Uthukela District Municipality: state of municipalities

Meeting report

When the meeting reconvened, it was the turn of the Inkosi Langabalilele Local Municipality to respond to questions regarding the situation in the municipality.

Ms Jabulile Mbhele, Mayor of Inkosi Langalibalele, apologised for having missed the first session earlier in the day. She had sent her apologies, but it seemed they never reached the Chairperson. She had been aware of malicious rumours that had been spread about her for not having attended the earlier session.

She said four to five questions had been posed to her Municipality. She would respond to all of them and where possible, the municipal manager would add more flesh.

The Municipality had operated with an unfunded budget since the 2011/12 financial year. Since then, the Council had continued to operate with an unfunded budget. She emphasised that her administration had inherited this abnormal situation from the previous municipalities that now comprised the bigger amalgamated Inkosi Langabilele.

In order to contain costs, the Municipality had instituted various cost-cutting measures such as a moratorium on new appointments and changing the status of the Mayor, Deputy Mayor and the Speaker from full-time to part-time positions.

The Municipality had also received an instruction from the Kwazulu-Natal (KZN) Member of the Provincial Executive Committee (MEC) responsible for Cooperative Governance and Traditional Affairs (COGTA), that Council had to ensure that a funded budget was approved. The KZN Provincial Treasury had also informed her that the financial position of the Municipality had improved.

On unauthorised, irregular fruitless and wasteful expenditure, she noted that these payments had recorded as such as because the Municipality had failed to honour certain financial commitments to entities like ESKOM. These late payments had led to increased interest charges.

On the adverse audit outcome that had been received by the Municipality, the Committee heard that the Municipality's audit woes had commenced during the 2015-2016 financial year, followed by another disclaimer for the 2016/17 financial year.

For the 2017/18 financial year, the Municipality had received another adverse finding, with a very long list of remedial actions that had to be undertaken.

For 2018/19, another adverse finding had been issued by the Auditor-General of South Africa (AGSA), coupled with a reasonable list of issues.

In this particular year, the Municipality had been able to provide all the relevant information that had been sought by the AGSA, and had provided it within the prescribed parameters.

She conceded that her Municipality had serious ageing and broken down infrastructure woes. These woes pertained to electricity, roads and traffic lights that did not function. She called on the Committee for assistance in dealing with the infrastructure woes of the Municipality.

She reiterated an earlier comment that two municipalities, Imbabazane Local Municipality and uMtshezi Local Municipality, had merged to form Inkhosi Langabilele. She lamented that the two towns, of which one was formerly Estcourt, had found themselves in dire straits, though potholes had ceased to be a problem. The general road infrastructure needed serious attention, however.

On irregular expenditure, she added that all of these matters had been referred to the Municipal Public Accounts Committee (MPAC), as well as internal audit for investigation. The Municipality would now compile quarterly reports to monitor irregular expenditure.

Mr Patrick Mkhize, Municipal Manager (MM), said that the Mayor had already related the historical facts about the unfunded budget, which dated back to 2011/12, and that the current administration had inherited this situation. This had been exacerbated by the amalgamation of two municipalities that had been governed differently. The one former municipality used to be considered as the flagship, whereas the other municipality had serious governance issues.

He said that creditors had not been paid and this had had a negative impact on the municipality's audited outcomes. This had made it difficult to draft a budget. The matter could be resolved if the Municipality paid all outstanding creditors for goods and services received. If this transpired, then the Municipality could open the new financial year with the right opening balance.

The bulk of the unauthorised expenditure was related to over-expenditure of the allocated budget. He commented that attempts to stay within budget limits were against the backdrop of cost containment measures. The cost containment measures implemented were related to the senior leadership of the Council, who had taken a decision to relinquish their full-time positions for part-time positions. Those affected were the Mayor, her Deputy, the Speaker and the Chief Whip of Council. These measures had been but one of several aimed at cost containment.

