ATC130301: Report of Select Committee on Appropriations on Oversight visit to Gauteng Municipalities from 21-24 August 2012
THE REPORT OF THE SELECT COMMITTEE ON APPROPRIATIONS ON THE OVERSIGHT
VISIT TO GAUTENG MUNICIPALITIES FROM 21-24 AUGUST 2012, DATE 27 NOVEMBER 2012
The Select Committee on Appropriations (the Committee) was
established in terms of section 4(3) of the Money Bills Amendment Procedure and
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:
amendments to the Division of Revenue Bill,
the Appropriation Bill, Supplementary Appropriations Bill and Adjustment
recommendations of the Financial and Fiscal
Commission, including those referred to in the Intergovernmental Fiscal
Relations Act, No. 97 of 1997;
reports on actual expenditure published by
the National Treasury; and
related matter set out in this Act.
Furthermore, the mandate of the Committee encompasses the
Committees functions to legislate, conduct oversight of the Executive; promote
public participation, and review matters of public interest in relation to
National Treasury and its entities, and the South African Reserve Bank.
1.1 Terms of reference
The visit formed part of the Committees ongoing interaction
with municipalities to monitor spending patterns, collaboration and
coordination pertaining to the provision of municipal services and support
given to municipalities by provincial and national departments in terms of
section 154(1) of the Constitution. The municipalities in
The following stakeholders (including national and
provincial departments) accompanied the Committee on this visit:
Department of Cooperative Governance and
Department of Water Affairs
Department of Energy
Office of the Auditor-General
South African Local Government Association
Financial and Fiscal Commission
Development Bank of
The Office of the Premier of
Members of the
1.2 Purpose of
The purpose of the oversight visit was to engage with the
above-mentioned municipalities along with national and provincial departments
on the following areas:
cash flow and financial status
of revenue, collection and expenditure management
patterns and performance of the municipalities with regards to conditional
and implementation of municipalitys budget.
with the Municipal Finance Management Act and other legislation.
assets and liabilities.
to address audit findings.
The oversight visit took place from 21-24 August 2012. The
central meeting place was the Birchwood Hotel Conference Centre in
. On Tuesday, 21 August 2012, the Committee
interacted with three local municipalities i.e.
overall presentation on identified Municipalities
The Office of the Auditor-General (AG) briefed the Committee
on the 2010/11 financial year audit outcomes of the three local municipalities visited
The AG informed the Committee that the key focus areas that
were taken into consideration when the audit opinions were expressed and that
needed urgent attention were, Supply Chain Management processes, Predetermined
Objectives, Human Resource Management processes, Information Technology
controls, and material errors in the Annual Financial Statements submitted for
auditing. These key focus areas were measured against minimal improvement, no
improvement, improvement, and unchanged status.
On the progress towards achieving an unqualified or clean
audit opinion in
The Auditor General (AG) reported that
Local Municipality (ELM) had shown minimal improvement on supply chain
management. This had been due to the fact that invitations for competitive
bidding had not always been advertised for the required minimum period of days.
The amount involved was R14 million. Offering of services had been made to
service providers who were persons in service of other State institutions.
These service providers had failed to declare that they were in the service of
the State as required by Supply Chain Management Regulations. The AG reported
that there had been no improvement on predetermined objectives. The information
provided had not been useful or reliable. The predetermined information
selected had been 93 per cent not verifiable and 61 per cent of the indicators
had no source information.
With respect to human resources, the AG reported that there had
been minimal improvement on human resource management matters and that ELM had relied
on consultants to prepare financial statements due to a lack of adequate
skills. A key dependency had been identified on the asset management account. The
AG further reported that ELM had a 50 per cent vacancy rate on the approved
structure. This led to employees working more than the maximum hours of
overtime allowed in terms of the Basic Condition of Employment Act. There had
been no improvement on IT controls. The AG also found that there had been poor
user access controls and no formal programme change management controls.
Furthermore, the AG reported that the Annual Financial Statements submitted for
audit had material misstatements.
On the progress towards an unqualified or
clean audit opinion in
Local Municipality (MCLM), the AG reported that on Supply Chain Management
there had been no material findings. Whereas on predetermined objectives there had
been minimal improvement. The AG reported that the reported performance
indicators had not been accurate and that only 37 per cent of reported
indicators were based on sources of information or evidence provided.
The AG further reported that there had been minimal
improvement in human resource management. The asset management unit had been under-capacitated
with only one employee and there had been a heavy reliance on consultants, who
had not transferred the skills to employees.
The AG also reported that there had been minimal improvement
in IT management. IT management had not formally designed security management
controls (policies, procedures, guidelines) to mitigate the risk of unauthorised
access. The MCLM had not developed user account procedures for the operating
and application system. The AG also reported that programme change management
procedures for implementation of the BIQ Financial Management System were not
in place in MCLM. Furthermore, the AG reported that Annual Financial Statements
submitted for audit had been subjected to material amendments mainly on
property, plant and equipment.
