Budgets, Expenditure & Financial Status: Discussions with North West Treasury & Provincial Department of Local Government

FINANCE SELECT COMMITTEE
18 October 2007
BUDGETS, EXPENDITURE & FINANCIAL STATUS: DISCUSSIONS WITH NORTH WEST TREASURY AND PROVINCIAL DEPARTMENT OF LOCAL GOVERNMENT

Chairperson: Mr T Ralane (ANC, Free State)

Documents handed out:
Province of North West Department of Finance submission
State of Municipal Budget Process North West Province Presentation

Audio recording of meeting

SUMMARY
The Committee had a follow up discussion with the Provincial Department of Local Government and Provincial Treasury of the North West Province. The Committee was generally pleased with all the efforts of the North West Provincial Treasury. The Committee noted the hard work and efforts in constructing a detailed a report that clearly set out matters for consideration. One of the biggest concerns was that of the number of unqualified audit reports had decreased. The Committee suggested that provincial treasury must look seriously into this matter. The quality of reporting was of concern. It was also requested that a list of the municipalities that still had outstanding audit fees should be submitted to the committee and National Treasury.

The North West Department of Provincial Treasury acknowledged that a lot of hard work still needed to go into the budgeting processes of the municipalities. One of the challenges was the lack of financial skills at management level, and training still needed to increase. It was requested that National Treasury assist Provincial Treasury in tackling some of the issues relating to budget expenditure in overcoming the challenges in that sector. Reporting within municipalities needed to be better and more closely monitored. Municipalities should be submitting reports on a monthly basis to make it easier for Provincial Treasury to compile quarterly reports.

MINUTES
National Treasury Briefing
Mr T Pillay, Chief Director: Local Government & MFMA Implementation, National Treasury said that MFMA implementation was phased over three years and it clearly outlined the responsibilities of the provincial treasury in relation to co-operative governance. National Treasury had also produced guidelines. Mr Pillay said that one of the main concerns was that large infrastructure grants were meant to be assisting in the delivery of services, but the municipalities were not spending.

National Treasury had found that eight of the municipalities in the North West did not have websites, and was not sure how those municipalities could produce reports in terms of section 75 of the Municipal Finance Management Act (MFMA). Nine of the 25 municipalities were not showing that they were part of the internship programme, even though they were receiving the financial management grant. Audit fees were not being paid by municipalities, which undermined public oversight. Some municipalities had not submitted Annual Reports.

Mr Bernard Mokgabodi, Director: Local Government Budget Analysis, National Treasury, added that deficiencies with budgets in municipalities was basically uniform and that capital budgets were normally unrealistic. He said that the electronic budgets submitted by municipalities in the North West were not the same as the hard copy. National Treasury wanted to assist provincial Treasury in helping its municipalities publish reports on a monthly basis, which would enable provincial treasury in compiling more accurate and more informative quarterly reports to National Treasury. Mr Mokgabodi said that capacity challenges were still needing to be addressed in provincial treasury.

North West Provincial Government (NWPG) Treasury Briefing
Mr Seymour Williams, Acting MFMA Co-coordinator: NWPG Provincial Treasury, opened his presentation by noting that the senior management of Provincial Treasury (PT) provided support to the MFMA unit. Vacancies within the Unit were all advertised and interviews for Level 6 posts were held on 4 and 5 October 2007. Other posts were short listed, and interviews conducted.

With regard to the financial status of municipalities, Mr Williams said that there were nine unqualified audit reports in 2003 and 4 in 2006. Nine of the 21 municipalities submitted their 2006/7 Annual Financial Statements on time to National Treasury. There were still municipalities with limited or no revenue, and these resulted in high levels of unemployment and limited economic activity in some areas. In terms of the budget process, eight out of the 25 municipalities tabled draft budgets by 31 March. Budget assessment reports showed that not all senior management was financially orientated. The Provincial Treasury also noted that the budget documents were not user friendly and the budget process timelines were not adhered to. PT did provide training and workshops, on a district- based approach on the new budget format, following MFMA circular number 28. The one challenge that still persisted was that municipalities were setting unrealistic budgets, and this was repeated year after year.