He said that the service delivery needs of the community would always lead to over-expenditure. The issue of old plant and infrastructure remained a burden on expenditure. He agreed with the Mayor that the ageing and dilapidated infrastructure had placed a significant financial burden on an already constrained budget.

A huge chunk of the irregular, unauthorised, fruitless and wasteful expenditure had been historical.

The former administration had formed audit committees in 2011/12. This had also been the first and only time that the Municipality had obtained received a clean audit. When Section 27 to 29 of the Municipal Structures and Systems Act had been applied to these audit committees by the current administration, these committees had been found to be irregular.

Discussion

Ms H Mkhaliphi (EFF) said that every year the audit action plan had called for the same remedial action to be instituted. She took issue with the submission that R38 million in receivables had been written off. She wanted to understand what this all entailed. She was emphatic that the Committee would not just “willy-nilly” agree to any money just being written off. Requests for money to be written off should be reasonable.

She had already realised that the issues raised would cut across all the municipalities that had been scheduled to appear before the Committee. She cautioned the Municipality not to hide behind laws that would enable them to arbitrarily write debt off. The Municipality had to convince the Committee of the reason or rationale for money to be written off.

She also referred to the institutional capacity of the Municipality to deliver on basic services. The General Manager for Basic Services had resigned, so a vacancy existed. The post of General Manager for Planning and Development had been vacant since 2017. These had been the same issues raised by other municipalities as well.

She said that municipalities liked to complain about ageing infrastructure and other infrastructure woes, yet they had not carried out their own planning. Much of the existing infrastructure in South Africa at the current moment had been constructed during colonial and apartheid times.

Although the reasons advanced for irregular, fruitless and wasteful expenditure had been attributed to the amalgamation, she called on the Municipality to account and not to blame the amalgamation.

She also noted the comments about the debt incurred by the two former municipalities that had had been amalgamated into Inkosi Langabelile, and wanted to know how the Municipality intended to deal with the debt issue.

Inkosi Langabelile response

Mayor Mbhele replied that the General Manager for Basic Services had resigned in December, and a process had been started to fill the vacancy.

She asked the Municipal Manager to respond to the other questions in detail.

Mr Mkhize referred to the unauthorised, irregular, fruitless and wasteful expenditure, and conceded that the Municipality's control measures had been ineffective. Investigations had been launched and concluded. A report would be tabled before Council.

The R429 million that had been highlighted was related to receivables. This had been an amount owed to the Municipality, but it had been unable to locate the exact required supporting documentation. He once again blamed the previous administration for the challenges at the Municipality.

On debt being written off, he added that if it proved to difficult to determine a financial transaction, then the Council had full authority to write off a debt. If the debt was not written off, the balance sheet would be adversely affected.

He said the General Manager: Development and Planning vacancy had been advertised, followed by the recruitment process. Two candidates had been short-listed and interviewed. The Municipality had offered the position to the candidate who had scored the highest during the recruitment process, but

the candidate had declined the position. It was then offered to the candidate that scored the second highest, but this candidate had also declined the position as both of them had received better offers from bigger municipalities. The process would now be repeated.

He said the post of General Manager: Civil Services had also been advertised in the media.

Follow-up discussion

The Chairperson asked what constraints had been identified per the Municipal Structures and Systems Act, and how they had responded to them.

She asked about the progress following the invocation of Section 139 of the Labour Relations Act to deal with the bloated organogram of the municipality. She also wanted to know from COGTA when the intervention in the Municipality would cease, and whether COGTA had satisfied itself that the Municipality had progressed.

Ms Joey Krishnan, Chief Director: Municipal Finance, KZN Department of COGTA, said that the Department had been satisfied and stood ready to terminate the agreement on the agreed date of 31 March 2022.

She also wanted to understand the role of the financial expert in improving the audited accounts.

On unauthorised, irregular, fruitless and wasteful expenditure, she had posted a follow-up on the submission that had to be made in terms of the Municipal Finance Management Act (PFMA), Section 32, which dealt with the lack of consequence management for irregular, fruitless and wasteful expenditure offences. The Municipality needed to provide a clear and detailed report.

