Ikangala, Bushbuckridge, Namakwa, & Magalies Water Boards: 2006/07 financial statements

Committee: Public Accounts

Chairperson: Mr T Godi (APC)

Date of Meeting: 25 Jun 2008

Summary

The Committee questioned delegates from various water boards on their financial statements for 2006/07. It was noted that the water boards were not obliged to have their financial statements audited by the Auditor General, although the view was later expressed that this was desirable.

The Department of Water Affairs and Forestry attempted to answer the questions raised in respect of Ikangala Water Board, as there was no longer a Board, and the Department had assumed its functions. Questions related to when the Department had assumed responsibility for the Board, what progress had been made with the review of the relationships between water boards and municipalities, and the status of revenue collection by the Board from municipalities. Further questions related to the billing process, why so little had been done about the debt, the need for the Department to be more assertive, the lack of a business plan, the staff complement, and the winding down process. It was noted that Rand Water would be appointed as bulk service provider in the Western Highveld. The Committee asked what lessons had been learned from the failure of Ikangala Water Board, and was told that this was largely due to lack of service level agreements.

Bushbuckridge Water Board was questioned on the fact that it was apparently not informed that assets worth
R20.6 million were reflected in its books, and were to be transferred to the Water Service Authority and not to the Board. The Committee instructed the Department to send an official letter, the very same day, to the Deputy Chairperson of the Board to inform him of this. The Committee questioned Bushbuckridge at length on its outstanding debt, and the fact that the municipality had disputed the claim for water, and insisted upon new meters being installed. The Committee pointed out that civil action could have been taken to recover the debt,  despite the interdict preventing Bushbuckridge from cutting off supplies to the municipality, and questioned the Board’s choice to try to negotiate. Further questions were directed to the accuracy of the new metering system,
under spending in 2006 and 2007, fruitless and wasteful expenditure, and the salaries, leave and gratuities for staff. It was noted that the Board hoped to recover 80% to 90% of its debt. 

The Committee criticised the Namakwa Water Board for the unauthorised absence of its Chairperson. The Committee noted with concern that the Board was effectively insolvent, and asked what steps had been taken. Although the Committee was sympathetic to the situation where the Board served a widely scattered community, and had very long pipelines needing to be maintained, it
criticised the Board’s poor financial performance, its failure to follow up on outstanding accounts, especially since there were only two trade debtors. It was noted that this Board would have far to go to achieve a turnaround and the Department should undertake an urgent investigation. It was impossible for the Board, with its present staff complement, to compile an annual report and the Committee further criticised the lack of an audit committee.

The Committee then interrogated the financial statements of the Magalies Water Board, querying firstly why its management fee was about the same as it revenue from sales of water, and noting that this dual function contributed to the lack of focus. Questions were asked on the insufficient oversight, the problems around appointment of a Chief Financial Officer, and the Committee requested a report on matters that had been dealt with and that were still outstanding within fourteen days. The Committee questioned the outsourcing of the private company, why they were hired for a minimum of one year, with no stated maximum, and whether sufficient urgency was being attached to making an internal appointment. It became apparent that the current incumbent was not qualified and the reasons were interrogated. It was noted that there seemed to be lack of managerial skills that was exacerbated by the Board’s dual focus. Further questions related to the fraud prevention plan, the approach to doubtful debts, retail debtors and the endowment policies, which were considered to be risky and ill conceived, although not actually illegal. The Committee recommended that the policy be declared fully paid up.

The Committee finally asked the Department what it was intending to do about some of the water boards, and called for stricter monitoring by the Department.


Minutes

Introduction
The Chairperson congratulated Ms Pam Yako on her recent appointment as Director-General of the Department of Water Affairs and Forestry (DWAF). He also welcomed members of the Department, the Water Boards and Mr Umesh Natha, Public Finance Division, National Treasury. The Chairperson observed that the water boards were not audited by the Auditor-General, but the Committee still wanted to hear explanations concerning the water boards’ financial affairs.  The Department was an overseeing figure for the Water Boards, to whom the Committee would ultimately look if the Boards failed.

Ikangala Water Board: Interrogation of financial statements
The Chairperson noted that his office had, on the previous day, made many telephone calls in a fruitless attempt to locate the Chairperson of the Ikangala Water Board (Ikangala), to remind him of his duty to attend the meeting.

Ms Pam Yako, Director–General, DWAF, explained that the Department of Water Affairs and Forestry had assumed responsibility for the Ikangala Water Board since it had been disestablished in 2007, and she said that Mr F Nkoana no longer had held the position of Chairperson of that Board.

Mr G Madikiza (UDM) asked the Department of Water Affairs and Forestry (DWAF) when it had assumed responsibility for the Ikangala Water Board.

Mr Fanyana Mntambo, Regional Head for Mpumulanga provincial Department of Water Affairs and Forestry, responded that the Department had assumed responsibility in 2007 and had since been in the process of winding down the Board.

