Department of Local Government Audit Outcomes & 2019/20 Annual Report, with Minister

Meeting report

The session between the Committee and the Auditor-General of South Africa (AGSA), at the beginning of the meeting, was closed to the public.

The Chairperson welcomed Members of the Committee, the Office of the Auditor-General and the audit committee of the Department of Local Government. He expressed appreciation for the Minister and the Department taking the time to appear at the Committee and assisting it in fulfilling its oversight role.

Opening remarks

Mr Anton Bredell, Western Cape MEC of Local Government, emphasised that the Department had been facing a tough time for a while, and the current difficulty in which the Department found itself could not be isolated from what had happened in the past few years. Since 2017, the Department of Local Government had to deal with drought, fire in Knysna and COVID-19 in this year. Despite all these challenges, he commended the Department’s work and said it had set a good example for local governments to follow. He expressed his appreciation to his team for helping to rebuild the province.

Mr Graham Paulse, Head of Department (HOD), reaffirmed the negative impact of the ongoing drought, as well as the COVID-19 pandemic, on the province. Some targets had been achieved only partially due to various reasons. Overall, 94% of the targets had been achieved. Among some of the achievements, the HOD outlined a few, such as:

• The Department had helped and supported local governments at municipal level to build capacity to improve their service delivery;
• It had adopted a set of methodology to assist municipalities in their governance ability in order to improve service delivery standards;
• In January 2020, 15 fire-fighters from the province had received training on wildland fire-fighting skills;
• The Department had implemented a gender mainstreaming initiative to strengthen democracy;
• It had piloted the Crimes Service Charter in Prince Albert, and was about to roll it out in areas such as Swellendam, Oudtshoorn, etc.

Mr Paulse concluded by saying that this coming year would also be a difficult year for the Department, as the country was approaching local government elections.

After the Minister and the Head of Department had made their remarks, the Chairperson indicated that this meeting would be dealing with only Sections C and E of the annual report.

Part C: Governance

Mr D America (DA) congratulated the Department and the role that the Minister had played in obtaining a clean audit. He said that the Department was clearly well-run.

Regarding the risks which the Department was facing, he had noted that municipal finances were strained due to the declining economic climate, as well as the COVID-19 pandemic. As a result, ordinary tax payers were struggling to meet their obligations. As he was aware that municipalities often had a smaller budget compared to other governmental departments, he asked the Department what initiatives were in place to identify and assist municipalities that were experiencing financial hardships.

Mr America emphasised the importance for municipalities to engage with citizens. He therefore wanted to know how the Department had facilitated municipalities to navigate the challenges of the lockdown and the engagement between municipalities and communities in terms of municipal service delivery. For instance, although the Department mentioned its accomplishments in the past, he reminded it to be mindful of the residents in rural towns and their difficulty in accessing municipal services.

He asked if any measures were in place to deal with the fraud and corruption cases. For instance, at some municipalities there were irregular issues involving personal protective equipment (PPE) and corruption, concerns over tenders, as well as certain councillors exerting undue influence on the governance of municipalities. In light of that, he wanted to know what the Department’s role was in these types of matters.

Ms D Baartman (DA) noted in the Department’s annual report that it was embarking on moving its accounting system from an accrual to a modified cash standard system. She enquired whether this change of accounting system had already taken place, and if any challenges had been identified in the new system in their experience.

Department’s response

Mr Paulse acknowledged that municipal finances were struggling. Municipalities across the province were struggling because of the increasing demand on service delivery due to the growth in population and the migration patterns of municipalities in the province. In response to that, the Department had started various initiatives to readjust municipalities’ financial plans in order to assist those that were struggling. However, those measures were only for a medium to short duration. Being fully aware of the need for financial sustenance, the Department had decided to review the finances of municipalities and had approached National Treasury and national government to review the financial models for municipalities in the province.

In addition, it had also partnered with academic institutes to thoroughly reassess municipal finance based on a municipality’s revenue patterns and residents’ ability to pay. For instance, during the COVID-19 pandemic, the Department had engaged in consultations to find out to what extent Eskom and national government could assist in re-negotiating tariffs. It had also established a work group within the Department to develop work around how municipalities could be assisted.

