Amathole District Municipality: state of municipalities

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Cooperative Governance and Traditional Affairs

03 March 2021
Chairperson: Ms F Muthambi (ANC)
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Meeting Summary

Video: Portfolio Committee on Cooperative Governance and Traditional Affairs, 03 March 2021

The Committee continued its virtual engagement on the state of the Amathole District Municipality (ADM) and its local municipalities.

Having once been a financially viable district, with cashflow reserves amounting to R500 million, the ADM had become financially bankrupt. There were several reasons for this, but the biggest contributor had been the previous Council’s decision to recategorise its salary grading, from category 6 to category 7, during the 2013/14 financial year. Currently, the equitable share of the district stood at R400 million, whilst its expenditure on salaries was R800 million.

Due to the fact that much of the total expenditure was dedicated to the large wage bill, the district had been unable to spend money on the refurbishment and maintenance of its infrastructure, and had also been unable to spend money on delivering services to its residents. In addition, the district had also been unable to fill vacancies in critical positions. Faced with no other option, the district had decided to submit the decision to recategorise and standardise its salary grading to grade 7 to judicial review.

Members were surprised to hear that both the Eastern Cape (EC) and national Department/s of Cooperative Governance and Traditional Affairs (DCoGTA) had not provided the district with assistance on how to correct its salary grading. The ADM officials alleged that the departments had been non-responsive and had failed to respond to its letters and as a result, the district had not been able to address the matter. The officials further alleged that the EC DCoGTA had instructed the district to reinstate employees that it had dismissed, and to remunerate them for the months they had not been working at the ADM.

Officials from the Department responded that it had made this instruction because the district had illegally dismissed its employees. Furthermore, they refuted the district’s claims that it had been non-responsive on the matter, and alleged that this was an attempt by the officials to cover up the state capture that had been occurring in the district.

Members were disappointed at the allegations that both the provincial and national DCoGTA had neither provided support nor executed their oversight functions over the district. Without the support from both departments, the district would not be able to deal with its challenges, to ensure that it achieved sound governance and sound financial management.

Due to the number of issues that had emerged in the meeting, the Chairperson indicated that the Committee would schedule further engagements with the district, its municipalities and the relevant departments.

Meeting report

The Chairperson called on the officials to respond to questions posed by the Members in the meeting earlier that day.

Response by ADM Executive Mayor

Mr Khanyile Maneli, Executive Mayor: Amatole District Municipality (ADM) said the district had welcomed the decision taken by the Eastern Cape (EC) provincial government to invoke Section 139 (5)(A) in terms of the mandatory recovery financial plan, which would strengthen the ADM’s ability to implement its turnaround strategy. It had delegated executive management to serve in the work streams, to ensure the success of the intervention.

Explaining how the district got to its current financial situation, he said that when the current administration assumed their responsibilities in the district in 2017, they had decided to formulate a diagnostic report. Once this was completed, it had stated that the previous Council’s decision to recategorise its salary grading from category 6 to category 7 in the 2013/14 financial year had contributed to the high wage bill. Furthermore, in the 2014/15 financial year, Council had resolved to standardise the salaries, which had also contributed to the ballooning of the wage bill.

The district had taken a decision to take the recategorisation of the salary grading to grade 7, back to grade 6, and send it to court for judicial review. Regarding its rentals, it had identified land for the construction of new offices, and an environmental assessment was underway.

Currently the district had an outstanding debt with the Amathole Water Board, and it had entered into an agreement to pay the debt.

The district’s annual financial statements (AFS) were prepared internally, and it relied only on consultants to review them. The R27 million reported in the report referred to the total amount of commission paid to a service-provider appointed to recover value added tax (VAT) from the South African Revenue Service (SARS), and not to the use of consultants for the AFS’s preparation. This was done to maximise the revenue base and revenue resources, and to improve the internal controls for VAT and revenue.

On the question of why the district was not adhering to the Municipal Financial Management Act, he said that this was due to delayed payments, which had affected cash-flow. However, the financial recovery plan (FRP) had been implemented to stabilise the financial system. The district had noted that billing was now consistent.

He said 93% of the audit action plan (AAC) had been implemented, and most of the district’s transactions had been audited, but there were continual challenges regarding property and equipment transactions.

