Sekhukune District Municipality: state of municipalities

This premium content has been made freely available

Cooperative Governance and Traditional Affairs

17 March 2021
Chairperson: Ms F Muthambi (ANC)
Share this page:

Meeting Summary

The Portfolio Committee on Cooperative Governance and Traditional Affairs, in a virtual sitting, met to engage on the state of municipalities in the Sekhukhune District. The Committee heard that the Annual Financial Statements submitted by the municipalities in the District remain a concern. Outcomes are not sustainable as can be seen in the movement over three years. There is a heavy reliance on consultants to compile financial statements; however the information submitted to consultants is not always credible.

Non-compliance was reported for all the municipalities in the District on the quality of the Annual Financial Statements and expenditure management. Non-compliance on revenue management was reported in the Elias Motsoaledi and Fetakgomo Tubatse local municipalities. The financial statements submitted for auditing were not prepared in all material respects in accordance with the requirements of the Municipal Finance Management Act (MFMA) in the municipalities and reasonable steps were not taken to prevent unauthorised, irregular, fruitless and wasteful expenditure. Some contracts were also not awarded according to the required standards. Reasonable steps were not taken to prevent irregular as well as fruitless and wasteful expenditure. Some losses resulting from irregular expenditure was certified by Council as irrecoverable without conducting an investigation to determine the recoverability. The Committee heard that allegations of fraud which exceeded R100 000 were not reported to the South African Police Services (SAPS) and that Supply Chain Management (SCM) officials whose associates had private or business interests in contracts awarded, participated in the process relating to the contract.

The following Municipalities incurred unauthorised expenditure due to overspending of the budget: Elias Motsoaledi – R109.6 million, Fetakgomo Tubatse – R5.3 million, Makhuduthamaga – R60.2 million, Sekhukhune – R194.7 million. Members were concerned over the vacancies at Chief Financial Officer (CFO) level in the Elias Motsoaledi, Ephraim Mogale and Fetakgomo Tubatse Local Municipalities where the CFOs had been suspended. Infrastructure support given to municipalities is in service delivery provision through regular meetings and one on one intervention meetings. During these meetings, municipalities get an opportunity to provide progress on the implementation of their service delivery projects, indicate any challenges and areas where they need support from provincial COGHSTA, Municipal Infrastructure Support Agent (MISA) and other sector departments. Makhuduthamaga had an improved audit outcome in the District. Fetakgomo Tubatse remained stagnant while three municipalities, Ephraim Mogale, Elias Motsoaledi and Sekhukhune regressed from unqualified to qualified audit opinions. Commitments, revenue, distribution losses, non-compliance with SCM regulations and prior period errors are some of the negative audit findings that affected the audit outcomes. Implementation of audit action plans remains a challenge which has caused a significant number of recurring findings. The Council support provided to municipalities include: a one day workshop with Committee Members on minute writing, reports, communication, conflict management and ward operational plans. Capacity building programmes were held for Speakers on their roles and responsibilities and the code of conduct for Councilors. District road shows were conducted to strengthen coordination between the District and its local municipalities. Support provided to municipalities includes involving the Department in collaboration with MISA and establishing a pilot programme with the objective of building capacity in seven identified municipalities in the province. Municipalities have been assisted with human resource capacity, SPLUMA by-laws, Municipal Planning Tribunals, Spatial Development Frameworks, local economic development and IDP support. The key challenges faced by municipalities include insufficient capacity in key units such as finance, internal audit and SCM. Escalation of unwanted expenditures (UIFW) affects all five municipalities in the District. There is a high financial sustainability risk in municipalities and they are under resourced and have insufficient capacity of Municipal Public Accounts Committees (MPACs) to play an oversight role. There is low revenue collection and slow registration of government properties built on communal land. Fetakgomo Tubatse Municipality has lost R230 million actual capital investment into VBS mutual bank with a total inclusive of interest at R243 169 120.00. Members raised concern over the 2018/19 audit cycle of Sekhukhune District, Elias Motsoaledi and Ephraim Mogale which regressed from an unqualified audit opinion to qualified. There is concern about the lack of accountability and consequence management in municipalities. Members highlighted the huge investment of municipalities in VBS and their lack of concern for workers, contracts which are awarded to officials and a lack in infrastructure management and care which ultimately affected service delivery. The filling of key posts such as at the level of CFO was also a major concern. Oversight and the implementation of National Treasury reports and the municipalities struggle with compliance were flagged as issues.