Inkosi Langabelile response

Mr Mkhize said that the traditional leaders had halted their Council attendance after the Council had descended into chaos. He called on the traditional leaders to assume their responsibility.

He added that Section 139 of the Labour Relations Act had been invoked in 2018 to address the bloated organogram of the Municipality. Before this process proceeded, the Municipality had engaged with trade unions on the way forward. They had eventually reached an agreement after the trade unions had proposed that they would forgo their pay hike demands for the foreseeable future to save existing jobs.

The Municipality had also placed a moratorium on the appointment of people from outside the current organogram of the Municipality. Where an employee had retired or passed away, those positions would be kept vacant. In this way, the Municipality had ensured that the right people occupied the right positions. The Municipality had already finalised the placement, and now the job evaluations would be conducted.

He conceded that unresolved challenges remained. These, of course, emanated from previous years, hence the intervention of the specialist. The AG could not conduct an audit on assets, as the Municipality had no records. It had hired the services of specialist who had devised a methodology that the AG had found acceptable.

On the submissions, he first needed to submit to Council, but for now they would present their submissions and reports on a monthly basis to Council, and not on a quarterly basis as previously thought.

On under-spending, irregular, fruitless and wasteful expenditure, he once again blamed the previous administration for the woes at the municipality. He highlighted the cash flow problems and the consequences for the municipality in the form of penalties.

Follow-up discussion

The Chairperson said that it was important to deal with the audit outcomes. She pointed out that the Municipality continued to receive adverse audit opinions, and wanted to understand whether it had any idea what this meant. What were the root causes of the Municipality's continued dismal performance? The continued adverse findings pointed towards non-compliance with the recommended remedial action ordered by the AG. If the Municipality had instituted corrective measures as guided by the recommended remedial action, it would not find itself in perpetual trouble.

She said unauthorised, irregular and wasteful expenditure had become a problem for the Municipality.The AG had noted that no investigations had been launched to recover any money from implicated officials. The PFMA prescribed the process that had to be followed when a state entity had reported irregular expenditure. There seemed to be laxity in the way the Municipality had dealt with the remedial action that had been prescribed by the AG. She took issue with the fact that it seemed as if officials totally disregarded compliance with the relevant legislation.

In the absence of any consequence management, impunity would certainly take hold. She touched on the asset register and unauthorised expenditure, and decried the adverse audit findings that the municipality had received. She asked what the Municipality intended to do to correct this. Was there adequate capacity within the finance department?

She asked if the Mayor had been at the helm of the Municipality for the last three financial years. Under the circumstances, it was important for the Mayor to account. There had to be accountability by the leadership. She also wanted to know whether the Municipality still utilised consultants.

She once again reiterated the stance of the AG that the Municipality had fallen into disrepute, and criticised the Municipality's "malicious non-compliance," as pronounced by the AG. The AG had even concluded that no opinion could be expressed on assets, the receivables and other key audit deliverables. She highlighted the absence of effective control measures, and advised the Mayor to indicate the corrective measures that needed to be implemented.

Ms S Buthelezi (IFP) said she was unhappy with the responses that had been provided by the Mayor about the participation of traditional leaders per legislation. She had not grasped anything that had been said. She did, however, note the information on traditional leaders having been provided with service tools. She also took note of the intervention by the Administrator and the Speaker with the traditional leaders.

The Chairperson agreed with Ms Buthelezi's comment. She added that this question had not been fully answered.

Inkosi Langabelile response

The Mayor replied that she had been at the helm of the Municipality during the three years in which the municipality had received adverse audit findings. Out of the 37 issues that had been identified by the AG, 31 had been resolved. She thanked COGTA for its role in the resolution of the misunderstandings.

The Municipality had not been able to provide evidence on unauthorised, irregular, fruitless and wasteful expenditure to the AG during the 2016/17 audit. The AG had then issued a disclaimer.

In her view, as Mayor, significant progress had been made thus far.

