Department of Local Government 2022/23 Annual Report

Meeting report

The Chairperson welcomed everyone to the meeting held for the purposes of looking into the Annual Report of the Western Cape Department of Local Government, as well as the Auditor-General of South Africa (AGSA)’s Report and the Audit Committee Report. The meeting would have three parts. The first part would include the Audit Committee and AGSA. This part would not be open to members of the public until AGSA and the Audit Committee had briefed the Committee about the outcomes of the Department’s audit. The second part of the meeting would be with the Department and would be open to the public. After the Committee’s interaction and engagement with the Department by means of questions, comments, or points of clarity, members of the public would be invited to do so as well. The meeting was conducted in a public and open manner because it was advertised as such in various newspapers in all official languages within the province.

He invited Members to introduce themselves for record purposes and said he had received an apology from Ms N Nkondlo (ANC), who had been booked off sick.

Auditor-General’s Report and Audit Committee’s Report

[09:02 – 46:10 The first part of the meeting was held in-camera and closed to the public.]

Department of Local Government 2022/23 Annual Report

Minister’s Address

Mr Anton Bredell, Western Cape Minister: Local Government, Environmental Affairs, and Development Planning, said it had been a challenging year. It seemed as if the challenges just increased year on year, but under difficult circumstances, the Department had done quite well. However, the Department understood that there would always be pressure and that they would always need to keep their eye on the ball as a team. Therefore, they were also thankful for the roles played by the Auditor-General and the internal Audit Committee to keep the Department sharp. By doing that, they were also part of the team that helped the Department perform year on year. At the end of the day, the Department did this on behalf of the residents and it was important that the Department accounted. He knew that in some spaces, people would say that “a clean audit does not speak to service delivery.” He disagreed. He thought that good financial management was the beginning of good service delivery. He was grateful that the Department had officials who supported them and helped them to be able to account for every cent of the taxpayer’s money.

Discussion

The Chairperson said that the Committee was going to be concentrating on sections C, E, and F of the report. He asked members to ask questions on those sections at once. 

Mr C Dugmore (ANC) referred to page 69 of the report regarding section 3: Fraud and Corruption. He asked if he was correct in assuming that the section applied to officials in the Department and that it did not necessarily apply to fraud and corruption at a municipal level. Could the Committee get some details about the new case opened in 2022/2023? Section 4: Minimising of Conflict of Interest said that a “staff member must both disclose that interest and withdraw from participating in the procurement” and “No such conflict of interest can be reported”. Does that mean that there is no staff member who had private business, or does it just mean that even if there are staff members who had business interests, there is no conflict in this instance? Are this Department's staff members doing business with the state?

On page 72, related to section 9: Internal Audit and Audit Committees, it was noted that a Mr A Davids had resigned on 31 December 2022 as his contract had ended. Has that vacancy been filled or was there a decision not to fill the vacancy? On page 73, there was reference to assurance engagements that had happened. He was particularly interested in the assurance engagement around transfer payments because there were concerns about transfer payments in other parts of the report, while recognising that there were different timings for financial years. The Committee had also asked the Department to update them as of 30 June 2023 regarding whether those funds had been spent. In the discussions between the Audit Committee and the Department on transfer payments, were any proposals made about dealing with transfer payment issues?

On page 75, related to section 12: Broad-based Black Economic Empowerment (BBBEE) Compliance Performance Information, he recalled that there was a question about whether the Department had applied any relevant code of good practice concerning “determining criteria for the awarding of incentives, grants, and investment schemes”. The Department had responded that it did not itself make allowance for the award of incentives, grants, and investment schemes. Many of the municipalities were clearly procuring a lot of goods and services. Does the Department not think it might be useful to provide guidance to municipalities or give information to them about a policy to determine criteria around incentives, grants, and investment schemes to support BBBEE? Or did the Department just wash its hands and say it was up to local municipalities to do that?

Mr D America (DA) expressed his admiration for the financial reports and the Annual Report that was presented. He thought it surpassed the previous level of excellence that the Department had achieved. He was particularly impressed by the number of invoices paid within 30 days. In fact, all of the valid invoices had been paid within 30 days and the Committee knew how suppliers sometimes struggled with cash flow. If the Committee and the Department could play a role in ameliorating the sort of suffering businesses went through due to loadshedding by paying the invoices on time, then they should play that role. This Department, of all the departments so far, had demonstrated that it could be done and perhaps there were lessons they could share with the Committee, which the Committee could share with other departments. He also commended the Department for reducing fruitless, wasteful, and irregular expenditures to an insignificant amount.

