Amathole District Municipality: state of municipalities

Meeting report

Opening Remarks by the Chairperson

The Chairperson welcomed the Committee and the delegation from Amathole District Municipality, as well as representatives from the Department of Cooperative Governance and Traditional Affairs (COGTA), South African Local Government Association (SALGA), the Auditor-General of South Africa (AGSA) and Eastern Cape Provincial Treasury. She then explained how the proceedings of the meeting would go. The morning meeting would focus only on the presentations, and after lunch time the meeting would be adjourned to resume at 19:00 for the deliberations and discussions on the presentations.

The Chairperson said that the Committee has been prioritising municipalities post their audit outcomes in order to assess the status of their implementation of the AG findings and also to assess the status of service delivery in those municipalities. “We are going towards a local government election and this is another way of assessing how far we have progressed in meeting all our various manifestos.” The issue that prompted this meeting pertaining to the recent developments in the district is that the media has reported widely on the inability of the municipality to pay salaries for the next few months, as it is running out of cash. The municipality has allegedly found itself in this position after years of maintaining a bloated organisational structure alongside excessive remuneration packages. The Committee has noted that this also includes paying the Municipal Manager and the Section 56 managers in excess of the gazette as well as remunerating employees at the level of Grade seven instead of the Grade six municipalities. When looking at the reports, this does not only seem to be the only problem. For example, there is an issue of the disclaimed audit opinion received in respect of the 2018/19 financial year, as well as the SAP financial system that is not fully functional. The municipality has also paid over R120 million in debt. These examples do not provide the assurance that the district has been exercising responsible and diligent financial management of the limited resources at its disposal.

There is also a labour crisis at Amathole that has turned the focus of the municipality inwards and away from its core function of supporting all the local municipalities within the district. The municipality reports state that the district has been in a state of disaster since 2016 due to the severe drought affecting many parts of the province. Groundwater is critical under these circumstances. However, the number of boreholes equipped to exploit the groundwaters to assist in the various localities is far below the demands. This is the sense in which the district is also not rendering adequate support due to successive preoccupation with its own internal process, and there is a constitutional imperative that the reason why the district municipality was established was solely to support the locals. The report on the district also alleges that it received no support from MECs from the Provincial and National COGTA in terms of proposals to address its unaffordable organisational production. SALGA report on support to the District also does not say anything about intervention to ease the tension between labour and management. It only refers to the labour workshop provided in respect of Mbashe. The report from the MEC indicates that the Local Labour Forum engagement in Amathole District borders only on dysfunctionality because there is no effective engagement on matters of mutual interest. Provincial Treasury usually supports the municipalities with the establishment of the Disciplinary Boards. However the Amathole District and its local municipalities remain the most challenging, with none of the municipalities having established Disciplinary boards to date. The District municipality is in a situation where the issues of consequence management regarding the malfeasance that is happening are not being addressed. The Committee is of the view that the alleged lack of support from the relevant structures does not absolve the district from taking responsibility for its current financial crisis. If the relevant structures are not playing their roles in terms of section 154 of the Constitution, it does not make things any easier for the municipality.

The Chairperson said that she agrees with the report from the AG that if they are to realise maximum and sustainable improvement in the district, all role players should diligently execute their roles as outlined in the various legislations.

Presentation by the Auditor-General of South Africa (AGSA)
Ms Shereen Noble, AGSA Business Executive for the Eastern Cape, said that the Amathole District is indeed one of the struggling districts in the country. She highlighted the audit outcomes of the district from the past five years, starting from the 2014/15 financial year until the 2018/19 financial year. There was a huge digression on the audit outcomes from these years that went from qualified to unqualified and disclaimer audits. She noted that in terms of irregular expenditure, all the municipalities in the district do not have the necessary preventative controls to stop or prevent irregular expenditure. The closing balance of the irregular expenditure at the end of 2018/19 was approximately R730 million. A lot of the irregular expenditure is from not following proper competitive bids and the composition of the Bid Adjudication Committee. The biggest concern from the AG Office was that municipalities are not necessarily dealing with irregular expenditure in the same way that they are not preventing it. There is no consequence management done in the municipalities to recover the lost funds.

