Engagement on the State of Amathole District Municipality

Meeting report

The Chairperson welcomed everyone to the meeting, and acknowledged all apologies.

In his opening remarks, the Chairperson highlighted that the oversight function of the Committee in its engagement with the various stakeholders on various issues is that there is an expectation that things change so that communities can benefit from the work of the Department of Cooperative Governance and Traditional Affairs.

Status Update on the Amathole District Municipality: Eastern Cape Provincial Treasury  

Ms Pumeza Sikuza, Director: Municipal Financial Governance, EC Provincial Treasury, briefed the Committee on the state of Amathole District Municipality (ADM). The three pillars of local government sustainability and governance are: institutional, financial health, and service delivery.

On the financial health pillar, the ADM has been adopting unfunded budgets for the past five years. The municipality experienced a decline in the reserves, initially triggering the unfunded position. The 2022/2023 budget is currently unfunded because of the payables from exchange transactions that have been growing over the years, mainly attributed to the decrease in the cash and cash equivalents and a low collection rate for water and sanitation services.

In the assessment of the budget, it has been noted that the municipality has a low collection rate below 30%, which is way below the prescribed norm of 95%, as guided by Municipal Finance Management Act (MFMA) Circular 71. There is also a concerning pattern of the high wage bill, showing signs of failure to manage human resource, which will not be sustainable in the long run. The employee-related costs and remuneration of councillors are the largest cost drivers of the operational expenditure of the municipality, at 49.9% of the 2022/23 Medium Term Revenue and Expenditure Framework (MTREF) budget operational expenditure as per the budget of the municipality.

On the governance pillar, Ms Sikuza said there is a clear financial governance failure with the audit outcomes, recording serious weaknesses and failures. Yet, there is no consequence management to enforce accountability. This could be attributed to the failure of oversight responsibilities by the Council. She said that the ADM received an adverse audit opinion for the 2020/21 financial year. For the municipality to achieve a clean audit, it must obtain an unqualified audit opinion, with no items identified within the emphasis of matter paragraphs and no findings on non-compliance with laws and regulations.

Provincial Treasury has been assisting ADM in complying with the municipal standard chart of accounts (mSCOA) requirements by having regular sessions with the municipality and the financial system vendor appointment to maintain the financial system. Although the ADM has made tremendous strides in submitting monthly data strings as required, the municipality still needs to work towards ensuring that all modules in the financial system are functional and integrated.

On the institutional pillar, she indicated that the position of Municipal Manager has been vacant for more than five months. The position of Chief Financial Officer, who is currently suspended, has been filled. Others positions filled are those of Directors, except for the Director of Strategic Management and Planning and Director Community Services. The municipality has had labour unrest – which has affected the operations of the municipality, as employees demanded a 6.25% salary increase.

The municipality has also experienced service delivery bottlenecks, as it has not been making adequate provisions for the repairs and maintenance of its service delivery assets. The poor performance on service delivery is mainly due to the slow spending on the capital expenditure budget. The municipality has a backlog in providing water and sanitation services.

Ms Sikuza highlighted some of the municipality's achievements, including that the ADM has developed and is implementing an Unauthorised, Irregular and Fruitless & Wasteful (UIFW) expenditure reduction plan. Further, tariff calculation is done using the Department of Water and Sanitation (DWS) model, and the ADM has increased 2022/23 tariffs by 15% in alignment with the 13.5% increase in bulk purchases.

The recommendation is that the leadership must set a tone of zero tolerance for non-compliance and non-performance. Ms Sikuza added that the ADM must ensure stability on its political and administrative fronts to create a conducive environment for municipal performance and service delivery. There should also be the implementation of a long-term financial plan to improve the funding of the budget. Ms Sikuza concluded by mentioning that the ADM is advised to conduct public participation to restore the public image of the municipality and address issues of the low collection rate and service delivery.  

Mr Vuyo Mlokoti, DDG: Corporate Management, Intergovernmental Relations and District Coordination, Eastern Cape Department of COGTA, added that there had been some developments on the issues pointed out by Ms Sikuza. He said that the issues raised are being attended to, as they have serious implications for the functioning of the municipality.

2020/21 Audit Outcomes for Amathole District Municipality

Ms Tracey De Wet, Business Executive, Eastern Cape Auditor-General of South Africa, said that the culture of producing quality financial statements has not yet been instilled, as the financial statements submitted by the municipality were not at the desired level, and there is a reliance on the audit process to identify misstatements in the financial statements.  

