2020/21 Local Government Audit Outcomes (focus on WC & underperforming municipalities): AGSA briefing

Meeting report

AGSA briefing

Ms Sangeeta Kallen, Business Unit Leader: AGSA Western Cape, said the accountability ecosystem referred to a network of stakeholders that had a mandate and responsibility – legislatively or morally – to drive public sector accountability. The mission of a sustainably shifting public sector culture through insight, influence and enforcement could not be achieved by the AG alone. Through the value chain, the AG did not look at everything in isolation and it held conversations at the right levels to ensure it was connecting the dots from cycle to cycle so that people could fulfill their mandates for the good of the citizens of the country.

She said the 2030 strategy and strategic commitments were a reflection of the work the AG had done up to now to see if the work had had an impact on the lives of the people. The strategic aspiration was to make a difference through the work it was doing on how the citizens experienced the services they were getting on the ground. The AG wanted to do this through the theory of change, to shift the public sector culture. This would be done through insights, influence and enforcement. The three strategic goals were based on insights, influence and enforcement. The accountability ecosystem was for getting buy-in from stakeholders to drive the level of accountability. Role players would hold each other accountable by fulfilling their mandates so that the AG would be able to see the changes it wanted to see. Through the audit process, the AG would establish levels of service delivery work and determine if auditees were fulfilling their mandates.

The AG's insights were not punitive, but gave direction to the government on where it needed to concentrate its efforts. The AG would continue with its audit process, but the focus would be on insights to influence the right behaviour. The insights would be used for meaningful engagement to get good behaviour. Enforcement had to do with the AG's powers in the Public Audit Act (PAA) amendments to assist in recovering the resources of the state the taxpayers had lost. This would be done through elevating consequence management. The AG wanted to shift behaviours in the public sector because the culture was built around the behaviours, and this would be achieved through transparency, integrity and accountability. The AG wanted sustainability so that the audit product was offered sustainably in order to achieve the impact it was intended to have, and to efficiently unlock existing resources to efficiencies. This is where the AG was looking for technological advancements to catapult how it offered its audit product efficiently.

She took the Committee through how the AG wanted to see the shifting of culture in the public sector before getting to 2030. It wanted to do this efficiently and sustainably through insights, influence and enforcement. It was focusing on the following categories driven by culture -- doing nothing and doing harm was a poor culture, but doing the basics, doing good and doing no harm would be an improvement in culture, transparency and integrity.

Ms Kallen indicated there had been improvements in the audit outcomes over the administration term in the Western Cape province. Improvements had been recorded in the West Coast, Overberg and Cape Winelands areas due to firm leadership, strong control environments and competent workforces. The close proximity to the metro was also playing a role and the skills and processes were sustainable, including strong controls. The Garden Route and Central Karoo had not managed to improve their audit outcomes. This was attributed to defective control environments, and it had been difficult to find implemented and sustainable systems in those environments that allowed for good financial and performance reporting. There was a lack of skills in key disciplines, and people in acting positions because they did not want to stay in outlying areas. Political instability was another contributor.

From an overall perspective, the audit outcomes showed good processes for financial and performance reporting. There were pockets of improvements in the environment, but it had to be noted the information presented excluded the struggling auditees. There were two types of compliance issues the municipalities were struggling with: supply chain management and prevention of irregular expenditure. She noted that there had been a decrease in irregular expenditure this year of around R1.2 billion. The majority of that amount was sitting with the metro.

Referring to insights from the audit of water and sanitation service delivery, she said the audit had concentrated on the delivery of shared water and sanitation services to the residents of informal settlements. The AG had observed that municipalities did not know the number of households in informal settlements. This presented an opportunity to perform regular surveys to determine the number of households and to maintain accurate information. The AG had also observed the municipalities were not achieving the targets set for themselves. This meant implementation plans, budgets and annual targets should enable the achievement of water and sanitation targets within a timeframe determined as reasonable by the municipality. It had also seen that there was poor installation and maintenance of water tanks, standpipes, and chemical and container toilets. It saw this as an opportunity to improve contract management, implement and improve complaints reporting systems, and embark on road shows to improve consumer education and awareness.