Fruitless and wasteful expenditure is increasing in the municipalities, as their equitable share does not cover their salaries. The municipalities do not have the money to pay for public services. As a result, they incur a lot of debts that they cannot pay on time, which results in fruitless and wasteful expenditure because of the interest incurred from the debts. A lot of the debt incurred is from Eskom the electricity supplier. Raymond Mhlaba is the biggest contributor to fruitless and wasteful expenditure in the district and part of the reason is their inability to pay off their debt to Eskom. Unauthorised expenditure also went up to R1.1 billion at the end of 2018/19 and the specific municipalities that were major contributors to this included Mnquma, who contributed R415 million.

Ms Noble summarised each of the municipalities individually to provide a sense of the financial viability within each municipality in the district.   

In terms of the way forward for the municipalities, she noted a need for a culture of basic financial management discipline and adherence to good controls to be enforced in the municipalities. Preventative controls must be implemented at all municipalities to prevent and monitor instances of no-compliance and other transgressions. Consequence management should be diligently and timeously implemented. Leadership of municipalities should work together with oversight structures such as internal audit, audit committee and the AG Office to implement all their recommendations on a timely basis.

Presentation by Eastern Cape Provincial Treasury
Ms Pumeza Sikuza, Director: Eastern Cape Provincial Treasury, presented on the purpose and legislative mandate of Provincial Treasury to the municipality, as well as the structure of the Treasury office, non-compliance per municipality and the support provided.

In terms of the non-compliance in the Amathole District, she noted that the municipality failed to comply with the submission of data strings, the establishment of Municipal Disciplinary Boards, irregular expenditure, non-payment of creditors within 30 days, as well as underspending of the Conditional Grant, among others. The support provided to the municipality by the Provincial Treasury included support in terms of monthly feedback on reports, mSCOA workshops and facilitation, provincial intervention working with National Treasury as well as the arrangement of repayments plans with Amatola Water Board.

Ms Sikuza summarised all of the non-compliance issues and support provided by the Provincial Treasury to each municipality.

She noted that with infrastructure performance, all the municipalities have been affected negatively by the second budget adjustment as the Amathole District Municipality lost R7.9 million.

Ms Sikuza also noted that some of the overall positives from the municipalities were that all the Municipal Managers, CFOs and other Senior Managers comply with the minimum regulations on minimum competency levels issued by the National Treasury. Audit improvement plans are in place to address AG findings and the supply-chain management procurement plans are in place even though the attainment of these plans still requires improvement.

Presentation by Provincial COGTA
Ms Charity Sihunu, Acting General Manager: Municipal Governance, Eastern Cape Department of COGTA, stated that the AG and the Provincial Treasury had already stated some of the areas that she would be presenting on. She noted that the Amathole District Municipality has been placed under intervention in terms of section 139 (5) (a) of the Constitution due to a number of challenges facing the municipality. The challenges include a high wage Bill with the organisational structure that does not fit the size and purpose, among other issues.

The focus areas for improving the institutional capacity of the municipality included the state of the organisational structure and its implications, the remuneration packages of senior managers, the grading of the district municipality and its implications, qualification and required competencies of the senior management, as well as issues pertaining to labour relations and the maintenance of labour peace and institutional stability, among other things.

Provincial COGTA provided support to the district municipality and all the municipalities within the district, excluding Raymond Mhlaba, by establishing a Ward Based Rapid Response Task Team constituting various stakeholders, including ward councillors, committees and traditional leadership, among others. The Provincial Department also assisted with basic service delivery by assisting in terms of infrastructure projects. The Amathole District has two municipalities that are under cost reimbursement, namely Amahlathi and Raymond Mhlaba.

In terms of financial viability, the Provincial Department has also facilitated quarterly engagements with municipalities and government departments to improve revenue collection on municipal services owed by departments.

