Provincial Treasuries & Department of Provincial & Local Government progress reports around municipalities discussed in 2008 hearings

NCOP Finance

23 October 2008
Chairperson: Mr T Ralane (ANC, Free State)
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Meeting Summary

The Committee was briefed by the Department of Provincial and Local Government as well as Provincial Treasuries on the progress that had been made in respect of those municipalities that had formed the subject of Committee hearings between December 2007 and October 2008. In general, the National Department of Provincial and Local Government noted that the purpose of the Report had been to provide an overall reflection, analysis and lessons on financial management and service delivery in municipalities, as learned throughout the hearings conducted by the Committee. Since December 2007 the Committee had visited and engaged with a total of 82 municipalities, across low, medium and high capacity classifications. An in depth analysis of the Report’s findings concluded that municipalities shared the same challenges, mostly pertaining to financial management and service delivery, no matter what their classification. All of the municipalities had recorded about 95% expenditure on operational budgets, of which salary bills formed the majority. There was a high ratio of salaries to the total operating budget, yet in many cases vacancies were also high. Underspending on capital expenditure budgets remained dominant, with misalignment and inadequate planning impacting on time frames. It was also noted that most municipalities relied heavily on conditional grants. There were concerns around the alignment of the Integrated Development Plans with the Provincial Growth and Development Strategy, despite assurances that this was being done. National Treasury responded to these comments by conceding that sometimes adequate assistance was not provided to municipalities, although some attempts were being made to address blockages. Provincial and national departments were part of the problem as they were failing to pay debt owed to municipalities. On the other hand, municipalities would also often budget unrealistically. Provincial Treasuries needed to consult with and guide municipalities on their budgets.

The Departments of Local Government or Provincial Treasuries from the various provinces then briefed the Committee on particular interventions undertaken in respect of their local municipalities. Interventions had included funding implementation of partnership projects, deployment of staff and IT equipment by Development Bank of South Africa had deployed staff and IT equipment, deployment of technical experts or funding for upgrades. Better relationships between the National and Provincial Departments and Provincial Treasury were being formed in Limpopo. Other interventions included integration of development plans, audits on organisational structures, facilitation of municipal manager and financial officer posts, deploying technical experts, assistance in compiling budgets, and implementation of job creation programmes. There were also interventions in respect of water delivery and quality. Cash flow of some municipalities was being monitored, whilst recovery plans had been developed for another municipality. 

Questions by Members addressed whether national departments would assist municipalities, the need to address supply chain management and internal audit structures, the unacceptable situation where political squabbles interfered with service delivery, rises in water tariffs and whether the residents could sustain these. Members queried whether the provincial governments had the capacity to address all issues raised by the Local Government Association. Members also commented that the Committee should deal firmly with those municipalities who acted as a law unto themselves. There was a need to focus on credibility and sustainability of budgets, and find the correct balance between salaries paid and service delivery directives. Those municipalities that had investments or reserves must be monitored, as many were relying on government grants to fund service delivery whilst they were investing their own funds. Revenue collection was another problematic area. Municipalities were using the conditional grants for purposes other than those specified. There was a need for better alignment of integrated development plans, better communication, and possibly write-off of old debt. The lack of a revenue base should not be seen as an excuse for incompetence and financial mismanagement. The credibility of many budgets was a serious issue. National Treasury also needed to engage with other institutions across all spheres of government.

 

Meeting report

Department of Provincial and Local Government (DPLG): Progress Report on matters discussed during Committee hearings: December 2007 to date
Mr William Ramphele, Senior Manager: Municipal Finances, DPLG, read through the Report prepared by that Department and noted that the purpose of the Report had been to provide an overall reflection, analysis and lessons on financial management and service delivery in municipalities, learned from the hearings conducted by the Committee from December 2007 to the present. Since December, the Committee had visited and engaged with a total of 82 municipalities, of which 10 fell within the low capacity classification, 24 in medium capacity classification and 48 in the high capacity classification. An in=depth analysis of the Report’s findings concluded that municipalities shared the same challenges that pertained to financial management and service delivery, despite their classification.

All of the municipalities had recorded almost over 95% expenditure on operational budgets, of which salary bills comprised the majority of the share. The average percentage of salaries to the total operating budget had been recorded as high as 58%, whilst vacancies in these municipalities had also been high. It was noted that under spending in the capital expenditure budget remained dominant, mostly perpetuated by the long-term nature of infrastructure projects and misaligned or inadequate planning that had impacted on the time frames of key service delivery projects.