The Department was mindful of the COVID-19 pandemic and its safety protocols. However, municipalities across the provinces were still engaging with citizens whenever possible and being mindful of COVID-19 protocols. The Department was also in the process of procuring PPE for citizens, and were helping to ensure citizens were not exposed to COVID-19.

Mr Paulse assured the Committee that the Department was working with Special Investigation Unit (SIU) and the HAWKs to tackle corruption and fraud cases. He had had a discussion with these units yesterday, and the feeling was that the prolonged waiting period for the courts to make a decision on the irregularity around PPE contracts had made them consider whether it was necessary to establish a court to deal exclusively with this matter, in order to expedite the process.

He referred to an incident which had been discussed in the meeting yesterday, which involved a municipality and its councillors engaging in wasteful expenditure by copying an energy model learnt from the Netherlands. The Department could clearly see the municipality’s lack of capacity to implement the project, and had therefore opposed it. This incident showed that the Department was very serious about ensuring good governance. It had currently instituted litigation against the municipality, as it felt that this municipality was challenging the Department on good governance.

An official from the Department outlined three interventions in response to Mr America’s question on ensuring safety access during the COVID-19 pandemic:

• The Department had assisted municipalities in safety assessments at each centre, to see if any centre needed to be closed in line with the municipal plan and the Disaster Management Act.
• Secondly, it had developed safety protocol documents. The focus was on staffing at the outreach events, crowd management and the screening of citizens.
• Lastly, it had procured PPE kits to ensure safety at these mobile events.

Ms Bhavna Sewlall-Singh, Chief Financial Officer of the Department, responded to Ms Baartman’s question on the modified cash standard. She said that the Department was currently using the modified cash standard, in keeping with the practices of other provincial departments. The accrual standard would come into effect at some point, but the National Treasury had not provided a deadline yet. The Department was currently operating under the guidance of the provincial treasury to get policies in place, to prepare for the switch over to accrual accounting. She was not aware of any challenges that had been experienced at the municipal level, and she remained quite optimistic that the transition from the modified cash standard to the accrual accounting system would be a smooth one.

Further discussion

The Chairperson noted in Mr Paulse’s response that there were some municipalities that were currently being investigated for illegal or illicit activities. He wanted the Department to provide a list of all these municipalities for Members’ information.

Mr Paulse guaranteed that it would be sent to the Committee. 

Ms Baartman asked Mr Paulse to provide clarity on the Kannaland Local Municipality’s energy project. She said that she had received a number of briefings as a Member of the economic development committee on the subject in the past. She wanted to understand the cause behind the municipality’s persistence to pursue this project, despite lacking the capacity to run the project, as it was under administration. She did not believe the project was suitable for the Kannaland Local Municipality to take on at this time, although she did not dispute that the project could be beneficial under different circumstances.

Mr Paulse shared Ms Baartman’s concern about the Kannaland Municipality’s project. It boggled his mind -- and the Department’s -- that the provincial and national treasury had all advised against the municipality’s decision. However, the decision to go ahead with the project had been a municipal council resolution. The Department was seeking legal advice to see how it could intervene.

Mr Gary Birch, Director: Specialised Support, Western Cape Department of Local Government, provided more details on the issue surrounding the Kannaland Local Municipality. With regard to the InovaSure Energy project, it was unclear what the municipality was thinking or planning at this stage. In terms of section 139 of the Constitution, the provincial government had taken away the power of making such decisions from the municipal council, which thus put the municipality under administration. In his view, the municipal council did not have power to implement such a plan. The litigation that was due to be heard on 4 February was for both parties to get a clarifying order on whether or not the municipal council had the power to make such an economic decision whilst being under administration.

Mr D Smith (ANC) asked if any municipality in the province had indicated its intention or plans to go ahead with an independent power producing project.

Ms Baartman sought confirmation from the Department on whether court papers for the court case that was due to be heard 4 February had been filed by the respective parties, including the Kannaland Local Municipality and the Department. She also wanted to know if the court hearing on this case would be conducted online or in person.