Mr Monnapula Motlogelwa, Chief Director, North West Department of Local Government and Housing (DLGH),  then gave a presentation about the Lekwa Teemane municipality. He said that a Municipal Manager, and Managers for Corporate Services and PMS had been appointed. Still to be appointed were a CFO and technical managers, whose posts had been advertised, and which should be filled by November 2007.  Lekwa Teemane was preparing to implement the Municipal Property Rates Act (MPRA) by July 2008. One of the challenges of this municipality included a loan from the Development Bank. The Bank had now finally agreed to reschedule the loan and write off the interest.

In respect of the Mamusa Local Municipality, Mr Motlogelwa said that the Siyenza Manje financial expert was deployed. Section 57 staff Performance Agreements were not concluded for 2007/08. Municipal Infrastructure Grant (MIG) expenditure for 2007/08 for this municipality was at 0% as at September 2007. A technical manager had been appointed and the engineer deployed. Political leadership was to take an oversight role in encouraging and ensuring enforcement of debt collection measures in Mamusa.

Mr Williams continued the presentation, highlighting some of the generic challenges within municipalities. These included the substandard quality of monthly data, which made validation and comparisons awkward. Skills in accounting and financial services new formats and capacity for undertaking Generally Recognised Accounting Practices were lacking. Municipal managers were also needing support and capacity building. Joint support programmes offered by PT included monthly reporting in line with Section 71 requirements, and support for revenue enhancement initiatives.

Discussion
The Chairperson asked whether municipalities had any investments.

Mr Pillay commented that the way in which provincial government reported was very important. He requested that the PT state clearly what was meant by 100% spending in some municipalities.

Mr Motlogelwa said that, taking the example of the Moretele local municipality, their allocation for 2007/08 was R38.4 million. They had spent 32% and were left with R26 million. Kgetleng River local municipality had spent all the  money allocated to them, yet this was problematic because there was no money left over for services to build houses. General  provincial expenditure stood at 24% of the total allocation.

Mr Mokgabodi said that it was not clear as to what was funded from grants for infrastructure and what was funded by municipalities. He requested that PT review this expenditure within their capital budget.

The Chairperson commented that the unqualified reports had decreased from nine to four. He  suggested that PT strategise a way of how to deal with this so as to increase the number of unqualified reports again.

Mr B Mkhaliphi (ANC, Mpumalanga) asked whether any of the municipalities had entities or agencies. He then highlighted the fact that a non-submission of reports denied information to the oversight committee and resulted in non-participation of communities, because it showed a lack of commitment to the communities.

Mr Willliams said that there were several municipalities that had created entities or agencies and that details regarding those municipalities would be provided.

Mr M Robertson (ANC, Eastern Cape) asked whether there was any monitoring tool in DPLG and National Treasury to check the deterioration of these municipalities.

Mr Williams said that there were monitoring tools in place and that a much more hands-on approach would be adopted by provincial treasury in order to ensure that what was being reported as achievements actually had been done.

Mr E Sogoni (ANC, Gauteng) said that he appreciated the detailed report presented by the North West Provincial Treasury. He said that although PT informed the Committee that it was trying to build capacity, and had advertised, the legislation had produced  challenges for local and provincial government. He commented that there needed to be stricter monitoring within those municipalities that did not have qualified financial personnel.  He then asked what was meant by Lekwa Teemane being indebted to Department of Water Affairs.

Mr Motlogelwa responded that this municipality was indebted to the Department because there had been a meter problem at the Vaal Dam. The R10 million owed to DWAF was in respect of amounts incorrectly billed, and the matter was being dealt with accordingly. He said further details would follow as the process continued.

The Chairperson said that according to Section 21(4), which dealt with capacity building, National Government and Provincial government must assist Local Government in identifying and resolving its financial problems. He asked if the Provincial Treasury had done so. He also  requested a list of municipalities that had outstanding audit fees. With respect to Section 34, Mr Ralane asked that PT go back and start talking to the municipalities. He said that focus was needed on the huge salary expenditure if there was no service delivery in some municipalities.

Mr Motlgelwa suggested that with respect to some of the issues, National Treasury worked collectively with provincial treasury. He also requested that the Committee allow written responses to questions so that there could be a proper investigation into issues raised, and  detailed and informed answers.

Mr Mkhaliphi requested that PT find out what kind of arrears were written-off and with whose authority.

The Chairperson suggested that the team go back and look at the issues raised thoroughly and then revert to the Committee with final remarks. They should also consider issues raised in respect of the next financial period.
 
The meeting was adjourned.