2021/2022 Consolidated Municipal Audit Outcomes: AGSA Briefing; with Minister
Cooperative Governance and Traditional Affairs
06 June 2023
Chairperson: Mr C Dodovu (ANC, North West) and Mr F Xasa (ANC)
Meeting Summary
The Auditor-General of South Africa provided a briefing to the Joint Committee Meeting of the Select Committee and Portfolio Committee that oversees the Department of Cooperative Governance and Traditional Affairs regarding the Consolidated Municipal Audit Outcomes for the period of 2021/2022.
The Auditor-General of South Africa reported a significant improvement in the timely submission of financial statements and other information for auditing. In the previous financial audit cycle, the rate was at 81%. But in the 2021/22 financial audit cycle, it had increased to 91%. The Office told the Committees that, out of 257 local municipalities, 38 received unqualified audit outcomes with no findings, 104 received unqualified outcomes with findings, 78 received qualified outcomes with findings, six received adverse outcomes with findings, 15 received disclaimed with findings, and 16 were outstanding audits.
The Auditor-General reported poor financial management and a lack of consequences for poor management on the fact that municipal infrastructure grants are spent on salaries. She also emphasised the crucial role of proper financial planning, controls, and reporting for municipalities to effectively deliver services to the public and ensure accountability for taxpayers' money.
Members asked whether there would be a regression in audit opinions, considering the fact that most of the municipalities are unable to adhere to the essential projects and functions. They questioned what steps are necessary to address the problems of dysfunctionality and financial mismanagement. They further expressed concern regarding the reporting of criminal activities discovered by the Auditor-General during their audits. They asked whether all these instances of criminal activities are being reported to the relevant authorities.
They expressed concern about the financial difficulties faced by municipalities, referring to previous reports that identified skills shortage as one of the reasons for these challenges. They also emphasised that effective planning becomes impossible without proper skills, and failure is inevitable without planning.
A Member proposed the idea of establishing a dedicated authority in each province that would oversee and enforce proper financial practices, particularly in the area of supply chain management. This authority would have the power to swiftly intervene and prevent any irregularities, thereby avoiding prolonged and complex processes.
Another Member suggested a thorough assessment of the current condition of municipalities' critical infrastructure, specifically focusing on water infrastructure and treatment plants in all nine provinces. He emphasised that the infrastructure in South Africa has deteriorated significantly, with most of it being non-functional.
The Chairperson expressed his frustration. He stated that unless there are consequences faced by the perpetrators of financial mismanagement and non-compliance, the Committee will continue to address these issues annually, as highlighted in the Auditor-General’s report. He emphasised the importance of embracing and properly applying the "accountability ecosystem" approach, which he believes can contribute to effective oversight and support provided to municipalities.
Meeting report
Opening Remarks by the Chairperson
Chairperson Dodovu remarked that the briefing by the Auditor-General (AG) on municipal audit outcomes will present an opportunity for the Members of the two Committees to have a deeper and broadened understanding of the financial administration at the municipalities to intensify their oversight role over local government.
The Auditor-General, Ms Tsakani Maluleke, informed the joint meeting that there had been a significant improvement in the timely submission of financial statements and other information for auditing. She stated that, in the previous financial audit cycle, the rate was at 81%. But in the 2021/22 financial audit cycle, it had increased to 91%. Ms Maluleke emphasised the importance of proper financial planning, controls, and reporting for municipalities to effectively deliver services to the public and ensure accountability for taxpayers' money.
The Committees heard that, out of 257 local municipalities, 38 received unqualified audit outcomes with no findings, 104 received unqualified outcomes with findings, 78 received qualified outcomes with findings, six received adverse outcomes with findings, 15 received disclaimed with findings, and 16 were outstanding audits.
The Committees heard that some governments spend a lot of money on consultants, even if their services are not worth much. Consultants are expected to do everyday financial, administrative tasks that municipal officials should perform. According to the AG, municipalities utilising consultants are more likely to have poor audit results.
The AG also reported poor financial management and a lack of consequences for poor management based on the fact that municipal infrastructure grants are spent on salaries. She said that the municipal council and the accounting officers are responsible for the lack of accountability in municipalities.
[See attached presentation for more details]
Discussion
Mr J Smalle (DA) asked whether there will be a regression in audit opinions, considering the fact that most of the municipalities are unable to adhere to the essential projects and functions. Additionally, he suggested a thorough assessment of the current condition of municipalities' critical infrastructure, specifically focusing on water infrastructure and treatment plants in all nine provinces. It is alarming to note that nearly two-thirds of the infrastructure has experienced a breakdown. He emphasised that the infrastructure in South Africa has deteriorated significantly, with most of it being non-functional. He mentioned a specific report called the "Pale Blue Green and No Drop Report" submitted to the Department of Water. He expressed his difficulty in aligning the information from the report with the material statements presented by the Auditor-General (AG), as no additional findings were provided.