The high costs of employment due to the recategorisation of the district – and the historical debts – had affected the district’s working capital. However, the district was pleased that the 2020/21 budget was balanced; even though it remained unfunded.

Due to financial constraints, the district was unable to pay the Water Board for the whole of the 2016/17 financial year. He pleaded with the Committee to assist the district with obtaining an amnesty on the debt, as it had been unable to collect enough revenue.

Council had established a disciplinary board. An advertisement had been published and the recruitment of members was currently under way.

Council had cooperated with National Treasury on its forensic investigations into the Siyenza ventilated improved pit (VIP) toilet saga, with the matter currently in front of the courts. The ADM had also assisted in the commissioning of the forensic report. Both the former Municipal Manager (MM) and Director of Corporate Services were found to have been responsible. The investigation would be finalised at the end of the financial year.

Referring to the question on local economic development (LED), he said that both the ADM and the Ngqushwa Local Municipality (NLM) had adopted their spatial development framework, with industrialisation being central to the plan. The ADM had developed and adopted an economic growth and development strategy, which was underpinned by growth in the agricultural sector, and enterprise, rural development, poverty eradication and the promotion of heritage.  

Referring to the question of the N2 highway, he said that the ADM had submitted an application to National Treasury for R11.8 billion for the resurfacing of the provincial road network.

On the water challenges faced by the NLM, he said that the municipality received its bulk water supply from the Amathole Water Board. The provision of a consistent water supply had been disrupted by the large number of illegal water connections by residents, as many of them required water for their livestock. There had also been several instances of vandalism to water generators, which belonged to the municipality, which had disrupted a consistent water supply.

All monthly and quarterly financial and audit reports had been submitted to the EC Department of Cooperative Governance and Traditional Affairs (DCoGTA), and both the Provincial and National Treasury.

On the conditional grant expenditure, he said that the district had spent 100% of its Municipal Infrastructure Grant (MIG) allocation for the 2018/19 financial year. The district was committed to spending all of its MIG allocation for 2019/20 financial year by the end of the financial year. The district was appreciative of the support it had received from the provincial and national departments.

The Council had investigated the unauthorised, irregular, fruitless and wasteful (UIFW) expenditure for the 2019/20 financial year. On the advice of the Provincial Treasury, Council had decided to write-off UIFW expenditure dating back from 2014 to date, hence the UIFW expenditure was quite high.

Discussion

Mr K Ceza (EFF) said that the district had not answered all the questions. He clarified that earlier he had asked whether the district had rehabilitated its dams, and what other actions had it taken to alleviate the drought conditions in the area. Furthermore, had the district drilled new boreholes in the area?

The district should be able to provide the reasons as to why the water generator was destroyed. He asked how much of the money allocated for Covid-19 relief had been used to purchase enough water tankers for the community.

Much of what the municipality had said was not reflective of the reality on the ground. The municipality had painted a rosy picture, while the people in the area were suffering.

Mayor Maneli said that dam scooping was the function of the Department of Agriculture, Land Reform and Rural Development (DALRRD).

Mr Ceza was angered that someone in the delegation had referred to him as ‘mfana’ (a boy). This was disrespect towards the decorum of Parliament.

The Chairperson asked who amongst the Mayor’s delegation had made the remark.

Mayor Maneli said that he was not aware of who had made the remark.

The Chairperson took issue with the fact that the officials seemed to be laughing at the issue. The meeting would not continue until the individual was identified.

Ms H Mkhaliphi (EFF) requested that the district name the individual who had made the remark, so that the Committee could address him.

Further, the district had not responded adequately to the questions posed by Members.

Mr Nceba Ndikinda, Speaker of the ADM, apologised for making the remark and clarified that he had speaking to someone else.

The Chairperson requested that all officials present in the meeting focus on the matters at hand and to respect all Members in the Committee.

Mayor Maneli apologised on behalf of the municipality.

He said that there was a detailed report on the progress of the drilling of boreholes in the various municipalities and other water sustainability solutions. Currently in Peddie, a town in the NLM, 200 boreholes had been drilled.

He confirmed that the district had received the Covid-19 relief funds and the money was used mainly to purchase water tankers.

Mr G Mpumza (ANC) asked when Council would institute its investigations into the acquisition of the financial system.