Meeting report

The Chairperson made brief opening remarks and welcomed all present in the meeting. Apologies were heard. The Chairperson handed over to stakeholders to present.

AGSA Briefing on Greater Sekhukhune District

The AGSA presented to the Committee on the state of the greater Sekhukhune District 2018/19 audit outcomes. It said the annual financial statements submitted by the municipalities in the District remain a concern. Outcomes are not sustainable as can be seen in the movement over three years. There is a heavy reliance on consultants to compile financial statements; however the information submitted to consultants is not credible. Makhuduthamaga is the only municipality that does not make use of consultants to compile financial statements.

Qualification areas- Sekhukhune District Municipality 2018/19:

-Property, plant and equipment: There is no sufficient supporting documentation for work in progress as recognised at year end. The Municipality did not adequately assess property, plant and equipment for impairment.

-Repairs and maintenance – the municipality expenses and the costs of assets constructed during the year which were supposed to be capitalised.

-General expenses - Expenditure for the prior financial year was accounted for in the current financial year.

(Refer to slides for details on qualification areas in Elias Motsoaledi Local Municipality 2016/17 and 2018/19, Ephraim Mogale Local Municipality, Fetakgomo Tubatse Local Municipality and Makhuduthamaga Local Municipality 2017/18).

Material findings were raised on the usefulness and reliability of quality of annual financial statements, expenditure management, revenue management, asset management, human resource management, procurement and contract management , consequence management, conditional grants and strategic planning and performance management in the various municipalities.

(See presentation attached for details on the material findings)

Financial health

Elias Motsoaledi Local Municipality:

•Out of total revenue of R507 million, government grants and subsidies account for R316 million (62%)

•Out of total expenditure of R477 million, R146 million (33%) was for employee cost

•The municipality incurred a surplus of R40 million for the year 2018-19

Ephraim Mogale Local Municipality:

•Out of total revenue of R280 million, grants and subsidies accounted for R166 million (60%)

•Out of total expenditure of R260.5 million, employee cost accounted for R91 million

•The municipality incurred a net surplus of R31.3 for the year 2018-19

FetakgomoTubatseLocal Municipality:

•Out of total revenue of R606.5 million, government grants and subsidies accounted for R421 million (69%)

•Of total expenditure of R556 million, R202 million (36%) was for employee cost

•The municipality had a surplus of R50.5 million for the year 2018-19

MkhuduthamagaLocal Municipality:

•Of their total revenue of R423 million, R331 million (78%) was from government grants and subsidies.

•Of their total expenditure of R457.7 million, R96,7 million (21%) was for employee cost of the municipality.

•The municipality incurred a deficit (expenses exceeded revenue) of R34.3 million for the year

Sekhukhune District Municipality:

•Of their total revenue of R1.447 billion, R1.320 billion (91.2%) was from government grants and subsidies.

•Of their total expenditure of R1.123 billion, R373 million (33.2%) was for employee cost of the municipality.

•The municipality incurred a net surplus of R324 million for the year

See presentation attached for details on unauthorised expenditure, irregular expenditure and fruitless and wasteful expenditure and the root causes.

The AGSA confirmed that management (accounting officers and senior management) do not respond with the required urgency to National Treasury’s messages about addressing risks and improving internal controls in Sekhukhune, Elias Motsoaledi, Ephraim Mogale, Fetalgomo Tubatse and Makhuduthamaga.