Mr Madikiza asked what progress had been achieved with the South African Local Government Association (SALGA) and Department of Provincial and Local Government’s (DPLG) review of the relationship between water boards and municipalities.

Mr Mntambo responded that the Department was aware of that review, but had seen the documentation only of late. The process had started some time ago and there were several issues under consideration.  Rand Water had come into that area to assist the Water Board to carry on with its functions. The Department was now working on that document. 

Mr Madikiza asked if there was any indication of when the review would be completed, and what stage the review had reached.

Mr Mntambo responded that the review would soon reach a stage where it must be finalised and sent to Parliament, and thereafter, if Parliament approved it, it would be final.

Mr Madikiza said that he understood that there was a legal process under way to empower Ikangala Water Board to collect revenue from municipalities. He asked what the status was.

Mr Mntambo responded that he was not aware of that legal process. He did, however, know that Rand Water was operating the schemes on behalf of half of the municipalities involved.

Mr Madikiza said that the audit report made reference to the directors’ report, which stated that accrued revenue for 2006/2007 amounted to about R89 million and yet only R1 million was settled. He asked for the Department’s comments and information on what efforts had been made to recover the outstanding amount, and the names of the debtors. 
 
Mr Mntambo responded that since the Department had taken over, the two remaining staff members of Ikangala Water Board continued to bill the municipalities in the area.

The Chairperson said that the financial statements under discussion were those of 2006/2007, and that Mr Mntambo had not helped the discussion by not stating clearly when he had assumed a role in the matter. Mr Madikiza was talking about the report which probably preceded the time when Mr Mntambo had taken up his duties. Mr Madikiza wanted to know whether, since taking up office, Mr Mntambo had been able to analyse the situation and determine exactly who the debtors were, and relate that information to the money that was owed to the Board. 

Mr Mntambo said that the Department had intervened from April 2006 to March 2007, and from then until the present. When the Department had begun its intervention it had concentrated on ‘suppressing the bulk supply system’.  The Department had discovered that there was no direct cost involved in the supply of water by the Water Board, meaning that the Department was still responsible to supply the water, while the Water Board was just collecting the money.  The Department was in the process of finalising the audit and financial statements.  

The Chairperson inferred that nothing had been done about the debt.

Mr Mntambo replied that at the present time the Department was engaging with the municipalities by conducting monthly technical meetings with them.  The debt was on the agenda of these monthly meetings.  There was a dispute about metering.

The Chairperson asked if the Department was conducting monthly meetings to resolve the issue of the debt and disputes concerning it.

Mr Mntambo replied that on that subject it would be necessary to refer to the Chief Financial Officer and the National Treasury to inform them of the Department’s progress in the matter.

The Chairperson said that he expected the Department to be more assertive in the matter.  This was especially pertinent as the Department had assumed responsibility since 2006. It was not as if the Department had just assumed responsibility and was tackling a long-standing problem with which it had had little time to acquaint itself.

Ms Yako said that the problem described was general to water boards.  Through the Chief Financial Officer, Mr Onesmus Ayaya, the Department had been in dialogue with the National Treasury.

The Chairperson said that Mr Madikiza wanted a direct answer to a straightforward question of what the Department was doing about the debt owed to Ikangala Water Board. The answer would be either that the Department was doing nothing about it, or the Department was endeavouring to recover it. 

The Chairman said that the prevalence of the challenge could be discussed later. He expressed the hope that the debt would be recovered and that the disputes about billing would be resolved in due course.

Mr Madikiza asked if it would be correct to say that the Department had begun to address the problem of recovering the debt, but not in earnest. It appeared to him that the Department was only now about to start earnestly by engaging the other stakeholders. 

Mr Mntambo replied that Mr Madikiza would recall that the hearings concerning the disestablishment of the Ikangala Water Board had begun only in September 2007. Thereafter documentation was forwarded to the Minister.  Early in 2008 it was possible to begin the winding up of the Board’s activities.  However, the Department had been continuously involved in operations and maintenance work and in ‘suppressing’ the bulk supply in the area. Finance was only one of the issues on which the Department was engaging the municipalities.
 
Mr Madikiza said that the auditors had noticed that the Ikangala Water Board had not submitted to the National Treasury a budget and business plan for the 2005/2006 financial year, or for the 2006/2007 financial year.  He asked how the Water Board could operate without a budget and business plan.

Mr Mntambo replied that, to the best of his knowledge, the 2005/2006 financial statements should have been submitted, because at that time there were two Board members remaining. The 2006/2007 statements may not have been submitted, because those Board memberships would have lapsed.

The Chairperson noted that there was no business plan for 2006 to 2010 as required by legislation. This had become a moot point since the Board no longer existed and its functions had been assumed by the Department.

Mr Madikiza said that the Water Board had not reported its performance against predetermined objectives as contained in the Strategic Plan in the annual report. He asked whether this failure was caused by lack of staff or lack of skills.

Mr Mntambo responded that the staff complement was only two.

