The Committee was briefed by the Auditor-General of South Africa (AGSA) on the local government audit outcomes for the 2018/19 financial year. The institution said that the intention of the audit report is to restore the integrity and put municipalities in a position to sustain themselves. The audit report showed that although there were improvements in some municipalities, the overall result was a regression in the audit outcomes of local government.
The audit outcomes revealed that there was a high use of consultants; only 18% of the municipalities produced quality financial statements. In the Eastern Cape there was a widespread lack of financial controls and project monitoring. In the Free State, there was a deliberate lack of accountability by political and administrative leadership. In Gauteng, there was good financial accounting but with inadequate monitoring of preventative controls. In KwaZulu-Natal there was little change in outcomes; accountability was not adequately practised and enforced by leadership and there was a failure of key controls. In Limpopo, millions of Rands were spent to improve audit outcomes but there were no consequences for poor performance. Mpumalanga showed deteriorating accountability and financial management coupled with weakened oversight at the centre of the significant transgressions in audit outcomes. The Northern Cape showed a prolonged state of undesirable audit outcomes. The North West showed a systemic breakdown in the discipline of financial controls and the Western Cape showed an improvement in outcomes, but concerns remained.
Irregular expenditure increased to R32.06 billion. The top contributors to annual regular expenditure were KZN, the North West, the Western Cape and the Eastern Cape. The main cause of the expenditure was identified as supply chain management non-compliance. Other areas of concern were a lack of preventative controls and poor consequence management which led to the unsatisfactory audit outcomes. The nature of material irregularities was payment for goods or services not received, assets not safeguarded resulting in theft and vandalism, as well as unfair procurement leading to overpricing.
Members reiterated the need to hold municipalities accountable and the need for better oversight to ensure that accountability as local government is failing South Africans.
Members expressed that the R2 billion in fruitless and wasteful expenditure and R11.98 billion in unauthorised expenditure is extremely worrying. What is the most worrying factor, however, is that service delivery assets are deteriorating on a daily basis. There are R317 billion worth of assets that should have been safeguarded but only R8.5 billion was spent on the maintenance; this is extremely worrying because eight percent should be spent on maintenance and R8.5 billion is way too low.
Members recommended quarterly reports and meetings with the Auditor-General, instead of annual reports, to ensure issues were dealt with as they occurred rather than several months after they happened. Cooperation with Treasury and other relevant Committees, together with the office of the Auditor-General, were recommended in order to increase accountability and improve the situation facing municipalities in South Africa.
The Chairperson welcomed the Committee Members and support staff, officials from the Office of the Auditor-General of South Africa and other guests. Condolences and a moment of silence were observed for a Member of the Committee. The meeting had been scheduled for the previous year but due to the supplementary budget, programmes had to be shuffled, resulting in the meeting only taking place in 2021. The AGSA briefing was on the 2018/19 local government audit outcomes – a subject that cannot be heard enough as things are happening every day that need the attention of the Select Committee. The Chairperson said that it is very important that the meeting starts with the AGSA outlining the issues. The South African Local Government Association (SALGA) had not been invited; the discussions from this meeting would decide whether the Committee invites SALGA and others.
The Chairperson then handed over to the AGSA delegation to deliver its briefing.
Briefing by the Auditor-General of South Africa
Ms Alice Muller, Acting National Leader: Audit, AGSA, thanked the Committee and led the presentation on behalf of the Auditor-General.
The audit outcomes of municipalities across South Africa in 2018/19 were as follows: 20 municipalities were unqualified with no findings; 91 were unqualified with findings; 83 were qualified with findings; two were adverse with findings; 33 were disclaimed with findings and 28 had outstanding audits. Although some municipalities improved, there was a net regression and the AG is concerned about the sustainability of the improvements.
The financial statements of the completed audits showed that the total revenue, excluding equitable share and conditional grants, was R226 billion but an average of 59% of municipal debtors are not recoverable as creditors were greater than available cash at year end in 51% of municipalities. National government financed the municipalities through equitable share grants of R55 billion and conditional grants of R43 billion.