The Chairperson asked the Department to elaborate on the reasons for the non-achievement of one performance indicator relating to work opportunities reported through the Community Work Programme (CWP). He also asked why vacancies persisted in senior posts. He observed that the Department received funding from the French government through the Agence Française de Développement. How much is this funding? What is the rationale behind it? How was the Department identified to receive this funding? He also asked the Department to elaborate on the material misstatements identified by AGSA.

Mr Graham Paulse, Head of the Department, thanked the Committee for their questions. He said that the case that the Member had referred to was indeed within the Department. An official who, during his practical, had actually downloaded information from the internet to further supplement his response in relation to the practical. However, the investigation had determined that he never had access to any interview questions or practical questions, as had been alleged. When the practical was undertaken, the candidates were not informed whether they could or could not access the information via the internet. The Provincial Forensic Services recommended that the Department sensitise the interview panel to ensure that there are clear instructions on practical assignments that indicate whether or not the use of external information other than that contained in the practical assignment is allowed. The case concluded at the end of September 2023 and the Department would now act on the recommendations.

He said that no Department officials undertook any business with the Department. Certain officials within the Department had financial interests. They did work outside of the public sector and for that reason, they completed what was called a Remunerative Work Outside the Public Service (RWOPS) on an annual basis. Those submissions were submitted via the Ethics Officer to the Accounting Officer, who determined whether there was any conflict with the business of the Department or the State. So, certain officials applied for RWOPS, but they were not performing or conducting business with the Department. He reported that Mr Davids’ position had been filled. He asked the Chief Financial Officer (CFO) to respond to the question on the BBBEE and Code of Good Practice in relation to municipalities. However, he did note that the Department worked with the Provincial Treasury on it. There was also a forum that actually met quarterly where supply chain matters were discussed, as well as a CFO forum which the Department attended and which was led by the Provincial Treasury which dealt with supply chain matters in municipalities, particularly around capital infrastructure development projects. He thanked Mr America for his response. It was indeed a collective effort but it was also getting increasingly difficult. AGSA was now keeping the Department, together with the Department of the Premier and the Provincial Treasury, responsible for the performance of municipalities, and the lived experience of citizens, which went beyond the requirements of a regulatory audit. This meant that the three Departments needed to think differently about how they were going to respond collectively. He did not think that the Department in the province had received the money from the French government but he asked other members of the delegation to confirm this.

Mr Craig Mitchell, Director: Public Participation, Department of Local Government, explained that the non-achievement of the performance indicator relating to work opportunities resulted from CWP participants exiting the programme during seasonal farm work. This was a target set by national government and the CWP participants were expected to work eight days a month at R120 per day. Seasonal work and opportunities on farms were more regular work and more lucrative, so CWP participants preferred it. It was very difficult for the Department always to achieve that target because people exited the programme as soon as better work opportunities came along.

Mr Francois Barnard, Chairperson: Audit Committee, Department of Local Government, said that after Mr Davids’ contract had expired, Ms A Mvandaba was appointed. That was why she had attended two meetings, so there were four members at all seven meetings.

Mr Albert Dlwengu, Director: Policy and Strategic Support, Department of Local Government, responded to the question about material misstatements identified by AGSA. These related to certain reports on Covid-19 that had not been included. He was still of the opinion that it did not need to be included but AGSA had directed the Department to include it. For him, it was just a difference of one figure.

Ms Eda Barnard, Chief Director: Municipal Performance Monitoring and Support, Department of Local Government, said that the Sustainable Infrastructure Development and Finance Facility (SIDAFF) was a project that the Department had designed at least two years ago where they started looking at new financing facility or financing option for municipalities to fund so-called catalytic projects. These were big projects that would unlock either social or economic development for municipalities and typically fell outside of the normal grant structure of Municipal Infrastructure Grant (MIG). For example, the N1 Flyover that had opened the corridor into the Paarl Mall was a catalytic project as it opened that entire corridor for development. The Department also looked at blended finance because these were typically more expensive projects. The French government approached the Department and a memorandum of understanding (MOU) was signed between the Premier and representatives of the French Development Agency, facilitated by the International Relations team. No funding actually flowed into the Department. The discussion with the French was about what kind of support and help the Department needed. The French then used their own mechanisms and systems to appoint a service provider for the Department, who then worked with the Department. They were currently in phase two. The Department was in the process of appointing service providers to supplement the work of those appointed by the French. She indicated the focus was on secondary cities or specific municipalities with a positive standing that could qualify for international loans and/or donations.

Ms Blanche Cairncross, Chief Audit Executive, Department of the Premier, said that in the transfer payment audit, the Internal Audit usually looked at it once payments had been made. That report was actually a green report which meant that no improvements or recommendations were made to the Department. However, the Department also had processes in place to deal with the transfers and the timing between the various financial years.