In his remarks, Mr Smalle referred to a presentation delivered by SALGA, which highlighted that section 139 interventions are ineffective, as several municipalities continue to repeat their offences, with some instances occurring as many as 15 times. Mr Smalle then posed a question to the AG, enquiring about her analysis of the current state of local government and whether she has investigated the reasons behind the lack of desired outcomes from section 139 interventions.
Regarding a specific reference made in one of the AG’s presentations, where she mentioned a decrease from 26 disclaimers to 15, and indicated some improvement concerning the disclaimers, Mr Smalle expressed his disagreement. He argued that this decrease could be attributed to a lack of submission of audit opinions, rather than genuine improvement in the municipalities' financial statements. He further asked whether the AG had issued any instruction notes to a third party or National Treasury regarding the audit opinions that had not been submitted, particularly concerning rollover funds.
Mr I Groenewald (FF+) expressed concern about the financial difficulties municipalities face, referring to previous reports that identified skills shortage as one of the reasons for these challenges. He noted that this issue has not been adequately addressed. While the AG mentioned the Public Management Improvement (PMI) initiative and future plans, Mr Groenewald inquired if there could be a faster approach to regain the necessary skills. He emphasised that, without proper skills, effective planning becomes impossible, and without planning, failure is inevitable.
The AG expressed deep concern about the poor record-keeping practices in municipalities. Mr Groenewald, in response, cited various Acts of legislation and emphasised the importance of maintaining a paper trail through proper processes. He highlighted that if there is a failure to locate necessary documents, either the Municipal Manager or the Chief Financial Officer should be held accountable for the discrepancies.
Mr K Ceza (EFF) questioned whether the decision-making processes of municipalities are effectively aligned with the reporting of those decisions to the public, particularly regarding the management of public funds. He then raised the matter of consequence management and non-compliance by municipalities by highlighting Section 133 of the Municipal Finance Management Act (MFMA). He emphasised that, according to this section, if an accounting officer of a municipality or entity fails to submit financial statements to the Auditor-General (AG), as required by Section 126, or if the mayor fails to present an annual report to the council in accordance with Section 127, the mayor is obligated to promptly present an explanation in the council, outlining the reasons for the failure. In the case of any failure to submit financial statements for auditing, the mayor must promptly inform the speaker of the council, National Treasury, and the Member of the Mayoral Committee (MMC) of local government, as well as the Member of the Executive Council (MEC) responsible for finance in the province. He further asked timeframe for finalising the conclusion of the outstanding audits of the 16 outstanding audits.
Mr Ceza referred to a SALGA report dated 23 May, highlighting that certain municipalities experienced worsened conditions after being placed under administration. He noted that this was attributed to inconsistencies in monitoring practices that did not align with the objectives of local government, as outlined in Section 152 of the Constitution. He then posed a question about the necessary measures that need to be taken for these municipalities to improve their audit status and effectively manage the available resources. Additionally, he acknowledged the challenges municipalities face regarding fiscal decentralisation and the allocation of demanding tasks, wondering how these issues could be addressed.
He expressed dissatisfaction with utilising consultants in municipalities and their tendency to increase costs without delivering satisfactory outcomes. He referred to the AG’s report, which noted that consultants were being hired for tasks as trivial as compiling VAT returns. Mr Ceza asked the AG for her perspective on demonstrating internal audit teams' capabilities within municipalities and the effectiveness of skills transfer from consultants regarding municipal internal audits. Furthermore, he enquired about the AG’s approach to measuring public confidence, considering her mandate in this regard.
On the issue of dysfunctional municipalities, with possibly 66 or more affected, Mr Ceza questioned what steps are necessary to address the problems of dysfunctionality and financial mismanagement. He specifically mentioned the need for professionalisation within the system, the challenges posed by crumbling infrastructure, and the instability in municipal administration. He sought insights on how to effectively tackle these issues and bring about improvements in these areas.
The subsequent question he raised was whether the AG effectively enforced its mandate concerning the municipalities of Masilonyana and Maluti-a-Phofung. These municipalities have failed to submit their annual financial statements for auditing within the legislated deadline, indicating non-compliance with the required timeframe. He registered his concern about this growing tendency of non-submission of financial statements to the AG.