He asked whether the municipality was aware that it had adopted an unfunded budget and if it was, why had it done so? In addition, was the municipality aware that they had gone against the Municipal Finance Management Act (MFMA) and the financial regulations?

What was the total staff complement when the administration assumed office in 2017? How many employees had either left or being dismissed since 2017? Had the municipality made new appointments and had it filled vacancies, or had it employed employees where there were no vacancies?

It was concerning that both the senior management and the MM’s salaries were above the gazetted upper limit. This was against the law. He asked what consequence management had been applied.

Ms Mkhaliphi said that the circular published by the district on its inability to pay its workers had been withdrawn. She asked how the district was able to continue paying salaries, whilst it contested the reinstatement of former employees in the courts.

She asked whether the district had good relations with labour. Courts should not be the first call for politicians to relate to labour, as this would only intensify the issues.

Mayor Maneli said that Council had supported National Treasury with the commissioning of the forensic investigation on the VIP toilet saga. It was unable to determine timelines on the conclusion of the matter, as it was currently with the Hawks.

Referring to the unfunded budget, he said that the high cost of employment was due to the standardisation and recategorisation.

Council had received the final diagnostic report in the 2018/19 financial year. Labour had taken issue with its decision to retrench workers and as a result, it was forced to take the matter to court.

He that indicated the staff complement stood at 930 employees, which was beyond the number required.  

Mr Mpumza insisted that the municipality had not answered his question on the staff complement adequately.

Mayor Maneli said that during the 2017/18 financial year, the municipality had declared a moratorium on the employment of new officials, due to the large wage bill.  

He confirmed that the district was aware that the budget was unfunded.

The Chairperson asked why Council had not gone to court to attain a declaratory order against the district being graded wrongly. Employees could not suffer for the mistakes of Council’s wrongful resolution, which was in fact an illegal resolution. However, the district should try to deal with political issues through negotiation, instead of using the courts. 

She asked if the South African Local Government Association (SALGA) had assisted the district with its financial analysis for the past three years. Why had the district attained a disclaimer audit opinion in the 2018/19 financial year? In addition, what was the nature of the financial assistance provided?

Why had the provincial and national DCoGTA been unresponsive to the district’s proposal to address its poor organisational structure?

Did the district have a timeline for the implementation of the recommendations made in the forensic report, on the financial system? Furthermore, what had the cost of the investigation been?

It was reported that phase 1 of the investigation into corruption and administration was related to the open water case. What action had been taken by the municipality?

Mr King Singanto, Programme Manager, SALGA Eastern Cape, said that during the earlier meeting, SALGA had outlined how it had supported the district, including with its financial analysis. Whilst assisting the district on its financial analysis, it had noted the disclaimer it had received and the reasons for it. The ADM’s financial stability had regressed over the years -- previously, it was one of the districts in the country that had cash reserves.

SALGA had continued to have engagements with the district’s officials, and had tried to find amicable situations to solve the challenges faced by the district. It had also worked with the EC DCoGTA and EC Treasury when providing support to the district. 

The Chairperson said that the SALGA report indicated that it had provided the Mbashe Local Municipality support to improve its labour relations. She asked why the report had not indicated that it had provided support to the district.

Mr Singanto said that SALGA had tried to mediate between Council and labour, to ensure that they both reached solutions in an amicable manner. SALGA’s role was to assist both parties to find a solution.

Cllr Bheki Stofile, SALGA National Executive Committee (NEC) Member, said that many of the employees in the district belonged to labour unions, which politicised the problems. He expressed his concern that labour leaders had tried to act as if they were the leaders of the district, which was a danger going forward. An independent forum, where both the district and labour could deliberate on their differences, should be established within the local government framework.

Ms Charity Sihunu, Acting General Manager: Municipal Governance and Support, EC DCoGTA, explained that a municipality, when submitting a request for a waiver to the Department, had to motivate its reasons. If it received support from the provincial department on the waiver, the Department would submit the application – with a letter indicating its support of the district’s request – to the national DCoGTA, which then either approved or declined the request. In the case of the ADM, the request was made while it was still on a wrong grading, and as a result, it was difficult for the provincial department to motivate on the district’s behalf to the national DCoGTA. In fact, this would have been irresponsible. It had therefore informed the district to first correct its grading before submitting the application.