If officials who deliberately or negligently ignore their duties and contravene legislation are not held accountable for their actions, such behaviour cannot be seen as acceptable and tolerated. At risk are Ephraim Mogale and Makhuduthamaga.

Vacancies at CFO level: - Elias Motsoaledi, Ephraim Mogale - (CFO suspended) and Fetakgomo Tubatse.

Provincial COGTA Support provided to Municipalities in Sekhukhune District

Dr Modjadji Malahlela, Limpopo COGTA, presented to the Committee on the progress and support provided to the municipalities in the Sekhukhune District.

The presentation looked at the expenditure of the municipalities and Municipal Infrastructure Grant (MIG) implementation:

-Sekhukhune: has shown improvement in the past 2 financial years and is currently (2020/2021) spending above the provincial average

-Fetakgomo Tubatse: The spending of the municipality regressed since 2017/18 and was worse off in 2019/2020. COGHSTA will continue to support the new management of the municipality. The municipality continues to perform badly, spending below the provincial average mainly due to the late appointment of service providers.

-Makhuduthamaga Local Municipality: This is a high performing Municipality in Sekhukhune, getting additional funding for three consecutive years. The municipality has consistently spent above the provincial average and is on course to spend 100% in the current 2020/2021 financial year.

-Elias Motsoaledi Local Municipality: This is a good performing municipality, getting additional funding for three consecutive years

-Ephraim Mogale Local Municipality (LM): The municipality is on course to spend 100% in the current 2020/2021 financial year.

Infrastructure support

Municipalities are supported in their service delivery provision through:

- regular meetings and one-on-one intervention meetings. During these meetings, municipalities get an opportunity to provide progress on the implementation of their service delivery projects, indicate any challenges and areas where they need support from provincial COGHSTA, MISA and other sector departments. COGTA coordinates these supported measures.

-There is training / workshops on project implementation and value chain (feasibility studies, design reviews, contract management, asset management, management of consultants, etc.)

-Assessment of projects for funding through conditional grants to ensure they meet grant conditions and monitoring the implementation thereof.

-Assistance is provided to municipalities in developing turnaround plans in areas where there are challenges in project implementation.

The presentation looked at the 2019/20 Annual Financial Statements (AFS) submission trend and use of consultants to prepare AFS: Reliance on consultants for preparation of the AFS has increased from 20% in 2018/19 to 40% in 2019/20 and this is due to a lack of specialised skills in municipalities. Some areas require specialised skills and municipalities were trained on AFS preparation, GRAP interpretation and further support was provided for the review of AFS.

Audit outcome trend

-There has been one audit outcome improvement in the District, i.e. (Makhuduthamaga), one municipality (Fetakgomo Tubatse) remained stagnant while three municipalities regressed from unqualified to qualified, namely: Ephraim Mogale, Elias Motsoaledi and Sekhukhune

-Commitments, Revenue, Distribution losses, Non-compliance with Supply Chain Management Regulations, Prior Period Errors are some of the negative audit findings that affected the audit outcomes.

-Implementation of audit action plans remains a challenge, hence a significant number of recurring findings

-The 2019/20 audit is in progress

Financial management support

-Monitor and support the four local municipalities with compliance on Municipal Property Rates Act (MPRA). All municipalities are complying with the MPRA.

-Makhuduthamaga LM and Fetakgomo Tubatse LM were supported on the development of the new valuation roll to be implemented on 1 July 2021.

-Supported the four local municipalities on promulgation of resolution of the levy property rates.

-Held engagements with all five municipalities in the District on the AFS Readiness

-Reviewed and provided inputs on the AFS Process Plans and the draft 2019/20 Annual Financial Statements

-Assessed and monitored the audit action plan for 2018/19 and provided inputs

-Attended audit committee meetings and audit steering committee meetings as part monitoring compliance with MFMA

-Conducted verification on the outstanding government debts for all four local municipalities

-Facilitated Technical and Provincial Debt Forum

-Facilitated Technical and Provincial MPAC Forum

-Provided assistance with the interview process for Audit Committee members in Sekhukhune DM, Ephraim Mogale LM and FetakgomoTubatse LM

Council support:

-Conducted one-day workshop with ward committee members on minutes writing and reports, communication conflict management, and Ward Operational Plans.