The Chairperson said that Mr Madikiza was referring to a board that no longer existed. The auditors, when briefing the Committee, either did not inform the Committee of the dissolution of the Board or did not know that it had been dissolved. He suggested that rather than dealing with past issues it might be better to concentrate on the future steps to be taken.

Mr Madikiza agreed with the Chairperson; however, he said that it was good to discuss the above-mentioned issues with a view to preventing their recurrence.

The Chairperson asked Mr Mntambo to describe the winding down and indicate what would happen thereafter.

Mr Mntambo responded that, since the Water Board had few assets, the regional office had intervened in the bulk operations through Rand Water. The Department was engaged with all the municipalities, including the district, to examine the long term appointment of Rand Water to assist those four municipalities. Rand Water was already involved with the bulk line and the Gauteng office of the Department was also involved. The Department was scheduled to have a meeting, entitled the Western Highveld Technical Meeting, with the district and the four municipalities in the area. The way forward was to map a service level agreement whereby the district would lead by appointing Rand Water as the bulk service provider for the long term in the Western Highveld.

The Chairperson asked if this meant that the Western Highveld Technical Committee would complete the processes to appoint Rand Water as the water supplier in the areas served by the former Ikangala Water Board.

Mr Mntambo confirmed this was so. 

The Chairperson asked why Ikangala Water Board had failed to sustain itself, and what lessons had been learned so that the same challenges would not befall Rand Water in the supply of water to that area.

Mr Mntambo responded that several lessons had been learned. Firstly, participation played a key role in sustaining any activity that was to take place. The intervention of Rand Water was initiated by the municipalities after the former Director-general had an urgent meeting in January 2008, when there had been a crisis in the Highveld.  The local mayors had taken a political decision that urgent action was required. That was the beginning of the Technical Committee.

The Chairperson asked Mr Mntambo to specify why Ikangala Water Board had failed.

Mr Mntambo said that the lack of service level agreements was the main reason. In addition, the area in which Ikangala Water had operated was not economically viable. There was need for huge subsidies and funding.  The area was almost entirely a poverty-stricken area with no industries. The Water Board should have expanded itself quickly to extend its area of jurisdiction to incorporate urban areas that would provide a kind of cross-subsidy.

Mr Madikiza asked if the Ikangala Water Board’s lack of legal authority to collect revenue had also contributed to the Board’s downfall.

Mr Mntambo said that he thought that Ikangala Water Board had had the legal authority to collect revenue. However, there was a duality in that the Water Board was dealing with the bulk water supply, while the Department was operating the reticulation and distribution networks. According to previous financial reports, revenue had at one stage been collected from the municipalities, but subsequently there was a failure to collect revenue.

The Chairperson asked why.

Mr Mntambo said that revenues had stopped when there had been a failure of service delivery on the part of Ikangala Water Board.

The Chairperson said that a number of issues had arisen on which the Department might later wish to comment.
The report on Ikangala should be referred to the Department.

Bushbuckridge Water Board
Ms N Hlangwana (ANC) asked what the Board intended to do to recover the outstanding payment due to it as outlined on page 44 of the report.

Rev. Richard Ngomane, Deputy Chairperson, Bushbuckridge Water Board was representing the Chairperson who could not attend as he had been involved in a motor accident. He responded that the Board had experienced great difficulty in recovering debts owed by Bushbuckridge municipality on account of relationship problems between the Board and the municipality. The Board had begun the debt recovery process, but an interdict had been issued. The Board discussed this matter with the municipality, which informed the Board that one of the reasons for its inability to service the debt was that the municipality felt that it was being overcharged. The Board invited the municipality to examine the Board’s account books and verify what the municipality owed to the Board. The municipality was paying the Board a flat rate of R1 million a month, but it was impossible for the Board to carry on its business on the basis of that payment. Agreement was reached that the municipality would pay the Board a flat rate of R2 million per month, although this amount would still not be enough to match the Board’s budget.  However, the Board was happy to inform the Committee that those relationship problems had been resolved, and that now agreement had being reached whereby the municipality would pay the board a flat rate of R3 million per month, because the cost to the Board of supplying water to the municipality was currently R4.5 million.
The problem was that so long as the municipality paid short, its debts were accumulating.

Ms N Hlangwana accepted that response.

The Chairperson noted that the Board still had a shortfall of R1.5 million. 

Rev Ngomane replied that the municipality had indicated that it wanted to honour the shortfall of R1.5 million, but that there was a dispute as to the amount being billed as against the amount being consumed. Therefore an agreement had been reached that the Board and the municipality would jointly install new water meters, and once the Board had obtained agreed statistics from these meters as to consumption then it could then refer back to the municipality to collect the debt.

The Chairperson asked if the municipality was justified in questioning the Board’s invoices.

Rev Ngomane replied that the municipality was in authority so that the Board could not compel it to pay.

The Chairperson repeated his question. 