Looking at expenditure, the employee cost for municipalities was the biggest bill being paid; it represented 40% of own revenue and 166% of equitable share. The average creditor’s payment period was 180 days; services and goods were procured but suppliers were not paid. Fruitless and wasteful expenditure amounted to about R2.07 billion; unauthorised expenditure was R11.98 billion. If municipalities continue to not budget for expenditure, they will find themselves in a position in which they are unable to maintain or replace assets and assets are already not being maintained well enough.
About 34% of municipalities ended the year in a deficit and the total deficit in local government was R6.29 billion; 31% of municipalities are in a vulnerable position, which is the reason why the debt to Eskom and Water Boards is so high and municipalities are unable to pay salaries in certain months. The financial statements of 35 municipalities were not reliable enough for financial analysis to determine their financial position.
The analysis of financial health of municipalities revealed that more than half of the municipalities in the Free State, North West, Northern Cape and Mpumalanga required intervention but a lot of municipalities in all provinces were in financial distress.
About R1.26 billion was spent on consultants; 7% of consultants used were brought in to fill vacancies. Although consultants can be effectively used, the AG is concerned by their use while there is a Chief Financial Officer (CFO) and fully-equipped finance teams within the municipalities. To illustrate the benefit and value that can be extracted from the use of consultants the AG gave a few examples of the effective use of consultants. In one municipality in the Free State, the CFO reviewed the work of the consultants and remained responsible for the financial statements. There was good cooperation between the municipality, consultants and auditors. Poor use of consultants was found in Dihlabeng and Setsoto municipalities – the consultants were left to do the asset register while there are fully equipped teams.
The AG was concerned about how reliable audit outcomes can be if they are driven by consultants and questioned how much value consultants could actually have if the basic activities have not been done by the municipalities.
Out of all the municipalities, only 18% of them produced quality financial statements; 88% of municipalities submitted statements by the legislated date. Municipalities failed to implement the preventative controls of independent review and reconciliation, disciplined recordkeeping and document control as well as in-year reporting and monitoring. The impact of this is that accountability and transparency are not enabled through credible financial reporting, and the reliance on auditors and consultants comes at a great cost and is not sustainable.
The movement in audit outcomes per province showed that that in Mpumalanga, six municipalities regressed and two improved; in KZN, seven municipalities regressed and eight improved; thirteen regressed and three improved in the Eastern Cape; four regressed and seven improved in the Western Cape; in the Northern Cape, six regressed and three improved; three regressed and two improved in the North West; four regressed and two improved in the Free State; in Gauteng, five municipalities regressed and two improved; and in Limpopo, three municipalities regressed while six improved. The regressions that occurred were due to the fact that preventative controls were not in place. The AG also found that district municipalities were not doing better than local municipalities.
In the Eastern Cape, the main issues identified were a widespread lack of financial controls and project monitoring. A lot of vacancies were left open and there was a high tolerance of transgressions. The OR Tambo District Municipality had the highest number of irregular expenditure related water and sanitation projects. There was poor planning and monitoring in many of the municipalities.
In the Free State, there was a deliberate lack of accountability by political and administrative leadership. Many of the municipalities regressed for a third year in a row. The financial statements of three municipalities were outstanding and there was a lack of internal control. The Metsi Maholo Municipality spent approximately R20 million for a sports complex but only a fence was constructed. The matter was investigated and there was found to be wasteful expenditure, but nobody was held accountable. The Thabo Mofotsanyana Municipality had good internal controls but the province had a high number of dysfunctional internal audit committees.
Gauteng Province showed good financial accounting with inadequate monitoring of preventative controls. All municipalities in the province had unqualified or clean audits. The main challenge was the Brakpan Bus Company which is an entity. The City of Johannesburg and the City of Ekurhuleni had difficulties in collecting debt.