She denied that a rift with traditional leaders had existed, and instead highlighted that the Council had enjoyed cordial relations with traditional leaders. In 2018, the Council had become unstable and afterwards the traditional leaders had halted their attendance. She had negotiated to her level best and had interacted with traditional leaders who had attended Council meetings. The Council had been assisted by the Administrator and COGTA, who had intervened with the traditional leaders.

Follow-up discussion

Mr K Ceza (EFF) commented on the recovery of money lost due to unauthorised, irregular, fruitless and wasteful expenditure. He raised the matter of the consultants, and said that the Municipality had fired several consultants. He asked whether the Municipality could not have foreseen that the competency of the consultants had been questionable. He also asked why the Municipality had not seized the opportunity for skills transfer to municipal officials by these consultants who had compiled the financial reports, and questioned whether there had been value for money.

It seemed as if the Municipality did not have either the capability or capacity to implement the pre-determined indicators. He also lamented the fruitless and wasteful expenditure in the Municipality and said that the Mayor, wittingly or unwittingly, had no idea of developments in her Municipality.

He wanted to know whether there had been any advice from the accounting officer about the expected over -expenditure.

Responses

Mayor Mbhele responded on the issue of consequence management, and said that the officials responsible would be disciplined.

She said her work had been impacted by the Covid-19 pandemic. Despite the pandemic, however, the Municipality had addressed some of the adverse audit findings. Of the 37 audit findings with significant matters that had been raised by the AG, 31 findings had been resolved. Another four had been discussed in the meeting.

She noted that R38 million was related to receivables. The Municipality had applied to the AG for the debt to be written off. The R38 million formed part of a total amount of R308 million. The financial experts had been able to obtain documentation for about R270 million. The financial experts had not been able to obtain records for the R38 million attributed to receivables. The Municipality had engaged the AG, and the latter had instructed the Municipality and COGTA to provide evidence in this matter, hence the proposal for the write-off.

On asset management and the valuation of the municipal property investment portfolio, the current valuations had no evidence such as invoices to validate that these valuations had been conducted above board.

The Municipality, in tandem with the experts, had contracted the services of an external property evaluator. This external contractor had been tasked to establish whether the property evaluations had been overstated.

On systems and reconciliations, she conceded that creditors and debtors posed a significant risk to the audit outcomes of the Municipality. A significant amount of time had been spent on a revision of the information that had been generated. Time had also been spent on quality assurance of financial management related processes.

She added that when the two former municipalities had amalgamated, it had been discovered that record keeping had been non- existent. This had impacted some creditors as well. The Municipality had been approached by several so-called creditors who had just popped up. The Municipality had requested valid documentation, such as a valid contract as proof of services rendered to the Municipality.

She said 14 reconciliations had been performed and statements had been prepared and reviewed, to check compliance with relevant legislation. The Municipality had also been busy with the finalisation of all mid-year reports.

On performance management, she informed that the order book had also been reviewed and sent to internal audit. The various discrepancies and inefficiencies would have to be identified and the relevant officials responsible for performance management would then be engaged.

The Municipality had compiled a portfolio of evidence that had been presented to the AG in the absence of supporting documents. In most cases no payment vouchers could be found. The management reports would now be reviewed to ascertain whether the Municipality had complied with the AG's remedial action.

She was adamant that the investigations to which the municipal manager had alluded would be pursued so that these outstanding matters could be dealt with. She referred to the various audit opinions rendered by the AG, and further said that certain legacy issues had remained unresolved due to poor record management in some instances.

Uthukela District Municipality

Mr Simphiwe Mazibuko, Executive Mayor of Uthukela, said the District had increased the water transfer capacity to Ladysmith, and added that the Municipality had a cordial relationship with Umgeni Water. It had greatly benefited from their help with water provision to townships and other unserviced areas. The municipality had also allocated three water treatment tenders to companies that would benefit from the up-skilling. Services in these areas continued to be rendered.