The material irregularity implementation process had been implemented by seven auditees in the last cycle -- in the metro, George, Beaufort West, Stellenbosch, Cederburg, Drakenstein and the Garden Route. There were two material irregularities (MIs) involving payment for goods and services not received or not in line with the contract that had been signed. The AG highlighted that the responsibility of the mayor and council was to monitor the progress and support the municipal manager (MM) in addressing the irregularities and improving the controls. The council should monitor the process and call for the MM to account for the actions taken. It was noted that irregular expenditure had been the key driver for the MIs. The AG’s recommendation to the council had been to monitor the implementation of the actions taken by the MMs to reduce irregular expenditure.

During the road shows, the AG had received commitments from different stakeholders because there was a conversation around the accountability ecosystem. At the municipal manager and mayor level, the AG got feedback about the commitment to fulfill their roles and to assist the local government in becoming efficient, capable, ethical and service delivery-oriented, to enable municipalities to move to a state of doing good. Effective and ethical leadership was critical for making a positive contribution to the lives of ordinary citizens. The councils were committed to hold the executive and administration accountable to ensure there was credible financial and performance reporting, and to ensure priorities and targets by municipalities were reflective of the needs of the communities.

Lastly, she indicated the coordinating institutions had committed themselves to intensify their support to municipalities with defective control environments and service delivery challenges. This would include consideration and collaboration on strategic initiatives to address skills shortages. They would continue to enhance current support initiatives, particularly the municipal governance review and outlook (MGRO), technical integrated municipal engagement (TIME), etc. They would also continue to strengthen coordination with the provincial treasury, local government and other partners in the accountability ecosystem so that service delivery was continuously focused on and improved. She indicated that a preventative control guide was available on the website of the AG.

Discussion

Mr C Dugmore (ANC) wanted to know if the Western Cape AG had made use of the amendments to recommend further criminal charges or investigations of charges against alleged maladministration. Did the AG have a view on whether the chair of the municipal public accounts committee (MPAC) should be from the opposition parties? What were the total amounts paid to the AG by municipalities for the audits, and when did the AG start to report to each municipality?

Responding on the recommendations made and the disciplinary processes, Ms Kallen said there were sets of legislative roles that must first be undertaken for officials sitting in the accountability eco-system, both from a leadership and oversight perspective. The actions and mandates of those structures were activated to concentrate on whether there was consequence management required in the space, or if the given recommendations were implemented. At this point, it was necessary to have a conversation about this matter.

Information was taken to MPACs and municipal managers (MM), and these structures were functioning adequately. When matters had been identified from a controls deficiency, there was a vigorous process that was run up to the MM level and was tabled before the council and the MPAC. When weaknesses and deficiencies were found in the environment, the AG engaged with the MM to address the root causes, systems and processes around the problem. The AG further looked at the governance structure. Once the conversations were done, then everyone in the accountability ecosystem was made aware of changes that had to be made in order to address the root causes and achieve a sustainable solution.

About the recommendations, the AG had taken stock of material irregularities. The Western Cape provincial government had two material irregularities issues involving the City of Cape Town. The material irregularities had to meet a new definition. In terms of the new Act, the AG had some new responsibilities. A material irregularity was reported when there was non-compliance with contravention of legislation. In the year the AG was looking at, it was phasing in the material irregularities process and was concentrating on non-compliance which needed to be identified through the audit process, which must have resulted in material financial loss, misuse of public resources, and harm to the public. The material irregularity process was such that once the AG identified an irregularity, it was raised to the accounting officer (AO) and MM in a form of an MI notification so that they could make a follow up and implement a level of action to determine the root cause and recovery of the financial loss. This was another way of the AG calling on the accounting officer to fulfill his/her roles and mandates according to legislation. The MM had to respond to the AG with plans to address non-compliance and financial recovery. When the AG made a follow up on the MI in the next cycle and found everything was adequately addressed, the AG would be satisfied the accounting officer had fulfilled his/her responsibilities. However, if adequate action had not been taken, the AG would take things to the recommendation phase and hold the accounting officer to account for those recommendations. In the case of the Western Cape, where the metro had been issued with two material irregularities, the AG had not issued any recommendations for the outcomes it had been looking at currently. The AG was satisfied with the outcome of the accounting officer, and was currently reviewing that outcome.