In KZN, the majority of districts were performing poorly. Water services in the province were mainly provided by water tanks. In the Msunduzi Municipality, a new Information Technology (IT) system was implemented. As a result, the municipality had a challenge with revenue; this led to a qualified audit outcome. This goes to show how important it is that when systems are changed, the new system is properly implemented, monitored and that people are properly trained to ensure efficiency and effectiveness. In the EThekwini Municipality, there were rising levels of expenditure over the past couple of years.
In Limpopo, millions of Rands were spent on improving audit outcomes yet there were no consequences for poor performance. The Capricorn District Municipality received its first clean audit in seven years. There was mismanagement of water and water-related projects; irregular expenditure was widespread. The continued use of consultants in the province is not sustainable.
Mpumalanga illustrated deteriorating accountability and financial management, coupled with weakened oversight at the centre of the significant regressions in audit outcomes. The Nkangala and Gert Sibande District Municipalities improved but there were no clean audits in any of the local municipalities. There was also underspending of conditional grants due to delayed projects and poor project management. The Lekwa Municipality showed a breakdown in fundamental controls, significant vacancies, huge exposure to abuse due to the absence of bank and other reconciliations.
There was a prolonged state of undesirable audit outcomes in the Northern Cape and the overall outcomes were not good. In the Kgatelopele Local Municipality, there were not enough audit records. Although there was some effort in other municipalities, internal audit committees were not having an impact.
There was a systemic breakdown in the discipline of financial controls in the North West. Where the audit was not disclaimed or qualified, it was outstanding. In the Madibeng Local Municipality, there were no bank reconciliations and investigations found that funds were used for on matters not related to the municipality.
The Western Cape showed improved outcomes but there were still concerns around a few municipalities in the province which need careful attention, such as Beaufort-West and Lainsburg.
Irregular expenditure increased to R32.06 billion; the main cause of the expenditure was identified as supply chain management non-compliance. The top contributors to annual regular expenditure were KZN, the North West, the Western Cape and the Eastern Cape. In terms of municipalities, the top five contributors to annual irregular expenditure over three years were eThekwini, OR Tambo, City of Cape Town, Rustenburg and Mangaung municipalities. The nature of material irregularities was payment for goods or services not received; assets not safeguarded resulting in theft and vandalism; as well as unfair procurement leading to overpricing.
The AG said that preventative controls cannot work effectively if all assurance providers are not playing their role. Assurance has to be provided by management and leadership; there had to be internal independent assurance and oversight as well as external independent assurance oversight.
Mr W Aucamp (DA, Western Cape) thanked the AGSA for its presentation. He said that every year a wonderful presentation is given, unfortunately the news is always extremely worrying. One thing stood out for him is that people are not getting the services that they should be.
The issue of the 60% unrecoverable debt is worrying. Why are officials not doing their jobs to ensure that money comes in? He asked where the debt mostly comes from and said that a company cannot be run properly if the invoicing is not done properly. The R91 billion towards salaries, which makes up 40% of the revenue, is way out of line with what salaries should be. The salary payments in municipalities are top heavy and this was not even taking consultants into consideration. How posts are created and whether or not people are working should be looked at. The average 180 days payment to creditors is too long and because service delivery at the local level uses local suppliers, businesses and municipalities both suffer as a result.
The R2 billion in fruitless and wasteful expenditure and R11.98 billion in unauthorised expenditure is extremely worrying. What is the most worrying factor, however, is that service delivery assets are deteriorating on a daily basis. There are R317 billion worth of assets that should have been safeguarded but only R8.5 billion was spent on the maintenance; this is extremely worrying because eight percent should be spent on maintenance and R8.5 billion is way too low. This will have a snowball effect, in a few years; assets that should have been maintained need to be replaced. About 40% of municipal expenditure goes towards salaries; some positions have not been filled and consultants have had to be used.
Mr Aucamp asked why there are financial officials if there needs to be consultants to do the job that should have been done as this only doubles the money spent on salaries. Only 18% of the municipalities submitted quality financial statements; this is an area of great concern as accountability and transparency are not occurring through credible financial reporting. He asked what is going to be done about the municipalities that are not adhering to submission dates and qualities. He said that there must be consequence management as this could continue happening. Local government elections are going to happen this year; it is important that the people in South Africa should understand that they can pressure the government to not waste money as they are the ones who really suffer. Local government is failing the people of South Africa.