He referred to the dispute between the Municipality and Umgeni Water, and said COGTA had provided assistance on this matter. The Municipality had refused to honour an invoice that it had regarded as exorbitant and inaccurate. In the past, it had contracted water tankers at high costs. Council had then taken a decision to cancel these contracts. Municipal water tankers had since been utilised. These water tankers had serviced the outlying areas, which included rural areas.

He expressed his surprise at the complaints about water provision. A project had been implemented that secured the 'spruits.' The Municipality had used water tankers to supply that area as well. He understood the community's plight, as the Municipality did not have enough water tankers to meet demand.

He conceded that the Municipality had not done well in the very important area of revenue collection. The root cause of this could be attributed to the Municipality having been placed under administration.

Mr Martin Sithole, Municipal Manager, Uthukela, said that the Executive Mayor had already touched on most of the issues that had been raised by Members, and that he would refer to a few administrative issues.

He said the District Municipality had installed smart meters to facilitate increased revenue collection.

It was convinced that there would be increased revenue collection.

He also thanked the Development Bank of Southern Africa (DBSA) which had assisted the Municipality with a recent project.

He said that 8 000 of 48 002 ratepayers had had their information updated and cleansed on the Municipality's books. These ratepayers could now receive municipal statements.

The illegal trade in water by water tank operators had been reported to the Municipality. Currently, one of the managers would face a disciplinary hearing for failure to attend to the allegation.

The Municipality had questioned the adverse finding on conditional grants that had been used outside of the predetermined conditionalities. After the AG's announcement, an investigation had been launched which had concluded that one of the managers had not provided the relevant business plan to the AG during the audit. This had been resolved and consequence management had been instituted against the manager.

Regarding its Project Management Unit (PMU) capacity, he said that the Municipality had struggled to attract the requisite skills due to its rural location. The Municipality had also responded to service delivery challenges with the conditional infrastructure grant. It had been able to attract additional skills, as four officials in the PMU unit had qualified as technicians.

On project cost escalation, he commented that one of the problems had been that these projects had been multi-year in nature.

Mayor Mazibuko added that ageing and broken infrastructure had been one of the other issues that had been raised by Members.

He addressed the question related to government employees who had contracted for the municipal business. This used to be the case when the Municipality still used its own database, but this has been addressed as it now used the national database. The national database was checked and due diligence was conducted by the Municipality. The due diligence ascertained whether the business had been compliant. Over and above this, directors of these companies also had to fill in certain forms.

Follow-up questions

The Chairperson asked the provincial government to comment on what the Executive Mayor and the municipal manager had just said.

Ms Krishnan replied that the Uthukela intervention would be reviewed by the Provincial Cabinet (Executive Committee) on 31 March. It would review various status reports that had been submitted by the District Municipality and other government stakeholders. These reports would indicate whether the predetermined objectives of the intervention had been achieved.

She said that the provincial government had noted the identified gaps and the progress that had been reported by the municipal manager.

Ms Mkhaliphi asked the Executive Mayor to explain whether the Chief Financial Officer (CFO) and General Manager: Water Services, had been suspended or had undergone disciplinary procedures, and what reasons had been advanced for the suspension of the senior managers. She appealed to Mayor Mazibuko to take the Committee into his confidence.

She also decried the material losses that the Municipality had suffered in respect of unauthorised, irregular, fruitless and wasteful expenditure. She was not in favour of the debt being written off. The audit finding by the AG on the predetermined objectives had indicated that the information that had been provided by the Municipality had been regarded as unreliable due to a lack of a performance management system and record keeping. The AG could thus not make a determination.

The claim that the Municipality had provided 531 toilets should also be regarded as unreliable due to inadequate performance management systems, as well as a lack of records.

She said that the leadership failed to implement the necessary systems, nor had it acted against those officials who been implicated. She called on the Executive Mayor to provide an adequate explanation.

She also wanted to know whether the forensic investigation report that had been commissioned on the Olifantshoek Dam could be provided to the Committee. One of her constituents wanted to establish what had happened to the report. No one had explained the outcome of this forensic investigation to the community.