On the progress towards an unqualified or clean audit
City Local Municipality (MCLM), the
AG reported that the MCLM had capacitated the asset management unit with
skilled staff and the AG had been requested to assist with guidance on the
challenges experienced on assets. The MCLM held consultants accountable for
their expert advice to the municipality. The AG further reported that MCLM had
installed a new IT system. With respect to governance matters, the AG reported
that the chairperson of the Audit Committee met with the Executive Mayor and
Council for status updates on the effectiveness of key controls.
2.4 City of
Regarding the City of Tshwane Metropolitan Municipality (
), the AG reported that for the 2009/10 and 2010/11
financial years the
unqualified audit opinions with findings. The AG added that the
political leadership and councillors needed to take
ownership of key Information Technology (IT) controls which had not improved. The
AG explained that in
the general control
environment had shortcomings relating to security management, user access
control, IT service continuity and network review process. Another concern
raised, was lack of improvements in the Annual Financial Statements submitted
for audit, which had material errors. The material corrections to the Annual
Financial Statements included incorrect classification of investment property,
unrecorded liabilities and intangible assets. The AG further reported that there
was a lack of consequences for non-adherence and a lack of accountability towards
achieving a clean audit. According to the AG, compliance with laws and
regulations were not adequately reviewed and monitored; financial statements
were subject to material amendments and Audit of Predetermined Objectives
(AOPO) findings on entities prevented a clean audit opinion.
Regarding progress towards a clean audit by
, the AG reported that the Honourable Mayor continued to
chair the Operation Clean Audit (OPCA) Committee and OPCA officials had been
appointed. On financial and performance management, the AG reported that
training on AOPO was provided by the AG to internal auditors of the
further reported that monthly financial statements were tabled at the Audit
Committee and Mayoral Committee. The AG added that the
tabled monthly reports on unauthorised, irregular and fruitless and wasteful
expenditure and deviations to Council. Furthermore, the AG reported that
training for municipal officials was provided to raise awareness about
compliance with Supply Chain Management legislation. Subsequent to that SCM
unit drafted an action plan to address prior years findings. The AG reported
that Computer Assisted Audit Techniques (
procedures used by
to identify possible conflicts
of interest for employees in service of the municipality were effective.
The AG reported that there were a few concerns that the
needed to address. These included performance
reporting which was not being done on a timely basis by all departments within
; IT findings which were still in the process
of being addressed; IT access controls to a billing system, Systems
Applications Products audit (SAP) remained a problem; revenue reconciliations
on assessment rates were not done on a regular basis; the fraud prevention plan
had not yet been communicated to employees to create awareness.
2.5 City of
The Auditor-General (AG) reported that the
City of Johannesburg Metropolitan Municipality (
had received qualified audit opinions for the 2009/10 and 2010/11 financial
years. On the status of key focus areas for oversight and governance
structures, the AG reported that the
minimal improvement on revenue collection. These included property category
differences between the Land Information System (LIS) and the Systems
Applications Products audit (SAP), a billing system; and the actual meter
readings were disregarded for billing purposes as customers were billed on
estimated consumptions. The AG further reported that there were minimal
improvements on supply chain management. This finding related to reasons for
deviations that did not meet the requirements of Supply Chain Regulation 36
resulting in irregular expenditure; and awarding of contracts to persons in the
service of the
and other State institutions.
This included, in some instances, declarations not made or false declaration
made. The AG also reported that there were no improvements in predetermined
The AG further reported that he had found it difficult to
use reported performance information because changes to planned targets were
not approved; planned and reported indicators were not well defined, specific
and measurable; and reported performance information was not available.
Regarding human resources, the AG reported that there was progress even though
proper record keeping by the
was not maintained
on leave liability and financial disciplines were not adhered to. Furthermore,
the AG reported that there was minimal improvement on Supply Chain Management compliance.
There was unauthorised expenditure, by Johannesburg Metropolitan Police
Department (JMPD), fruitless and wasteful expenditure due to interest on
overdue accounts, penalties from the South African Revenue Service, and expenditure
for resources not utilised. With respect to the material errors in Annual
Financial Statements (AFS) submitted for audit, the AG reported that there were
no improvements because there was material amendments on the Annual Financial
Statements submitted for audit.
The AG reported that the following commitments were made by
leadership to address the audit outcomes for the period ending 30 June 2011:
all audit issues raised relating to revenue management;
customer queries urgently;
system integration issues which had resulted in differences between
revenue source data and billing data;
provision records will be properly captured and maintained; and
documentation of reasons for supply chain deviations.