The Chairperson said that today’s meeting is not what the Committee usually does – giving Members a fixed amount of time to comment as she has been kind enough to give Mr Aucamp more time than normal. This is because she understands the seriousness of the subject matter and wants the Committee to do justice to the matter and come up with solutions – tell the AG what the Committee thinks the AG can do to improve, because it does not give the Committee joy to see the state of the performance of municipalities. The Committee wants to see the people getting services of better quality.
Mr S Du Toit (FF+) asked whether the AG would advise municipalities to write off bad debt to prevent them from overspending since they use the debtors’ bill to determine a budget. The Deputy President alluded that South Africa is currently sitting with a culture of non-payment. The reason for the question is not to advocate non-payment but would it not be better if bad debt was written off. He asked whether this would not restrict municipalities from having huge budgets on which they spend despite the fact that there are no funds.
During the provincial visits to different municipalities, it was mentioned that there is a lack of service delivery as a result of unfilled posts but at the same time the salary bill is bloated. Mr Du Toit asked what the AG’s view is on this situation and how this should be handled, because the lack of personnel is used as an excuse. He asked how long municipalities will survive if they continue on the current negative trajectory and whether this can be turned around. To what extent has the AG implemented the Public Accounts Amendment Act (Act 5 of 2018) in order to deal with repeat offenders.
Mr M Moletsane (EFF, Free State) said that he appreciates the horrific presentation. In the past, the Committee invited SALGA and in the discussions, SALGA indicated that it is assisting municipalities to implement the audit improvement plans. He asked whether the AG team is picking up any improvement, especially looking at the role that SALGA said it is playing. He asked whether there is any improvement signifying external assistance in the audit reports of the municipalities which were under administration. It is very important for there to be recovery of wasted funds from local government and officials should be held accountable, because the more this is ignored and the Committee speaks without action, there will never be any improvement.
Mr D Ryder (DA, Gauteng) said that what has been discussed in the meeting was released to the public and the media in July 2020. He implored the Chairperson and the Committee that the programme should cover the report as soon as possible after it has been released, because discussing the report seven months later is not worthwhile.
There are 28 municipalities that showed the middle finger to residents and the country by not submitting their reports and it looks like the slides have not been updating, following the late submissions. The 28 late submissions show a significant rise from the previous year’s four late submissions. He asked whether the four from the previous year were culprits again. More than 10% of the money allocated to local government is spent on unauthorised, wasteful and fruitless expenditure. Less than three percent is spent on maintenance; this shows that municipalities are going backwards. The fact that maintenance is not being done now is putting pressure on subsequent governments. He asked the AG for comment on this, as it also speaks to debt write-offs. He asked whether the AG has any recommendations or whether there have been any discussions on the substantial debt that seems to be growing over time that is owed to Eskom and various Water Boards. Anyone who has gotten in trouble in their personal capacity knows that the debt hole is a very difficult one to get out of and this is the situation municipalities are finding themselves in now. He asked whether there is a plan being discussed to deal with this old, legacy debt. About 51% of municipalities are insolvent; there is a serious problem in local government and there needs to be a solution; coming to discuss this only once a year is not helping.
