with the provincial Department after the meeting on the disagreements over the payments advanced, and their interpretation of this action.
The Chairperson said that there had to be approval by the Minister for the municipality to have placed the two officials on any salary package level -- low, midpoint or maximum. She asked that the officials from the municipality refrain from misinforming the Committee.
Mr Tshabalala asked if the Committee could assist the municipality with the interpretation of the regulations that dealt with the different salary levels, as it could be that they had misinterpreted them. He said that the municipality would share the Gazette with the Committee.
The Chairperson asked why the municipality did not ask the provincial Department for guidance on the regulations. She asked if the municipality disputed whether it was supposed to get approval from the Minister, prior to assigning the officials to the maximum salary level.
Mr Tshabalala said that the municipality was not disputing this issue.
The Chairperson asked how the MMC had allowed this to occur under his watch.
Mr Tshabalala replied that when the municipality paid the officials, it had been guided by the Government Gazette of April 2020. There were three levels of remuneration of senior managers.
The Chairperson said that the Gazette could not be read in isolation. She asked again how much they had been paid, from their appointment in April.
Mr Hoosen asked why it was necessary for the CFO to write a letter of concurrence to the MEC. It was clear that they required concurrence, notwithstanding the Gazette, so it was not true that they had relied only on the Gazette.
Ms Mkhaliphi agreed with Mr Hoosen’s point. She asked the provincial Department to explain how it intended to deal with the provincial administrator who appointed the two officials, as he was still on the payroll. She suggested that he should face disciplinary charges.
The Chairperson asked that the two officials provide the exact figures that they had paid themselves so that it could be on record. In the following meeting, the Committee would address the matter of concurrence with the MEC.
Mr Mothamaha asked the Chairperson if the response could be provided in writing. either that afternoon or the following day.
The Chairperson declined the request, as the officials should have had the details on hand to provide to the Committee. She suggested that the officials were not taking the proceedings of Parliament seriously.
Ms Mkhaliphi said that no preparation was needed -- the bank notifications could be found in their SMSs. Members preferred that the details be provided to the Committee during the meeting.
Mr Mothamaha indicated that his package, as per the Gazette, was R1.9 million per annum, and the CFO’s was R1.5 million per annum.
The Chairperson asked if these were the revised figures.
Mr Mothamaha said that these were not the revised figures.
The Chairperson asked what amount the two officials had been paid before they had submitted the letter of concurrence to the MEC.
Mr Mothamaha said, under oath, that neither he nor the CFO had submitted a letter of concurrence to the MEC.
The Chairperson asked that the provincial Department clarify this discrepancy, since the municipality had denied submitting the letter of concurrence to the MEC. She also asked that the provincial Department provide details of the whole process.
Mr Duma said that once the provincial Department received the documents from the municipality, it had advised it that the Department required an employment contract, a performance contract, a council resolution, the number of applicants, and the outcome of the assessment results. The documents should also include the Executive Mayor’s letter to request a waiver to pay them at the maximum salary level. The Department was yet to receive the documents. The previous administrator was on record of advising them on the steps they needed to take. During the meeting, the administrator had indicated to the Department that he had received a WhatsApp from the CFO, asking where the concurrence was.
He committed to providing all of the details in writing to the Committee. He added that he believed that this was a case of both negligence and defiance from the municipality.
The Chairperson said that the two officials had lied to the Committee, and it would deliberate on this issue further. The Members of the Committee should send a strong message to the officials. She asked the DG to provide a response on this matter.
Mr Hoosen said that the CFO had not answered follow-up questions posed by Members. He asked if the municipality could upload a document of the information on the screen.
The Chairperson indicated that it was futile to continue with the meeting, as the officials were not cooperating with the Committee.
Ms Mazinyo said she would not be able to upload the document because she experienced technical issues with her computer. She added that she paid herself at R1 596 747 million (the maximum salary level) per annum. This amount had been paid since April 2020. She had not signed a different performance agreement. The Municipal Manager had been paid at R1.9 million per annum, which was also the maximum salary level.
The Chairperson asked what the officials had been offered by the municipality before they negotiated for a higher amount.
Ms Mazinyo said that she had accepted the amount of R1 596 747 million.
The Chairperson asked why the municipality had applied for concurrence.
Ms Mazinyo said that she had not applied for concurrence from either the MEC or the Minister.
The Chairperson asked that she give the meeting the decorum it deserved. She asked her if she disputed the provincial Department’s version of events.
Ms Mazinyo said that concurrence had been applied for by the administrator, and not by the municipality.
The Chairperson accused the CFO of lying to the Committee, and asked what the provincial Department thought about her version of events.
Ms Mkhaliphi asked why the MEC was not present at the meeting.
The Chairperson said that he would attend the following meeting.
Mr Duma said that it was true that the administrator had advised them on what they should do to apply for the waiver. The administrator had said that the performance contract and the employment contract were missing. He had provided the evidence of the WhatsApp message sent by the CFO and the details of this whole process to the Chairperson of SALGA and the national Department.
The Chairperson added that the municipality had stated that they had offered salaries at the maximum salary package level.
Mr Duma said that after the administrator had indicated that the officials were paid at the maximum salary level, he had advised in his letter that only the Minister could approve this. No response had been provided to the provincial Department. That was why the administrator had referred this matter to the HAWKS.
The Chairperson asked if the two officials of the municipality denied the testimony provided by the provincial Department.
Ms Mazinyo denied this under oath.
The Chairperson asked the national Department if it had received the waiver application.
She reprimanded an official from SALGA for disrupting the meeting. She asked that the official log off from the meeting, and indicated that the Committee would address this matter with her superiors.
Mr Luthuli proposed that the amount of R1.5 million that had been advertised must be paid to the CFO from next month, instead of the maximum that she received.
The Chairperson clarified that the R1.5 million was the maximum salary level that the CFO qualified for, and the municipality was refusing to divulge the minimum salary advertised.
Ms Mkhaliphi agreed with the Chairperson’s proposal to adjourn the meeting. The Committee would use its powers to deal with the two officials at a later stage.
Mr Hoosen agreed that meeting should be adjourned.
Mr Groenewald also agreed that the meeting should be adjourned.
Ms Direko voiced her support for the meeting to be adjourned.
Mr Duma confirmed that the documents required by the Committee would be provided in the afternoon.
The Chairperson asked if the national Department could confirm whether it had received an application for a waiver from the municipality.
Mr Manyedi Nkashe, Executive Manager: COGTA, said that the Department had not received the waiver application from the municipality.
The Chairperson asked that guests in the meeting should refrain from disrupting the Committee’s meetings. She requested that at the evening meeting, the national Department provide the Committee with an update on whether it had received a waiver application from the municipality. The Committee expressed its disappointment in the actions of both the CFO and the MM of the municipality, especially as the municipality was distressed.
The meeting was adjourned.
Muthambi, Ms AF
Bapela, Mr KO
Ceza, Mr K
Direko, Ms DR
Groenewald, Mr IM
Hadebe, Mr BM
Luthuli, Mr BN
Mkhaliphi, Ms HO
Opperman, Ms G
Tau, Mr MFP
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