Rev Ngomane replied that the municipality was partially justified in questioning the invoices. It was when money was owed that the municipality questioned the invoices.

The Chairperson asked Rev Ngomane to define the problem with the Board’s billing system.

Rev Ngomane replied that he thought that the municipality was justified in questioning the Board’s billing system.


The Chairperson asked if the Board was satisfied with its billing system.

Rev Ngomane responded that he would not admit that something was wrong, but he wanted to test the municipality’s questions about the billing system by installing meters.

The Chairperson inferred that at the present stage the Board could not prove its case.

Rev Ngomane responded that the Board could prove its case by means of its own meters, but the municipality would not accept that

The Chairperson asked for assistance from Members of the Committee, as he found Rev Ngomane’s argument obscure. 

Adv M Stephens (DA) asked Rev Ngomane if there was actually a problem with the Board’s meters.

Rev Ngomane replied that there was nothing wrong with the Board’s meters.

Adv Stephens asked Rev Ngomane why then he was unsure whether the meters were correct in their readings.

Rev Ngomane responded that it was not the Board, but the municipality that was saying that the Board’s meters were not giving the correct reading, because of where they were situated.

Adv Stephens asked Rev Ngomane how he had responded to the municipality’s assertion.

Rev Ngomane responded that he thought that the municipality had a valid point. If a client was unhappy with the Board’s billing, he thought that the onus was on the Board to prove to the client that there was no mistake in the Board’s billing. At this stage the Board could not prove its case, unless the Board put its meters where the municipality wanted them.

Adv Stephens asked Rev Ngomane how it had come about that the meters were situated as they were at present.

Rev Ngomane responded that historically the Board had taken over a system in which the meters were situated in a certain place. There had been no problem with the positioning of the meters until the level of debt had risen to a great extent, and then the meters were used as a cause for complaint.

Adv Stephens said to Rev Ngomane that this was surely an indication that this was not an honest dispute from the municipality’s viewpoint.

Rev Ngomane responded that he suspected this might be so.

Adv Stephens advised Rev Ngomane that there was no reason, therefore, for the Board not to prosecute its claims against the municipality.  It was not to be expected of the Board that it should take it upon itself to make an unreasonable client happy.

Rev Ngomane responded that the Board was following the process to recover the debts, but the municipality had obtained a court interdict against it.

Adv Stephens asked how the Board could be the subject of a court interdict obtained by the municipality if the Board was claiming debt from the municipality.  He asked what the subject of the interdict was.

Rev Ngomane responded that the Board should first inform every structure and should not engage a legal process before first exhausting all other machinery of the process. The Board had followed the process and reduced the water supply. The municipality then obtained the interdict on this basis, that the Board had no right to stop supplying the municipality with water. 

Adv Stephens said that that might or might not be true. The fact of the matter was that the municipality owed the Board. He suggested that the Board should approach the State Attorney to sue the municipality for the debt.

Rev Ngomane said that the Board believed that the current process should be followed to its conclusion. The Board had not known where to turn when interdicted.

Adv Stephens argued that the Public Finance Management Act (PFMA) stated quite clearly that action could be taken against State departments or municipalities through the office of the State Attorney.

Rev Ngomane admitted that two processes were in place. Whilst the Board could take a firm stance and sue the municipality, it would then probably lose the municipality’s business. The other side of the coin was that by being willing to negotiate, the Board had at least obtained an agreement to raise the payment towards the debt to R3 million a month. The Board saw this as a positive step. It wished to repair the relationship between it and the municipality. Once the metering process was complete, the Board could then assess the situation retrospectively, and the municipality would pay the debt. It would prefer to take the softer route rather than lose the client.

Adv Stephens asked Rev Ngomane how the Board intended to recover all the arrears, now amounting to millions, and if the municipality would be able to pay those arrears. 

Rev Ngomane replied that the Board was meeting with the executive authority, namely the municipality, and the two parties had agreed in writing that, as soon as the metering process was completed, the municipality would pay the arrears.  The municipality had committed itself to honour the debt.

Adv Stephens asked if the municipality had the ability to honour the debt.

Rev Ngomane responded that he did not know, but that if the municipality had committed itself to pay the debt, it should have the ability to pay.

Adv Stephens asked Rev Ngomane if he had verified that the municipality had the ability to pay.

Rev Ngomane responded that he had not verified this

Adv Stephens reminded Rev Ngomane that the Board was accumulating a R1.5 million shortfall every month.

Rev Ngomane responded that the process was proceeding very rapidly.  As soon as the process was complete, one or two months hence, the Board should be in a position to know whether the municipality could pay the debt. The Board had high hopes of recovering at least 80% to 90 % of the debt.

Adv Stephens said that the Rev Ngomane’s estimate was based more on hope than on fact.

Adv Stephens asked as to the capital cost of the project to replace all the Board’s meters.

Rev Ngomane responded that it was costing the Board in the region of half a million rand.