Perhaps the Committee, together with Treasury, needs to start looking at local government and how to fund it. He is concerned that there is a deliberate lack of accountability by political and administrative leadership. This comment from the AG should not go unchecked and without investigation. Parliament went through a process of giving the AG teeth. A Bill was passed to enable the AG to have some powers that they could follow through and refer cases to the Special Investigating Unit (SIU), to the Hawks and to the South African Police Services, etc. In the last report from the AG, there was a comment that there were six cases in which the new legislation was being tried out and the teeth were being exercised; the cases were limited to see what could be learnt from them. Now that it has been over a year, Mr Du Toit wanted to know how that is going and since the law has been made, if it has worked in a satisfactory manner, whether it needs to be tweaked, or if there are any comments to propose changes. He also asked how the law is working and why every single CFO in the Free State and every single mayor have not been arrested but the comment on the report says there is a deliberate lack of accountability. He asked why officials are not in jail or called before the Committee to answer. Every single CFO, mayor and MM from the Free State needs to come before the Committee to give account about why the AG has said this about them. They cannot be given more money in the next appropriations bill when there is a deliberate lack of accountability. It is not fair on everybody else; it is not fair on the communities they are supposed to serve. Looking at the fact that the AG found that mayors are more competent than the MMs and CFO’s is alarming because according to Treasury, MMs and CFOs have to have certain qualifications and it is problematic that they cannot provide any assurance. What is most worrisome is that the portfolio committees on local government provide no assurance; this says a lot about Parliament and the work that the committees are doing. He asked the AG to comment on that, adding that this is good because it allows the Committee a chance to reflect on their work.
He said that there were five letters missing from the presentation entirely. NSCOA has been rolled out; there were deadlines three years ago and he had put through a written question to Treasury in January 2021 about how the implementation had worked out. There clearly has not been proper implementation. He asked whether NSCOA had improved the work of the AG in municipalities in which it has properly been implemented. A lot of municipalities have not complied and there have been massive costs associated with the implementation of NSCOA. He asked whether it had borne any fruits, if it highlighted any issues where municipalities are doing the wrong thing.
He said that the creditor payment time of 180 days was too long, even under President Jacob Zuma, there were talks to pay creditors within 30 days. Late payments meant that businesses would not want to work with local government, because they would not get paid. The cost of running a municipality is escalating because of poor controls and the fact that they are not doing what they have been told to do.
He asked whether the next round the Committee is about to receive will have information about the impact of COVID and the lockdown. Should the Committee expect to see a massive reduction? He said that he would not expect clean audits as municipalities have not been able to meet their targets as the first part of COVID came after adjustment budgets were pushed through and so performance indicators would not have been able to be adjusted on time. He is sure that there will be almost no clean audits in the next round; he asked the AG to comment on that and speak about the projected impact post-COVID. He said that the Committee cannot just sit and continue to have these talks and not have an outcome afterwards; there needs to be accountability – even if mayors, MMs and CFOs are called in by the Committee but something has to be done because it has gotten to a point where Committee Members can longer just sit by and allow local government to crash and allow the rest of the country to end up looking like the eMfuleni Municipality, where there is just no service delivery.
Mr Z Mkiva (ANC, Eastern Cape) said that he has mostly been covered by the other Members, but he said that it is important to welcome the presentation that gives the country a picture of what is happening in its municipalities. It is good that there have been some positives and improvements that have been picked up by the AG; it means that municipalities can be able to turn a corner and it shows that there is efficiency of the usage of public resources. There is also effectiveness in ensuring that municipalities do take services to communities, because the ANC has always emphasised the importance of municipalities being at the core of service delivery for communities. Therefore, municipalities have a very important and critical role to play in ensuring that the society is transformed.
It is now the last quarter of the financial year and there are preparations underway for the new financial year. It is a good time wherein the recommendations of the AG are received so that the Committee can apply itself very sharply in how it can turn the corner and ensure that it indeed turns the municipalities around so that they can work optimally. He said that maybe there are too many district municipalities coupled with local municipalities and asked whether the country cannot crowd together the necessary skills so that when it comes to financial management, engineering services, the country is assured that it does have those resources in each and every municipality.
He said that there is a challenge of skills, perhaps not as exaggerated as other Members make it out to be but there are certain skills that are not found in certain municipalities and it is important to come up with an inter-modal and integrated mechanism. He proposed to the AG that instead of looking at piecemeal types of interventions every year, which are not yielding the required results, the country could be in a position to advocate that there are too many municipalities and alternatively look at integrating some of them, because some of the money gets lost in between in the transfer from national to provincial, provincial to district and from district to local. Maybe rationalisation should be looked at very seriously.