The Chairperson asked whether the Department had advised the ADM on how to correct its grading. Once the department had realised that the grading was illegal, what had it done to correct the issue?

Ms Sihunu said that the ADM was informed by the Department that it had to address its grading.

Mr Andile Fani, Head of Department (HOD), EC DCoGTA, said that the Department had informed the district that it could not grant a waiver for the salaries because they were on the wrong grade. It had informed the Council that it needed to address the matter. Whilst the legislation states that the Department could advise and provide support to a municipality, it could not force it to take up that support. Even if the Department wanted to intervene in the matter, it had to show that it had attempted to provide support to the municipality.

Mr Themba Fosi, Deputy Director-General (DDG), DCoGTA, said that the provincial and national Department had worked together on this matter. The Departmental team working on categorisation of municipalities had informed the province that there were criteria on the process that must be followed before a waiver could be granted.

The Chairperson asked the district to confirm whether the Council was aware that its grading system was against the law and that advice was provided. If it was aware, why had it made the resolution and why had it not changed it when it was made aware that it was wrong?

Dr Thandekile Mnyimba, Municipal Manager (MM), ADM, said that the district had acquired SAP systems in 2015, together with a service provider that would implement and manage the financial system for a period of three years. The service provider had been unable to implement and maintain the system and in fact, had caused serious damage to the same system it was supposed to maintain. As a result, when the current administration assumed office in 2017, it had approached both the provincial and national Treasury departments to support and intervene in the process. The intervention by the departments had assisted in stabilising the system and ensuring that the term of the service provider ended after three years. National Treasury had indicated its intention to institute investigations on the acquisition of SAP and the service provider, which the ADM supported. Once it completed its investigation, it had submitted the report to the district, which then tabled it to Council. Thereafter, Council had made resolutions based on the recommendations of the report. Council had authorised the accounting officer to take the matter to the law enforcement agencies, and the charges were currently with the Hawks. Presently, the district did not know how long it would take for the Hawks to investigate the matter.  

The Chairperson asked what steps the district had taken to ensure that those accused of the wrongdoing were held responsible. Disciplinary proceedings could and should take place alongside the investigations of the law enforcement agencies. The MFMA was explicit that the municipality must hold officials accused of financial misconduct to account. In previous sittings, the Hawks had informed the Committee that the accounting officers did not usually have the appetite to cooperate with the law enforcement agencies during their investigations. There was impunity in the municipalities, as the individuals knew there was no consequence management.

Dr Mnyimba said that the forensic report recommended that charges should be laid against the former MM, and that there must be criminal and civil charges laid against the service provider, so Council had authorised the accounting officer to lay charges against both parties. The current MM had followed up on the matter with the law enforcement agencies in December 2020. The cases had been affected by the lockdown regulations.  

The report had identified only the former MM for wrongdoing. The report had also recommended that the district had to strengthen its procurement processes, as National Treasury found that the tender had been processed very quickly. Poor procurement processes had also led to the Siyenza VIP toilet scandal occurring in the district.

The district had supported National Treasury in its investigation into the toilet scandal, by providing documents and office space for the Treasury officials. Both the former MM and former Director: Corporate Services had been implicated, and charges had been laid against both of them.

Council had not received a communication from the EC DCoGTA on how to correct its salary grading. In 2017, the current administration had found that the general managers earned more than the senior managers, their superiors. It also found that the senior managers earned more than the MM. Council had taken a decision to ask for a waiver, whist it rectified the process over three years. Council had then written to the EC DCoGTA twice, but had still not received a response. It subsequently wrote to the national DCoGTA, and informed it that the provincial department had been non-responsive. No response was received from the national department either. It was not true that the Department had advised the municipality on the matter.

Prior to 2015, the ADM had cash reserves amounting to R500 million. With the decision to standardise and recategorise the salary grading, the municipality had seen a decline in its finances. Currently, the equitable share of the district was R400 million, whilst its expenditure on salaries was R800 million. This had severely compromised the district’s ability to provide service delivery to its residents. In fact, the high wage bill had bankrupted the district. In an attempt to address the high wage bill, from 2019 the Council had adopted budgets without providing salary increments. It did this in the face of a political settlement agreement it had signed with labour, which required that it continue increasing salaries.