Adv Stephens asked the Rev Ngomane, on the basis of his earlier assertion that there was nothing wrong with the Board’s existing meters, how the Board could guarantee that the new meters would be accurate. Adv Stephens said that, in his view, the new metering system might not be in the Board’s interest.

Rev Ngomane said that the metering project was a joint project between the Board and the municipality’s engineers. There should be no dispute about the accuracy of the meters. 

Adv Stephens asked if Rev Ngomane
was satisfied, from the Board’s viewpoint, that the new meters were being placed in appropriate places.

Rev Ngomane responded that he was satisfied of this. He was confident that when the new meters were read, the municipality would at the same time verify the readings, and be satisfied, so that it would not dispute the readings.

Ms Hlangwana spoke to the emphasis matter mentioned on page 45 of the report. Assets of R20.6 million that were to be transferred had not been transferred. This was a matter outstanding since 1999. She asked for an explanation.

A Departmental official explained that the Municipal Systems Act of 2000 required that the assets be transferred to the Water Services Authority, in this case, the Bushbuckridge municipality, but the assets were still reflected in the Board’s account books.

After much discussion, it was concluded that the Bushbuckridge Water Board had not been properly informed of the circumstances concerning the transfer.

Mr G Koornhof (ANC) said that the root cause of the emphasis of matter in the audit report was the status of substantial physical assets. It was, in his view, as essential to address this root cause as it was to address the failure to inform the Board.

The Chairman ruled that the Department must send an official letter immediately to the Board, and he himself would check with Rev Ngomane to verify if he had received the letter.

Ms Hlangwana asked about under spending in 2006 and 2007.

Rev Ngomane responded that there was no way in which the Board could spend money that it did not have.  The percentage of under spending represented money that the Board was awaiting as payment from debtors.   The Board had in consequence been obliged to forego maintenance work.

Ms Hlangwana asked about fruitless and wasteful expenditure.  She hoped that this was the last time the Committee would see this challenge.

Rev Ngomane responded that he was almost completely certain that because of the change of heart of the municipality this would not happen again.

Ms Hlangwana asked about salaries, leave, and gratuities, and asked for comparative figures.

Rev Ngomane responded that staff members were legitimately entitled to the leave in question.

The Chairperson observed that financial management positions were not one of the Board’s more stable attributes. He failed to understand the circumstances, and asked why a staff member concerned had left in the middle of an audit. He hoped that the replacement staff member would remain.

Rev Ngomane responded that the Board was small and sought the best staff. However government departments tended to poach employees, particularly chief financial officers.

Ms Hlangwana referred to page 39, on which it was stated that the Bushbuckridge board had to provide for doubtful debts of R24 million. She asked for a response on what this represented.

Mr M Letswalo, Chief Financial Officer, Bushbuckridge Water Board, responded that in the circumstances a deficit was inevitable.

Rev Ngomane reiterated that he was hopeful that the Board would eventually recover at least 80% to 90% of all its debts.

Namakwa Water Board: Interrogation of financial statements
The Chairperson was perturbed at the absence, without prior explanation, of the Chairperson of the Board. He asked Mr Van den Heever, Member of the Board, why Ms Beukes was absent.

Mr Frank Van den Heever, Member of the Board, Namakwa Water Board, responded that Ms Beukes was unable to attend because of some personal matters that had occurred the previous afternoon.

The Chairperson noted Mr Van den Heever’s response but said that Mr Van den Heever should have conferred with the Chairperson at the start of the meeting to give a detailed explanation. When the Committee called public officials to attend, the Committee expected them to be present, without fail, unless a valid explanation was communicated beforehand to the Chairperson.

Mr Van den Heever acknowledged the Chairperson’s observations.   

Mr H Bekker (IFP) endorsed the Chairperson’s words, but stressed that it was unheard of that a Chairperson of a Board should not be present, and that this was unacceptable. He noted that according to the auditors the Namakwa Water Board was insolvent.

Mr Van den Heever agreed with Mr Bekker.

Mr Bekker said that the situation was frightening, and asked Mr Van den Heever what the Board had done to overcome it.

Mr Van den Heever replied that the Board served a community of few inhabitants who were widely scattered. The Board had a duty to provide these people with water but to serve them it was necessary to maintain very long pipelines.

Mr Bekker asked how the Board’s charge of just over R3 per litre of water compared with that charged by other boards.

Mr Van den Heever responded that the Board’s charge would rise to R3.69 per litre. What he had described was the reality of the Board’s situation, and the vast distances over which the Board was obliged to maintain pipelines.

Mr Bekker criticised the Board’s poor financial performance. He said that there was no way whereby any organisation could allow trade debtors any longer than one month to pay outstanding accounts. If the Board had any staff member with a good financial background, the Board would surely be aware of its predicament.  He asked what steps the Board was taking to stop slipping into even deeper fiscal mire.

Mr Van den Heever responded that the Board had a staff complement of only 34 staff members.  He said that the Board had only two clients – De Beers and the local municipality. If these clients failed to pay their accounts on time the Board experienced serious financial problems.