In addition the AG reported that he had made the following
proposals to further address the unfavourable audit outcomes of the 2010/11
monthly Annual Financial Statements with supporting documentation;
of monthly reconciliations (revenue, debtors etc); and
Committee chairpersons to attend quarterly key control meetings with the
The Gauteng Department of Housing, Local
Government and Traditional Affairs (GDHLGTA) reported that a revenue
enhancement and debt management model had been implemented in
On progress with the implementation of
revenue enhancement and debtor management, the GDHLGTA reported that the
non-collection of municipal debtors, which had a debt of approximately R33
million, were of great concern to the
The GDHLGTA reported that the objectives of
government debt management were to establish a method for the payment of
arrears to municipalities owed by various national and provincial government
departments; to ensure that debtor information on government accounts was clean
and correctly captured on the municipal finance systems; and to facilitate
regular future payment for municipal services rendered. Due to these
initiatives, the GDHLGTA reported that departments kept current accounts
serviced on a monthly basis while working on paying the arrears on old accounts.
The GDHLGTA further reported that only the Gauteng Department of Education was
experiencing problems regarding section 21 schools that were not paying their
accounts regularly and that the Department of Infrastructure Development was
paying its debt in quarterly
municipalities were billing on a monthly basis.
On the Debtors Book Project, the GDHLGTA
reported that the first phase entailed an in-depth analysis of the five year
transactions of the debtors book of the respective municipalities and this
phase had been completed in 2009. The GDHLGTA further reported that the second
phase entailed the process of selling the right to collect outstanding debts of
the municipal debtors book. Each municipality had undertaken its own Supply
Chain Management bidding process and had selected preferred bidders to collect
debts of 90 days and older.
was reported to have been done the municipalities were still experiencing challenges
with respect to conditions put by the preferred bidders. The other challenge
that the GDHLGTA reported was that there had been delays with municipalities
making data available for the analysis of the debtors book. This had been due to
the incompatibility of systems. Other delays had been related to approvals of
the different processes in the implementation plan by both the administration
and political leadership.
Furthermore, GDHLGTA reported that the
negotiations with the investors were complex and long, due to several factors
that had to be considered in contracts of this nature. Among these were that
the investors had identified key institutional risks such as possible
leadership changes during the project implementation which might result in the
project being cancelled.
The GDHLGTA also
reported that the City of Johannesburg Metropolitan Municipality had 1 022
million active accounts and 20 000 of these were being reviewed through a Revenue-Step-Change
plan which was meant to address the identified challenges.
With respect to addressing Operation Clean
Audit, the GDHLGTA reported that an Operation Clean Audit Provincial
Coordinating Committee (OPCAPCC) had been established by the Premier of the
Moreover, the GDHLGTA reported that all
The Committee was informed that although this
process had been finalised in 2011, there were still areas that needed to be
resolved regarding the calculation methodologies as well as supporting documentation
for opening balances. As a result the ELM had received a qualified audit
opinion from the AG. The contract of
had been extended
to address the issues of qualification as well as to update the asset register
with new assets that the municipality procured post the compilation, including
Gauteng Provincial Treasury (GPT) reported that
Chief Financial Officers Forum (targeted
and senior finance officials and dealing
with current and upcoming issues of a technical nature).
Internal Audit Forum (targeted at municipal
internal audit units and dealing with technical matters and latest developments
in internal audit processes).
Risk Management Forum (targeted at Chief
Risk Officers to deal with municipal risks).
Operation Clean Audit Forum (this
provincial structure was specifically designed to monitor both provincial and
municipal audit-related issues to achieve the targets of clean audit by 2014).
capital performance, the GPT reported that the three targeted local
, Randfontein and
Expenditure as at the end of the 2011/12 financial year
reported that the performance of the three municipalities had been largely
impacted by low revenue collection, inadequate staff capacity and management of
capital projects. Revenue and cash management had been an area of concern,
according to the GPT. The GPT further reported that although some of the
municipalities visited had ended the last quarter of the 2011/12 financial year
on a favourable bank balance, it had largely been due to redeeming investments
and inflowing intergovernmental grants that had pushed these municipalities
into positive fiscal territory.
The GPT reported that a Grants Management Committee (GMC)
had been established to ensure that municipalities receive their grants from
transferring departments when they are due. Moreover, the GPT reported that the
province had established a Debt Management Committee (DMC) which was
specifically focusing on the payments to municipalities by provincial
departments on accounts issued to them.
Regarding the concerns raised by the Auditor-General on Annual
Financial Statements, the GPT reported that the province had introduced the Gauteng
Municipal Finance Management Act Circular 9 dealing with the technical review of
the Annual Financial Statements.
on this circular, the province reviews the presentation and accounting policies
and advises municipalities of any shortcomings prior to their submission to the
Auditor-General. The GPT also reported that to address audit outcomes the
province had introduced the Gauteng Municipal Finance Management Act Circular
12 which dealt with the monitoring of municipal audit action plans to address
Performances and Analysis
The Randfontein Local Municipality (RLM) reported that its
total cash receipts for the 2011/12 financial year had amounted to R687.6
million. The payments to suppliers and personnel had been R617.8 million and they
had made a short term investment of R74.1 million. The RLM further reported
that financing activities had yielded R1.1 million and this resulted in a cash
decrease of R3.2 million for the 2011/12 financial year. The opening balance of
the cash flow deficit had been R2.8 million and the total cash flow deficit at
the end of the 2011/12 financial year had been R6 million. The RLM reported
that its operational budget for the 2011/12 financial year had been R794.9
million and the expenditure at the end of the financial year had amounted to R858.4
million. The RLM thus reported that it had overspent by R63.4 million.