He said that the circular had stated that if the district instituted salary increments, then all employees of the district – including traditional leaders and councillors – would not receive salaries for four months. This information was known by all employees from 2019, as the district had first mentioned this in a labour forum meeting. It had spent one year trying to convince labour against its demands for salary increments, but labour would not change its position. During the discussions, it had informed labour that the categorisation was illegal, but still, they had not changed their position. As a result, in the following year, management informed Council that it had engaged labour for 12 months on this matter, and due to its rejection of the district’s position, management had no other option but to seek a judicial review of the categorisation and standardisation, which it did. It was currently awaiting the court verdict.  

During its tenure, the current administration had tried to ensure that the budget was balanced, and it had been able to do so. The district had not been able to pass a funded budget because of one of the terms of the political settlement in 2019, which required that the district reinstate employees it had dismissed and that they be remunerated for the months when they were not employed by the district.

Council had taken a decision to institute a moratorium for employment. It had agreed on the necessary skills it required and decided that those vacancies should be filled, regardless of the moratorium. Currently, the district lacked artisans and process controllers. Several of the district’s employees did not add value to it -- in fact, there were many duplicate positions within the administration. In order to free up resources to fill vacancies in critical areas, the district needed to offload many of its administrative personnel. In an attempt to do so, the district had written to National Treasury to request financial support to implement mutual separation agreements. This would assist with parting ways with the employees amicably. The district estimated that it required R150 million to do so, and labour supported this request. Last year, National Treasury had said that it was speaking to the DCoGTA on how fund this agreement.  

The EC DCoGTA would be better placed to report to the Committee on the Open Waters investigations. The MEC had written to the Executive Mayor, indicating the Department’s intention to conduct the investigation. The Executive Mayor had replied to the MEC, on the advice of the legal team, and reminded him that according to Section 106 of the Municipal Systems Act, should the MEC receive allegations of misconduct in a municipality, it was his/her duty to write to the municipality and request that they respond to the allegations. If he was not satisfied with the responses from the municipality, he/she could then institute a forensic investigation into the municipality. The MEC must appoint natural persons to conduct the investigations in the municipality. The EC DCoGTA had appointed a service provider, Open Waters, to conduct the investigation, which was against the law – as natural persons had to be appointed.

Efforts to capacitate the Municipal Public Accounts Committee (MPAC) were under way, and the district was working the provincial Treasury in this regard. Provincial Treasury had informed the ADM that it had been under-reporting UIWF expenditure, and had subsequently advised it to refer back to previous financial years, to clarify the correct UIFW expenditure amount. The district had abided by this request and conducted investigations into its UIFW expenditure, and once it was finalised, it had tabled the final financial reports to the MPAC. All UIFW expenditure would reflect in the next annual report.

The ADM had been able to prepare its AFS internally.  

Mr Sithembile Zuka, a councillor at the ADM, said that the major issues began when there was an amalgamation of the ADM. The district could not service its debt to the Amathola Water Board, as its collection of revenue had been minimal.

The recharacterisation of the municipality was an illegal act, and that was why the Council had approached the courts on the matter.

He pleaded with the Committee to support the district’s request for amnesty on its debt with the Amathola Water Board.

Ms Lavern Jacobs, a councillor at the ADM, said that all information provided by officials should be up to date, to ensure that there was a proper engagement on the issues. Some of the information provided by officials was incorrect. The EC DoGTA had not intervened, as had been stated.

Progress had been made on the registration of indigents on to the system. The district was currently struggling to collect revenue. It had noted that some of the debt owed, was owed by the provincial departments, which had affected the revenue collection rate. Illegal water connections had also affected revenue collection. As a result, the Council had resolved to formulate a policy called the rural yard connection policy, which would allow for people to connect to the meters in the proper way, and they would be issued with an account.

Council was satisfied that it had been able to move from an unfunded budget to a balanced one. It held the belief that it would be able to turn around the municipality.

The ADM had consistently spent its grant allocation, but it had found that the transferred amount had decreased in the past two financial years.

The district required serious intervention to ensure that it attained sound governance and proper financial management.

Ms Mkhaliphi said the officials had not indicated why the district had not established disciplinary boards.

The AG had found that the district’s accounting system had not been set up, and as a result, accurate billing of residents had not occurred. This had affected the municipality’s ability to collect revenue.