Mr Birch responded that the papers had been filed by the Western Cape Government and served on the relevant parties. At this stage, no one had filed a notice of position to the court proceedings. Kannaland municipality had had correspondence with state attorneys, and had indicated that it would like to have a discussion with the Minister. The Western Cape Government’s stance was that the Inter-governmental Framework Act was not applicable to this circumstance. So far, no one had opposed the court proceeding, but should any one oppose it, then the date might be extended.

Mr Birch said that under COVID-19 protocols, courts were operating using electronic means as well. He thought that this court hearing would very likely be taking place on an electronic platform.

Mr Marius Brand, Director: Municipal Infrastructure, Western Cape Department of Local Government, said that the Department of Economic Development and Tourism had initiated municipal energy resilience in the province. It had encouraged all municipalities to pilot to explore the best process. The feedback from those municipalities so far had been great. For instance, Stellenbosch Municipality was putting in requests for interested independent power producers. The Department was also working and learning from Stellenbosch Municipality to assist in this process, as well as to improve the municipal energy resilience programme.

The Chairperson sought clarity on whether Kannaland Municipality was part of the Municipal Energy Resilience Programme. 

Mr Brand responded that all municipalities in the province had been provided with information and would be benefiting from this project. In this programme, the Department also assists municipalities in negotiating tariffs for the rate at which they would be purchasing energy from the specific producers of energy.

Mr Smith asked if the Department also helped municipalities to identify the correct tariff. He commented that there were different tariffs with Eskom at different municipalities, and some municipalities had been paying the wrong tariff for years. He believed that it would save those municipalities millions of rands should the Department assist in the matter and correct the incorrect tariffs that had been billed to those municipalities for years.

Mr Brand responded that the Department indeed provided such assistance to municipalities. In the past, it had been approached by several municipalities to see how it could assist their applications to negotiate tariffs with Eskom. It would then take the long-term financial sustainability of those municipalities into consideration in order to come up with a better negotiation plan for tariffs.

Part E: Financial Information

The Chairperson pointed out that on page 146 of the annual report, it referred to R148 million for local governance, and on page 148, the municipal account amounted to R70 million. He sought clarity on the difference between the two items.

He also noted on page 148 that the actual appropriation and actual expenditure was the same amount, and wanted to know if this meant the municipality had spent all the funds that had been allocated.

He asked whether or not the provincial government should start preparing a budgetary item for traditional leaders in the province. Although the law currently had not recognised any traditional leaders in the Western Cape, there was a petition and calls for ‘The First People’ to be recognised.

Ms Baartman asked whether, in terms of the current law, a budget would be allowed to be allocated if traditional leaders were still not recognised in the province.

Department’s response

Mr Heinrich Magerman, Director: Community Development Worker Programme, Western Cape Department of Local Government, said the whole Western Cape Government had been given five years to work towards recognising traditional leaders in the province. A lot of work had been taking place in this regard. Although there would be no immediate allocation, an allocation was inevitable in the medium term. He also reminded the Committee that there was a lot of administrative work to be done in recognising traditional leaders.

Ms Sewlall-Singh responded to the Chairperson’s enquiry on the accounting figures. She explained that the R148.6 million covered the programme structure of the Department. It was broken down into four programmes according to the National Treasury’s perspective in terms of the sectors, but this part was broken down to six sectors for local government within the Department, as the R148.6 million referred to the expenditures of the local programmes in the six directorates.

She explained that the R70.9 million referred to on page 148, was the transfers made to municipalities. The detail of the transfers could be found on page 204 at the back of the report. The reason that those transfers had the same figure as the actual expenditure was because once transfers were made, the Department classified them as expenditures in its books.

Ms Sewlall-Singh added that Programme 4 had opened up with a R1 000 programme structure from National Treasury nine years ago. This budget figure had to be reviewed, and her team would take it up with the provincial treasury once Mr Magerman had concluded the work on the recognition of traditional leaders with his team.

The Chairperson asked if the Office of the Auditor-General and the Department’s audit committee would like to make any additional comment. Both indicated they were satisfied with the responses.

Mr Paulse concluded with a remark on the traditional leaders’ issue. He said that the Western Cape Local Government Department was reviewing the best practices and challenges in other provinces on traditional leaders. It was carefully deliberating on their experiences to come up with the best implementation plan, and to avoid making mistakes similar to those that had been made in other provinces.

The meeting was adjourned.