Discussion on process to deal with Masilonyana Local Municipality investigation as referred by House

Public Accounts (SCOPA)

25 August 2021
Chairperson: Mr M Hlengwa (IFP)
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Meeting Summary


SCOPA convened virtually to consider and discuss the process to deal with the Masilonyana Local Municipality investigation, which had been referred to it by the Speaker. The Committee also discussed the forensic investigation by the Special Investigation Unit (SIU) on consequence management at the National Skills Fund (NSF) and the National Student Financial Aid Scheme (NSFAS).

The Committee's Content Advisor provided a summary of what had transpired in the Masilonyana Local Municipality investigation. From the report that had been compiled about the municipality, it had been decided that the concerns surrounding its internal controls and financial management had to be referred to SCOPA. The last time the municipality had submitted annual statements for audits was in 2016/17, and it had received a disclaimer. The challenges addressed in the petition, that had been referred to the Committee, were the same issues that the Auditor-General (AG) had raised with SCOPA in 2016/17. These were instability, a high vacancy rate in the finance division, the reconciliations not done, lack of supporting documents, and the municipality owing a huge Eskom debt. As at the June 2020 year end, the municipality had received its equitable share and conditional grant amounting to R228 million, but it had a bank balance of only R2 million.

SCOPA was asked to look at the lack of internal controls, which was the mandate of SCOPA according to the National Assembly rules. Members resolved to come up with a programme of action on dealing with the investigation into municipality, and it would be discussed further next week.

Following its meeting that morning with the Department of Higher Education and Training (DHET) to discuss the investigations at the NSF and NSFAS, Members echoed their concerns about the fact that the DHET was not utilising the SIU to conduct forensic investigations. The Committee resolved to ask the Department to respond to questions and comments that Members still needed clarity on. It would also write formally to the SIU to invite it for a brief session to hear directly whether or not it had the capacity to conduct the forensic investigation.

The Committee would receive advice from Legal Services on the way forward regarding the process. It would also request the Minister to hold this matter in abeyance, and would advise him that the process was being reviewed by the Committee. Once it had gone through all the necessary consultations, it would advise on the way forward.

Meeting report

The Chairperson welcomed everyone present, and suggested the Committee should commence with Masilonyana Local Municipality agenda item, and also deal with some issues from the morning’s meeting.

A petition had been sent by the Petitions Committee to the National Council of Provinces (NCOP), which had resolved to refer the matter to the National Assembly, and the Speaker had brought it to SCOPA. The municipality had been under administration for 31 months, and the Committee had already met with its management in 2019. The Committee was expected to deal with the matter and develop a roadmap to report to the House accordingly, largely on the issues of financial management deficiencies and others.

The Chairperson asked the Content Advisor to speak to the salient points of the documents.

Masilonyana Municipality briefing

Ms Ntando Cenge, Content Advisor, said a petition had been received by SCOPA, and the Petitions Committee had held a hearing to which the Municipality and other stakeholders, such as the South African Local Government Association (SALGA) and the Department of Cooperative Governance and Traditional Affairs (Cogta), were called.

A report had been compiled and adopted. In one of the recommendations, it was highlighted that the issues around internal controls and financial management must be referred to SCOPA. The Committee had met with this municipality in 2019 when it was under administration. After that engagement, it was clear that the responses provided by the administrators at the time were not satisfactory. As a result, it was suggested that the Committee conduct oversight on the municipality. The last time the municipality submitted annual statements for audits was 2016/17, and it had received a disclaimer.

For three financial years, there was no audit done for this municipality because it had failed to submit its financial statements. No audit was conducted for the 2017/18, 2018/19 and 2019/20 financial years. When the Auditor-General (AG) presented the general audit outcomes for the 2019/20 financial year, it said that the administrators did not implement sustainable systems and strong internal controls.

The challenges addressed in the petition were the same issues that the AG had raised in the meeting with SCOPA in 2016/17: instability; a high vacancy rate in the finance division; the reconciliations not done; lack of supporting documents; and the municipality owing a huge Eskom debt. This was the information provided, based on the 2016/17 audit by the AG.

As at the year end of June 2020, the AG had also raised the issue that the municipality had received its equitable share and conditional grant of R228 million, but had a bank balance of only R2 million. The finances of the municipality were not in good standing.

When SCOPA met with the municipality in 2019, it had unauthorised expenditure of R32 million, irregular expenditure was at R25.6 million, and fruitless and wasteful expenditure was R7.1 million. Even in these expenditures, the AG could not confirm the extent of the amounts, and it was possible that they were understated.

SCOPA had been asked to look at the lack of internal controls, which was the mandate of SCOPA according to the National Assembly Rules. The Committee could go ahead with a hearing, taking into account the outstanding audit reports. SCOPA should also invite other relevant stakeholders to be part of the hearing and compile a report, taking into consideration the revelations that had come up in the oversight visit to the municipality.

The AG had said that it was busy auditing the 2017/18 financial statements, because it received them in December 2020.

The Chairperson commented that in other words, there had been a systematic collapse of financial controls in the municipality that SCOPA needed to investigate.