Mr Ashley Olkers, Deputy Business Executive, AGSA Western Cape, explained the MPAC was a committee of the council. The role of the AG would be interfering with the work of the councils. It was the role of the council to determine the make-up of the MPAC in terms of the Municipal Structures Act.

Mr Thomas Mamogwe, Deputy Business Unit Leader, AGSA Western Cape, said the audit fees comprised a number of factors. The audit work was mandated by legislation and auditing standards. Audit fees were driven by a number of aspects of the municipal space. Budgeted fees had been R136m in the past year, but R139m had been spent due to the efforts the AG put in to resolve issues it found in the environment where there were no preventative controls. The AG had therefore spent a lot of time trying to correct errors it found in the environment.

Mr A van der Westhuizen (DA) thanked the Department for its oversight role, especially in the rural municipalities, because the AG's audit report was a result of the Department’s oversight role. He said there were certain factors the Department could assist with. For example, senior officials were assisting with financial recovery plans. On the other hand, there were factors that were beyond the means of the Department, like instability. He wanted to find out how effective these interventions had been in terms of skills retention and attraction, and the extent to which the auditors engaged with municipalities regarding misconduct.

Ms Kallen said the issues of shortage of skills and retention were aligned to what they had identified. From the provincial interventions and coordinating ministry, the AG believed the initiatives that were currently in place were adequate, and it would be good to see the coordinating ministry continuing with the initiatives. They did cover some aspects that needed to be covered because the audit outcomes had been adequately sustained. It was important for the coordinating ministry to engage with Committee members to brainstorm about these initiatives. One of the AG's recommendations was to come up with strategic initiatives collectively in the accountability ecosystem to address the skills shortage.

Ms M Maseko (DA) asked what empowered the AG to change the situation, or if there was nothing that empowered it to act when a municipal manager did not implement the AG's recommendations. Was there a system that could help the AG to ensure wasteful expenditure did not get repeated in municipalities? She also wanted to know how the AG was communicating with the provincial government to give support to a struggling municipality to carry out consequence management.

Ms Kallen said the AG had engaged the MMs on the outcomes of the audit, including a few who were in acting roles. The AG did not how sustainable its recommendations would be if it was dealing with a number of acting individuals. Once the outcomes were communicated to the MPAC and council, the AG embarked on road shows to meet all key stakeholders, such as the mayor, premier, Member of Executive Councils (MECs) for local government and finance, as well as relevant heads of departments (HODs) to discuss the outcomes. The AG was empowered through the MI process, and it was a call to action for accounting officers to do what they were mandated to do. The key conversation, when it came to communicating with the department of local government, was around ensuring there was a sustainable initiative on skill shortages.

Ms N Makamba-Botya (EFF) asked what the impact had been of the consequence management systems that had been implemented for non-compliant municipalities, and what the outcome of these recommendations had been for non-compliant municipalities.

Ms Kallen indicated that when one saw some of the municipalities not doing well, one would notice they had not done anything to improve their environment, and it was key intervention that was required to stabilise that environment when it came to skills shortages and instability. The MMs found it hard to stabilise the environment to implement the necessary consequence management. The AG had not identified material irregularities in other spaces, apart from what was communicated, but in the current cycle, the AG was going to expand the implementation of the full definition of material irregularity.

Mr Dugmore said he had raised a serious concern, and asked the AG to indicate the exact date of when the amendments were made. The amendments provided for the issuance of a certificate of debt. Was there anyone who had been referred to an external agency, outside of the AG's office, for a follow up since the amendments had come into effect? There had been an outcry from the public that audits were completed, but there was no consequence management. Municipalities paid the AG to do the work, but there was no consequence management. There appeared to be an unhealthy relationship when there was no one recommended for disciplinary action by an outside agency. He also asked if Members of Parliament, during their oversight roles, could report material breaches.