There is one good thing that South Africa ought to say. In terms of the country’s structure, there is governance which is a well-managed government in being everywhere where the people are located and from that point of view, there is a positive that can be drawn from the fact that the government is visible. The leadership is out there in the community; all that needs to be done is to ensure that an intervention is brought in to ensure that there is improvement within the municipalities as well as the efficiency of ensuring that money is properly handled. It would be great to hear the AG coming up with one overarching recommendation that can help the country to turn the corner in terms of the management of municipalities.
Mr E Njadu (ANC, Western Cape) said that he thinks that the mandate of the NCOP is accountability at all spheres of government, understanding that municipalities have a monthly reporting system after which at the end of the year, Parliament receives a report like the AG’s. He asked whether the AG can be requested by the Committee to conduct specific audits for certain conditional grants which are not performing well so that the Committee is more informed on each specific municipality. He asked whether the AG would be able to table quarterly reports to Parliament that would serve to strengthen the oversight and monitoring of the executive in Parliament budget policies. He asked how the Committee can strengthen its oversight and monitoring over municipalities, by getting the AG to report to the Committee on a quarterly basis so that reports are not only received at the end of the year at a stage which only damage control can be done, whereas interventions can be implemented during the year. He asked what the assessment of the AG is on the performance reports of municipalities which under Section 139 of the Constitution. How does the AG deal with those municipalities?
The Chairperson said that the Committee needs to come up with a way forward, a proper action plan in a form of an intervention to deal with issues that were identified by the AG, notwithstanding that the AG has a responsibility. The Committee is dealing with the 2018/19 report which has been long outstanding. Someone in the meeting spoke of a lack of personnel and they do not believe that the lack of personnel causes deficiencies and maladministration. The reason of the maladministration is a lack of personnel, vis-à-vis the quality of personnel. In most municipalities, most of the key positions are filled by acting employees but most importantly it is the quality of personnel – what the quality of personnel is and how they benefit the municipality and community. It is more an issue of quality of personnel than non-personnel.
Looking at the disclaimers, there is no difference between 2017/18 and 2018/19 in some municipalities such as the ZF Mgcawu Municipality, and there should have been a plan to make improvements. She asked Ms Muller for confirmation on whether it is a regression.
Ms Muller said that there was a clean audit in the previous year that regressed into an unqualified audit, which is what caused the red arrow of regression.
The Chairperson said that even in the Namaqua Municipality in 2017/18 there were five qualified audits and in 2018/19, four qualified. This is not a regression, but it does not really have an impact. Slide 21 talks about the fact that preventative controls cannot work effectively if all assurance parties are not playing their role. Prevention is better than cure. She said that oversight needs to be conducted instead of waiting until the damage is done. It is important to identify red flags while they are still there, and the AG is there to help with that. It is important for the Committee to request quarterly reports but she understands that the office and the AGSA is responsible for a lot of things in the country. The Select Committee on Appropriations is responsible for money and needs to have a strategy to prevent these things from happening during the year, instead of waiting for the end of the financial year. The necessary structures are there but how effective are they? Local government needs to be assisted by the AG and Treasury to ensure leadership has the responsibility of oversight. The AG has been given powers; how far are they in using the powers that they were given? In most cases, the Committee is told that Parliament develops good policies but implementation and oversight are problematic. There has been depression across the country due to COVID-19 and the country does not need municipalities to add to that.
The Chairperson asked Mr Njadu to coordinate the rest of the meeting as she was not feeling well at this point of the meeting.
Ms Muller, on behalf of the AG, said that the AG needs to conduct a deeper dive into how much of debt comes from the different levels and entities; the team is currently busy with audits that will identify what contributes to debt and how much of that is government. The debtors’ impairment, which was not brought into the budget revenue, is inflated. This is an area of concern.