Presentation by the Department of Cooperative Governance (DCOG)
Ms Nkhensani Makondo, Director: Local Government Improvement Programme, DCOG, spoke on the support provided by DCOG to the District municipality. She said that DCOG is working on a follow-up work-stream meeting to be convened by Provincial COGTA that is scheduled for 05 March 2021 to engage on inputs that would have been made as required from stakeholders and the municipality. The COGTA team, comprising of Local Government Support and Interventions, MISA and Institutional Development, is also currently preparing the governance and service delivery indicators to contribute to phase 1 (a) of the financial recovery plan for submission to National Treasury.

Presentation by SALGA
Mr King Singanto, Programme Manager, SALGA, explained the Report on Municipal Support Programme provided by SALGA to the District. Through this programme, SALGA supported the municipalities with the appointment of managers, job evaluations, performance management, human resource management, capacity building and labour relations, among other things.

Discussion
Ms H Mkhaliphi (EFF) welcomed the presentations from the different delegations and added that the issue of Amathole District Municipality is not a good story to tell. She wanted to know how the salary Bill managed to cost more than the equitable share. She asked for an explanation on how the District arrived at the huge salary bill of R721 million. She also wanted to know what the solution to this would be.

Ms Mkhaliphi was not convinced that the Provincial COGTA indeed provided support to the municipalities, as they said they were because of the visible failure of the municipalities to serve the people. She added that the Provincial Treasury’s report mentioned that there are support programmes in the municipalities, but it looks like there is a coordinated plan to defy the solutions placed by the Provincial Treasury.

The MEC and Mayors need to explain what is happening with the DC Boards in the municipalities. The municipalities need to put some effort in improving the situation. The matter under the entire Eastern Cape is framed in the presentations as “wasteful expenditure” or “irregular expenditure” when it is actually corruption. The political leader in the province and municipalities does not want to take charge of the situation and come up with solutions, which also contributes to the failure. Ms Mkhaliphi said that the presentation by the AG Office is a cause for trauma. She asked the Provincial Treasury about the time frames that they put in place when intervening in a municipality and how they ensure that whoever does not comply is taken to task. She wanted to understand how a municipality could implement a Billing System that is ineffective and who is going to account for that.

Mr K Ceza (EFF) said that he was surprised by the AG report that the district municipality is in the top ten spenders in terms of salaries and consultants. He said that he does not know how cost effective and feasible the usage of consultants is, in the manner in which the AG has alluded to. He wanted to know how far the municipality is in concluding its usage of consultants in the municipality. The people of Ngqushwa Local Municipality have been directly communicating with him in terms of their challenges and paramount among their challenges is the issue of water and electricity. He wanted to know what the district has done to ensure that villages like Pedi and other villages under its district have access to proper infrastructure. What is maintenance capacity for water purification and dams, electricity and proper roads?

He added that in Pedi there is a road that has had potholes for more than ten years and has never been fixed; he wanted to know what the officials of that district or those who often visit there on oversight duties feel or think when they see that road. He wanted to know their strategy to fix the issue and what has been done to help with the drought and the strategies that are in place to build dams. What strategies are in place in the district municipality to reduce the migration from rural municipalities to urban municipalities? He asked if there is a plan for rural municipalities to have a developmental approach that will narrow disparities of rural and urban municipalities. He also asked who is implicated in the wrongdoing pertaining to irregular expenditure and the consequence management action that would be taken against the person or people. He asked COGTA to explain the outcomes of their Specialised Task Team, which was meant to evaluate the financial stability of municipalities in the Eastern Cape. Lastly, he wanted to know what was meant by the Mutual Separation Package and the rationale behind it.