One of the biggest challenges faced by the majority of municipalities had been the lack of repairs and maintenance of infrastructure, especially related to water and sanitation services, as many of these municipalities did not adequately budget for repairs and maintenance as was required via the Water Services Operating Subsidy.

The majority of the municipalities visited relied heavily on conditional grants such as the Municipal Infrastructure Grant (MIG), Financial Management Grant, Integrated National Electrification Programme Grant and the Water Services Subsidy Grant. The progress reports by municipalities on the performance grants indicated an improvement in how the grants had been spent, but the information at the disposal of the DPLG painted a different picture. One of the biggest challenges that faced the transferring departments had been to verify the quality of spending in relation to reported grant expenditure performance, to assess whether there had been value for money or to check that the money had been spent on the intended purpose.

Mr Ramphele said that the DPLG had concerns around the alignment of the Integrated Development Plans (IDP) with the Provincial Growth and Development Strategy, as no municipality could provide factual evidence of an aligned approach, despite indicating that they did have this. Municipalities had indicated that provincial and national sector departments did not participate in the IDP processes and structures set up by municipalities, or if they did attend, then junior level officials would be sent as representatives.

Compliance with the Municipal Finance Management Act (MFMA) had also been one of the challenges that these municipalities faced, as only 58 of the 82 municipalities that had appeared before the Committee had submitted their 2007/2008 Annual Financial Statements by 31 August as required by the MFMA. The Report also concluded that Provincial Treasuries had raised concerns over the quality of Section 71 Reports, as there had been many inaccuracies. This had been due to the lack of capacity within municipalities to conduct proper audits and the lack of audit committees in some municipalities.

The municipalities had been unanimous in identifying electrification, roads, water and sanitation as the most critical blockages, due to the vast number of backlogs, and relied on the allocation of more funds through the MIG due to not being able to acquire loans from financial institutions.

The outcomes of the Report detailed that many of the municipal budgets had not been realistic and sustainable. Effective engagement between Provincial Treasuries and Provincial Department of Local Governments and proper engagement between Provincial and Local Governments on the IDPs was necessary.

Discussion
The Chairperson noted that the meeting had been called not to look for scapegoats, but rather to discuss the Auditor-General’s Report on Municipal Finances, especially the issue of qualified reports and other pertinent issues that had impeded on municipal service delivery. He added that the Committee wanted to see a massive rollout of services that would ultimately see municipalities grow and become better.

Mr Vincent Malepa, Director, National Treasury, said National Treasury and Provincial Treasuries failed to adequately assist municipalities in addressing pressing issues. They did not engage with municipalities as was expected. He stated that the National Treasury (NT) did implement certain steps to address some of the blockages that persisted, and had identified provincial and national government departments as part of the problem, as they failed to pay debt owed to municipalities. Treasury had then proposed that municipalities had to place debtors in categories, such as households, businesses and government departments, and identify where all the blockages in debt payment had arisen.

He added that it was discovered that several municipalities budgeted for unrealistic objectives and that this led to a misalignment of budgets. There was a dire need for Provincial Treasuries (PTs) to consult with and guide municipalities on their tabled budgets and to assist with Section 71 Reports. He noted that if Provincial Treasuries highlighted the problems and inaccurate information in these reports then some municipalities would not be in the mess that they found themselves.

Mr Bernard Mokgabodi, Director, National Treasury, said that some of the issues raised by Mr Ramphele related to National Treasury’s competency. Municipalities had to engage with Provincial Treasuries on budgetary problems. Several capacity building exercises had been conducted with municipalities.

Eastern Cape Department of Local Government and Traditional Affairs
Ms Toko Xasa, MEC for Local Government and Traditional Affairs (LGTA), Eastern Cape, briefed the Committee on her Department’s interventions in the Mnquma Local Municipality, the Great Khei Local Municipality and the King Sabata Dalindyebo Local Municipality.

She noted that Mnquma Local Municipality had been identified as one of the fifteen municipalities to pilot the Municipal Support and Intervention Framework (MSIF) and this led to the Provincial Government allocating R1, 5 million for the implementation of the partnership agreement between the Department and the United Nations Development Programme (UNDP). This partnership would ensure that experts would be deployed to the municipality to assist with Engineering, Project Management, financial management and capacity building. Infrastructure issues had also been addressed through the deployment of technical officials to the municipality from the Development Bank of Southern Africa (DBSA).

She said that in the Great Kei Local Municipality her Department, in partnership with the DBSA, had deployed technical experts to the Municipality as well as providing support in the updating and maintenance of indigent registers.