The Chairperson added that the Municipality had established a trend of obtaining qualified audits, and this had led to stagnation. She asked how and by when the situation at the Municipality would improve.

She also referred to the unauthorised, irregular, fruitless and wasteful expenditure that had been raised in the meeting, and asked whether the Municipality could in all honesty inform the Committee that consequence management had been effected. Her view was that the leadership had shown that no appetite existed to pursue investigations. She was not saying that the money had been stolen, yet the mere fact that no appetite had existed for consequence management raised questions with Members.

She said that issues related to contract management had been raised as well, and that it had been almost a year since the Municipality had been tasked with corrective measures.

Uthukela’s response

Mayor Mazibuko said that the CFO and the general manager responsible for water services had been suspended, and were scheduled to undergo disciplinary procedures. A report on the consequence management had been compiled, which detailed the actions that had been undertaken. These managers had been responsible for water restoration and for the finances of the Municipality. The Council had taken a decision to institute consequence management procedures against the CFO, as he had failed to institute corrective measures as prescribed by the AG. The general manager for water services had been suspended due to his inability to provide water to the entire District, and his inadequate leadership style.

He emphatically denied that the figures presented to the Committee had “been cooked.” He said that the projects existed on the ground and that the Municipality would be more than happy to share the portfolio of evidence, including the provision of portable toilets

He added that the Municipality had on numerous occasions consulted with the community, and that he was surprised by the allegations against it. He would like to have the details of the residents so that he could engage with them on the concerns that had been raised.

He said that the investigations had been impacted by community unrest over the provision of water. The KZN COGTA had then launched an investigation. The report would be sent to the Council.

He fully committed himself and his team to improve the situation of the Municipality. It was important to take responsibility.

Mr Sithole said that the Mayor had already touched on the changes and improvements the Municipality had already instituted and those still envisioned. With the help of the financial experts that had been deployed by COGTA, he was confident that there would be an improvement.

On unauthorised, irregular, fruitless and wasteful expenditure, he said the amounts should be seen as a cumulative total. The Municipality had had to go back three years to clean the UIFW register.

He said some investigations had been concluded, while others were still in the investigation phase. The MPAC had advised that maybe the Municipality should utilise the services of an external investigator to investigate.

COGTA had deployed a dedicated official who had assisted the Council to deal with the UIFW register.

On consequence management at the Council, he said that the Council taken a decision to suspend the CFO, as well as other section 26 senior managers. The timing of the disciplinary procedures had not been ideal, as the AG was on site. It was now incumbent on the Municipality to implement the remedial action recommended.

Mr Zet Ngubane, of the Forensic Audit Unit, COGTA, KZN, said that the report on Olifantskop Dam had been finalised and had gone for review. Once the review had been completed, the report would be submitted to Council.

COGTA had received allegations that had been investigated. Subsequently, additional allegations had been received from the community and the Department had had to investigate further and incorporate the findings into the report. The report had been ready, but a few administrative and consultative issues still had to be resolved.

Closing discussion

The Chairperson addressed the municipal manager, and said that the Committee would like to have a breakdown of all the investigations, and those that had been concluded as well.

She said that it had almost been a year since the Municipality had received the report that detailed the anomalies, and the audit action plan of 2020 had also spoken about them, yet no action had been taken. She called on them to address the outstanding issues.

The Chairperson then turned her attention to the Executive Mayor, and admonished him for not respecting the decorum of the House.

He apologised.

Ms D Direko (ANC) asked a question on behalf of a viewer who had wanted to know what the Mayor had meant by "we will deal with the senior managers."

Mr Ngubane replied that the report would be released at the end of April.

The Chairperson asked whether the South African Local Government Association (SALGA) wanted to add anything. They had nothing to add.

The Chairperson reiterated her previous comments that the Committee would like to see results at the end of the next financial year.

She thanked Members and presenters.

The meeting was adjourned.