Mr Ceza was concerned that the AG does not report material irregularities when the financial loss is below R1 million. He inquired about alternative mechanisms in place to recover funds below this threshold, as these public funds still amount to a significant sum. He also asked whether the accounting officer of Ngaka Modiri Molema District Municipality, who received a certificate of debt notice, was present during the occurrence of the material irregularity in the 2018-2019 period, taking into account the frequent turnover of Municipal Managers (MM) in local government.
Regarding the Eastern Cape and the required improvement in internal control systems, skills, and capacity of municipalities, Mr Ceza requested an overall perspective on upscaling efforts. He highlighted the issue of municipalities heavily relying on consultants, indicating a lack of attention towards the recommendations made in consultant reports. This situation points to the need for upskilling existing officials and creating an environment in local government that attracts skilled professionals to stabilise the system. The issue of vacancies, specifically at the CFO level, was raised, considering the AG mentioned this in her presentation. He asked what measures or actions would be necessary for local government to overcome the current challenging situation and improve its overall condition.
Mr R Badenhorst (DA, Western Cape) expressed his contentment with the report, emphasising that it highlights the significant importance of clean audits at the ground level. He emphasised that clean audits are directly linked to service delivery, which is the crucial factor that matters most to the residents. However, he conveyed his deep concern over the heavy reliance of many municipalities on consultants. He noted the AG mentioned that proper financial planning is essential for achieving clean audits. However, if consultants are being utilised for financial planning due to a lack of capacity within the municipality, it is disconcerting that, despite spending significant amounts of ratepayers' money on consultants, these municipalities still struggle to deliver clean audits and, consequently, fail to provide proper service delivery to their residents.
Mr Badenhorst raised a concern about the effectiveness of preventive control in municipalities due to the lack of capacity and skills. He highlighted the direct connection between skills shortage and consequence management. He then requested the AG to provide an explanation to the Committee members regarding the instruments being used in consequence management. Additionally, he inquired about the actions taken to address the issue of repeat offenders who consistently fail to achieve clean audits and what measures will be implemented to rectify this problem.
Ms E Spies (DA) began by stating her belief that there is a requirement for a policy document that will be enshrined in legislation. This document would serve as a tool to compel municipalities to develop a plan to prevent further deterioration and collapse.
She proceeded to notify both the Portfolio Committee and the AG that she had corresponded with her Office and SALGA regarding the importance of studying and adopting best practices. She emphasised the necessity of identifying a model that can be replicated in municipalities on the brink of financial collapse. For situations where, as highlighted by the AG, municipalities have budgets aligned with service delivery plans and clear priorities, yet fail to achieve tangible outcomes, she inquired about the potential actions that the AG or other stakeholders could take to address this issue.
She requested clarification regarding instances where the AG frequently highlights significant procurement and control issues in municipalities. In an attempt to address the challenges faced in municipal procurement, she inquired about the AG’s perspective on the possibility of implementing regulations outlined in the MFMA. Additionally, she inquired if the AG’s Office could provide a simplified and practical plan or package that municipalities could utilise to enhance their outcomes and improve their performance. She inquired about the monitoring process undertaken by the AG’s Office or relevant authorities to ensure that every individual employed within the financial department of municipalities, particularly consultants handling basic tasks, is adequately supervised and possesses the necessary skills and qualifications.
Ms Spies proposed the idea of establishing a dedicated authority in each province that would oversee and enforce proper financial practices, particularly in the area of supply chain management. This authority would have the power to swiftly intervene and prevent any irregularities, thereby avoiding prolonged and complex processes. The purpose of such an authority would be to ensure that things progress smoothly and in accordance with the law. It would also enable easier detection and timely resolution of any unlawful practices that may occur.
Ms Spies inquired about the level of collaboration between the Auditor-General's Office and other relevant departments, particularly those responsible for landfill site management and water treatment resources. She sought to understand to what extent these departments and role players are working together to address the issues and whether the Auditor-General's Office receives assistance and cooperation from these relevant offices.
Mr K Motsamai (EFF, Gauteng) presented four recommendations. Firstly, he suggested that the Select Committee should proactively conduct oversight visits to municipalities in Gauteng to examine issues such as regular fruitless and wasteful expenditures, and the plans implemented by municipalities to address audit outcomes. Additionally, he inquired about any allegations of procurement fraud in the City of Cape Town and the actions taken by the Auditor-General's Office in response. His second recommendation was for the Auditor-General to investigate and report back to the Select Committee. Thirdly, he proposed that the Select Committee conduct proactive oversight visits to the City of Cape Town, focusing on service delivery, procurement, and fraud, and invite relevant stakeholders to participate in the oversight meeting. As a fourth recommendation, he requested that the Auditor-General provide the Select Committee with a list of municipalities issued with Material Irregularities on complacency and fraud.