-Conducted capacity building programme for Speakers on their roles and responsibilities as leaders of municipal council, development and implementation of the rules of order of municipal council, code of conduct for Councilors.

-Conducted District Roadshows to strengthen IGR coordination between the District and its Local Municipalities.

-Developed District IGR internal rules to guide operations and activities of the District IGR Forum.

-Supported District Speakers Forums and Public participation forums on ward delimitation processes, development of policies that guide public participation and functionality of ward committees.

Institutional capacity building

-Limpopo CoGHSTA and the DBSA entered into an MOA in January 2020 to support municipalities with lending and non-lending products for a period of five years. DBSA has appointed a technical resource to provide municipalities support on the DBSA application process.

-The department held sessions with all municipalities in February 2021 on the non-lending products available from DBSA. The session also provided guidance to municipalities on the application requirements and process for Year 2 projects. 

MISA support

-The department in collaboration with MISA established a pilot programme with the objective of building capacity in seven identified municipalities in the province.

-Two municipalities namely Elias Motsoaledi and Ephraim Mogale are part of the beneficiaries that signed off the Municipal Capacity Development Plans as a requirement to be part of the MCDP.

-The two municipalities receive technical support on institutional, service delivery and financial management.

-The District is allocated one engineer supporting the district and its LMs on all technical aspects.

Training programmes

-GTAC and MISA provided virtual training to all municipalities in the province on the following key aspects:-

  • Asset Management
  • the utilisation of Framework Contracts
  • Introduction to IDMS and
  • SIPDM (now FIPDM)

-The training is meant to improve project planning and implementation capabilities in municipalities.

-The department through the LGSETA Grant conducted skills training programmes i.e. MPAC and Monitoring and Evaluation (M&E)

The presentation outlined the human resource capacity support, economic development and IDP support and strategic challenges and interventions: see presentation for details

It was recommended the Portfolio Committee engages the departments of Public Works and Agriculture, Land Reform and Rural Development to fast-track the registration of state domestic facilities built on communal land to improve financial viability in municipalities

Report on the State of Fetakgomo Tubatse Local Municipality

Mayor Ralepane Mamekoa, Fetakagomo Tubatse Local Municipality, reported on the state of the Fetakgomo Tubatse Municipality.

The presentation addressed the institutional capacity and stability of the municipality and issues which had cropped up in the media. It also addressed material litigations.

Regarding VBS, the Municipality has lost R230 million actual capital investment into VBS mutual bank total inclusive of interests is R243 169 120.00. VERVEEN Attorneys is appointed by municipality to handle the VBS claim for recovery. The municipality is now dealing with the liquidator.

The Mayor took the Committee through the municipality’s audit committee, risk management committee, MPAC, council structures’ meetings and implementation of the post audit action plan.

The Committee was then taken through the COVID19 procurement and expenditure, collection rates, cash revenue received, liquidity ratios, root causes of under collection and strategies to optimise revenue collection. Also covered was irregular expenditure, UIFW, fruitless and wasteful expenditure, unauthorised expenditure, root cases, strategies for improvement, consequence management and the use of consultants. The presentation addressed conditional grant performance – see attached presentation for details.

South African Local Government Agency (SALGA) presentation

Mr Seroba Malepe, Programme Manager: Municipal Finance, SALGA, reported on SALGA’s support to the Sekhukhune district and its LMs. The presentation detailed the key challenges and how SALGA intervened

See presentation attached for details.