She asked whether it was true that both the provincial and national DCoGTA departments had not responded to the district’s letters. If the allegations were true, why had the departments not responded? If both departments were not responsive to the issues faced by the ADM, the district would not be able to solve its problems. It would be concerning if the departments applied this approach to all municipalities in the country.

What was the staff complement for the district? Was the MM included in the staff who would not receive their salaries in February? Would the salaries of the staff not be paid, or would the district retract or reduce bonus payments?

Mr Mpumza said that the general code of conduct for councillors specified that councillors must, at all times, act in the interest of the municipality. It went on to mention that they must uphold the integrity of the municipality they were leading.

He asked why two senior managers had been employed whilst there was a moratorium on employment.

What was the total amount of UIFW expenditure the district had incurred? What was being procured at the time when the expenditure occurred?

The District would have to implement its financial recovery plan (FRP), which should include cost containment measures and a plan to decrease the salary bill. Internal controls in the district were poor, as reported by the Auditor General (AG).

He asked what the municipality had done to address the discrepancy between the high salary bill and its revenue collection.

Ms P Xaba-Ntshaba (ANC) requested that the municipality should tell the Committee the truth.

Based on the comments of the municipality, it was clear that there was conflict between it and the provincial CoGTA department. She asked why the EC CoGTA had not assisted the municipality. What were its reasons for wanting the reinstatement of dismissed staff at the district? She accused the Department of failing the municipality.

No action had been taken by the Department to ensure that consequence management was implemented in the Siyenza Group toilet tender scandal.

The district had tried to employ qualified senior managers, but it had been unable to do so because of its bloated staff complement. The district should be able to take such difficult decisions, to ensure that there was quality service delivery provided to its residents.

Dr Mnyimba said the district had taken a decision to establish a disciplinary board. An advert was published, but due to the lockdown, there had been a delay in processing the responses. It had been re-advertised in November. A process to appoint members of the board was currently under way, and all members should be appointed in April. The MLM and NLM did have functional disciplinary boards. Provincial Treasury had rejected Great Kei’s request to establish a joint disciplinary board between it and the district.  

The circular issued in January had notified the ADM employees, including the accounting officer, councillors and traditional leaders serving in the municipality, that they would not receive their salaries for four months. It was an internal circular and was issued to ensure that employees were able to inform their creditors in time. The circular had also indicated that management would try to stop any scenario preventing it, from occurring.

ADM’s staff complement stood at 1 641.

After analysing the cash flow projections, management had decided that councillors had to be included among the employees who would not receive their salaries.

The Council resolution on the moratorium would be provided to the Committee. It was the discretion of the accounting officer to indicate whether a position should be filled or not. Vacancies in the Executive Mayor’s office had to be filled, as he had no personal assistant and no secretary. Other core support functions had to be filled.  

Dr Mnyimba said that when he applied for the MM position, the advert had indicated that the appointed individual would receive R1.7 million per year. Once the MM was appointed, the Executive Mayor found that the current senior managers were earning R1.8 million, whilst the outgoing MM was earning R2.1 million. The Mayor had then requested that the current MM earn the same as the outgoing MM, to prevent him earning less than his subordinates. Council had subsequently resolved that it should recharacterise the grading. The district had then requested that there be no salary increments for the general and senior managers, and the MM.

The senior managers and the MM had not taken bonuses for the past three years.

Fruitless and wasteful expenditure had amounted to R2.5 million in the 2018/19 financial year, which was caused by the district’s inability to pay its creditors on time.

There had been no unauthorised expenditure for this past financial year and the officials were working on reducing irregular expenditure to zero.

By implementing the FRP, the district had been able to reduce the total expenditure on salaries from 52% to 49% in one financial year. However, after the implementation of the political settlement, total expenditure on salaries had increased to 53%, which was a serious setback.

Ms Pashee Roboji, Deputy Director-General (DDG): Local Government, EC DCCoGTA, said that the district had provided hands-on support from the Department, but it had not been able to provide financial support. The district had been provided with money through the provincial disaster management centre.

The Department had held meetings with the national department on the ADM’s grading. In addition, it had had meetings with the provincial government and the district. Follow up meetings were subsequently arranged, and had taken place in the district office of the ADM. Through the JIZ partnership and with the assistance of Rhodes University, the department had provided a MPAC. The Department had also tried to provide mediation between labour and the district, with the help of SALGA.