With respect to debtors, the RLM reported that the opening
balance of debtors as at 1 July 2011 had been R245.9 million and the closing
balance as at 30 June 2012 had been R278.5 million. The RLM reported a R33.6
million growth in debtors and uncollected bills for the 2011/12 financial year.
The RLM added that credit control actions were being implemented to collect
arrears from those who were able to pay for property taxes and municipal
services. The RLM explained that the growth in debtors affected the
municipalitys ability to meet its obligations and to improve service delivery.
The RLM further reported that as at 30 June 2012 the outstanding amount owed to
creditors had been R40.2 million without accruals. An amount of R33.2 million
was reported to be in arrears at Eskom for the bulk electricity account.
The RLM also reported that the socio-economic realities had
a bearing on the cash flow position of the municipality. The Committee was
informed that the registered indigents who qualified for assistance from the
municipality had grown from an average of 5 500 in the year ended 30 June 2011
to an average of 6 500 in the year ended 30 June 2012. The RLM reported that
the result of this increase had been the increase of subsidisation from the
equitable share for basic services and a reduction of cash received for
property taxes and municipal services.
The RLM reported that in order to address the cash flow situation, they
were implementing credit control measures to collect from rate and tax payers
and consumers who could afford to pay.
The RLM also reported that it had resolved to curtail expenditure
that was not service delivery oriented. In addition, the RLM reported that the
main revenue sources for the municipality were property taxes, service charges,
government conditional grants and subsidies, revenue from other sources like
agency fees, traffic fines and town planning schemes. The generated funds were
spent on employee costs; remuneration of councillors, bulk purchases, finance
charges, and general expenses which included depreciation. Asset impairment was
expenditure of a non-cash flow nature.
Regarding conditional grants, the RLM reported that for the
2011/12 financial year it had received R80.2 million and spent R51.6 million.
The overall unspent grants had amounted to R28.5 million. The RLM explained
that the Municipal Infrastructure Grant projects and the construction of an old
age home that was funded from the Social Development Grant had been in progress
at the end of the financial year. These projects had been rolled over to the
2012/13 financial year.
With respect to compliance with the Municipal Finance
Management Act and other legislation, the RLM reported that its areas of
concern were performance management compliance, appointment of the Audit
Committee and the performance Audit Committee and supply chain management. On
the issue of audit outcomes, the RLM reported that it had obtained a qualified
audit opinion in the year ended 30 June 2011. The municipality had regressed
from obtaining two successive unqualified audit opinions in the financial years
ended June 2009 and June 2010.
The RLM reported that to address matters raised by the AG it
had appointed a service provider to review the useful lives of assets in order
to address asset management matters raised. At the time of the meeting, the
Committee was told that the service provider was populating or reconciling the
asset register and payment of the service provider was to be based on
performance. Another issue that the RLM had to address was the implementation
system for financial reporting. The
RLM reported that it had implemented the software and that the misstatements
that had resulted from manual compilations of financial statements were
expected to be addressed.
With regard to findings of the Auditor-General, the RLM
reported that the material losses raised by the AG in the 2011/12 financial
year had been due to the R1 million which had been made available for
distribution boxes to curb the theft of electricity. In the 2012/13 financial
year, R2 million had been provided in the budget for the distribution boxes to
curb the illegal connections that contributed to electricity losses. Moreover,
the RLM reported that water losses had not been materially high. The RLM
further reported that under-spending of its conditional grants remained an
issue due to the fact that the municipality had provisionally spent only 40 per
cent of its capital budget.
City Local Municipality
(MCLM) reported that its cash as at the end of June 2012 was R22 million, made
up of conditional grant funds. The operating budget had been R1.426 billion and
the expenditure as at 30 June 2012 had been R1.497 billion. The MCLM reported
that its expenditure had exceeded the income for six months of the 2011/12
financial year and this had led to over-expenditure of R71.5 million. The MCLM
added that, based on the performance of main tariffs as of 30 June 2012, the
billed amount had been R1.1 billion but the municipality had received R1
billion, this meant that for every one rand billed the council had received
only 96 cents.
On sources of operational revenue, the MCLM reported that
its main source of revenue had been electricity (42 per cent) followed by
property rates (16 per cent), transfers recognised - operational (14 per cent),
water charges (11 per cent), sanitation, refuse removal and other revenue (5
per cent each) and traffic fines and agency services (1 per cent each).
