Department of Local Government Q3 2022/23 Performance; Provincial Treasury on under-funded mandates / budgets at municipalities & their late payments to Eskom and AGSA

Meeting report

Western Cape Department of Local Government third quarter performance and expenditure report for October – December 2022
Mr Albert Dlwengu, Director: Policy and Strategy, Western Cape Department of Local Government, briefed the Committee on the Department’s third quarter performance and expenditure report, covering October – December 2022.

The Department had 59 indicators to report on. Sixteen sector performance indicators were determined at national level, while 22 indicators were due to be reported on. A total of 21 indicators had been fully achieved, while one indicator was partially achieved.

The Department’s expenditure as of 31 December 2022 stood at R185 million. This is about 61% of the total adjusted budget.

[See presentation document for more details]

Discussion
Ms M Maseko (DA) said it was a difficult time of the year to ask questions on the Annual Report since the financial year was already closing. She spoke about the audit outcomes influencing the support the Department provided to municipalities.

The Member further spoke to the MPAC assessments and the very few participatory municipalities, as the exercise was meant to empower MPAC members. She requested clarity on the modalities employed to determine which municipalities qualified for an assessment.

Ms Maseko also referred to the Bitou-regional municipalities, as these local administrations had been given a checklist. She also questioned the capacity of the latter to implement these checklists. The Member also asked for clarification on the diagnostic tools utilised to vet participating municipalities for Departmental intervention.

Mr P Marran (ANC) noted that the Department had spent 100% of its budget in the third quarter. His questions pertained to Municipal Governance. The Department had set a target of 30 municipal governance training programmes for the year under review. Thus far, it had conducted seven in the first quarter, 13 in the second quarter and nine in the third quarter, though the nine seemed to be over and above because no target was set. Given these figures, Mr Marran asked whether the nine training sessions for the third quarter should be read in conjunction with quarters one and two, as part of the 30.

On public participation, Mr Marran recalled the Department’s comments about the Western Cape largely being a rural province, bar the City of Cape Town metropolitan area. He asked whether the bar had not been set too low, judging by the targets the provincial administration had set. He argued that the Department had set a target of 17 700 for the financial year, yet quarters one and three had more than 16 800, respectively, with a recorded 17 700 for quarter three. These numbers combined were almost 50 000, and quarter four still remained.

The Chairperson requested more information on how Directors from the various municipalities had been chosen for assessment. He asked whether these appointments had been sanctioned by the respective councils and then sent for concurrence from the Department.

The Department was also asked to elaborate on the determinant for municipal governance intervention. The Chairperson specifically asked whether municipalities ask for support or if the Department has its own processes to determine the necessary intervention.

About the already exhausted budget and the specific line items, the Chairperson asked how the Department would fund quarter-two activities.

Responses by the Department
Mr Dlwengu responded to the questions about the assessments. He explained that participation rested on the number of appointments referred to the Department in terms of the Municipal Systems Act.

The targets were set in consultation with national annually.

On public participation, Mr Dlwengu said that indicators were set by national government.

He said that the Department of Cooperative Governance and Traditional Affairs (COGTA) appointed an implementing agent to supervise the appointments. The Department only played a coordinating role.

South Africa had 17 700 local governments (municipalities). The target mirrored the amount of municipalities and was devised by national government.

On sector indicators, Mr Dlwengu said that these had been designed through a consultative process, though national played the decisive role.

All nine provinces fell under the same regime, with a linkage between the national and provincial indicators.

Mr Kamal Makan, Director: Municipal Governance, said that the training of local government officials began in the year 2000, with the first local government elections. Training was conducted in conjunction with the South African Local Government Association (SALGA).

The focus for the immediate term was on Municipal Annual Plans and the statutory authority exercised by these senior officials in terms of Section 79 A of the Municipal Systems Act (MSA).

On the choice of municipalities with an annual target of 10, Mr Makan indicated that the Department had done assessments according to Schedule A of the MPAC.

Mr Nabeel Rylands, DirectorL   Municipal Performance Monitoring, said that the Department followed a structured monitoring process of municipal performance. The set of indicators were on a bi-weekly/quarterly basis regularly monitored. The annual performance plan was derived from these periodic reports. The Department also developed a municipal dashboard that tracked performance.

Dr Sandra Greyling, Director: Municipal Support and Capacity Building, said that when the latter had not been active in a municipality, a diagnostic assessment had to be done first.

Provincial Treasury and Environmental Affairs and, in some instances, Human Settlements formed part of the assessment team. The diagnostic assessment report ensured that the provincial administration fully grasped the challenges within a particular municipal area and the type of interventions needed. These are detailed in a Support Plan. To monitor and evaluate implementation, the Department had periodic engagements that assessed performance. During these engagements, interventions are normally proposed, should that be necessary.