Mr C Smit (DA, Limpopo) expressed his concern regarding reporting criminal activities discovered by the Auditor-General during their audits. He inquired whether all these instances of criminal activities were being reported to the relevant authorities. If not, he posed the same question to the Department and the Minister, as according to the law, individuals are responsible for reporting criminal activities, and failure to do so can be considered a criminal offence.
Mr Smit asked the Auditor-General about their experience with section 139 interventions in municipalities. He was interested in knowing whether these municipalities have significantly improved since the implementation of section 139 interventions, compared to their initial state. He inquired about the process when a municipality is notified – for example, of a sewer spillage into water sources. He questioned whether such instances are being directed to the Department of Environmental Affairs and the Green Scorpions for intervention. He emphasised that if this is not taking place, it would constitute a criminal offence under the National Environment Act and the National Water Management Act.
He then directed a question to the Minister regarding the declaration of interests by councillors and senior officials. He inquired whether these individuals are required to declare their interests, similar to what Members of Parliament do, and if these declarations are made public. He noted that there had been instances where councillors and senior officials engaged in business with the entities they are employed by. He sought clarification on why such declarations and transparency measures are not in place.
He inquired about the reasons why other municipalities are not adopting the practice used in Midvaal, where genuine public participation takes place. He questioned whether the communities truly influence the Integrated Development Plans (IDPs) and not solely determined at the council level. He highlighted the concern that, in many cases, the public participation process merely serves as an information-sharing tool rather than a genuine opportunity for active community participation.
Ms S Buthelezi (IFP) inquired about the AG's advice on how municipalities can ensure that government institutions are held accountable for repaying their debts. Additionally, she asked if it would be feasible to compile and distribute a list containing the names of these institutions along with the total amount of debt they owe to the municipalities.
Ms Buthelezi also raised concerns about the substantial amount of debt, totalling R39.63 billion, that municipalities had to write off in the 2021/2022 period. She questioned the possibility of municipalities reducing their debt collection period, which currently averages 231 days. Further, she expressed her dismay over the awards totalling R250 million given to employees and councillors in 19 municipalities and the awards totalling R2.49 million granted to other state officials in 134 municipalities. She asked the AG for recommendations on consequence management measures that could be implemented to hold these individuals accountable.
Chairperson Dodovu inquired about the current status of the allegations regarding harassment of the AG's staff in certain areas. He drew a connection between these allegations and the escalating incidents of councillor killings happening in various municipalities, with most of those killed being those who serve in oversight committees.
He inquired whether the AG has explored the possibility of conducting real-time audits in municipalities that consistently receive disclaimer opinions. This approach could potentially minimise the impact of financial discrepancies and enable early detection of irregularities. He expressed his concern about the governance crisis in his home province of North West, as highlighted in the AG's report which stated that only two provinces, namely North West and Free State, did not achieve clean audits. He noted that some municipalities in these regions either fail to submit financial statements or submit poor quality work. He interpreted these issues as a clear indication of a systemic problem and viewed them as a cry for help.
He highlighted that the MEC for Treasury recently placed approximately ten municipalities under section 139 intervention, according to the MFMA. He expressed concern about the ongoing issues faced by the province, and he emphasised that his difficulty lies in the fact that no corresponding action was taken against the individuals responsible for these problems. He stated that both the municipalities and the defaulters are known, yet no appropriate measures are being taken.
Chairperson Dodovu expressed his frustration. He stated that unless there are consequences faced by the perpetrators of financial mismanagement and non-compliance, the Committee will continue to address these issues annually, as highlighted in the AG's report. He emphasised the importance of embracing and properly applying the "accountability ecosystem" approach, which he believes can contribute to effective oversight and support provided to municipalities.
Responses
In her response to the numerous questions raised, the AG reiterated her message regarding the importance of the "accountability ecosystem." She emphasised its significance in promoting accountability and good governance within municipalities.
In explaining the concept of an accountability ecosystem, the AG clarified that the primary responsibility for running municipalities lies with the head of administration, which is typically the municipal manager. This individual is supported by the CFO and other senior managers appointed by the council. They work in conjunction with internal audit committees to provide support to the administration and ensure ongoing oversight and necessary improvements. Additionally, within the institution, there are clearly designated responsibilities that belong to the council. Some of these responsibilities are handled by the disciplinary board and other committees, on behalf of the council.
She emphasised the importance of examining the entire ecosystem within the municipality to identify any weaknesses. This ecosystem comprises individuals appointed and elected to lead the municipality. They are entrusted with the authority and responsibility to act as custodians and stewards of the institution and its resources. These individuals should be held primarily accountable for ensuring the institution fulfils its mandate.