Regarding sources of capital revenue, the MCLM reported that 38 per cent of its
revenue had been generated internally, 58 per cent had come from transfers
recognised - capital and 4 per cent from an
With respect to compliance with the Municipal Finance
Management Act (MFMA) and other legislation, the MCLM reported that MFMA
implementation had been substantially adhered to through In-Year Financial
reporting to National Treasury, and that the Budget and Treasury Office had
been established. The MCLM reported that there were four interns employed
through the Municipal Financial Management Internship programme. The MCLM
further reported that an Audit Committee had been established and was
functional. All relevant policies were reported to have been approved with the
annual budget. On assets and liabilities, the MCLM reported that, at the end of
the 2011/12 financial year, its current assets had been lower than the current
liabilities (R377.2 million compared to R451.7 million.)
Regarding plans to address audit findings, the MCLM reported
that the AG had expressed a qualified audit opinion on the 2011/12 financial
statements. The qualified audit opinion had been due to the fact the AG had
been unable to verify by alternative means the adjustments made to the opening
balances of property, plant and equipment which resulted in the increase of carrying
value by R38.9 billion. The MCLM also reported that it had suffered significant
water and electricity losses to the value of R49 million or 36 per cent and R27
million or 6 per cent respectively. The MCLM reported that it had developed a
strategy to curb these losses, which would be thoroughly monitored by the infrastructure
The MCLM further reported that it had incurred unauthorised
expenditure of R11 million as a result of exceeding the total allocated budget.
This expenditure was condoned by Council.
Moreover, the MCLM reported that an unrecoverable amount of R48 million
on material impairments had been incurred. This also included writing off the bad
debts that related to indigents customers. However, the MCLM reported that
after developing a cash flow turnaround strategy in December 2011, it had managed
to collect 96 per cent of debts. This had been more than the projected
collection rate of 94 per cent.
5.3 City of
On the municipal cash flow status, the City of Johannesburg
Metropolitan Municipality (
) reported that it
had an average of R2 billion cash balances since December 2011, and on 30 June
2012 it closed the 2011/12 financial year with a positive cash balance of R2.1
added that Commercial Paper (
) issuances had been used to manage cash flow mismatches
and R1.1 billion worth of
were issued in the 2011/12
financial year compared to R3.4 billion raised in the 2010/11 financial year.
further explained that all
had been redeemed by April 2012.
On cash receipts and payments including grants, the
reported that month-on-month cash receipts which
included grants received were higher than expenditure. The
added that current assets versus current liabilities were at 1
which showed an improvement which was slightly higher
than the benchmark of 1:1. Regarding debtors versus creditors, the
reported that at the end of the 2011/12 financial
year, consumer debtors was R6 116 949 and trade payable was R6 977 521.
With respect to sources of revenue, collections and
expenditure management in the 2011/2012 financial year, the
reported that it had collected R33 414 billion from property rates, service
charges, operating grants, interest and other sources. Furthermore, the
reported that it received conditional grants
(Expanded Public Works Programme Grant, National Electrification, Neighbourhood
Development Partnership Grant, Public Transport Infrastructure and Systems
Grant, Urban Settlement Development Grant) worth R3.7 billion and spent R3.3
billion as at the end of 2011/12 financial year. The
added that historical revenue collection levels over the last three financial years
had been on average 91.5 per cent which was approximately 7 per cent of debt
older than 120 days. The
further added that it
had managed to settle its credits within 30 days of receipt of invoices.
On capital budget performance by funding sources, the
reported that in the 2011/12 financial year it had received
USDG (R1 billion) and spent R971 million (94 per cent). The
further reported that on grants and other subsidies it had received R1.4
billion and spent only R1.1 billion (75 per cent). According to
the major under expenditure (R10.7 million) was that
of the Neighbourhood Development Partnership Grant.
Regarding development and implementation of budgets, the
reported that it had a five year Integrated
Development Plan within which there were short, medium and long term plans to
roll out programmes that would ensure that the municipality was financially
sustainable, would shift to low carbon infrastructure; integrate waste
management; green ways and mobility; move from informal settlements to
sustainable human settlements; have urban water management; encourage citizen
participation and empowerment; provide strategic communications and marketing;
ensure human capital development and management; provide economic growth; have
a safe, secure and resilient city that protects, serves, builds and empowers
communities; and be a city where none go hungry.
On compliance with legislation, the
reported that it maintains a legislative compliance register. The
further explained that in ensuring compliance,
templates on legislative compliance including fruitless and wasteful
expenditure are completed by internal departments monthly, in compliance with
sections 32 and 103 of the Municipal Finance Management Act 56 of 2003.