Mr C Brink (DA) said the major problem with municipalities is a lack of accountability and consequence management. When people break the rules and behave badly, they must face the consequences of their actions and not be protected. Without such a culture, there is duplication. Officials who do not abide by the rules or face difficulty that they do not want to account for, simply leave and take up a position in a different municipality. Local government is becoming smaller and smaller and people can job hop. He had been waiting for Makhudutamaga Municipality to appear before the Committee as the Municipal Manager of the municipality, Ms Nancy Rampedi, was in the CFO position in Moratele, North West, when the municipality made investments in VBS bank. There are indications that Ms Rampedi took up this position and left Moratele before any proper investigation could be conducted on the money invested in VBS. Mr Brink said that he had raised this issue with the Deputy Minister. There is a loophole in the law. He said he was not making any assumptions on whether Ms Rampedi was guilty of financial misconduct. He asked Ms Rampedi if she was cooperating with the investigation. Could she provide the Committee with assurance on this? Was the MEC responsible for Local Government in Limpopo aware of this? Surely it is a matter of importance when considering that a person appointed might be relevant in an investigation of a very serious matter.

There is an inability to fill the CFO positions and no proper financial management. There is a constant turnover of officials occupying the position of CFO. This is heard repeatedly. Can the Deputy Director- General (DDG) please share insight and reasons on why municipalities in Mpumalanga, the North West, the Northern Cape, Limpopo, Free State and Eastern Cape struggle to retain CFOs? Surely there must be some insight into this that can be shared with this Committee. Simply saying they cannot pay them enough is not an answer. There are many businesses that employ CFOs and cannot possibly pay the amount municipalities do. Unless the municipality is saying there is such a critical shortage of accounting and financial management graduates from South African universities that it is inhibiting the ability of Government. Should CFOs be imported from abroad or in Africa? If our universities cannot produce these people what should we do? This is not an issue with universities, but municipalities, the work environment and recruitment. He said he would really like some insight into the issue and that it was something everyone should endeavour to understand in depth. Service delivery requires technical skills expertise and professionalism. Without this, Councillours and Mayors cannot keep their promise to communities or fulfil their constitutional mandate.

Mr K Ceza (EFF) asked about infrastructure. He quoted that Dr Modjadji had referred to LEDs, but the Committee does not know anything about this. It has to do research on what is happening on the ground. Contractors are always struggling with payments and the District has done nothing about this. If the status quo is that there are ineffective programmes, how will we realise LEDs? Is anything going to change without taking into account the interests of officials. The AG has put it eloquently when saying that some, if not all contractors have been directly linked to officials and politicians. An issue with toilets in Elias Motsoaledi Municipality has just come to light on TV. These toilets have been erected with open pits endangering the lives of children. Workers to date have not been paid. What action has the District taken to ensure that projects have thorough plans on paying workers? There is no middleman situation, because many workers in Collins Chabane accept money on behalf of workers. There is no proper registration of workers. Workers get injured and receive no assistance. Their payslips are manipulated. How does the province ensure that these situations do not occur and add value to the lives of our people? What remedial action will be taken?

Makhuduthamaga is affected by drought and water is only pumped once a week. What is the problem there or is it related to capacity? What value is there for money? Can the District water services provide the Committee with details on what service providers have done to mitigate these issues? What has been done to resolve this case or will no details be provided on this as usual. Service delivery is a recurring issue. He asked Elias Motsoaledi to provide more information on electricity challenges. Many areas in the Municipality have not received this service. The land owner has even obtained an interdict. If the people are there, the municipality must provide services. There is a death trap for children around the village. People are drowning. Someone drowned in October 2020. A number of people have lost their lives. Why has the municipality not heeded the call to fence dams? Is there an adequate rescue team in the District to reduce waiting times when residents are in crisis? What is the calibre of leadership saying these things? Is this happening, because there is no benefit to officials? In some LMs, water scarcity is an issue. He asked the province to explain why this was the case and agricultural farms have been neglected given the need for local economic development and job creation? What is the plan going forward? He referred to the SIU report on Elias Motsoaledi Municipality. He asked where the report was and that nothing has been implemented in 6 months. The report was not taken to Council. What has been done in response to this?