Ms De Wet added that the trend in audit outcomes over the last two financial years indicates that the municipality has been in a stagnant position where there has been no improvement in the audit outcomes. Although the municipality developed an audit action plan to address external audit findings, management did not adequately monitor the implementation of the plan promptly. This resulted in recurring findings in property, plant and equipment, payables, revenue and expenditure.

She pointed out that the municipality has leadership instability, as the position of the Municipal Manager is currently vacant after the finding that the re-appointment of the former manager was declared irregular in a court process. COGTA has deployed an acting Municipal Manager for a period of three months, from 01 November 2022. Furthermore, the annual financial statements of the municipality were not submitted for audit on 31 August 2022 as required by Section 126 of the MFMA.

Briefing by South African Local Government Association (SALGA): Support to Amathole District Municipality

Mr King Singanto, SALGA, said that SALGA's Municipal Audit Support Programme (MASP) follows a multidisciplinary approach based on four pillars. And SALGA believes that all four pillars in a municipality need to be strong and functioning effectively for the municipality to obtain and sustain unqualified audits and good service delivery.

[The speaker lost internet connection and the presentation was discontinued]

Briefing by the Municipal Infrastructure Support Agent

Mr Allan Zimbwa, Deputy Director General: Technical Support Services, said that what has been reported by the Provincial Treasury is a true reflection that various challenges have been faced by Amathole Municipality. However, there is notable progress.

Mr Zimbwa highlighted that the ADM is facing basic service delivery challenges. It is struggling with its ageing infrastructure in all its service delivery areas, including dilapidated wastewater and water treatment plants. There is also an increasing demand pressure on wastewater treatment plants, leading to sewer overflows. Further, the municipality is experiencing a huge backlog of water sources to supply areas that do not have water. This is coupled with load-shedding, which contributes to capacity challenges of pump stations, and results in spillages.

A multi-sectoral task team formed after a special Council meeting on 13 October 2022 comprising DWS, EC COGTA, Municipal Infrastructure Support Agent (MISA), and ADM technical representatives, to provide support for both infrastructure grant management and water services provision. The development of the roadmap by the multi-sectoral task team to accelerate project implementation is underway and scheduled to be completed end of the month.

Mr Zimbwa pointed out that the Amathole Municipality does not provide electrification as one of its functions. The Integrated National Electrification Programme (INEP) Grant Funding is not allocated to the ADM, but to the local municipalities. INEP is administered by the Department of Mineral Resources and Energy. The MISA Electrical Engineer supports local municipalities individually in providing electrical services. MISA is funding and implementing an Energy Master Plan for Renewable Energy Resources for ADM, and the project is scheduled to be completed by the end of May 2023.

MEC’s Remarks

Eastern Cape MEC for COGTA, Mr Zolile Williams, said that, since the inauguration of the ADM Council, several Council committees were established to facilitate the effective performance of its powers and functions, including the efficient delivery of services to the communities. The committees are aligned to the local government key performance areas and have clear terms of reference as outlined in the approved delegations framework of the Council.

The challenges faced by the municipality that impact service delivery include political leadership change and stability, administrative leadership instability, instability in respect of workers' salary increase, non-conclusion of suspensions of core service delivery managers for ten months period with five from the service delivery department, delays caused by re-advertising of terminated service providers due to poor performance, and poor grant performance.

Discussion

The Chairperson requested the Members of the Committee to engage with the presentation through discussion.

Regarding the very high wage bill, Ms E Spies (DA) asked how many employees are employed by the municipality, and what measures are going to be put in place to stabilise the high wage bill.

She asked for more information on the reasons for the suspension of the Chief Financial Officer (CFO), including the disciplinary process that has been instituted. She raised concern that disciplinary processes tend to take a long time, thus having organisational implications.

Ms Spies said that it was worrisome that the Council had not met for months, although it is understandable that this was because of a pending court action. She sought clarity on what the councillors were doing at the time the Council was not meeting.

Ms P Xaba-Ntshaba (ANC) asked if the salary earned by the former Municipality Manager, whose appointment was declared a fruitless and wasteful expenditure following the finding that he did not have the required qualifications for the position, would be recovered.

Mr K Ceza (EFF) said that he appreciates all the presentations. He asked the provincial government how much support they offer to strengthen the municipality as per Section 154 of the Constitution. He said that, since 2016, people in the ADM have complained about the lack of water supply. By what date and within what timeframes will the district achieve its deliverables?