The Chairperson asked whether the French government had approached the Department out of their own initiative.

Mr Paulse replied that there was actually a group that had requested to see the Department, but they wanted to identify municipalities that were in good standing and showed good governance, where they knew that the funding would be used for the intended purpose. The Chairperson was therefore correct in that the French had approached the Western Cape government, and, more specifically, the Department.

The Chairperson asked for clarity on the funds detailed on page 145. Were sums received from national government and funding from the Department to municipalities included here?

Mr Paulse explained that the Department did not get any national grants from any of the national departments. This was just the Department’s own funding. In particular, the R119m includes the R89m for the loadshedding project for municipalities. This was the Department’s own funding and it originated in a request of the Minister to the Minister of Finance in terms of section 25 of the Public Finance Management Act (PFMA), to release funding from the Provincial Revenue Fund on an emergency basis to help municipalities deal with the impact of loadshedding, particularly on the water treatment works and the wastewater treatment works.

The Chairperson asked whether this money had been spent by municipalities or just transferred to municipalities.

Mr Paulse replied that in this process, the Minister had approached the Budget Policy Committee in January this year and Cabinet. Cabinet had to approve that submission and then the money was transferred based on certain criteria such as generator capacity, towards the end of March 2023. The money was transferred with all the appropriate contracts, agreements, and business plans in place. Municipalities had started to spend that money and the Department reported monthly to Cabinet on the progress of the spending. To date, he thought they had spent about 58%. The R89m was transferred towards the end of the Department’s financial year, which was 31 March 2023. The municipal financial year ended on 30 June 2023, so they had additional time to spend the money and go through a supply chain process. However, at the end of June, some municipalities had gone through the relevant supply chain process but had not received the generators. In these cases, the municipalities had to apply for a rollover to use the funds in the next year. This process had now been concluded, and where municipalities had commitments concerning the R89m, they could now accept delivery and pay the outstanding balances to the service providers.

The Chairperson observed that it had been commonly believed that there were no traditional leaders in the Western Cape for a long time. However, it now seemed that just about every town had one. He recalled asking about traditional leaders a few years earlier and the budget had been just R1 000. Now the budget was R478 000 and it had not been spent. Moreover, given the number of traditional leaders in the province, he thought R478 000 would not be enough. What was the reason for not spending it? Would the Western Cape eventually have a House of Traditional Leaders?

Mr I Sileku (DA) disagreed that the Western Cape was the only province without a House of Traditional Leaders. He also wanted the Committee to talk about the Constitutional Court finding the process of recognition of traditional leaders invalid, null and void. He wanted to know where the Department stood on this question.

Mr Paulse replied that, as Mr Dlwengu had explained earlier, the Traditional and Khoi-San Leadership Act 3 of 2019 was suspended after a certain group had taken it to court based on the basis that the parliamentary public participation process had not been followed. The court ruled that the legislation was therefore invalid However, the court also suspended that invalidity for two years and gave the National Department of Cooperative Governance and Traditional Affairs (COGTA) the opportunity to correct it. The Department had also obtained a legal opinion to see how to proceed. The national and provincial departments now had to take the legislation back to Parliament to ensure that the public participation process was actually followed. As for the budget, the Department had petitioned the Provincial Treasury to make funding available so that the Department could actually ensure that they had internal capacity to do research to advise the Minister and the Premier on the status of recognition of some of the groups. When the Department attended community meetings, there were lots of groups that came and said, “I’m a Khoi-San”, “I’m a leader”, “I’m a prince”, and “I’m a king”, and so on, but it was difficult to acknowledge them because they had not gone through the legislative process of recognition. So, that funding was actually for internal capacity and the Department had appointed one or two officials. It was in the process of appointing more who would help facilitate the recognition process and also the implementation of the Khoi-San legislation within the province.

Mr Dlwengu confirmed that the amount that was budgeted was basically to prepare the Department to be able to implement the provisions of the legislation. As it was at the moment, the responsibility lay with the Commission on Khoi-San Matters to recognise people who applied for recognition. When people applied, the Commission would investigate their claims and then make recommendations to the National Minister, who would then send the information back to the Premier.

Ms A Cassiem (EFF) asked what the Department understood as a clean audit. When looking at some of the information presented in these documents, it was clearly not a clean audit, with all of the potholes. She also noted that the Department had underspent R8.8m due to a lack of filling critical positions. What effects did this have? She saw for the year 2022/2023, there was one case of fraud and corruption but it had not been closed. What type of case was that? What was the current status of cases from previous years?