Regarding plans to address audit findings, the
reported that a detailed action plan was in place not
only for the audit report issues but also for the entire management letter; all
audit findings were shared not only with the affected departments but with all
departments to ensure that the issues are addressed organisation-wide; regular
follow-ups are done with each department, ensuring that the relevant target
dates are achieved; to improve the internal control environment and strengthen
internal control mechanisms; strive to strengthen oversight system and
responsibility at senior management level; improve the consistency of data and
records; further engage with the AG and find common ground on the
interpretation and understanding of Supply Chain Management regulations
(deviations); enhance revenue management through the Revenue Step Change
Roadmap; and secure the services of KPMG to assist in addressing audit
(ELM) reported that for three financial years, 2008/09, 2009/10 and 2010/2011,
it had received qualified audit opinions. The basis for qualification in
2010/11 was valuation of property, plant and equipment. On audit outcomes, the
ELM added that there were matters of emphasis regarding civil matters, General
Recognised Accounting Practice 17 (GRAP 17) implementation, material losses
(water 51 per cent and electricity 11 per cent) and material impairments - thus
irrecoverable. The ELM further reported that there were SCM deviations (20 due
to urgency) and 12 irregularities were reported of service providers in the service
of the State.
The ELM assured the Committee
that it had an Audit Action Plan to address the audit outcomes. These included:
appointment of service providers to finalise the GRAP 17 implementation;
establishment of an OPCA Steering Committee; quarterly internal control
assessments with the AG; an OPCA progress report to be presented quarterly to
Audit Committee, Mayoral Committee and the Council.
The ELM further reported that in the 2011/12 financial year its
budget was R3.7 billion and its assets were valued at R9 billion. The ELM
reported that as at 30 June 2012 it had spent R4.04 million (7 per cent over-expenditure).
The ELM listed its challenges as: unemployment (45 per cent); water and
sanitation infrastructure backlog (R10 billion), roads infrastructure backlog
(R9 billion), electricity backlog (R2 billion), payment levels in poor areas (3
per cent), outstanding debt (R2 billion), unfavourable cash flow status, water
losses (R180 million per annum), electricity losses (R20 million per annum),
and billing functionality. The ELM reported that it was owed a total amount of
R2.7 billion by debtors. Residential debtors owed R2.2 million (84 per cent) of
that amount followed by government which owed the municipality R44
With respect to its cash flow status, the ELM reported that
as at the end of September 2012 it had an opening balance of R13.8 million and
received R1.1 billion for grants and equitable share. The ELM reported that it
spent R1.2 billion on electrification, water supply, personnel costs and other
payables as at the end of September 2012. This indicated
-expenditure by R109.5 million. The ELM reported that its Council
had raised an R150 million overdraft facility
finance for 2012/13 financial
year which they utilised to settle their shortfall. The ELM further reported
that it had R40.5 million available from their overdraft facility.
Furthermore, the ELM reported that for its capital
expenditure it had received R364 million and had spent only R326 million (76
per cent). The ELM reported that the cash-flow restrictions contributed to the
under-spending on Council-funded projects. The ELM added that most of the
projects were rolled over into the 2012/13 financial year. On conditional grant
allocations and expenditure, the ELM reported that it had an opening balance of
R48.6 million and received a total of R740 million and spent R739 million (96
per cent). The closing balance was R29.3 million. With respect to provincial
and district conditional grants, the ELM reported that it had an opening
balance of R12.6 million and received R47.1 million and subsequently spent
R52.7 million. The closing balance was R7 million.
Regarding the budget preparation process, the ELM reported
that it established an effective Budget Steering Committee; the Integrated
Development Plan and Budget Process Plan were approved after consultation with
key stakeholders through a public participation process. The ELM further
reported that its Council had appointed a functioning Audit Committee and
Municipal Public Accounts Committee (MPAC) for the effective and efficient
performance of its functions. The ELM also reported that it was in the process
of appointing an Information Technology (IT) specialist to serve as a member of
the MPAC which reported to the Council on matters of performance.
The ELM reported that it had challenges with respect to
billing and non-payment of services which had resulted in a R2.6 billion
debtors book; high water and electricity losses, theft and non-payment of
water (R241 million) and electricity (R60 million); skills shortage and a high
vacancy rate; infrastructure backlog worth R20 billion; non-payment for
services in former black townships with no metering; unfunded provincial
mandates like health, libraries and facilities; arrear government accounts to
the tune of R44 million; insufficient cash flow which led to an overdraft
facility worth R150 million being raised on 01 July 2012; data integrity; and
customer service ethos amongst staff.
5.6 City of
The City of Tshwane Metropolitan Municipality (
) reported that the incorporation of the former
Regarding compliance with the Municipal Finance Management
Act and other legislation, the
reported that its
budget was approved in line with MFMA Circular 42 and the Funding Compliance
Guideline. Moreover, the
reported that the
following legislated compliance had been met: approval of Budget-Time Schedule,
table MTREF after consulted with community, draft MTREF approved on 28 April
2011, monthly reporting - thus in-year reports were submitted timeously. The
further reported that in compliance with sections 45
and 46 of the MFMA it had secured short and long term funding.