He commented that, ideally, a sound municipality would not have issues relating to non-compliance regarding procurement unless it is infested with corruption. Therefore, what is the consequence management regarding non-compliance and unauthorised expenditure in the IDM? He asked if the municipality has a Section 106 investigation. What is the progress of the investigation, including people who have been held liable?

He said that he would like to remind the municipality of Section 153 of the Constitution, which provides that a municipality must structure and manage its administration, including budgeting, and planning processes, to provide the basic needs of the community to promote the social and economic development of the community. He asked what action the municipality has taken to resolve the issue of the municipality’s organogram.

Mr Ceza asked for the breakdown of the businesses owing the municipality, including the progress in the disconnection of services for owing businesses.  

Ms D Direko (ANC) acknowledged the presentations. She said that she understands that there is new leadership in the Amathole Municipality. However, she raised concerns about the support that was supposed to be provided by the provincial and national governments. This is because the issues such as incorrect grading are still the same as the ones raised in 2021, and they have not been addressed. She asked for a timeframe to address these issues.

Mr B Hadebe (ANC) concurred with Ms Direko about some of the challenges presented, which were highlighted in 2021 and have not been addressed. He said that the presentation mentioned Mahindra being owed R23.5 million by the municipality. In the presentation, it was mentioned that Mahindra is assisting with the financial system. Therefore, what is the value for money and return on investments as far as Mahindra is concerned, when the municipality is struggling to implement proper and credible measures in terms of financial systems?

He pointed out that the presentation did not mention the turnaround strategy and the smart city plan of the municipality that was previously mentioned to the Committee.

Mr Hadebe asked about the delays and challenges in implementing the Makhanda High Court judgement.

Is the municipality still renting the headquarters where the Committee was told the building costs the municipality exorbitant money? And is the municipality still experiencing challenges when it comes to water losses? Has the municipality dealt with the issue contributing to the high cost of cell phone allowance, car allowance, and travelling?

He asked for a milestone projection on the five-year financial recovery plan. Is the plan looking positive in terms of achieving all the key priorities that were set? He said it would also be great to understand which departments owe the municipality money, including those whose services have been ceased due to non-payment.

Mr G Mpumza (ANC) welcomed the presentation. He pointed out that, in the presentation, it was mentioned by the Provincial Treasury that the employee-related costs and remuneration of councillors amounted to 49.9% of the municipality’s 2022/2023 budget, which indicated the largest cost driver of the Department’s operational expenditure. However, it contradicts the information, showing that the Department indicated that the municipality's salary is 34% of the total operating budget. Therefore, which of the two is correct?

To the provincial COGTA, Mr Mpumza asked if the salary earned by the former Municipal Manager since his appointment in 2017 was declared a fruitless and wasteful expenditure. Who will be held accountable for the fruitless and wasteful expenditure incurred on his salary?

He further pointed out that it is reported that the financial position of the municipality is still precarious, and the mandatory financial recovery plan has been in place for over two years. He asked that the Committee be appraised whether the plan is reaching traction at the level of the municipality so that there are positive outcomes.

What is the target timeframe set in the Integrated Development Planning (IDP) that will ensure the achievement of universal access to water in Amathole?

What has been the outcome of investigating gender-based violence in the ADM?

Responses

Eastern Cape COGTA

On the province’s responsibility to support the municipality, Mr Mlokoti said there had been a great deal of work done by the provincial department to support the municipality. On service delivery, as part of the Department’s concern to deal with non-expenditure of the municipality, the Department resuscitated the District Wide Infrastructure Forum mandated to review expenditure patterns in the district projects, and to unlock bottlenecks about the issues that have been raised.

Mr Mlokoti said that when the Department met the municipality, it was realised that, after the suspensions of the senior members of the municipality, there was a serious lack of technical expertise in the municipality. There was then an agreement to second two engineers to assist the municipality in reviewing every jammed project and finding ways to improve performance.

There have also been numerous requests from the municipality on the trucks the Department provides in events where communities have been struck by drought. Some trucks were provided.

He said that the Department had supported the municipality in reviewing its organogram following the issues raised that there were challenges with the organogram that was not compliant with the municipal staff regulations. There have been engagements with the municipality to help the municipality officials fully comply with the municipal staff regulations, including the process of compiling the organogram, which is expected to be much smarter and focused on service delivery.