Mr Bekker said that his question concerned the Board’s ability to collect payments from its trade debtors, not from sundry debtors. The Board had only two trade debtors, one of which was two months late in payment.

Mr Van den Heever replied that one had to learn to live with the local authority’s slowness in paying its accounts.

Mr Bekker disagreed. According to the applicable legislation, if an invoice was submitted and payment was not received 30 days from the date of the invoice, the Board should apply penalty interest on the unpaid debt. If the debtor failed to respond then it could be liable to be sued. The Auditor-General would not have tolerated such a situation. Small businesses throughout South Africa were being destroyed because State departments failed to pay on time. There was no excuse for the Board or its debtors to allow the Board’s invoices to remain unpaid, and interest must be charged on overdue payments after 30 days.

Mr Van den Heever responded that he was a local councillor. He found himself in the situation of occupying two positions. He admitted that the Board was on the way to disaster’.

Mr Bekker said that a staff complement of 34 was extremely small. Of that, he noted that only four staff members were at managerial or executive level. However, in the executive summary of the Board’s report, the most critical matters mentioned included ‘an extremely dissatisfied labour force’. He asked how 30 employees could be extremely dissatisfied.

Mr Van den Heever responded that this was the staff establishment inherited by the Board, which, according to Mr Van den Heever, did not really have a manager. When the Board took up its appointment it was faced with much dissatisfaction, especially when it wanted to economise.

The Chairperson indicated his reluctant acceptance of this explanation.

Mr Bekker said that he did not think that the Committee could pursue this matter much further, since the entity was in such a bad state. There was an enormous amount of work ahead in order to achieve a turnaround. It was fortunate that the Department was present at the meeting. An urgent investigation was required to determine a turnaround strategy and to identify major risks in the Board’s lengthy infrastructure of pipes, many of which needed urgent repair. The Committee had sympathy for the Board’s difficulties on the pipes, but the Department still had a duty to examine the situation. Water was a necessity for members of the public. It was not possible to deprive them of water, so something had to be done to ensure a continuity of supply. He again expressed his absolute dissatisfaction that Ms Beukes, who was the accounting officer, was absent.

Mr V Smith (ANC) said that as far back as 2006 these problems were known. He considered that the Board, in its present form, was superfluous. The Department habitually took four years to make a decision. It would be futile to call the Board again next year. Mr Smith agreed with Mr Bekker that the Department must be held accountable.

Mr P-J Gerber (ANC) asked how many houses were supplied in a certain town.

Mr Van den Heever replied that it was difficult to provide an answer, since the houses supplied were in a closed town. However, it was a small number of about 500 houses.

Mr Gerber said that the houses belonged to De Beers. He expected Mr Van den Heever, since he was a councillor, to demand a contribution from the developer whenever De Beers wanted to sub-divide the plots, in order to recover some of the costs of the pipeline.

Mr Van den Heever replied that the pipeline was owned by De Beers. In order to replace the 30 kilometre pipeline the Board required R80 million.

Mr Koornhof suggested that these questions should be directed to the Department since the Board’s operational report appeared to have been signed by an individual whose identity was not indicated. Mr Koornhof asked for the name of the signatory. Mr Koornhof said that, given the level of staff, it was impossible for the Board to produce an annual report and this was an accident waiting to happen. He criticised the lack of an audit committee, and said that the Department should address this deficiency.

Magalies Water Board
Adv Stephens stated that Magalies Water could not plead poverty, since it served an area extending a substantial distance eastward from Rustenburg. He failed to understand, when he examined the Board’s Financial Officer’s report on page 77 of the Annual Report, that the Board’s “other income” comprised a management fee approximately the same as the Board’s revenue from its gross sales of water. He asked whether the Board was in the business of selling water or business services.

Ms Miriam Legana, Chairperson of the Magalies Water Board, replied that the Board’s main business was selling bulk water.

Adv Stephens objected that the Board’s management fees were almost equal to its revenue from selling water in bulk, and that it was apparent that there was a certain duality of functions in the Board’s activities.

Ms Legana replied that she accepted Adv Stephens’s observation.

The Chairperson asked Adv Stephens if he thought the Board’s practice was illegal.

Adv Stephens replied that he did not consider the Board’s practice to be illegal.  He asked who held the Chair of the Board’s audit committee.

Ms Legana replied that Adv Klaus Garlipp, Board Member, held that position.

Adv Stephens asked why there was insufficient oversight.

Adv Garlipp replied that there was an
elaborate process under way in the audit committee but that there were certain governance issues inside the organisation, which did not always come to the attention of the audit committee.

Adv Stephens asked if the audit report had been written. He asked what internal problems had been identified and what the Board was doing to correct them.

Adv Garlipp replied that the Board had been searching for a new Chief Financial Officer.  The audit committee had submitted to the Board a report of four pages. The audit committee had been dissatisfied by the standard of competence of financial and accounts staff. Tasks that should have been done by certain officials had been left undone.