Ms D Direko (ANC) said that on the presentations that were done by the Department and the AG, they indicated the areas where municipalities are struggling. Wasteful, unauthorised and fruitless expenditure were among those challenges, including the assets register. She said that this is frustrating and confusing because it makes one question him/herself on the role of the Treasury and COGTA. She added that municipalities submit reports to these Departments, but it seems like the departments are unable to predict or prevent the challenges at an early stage. She wanted to know what these departments do with the reports that they receive from the municipalities. The departments need to provide a clear representation to the Committee on what it is exactly that they are doing to assist these municipalities. They need to demonstrate how they interact with each other so that the Committee can understand because it looks like somewhere somehow something is missing. Ms Direko wanted to know if COGTA and Treasury failed to see the warning signs from the municipalities in terms of the regression of the audit outcomes. What did COGTA and Treasury do to assist in trying to prevent those outcomes? What could be done to match the reports provided by the departments with what is actually happening in reality because there seems to be a disconnection? The organisational structures claim to be providing support to the municipalities and yet the support does not seem to be reflected in reality.

She also wanted to know what has been done to improve the MPAC capacity in Amathole District. SALGA has a very good research team and a very good way of analysing and identifying the challenges in the municipality and have good proposals for assisting the municipalities. However, the state of the municipality is downgrading each and every day. Ms Direko wanted to know the challenges faced by SALGA in the process of trying to implement their proposals and assist the municipalities. Are they experiencing hospitality or defiance from the municipalities, because their proposals are good but there is failure in implementation? Who assisted the municipalities with financial statements? Was it in-house or from a service provider? In the case that it was a service provider, she asked for the details in terms of the cost of the service provider to the municipality.

She also wanted to know about the challenges for municipalities to comply with Municipal Finance Management Act (MFMA). Lastly, she asked for the monthly collection rate of the municipalities, alongside their monthly salary bill and services that they are paying for.

Ms M Tlou (ANC) wanted to know the strategic plans that were implemented by the municipality to remedy the audit findings by the AG in relation to qualified audit opinion in terms of infrastructure, property, equipment and irregular expenditure. She also wanted to know what gave rise to the transgression on management of the building process in relation to composition of relevant committees, as well as the impact this transgression had on municipal finances.

Ms Tlou also asked for the relevant details concerning the R111 million spent on a system of implementation that was not useful and which its contract was said to have expired during that period. She asked about the current state of institutional capacity in Amathole District Municipality, particularly when it comes to the financial management and governance. She wanted to know what is preventing the municipality from reporting on its spending on the COVID-19 Disaster Relief Grant allocation.

Mr G Mpumza (ANC) said that Amathole District municipality has secured a financial system in the financial year 2015/16. He wanted to know of the envisaged timelines for the implementation of the forensic investigation outcome that was approved by Council in respect of this almost-unusable financial system, which was a procured at R73 million but now has escalated to R111 million. He wanted to know why the leadership of the municipality have undertaken malicious compliance by not implementing the post audit action plan that they set up themselves.

Mr Mpumza wanted to know why the District would adopt unfunded budgets if the district indeed has competent senior management. The District municipality had begun to not service the debt to Amatola Water from 2016/17. The leadership of this municipality needs to explain to the Committee why they let this happen.

He asked if the Provincial Treasury is applying its mind and capability to analyse these particular reports to be in a position of support and to intervene and advise municipalities.  

He wanted to know the extent to which the Local Labour Forum has been supported and enhanced to deal with their matters internally so that there is labour peace in the District. He wanted to know how the District is positioning itself besides support from COGTA to ensure that it is providing water and sanitation in an unbroken way where communities would embark on violent protests as a result of a lack of water.

Ms P Xaba-Ntshaba (ANC) agreed with Ms Direko that the presentations caused confusion and frustration, as all the municipalities seem to be in the same situation. She wanted to know the role of Provincial Treasury and COGTA, as well as SALGA in assisting these municipalities. She also wanted to know the alternative plans from COGTA, SALGA and Provincial Treasury to turnaround the situation in the municipalities. There seems to be a problem of infighting within the municipalities, whether it is in the governing departments or political leadership. She also wanted to know whether Mnquma would survive or recover after the loss of huge sums of money due to irregular expenditure.

The Chairperson announced that the meeting would reconvene at 19:00.

The meeting was adjourned.