In respect of the King Sabata Dalindyebo Local Municipality, the
 LHTA had provided the municipality with intense support and as a result of this support the Municipality could appoint a new Municipal Manager (MM) and a Chief Financial Officer (CFO). The Municipality had also benefited through the MSIF various strategies and units, such as the Establishment of Technical Project Management Unit, Development of Comprehensive Infrastructure Plan and the Maintenance of an Indigent Register and development of Exit Strategy on Free Basic Services (FBS) This municipality would also receive R2, 9 million for the upgrading of ablution facilities and the renovation of the town hall and street lights.  A study by Bigen Africa had concluded that R1, 84 billion was needed by the municipality to address the infrastructure backlog. The Provincial Government and Provincial Treasury had already started to mobilize funds for this project.
 
Discussion
The Chairperson asked whether national departments still played a proactive role in assisting these municipalities as the Eastern Cape Department of Local Government could not be tasked with addressing these issues on its own.

Mr Z Kolweni (ANC, North West) noted that the weaknesses had been identified and that it seemed that supply chain management and internal audit structures had to be capacitated.

Ms Xasa said that a consultative forum had been set up where critical issues had been discussed and that national government departments had been invited to these meetings.

The Chairperson said that he was impressed with the measures that the Eastern Cape had implemented to address the blockages to service delivery and sound financial management.

Limpopo Provincial Treasury Briefing
Ms S E Tema, Acting General Manager, Limpopo Provincial Treasury, said that relations with the Department of Local Government (DPLG) had improved and intergovernmental relations between National Treasury, Provincial Treasuries and the DPLG were paramount. She added that the Limpopo Provincial Treasury had so far received twelve Section 71 Reports, out of a total of twenty-five that were due. This was mostly, however, because the municipalities sent these straight to the National Treasury then the Provincial Treasury.

She added that Limpopo had several low capacity municipalities that relied on government grants to fund services, and that the Limpopo Provincial Treasury would improve assistance to municipalities and assist them in income generating practices.

Discussion
The Chairperson asked when the last meeting between the DPLG, Provincial Treasury and municipalities took place.

Ms Tema replied that Treasury staff had been deployed to municipalities and that meetings had been held with the Department of Water Affairs (DWAF) and Telkom on the issues that had been raised by the Select Committee.

North West Provincial Department of Local Government and Housing
Ms B Mofokeng, Senior Manager, North West Province Department of Local Government and Housing, said that that the North West DLGH had conducted an in depth assessment of all 25 municipalities from October 2007 until March 2008. This had identified 11 out of 25 municipalities as priority municipalities in need of assistance. These municipalities were listed as Mamusa, Lekwa Teemane, Greater Taung, Molopo, Kgetleng, Moretele, Maquassi Hills, Ventersdorp, Tswaing, Ditsobotla and Ratlou. All relevant government departments such as the Provincial Government, South African Local Government Association (SALGA) and the Development Bank of South Africa (DBSA) had met to discuss the way forward.

The DPLG had reviewed the organogram of Naledi and Ventersdorp to align this with their Integrated Development Plans and budget as well as undertaking an audit on the organisational structure to determine the cause for huge wage bills. The task team recommended that the two municipalities should not adopt these organograms, but they went ahead in any case, despite the huge financial implications and the fact that these organograms could not be properly implemented.

The issue of Municipal Managers (MM) also received attention, through the facilitation of these posts in Ventersdorp, Ditsobotla and Maquassi Hills, as well as that facilitation of appointments of Chief Financial Officers (CFO) in Ditsobotla and Tswaing. The processes to fill these vacancies had been hampered due to political infighting in these councils, and had led to these positions still being vacant.

Ms Mofokeng added that technical experts had also been deployed to eight municipalities to facilitate operations and maintenance as well as the monitoring of the implementation of water and sanitation projects in Bophirima and Ngaka Modiri Molema. The North West Treasury and the DPLG had also conducted sessions that assisted municipalities in determining debt owed to individual municipalities by both provincial and national government departments.

It had been recommended that municipalities had to have details of contact personnel in government departments for regular engagement over municipal accounts and the need for municipalities to meet individually with each government department to clarify issues of property ownership and occupants in order to have levies allocated to correct accounts that would in turn be sent to the right departments.

Discussion
The Chairperson noted that it was unacceptable that political squabbles intervened with service delivery and said that he would take this matter up with the national leadership of the ANC.

Ms A Mchunu (IFP, KwaZulu Natal) agreed that service delivery should not be compromised by politics and that these issues had to be addressed as soon as possible.

Mr Z Kolweni (ANC, North-West Province) said that he agreed with the Chairperson that intervention was necessary.

Northern Cape Department of Housing and Local Government
Ms L Brand, Senior Manager, Development and Planning, Department of Housing and Local Government, Northern Cape, said that both the Provincial Treasury (PT) and the Department of Housing and Local Government (DHLG) had visited the Karoo Hoogland Local Municipality and it was determined that a lot of support was needed. The Department had deployed staff to assist Karoo Hoogland with their IDPs for one week per month, and the PT had provided assistance to compile a credible budget. The DBSA had also given two computers as well as a financial expert to assist the municipality. A meeting had been scheduled for mid November between DHLG, PT and the Local and District Municipality to resolve the issues that had been raised.

In Nama Khoi, the DHLG and PT had reviewed the disjuncture between salary bills and service delivery where aspects such as the 35 % benchmark, the credibility of the budget and the deviation from key service delivery directives and objectives had been questioned. It had been concluded that Nama Khoi had to increase its revenue base to balance the relationship between salaries and service delivery directives. Strong emphasis had been placed on Nama Khoi to implement job creation programmes that could lead to improved livelihoods of its inhabitants and enable them to pay their municipal bills.

The Department of Water Affairs and Forestry (DWAF) had conducted a feasibility study on drinking water quality in the Kamiesberg Local Municipality, but the Report had still to be tabled. The IDP team from the DHLG intended to visit Kamiesberg by mid November, as the MEC for Housing and Local Government intended to establish a team to investigate institutional arrangements there. The DBSA had deployed several people to Kamiesberg, but it had been communicated that these deployees functioned in isolation as the Municipality viewed them with suspicion.

In relation to Khara Hais Local Municipality, the DHLG had convened a meeting at senior level to discuss the credibility and sustainability of the budget, organisational structure and service delivery.

Ms Brand said that the Kgatelopele Local Municipality had been waiting for approval of its Social Labour Plans (SLPs) from the Department of Minerals and Energy (DME) and that the DHLG would conduct follow up meetings with the DME on the SLPs.

She added that a meeting had been held with the relevant water association in Siyancuma Local Municipality and it was agreed that the tariff raised would be phased in over five years. Much support had been provided by both the DHLG and the PT to assist Siyancuma with the implementation and enforcement of policies.

The DHLG visited Mier Local Municipality to assist in the improvement of the IDP and it had been resolved that the PT would also visit Mier by mid November to look at the credibility of the budget and to optimise assets and the Municipality’s potential. The DWAF also intended to meet with the MM of Mier to discuss the water issues.

The DHLG had raised concern over the credibility of the budget and the R57 million that the Frances Baard Municipality had in a reserve fund and had issued an investigation, which would be concluded as soon as possible.

Ms Brand said that in the Magareng Local Municipality there had been no co-operation from the Municipality with regards to intergovernmental relations, and that despite the several resources that had been allocated to this Municipality, its performance had been questionable. It had been resolved that a meeting would be held with its CFO to discuss these matters.

The delegation of the National Treasury (NT) had visited the Sol Plaatje Local Municipality to engage on the audit outcomes of the Auditor General (AG). It was resolved that a task team would convene a meeting to discuss the plans, credibility of the budget, the over payment of councillors and the loan of R35 million.

The DHLG had resolved to have regular follow up meetings on the progress of appointments of MMs and CFOs at all municipalities where vacancies had been recorded, and to explore possibilities to bring another institution on board to assess the organisational structures of the twelve municipalities.

Discussion
Mr E Sogoni (ANC, Gauteng) asked how Siyancuma residents would cope with a hike in water tariffs.

Ms T Masike, Manager, Municipal Finance, Northern Cape Provincial Treasury, replied that the Siyancuma Municipality had indicated that it could not afford the tariff increases and that this would be phased in over a five-year period.

Gauteng Department of Local Government
Mr Anthony Moonsamy, Director, Municipal Support, Gauteng DLG, said that the Sedibeng District Municipality, Midvaal Municipality and the Lesedi Municipality had received unqualified opinions from the AG. The Department  had been very proud of this achievement and would provide additional support, as and when these Municipalities needed it.

He added that there had been major problems and instability in the Umfeleni Municipality, but that it had calmed down since a new Mayor and acting CFO took over the reins. The Department had upscaled its support to the Municipality, as critical posts had not yet been filled. Support had also been provided to upscale skills development in respect of finance and engineering. The Human Resources Department of the Municipality had also been assisted in addressing pertinent issues.

He said that assistance had also been provided to Mogale City Municipality to improve the quality of its financial statements as well as assisting it to submit these on time as it had consistently failed to submit financial statements on time in the past.

He added that the Gauteng treasury had been monitoring the cash flow of the Municipality, as it had to dig into the overdraft facility to fund certain services. The problem had been that the Municipality struggled to collect revenue owed to it, hence the deployment of suitably qualified accountants to assist the Municipality in finance management.

He noted that support to the Nokeng Tsa Taemane Municipality would be upscaled to address an adverse disclaimer from the AG that would receive attention over the next six months, and that this Municipality had been considered to be not viable due to the imminent cash flow problems. This problem had been highlighted recently, as the post of the CFO had to be funded by the PT. The situation had been exacerbated by the ongoing rates boycott by ratepayers, but would receive attention from suitably qualified accountants who had been deployed to the Municipality.

The Kungwini Municipality had been considered to be relatively stable, although challenges such as attracting the right skills to the finance department, and proper stock management were still of concern.

Discussion
Mr M Robertsen (ANC, Eastern Cape) noted that municipalities displayed a lot of arrogance and that they were a law unto themselves. He said that the Committee should crack the whip on problematic municipalities to set an example.

The Chairperson noted that the problems had to be isolated so that the relevant stakeholders could adequately address them.

Free State Provincial Treasury
Ms M H Leburu, Acting Senior Manager, Free State Provincial Treasury, said that Provincial Treasury (PT) would deploy two officials for hands-on support for a period of two to three months to assist the Matjhabeng Municipality with key challenges that related to financial compliance, revenue collection and the implementation of an indigent policy.

Ms Leburu noted that there had been serious challenges in the Xhariep Municipality due to the suspension of the Mayor, maladministration and the vacancy of critical posts such as that of the MM. The municipality had been placed under Section 139 proceedings.

In Mohokare, a recovery plan had been developed to focus on the revision of the electricity contract with Centlec, an investigation into the billing system, the opening of border gates for commercial practices and the revision of the tariff structures.

In Mafube Municipality the discrepancies in the Section 71 Report and the budget had been resolved through an improvement in the quality of the Section 71 Report.

The PT in partnership with DPLG intended to address pertinent challenges in the Thabo Mofutsanyana, Moqhaka, Mathabeng, Ngwathe, Naledi and the Phumelela Municipality in due course.

Closing Comments

The Chairperson noted that in order for Municipalities to address the issue of adequate service delivery they had to focus on the sustainability and credibility of their budget, and find a balance between salary bills and service delivery directives as too many Municipalities spent more on their operational budget then on service delivery as directed.

He added that Municipalities that had investments or reserves should also be closely monitored as they relied on government grants to fund service delivery directives, whilst having own funds in the form of reserves and investments. The issue of revenue collection as well as interaction was critical as many Municipalities failed to adhere to Section 64(3) of the Public Finance Management Act, which emphasised the importance of notifying NT on arrears.

He said that there had also been a need to raise the concern that the Committee had with Municipalities over the performance of Conditional Grants, such as the Municipal Infrastructure Grant (MIG) that had been used to pay for other services instead of its intended purpose, as well as the alignment of IDPs. He pleaded with all Provincial and Local Government Departments to liaise and engage with the National Department of Provincial and Local Government on the need for a proper framework on IDPs.

He asked whether the provincial governments had the required capacity to adequately address all the issues that had been raised by SALGA and the provinces themselves.

Mr Mokgabodi said that NT had instituted several capacity building programmes but that these had to be aligned with those of private consultants to establish an integrated policy and approach to the challenges of capacity in municipalities

Mr Robertsen said that municipalities should perhaps be writing off pre-1994 debt. He noted that the  lack of communication between government departments and municipalities should be addressed, to better facilitate communication between the various spheres of government.

Mr Strauss noted that a task team had been established that would assist municipalities in debt recovery, and that conditional grants had not been spent on predetermined directives. He said that several municipalities did not keep accurate data and that this would be addressed through proper checks and balances. There was also a need for the revision of outstanding debt to determine whether it was recoverable or not.

Ms Xasa noted that many municipalities did not have a revenue base and that the credibility of many of Eastern Cape municipalities' budgets spoke to this.

Mr Ramphele noted that municipalities should not justify incompetence and financial mismanagement by blaming the lack of a revenue base and that engagement between the AG, Accountant General and DPLG had concluded that municipalities would be assisted in their audits.

Mr Mapela said that it was also time for National Treasury to stop acting in isolation and engage more with other spheres of government.

The meeting was adjourned.

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