On the other side of the accountability ecosystem, the AG highlighted the role of provincial departments such as CoGTA, Treasury, and the Office of the Premier. These departments, along with the provincial structures, hold accountable the head of departments in CoGTA and the Treasury and the premier's Office, ensuring that they fulfil their respective responsibilities. She also mentioned that, within the national context, specific duties lie with the Minister of CoGTA and the Minister of Finance. These Ministers are responsible for ensuring proper oversight and implementation of their respective mandates. The Portfolio Committees at the national level are also responsible for receiving reports and providing oversight in their areas of jurisdiction.
Concerning performance information, the AG emphasised the importance of compliance with the law. For example, when dealing with service delivery issues, the accounting officer and the council are responsible for conducting public participation processes to gather inputs. They then compile the Integrated Development Plan (IDP) and the Service Delivery and Budget Implementation Plan (SDBIP). These documents are submitted to the MEC of CoGTA for review, as the law requires.
The AG emphasised that the responsibilities outlined in Section 31 and Section 32 of the Municipal Systems Act are clear. If there are issues related to the quality of performance planning, it is necessary to examine the internal processes within the institution and the actions taken by CoGTA. The provincial legislature should also play a role in driving oversight activities that support the improvement of performance information, planning, and monitoring. Further, Section 47 of the Municipal Finance Management Act stipulates the duty of the Minister of CoGTA to submit reports to Parliament, at least once a year, which address how municipalities are addressing the findings of the Auditor-General.
She posed a rhetorical question about the extent to which the legislature is fulfilling its specific responsibilities in a manner that supports the entire accountability ecosystem. She referred to the previous year's MFMA report, which dedicated significant time to examining the rules and provisions of the law and identifying areas where influence can be exerted to ensure that every part of the ecosystem operates effectively. She emphasised that only when all components of the ecosystem function harmoniously will the necessary improvements be seen.
She reiterated the role of the AGSA, particularly concerning accountability and consequence management in the public sector. She stated that the Material Irregularity (MI) process is in place as a complementary mechanism to support accountability. However, she stressed that the primary responsibility for enforcing discipline and implementing consequence management lies with the accounting officer and the council. When an issue arises, whether through internal audit or AGSA audit, it is the duty of the accounting officer to address it promptly. The members of the council should oversee the actions taken by the accounting officer to ensure timely resolution. She highlighted the importance of addressing issues promptly, as delays can exacerbate weaknesses identified and potentially lead to further problems
When the Auditor-General issues a MI, it serves as a clear message to the accounting officer that urgent action is required to address the specific findings identified. The MI focuses on critical issues causing financial losses, harming the institution, and impacting the public. It urges the accounting officer to act quickly and efficiently to resolve the identified problems. The responsibility for implementing corrective action remains primarily with the accounting officer, who is accountable and responsible for the organisation.
According to the law, the accounting officer is required to take specific actions. They must thoroughly investigate the issue at hand, report any criminal activity to law enforcement agencies, prevent further losses of public resources, recover any unduly paid funds, and enforce discipline among the staff under their supervision. As the head of administration, they are responsible for assessing and strengthening internal controls and ensuring the correction of any weaknesses.
The Office of the Auditor-General cannot replace the role of the accounting officer in implementing corrective measures. The AG's Office serves as an oversight body, highlighting areas that require attention and monitoring the actions taken by the accounting officer and the council. The ultimate responsibility for rectifying issues and safeguarding public resources lies with the accounting officer.
In response to Mr Smalle's question regarding the grants withheld by National Treasury and the potential impact on future audit outcomes, the Auditor-General emphasised that, without the proactive involvement of municipalities, provincial governments, and the national government to address the issues and prevent further losses, it is likely that there will be no improvement in the state of local government.
The AG highlighted the need for decisive action from all stakeholders involved in the ecosystem of local government. It is essential for each role player to fulfil their mandates and take responsibility for correcting the existing problems and preventing any further leakages. Only through collaborative and coordinated efforts can the state of local government be improved.
She mentioned that, regarding the MIs, the AGSA would submit a report to the Standing Committee on Auditor-General, which is the Committee responsible for holding AGSA accountable. This report will provide an overview of all the MIs issued by AGSA to local governments. She noted that this was done last year and will be done again in the future, ensuring transparency and accountability in the process.
Regarding the Section 139 interventions and their effectiveness, she acknowledged that, in the past, these interventions have often been implemented too late, resulting in significant damage already being done. She emphasised the importance of the accountability ecosystem and the role that all stakeholders need to play in identifying problems and providing support to address them before they escalate. She highlighted that interventions, whether in the form of support from provincial governments or the use of consultants, will only have a lasting positive impact if there is a focus on rebuilding local government institutions. Without addressing the underlying issues and rebuilding these institutions, interventions will remain short-term, costly, and unable to drive the desired outcomes.