Ms Kallen said they had not issued any referrals to the Hawks or other bodies in the Western Cape province. The recommendations had been implemented since 1 April 2019. A phased-in approach had been done, whereby regulations were prepared and implemented in a phased process. Two MIs had been identified and referred to the City of Cape Town. There were also other two MIs in the system currently that had been issued. The AG tried to close loops in terms of potential non-compliance, as well as irregular expenditure. Not every irregular expenditure was going to result in material irregularity being issued. Every irregular expenditure had to be followed up, investigated and consequence management implemented, so it could not be said there had been no consequence management, investigation or disciplinary action taken in the environment of the municipalities. However, of the AG's material irregularity findings, there had been no referrals at this time. The AG was getting into the full implementation of the definition of material irregularity. The systems were in place for that definition. She added that if something was picked up during MPs' oversight, it could be communicated to the AG, but it would be investigated first and would be scoped as a separate engagement.

Mr Van der Westhuizen said the scope of the AG had been extended to include the audit of achieved indicators at the provincial and national levels. He wanted to know if new developments could be expected in the audit field, or if the AG felt it had reached its full scope.

Ms Kallen said the scoping, in terms of the mandate, allowed the AG to report on financial statements and annual performance reports in the environment, as well as on compliance with key legislation. From the AG's perspective, the full material irregularity definition had been fully scoped in. That should not change unless the definition was changed through the legal processes, and the three focus areas the AG audited on.

The Chairperson wanted to know if there was a weak link in the accountability ecosystem, because nothing new had been stated in terms of accountability in all the matters highlighted by the AG. He gave the example of Beaufort West, which had had adverse audit outcomes for the last three financial years. Accounting officers were put under severe pressure by councils to do "suspicious" work, where dysfunctional councils pursued a certain agenda. He asked if there were other material irregularities outside of the metro, besides the two that have been given to the City of Cape Town. He noted that the audits had been conducted during the Covid period, and possibly remotely. If there was a general improvement, it followed a general notion of additional work had to be done. He asked if there was a deficiency in the legislation that separated the council and councillors in the accountability ecosystem that involved taking decisions contrary to legislation.

Ms Kallen said the AG was an independent assurance provider. It tested from a risk environment, and picked up on areas of political influence that affected financial statements. It had a responsibility to account to the public and provide the necessary information. It conducted its work according to the mandate it was given by the legislation. The AG identified the risks, and they got elevated to the MMs to take action.

The Chairperson asked if the AG had experienced any intimidation or threats regarding the safety of its team during the audits.

Ms Kallen said no intimidation was ever experienced while doing work with the Western Cape municipalities.

The Chairperson said he hoped in the next cycle there would be improvements in municipalities that had adverse audit outcomes. The channels of communication between the Committee and the AG would remain open to strengthening relations between the two.

Resolutions

The Committee resolved on the following matters:

• To engage with municipalities that did not pass the audit -- but it was concerned it would be duplicating the work of the Standing Committee on Public Accounts (Scopa).
• To have a discussion with the Department, the Provincial Treasury and the South African Local Government Association (SALGA) on the audit outcomes.
• To ask the AG to forward it a breakdown per municipality of the R139m budget for audit fees.
• To raise a concern about why consequence management had not been meted out to officials and accounting authorities who had flouted the law since the implementation of the 2019 amendments which gave the AG powers to make recommendations for further investigations of charges against alleged maladministration, and asked if the AG was able to recommend to Scopa.
• To ask the AG to send the Committee the audit costs incurred by municipalities over the last five years, including the current year.
• To ask SALGA to brief the Committee on its training programmes so that it got a better understanding of what SALGA was doing.

Committee matters

The Committee then adopted the minutes of its meetings on 10 May and 13 June, the quarterly report for the period of 1 April to June, the Western Cape Disaster Centre Management Report, and the Committee business and budget plans.

The meeting was adjourned.