Councillor Carl Pophaim, SALGA Western Cape, spoke to SALGA's involvement, and informed Members that a meeting with Bitou had been scheduled for 03 March 2023, to discuss the MPAC's Terms of Reference.
 
In most instances, SALGA provided guidance, as most municipalities could not even muster the bare minimum. SALGA had also provided support, but this apparition is on drafting a whistle-blower policy and dealing with anonymous complaints, particularly in municipalities like Bitou, Matzikama, Oudtshoorn and Kannaland.

He added that, when one reviewed the Auditor-General’s findings on these mentioned municipalities, one should get a clear understanding as to why these municipalities had been earmarked for an assessment.

SALGA had also established a municipal public accounts forum. This body comprised the chairpersons across the various municipalities in the province, and it convened monthly. The aim was still to provide comprehensive training to municipal public accounts chairpersons.

An amendment had also been introduced to make the chairpersons of impact full-time councillors, providing them with the space and capacity to focus solely on their statutory obligations.

Section 102 notices had also not yet been amended. He said that Members might recall that the amendment two section 12 remained within the preview of the relevant member of the executive council.

It remained imperative that even pictures be recognised as full-time councillors. That request had been made however municipalities had no capacity to do this by themselves. Many municipalities also had no internal capacity to deal with internal audits. In this instance, SALGA also provided capacity.

Follow-up questions
Ms Maseko asked what SALGA had done to pre-empt the audit outcomes related to those mentioned municipalities. About this, she wanted to ascertain whether municipalities had accepted the guidance of it.

On the response about public participation and the target of 17 700, Mr Marran asked whether previous years' targets influenced the targets set for the next year. The Member also wanted to establish whether the Department played a role in setting the targets.

He continued to express confusion about the target for municipal governance. He asked for clarification on whether the nine should be read as being part of the overall target of 30.

Follow-up Replies
Mr Dlwengu replied that the Department engaged with relevant units to spread the budget allocation across the four quarters. The Department also remained hesitant to set definite targets at the risk of underachievement. Filling a position might take time and that poses a significant risk.

Dr Greyling said the Department worked closely with Provincial Treasury on municipal audit outcomes. As a rule, the Department identified areas that required intervention with the necessary support provided to relevant municipalities. The AG had continued to flag the same risks in the five municipalities under discussion and that each municipality presented its own set of challenges.

An official from the Department added that COGTA national allocated the amount of work opportunities per province and the targets. These are based on the allocated budgets per province.

Mr Makan spoke to Section 106 notices. He said that no amendment had yet been made. A legislative process had to be followed in terms of the Municipal Structures Act. The Department had received five requests to amend Section 106. Such a process would also include wide-ranging consultations with SALGA and many other role-players.

Provincial Treasury on under-funded mandates/budgets at municipalities & their late payments to Eskom and AGSA
The Provincial Treasury briefed the Committee about the unfunded and under-funded mandates and budgets at municipalities and the processes followed by the Provincial Government regarding the late payments to Eskom and the Auditor-General by municipalities. The briefing was delivered by Mr Steven Kenyon, Chief Director: Local Government: Public Finance; Mr Aziz Hadin, Western Cape Accounting General; and Ms Audrey Jacobs from Western Cape Provincial Treasury.

Kannaland Municipality received extra scrutiny. Provincial Treasury made it clear that it was unacceptable for the municipality to adopt an unfunded budget for the current medium-term revenue and expenditure framework period. It has been practice in the municipality since the 2018/19 financial year. The municipality had been told that it was in breach of section 18 of the Municipal Finance Management Act (MFMA), which stipulated that a budget must be funded from realistically anticipated revenues and accumulated funds from previous surpluses.

Four municipalities in the Western Cape owed Eskom just over R275 million and had stuck to repayment plans. The Auditor-General was also trying to recover almost R50 million from municipalities in the Western Cape.
 

See attached for full details
 

Discussion

Ms Maseko thanked Provincial Treasury for unpacking the differences between unfunded budgets, outstanding debt to Eskom, and unfunded mandates. This engagement assisted the Committee with the prerequisite information to quiz the Department.

She commented that the Costed Integrated Development Plans (IDPs) provided the blueprint for municipal development. If all municipalities followed the prescripts, unfunded mandates should not be a challenge.

Ms C Murray (DA) said that she appreciated the information provided to the Committee, as these aided Members in keeping abreast of developments and asking appropriate questions.

The Chairperson's questions related to the five municipalities with unfunded budgets. He wanted to ascertain whether these municipalities had engaged with Eskom to at least write off the interest accrued on the outstanding debt.

He wanted to ascertain whether the various municipalities had seen a decrease in indigent percentages, especially as it related to the development projects within those municipalities.