She emphasised the critical need to focus on rebuilding local government institutions by appointing individuals who possess the necessary competence, ethical posture, and discipline to fulfil their legal obligations. She stressed that stability and competence at the administrative level are essential for effecting positive change. While interventions may be necessary, they alone are insufficient to bring about the desired turnaround. Urgent attention should be given to addressing these underlying issues within the institutions themselves.
She acknowledged that there had been nine improvements in audit outcomes, indicating that some of the outstanding orders, which were not completed at the time of their analysis, may have resulted in a disclaimer opinion. However, she emphasised that it is important to recognise that at least nine former disclaimer opinions have been resolved, indicating that it is possible to move out of a disclaimer zone with decisive leadership at the administrative, political, and provincial levels. These examples serve as evidence that strong leadership and support can directly impact improving audit outcomes. While the final numbers may not reach the desired level of 15, they are expected to show a significant decrease from the current 26 disclaimers.
The AG reiterated that the responsibility for ensuring value for money lies with the accounting officer. Whether the AG or the internal auditor identifies contract leakage, it is the accounting officer's duty to address the issue. Similarly, when there are issues with record-keeping, the accounting officer bears primary responsibility for rectifying the situation and ensuring proper documentation. If the accounting officer fails to fulfil these obligations, it is the council's role to hold them accountable. If the council itself neglects to take action, the matter should be escalated to the provincial government and, if necessary, the legislature.
The AG confirmed they fulfilled their legislative duties by notifying the key parties when municipalities failed to submit financial information. This notification process was carried out to engage the accountability ecosystem and prompt action. The issuance of MIs has also contributed to improvements in submission rates. While there are still three outstanding submissions in the Free State, the AG's Office will continue to collaborate with the provincial government to ensure that the necessary steps are taken to address these issues and rectify the submissions.
In her response, the AG highlighted the collapse of planning for performance and maintenance in municipalities, particularly concerning infrastructure. She emphasised the importance of incorporating maintenance as a fundamental aspect of functional planning, budget allocation, and ongoing monitoring. These responsibilities lie with those who are in charge of running the institution. The AG has been raising concerns about this issue for several years. Another issue she mentioned is that grants provided to local governments for infrastructure projects are often not implemented effectively. There may be instances where projects are not carried out as planned, resulting in funds being returned. Additionally, contracts may be awarded to contractors who fail to deliver, and proper monitoring and proactive project management may be lacking. The absence of quality control measures can further lead to inefficiencies. The AG emphasised the need for discipline in project execution and addressing both negative practices and project management discipline.
The AG emphasised that, as AGSA, they issue orders to all municipalities and their entities, totalling around 1 000 orders. They engage with these entities at various stages throughout the audit cycle, but they do not have a daily presence within the institutions. The primary responsibility for preventing losses and recovering them when identified lies with the accounting officer. If the accounting officer fails to fulfil these responsibilities, it is the duty of the council to hold them accountable. The AG agreed that the high turnover and instability at the level of the accountable officer hinder their ability to strengthen institutions, drive performance, and improve accountability regarding resource protection.
The AG mentioned that, when it comes to clean audits, they understand that perfection is not always attainable. However, what is important is the level of responsiveness demonstrated by the institutions. Even in cases where some projects or issues are not going well, if there is prompt response and appropriate action taken, it prevents those matters from becoming significant reporting items for audit purposes. The focus is not on achieving perfection but rather on cultivating a culture of responsiveness that should be expected in the operation of public institutions.
She emphasised that, when it comes to consequence management, it cannot solely be the AGSA’s responsibility to drive it. Instead, all the other role players in the accountability ecosystem must be actively involved. This includes accounting officers, disciplinary boards, council members, provincial authorities, law enforcement agencies, and other relevant stakeholders. Consequence management requires a collective effort from all these entities to ensure accountability and effectively address any misconduct or wrongdoing.
What was further highlighted by the AG regarding procurement management weaknesses is that there are already financial recovery plans in place prepared by provincial treasuries to support municipalities. Additionally, National Treasury also gets involved in some instances. This means that there is expertise and experience available that can be utilised to drive improvements in financial recovery and planning at municipalities.
Regarding the use of consultants, the AG stressed that while there may be individuals employed in key financial management roles such as CFOs and financial managers, there is often a lack of disciplined attention to the basics throughout the year. Instead, there is a tendency to rely on consultants at the end of the year to address issues. The AG emphasised the importance of adhering to basic disciplines such as timely budgeting, record-keeping, and regular review of accounts, which cannot be replaced by relying solely on consultants. These fundamental disciplines need to be prioritised and maintained throughout the year.