Mr Fosi said that the team from DCoGTA had interacted with him on the characterisation of the municipalities on two occasions. When the salary severance package was agreed upon, the DCoGTA had written to the National Treasury, and had said it could not assist with funding of severance packages.

Mr Xolile Nqatha, MEC: COGTA, Eastern Cape, recommended that the Committee consider charging individuals who had told falsehoods before it.  

He alleged that there had been state capture in the ADM, with businesses colluding with the district officials. Accusations of non-responsiveness of the Department were a cover up for the corruption taking place in the district. In one instance, the officials were paid funds directly into their bank accounts by a service provider. Support had been provided, but it had not been received by the district.

Both the MPAC and the disciplinary boards had been collapsed deliberately in order to prevent accountability.

The current MM’s salary was R2.4 million per year, which was higher than the previous MM’s salary. This was an indication that the district had no regard for the rule of law.

The Systems Act empowered the MEC, if he suspected or was aware of wrongdoing in municipalities, to institute investigations and could appoint a team. It did not refer to appointing juristic persons.

On the decision to reinstate the dismissed employees, he said that the district had not followed due process when dismissing the employees. On the eve of the implementation of the political settlement, the district had decided to apply for a waiver, which the bargaining council had rejected. It had applied for this waiver once more in 2020, which the Department had viewed as being wrongful.

He expressed disappointment that the district officials had not taken responsibility for their wrongful actions.

Ms Xaba-Ntshaba asked why the Department had given the order to reinstate the employees at the district. What was the intention of building toilets in the district? Residents in the province had complained that the provincial government had not provided them with housing.

Ms M Tlou (ANC) asked how much the VIP toilets had cost. Had the district built them? If it had not, this should be classified as fruitless and wasteful expenditure. Who should be held liable for the failed project? All the officials had avoided responding to questions referring to the matter.

Ms D Direko (ANC) said that the provincial government and its municipalities had more than administrative challenges. She asked when the MEC had first realised that there was alleged state capture in the district.

MEC Nqatha said that the Department had put together trends which illustrated that there had been collusion between businesses and the political and administrative officials of the district.

Ms Direko said she wanted a clear indication of when he became aware of this. She asked why the MEC had taken long to intervene in this matter. This had created the impression that the Department had been content with the alleged state capture occurring. What had been the role of the provincial DCoGTA and Treasury in providing oversight in the district? Both departments had not acted to trim the bloated labour force in the district. Both the national and provincial DCoGTA needed to take responsibility for the problems faced by the district. If all the relevant stakeholders had provided oversight, the state of municipality would not have regressed.

MEC Nqatha said that there had been a misrepresentation on the work conducted by the EC DCoGTA. The national Department had indicated that the provincial Department had been proactive in attending to the challenges. There had been no cooperation from the ADM.

The Chairperson said that the National Treasury report stated that there had been no compliance in terms of Section 71 of the MFMA. She asked what the Department had done when it had picked this up.

Ms Mkhaliphi asked how the Department would ensure that it gained cooperation from the district.

The EC DCoGTA had disputed the version of events provided by the ADM, so they should be invited to appear before the Committee for another sitting in order to respond to the allegations levelled by the district.

Ms Bulelwa Nqadolo, DDG, EC Treasury, said that the department had provided hands-on support to municipalities in distress. The ADM had had cash reserves before 2015, but these were exhausted after it upgraded the municipality to level 7. The Department had presented a report to the district in 2016, where it highlighted issues of concern, such as the escalation of debt, the migration from old offices to new ones with high rental, employee costs and their loan from the Development Bank of South Africa (DBSA) to finance the VIP toilets. Subsequently, the ADM had sent a letter stating that it would inform the Department that it should not approach it unless asked to by the district.

The EC Treasury worked hand-in-hand with the EC DCoGTA and SALGA to attend to the challenges faced by municipalities in the province.

Initially the ADM had sought to appoint a service provider to manage all seven of its municipality’s disciplinary boards. As a result, only three municipalities had disciplinary boards.

The ADM, like other municipalities in the province, did not implement unfavourable recommendations provided by the Department. Only 11 municipalities in the province had unfunded budgets, compared to 18 four years ago.