Adv Stephens said that this seemed very serious.  He asked if the situation persisted.
.
Adv
Garlipp said that he hoped that it was now no longer the case. The Board was searching for a new Chief Financial Officer and he hoped that the Board would find a suitable person. In the new year the Board had also had a change of Chief Executive Officer, who was now attending to essential matters to enable the Board to make progress.

Adv Stephens remarked that it would be of considerable assistance to the Committee if Adv
Garlipp could provide a list of the matters that had been dealt with and a second list of the matters that were still outstanding. The two lists should reach the Committee within fourteen days.

Ms Legana agreed to Adv Stephens’ request.

Adv Stephens asked if the conditions and length of service of the audit committee had been determined.

Ms Legana confirmed that the Board had established an internal audit, but it was still a unit which the Board was in the process of building up. The Chief Executive Officer would be able to provide more information.

Ms Simongeles Sekgobela, Chief Executive Officer, Magalies Water Board, responded that the Board did not have a staff member for auditing, but had hired a private company, for which the Board had followed a procurement process, to perform this task. The services of the private company would be retained for a minimum of one year.

The Chairperson said that the Committee preferred the appointment of permanent staff, and asked if the Board found it cheaper to outsource.

Ms Legana responded that Ms Sekgobela had been appointed only a few months previously. One of the things that the Board had considered in the meantime was how best to obtain a service provider while the Board was still reviewing the situation.

The Chairperson advised Ms Legana that she should have advised of this from the beginning He detected no sense of urgency in the Chief Executive Officer’s response nor in the Board. The Board envisaged a minimum of one year, but the maximum could be many years. He asked what was envisaged as the maximum period of time to complete the matter, rather than the Board’s most optimistic estimate.

Adv Stephens asked if the staff member currently handling the internal audit was a fully qualified auditor. According to his understanding, the person appointed to perform the functions of an auditor had studied auditing up to the second year of the auditing course of study. Ms Legana seemed, in her responses, to be unsure of herself. Studying for two years did not qualify anyone to be Chief of Internal Audit. There appeared to be a grave defect. It was obvious that the Board still lacked a properly qualified individual to perform the internal audit.
 
The Chairperson asked if Ms Legana had not been aware of the candidate’s lack of sufficient qualifications at the time of making the appointment.

Ms Legana replied that during the process of selection and appointment the Board thought that the candidate was competent.

The Chairperson asked Ms Legana why this was so.

Ms Legana responded that the incumbent at the time was working alone and needed more staff. Ms Legana said that she had made a supposition. She was unsure.

The Chairperson asked who could be sure of this matter. 

Ms Legana responded that the Board did have a selection and appointment process.

The Chairperson replied that, in spite of Ms Legana’s assertion, the Board had nevertheless appointed someone ill qualified for the position. That person was supposed to be the general manager of finance with a duty to supervise all subordinates. The general problem that the Committee experienced repeatedly with public entities was inadequate management and supervision. He noted that there had been restructuring of the organisation. He asked Ms Legana why the Board had delayed the appointment of people, since the restructuring would not have affected the internal audit division, and that additional staff should have been appointed.

Mr Smith (ANC) asked what was the standard qualification.

Adv Stephens said that a bachelor of commerce degree with honours in internal audit, together with appropriate experience, would be preferable. He stressed that experience was more important than the qualification.

The Chairperson acknowledged Adv Stephens’s remark, but pointed out that if someone unqualified had already been appointed, then the problems would persist. For the time being he suggested that the Committee let the matter rest.

Adv Stephens said that the 2004/2005 report was unqualified, but that for 2005/06 had been qualified. The auditors had said that the qualifications had been addressed. However, in the next year, 2006/07, the Board had merely exchanged one set of qualifications for another. He asked for an explanation.

Ms Legana responded that this was a correct summary. The qualifications were mainly related to a lack of appropriate systems in place. Possibly they reflected a lack of supervision on the part of the former Chief Executive Officer who had left after about six months, and things appeared to have gone wrong.

Adv Stephens said that brought him back to his original point regarding management skills. The Board’s double focus was part of the problem, and it had caused these repercussions.

Ms Legana responded that she agreed.

Adv Stephens asked Ms Legana if the Board had implemented a fraud prevention plan, if it was a long process, and when it would be rolled-out.

Ms Legana replied that a fraud prevention plan was being adopted, that it was still in the process of unfolding, but that it had been rolled-out.

The Chairman observed that the response prompted questions on the use of language.

Adv Stephens asked about the Board’s approach to doubtful debts. He said that the Board’s process of age analysis was insufficient at that time. He asked if the Committee could expect to see problems from the lack of controls. He also asked about retail debtors.

Ms Legana replied that the Board had a proper analysis of its debtors, and the problems arising from lack of controls would not recur.

Mr Thoane Sengfeng, Acting General Manager, Finance, Magalies Water Board, replied that the Board could reconcile retail debtors.