With respect to the sources of revenue, its collection and
expenditure management, the
reported that in
the 2011/12 financial year it generated from various sources R19 billion and
spent R20 billion. For operational costs, the
reported that it received R1.2 billion and the actual amount spent was R1.8
reported that a number of issues
contributed to over-expenditure. Amongst those were network distribution losses
for electricity and water. The
the value of electricity losses amounted to R339.8 million as compared to
R133.9 million for the 2010/11 financial year. On water losses, the
reported that it had lost in revenue amounts
totalling R369.5 million as compared to R282.96 million for the 2010/11
On spending patterns and performance of the municipality
with regards to conditional grants, the
reported that it had received conditional grants funds to the amount of R1.3
spent R1.2 billion (86 per
cent) of that total amount. Regarding the operating grants and subsidies, the
reported that it had received R271 billion and only
spent R201 billion (74 per cent). The
reported that the Mayoral Committee had established a
Committee which was chaired by the Leader of Executive Business and the Mayoral
Member of Council responsible for Finance. At the time of reporting, the
reported that the
Committee had resolved to compile procurement plans in line with capital budget
and it had approved specification to the value of R1.5 billion.
its Chief Finance Officer issued a weekly report on capital expenditure. The
also reported that it had a cash flow strategy which
targeted to save R21 million per month on its reserve. The ultimate target was
to save R252 million in the 2012/13 financial year.
The Cash Flow Management Model entailed daily
monitoring of cash flow for 12 months, red flag alerts in the forecasts, non-negotiable
monthly revenue collection, reduction of debtors days to 56 days by the 2014/15
financial year (with the ultimate aim to match the 30 days required by the MFMA),
repayment/redemption of capital and interest without compromise, improve
networking capital/cost coverage from 1.3 months to 2.3 months, and discourage
all surprise creditors/expenditure not forecast, ensure proper usage of
overdraft facility to bridge finance for capital expenditure while waiting for
finalisation of borrowings, and invest excess cash to earn interest and to set
off debt cost of overdraft.
reported that it had
established strategies to reduce the debtors book and improve liquidity and it
had set aside R2 million for exploring a right to collect the debtors book. The
added that it was in the process of purifying
data to ensure correct and accurate billing through smart meter reading and
computer assisted audit techniques. The
reported that it had initiated interaction with national and provincial
government regarding outstanding debt. With respect to collecting debts older than
30 days, the
reported that it was following all
legal processes against defaulters and all debtors had been handed over
further reported that it had audited assets worth R21 billion and audited
current liabilities worth R12 billion.
With respect to audit findings, the
reported that it had received an unqualified audit opinion in the 2009/10 and
2010/11 financial years and it strived to maintain the unqualified audit
opinion and move towards achieving a clean audit opinion. The
reported that PWC/Sekela Consortium had been
appointed for 24 months to assist the Asset Management Unit in establishing a
sustainable unit with established policies and procedures and ensure GRAP 17
further reported that it was
strengthening ICT security and access control deficiencies and governance
policies and framework.
6. Oversight visit to projects
The Committee undertook inspections-in-loco to two projects
Local Municipality (MLM) and four
water purification projects of the
Informal Settlement Housing Development Project
The MLM reported that the
Informal Settlement was located on part of
Farms on an area of 351 hectares. The original township had been approved in
1909, and the MLM explained that the
Settlement had been established in the year 2002. At the time of the visit the
Committee was told that it was estimated to have between 2500 and 3500
households, of which close to 2000 did not qualify for government housing
The MLM reported that a housing development project of 1473
housing beneficiaries had been approved by the Gauteng Department of Housing,
Local Government and Traditional Affairs. The new housing development had started
after a feasibility study had indicated the need to relocate the
Informal Settlement on an emergency relocation basis
due to adverse dolomite soil conditions. The area where the new housing
development was moving to was owned by the MLM. The Committee visited the site
and it was reported that storm-water, bulk sewerage and infrastructure had been
installed and that all that was left was for the provincial Department of Housing,
Local Government and Traditional Affairs to start building houses.
The MLM reported that there were challenges regarding
certain portions of land at the
Settlement plots. The major challenge was that portions 41, 52, 53, and 184
were located in a dolomite classification zone 8, a high risk for sink hole and
formation. The MLM added that the affected
settlements had access to limited services including chemical toilets which
cost the Gauteng Department of Housing, Local Government and Traditional
Affairs R1 million per month to maintain. When the housing development was completed
the MLM said an allocation criteria would be established in consultation with
the community and ward members. The MLM reported that because this area had
certain portions of land which needed to be rehabilitated, a different model of
Rural Development Programme houses was needed and that construction of three storey
walk-up top structure should be considered.
Hydroponics Agricultural Cooperative
The Committee visited the project and saw a 15-Hydroponics-tunnel-production
situated on 4 hectares of land. The MLM reported that the land had been donated
to the community of Bantu-
by Anglo American
Farms. The Committee was informed that the project had employed 20 community
members on a full-time basis. 80 per cent of those employed were women and
youth. The project was producing cucumber, green pepper, tomato, and spinach.