She said that there were a lot of vacancies in the municipalities but in some cases the unfilled posts were not finance staff. Looking at the structure, the concept of bloated salaries is true but sometimes there is no lack of finance staff. She said that there is concern about the number of years that municipalities will continue to overspend on salaries as this is not sustainable. The Amendment Act was implemented and staff was trained; the aim is to change the local government culture to prevent irregularities from happening and for municipalities to return money.
Out of three municipalities, six irregularities making up R24 million were being followed up. Due to COVID-19, these irregularities could not be followed up sooner. Fifty-three municipalities are currently being audited and as the powers of the AG are being implemented, the AG will be able to take the Committee through the irregularities. The details of the six municipalities are in the AG report; the AG is in the process of implementing its powers until the can do all municipalities. Going forward, the AG will reach out to SALGA to see whether they cannot pick up intervention. Although there is external support for the municipalities under administration, this does not necessarily mean that their outcomes will improve. It is not only about how effective interventions are but how sustainable they are as well. One example is the political in-fighting in the North West, which hampered the success of interventions.
Outstanding submissions of financial statements that had not met the deadline had to be submitted by October. Twenty-three municipalities did not submit; 15 of these were repeat offenders. This is the case because late submission becomes a cycle. There is value in engaging with Treasury, Eskom and the various Water Boards on debts as municipalities will still continue to struggle to pay. There has to be a realistic view on local government. The AG is currently busy with local government audits and implementing its mandate at the next round of auditees, so 54 municipalities are being subjected to the extended powers of the AG. 43 municipalities have been identified for COVID-19 detailed expenditure testing, which will be issued in a special report on local government at the end of this year. The one fundamental thing that AG recommends is that there needs to be discussions about what will benefit local government. “Maybe it is time to go back to the White Paper on local government and determine how far the country has come in this journey and whether it is not time to rationalise local government and make sure that there is a capable state to deliver services”. The AG does quarterly visits to municipalities but it has to issue an audit report once a year so the audit report is issued on the annual financial statements. For that reason, it would not be able to do quarterly audit reports but when the Committee does a municipal visit or calls a specific municipality, the AG would gladly join in on these and share insights about that municipality with the Committee and support the Committee when looking at financial statements, also asking the tough questions about financial sustainability.
She agreed with the Chairperson that it is the quality of personnel that is of concern and these issues are for the municipal councils to deal with also ensuring that people are held accountable for the job that they are supposed to be doing. She reiterated the message around preventative controls, saying that they need to be implemented in every single daily activity to ensure that when everybody transacts, they have the necessary documentation, they file it, someone else signs off on it, and the reconciliation is made at the end of the day. It is these basics and not the complex things that are causing the challenges in local government.
A Member of the Committee asked how far the AG is in terms of implementing the powers that have been bestowed upon the AG.
Ms Muller indicated that for 2018/19, the AG implemented at nine municipalities and for 2019/20, it will implement at 53 municipalities and one entity: Brakpan Bus Company. At national government, the Office has increased to 89 auditees with a significant portion of the budget that is allocated to those auditees. It is a slow process because accounting officers are generally given time to go collect and recover the money themselves before they are instructed to do so. The process follows a three-step approach. The first is that notification is given to the accounting officer; they are given time to respond, the notification is assessed and the AG determines whether the action that the accounting officer is implementing is adequate. If it is, the accounting officer will be given time to do what they committed to do. The AG then comes back after a reasonable time – approximately six months – and follows up on the commitments. When the AG follows up and determines that the accounting officer has not done what they were supposed to do, a recommendation will be issued and after the recommendation, recovery of debt and the remedial process begin. It is a slow process but the Committee should take note of the fact that where the AG has implemented in local government last year, it did get very good cooperation from the accounting officers and in all the cases the accounting officers immediately started to take action. The AG is now in a process to determine whether the action was adequate, and feedback will be given in the next report about how many of them have been issued recommendations to say that now they need to go and implement additional action or they need to do what they did not do in the first place.