Ms Bhavana Sewlall-Singh, CFO, Department of Local Government, replied that the R8.8m not spent consisted of R1.7m on compensation of employees and R7.1 on goods and services. The R1.7m was predominantly five post-election posts that had not been filled and a couple of Community Development Workers and Municipal Governance posts. The goods and services underspending were predominantly consultants and rollovers related to delays in the SIDAFF programme.

Ms Cassiem said that she had wanted to know how the underspending had affected service delivery.

Mr Paulse confirmed the CFO’s account of the underspending. Money related to SIDAFF could not be spent, but the CFO had explained that the Department had now contributed together with the French government to accelerate the programme. Where posts had not been filed concerning the R1.7m, there was additional pressure on the staff to take up the additional work. However, it did not seem to have significantly impacted the deliverables of the Department.

The Chairperson asked whether, at a general level, the Department was getting value for the money it was transferring to municipalities. Most of the time, one heard that this municipality had done that, and this municipality had not done that. Did the Department have a report on value for money from transfers to municipalities?

Mr Paulse replied that thanks to the Department’s regular monitoring and support of municipalities, it was aware of certain risks in certain municipalities when they transferred funding. When the Department identified possible risks that the funding could be used for unintended purposes, it liaised with the municipality and requested progress reports and delivery notes when undertaking an infrastructure project, for instance. The Department would then ask its own engineers and project managers to validate and confirm that the work had been done. Apart from the municipality signing off on work done, the Department would also ask its engineers to sign off. When the Department then had this documentation, it would ask the municipality to pay, and on the basis that it had paid, the Department would then transfer the money to them. In other instances, where there was a record of good governance, the Department would transfer the money in advance. In instances where the Department had established that municipalities had not spent the money on the intended purposes, the Department would actually request that they pay back the money – particularly so if it had been used for operational requirements or other purposes. However, the question of the value for money on transfers to municipalities was a real one. The Department also understood that a municipality could have certain challenges, but it did not want to penalise citizens. So it needed to adopt a balanced approach.

Ms Cassiem asked what other risks arose from dysfunctional municipalities, other than funds not being used for specific projects. How did a dysfunctional municipality pay back money when it was already dysfunctional? Did the Department get that money back?

Mr Paulse replied that municipalities did pay it back. If they did not, the Department recovered those amounts from future transfers to municipalities. In terms of other risks, it was perhaps a question for the Minister to answer, but admittedly, there were challenges in municipalities, such as the quality of council decisions, which impacted finances, governance, administration, service delivery, and so on. He thought it was fundamentally caused by coalition governments and the quality of the councillors, but the Minister was perhaps in a better position to respond to that question.

The Chairperson said that at some point then, the Department had to play a role in improving the quality of councillors. The Department would get it first as a quantity then they had to transfer quantity to quality. That was probably some of the challenges that the Department had.

The Minister thought these challenges were everybody’s responsibility, not only the Department’s. He thought there was enough training, training material and training courses between the Department, the South African Local Government Association (SALGA) and national government. He thought that to align the training might help more because it was no use keeping councillors in training day in and day out and they do not get to their communities – that was also a problem. The Committee and Department had that conversation that morning, and he thought they must always realise that the country had a history. He had seen councillors who could barely read or write, who were some of the best councillors that he had ever seen. He had seen councillors with doctorate degrees who were complete failures. So, bringing in qualifications and those things was not clear cut, even if councillors obviously needed to be able to work through their documents. The Department had entered into what Stellenbosch University Governance School called the “circle of training”, which allowed trainees to enter at any stage and exit with a certificate or degree depending on the work put in. He agreed that the Department struggled with the coalitions – it was something new, especially the number of coalitions it had to deal with. This was a nationwide struggle and political parties needed to have internal discussions about better quality governance too. He recalled that he had stated that morning that he was also worried about vacancies, as somebody always had to carry the can and there was a limit to how much pressure the Department could put on staff. It needed to be quite aware of that, especially as it was now going to enter a phase of budget cuts again. There were a lot of challenges and the Department acknowledged this. It was not just as simple as pointing a finger at a certain municipality.

Closing Remarks

The Chairperson thanked the Minister. He thought that even Members could agree with his input, and they received more than they had bargained for. He thanked the Department for always being available and answering questions, regardless of how difficult or uncomfortable they may be. The Committee was certainly not trying to be difficult. He was sure the Department had learned themselves that the Members were not difficult people. Whatever Members were trying to ask was not intended to catch the Department out or make them look smart. The Committee was just trying to play its role of holding the Department accountable. He thanked the Department for their cooperation in the process.

The meeting