Ms Cenge added that the municipality had been outsourcing consultants for basic accounting practices to submit financials, but when they were submitted they were normally misstated.

The Chairperson said that this was the municipality that had had two Administrators, and one of them was the provincial head of department of Cogta.

The Committee needed to make a determination of how this matter would be approached. He had been advised that the petitioners had been making follow-ups on this matter and were expecting a response. The Committee had advised them that the matter was receiving its attention.


Mr B Hadebe (ANC) said that the national Department of Cooperative Governance and Traditional Affairs had a report on the state of local government, and of the 256 municipalities, they had identified about 64 that were dysfunctional and of high risk. Intervention packages had been put in place to assist those municipalities. This report had been tabled to Cabinet, which had mandated Cogta and the National Treasury to deal with those municipalities. It was obvious that Masilonyana would fall into that mix of municipalities.

He suggested that SCOPA invite Cogta to share with the Committee its findings on the issues in terms of interventions, to allow Members to have a sense of what was really happening in this municipality and whether or not there were intentions of dissolving these municipalities. Part of the recommendations had been that if Cogta was of the view that those that were dysfunctional must be dissolved, then it could act accordingly. Once the Committee received this report from Cogta, it could then visit the municipality to get a true sense of what was happening. The issues were no longer political, but also administrative.

It would be ideal to visit the municipality, but the Committee must first get all the facts and information about it so that when the hearing was conducted, no stone would be left unturned. Those that were responsible for squandering the equitable share had to account. Therefore they should first invite Cogta, conduct the oversight visit, and then have the hearing.

Ms N Tolashe (ANC) accepted the report, but would have preferred it to have been presented in detail. Secondly, the report referred to by Mr Hadebe should have been requested from Cogta prior to this meeting, to be considered along with the report that was being presented by Ms Cenge. Thirdly, she hoped that the Cabinet would be able to look at the challenges that these municipalities were experiencing holistically. Hopefully, they would not be dissolved, but the solution would depend on how these municipalities were structured in terms of re-demarcation. Even if Masilonyana was dissolved and then re-elected, the outcome would be the same because they relied on the grants.

She was not sure why this matter had been brought before the Committee if the audit outcomes had not been completed.

The Chairperson said that the Committee wanted to gauge what Members thought should be the roadmap, and then propose a programme of action next week and advise the Speaker that the matter was receiving attention. This came at the eve of elections, and SCOPA might find itself interacting with a political leadership and set of officials which might change after the elections. They needed to consider this. There was an audit under way, and it might give an indication of what they were dealing with.

The Committee needed a programme of action to deal with this, and it was just one area of focus -- the financial management part. The only challenge was that they were not aware of where the other areas had been referred to, and this encouraged a silo mentality -- but one might find that these areas overlap.

The programme on how to deal with this would be presented next week, and SCOPA would take it from there. It was important to note that the municipality was no longer under administration -- the administration was lifted in 2019.

Mr Hadebe asked if the municipality had a full complement of senior management, such as a chief financial officer (CFO), municipal manager (MM), etc.

Ms Cenge replied that the report from the AG indicated that there was an acting CFO at the time, but the position of the MM was occupied.

Ms Gugu Shabalala, SCOPA Researcher, said that she had received information from the Select Committee on Appropriations that there was a municipal manager, but the CFO position had been vacant since November 2018. All the other positions had been filled, except for the director of corporate services.

Mr Hadebe said the Committee needed to get detailed information on the people who had been responsible, to avoid embarking on a futile exercise. Those that were there currently have been there for a short space of time. The Committee needed to identify who had been in charge, and when and how long they had been in charge, to ascertain if they could hold them accountable.

SCOPA also needed to establish what the amended Public Audit Act says about a municipality that is unable to submit financial statements for an audit.

The Chairperson said that he was concerned about the limited scope, but for now the Committee would put together a programme of action which would be presented next week for Members to consider.

Forensic investigation into National Skills Fund and NSFAS

The Chairperson said that the Committee had had a brief discussion with Legal Services about how the forensic investigations into the National Skills Fund (NSF) and the National Student Financial Aid Scheme (NSFAS) could be handled, and it would come to the Committee for a briefing on the options that were available. It was also possible for the Committee to make a recommendation to the Special Investigating Unit (SIU), but that would need to be considered in light of the fact that there was a process under way. The Committee would send the draft minutes of the meeting with the Portfolio Committee on Higher Education, Science and Training held on 18 May 2021 to deal with this matter. A determination was yet to be made.

Ms Tolashe said that there was a case involved, and the Committee needed to hear from the Department how much was going to be spent, and compare that with the SIU. This would allow them to understand what the issue was, so that when they made a presentation, they would do so from an informed position. She had not been happy with the responses from the Minister of Higher Education. However, the Committee needed to gather enough facts to take a decision. The Minister had said that the process had already started, but whatever the outcome would be, it would come to this Committee. Therefore, they needed to hear how much the Department was going to spend and compare that with what would be the case had the responsibility been given to the SIU. The Minister had spoken about the SIU and punched holes in its capabilities. Adv Mothibe, SIU Head, had been smart to come in and explain their position, which had contradicted what the Minister was saying.