Ms P Xaba-Ntshaba (ANC) asked Ephraim Mogale Municipality if there has been a follow-up on the oversight which took place in October 2019. The Committee recommended that Ephraim Mogale should follow-up with police on the petrol card fraud cases where the municipality lost R197 000. The Committee urged the Mayor to take necessary steps to pursue this. A civil claim should have been lodged against the responsible individual. She asked for an update on the matter. When will a disciplinary board be established on financial misconduct in Ephraim Mogale Municipality? Residents of Sekhukhune District in Grobblersdal protested for three weeks as they did not have drinkable water for six months. The community was promised a water project for R143 million for immediate implementation. What is the current status of this project? In 2018 and 2019, the District awarded a contract worth R7 million to a driver who worked for the cunicipality, but failed to disclose such employment. Has the District recovered this money from the individual in question? Makhuduthamaga municipality has written off irregular expenditure amounting to approximately R183 million. Over the last three financial years, R46.8 million of unauthorised expenditure was reported. Has the municipality investigated all instances of irregular and unauthorised expenditure before writing this amount off? Has there been a thorough investigation to ensure that the people of Makhuduthamaga do not suffer with service delivery issues?

Mr G Mpumza (ANC) said the municipalities regressed despite having a high number of consultants. This was concerning. Municipalities must exercise their powers and perform their functions. The report from National Treasury shows that the municipalities in the Sekhukhune District have not been able to maintain its infrastructure for repairs and the renewal of assets. Water and electricity meters are not maintained resulting in a loss for the municipality. What support is given by Provincial CoGTA? The report from National Treasury seems to be a bit different from Dr Motjatdi, but both reflect the lack of technical capacity. He asked National Treasury and CoGTA what support they were giving to the municipality to prevent service delivery failures and create jobs for the communities to revitalise the economy. When will the municipalities be trained and capacitated to prevent under-spending. There is a lack of expertise. The AG report mentions proper record keeping and that this does not exist in municipalities. These are basic pillars of administration. Why is there no proper record keeping and risk management skills? This must improve for municipalities to perform because this is a high area of concern for the AG and the Committee. Why does the leadership in the municipality, such as the Mayor, the Speaker and Accounting Officer, allow for negative audit outcomes and assurance? Fetakgomo Tobase Municipality has written off fruitless and wasteful expenditure without conducting an investigation. What compelling information was considered to do a write off without undertaking an investigation? Why is consequence management dodged? Why was this not implemented?

Mr Mpumza said that this was a serious concern. When will Council exercise their oversight to enforce accountability in municipalities? Sekhukhune District has been adopting unfunded budgets for the past four consecutive years. What is the role of the provincial Treasury? How can unfunded budgets be adopted from the word go?

Ms D Direko (ANC) referred to the National Treasury report and whether it had institutional capacity since critical positions in the municipality have remained vacant for such a long time. What is the role of National Treasury to ensure these negative implications are avoided on service delivery? There is a lack of necessary skills in the municipality. How are employees trained to acquire these? Elias Motsoaledi and Makhuduthamaga municipalities are technically bankrupt. What support is offered to them and do they have a credible financial recovery plan in place? If yes, is it being implemented? Is there any positive story on the support provided? MPAC provided reports to Council in October 2020. Two reports are still pending and when will this be completed? One of the causes of the challenges on revenue collection in municipalities is a lack of revenue enhancement strategies. What is the municipality doing to deal with this? What are the challenges of implementing the strategy? The municipality is struggling with daily and monthly controls and it is unable to review compliance. Does the municipality have capacitated staff in finance? It has failed to spend its MIG. The presentation on Makhuduthamaga indicates that there is no asset care management in place. How do we trust people who cannot take care of assets to service our people? How will these challenges and risk management be addressed? The municipality is technically bankrupt. How will it resolve this matter?

The Chairperson said the municipalities could respond when the meeting resumed at 19:00.

The meeting was adjourned.



Share this page: