ATC100710: Report on Oversight Visit to Eastern Cape Municipalities from 27-29 July 2010

NCOP Appropriations

Report of the Select Committee on Appropriations on the oversight visit to Eastern Cape Municipalities from 27-29 July 2010, 14 September 2010.

 

1. Introduction

 

The Select Committee on Appropriations (the Committee) was established in terms of section 4(3) of the Money Bills Amendment Procedure and Related Matters Act, No 9 of 2009. In terms of section 4(4) of this Act, the Committee has the powers and functions conferred to it by the Constitution, legislation, the standing rules or a resolution of a House, including considering and reporting on:

(a)     spending issues;

(b)     amendments to the Division of Revenue Bill, the Appropriation Bill, Supplementary Appropriations Bill and Adjustment Appropriations Bill;

(c)     recommendations of the Financial and Fiscal Commission, including those referred to in the Intergovernmental Fiscal Relations Act, No. 97 of 1997;

(d)     reports on actual expenditure published by the National Treasury; and

(e)     Any other related matter set out in this Act.

 

Furthermore, the mandate of the Select Committee on Appropriations (henceforth referred to as the Committee) encompasses the Committee’s functions to legislate, conduct oversight of the Executive; promote public participation, facilitate international agreements and review matters of public interest in relation to National Treasury and its entities, and the South African Reserve Bank.

 

1.1 Delegation

The oversight visit took place from 27-29 July 2010. Meetings were held at Queenstown (Queens Casino Hotel); Mthatha (Savoy Hotel); and East London (Premier Hotel Regent) in the Eastern Cape.

 

The delegation consisted of: 

Hon. Mr TA Chaane (ANC) (Chairperson of the Committee;

Hon. Mr CJ de Beer (ANC);

Hon. Ms TM Memela (ANC);

Hon. Mr       SD Montsitsi (ANC);

Hon. Mr       BL Mashile (ANC);

Hon. Mr       WM Makhubela (COPE); and

Hon. Mr       A Lees (DA);

 

Eastern Cape’s Provincial Legislature Members

Hon. Mr S. Gqobana (MEC Local Government and Traditional Affairs);

Hon. Mr M. Matomela (Chairperson PC on Finance);

Hon. Ms D. Komose (Chairperson PC on Public Works);

Hon. Ms M. Qhoboshiyane (Chairperson PC on Local Government and Traditional Affairs); and

Hon. Ms N Ponco (PC on Finance)

 

The parliamentary officials that accompanied the delegation are: Mr. L Nodada (Committee Secretary), Mr. M Tau (Researcher), and Mr. S Goba (Committee Assistant).

 

 

1.2 Terms of reference 

The visit formed part of the Committee’s ongoing interaction with municipalities to monitor collaboration and coordination pertaining to the provision of municipal services and support given to municipalities by provincial and national departments. The municipalities in Eastern Cape that were identified for the visit are: Joe Gqabi District Municipality, Maletswai Local Municipality; Inkwanca Local Municipality; Nkonkobe Local Municipality; Mbhashe Local Municipality; Ingquza Hill Local Municipality; Engcobo Local Municipality; Emalahleni Local Municipality; Makana Local Municipality; Nxuba Local Municipality, Chris Hani District Municipality; and Ngqushwa Local Municipality.  

 

The stakeholders (including national and provincial departments) that accompanied the Committee on this visit are: National Department of Cooperative Governance, Eastern Cape’s Provincial Treasury, South African Local Government Association, Department of Energy, Financial and Fiscal Commission, Provincial Department of Public Works, Provincial Department of Cooperative Governance and Traditional Affairs, National Department of Water and Environmental Affairs, National Treasury, Auditor General, Development Bank of Southern Africa, and ESKOM.

 

1.3 Purpose of the Visit

The purpose of the oversight visit was to engage with the above-mentioned municipalities along with national and provincial departments on the following areas:

• Development and implementation of municipal budgets;
• Municipalities’ compliance with the Municipal Finance Management Act, Number 56 of 2003;
• The spending and performance of the municipalities with regards to conditional grants;
• The municipalities’ relations and collaboration with various national and provincial departments and entities;
• Capacity constraints of the municipalities (if any);
• The extent to which municipal services are provided; and
• The alignment of municipalities’ Integrated Development Programmes with the Provincial Growth and Development Strategy.

 

2. Auditor General’s overall presentation on identified Municipalities

 

The Office of the Auditor General (AG) briefed the Committee on the 2009/10 audit outcomes for the financial year2009/10 of the selected municipalities inEastern Cape. The AG reported that the audit opinions of five municipalities received disclaimers. These municipalities included: Chris Hani DistrictMunicipality; Maletswai Local Municipality; Mbhashe Local Municipality; Engcobo Local Municipality; Nkonkobe Local Municipality; Ngqushwa LocalMunicipality. The AG further reported that five municipalities received an adverse audit opinions. These municipalities included: Emalahleni LocalMunicipality; Joe Gqabi District Municipality; Ingquza Local Municipality; and Makana Local Municipality. Lastly, AG reported that two municipalities received qualified audit opinions reports. These are Inkwanca Local Municipality and Nxuba Local Municipality.

 

The AG informed the Committees that key issues, on leadership, that need attention and contributed to these audit opinion are: instability and lack of commitment in administrative leadership in municipalities; the correct style of leadership (attitude towards the control environment) is not displayed; and, in most municipalities, action plans were neither complied not followed through and monitored in order to address financial challenges. With regard to financial management, AG reported that there was lack of knowledge and understanding of General Recognized Accounting Practices (GRAP); monthly management information was neither credible nor prepared; accounting functions such as the reconciliation of key control accounts were not performed. With regard to governance, the AG reported that the Audit and Internal Audit Committees were not effective; risk assessment and fraud prevention plans were not in place nor adhered to; and there was insufficient monthly oversight by the councils.

 

The AG reported that their Eastern Cape’s Business Unit has embarked on a door to door visit of all municipalities to roll-out guidance on the responsibility of the mayors with regard to oversight of the day-to-day administration of the municipality. The AG said that they are going to have monthly interactions with mayor and municipal management. This will enhance communication of key controls and the monitoring thereof on a quarterly basis by means of walk-throughs. Moreover, follow up visits to determine the progress made and current status where cost effectiveness is not conducive for monthly visits, the initiative will be monitored telephonically or via e-mail. In this case, two monthly visits will be undertaken. Furthermore, AG said it intends to have interactions with Provincial Executive, Local Government and Provincial Treasury. This interaction will result in setting up a sustainable forum where actions by role-players can be shared and synchronized to ensure maximum effectiveness.

 

3. Municipal Performances and Analysis

3.1         Maletswai Local Municipality  

The MLM reported that for the financial year 2008/09 it received a disclaimer audit opinion. MLM reported that reasons for receiving a disclaimer include non-compliance with GRAP; information not supplied to auditors on time; valuation roll not accurate and complete.

 

The MLM reported 34 per cent of its operating revenue is for salaries.  With regard to the performance of conditional grants, the MLM reported that it is doing well in terms of complying with the grant framework as stipulated in the Division of Revenue Act (DORA). The Committee was informed that Development Bank of Southern Africa (DBSA) has seconded an official who is assisting the MLM to provide services at a faster rate.

 

With respect to compliance with the Municipal Finance Management Act, the MLM reported that the supply chain management policy was developed and adopted in 2006 and is reviewed annually together with all other budget-related policies. The MLM informed the Committee that its bid committees namely: bid evaluation and bid adjudication are functional and members of these committees were trained except for a newly appointed Manager for Community Services. The MLM reported that a Budget and Treasury Office (BTO) is not established as yet, however the Financial Management Section currently performs the functions of the Budget and Treasury Office.

 

The MLM added that internal audit function was outsourced to Price Waterhouse and Coopers (PWC) as from 2008/09 financial year. Their contract expires in 2011. The municipality claimed that an intern is being trained to take over from PWC as soon as the contract lapses between MLM and PWC expires.

 

The MLM informed the Committee that in the 2008/09 financial year, the annual financial statements were submitted on time. The MLM further reported that monthly budget statements (section 71 reports of the Municipal Finance Management Act (MFMA) were not submitted on prescribed time-frame to the National Treasury due to the introduction of a new financial management system introduced during the 2008/09 financial year. However, according to the MLM, this matter was attended to and resolved.

 

Findings

After deliberations with the Maletswai Local Municipality, the Committee observed the following:

• The Maletswai Local Municipality does not have a Budget and Treasury Office and therefore it is in violating of Section 10 of the Municipal Management Act No. 56 of 2003.
• The MLM is not GRAP compliant hence they received a disclaimer audit opinion of the Auditor General.
• The figures presented by the MLM were not reliable since they did not tally with those in possession of National Treasury.
• There are regular sewer spillages into the Orange River due to ageing infrastructure.
• Even though the MLM claim to have eradicated the bucket system in 2007, people of Jamestown are still using the bucket system as a sanitary relief.
• There is a huge housing backlog and basic services that should be provided to the indigents. 

 

The Committee recommends the following:   

·         The MLM should establish the Budget and Treasury Office as a matter of

Urgency.  

• The MLM should ensure that it complies with General Recognized Accounting Practices in the 2011/2012 financial year.
• The figures submitted by the MLM to the Provincial and National Treasury should at all times, be verified and accurate..
• The Department of Water and Environmental Affairs should monitor and put stricter measures that seek to avoid water contamination.
• The MLM should ensure that the bucket system is eradicated and a better sanitation system should be put in place.
• As a matter of urgency, the MLM should strive to address the housing backlog and provide basic service to the poor.

 

3.2 The Inkwanca Local Municipality

The Inkwanca Local Municipality (ILM) reported that, for the 2009/10 financial year its total capital budget was R6 million and the operating budget was R27 million. Personnel costs for the same financial year were R13.2 million. The ILM reported that it spent all funds allocated through grants except for a variance of R675 215 for the financial management grant. However, the ILM said that the funds are committed but are yet to be claimed. The ILM presented that a Budget and Treasury Office (BTO) exists and is headed by the Chief Financial Office who is supported by three accountants who are responsible for revenue, expenditure, budget and reporting. The ILM reported that some of the section 71 reports of the MFMA were submitted on time, however others were submitted after the due date.  The ILM reported that it is 100 per cent capital grant dependant and 73 per cent operational grant dependant. The ILM further reported that 49 per cent of the operational budget went to salaries.

 

The ILM added that it complies with MFMA, and as a result, it has established a functioning Internal Audit and Audit Committee. The ILM said the Audit Committee, shared services, was established 2008/09 financial year 2008/09. The shared services are utilised with other two local municipalities, Inxuba Yethemba and Tsolwana, with clear terms of reference. The ILM reported that the 2008/09 annual report was submitted on time.

 

With respect to service delivery, the ILM reported that the bucket sanitary system was eradicated and all households in the municipality have water borne toilets. However, the households in farms have not benefited thus far.

 

With respect to challenges, the ILM reported that it is struggling to employ a qualified electrical engineer. To rectify the situation, the municipality said that it has offered a student, who studies at Vaal University of Technology, a bursary. That student was said to be at third-year of study. The ILM also said that the BTO officials are inexperienced because they have less than three years experience.

 

Findings

• The ILM is unable to produce financial statements and, as a result, it relies on consultants.
• The ILM compensation of employee’s budget is 49 percent of the total operating budget. This amount is high.

 

The Committee recommends that:

• The IML should utilize the FMG to train the current CFO and all officials in the BTO as they cannot produce financial statements. Furthermore, the ILM should refrain from utilizing consultants because they add no value as the municipality continues to receive negative audit opinion.
• The ILM should comply with the acceptable salary percentage guidelines as stipulated in MFMA.

 

 

3.3 The Nkonkobe Local Municipality

The Nkonkobe Local Municipality (NLM) reported that it received a disclaimer for three consecutive years. As a result of this, the NLM negotiated with with the University of Fort Hare to have a service level agreement, the negotiations are at an advance stage. The NLM further reported that corruption and fraud in the municipality continue to be big problem. The Committee was informed that two previous Municipal Managers have been charged due to allegations of corruption and fraud. The NLM said it is still trying to recover funds lost due to mismanagement.

 

The NLM reported that all grant funds were spent on time. The NLM further reported that it had established a development agency, Nkonkobe Economic Development Agency (NEDA), in 2002 which is responsible for the implementation of municipal projects. This agency is 100 percent financed by Industrial Development Corporation. However, this agency has never been audited because its Board of Directors refuses to be accountable to the NLM, therefore they are considering closing it down. The NLM added that its Integrated Development Plan (IDP) is aligned with the Provincial Growth Development Strategy (PGDS) and it aims to address the six priorities of the PGDS which are poverty eradication; Agrarian transformation and food security; infrastructure; manufacturing diversification and tourism; human resource development; and public sector and institutional transformation.

 

With respect to the establishment of the Budget and Treasury Office, the NLM reported that the office exists but it is not fully capacitated. With respect to the reported the submission of Annual Financial Statements (AFS), the NLM reported that the AFS for 2008/09 financial year were submitted late due to unskilled personnel (Chief Financial Officer, in particular) and lack of understanding of the financial system.    

 

The NLM admitted that it did not submit the section 71 reports of the MFMA for 2009/10 financial year. Moreover, the NLM reported that Internal Audit and Audit Committee were established and are functional. The NLM acknowledged that it is struggling to provide services to the people. The NLM explained that there is a backlog in providing roads; construction of community halls, houses, storm water; electrifying its jurisdiction and collecting refuse. The NLM added that an amount of R12.2 million has been set aside for electrifying an area called Alice Golf Course. The NLM further reported that the appointed contractor will be introduced during the first week of August 2010.

 

The NLM further admitted that it did not spend 100 percent budget for indigent households. With respect to achievements, the NLM reported that it spent all funds that were transferred for the Municipal Infrastructural Grant; Municipal Finance Management Grants; and Municipal Systems Improvement Grants.

 

Furthermore, the NLM informed the Committee that it is experiencing some challenges. These are that the municipality has a low revenue base due to its rural nature; it is struggling to attract and retain skilled technical and financial personnel; the road Infrastructure construction and maintenance is a challenge due to the shortage of engineers; there is no full participation of sector departments in IDP processes; there are limited funds for implementing infrastructural projects; the municipality is not GRAP compliant and fails to submit Section 71 reports of the MFMA.

 

Findings

• Even though the NLM has an adopted Supply Chain Management Policy, it is not fully implemented due to staff shortage which results in poor functioning of the bid committee.
• The NLM is affected by poor financial management and violation of legislations, and as a result reports are not submitted on time.  

 

The Committee recommends that:

• The municipality should submit to Provincial Department of Cooperative Governance and Traditional Affairs a turn around strategy within three months after the adoption of this report by the House.
• The Provincial Government, working together with South African Local Government Association, should intervene by seconding highly skilled officials to this municipality.

 

 

3.4 The Mbhashe Local Municipality

The Mbhashe Local Municipality (MBLM) reported that it has collected 93 percent of the planned revenue collection. The MBLM further reported that it is 80 percent grant dependent; 30 percent of its operating budget was spent on salaries; 68 percent was spent on repairs and maintenance; the total capital grant in comparison to the total capital budget is 91 percent. MBLM reported that, through Integrated National Electrification Programme Grant (INEP), 38 villages (3512 household) are to be electrified and a sum of R10 million has been set aside. The MBLM said that electrification project is divided into phases, the first phase targets 700 households, of these 500 household  have been give access to electricity and the remaining 200 are to be given access to electricity by 07 August 2010. Futhermore , the MBLM said that the Municipal Infrastructure Grant funds have been spent but there is a variance of R104 054 872.47; the Municipal Systems Improvement Grant has a variance of R290 495.00; and the Financial Management Grant has a variance of R34 571 which is committed to travelling and accommodation.

 

With respect to backlogs, the MBLM reported that Vision 2012 of Electricity Universal Access and 2014 of Passable and Trafficable Road Network may not be achieved. The MBLM argued that the latter is mainly due to slow process in appointing a service provider to quantify access roads backlog. Furthermore, the MBLM reported that it has capacity constraints because it is unable to attract people with requisite skills. The MBLM further reported that competing with well-established municipalities for resources (namely: plant hire, service providers etc) is a huge challenge because funding is not enough. With regard to electricity, the MBLM said that it does not have a dedicated unit for electricity and electrification projects are outsourced and not monitored.

 

With respect to compliance with the MFMA, the MBLM reported that supply chain management policy is in place and is reviewed annually. The MBLM added that all three bid committee and the BTO are in place; and monthly reports and annual financial statements were submitted on time to the relevant offices. The MBLM further reported that audit and internal audit committees are in place.

 

With respect to intergovernmental relations, the MBLM reported that sector departments are involved in the IDP processes and they participate. However, the MBLM said that there is inconsistency in attendance during planning meetings; departments delegate junior officers who loose track of decisions taken and their implementation. Furthermore, the MBLM highlighted that, through its various departments, it liaises directly with the government agencies such as Development Bank of Southern Africa (DBSA), Eastern Cape Development Cooperation (ECDC), National Development Agency (NDA), Small Enterprise Development Agency (SEDA), and ESKOM.

 

Findings

• The Committee observed that government departments (Public Works;

 Department of Justice and Constitutional Development; and Department of  

 Basic Education)  owe the MBLM payments for rates.   

 

• The Mbhashe Local Municipality received a disclaimer opinion due to the fact

             that financial records were not in place.  

 

 

 

The Committee recommends that:

• The Departments of Public Works, Justice and Constitutional Development, and Basic Education and other government departments should make every effort to ensure that they pay all monies due to all municipalities, starting with the Mbhashe Local municipality within two months after the adoption of this report by the house.  

 

• The MLM should develop and implement a plan to improve its audit outcomes and comply with the MFMA. A turn around strategy should be compiled and submitted in parliament within two months after the adoption of this report by the  house.

 

3.5 The Joe Gqabi District Municipality

The Joe Gqabi District Municipality (JGDM) reported that all grants funds were spent and there were no deviations to be reported. With respect to budget performance, the JGDM reported that its total operating budget of R 322 million was under-spent by 17.46 percent.  The JGDM added that with respect to planned revenue collection it underperformed because it collected 24 percent less than its budgeted revenue collection. The municipality further reported that it is 86 percent capital grant dependent; it is 87 percent operational grant dependent; and 27 percent of the operational budget was used to pay for salaries. The JGDM further reported that 7.7 per cent was spent on repairs and maintenance.

 

With respect to compliance with the MFMA, the JGDM reported that its supply chain management policy has been revised and was still to be approved by the Council. The JGDM further reported that the three bid committees (Bid Specification, Bid Evaluation, and Bid Adjudication), as required by the MFMA and stipulated in the Supply Chain Regulations, are properly established. The JGDM explained that members of these three bid committees were appointed by the municipal manager. The JGDM reported that the BTO was established in May 2010 and it  by the Chief Financial Officer and has three sections namely: Financial Accounting, Income and Expenditure, and System Administration. The annual financial statements of the JGDM were submitted to the Auditor-General.  

 

With respect to service delivery and capacity constraints, the JGDM reported that the costs of eradicating water and sanitation backlogs are R445 million and R247 million, respectively. The JGDM added that, in light of limited and insufficient funds to eradicate backlogs, the targets are always shifted to later years. The JGDM further reported that roads are in poor conditions and they require huge maintenance costs. The JGDM reported that the commercial farming community as well as the urban areas, have access to access to electricity, however rural arrears have limited access to electricity. The JGDM reported that challenges persist in as far as collection and disposal of waste is concerned. The JGDM reported that it has managed to maintain good spending patterns on the Municipal Infrastructure Grant (MIG). The JGDM added that MIG grant has helped it to address backlogs on water and sanitation over previous 6 years.  

 

With respect to audit issues, the JGDM reported that the internal audit function was outsourced and the procurement procedures were followed. The JGDM added that the audit and oversight committees were established and are operational The JGDM assured the committee that an Audit Action Plan exists and was approved by the Council in January 2010 in response to the previous audit report. The JGDM added that weekly monitoring of the action plan was done by the internal audit with the intention to unblock delays, ensure focus on audit improvement and, monitor performance of staff and service providers.

 

The JGDM reported that intergovernmental relations framework was developed and adopted by the Council. Furthermore, the JGDM said that the Public Participation Strategy and Communication Strategy were both adopted in October 2008 and reviewed in 2009. These strategies encourage that community outreached programmes be held twice per financial year; and that the Integrated Development plan includes budget community outreach programmes. The JGDM assured the Committee that stakeholders fully participated in the IDP process and that its IDP is aligned with PGDP.

 

Findings

• Reports that are required in terms of the MFMA were submitted later than the prescribed time.

 

• Even though the internal audit functions of the municipality were performed by a service provider, the audit outcomes have not improved. 

 

• During the audit process senior managers do not make themselves available to provide information to Auditor-General staff as a result the JGDM has been receiving negative audit opinions for the past two years.  

 

• The JGDM performs functions that are meant for provincial sphere of governance, like procurement of mobile clinics. 

 

 The Committee recommends that:

• The JGDM should refrain from violating the MFMA and submit reports on time.  The JGDM should submit to the Provincial Department of Cooperative Governance a turn around strategy that seeks to improve its audit outcomes within three after the adoption of this report by the House.

 

• The JGDM should utilise the Municipal Systems Improvement Grant and

capacitate its own employees in the internal audit unit and refrain from out 

sourcing that function because doing so does not improve the audit outcomes.

 

• The Council should ensure managers are always available during the auditing process.

 

• The JGDM should only perform functions meant for the local sphere of government unless a service level agreement is in place with a provincial or national government.

 

3.6 The Ingquza Hill Local Municipality

The Ingquza Hill Local Municipality (IHLM) reported that it performed very well in terms of spending on the conditional grants. The IHLM submitted that all grants funds (Financial Management Grant, Municipal Systems Improvement Grant, and Municipal Infrastructure Grant) were spent in full. However, the IHLM added that the Tshoya Electrification Programme Phase 1 is completed but Phase 2 of this programme is not complete. The IHLM reported that FMG grant funds have been utilised to employ four interns; train supply chain management employees; and convent to GRAP reporting system.

 

With respect to intergovernmental relations, the IHLM reported that good relations are in place. The IHLM added that DBSA has supported it financially and by seconding personnel (Engineer and Planner); Department of Energy through Eskom is electrifying Tshonya (R20 million). The IHLM further reported that Department of Rural Development and Agriculture has implemented various projects; and that Provincial COGTA has assisted with General Valuation that amounted to R 700 000.00. The IHLM added that its IDP is aligned with the PDGP.

 

With respect to service delivery the IHLM’s focus is on refuse removal and roads. The IHLM informed the Committee that refuse removal, which is done daily, is focused on peri-urban areas and performance regarding this item is good. The IHLM further reported that the challenge is the non-availability of suitable or legal land-fill sites. The current land-fill sites are operating illegally and the IHLM is in the process of identifying suitable land for land-fill sites. The other constraint reported by the IHLM is that the refuse collection unit is driven by technical people who have no environmental management background. With respect to roads, the IHLM reported that the construction of 9 roads that has costed IHLM R22.5 million is completed and was financed through MIG funding. The Committee was told that the extent of backlogs is high that the impact made by the construction of these new roads is minimal. Most of the roads are not maintained due to lack of funding.

 

With regard to compliance with the IHLM reported that the supply chain management policy was developed and adopted by the Council in July 2007. The Council monitors the policy and exercises their oversight role through monthly, quarterly, half yearly and annual reports. The IHLM added that the bid committee and BTO were established in terms of the MFMA. The latter is headed by the CFO. The IHLM reported that the annual financial statement and Section 71 reports of the MFMA had been submitted to the relevant offices. The IHLM added that the Audit Committee (AC) has been established and is fully functional.  The IHLM submitted that the Internal Audit function is shared the with O.R. Tambo District Municipality.

 

The IHLM reported that 72 percent of its operational expenditure budget was used to pay for salaries. 2 percent was used to pay for repairs and maintenance and 26 percent was spent on general expenditure. The IHLM concluded that it needs financial support because its revenue base is low. The IHLM added that it has developed partnerships with international partners and it was assisted by COGTA and the O.R. Tambo District Municipality. The municipality further reported that much focus would be given to improve IDP participation and to contribute to Operation Clean Audit Campaign of COGTA.

 

Findings

• The IHLM’s budget for the compensation of employees was 42 percent which was high.    
• The IHLM is not GRAP compliant.

 

The Committee recommends that:

• The IHLM should prioritize its operational capital budget because the poor are being compromised at the expense of compensation of employees.
• The DBSA, National Treasury, and Provincial Treasury should speed-up support to IHLM until such time the IHLM can be able to implement GRAP.

 

3.7 The Engcobo Local Municipality

The Engcobo Local Municipality (ELM) reported that its budget has grown by 5.7 percent. The ELM said that the salary budget has increased by 10 percent. The ELM reported that it is 98 percent capital grant dependent and 89 percent operational grant dependent. The ELM further reported that 42 percent of its operational budget was used to pay for salaries. On grant spending the ELM reported that all grants were 100 percent spent.

 

With respect to internal controls, the ELM reported that the internal control unit was newly developed and the staff members to be placed on the unit were being trained on internal control for the 2010/11 financial year. The ELM added that a fraud prevention policy is yet to be developed. As a result of an audit report which is a disclaimer of opinion, a service provider has been appointed to assist in it. The ELM further reported that a complete audit action plan has been adopted by the Council and is due to go to the audit committee; the audit committee was established in 2007; the audit unit had been established comprising of a 3 member committee shared with the Chris Hani District Municipality. The ELM added that the audit committee had once addressed the council.

 

The ELM reported that, with respect to revenue collection, a new valuation roll has been fully implemented. The ELM revealed government debtors with balances over 120 days as follows: Department of Agriculture for rates totaling R286 875.33 and for services is R47 674.79; Department of Public Works rates totaling R23 620.00 and for services R5 157.14.  The ELM reported that business and residents with balances over 120 days as follows: Residents are rates R1 086 536.00 and for services is R1 319 575.00; and business rates are R661 445.00 and for services is R810 582.50. The ELM said the total amount owed by debtors was R4.5 million. 

 

The ELM further reported that, for the purposes of giving support to indigents, indigent policy and indigent register, which is reviewed quarterly, are in place.  The ELM added that 107 beneficiaries are given to 6 kilolitres of free water and waterborne sanitation monthly. Furthermore, 596 beneficiaries are given access to free 50 kilowatts of electricity.   

 

With respect to compliance with the MFMA, the ELM reported that the supply chain policy exists; all bid committees with capacitated and competent members; the BTO has not be establish due to staff shortages and capacity constraints in the finance department; the 2008/09 AFS was submitted 30 days later than the legislated time; the ELM is not fully GRAP compliance; section 71 reports of the MFMA were submitted latter that expected. The ELM further reported that it has good relations with sector departments and its IDP is aligned with the PGDP.

 

With respect to service delivery and capacity constraints, the ELM reported that refuse is collected from all businesses, residents and hospitals. The ELM added that it is looking into upgrading its landfill site and has a permit. However, the ELM reported that there are some constraints in relation to refuse removal. These include promulgation of by-laws; ineffective law enforcement and negative attitude of the community towards change. The ELM further reported that 11 540 households have been given access to electricity and an additional 1647 households are awaiting Eskom final inspection before being given access to electricity. In addition, the ELM reported that 1977 households have infrastructure and are to be given access to electricity in the 2010/11 financial year. With respect to water services and sanitation, the ELM reported that it is a water services provider. With respect to sanitation, the ELM reported that 7 645 households have sanitation; 27 215 households have no sanitation; 19 625 households have no RDP standard water and 15 595 households have Reconstruction and Development Programme (RDP) standard water.

 

With respect to roads, the ELM reported that it has huge backlogs on access roads and road classification has not yet been completed. The ELM added that in the 2009/10 financial year, a total of R15 million was spent on access roads and, for 2010/11 financial year the ELM has budgeted R17.2 million for transport infrastructure. The ELM reported that there are four housing projects. The ELM reported that it does not have a distribution licence for rural electrification but it has qualified professional employees.

 

Findings

• The Committee observed that grant spending is reported to be 100 percent spent, and at the same time huge backlogs were reported. The Committee noted this discrepancy.
• The ELM is not GRAP compliance and that is a violation of the MFMA. Moreover, the BTO is not functional.

 

The Committee recommends that:

• The ELM should try to address the highlighted backlogs and further strengthen its Public Participation Strategy.
• The Committee recommends that ELM should ensure that it is GRAP compliant

as a matter of urgency and further capacitate the TBO.

• The Departments of Public Works and Agriculture, and other government departments should pay in full all monies that they owe to all municipalities for rates and services rendered. These departments should pay these accounts in full within two months after the adoption of this report by the House.

 

3.8 The Makana Local Municipality

The Makana Local Municipality (MALM) reported that a total of R50.1 million was received in the form of grants but only R44.8 million was spent. These funds were for FMG, MSIG, MIG and Neighbourhood Development Partnership Grant. With respect to participation of sector departments in IDP process, the MALM reported that an integrated IDP Process Plan and Budget Time Table were drawn annually, and thereafter, a comprehensive public participation programme take place under the leadership of the Executive Mayor. The MALM added that in strengthening intergovernmental collaboration, it has planned to develop an Intergovernmental Relations Framework and establish a Makana Intergovernmental Relations Forum in the 2010/11 financial year.

 

With respect to compliance with the MFMA, the MALM reported that the Council approved Supply Chain Management Policy and the three Bid Committees were established. Furthermore, the MALM reported that BTO exists; the 2009/10 AFS was in the process of being finalised; Internal Audits and Audit Committee exist but are share services with the Cacadu District Municipality (CDM). The MLM further reported that the alignment of the Budget to the PGDS is currently undertaken through the CDM.

 

With respect to service delivery and capacity constraints, the MALM reported that 80 of percent households have access to electricity; however, MALM, old infrastructure leading to electrical outages and losses. With regards to water, the MALM said that 98 percent of Makana households have access to basic water service and 85 percent of households are living in informal areas have access to basic water up to RDP standard with individual water connections. With regard to sanitation the MALM reported that 70 percent of households have access to basic sanitation toilets and the bucket system has been eradicated in all formal areas. The MALM added that there is a challenge with regard to the provision of sanitation in rural areas. The MALM reported that refuse removal services are provided to 15 178 properties out of 16 162 properties. The MALM added that approximately 1 999 households (mainly in informal areas) receive communal waste collection services. However, the MLM reported that it has old equipment/vehicles that are used to offer this service. With respect to roads, the MALM reported that 170 kilometres of roads are gravel and there is a programme of tarring major taxi routes which is underway (namely: Project Faki'Tar).

 

With regard to budget performance, the MALM reported that it has spent 100 percent of its total budget. The Committee was told that 38 percent of the total budget was spent on salaries and 6 percent was spent on repairs and maintenance. The MALM further reported that it is 82 percent dependent on capital grants and 20 percent dependent on operational grants. 

 

Findings

• The MALM does not have qualified personnel in the electricity department.
• Even thought the MALM claimed that it has eradicated the bucket system, this only refers to urban areas and rural areas are neglected.

 

The Committee recommends that:

• The MALM should ensure that professional electricians are employed as a

 matter of urgency.  

• The MALM should strive to provide services to people who are either

 in rural communities and farming lands..  

 

3.9 The Emalahleni Local Municipality

The Emalahleni Local Municipality (EMLM) reported that it has spent 96 percent of its budget. The EMLM further reported that its funding of capital is mainly through grants.  With respect to revenue collection, the EMLM, said it is collecting less than 30 percent of its own revenue. The EMLM further reported that 27.5 percent of it operating budget was spent on repairs and maintenance.

 

With respect to the MFMA compliance, the EMLM reported that the supply chain management policy was implemented in 2007 and is reviewed every year and approved by the Council. The EMLM added that all three bid committees are established. Furthermore, the Committee was informed that the BTO was established in 2009 and is supervised by the CFO. The EMLM added that the AFS was submitted on time. However, the EMLM informed the Committee that there are two outstanding annual reports to be submitted to the National Treasury. The EMLM further reported that an Internal Audit (IA) exists; Audit Committee services are shared services with the Lukhanji and Sakhisizwe Municipalities.  The EMLM said that the annual report was tabled before the Council and adopted. Furthermore, the ELM reported that all grant funds were spent accordingly.

 

With respect to service delivery and capacity, the EMLM reported that the plan to address electrification backlog and maintenance of infrastructure in rural areas is in good progress (phase 8). However, the EMLM, has limited resources to accelerate the progress of this project. The EMLM added that a bilateral meeting with all stakeholders (EMLM, the Department of Mineral and Energy, Eskom and communities) involved was convened to address the service delivery backlogs; and to further strengthen communication between different role players. With respect to provision of water and sanitation, the EMLM reported that the water services function was transferred to itself in August 2009 with limited resources. The EMLM added that it is suppose to provide water and sanitation services to 32 314 households but only 29 352 (81 percent) households have access to water; and only 13 108 (41 percent) of these households benefit from sanitation services.   

 

The EMLM reported that it has experienced some capacity constraints and these include: old infrastructure in Dordrecht and Indwe Water treatment works; shortage of staff like water treatment plant operators and plumbers and; drying up of Dordrecht Anderson dam due to draught. However, the EMLM assured the Committee that a number of interventions have been put in place, namely: the Chris Hani District Municipality (CHDM) appointed an official responsible for water services; water trucks were purchased by the CHDM; old infrastructure has been refurbished; a tender has been advertised for a service provider to drill new bore holes; the organogram will be populated; and a three-year plan to address all water and sanitation backlogs has been drafted.

 

With respect to roads, the EMLM reported that the classification of roads is a challenge because there are no clear lines of responsibilities between district and municipal roads. The EMLM added that the majority of municipal roads are in a poor condition since 2007 disaster. The EMLM claimed that, due to budget constraints and shortage of big machinery, it is unable to maintain all roads. The EMLM added that the only source of funding for capital projects is MIG and it is not enough to address road infrastructure backlog. Furthermore, the EMLM reported that refuse removal is only done in urban areas due to shortage of staff, vehicles, and as a result, rural communities are using illegal ways of disposing refuse.

 

 Finding

• The EMLM provides refuse collection in urban areas only and this force rural community to use illegal ways of disposing. This may expose people to health risk factors.

 

The Committee recommends that:

• The EMLM should refrain from providing services to selected areas under its jurisdiction. Services should be provided to all people regardless of where they reside including those living in rural areas. 

 

 

 

3.10 The Nxuba Local Municipality

The Nxuba Local Municipality (NXLM) reported to the Committee that it has appointed technical staff to increase its capacity and moreover, the DBSA has deployed a technical expertise to increase the capacity within the NXLM. Furthermore, the NXLM reported that 5 finance interns have been appointed to capacitate the BTO. With respect to intergovernmental relations, the NXLM reported that it has good relations with all sector departments and parastatals. However, the NXLM reported that participation by sector departments in the IDP is not as expected but inputs of those that participate are captured. With respect to the alignment of the IDP with the PGDP, the NXLM informed the Committee that the IDP is aligned with the PGDP. 

 

With respect to service delivery and capacity constraints, the NXLM reported that 90 percent of Nxuba households have access to electricity.  With respect to the provision of water, the NXLM said that its bulk water provision is problematic with consequential differing level of service in different communities. The NXLM added that existing dams are inadequate and there is proposal for the construction of the new dam, the Department of Water Affairs committed itself to construct a dam.  With regard to the provision of sanitation, the NXLM reported that bucket eradication projects were implemented until 2008 but could not be completed when it was realised that the capacity of the sewerage treatment works will not be able to handle the increased work load. The NXLM added that, due to this capacity constraint 20 percent of residents are still using the bucket system. However, environmental assessment studies are being conducted. 

 

Furthermore, the NXLM reported that it collects refuse from all households, hospitals, schools and businesses except the farm areas. The NXLM added that its old refuse vehicles are characterized by constant breakdowns and are un-roadworthy.  With respect to backlogs, the NXLM said that it has a total backlog of approximately 150 kilometers of road network; and 3000 housing backlog. 

 

The Committee was told that, in compliance with the MFMA, all three bid committees are functional but there are capacity constraints with respect to the evaluation committee; the BTO is functional; AFS was submitted to the Auditor-General on time; section 71 reports of the MFMA were submitted on time; Internal Audit unit are shared with the Amathole District Municipality but the arrangement is dysfunctional; the audit committee has been established and is operational with four members, however is not efficient due to the non existence of the Internal Audit; the NXLM is in the process of converting the AFS from Institute of Municipal Finance Officers (IMFO) to GRAP in order to comply with the requirements of Section 122 (3) of the MFMA;  

 

With respect to capital grant dependency, the NXLM reported that 18 percent of the total budget is for capital and is solely funded through MIG.  The NXLM further reported that 52 percent of operating expenditure is funded from grants and only 48 percent from own revenue and this is due to low revenue collection.  With regard to revenue collection rates and debtors, the NXLM reported that 70 percent of the rates funds has been collected which is not that much as most property owners in the valuation roll are farmers of which have rebates. The NXLM further reported that salaries amount to 48 percent of the operating budget. This percentage is high.  

 

Finding

• The Committee find that most farmers do not pay property rates.

 

The Committee recommends that:

• The NXLM should ensure that it collects revenue for property rates from all 

those that are suppose to. Legal action should be undertaken where there is resistance.  

 

3.11 The Chris Hani District Municipality

The Chris Hani District Municipality (CHDM) reported that it received grant funds for six grants: MIG, Regional Bulk Infrastructure Grant, Water Services Operating Subsidy Grant, Rural Transport Services Infrastructure Grant, MSIG, and FMG. With respect to intergovernmental relation, the CHDM reported that participation in IDP is improving but commitments made are seldomly implemented at the required time. The CHDM further reported that the IDP is always aligned with the PGDP.

 

With respect to the MFMA compliance, the CHDM reported that supply chain management policy is in place; the BTO exists and it consists of five sections (Revenue / Income, Expenditure, Financial Reporting and Budget, System administration, and Supply Chain Management). The CHDM reported that AFS was submitted to AG on time, however the section 71 of the MFMA were not submitted on time. The CHDM reported that an Internal Audit and Audit Committee are established and functional and that the former has four people. The CHDM added that the Audit Committee is shared with nine municipalities. The CHDM reported that it has been a challenge to  complete annual reports on time  due to audit reports not being completed on time. With regard to the Internal Audit unit, the CHDM reported that it is established and functional. However, the CHDM added that certain tasks of internal audit unit are outsourced it shares its resource with local municipalities.

 

On service delivery, the CHDM reported that there are water backlogs in different areas that are mostly rural. The CHDM further reported that an estimates amount of R4.2 billion is needed to in order to address water backlog. With regard to sanitation, the CHDM added that an estimate of R680 million is needed in order to address sanitation backlog. The CHDM commented that, with the only source of funding being MIG and RBIG, the 2014 target cannot be achieved.  The CHDM further reported that there is water crisis in Lukhanji Local Municipality, the latest report indicated that there is water until October 2010 if there is no inflow.

 

With respect to growth in Budget and contributing factors, the CHDM reported that its capital programs are 100 percent dependent on grant funding and operation programs are 90.3 percent dependent on grant. With respect to revenue collection, the CHDM reported that revenue collection on water and sanitation is happening at local municipalities. Furthermore, the CHDM reported that 42 percent of operating budget was spent on salaries and water services expenditure totalled R30.9 million.

 

Findings

• The CHDM has invested R150 million which should have been used to address backlogs.
• The CHDM is not GRAP compliant and as a result it has been receiving disclaimers for three consecutive years.

 

 

 

The Committee recommends that:

• The CHDM should redirect all invested funds towards addressing service delivery backlogs.  
• The Municipality, as a matter of urgency, should ensure that it is GRAP compliant. This is crucial for a district municipality because local municipalities stand to benefit through their best practices.

 

3.12 The Ngqushwa Local Municipality

The Ngqushwa Local Municipality (NGLM) reported that its budget has increased by 25 percent from the 2008/07 financial year to the 2009/10 financial year, because the increase in the equitable share and the increase in collection of property rates. The NGLM reported that the AFS and section 71 reports are submitted on time to the National Treasury. The NGLM further reported that it is 65 percent capital grant dependent; 3.4 percent operational grants dependent; the employee-related costs amount to 47 percent of the operational budget and, repairs and maintenance costs was 0.05 percent of the operational budget. The NGLM further reported that all bid committees exist.

 

The NGLM reported that intergovernmental relations meetings takes place regularly and there is participation by ESKOM. However, the NGLM complained that there is huge challenge of non-participation by sector departments in the IDP processes. The Committee was assured that the IDP is aligned with the Provincial Growth and Development Strategy but to a limited extent due to the fact that the NGLM does not provide water and sanitation.

 

With respect to service delivery, the NGLM reported that it is not a water service authority and therefore they are not involved in water and sanitation matters. This function is the responsibility of the Amathole District Municipality. With respect to electrification, the NGLM reported that it is in the process of registering indigent people on the database. The NGLM explained that electrifying the area within its jurisdiction is its function.

 

The NGLM reported that limited funds received through Municipal Infrastructure Grant are proportionally allocated on the roads rehabilitation programme (gravel roads) and the building of community halls. The NGLM further reported that, due to poor maintenance and the poor condition of the roads that fall under the Department of Roads and Public Works, NGLM is forced to work on district Roads. This, the NGLM said, resulting in the focus being shifted away from their real responsibility of access roads and minor roads.

 

Finding

• Evaluation of assets is the most contributing factor for the NGLM to not comply with GRAP. Inability to evaluate assets is the major cause for the NGLM to be not GRAP compliant.

 

The Committee recommends that:

• The NGLM should put more effort on asset evaluation; this after all will ensure that it is GRAP compliant.
• The Provincial Department of Roads and Public Works in the Eastern Cape should tar, repair and maintain roads in and surrounding the NgqushwaLocal Municipality and should report to the House every quarter on the progress made in the 2010/11 and 2011/12 financial years.

 

4. Comments by Stakeholders                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               

4.1 National and Provincial Treasury

The National Treasury told the Committee that municipalities are not showing any signs of improving and as a result, these municipalities keep on receiving adverse and/or disclaimer audit opinions. The Committee was further told that basic accounting skills are being offered to CFO but there is no change in the Auditor General’s (AG) report. The National Treasury questioned the credibility of the figures that were presented by municipalities. The reason given for this was that presented figures did not match the figures that were submitted by municipalities to the Provincial and National Treasuries.

 

On the other hand, the Provincial Treasury commented that the majority of the presentations reflect a lot of information that is not captured in the reports submitted to it by municipalities. Provincial Treasury added that training has been and is being provided to all municipalities. Furthermore, the Provincial Treasury informed the Committee that municipalities do not provide/keep documentation for perusal during the audit report process.

 

The Provincial and National Treasuries assured the Committee that municipalities will be provided with programmes that seek to empower them to comply with GRAP. The National Treasury informed the Committee that Provincial Treasury and AG are available to provide financial skills to municipalities but in most cases, municipalities are not requesting help and help can not be forced to them.

 

4.2 Eskom

Eskom reported that they participate in the IDPs of all municipalities because Eskom must provide municipal electrification needs. Eskom further reported that it is finding difficult to address electrification backlogs in the former Transkei area because there is no infrastructure. Eskom said that infrastructure must be built first. With respect to other parts of the Province, Eskom said that they are assisting. Eskom further raised its concerns regarding service providers who do not submit all relevant documentation as a result they are not paid on time.

 

4.3. Department of Water Affairs

The Provincial Department of Water Affairs reported that it is continuously inspecting rivers to avoid water contamination that may be caused by spillages due to old infrastructure. The Department explained that samples of water are taken to laboratories for testing. The Department said that this is done through the Blue Drop Assessments. The Department of Water Affairs further reported that regular bilateral meetings are held with municipalities.

 

4.4 National Department of Cooperative Governance and Provincial Department of Local Government and Traditional Affairs

The National Department of Cooperative Governance (DCoG) proposed a hands-on-approach to address the challenges that municipalities are faced with. The National Department reported that there is lack of fraud prevention and internal controls in municipalities.

 

The Provincial Department of Local Government and Traditional Affairs reported that it has subsidized municipality for audit fees and for compensation of employees’ fees, but the audit opinions are not improving. As a result of this, the Provincial LoGTA said, a financial recovery plan is being developed by it. The Department of LoGTA added that there is over reliance on consultants who add no value based in terms of the AG reports.  The Department of LoGTA further reported that forensic investigations are considered in all municipalities and these municipalities will be visited to discuss forensic fees. With respect to audit fees, Department of LoGTA explained that fees were paid on behalf of the municipalities that had challenges.

 

4.5 The Development Bank of Southern Africa

The Development Bank of South Africa (DBSA) reported that, through the Siyenza Manje programme, it has assisted municipalities by seconding staff (qualified officials) to municipalities. The DBSA reported that seconded staff are assisting municipalities to convert to GRAP. The DBSA assured the Committee and the municipalities that they intend to provide support to municipalities until such time there is improvement in all areas of corporate governance in municipalities.

  

4.6 Fiscal and Financial Commission

The Financial and Fiscal Commission (FFC) commented that it is reviewing the Local Government Equitable Share formula. The FFC advised municipalities to forward submissions to the South African Local Government Association. The FFC commented that the number of bailouts should be controlled because bailing out should be followed by the plan to address the challenges. With respect to municipalities who are investing their equitable share funds, the FFC commented that the interest portion was expected to be returned to government coffers but municipalities are now allowed to use it on operational issues. 

 

5. Further Findings

The Select Committee on Appropriations, after careful consideration of the service delivery and financial performance of the above-selected municipalities in the Eastern Cape, observed the following:

• Municipalities are owed monies for \property rates by government departments. The biggest monies are owed by Provincial Department of Public Works;

 

• The municipalities are neglecting their mandate and are performing the Provincial

mandate without service level agreements in place;

 

• The Audit Committee of all municipalities had not addressed the Councils;

 

• The majority of municipalities are not General Recognized Accounting Practices

(GRAP) compliant and record keeping is very poor. Non-compliance with GRAP is the main cause of the negative audit opinions that were received by municipalities. The evaluation of assets is the most contributing factor for municipalities not to comply with GRAP;

 

• Even though municipalities have established BTOs, they are not effective and/or

adding value due to the capacity constraints;

 

• Some municipalities are investing their equitable share. Whilst this money

accumulates interest, the poor are deprived of services that were promised by

the leadership of the country;

 

• When it comes to providing sanitation, the municipalities put more focus mainly

on towns and neglect rural areas. Municipalities provide services such as refuse

collection and eradication of bucket systems only in towns;

 

• The financial figures presented do not match those submitted to National and

Provincial Treasuries;

 

 

6. Further recommendations

The Select Committee on Appropriations, after careful consideration of the service delivery and financial performance of the above-selected municipalities in the Eastern Cape, recommends that the National Council of Provinces considers the following:

 

6.1        The National and Provincial departments, especially the National and Provincial

Departments of Public Works, that owe municipalities property rate fees should

ensure that they pay them accordingly; and report to the House that they have

paid all outstanding amounts and this report should be submitted to the House

within three months after the adoption of this report by the House.

 

6.2               The South African Local Government Association should advise municipalities

not to perform provincial functions because this compromises service delivery at

a local sphere of government;

 

6.3        The Councils should strengthen their oversight roles;

 

6.4        The National Treasury and the National Department of Cooperative Governance

and Traditional Affairs should develop programmes aimed at assisting municipalities (especially low-capacity municipalities) with the conversion from the Institute of Municipal Finance Officers to the Generally Recognized Accounting Principles reporting systems. This process should be fast-tracked so as to realize the 2014 Operation Clean Audit target;

 

6.5        The National Treasury and the Development Bank of Southern Africa through its Siyenza Manje Programme should monitor the establishment of the Budget and Treasury Offices, internal audits, and audit committees in all municipalities and further capacitate officials employed by these municipalities.  

 

6.6        The National Treasury and Provincial Treasury should monitor how municipalities

spend the accumulated interests from the municipal investments;

 

6.7               Municipalities should extend provision of services to every rural areas under their jurisdiction and not only concentrate in urban areas;

 

6.8               The South African Local Government Association should, at all time, sensitize

municipalities about the importance of observing legislations that govern Local Government; 

 

6.9        The National and Provincial Department of Cooperative Governance, Auditor

General, Provincial and National Treasury should contribute to the Municipal

Turnaround Strategy by developing tools that are going to assist municipalities to

comply with all provisions of the Municipal Finance Management Act;

 

6.9               The Department of Cooperative Governance and Provincial Department of Local Government and Traditional Affairs together with the Department of Rural Development and Land Reform should assist municipalities in servicing communities in rural areas especially because almost all municipalities are failing to service communities living in rural areas. These two Departments should report to the House every quarter on progress made in the 2010/11, 2011/12 and 2012/13 financial years;

 

6.10            The Select Committee on Appropriations, together with the Select Committee on Co-operative Governance and Traditional Affairs, should do a joint follow-up visit to the municipalities in the Province of North West to ascertain progress made by sector departments as per commitments they made during this oversight visit and that this follow-up visit be made three months after the adoption of this report; and

 

6.11            As per provision of Section 182 of the Constitution, the Public Protector should investigate misappropriation of funds by municipalities that were visited and report to Parliament within three months after the adoption of this report by the House.

 

 

Report to be considered.