MEC Nqatha said that if there was non-cooperation from a municipality, then the Department had to escalate the matter in line with the provisions of the Constitution. The Commissions Act of 1947 provided for the gazetting of an investigation, so as to empower investigators to issue subpoenas – which they had done – to ensure that the district did cooperate. Presently, the Department was considering invoking Section 139 in the district.

There had been an investigation and arrests have been made against those who were responsible for the VIP toilet saga. He requested that the municipality provide more information on this.

Referring to the reinstatement of workers who were dismissed, he said that municipality had decided to dismiss the workers illegally, so the Department had instructed it to reinstate them. With their dismissal, the district had been in crisis.

The Department would submit a file with a body of evidence to support all of the claims it had made in the meeting.

Mr Nkinda requested that the municipality not discuss the matter on VIP toilets as it was before the courts.

The Chairperson mentioned that the Committee would reschedule a meeting with the district. She requested that he should not abuse the sub judice rule. Members could refer to the matter without point to the material findings of the case.

Mr Ndikinda said that the district had made progress in providing sanitation to the villages in the area.

Council had taken a resolution to reverse the grading, but were first advised to solicit a judicial review, as the resolution to change the grading had been implemented many years back.

Dr Mnyimba confirmed that the meetings referred to by the provincial departments had occurred.

Both the EC DcOGTA and Treasury had been non-responsive with regard to the district’s request for assistance on the salary grading. He had not said that they had not been supportive on other issues.

Section 106 of the Municipal Systems Act stated that if the MEC deemed it necessary, he could designate a person or persons to investigate suspected wrongdoing in a municipality. However, it was explicit that the MEC could not appoint a juristic person to conduct the investigations, yet the MEC had gone against this and appointed a service provider. As it was an illegal appointment, he had asked on what legal basis the Department was making payments to the service provider.

The ADM had been unable to pay its creditors during the employee strikes. As a result, it had approached the banks, and requested that they pay the service providers directly, as the district could not do so. There was nothing unlawful about this.

It was the previous MM who had written the letter to the EC Treasury, stating that the Department should not return to the district. The new MM had sought to make amends, and had since approached the Department to apologise on behalf of the district. The new administration was committed to taking responsibility for all actions taken by it and its predecessors, hence in another meeting with National Treasury, it took responsibility for not following the Department’s advice not to appoint SAP as a service provider.

The current budget was co-produced with the Provincial Treasury.

Referring to the question on the lack of political oversight when the district collapsed, he asked why the provincial departments had not challenged the Council’s decision of standardisation and recharacterisation which had been done in 2015.

Referring to the political settlement reached with labour, he said that the instability caused by labour in the district was not a coincidence. Labour had legal recourse and could have used it when the district applied for a waiver. This matter did not require the EC DCoGTA to interfere. The Department should have acted in the interests of government, and not of labour.

He disputed the Department’s version on the dismissed employees. The employees had been dismissed in March 2019, and their dismissal had nothing to do with the strikes that had occurred in November 2019.

He agreed that the district required support to attend to its challenges. The Council had resolved to rescind the recharacterisation and standardisation of the municipality’s grading. It had also resolved to institute legal charges against the previous MM and the appointed service providers.

Due to the fact that most of the total expenditure was spent on wages, the ADM had not been able to spend money on repairs and maintenance of its infrastructure, and it could not spend on service delivery. The Labour Court had stated that the district could initiate a process of retrenchments, as it could not use its money to provide services. The decision to initiate a process of retrenchments was made by the Council, and not the management.

The Siyenza toilet scandal was currently before the courts. The former MM and the Director of Corporate Services were before the courts. Management had questioned why the former Director currently served as the Chief of Staff in the Treasury MEC’s office, as he was part of all of the illegal decisions made in the district.

The current Council was looking to rectify the wrongs of the past, and was trying to implement sound governance.

The Chairperson said that the information provided illustrated the weaknesses in the Inter-Governmental Relations system. Further engagements would be arranged by the Committee.

MEC Nqatha said that the Department was unable to respond to the allegations levelled against it by officials in the district.

The Chairperson said that the Committee had exceeded its allocated time and could not continue further. She advised that all officials should prepare adequately for the reconvened meeting.

She thanked the Members and the various officials for their participation. She also thanked the parliamentary staff for their support in the meeting.

The meeting was adjourned.

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