On the non-payment of audit fees by the municipalities, he wanted more information on whether these municipalities had utilised external auditors/consultants.

The Chairperson also wanted to establish how many municipalities had been implicated with unfunded mandates.

Mr T Klaas (EFF) asked why the City of Cape Town deducted money when indigent households bought electricity. He said residents would buy R100 worth of electricity but would only receive R50’s worth. He wanted to know which law had allowed for such an eventuality.

The Chairperson interjected and relayed to Provincial Treasury officials that they were under no obligation to answer the question posed by Mr Klaas. This particular question has been asked before.

Responses by Provincial Treasury
Mr Aziz Hadin, Chief Director: Financial Governance and Accounting, said all municipalities had to establish audit committees. These audit committees should fulfil their functions in terms of the Municipal Systems Act. He said that experience had taught him the administration that those municipalities closest to the City of Cape Town inevitably secured their appointments much earlier as opposed to far flung rural areas. Sometimes it does not benefit an audit committee member to drive for six hours to Beaufort West (and) sit in a four-hour meeting. Then it becomes an issue of cost, preparation, time and energy.

Mr Hadin added that, according to Terms of Reference drafted in terms of Circular 65 by National Treasury, municipalities had received guidance on strengthening audits and compliance with at least the most minimum requirements.

Having “warm bodies" should not be seen as a good sign per se, as the AG highlighted specific aspects during an audit, as opposed to general auditing practices. For these specific aspects, suitably qualified people are needed. Municipalities also had different requirements.

Mr Hadin stated that coalition governments had ushered in an era of instability in some municipalities. Some municipalities had seen a revolving door of municipal managers and chief financial accounting officers. This serious lack of corporate leadership impacted the financial performance of these municipalities. In some instances, those appointed in an acting capacity performed dual functions. This hampered the efficacy of financial reporting.

On outstanding debt to Eskom, Mr Hadin reported that Provincial Treasury was a crucial negotiating partner for municipalities with Eskom. The current economic distress, crippling load shedding and talks of recession are crucial realities to consider during these processes.

On the Kannaland funding plan and others, Mr Hadin explained that Provincial Treasury continuously reminded Kannaland et al. of their responsibilities.

On the contracting of consultants by Kannaland et al., it was noted that higher revenue-generating municipalities ordinarily had well-functioned and capacitated internal audit units, whereas others like Kannaland et al. contracted consultants. This was not a practice that Provincial Treasury encouraged. One had to delve deeper into the details, given the political instability experienced.

South Africa was lauded internationally for governance performance reporting, though most municipalities failed to muster compliance with the requisite skills.

On the decrease in the number of people on municipal indigent registers, he said it remained a case of “the chicken or the egg”. Unemployment had increased and the economy was in the doldrums. This affected people’s affordability. Provincial Treasury had subsequently advised municipalities to focus on their debt and credit policies.

To further cap costs, residents are also more than welcome to opt for the pay-as-you-use system. However, this remained a politically sensitive issue and was the councils’ prerogative. Municipalities had also been instructed to update their indigent registers. They continued to receive training on best practices during Revenue Master Classes and other scheduled and ad-hoc interactions with municipalities.

Mr Kenyon said that Provincial Treasury prescribed to the existing policies on basic free services. Basic free services are catered for according to the equitable share and are regularly monitored to assess their impact. Provincial Treasury had also allocated a 20% increase in bulk electricity provision.

On outstanding debts to Eskom, Mr Kenyon said that Provincial Treasury had negotiated with Eskom, and it was agreed that the interest would be written off after every six months. This was on the proviso that these municipalities continued to honour their commitments.

The Minister of Finance had also announced relief for municipalities in terms of debt, but this relief would take some time to filter into the system. The five municipalities in question all had budget funding plans.

These are progressing well in some, whereas challenges had been experienced in other municipalities.

Mr Dian Cronje, Director: Local Government Budget Office, Western Cape Provincial Treasury, said nothing prevented municipalities from finding additional revenue streams. Municipalities are thus encouraged to focus on potential revenue-generating activities such as tourism. Collaboration was important in such instances. The challenge for municipalities, however, was who would assume responsibility – local municipalities or the districts.

The Chairperson thanked officials for the respective briefing and excused them from the meeting.

Committee Resolutions/Actions

Ms Maseko proposed that the Committee engage the Department on the need for amendments that would allow the MPAC chairs to be permanent councillors.

Members agreed on the resolution.

Members also resolved that any further resolutions could be forwarded in writing to the procedural staff.

Consideration and Adoption of Minutes

The Committee approved the draft minutes of a meeting on the Adjustment Appropriations held on 28 November 2022.

Ms Maseko proposed the adoption of the minutes, and Ms Murray seconded.

The Chairperson thanked the Members for attending and participating in the meeting.

The meeting was adjourned.