Concerning the auditees in the yellow zone, the AG highlighted a weakness in the financial management discipline. It is crucial for municipal leadership to appoint individuals with the right skills and create an environment that fosters stability and accountability. Holding accountable those who are not performing effectively is essential.
Regarding wastewater treatment plants, the AG mentioned they are working on referrals to other national departments, such as the Department of Water and Sanitation, to address the identified issues. The list of MLRs will be available in the report that was tabled. The provincial summaries in the report provide detailed insights and observations on each province's local government.
On procurement matters, she said that the primary responsibility lies with the accounting officer and the council. They must ensure the existence of policies and procedures and internal audit and audit committees to monitor compliance and where the AG reports non-compliance issues should be tracked and addressed by the council.
The AG emphasised the importance of every player in the accountability ecosystem to support and protect the work of the AGSA. Threats and intimidation towards AGSA staff should be pushed back against. The AGSA's role is to faithfully report findings without fear or favour, in service of supporting democracy. The AGSA believes stability, ongoing training, and competent personnel are necessary for effective impact. The AGSA cannot compensate for governance failings and should not be relied upon to fill governance gaps. The accountability ecosystem requires all stakeholders to fulfil their roles and responsibilities.
On the suggestion of a real-time audit proposed by Committee Members, she responded that it is unsuitable because it would merely be a temporary solution to address systemic governance issues. The problem lies not only in non-submission of reports, but also in hiring accounting officers who fail to comply with the law, negligent councils, ineffective MECs of CoGTA and finance, non-performing legislatures, and internal audit committees that are not fulfilling their responsibilities. Conducting real-time audits for municipalities nationwide would not only be impractical due to limited resources but it would also be inappropriate, as it would compensate for the overall failures in governance, potentially diverting attention from the constitutional function the AGSA is meant to fulfil. While supreme audit institutions like the AGSA can and should assist during special circumstances or disasters to promote transparency and accountability, it should not become a norm to address governance shortcomings.
Before expressing her gratitude to the Committee Members, the AG reiterated the importance of everyone playing their role in the accountability ecosystem. She emphasised that accountability is a collective responsibility and requires the participation and cooperation of all stakeholders. Each Member has a role to play in ensuring transparency, accountability, and good governance.
Co-Chairperson Xasa expressed his gratitude for the report and acknowledged its value in helping everyone understand their roles within the accountability ecosystem. He highlighted that the report provides insights into areas where improvements are needed regarding complying with the law and fulfilling responsibilities. He then invited Members to ask any follow-up questions they may have.
Mr Motsamai reminded the AG about his previous question regarding allegations of fraud and corruption in Cape Town. He inquired whether any actions had been taken in response to those allegations.
Mr Smalle asked the AG if it is possible for the Committee to access the cases referred to the SIU, Hawks and other relevant departments. He requested the AG to provide a report on these cases. Additionally, he inquired about the AG's response to allegations of intimidation or threats against AG officials and if similar incidents occur within internal audit committees.
The AG responded to the question regarding the corruption in Human Settlements in Cape Town. She mentioned that, although it came up after the audit cycle, the AGSA will be able to address it in the upcoming cycle. She stated that they have been briefed on the issue and how it is being handled. The primary responsibility for dealing with the matter lies with the leaders in administration and the political domain. The AGSA's role is to follow up and ensure that the matter is being addressed. She mentioned that she had heard reports of pronouncements made by the Mayor of Cape Town on how the matter is being dealt with.
Regarding the question of why service delivery does not translate into the more informal areas of Cape Town, the AG mentioned that they have highlighted the weaknesses in this area in their report on page 134. They are aware of the concern and have looked into the matter. They have found examples of good practices in municipalities such as Midvaal, Winnie Madikizela-Mandela, and Ukhahlamba. These municipalities have provided insights and opportunities for the AGSA to make recommendations and provide valuable insights.
The AG emphasised that, in their report, they have highlighted instances where municipalities are misusing conditional grants that lack proper financial planning and control. These municipalities prioritise spending on salaries and wages, which hampers funding for service delivery. The issue is not solely about commercial viability but also stems from weaknesses in utilising available funds. These issues require attention and intervention to address the financial management discipline problems and ensure funds are appropriately allocated.
Minister’s Input
Minister of COGTA, Thembi Nkadimeng, expressed gratitude to the Chairpersons, Members of the Committees, and the AGSA for its presentation. She mentioned that the AGSA had already met with the Department and also presented the same report to Cabinet. Deliberations have occurred between the Department and the AGSA regarding the issues raised by the Members. One example mentioned was the declaration of business interests by councillors, which the Department confirmed is mandatory. While there may be challenges in receiving declarations on time or follow-ups not being made by MMCs (Members of the Mayoral Committee), efforts are made to address these gaps and follow up on raised issues. The AGSA also audits staff declarations, and improvements have been observed in the past three years, including measures to prevent staff from doing business with municipalities. The AGSA continues to gather such information and corrective measures are implemented accordingly.