Adv Stephens asked if, as a matter of emphasis in the previous year, the endowment policy still existed.

Mr Sengfeng responded in the affirmative.

Adv Stephens asked upon whose lives was the endowment policy taken out, and about medical expenses. 

Mr Sengfeng replied that three of the Board Members’ lives were insured, being the Chairperson and two others. Some of the older employees of Magalies Water Board were covered for medical expenses.

The Chairperson asked how board or staff members qualified for this scheme.

Mr Sengfeng replied that a condition was that an applicant should have been in the Board’s employ for a certain length of time.

Adv Stephens asked the amount of the premium and if it was an annual premium policy.

Mr Sengfeng said that the premium was R30 000 payable annually.

Mr Smith said that Magalies Water Board was the second organisation in a month to appear before the Committee with an investment policy on employees. He asked why an organisation would invest in the life of an individual rather than, for example, in unit trusts. Using State money to invest on the basis of an individual life was not correct. This Committee had advised another organisation to correct the position. The Board should have a better investment, as it was not acceptable that State money be ventured in risky investment policies. He asked Mr Stephens to take a tougher line. Although this was not illegal, it did not augur well.

Adv Stephens asked if there would be a substantial loss if the Board cancelled the policy before term. He asked how long the policy had been in effect.

Ms Legana replied that the Board had concluded that the penalties for cancellation would have been heavy, so the Board decided to let the policy continue until full term in 2010, only two years ahead, She said that maybe the Board should leave this type of investment at that point.

Adv Stephens asked if the Board had considered declaring the policy paid up.

Ms Legana replied that the Board did not consider that option, but would now consider it.

Adv Stephens advised the Board to make the policy a paid up policy.

Mr Bekker asked who had convinced the Board to take out the policy. He asked whether it was an agent or a broker. He asked further who the extra beneficiary was, and if that beneficiary was related to any one in the organisation. He said that it required skills to convince or influence a board.

Ms Legana replied that it was not really the Board that had decided, as the decision had been taken by management at the time. The Board later queried the wisdom of that decision.

Mr Bekker asked if anyone had shared in the commission.

Ms Legana replied that she could not comment because the managers concerned had left.

Concluding remarks
The Chairperson said that, in the future, water would be as valuable as oil.

Ms Sekgobela said that this was a challenge. There was a huge demand upon the Board, which was working with the Department in planning for the future.

A respondent from Bushbuckridge said that the challenges facing the Board were caused in part by the patterns of water use in the area, including the use of water in villages. For the coming 20 years, however, the Board expected to be secure.

Mr Van den Heever replied that the biggest challenge for Namakwa Water was delivering water to the people and the cost of extending and maintaining a pipeline of 110 kilometres in length, at a cost of R120 million. Purification plants were also needed. Water resources needed to be harnessed, otherwise much water would flow to waste into the ocean.

Mr D Gumede (ANC) said that the problem of water supplies was much more serious than the shortage of electricity.

Ms Yako said that there was scope for improving the Department’s oversight role in terms of monitoring. She said that she had in her possession a report detailing the Bushbuckridge assets and what would be transferred, and could give the Committee her assurances on the matter.

Mr
Silas Mbedzi, Chief Director: Institutional Oversight, Department of Water Affairs and Forestry, said that meetings were being held to discuss the problems of water boards. The latest meeting had been held on 2 May 2008. The meeting had included role players such as the water boards, the Department, and the Department of Provincial and Local Government. The boards most affected were those such as Bushbuckridge. Credit control measures, relations with municipalities and water boards were discussed. The smaller boards struggled with debt management. At that meeting it was agreed to study defaulting municipalities. The water boards accepted the May to June 2008 process of verification of figures for those water boards.

DWAF would lead the processes, subject to the agreement of the National Treasury. To avoid escalating the matter, the provisions of Treasury Circular No. 21 and the Municipal Finance Act would be adhered to. There would be close attention to monitoring prices and payments to the State, and to the honouring of obligations on a timely basis. A guideline was developed at that meeting, and the Department would not describe it in detail.

The Chairperson interrupted Mr Mbedzi. He said that clearly processes were in motion to address the debt situation. He asked how the Department was dealing with the water boards, and, in particular, the situation of economically depressed water board such as the Namakwa Water Board. He asked if any measures were to be taken to address the situation of non-viable water boards.

 A Departmental representative said that it would be taking over the functions of some boards in the long term, including Namakwa Water Board and others in rural areas.

The Chairperson said that the configuration of those water boards had not been well thought out.

In conclusion, the Chairperson expressed the view that water was the most basic necessity, more so that electricity, and called upon the Department of Water Affairs and Forestry to monitor the water boards very strictly. He hoped that there would be no reason for the
Ikangala, Bushbuckridge, Namakwa, and Magalies Water Boards to appear before the Committee again. There was no basis for exemption of any water board from auditing by the Auditor-General when the water boards provided such an essential service.

The meeting was adjourned.