The main buyers were reported to be fresh produce markets in
Cooperative project had a project partners committee which included: Rand Water
Foundation (principal funders),
The Municipal Manager of the
Treatments Works has a capacity of 36 mega litres per day and serves
Station is a public/private partnership project to reduce leakages. It works on
the principle that by managing the water pressure, the frequency of bursts as
well as background and household leakages are reduced and the life of the
reticulation system is prolonged. This leads to a saving of 24 mega litres per
day. This station is virtually maintenance-free and no personnel are needed on
site. Monitoring is done off site via the internet. This project won the South
African Association of Consulting Engineers Excellence Award in 2005.
Waste Water Treatment
Works has a design capacity of 100 mega litres per day but at the time of the
visit it was operating 50 per cent over capacity at 150 mega litres per day.
The foreman indicated that they were still operating within licensing
specifications, but should they get as little as five mega litres more, the
plant would not be able to cope. The plan was to upgrade the plant to 200 mega
litres capacity. In order to bring down the cost of this, two old modules would
be demolished and the material used in the construction of two new modules.
This would take an estimated three years to complete and the demolition and
construction was expected to begin in October 2012.
The following were issues of concern which required
Poor turnaround time on the repair of defective
equipment had a negative impact on the overall waste water process. This may
have been as a result of poor communication between the operations and
maintenance components. The situation was being addressed in the form of weekly
meetings between operations and maintenance staff.
The critical shortage of operational staff
in relation to the size of the works had been partly addressed by the
employment of six general workers in October 2011.
The fact that chlorine was not procured
timeously posed a major challenge as it seriously compromised water quality.
Treatment plant has a capacity of 36 mega litres per day and serves
and a part of
. The plant was due to undergo an upgrade to
increase its capacity to 70 mega litres per day. The tender for this work had
gone out together with the tender for
During April 2012 a service provider had been appointed to assist with sludge
management at the plant. The project included the cleaning of all digesters and
two sludge lagoons.
7. Submission by
key stakeholders and government departments
The Department of Water Affairs (DWA) reported that it had
With respect to the support provided to the municipalities,
the DWA reported that a War on Leaks project was launched in
Whilst interacting with the
The three local municipalities invited had
all obtained qualified audit
in the 2010/11 financial year.
Buy letting employees work overtime in
excess of the maximum stipulated hours, the
Informal Settlement Housing Development Project had progressed very well with
bulk infrastructure having been installed but certain portions of land needed
to be rehabilitated before houses are built.
Failure by section 21 schools to pay
municipal accounts call for an intervention by the Gauteng Education Department.
Inappropriate billing might also be
contributing to a culture of non payment of services.
There is a need for funding when
municipalities are amalgamated as was the case in the City of Tshwane Metro
Reliance by municipalities on overdrafts
for operational activities is not sustainable in the long run.
Based on the above observations, the Select Committee on
Appropriations recommends the following:
The Gauteng Department of Housing, Local
Government and Traditional Affairs should work closely with the Gauteng
Provincial Treasury and support the Randfontein,
The Gauteng Provincial Treasury should
investigate and submit a report
three months after the adoption
of this report by the NCOP, on how and why the
provisions of the Basic Conditions of Employment Act and not allow employees to
work overtime in excess of the maximum stipulated hours. These municipalities
should urgently fill all the funded vacant positions to avoid unnecessary over
the risk of unauthorised access is minimised.
The Randfontein Local Municipality
should ensure that it starts servicing its
to Eskom for the bulk electricity account.
address, and prevent a repeat of, the R71.5 million over-expenditure and all
unauthorised expenditure that was incurred in the 2010/11 financial year. They
should also submit to Parliament, within three months after the adoption of
this report by the NCOP, a turnaround strategy on how it will address the loss
of water and electricity that is counted at R76 million.
adoption of this report by the NCOP, on what consequences will be faced by all
the government employees who did not disclose that they were government
employees when their companies were contracted by the
Local Municipality should fill all vacant posts that have been
before the end of the third quarter of the 2012/13 financial year. The report
on the filling of vacant posts should be submitted to Parliament before 31
municipalities should provide progress report on their plans to deal
with water and electricity losses in their
The GPT and GDHLGTA should provide support
and monitoring to
to ensure that credible supply chain structures are put in place
The GPT and GDHLGTA should provide
monitoring and support to the
to ensure that they develop credible billing systems.
Treasury should ensure that there is proper funding for any
amalgamation of municipalities.
should provide support to
they are able to optimise their revenue collection while minimising
due to leakages.
The Premiers Coordinating Forum (PCF), in
promoting good intergovernmental relations, should encourage and organise consistent
training for the Chief Financial Officers, Internal Audit Committees and Risk
Management Committees of municipalities, with the assistance of the Provincial Treasury.
Report to be considered
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