The fear was they were having all these investigations which were taking a long time to conclude and costing a lot of money, and they still had nothing to show for it in the end. They had a case, so they should follow it to the letter and get the hard facts, rand by rand, so that when they make a comparison, they do so with sufficient information. She was concerned about the route that the Department of Higher Education was taking.

The Chairperson agreed that a cost analysis may need to be done.

Mr M Dirks (ANC) said that he was confused about the discussion that had taken place earlier, because he was uncertain about whether SCOPA had recommended that there had to be a forensic investigation in the Department. It had been the Minister who had volunteered to do a forensic investigation.

Secondly, as Mr Mente had pointed out, the billions that had not been accounted for earlier in the Department was a lot of money. They needed to be consistent as SCOPA. There had been a matter in the Department of Health where SCOPA had allowed the SIU to conduct the investigation. They could not encourage the SIU to conduct an investigation in the Department of Health regarding corruption involving personal protective equipment (PPE), but allow the Minister Nzimande to go and appoint consultants to conduct this forensic investigation.

The SIU should do the investigation without hindrance, interference or assistance from any forensic investigation provided by the Department. Adv Mothibe had assured the Committee earlier that the SIU had the capacity, knowledge and expertise to do the forensic investigation. He would be comfortable with the SIU conducting the forensic investigation. In the next financial year, SCOPA should allow the SIU more funding so that it could be capacitated to carry out its work.

Ms Cenge said that from the documentation that had been sent to SCOPA by the Minister regarding the costs, the quotations were all above R500 000. It had also been indicated that the reason why this was going out to tender was because all of the quotations had been above R500 000.

Ms Tolashe asked if it was possible to get the actual facts about the process of appointing the forensic investigators. They needed to know what the process was, and they were not going to be held to ransom. They needed to know whether the forensic investigators had already been appointed or not.

The Chairperson said that Parliament's Legal Services would provide guidance on the best legal way for the SIU to be involved, given the fact that a process was already under way. The issue now was about ensuring the role of the SIU, and establishing the legal route for its involvement, notwithstanding that the Ministry and the SIU had committed to an engagement. The roadmap of the Department was to say that once the investigation was done, the SIU would take over for the purpose of implementation and referrals to law enforcement, as a loose interpretation of what had been said earlier. If Members wanted to review that, they needed to be guided correctly.

Consistency was key in matters of investigations, and SCOPA must not be found to be compromising certain rules for certain departments. It was the directive of SCOPA, given the adverse audit outcomes year on year at these entities, that it wanted these interventions. Members need to tie the SIU issue down, and clear the wood to ensure that there was no ambiguity.

Mr Dirks said that he was reading a report that on 17 April 2021, the President had authorised an investigation by the SIU into NSFAS at the technical and vocational education and training (TVET) college in Johannesburg Central. It had been piecemeal to authorise an investigation at a TVET college, but they could not do so in this particular case.

The Chairperson said that a motivation had been sent to the Presidency on the issues that had been raised. It just needed to be signed off. What SCOPA wanted was work on the audit outcomes.

Mr Dirks said he had asked a question earlier about whether an application had been made for an investigation, if so, where was it currently. Adv Mothibe had informed them that it would go via the Minister to the President, but no one had responded to this question. It was important that they understood where that application was currently.

The Chairperson said the issue was the secondment agreement which needed to be signed, and there was no clarity on the status of the secondment agreement from the Department earlier on. They needed to find out how far along the authorisation conveyor belt it was so they could ascertain whether the secondment agreement had been signed. They would do this formally and send an email to the head of unit.

Ms Tolashe suggested that the questions should be directed to the Department and it must respond within a given time period, and as SCOPA considered the legal advice, they should do so in light of the responses from the Department.

The Chairperson welcomed the inputs from Members, and said all the questions or comments that must be sent to the Department and the SIU would be dispatched tomorrow.

Mr S Somyo (ANC) asked if it was not possible to have the SIU highlight or respond to the issues that Members had raised, and also to highlight its role regarding this investigation, instead of taking the longer route of writing to the Department. SCOPA should engage the SIU directly, as it should know the best way possible.

The Chairperson said that Mr Somyo’s suggestion would be considered, and maybe a meeting with the Committee could be facilitated. Earlier on, there had been a constant over-emphasis of the need for a professional forensic investigation, and he was of the view that he SIU had always conducted itself professionally. For now, they would get the process rolling and bring it to an operational conclusion. The SIU was due to appear before SCOPA on 15 September, but we would engage with it before then to address the concerns that the Members had regarding this particular process.

Mr Somyo suggested that the Committee could ask Adv Mothibe for a brief session, perhaps about 45 minutes to an hour, in order not to hinder the expedited spirit with which this matter must be dealt.

The Chairperson said that the Committee could ask the Minister to hold this matter in abeyance and advise him that they were reviewing the process, and once they had gone through their necessary consultations, they would advise on the way forward.

Ms Tolashe said this proposal was sensible.

The Chairperson announced that next Wednesday the Committee was due to meet at 09h30, and suggested that it meet at 09h00 instead to accommodate the added item on the agenda.

The meeting was adjourned.



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