Regarding Section 139, it is acknowledged that there are observations suggesting that the current legislation may not be fully effective in achieving meaningful interventions and corrections at the municipal level. The legislation is currently being revisited, and the powers and processes involved are under review. There have been instances where provinces and municipalities have refused interventions or restricted access to national and provincial teams. The initiation of Section 139 interventions is currently mandated to be initiated by the MEC in some cases, while the need for intervention may be identified by the AGSA's report. Harmonisation of various aspects is needed to ensure effective implementation of Section 139 accordingly.
The AGSA has a remedial plan in place that includes a programme with SALGA and CoGTA. The aim is to provide assistance and training to municipalities, but it is critical to ensure that competent individuals are present in these municipalities. The AGSA emphasises the importance of appointing qualified individuals and transferring information and lessons to them, rather than just capacitating them for the sake of it. Corrective measures have been taken, and progress has been seen in municipalities that have strengthened themselves. The AGSA is also involved in legislative reviews, such as the role of MPEX stands for the Municipal Public Expenditure and Financial Accountability (MPEFA) Framework since November 2021, where its role is now clearly defined.
An intergovernmental framework is being worked on to coordinate efforts in areas like revenue collection, housing, and grant management. The AGSA has also reviewed the allocation of funds to allow for infrastructure maintenance in addition to infrastructure rollout. Overall, there is a commitment to improving governance and fiscal management. The Chairperson expressed gratitude to the Auditor-General for the information shared and acknowledges that it will contribute to improving their work in various oversight bodies, including municipal councils, provincial legislatures, and the Portfolio and Select committees. The engagement with the Minister and other stakeholders is seen as a valuable opportunity for learning and improvement.
Minister Nkadimeng informed the Committee that the Department is actively working on establishing an intergovernmental framework to provide support to municipalities through the District Development Model (DDM). The purpose of this framework is to address various areas of concern, including waste collection, housing, and the issues raised by the AG regarding refuse, the Department of Water and Sanitation (DWS), and other related matters. She highlighted that the Deputy President is leading the coordination efforts between the Department of CoGTA and other relevant departments to implement the framework effectively.
The Minister mentioned that an assessment team had been deployed to approximately 59 municipalities, with 34 of them consistently facing challenges in upper management and grant management. This demonstrates the Department's commitment to identifying and addressing the specific issues these municipalities are encountering.
In terms of fiscal review for ethical governance, the Minister stated that CoGTA had conducted a review of grant allocations. In the past, most grants only covered infrastructure development. However, the allocation has now been expanded to include maintenance as well. This allows municipalities to plan for infrastructure rollout while also using the allocated funds to ensure the ongoing maintenance of the infrastructure.
Overall, Minister Nkadimeng emphasised the Department's dedication to improving support for municipalities through the intergovernmental framework, addressing challenges in grant management, and promoting sustainable development and maintenance of infrastructure.
Chairperson’s Closing Remarks
In his closing remarks, Co-Chairperson Xasa expressed gratitude to the Auditor-General for the information presented, and he reiterated the right of the Committees to engage with the Minister and other relevant individuals to improve their work. He mentioned that the information shared during the meeting would be valuable for all those involved, including executives, council members, and oversight bodies at various levels such as the provincial legislature, Select Committee, and Portfolio Committee. The Chairperson emphasised that the insights gained from the meeting would contribute to their efforts to improve and stated his belief that they had learned something valuable that will assist them in their work, going forward.
The meeting was adjourned.
Documents
Present
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Dodovu, Mr TSC Chairperson
ANC -
Xasa, Mr FD Chairperson
ANC -
Badenhorst, Mr F
DA -
Burns-Ncamashe, Prince Z
ANC -
Buthelezi, Ms SA
IFP -
Ceza, Mr K
EFF -
Direko, Ms DR
ANC -
Groenewald, Mr IM
FF+ -
Maleka, Ms AD
ANC -
Motsamai, Mr K
EFF -
Mpumza, Mr GG
ANC -
Mthethwa, Mr EM
ANC -
Opperman, Ms G
DA -
Shaikh, Ms S
ANC -
Simelane, Ms T
ANC -
Smalle, Mr JF
DA -
Smit, Mr CF
DA -
Spies, Ms ERJ
DA -
Xaba-Ntshaba, Ms PP
ANC
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