On the appointment compliance of the Municipal Manager, Mr Mlokoti told the Committee that the Department had a lot of vetting processes. In 2016, the appointment of the Municipal Manager was not vetted. When the vetting was done this time around, it was realised that the Municipal Manager did not have the required qualifications and the ADM had used an unaccredited service provider for competence assessment. He said that, had the vetting process been done in 2016, these issues would have been picked up then. There was an error on the side of the municipality in thoroughly scrutinising the suitability of the qualification of the Municipal Manager.  

On 22 August 2022, the Department assisted the municipality by assessing the extent the IDP is complete and compliant with all the various phases. He added that the provincial department had assisted the municipality in various areas, though there is still concern about the high salary bill.

Eastern Cape Provincial Treasury

Regarding the percentage of the employee-related costs and the remuneration of the councillors, which is at 45.9%, Chief Director at Eastern Cape Treasury, Ms Nombulelo Oliphant, said that, though it is still high as the AMFA Circular from National Treasury stipulates, it must be at 35%.

On the reference made by Mr Mpumza about the 34%, Ms Oliphant said that this is the actual percentage spent on employee-related costs, and the reason that it is below is because of the high operating expenditure in the municipality.

She added that the Department has two strategy documents designed to ensure that there is focus support in the ADM regarding the budget, financial statements, supply chain, and asset management. Through various engagements, there was a decision to deploy various advisors to support Amathole.

Amathole District Municipality

On the issue raised about the total number of employees, the Executive Mayor, Mr Anele Ntsangani, said that the total number of employees is categorised as permanent, temporary, and contract employees. And the permanent staff makes 1 363; contract employees make 27 employees, with three directors – some of whom are in an acting capacity. He added that the high wage bill has since been addressed the municipality is currently sitting at R59 million, which is below R67 million. It was the situation in the past. To address this, the municipality has decided not to fill redundant positions. Further, the municipality has decided to advertise all positions at the right grade as per the regulations. This includes the job advertisement for the municipal manager.

He also gave an update on the investigation of the CFO. In terms of the Council Resolution, a decision must be made on the suspension within three months. The process is underway. The investigation is continuing, and a decision will be made within the three-month timeframe.

Concerning who will be held liable for the fruitless and wasteful expenditure of the appointment of an unqualified Municipal Manager, Mayor Ntsangani said that this is a difficult situation to determine because the issue is still in court. The court finalisation of the case will determine if anything will be recoverable.

On the suspension of the CFO, he said that this was not a decision taken abruptly by the Council. But it was a decision taken after several issues were raised, including the non-implementation of the action plan of the Auditor-General – including the lack of change in terms of the audit outcomes and revenue collection. The Council has since appointed a qualified CFO in an acting position.

Concerning the issue raised about the organogram and incorrect grading, he said this is a mountain to climb because there should be a balance in ensuring the implementation of the Makhanda judgement as well as the rights of workers. Whenever the municipality implements the Makhanda judgement and there are disagreements between the municipality and workers, it is a norm that the workers take the municipality to court. And this has huge financial implications, as the municipality loses most cases.

Mayor Ntsangani said that the municipality is due to leave the building that it is occupying in February 2023. This was not done early because, when the decision was made, there was already a lease agreement between the municipality and the owner. However, the municipality has begun renovating its building in Buffalo City. The challenge is that the renovations are expected to be completed past February 2023. Therefore, the municipality might have to move out of the current building and occupy another building that will be less expensive, until the renovations are completed.

On water losses, he acknowledged that the municipality losses water because of dilapidated infrastructure. This is being addressed through water conversation and demand activities. He said that there is an implemented credit control policy for the municipality. There are weekly disconnections, and the affected departments are informed. The Department of Education owes R3 million; Rural Development owes R1 million; Correctional Services owes R980 000; Health owes R7 million; Sports, Arts and Culture owe R176 000; Agriculture owes R66 000; Social Development owes R6 million; Public Works owes R6 million; and provincial Public Works owes R2 million. He added that there is currently no breakdown of the businesses owing the municipality, but this information can be availed to the Portfolio Committee if needed.

On the outcome of the investigation instituted by the Council about gender-based violence against a councillor, he said that since the matter is still in the court, the municipality is still waiting for the court’s outcome. The Committee will be updated on the case.

In his closing remarks, he expressed his appreciation for the guidance of the Portfolio Committee. He said that the municipality is committed to ensuring the implementation of an effective mandatory financial recovery plan, working alongside COGTA, so that the municipality works effectively with a clean audit.

The Chairperson thanked the Members for attending the meeting, and all the guest delegations for appearing before the Committee.

The meeting was adjourned.