The Chairperson thanked Ms Muller for a very comprehensive response. He said that he picked up that the response also gave a way forward for the AG to work with Committee, specifically with regards to preventative controls. The Committee should take not on how, in terms of its oversight work, it can work closely with the AG to make sure that it understands what the AG means to local government. In terms of the quarterly visits to municipalities, how can the Committee interact and work together with the AG? He asked whether there were any further questions from Members.
Mr Ryder said that regular meetings and quarterly reports would actually bring about a change and that he is thrilled that this has been proposed. He asked, from the AG’s point of view, how much data would need to be brought to the meetings and how that could be run. The reality is that the AG only audits once a year, which is a snapshot. In one of the municipalities, the MM who was in charge when the audit was conducted left; his successor was murdered and now there is a third person in office. This meeting is dealing with ancient history. If the Committee gets to a point of quarterly interactions with the AG, which he strongly favours, he wanted to know how much information the AG would have to give to the Committee and whether the focus would be on the bad eggs and the municipalities in which the AG has out in special monitoring. Would Treasury need to be included, because the institution gets quarterly updates from every municipality? He asked how the AG sees that working. It is important but AG cannot be called in if they do not have anything to report on.
Mr Aucamp said that quarterly reports should be executed in a way in which the Committee can get information and assist Parliament to see to it that consequence management is practised at a better level throughout municipalities. There has been a lot of talk about consequence management and the Committee knows that one of the biggest reasons for things recurring is that there is a lack of consequence management and the AG states that in the report every year. He wanted to know what the AG suggests that the Committee can do more of or do better at all government levels to ensure that consequence management takes place.
Mr Mkiva said that all the Committee Members can agree that there is great work that needs to be done at the level of improving municipalities. The meeting has been really constructive in the sense that all Members came up with proposals and suggestions that can help to turn municipalities around for the better as it is in the best interest for the people of South Africa. It is good that no one is pointing fingers to a specific political party but getting to the causality of what is occurring at that level and hopes that things will improve in the new financial year.
The Chairperson said that the one thing that should not be overlooked is what Mr Ryder suggested. The way forward is that the Committee should work very closely with the Select Committee of Corporate Governance and Traditional Affairs because government cannot afford duplication of calling municipalities to the different Select Committees in Parliament. The Committees need to work closely together to have a joint approach and avoid duplication.
Ms Muller said that it is very important to coordinate effort and implement oversight even as a preventative control measure. When a municipality knows that it is in the line of sight of an oversight committee, it tows the line. That is called preventative oversight; this is where oversight is framed in a way in which people know that they will be called to talk about their preventative controls, but they also know that they will be asked to come back and account. It is important that the Committee, together with COGTA, develop a plan for the year in terms of which municipalities will be called to account and when that is certain, the AG’s office can help.
The latest financial statements of the municipality will be looked at; this will be a good start as it will allow the AG to compare the quarterly financials to the year-end financials and be able to indicate where the challenges are. She proposed that when a municipality is called, the Committee should ask for the latest quarterly financial statements. Treasury and the internal audit committee members should also be called in to explain how they are implementing the risk management process in municipalities and how they are mitigating the abuse of funds as well as managing the financial health of a municipality. There is a silver lining that is low hanging fruit that can be implemented; there are so many investigations happening in every municipality and the key question is ‘so what?’; what happened after the investigation was completed? Were any actions taken? Was a police case opened? Was there any further investigation? It seems like investigations are done but they are not followed up on. This is where the Committee can play a big role in terms of consequence management. Action needs to be taken against employees mentioned in a report.
Mr Moletsane wanted clarity from the AG concerning municipalities that have failed to submit financial statements. He wanted to know what the consequences were if there were any.
Ms Muller said that there were no consequences from the AG other than naming and shaming in the general report, but Treasury is following-up and implementing consequences, holding equitable share until financial statements were submitted.
The Chairperson said that that point should be followed up with National Treasury so that there are consequences. He then thanked the Members for their contributions, the AG for the brief but informative presentation. He said that he hoped the Committee would work more closely with the AG in oversight. He also thanked the Committee’s administrative team.
The meeting was adjourned.
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