ATC181117: Budgetary Review and Recommendations Report of the Portfolio Committee on Cooperative Governance and Traditional Affairs, Dated 17 2018

Cooperative Governance and Traditional Affairs

Budgetary Review and Recommendations Report of the Portfolio Committee on Cooperative Governance and Traditional Affairs, Dated 17C 2018
 

 

The Portfolio Committee on Cooperative Governance and Traditional Affairs (the Committee), having assessed the financial and non-financial performance of Department of Traditional Affairs, the Municipal Infrastructure Support Agent, the South African Local Government Association, the Municipal Demarcation Board and the CRL Rights Commission for the 2017/18 financial year, reports as follows: 

1.Introduction

 

1.1.Committee mandate

 

Chapter 4 of the Constitution of the Republic of South Africa (1996) sets out in detail the powers, functions and procedures of Parliament. It tasks Parliament through its Committees, such as the Portfolio Committee on Cooperative Governance and Traditional Affairs, with the following functions:

 

  • Making laws;
  • Maintaining oversight over the National Executive Authority and any organ of state;
  • Facilitating public involvement in the legislative and other processes of the National Assembly and its Committees;
  • Participating in, promoting and overseeing co-operative governance; and
  • Engaging and participating in international participation (participate in regional, continental and international bodies)

 

In line with the parliamentary oversight functions, Section 5 of the Money Bills Amendment Procedure and Related Matters (Act No.9 of 2009) empowers Portfolio Committees, to assess annually the performance of each national department through an annual Budgetary Review and Recommendations Report (BRRR). The overarching purpose of the BRR Report is for a Committee to make recommendations on the forward use of resources to address the implementation of policy priorities and services as the relevant department may require additional, reduced or re-configured resources to achieve these priorities and services. The Act also gives effect to Parliament’s constitutional powers to amend the budget in line with the fiscal framework. The BRRR process enables a Committee to exercise its legislative responsibility to ensure that the Department fulfil their respective mandates. 

 

1.2.Core functions of the Department

 

The main aim of the Department of Cooperative Governance and Traditional Affairs is to improve cooperative governance across the three spheres of government. The Department must support and strengthen the capacity of municipalities to manage their own affairs, exercise their powers and perform their functions, as envisaged in s154 of the Constitution.

 

The Department also oversees the following entities:

 

  • The Commission for the Promotion and Protection of the Rights of Cultural, Religious and Linguistic Communities, which promotes and protects cultural, religious and linguistic rights.

 

  • The Municipal Demarcation Board, an independent authority responsible for determining municipal boundaries and also mandated to declare district management areas, delimit wards for local elections and assess the capacity of municipalities to perform their functions.

 

  • The South African Local Government Association, which has a constitutional mandate to assist in the transformation of local government.

 

  • The Municipal Infrastructure Support Agent, whose mandate is to render technical advice, and support to municipalities, as well as strengthen their capacity to provide access to basic services.

 

1.3.Purpose of the Report

 

Section 77 (3) of the Constitution stipulates that an Act of Parliament must provide for a procedure to amend money Bills before Parliament. This Constitutional provision resulted in Parliament passing the Money Bills Amendment Procedure and Related Matters (Act No. 9 of 2009) (the Money Bills Act). The Money Bills Act sets out the process that allows Parliament to make recommendations to the Minister of finance to amend the budget of a national department. In October each year, Portfolio Committees must compile the Budgetary Review and Recommendation Reports (BRRR) that assess service delivery performance given the available resources; evaluate the effective and efficient use and forward allocation of resources; and may make recommendations on forward use of resources.

 

1.4.Method of reporting

 

This BRR Report assesses the financial performance as well as service delivery performance of the Department of Traditional Affairs, the Municipal Infrastructure Support Agent, the South African Local Government Association, the Municipal Demarcation Board and the CRL Rights Commission for the 2017/18 financial year. Informing the assessment are briefings to the Committee by the Department and entities, and other sources of information such as the Reports of the Auditor-General and Annual Reports.

 

1.5.Report outline

 

The structure of the Report is as follows: section 2 provides an overview of key policy focus areas during the 2017/18 financial year. Section 3 provides key financial and performance recommendations of the Portfolio Committee on COGTA. Section 4 of the Report provides an overview and assessment of reported financial and service delivery performance for the 2017/18 financial year. Section 5 of the Report focuses on the Portfolio Committee’s observations on governance, technical, service delivery and financial performance information. Section 6 table’s additional reporting requests by the Portfolio Committee. The Report concludes with recommendations in section 7.

2.policy overview

 

Government’s policy priorities for the 2017 Medium Term of Strategic Framework that were relevant to the Cooperative Governance and Traditional Affairs sector included:

 

  • Reducing service delivery backlogs in the 27 district municipalities, which Cabinet had prioritised in 2011. This gives effect to outcome 9 of Government’s Medium Term Strategic Framework (MTSF), which seeks to build a ‘responsive, accountable, effective and efficient local government system.’

 

  • Fostering social cohesion and promoting nation building in line with outcome 14 of the MTSF. The sector gives effect to this by supporting and championing policy on cultural, religious and linguistic matters.

 

  • Lowering the costs of living and improving the business environment; introducing reforms to improve the functioning of the labour market; addressing spatial settlement patterns; developing an enabling economic infrastructure; and ensuring sustainable rural economies. These are some of the key aspects of the National Development Plan (NDP).

 

  • The National Development Plan (NDP) also envisages economic transformation through the determination and re-determination of municipal boundaries, which is central to the work of the Cooperative Governance and Traditional Affairs ministry.

3.summary of previous key financial and perfomance recommendations of the committee

 

2016/17 RECOMMENDATION

PROGRESS MADE IN 2017/18

MISA must table its Annual Report on time, in accordance with legislation.

MISA tabled its Annual Report in time for the BRRR process, which enabled the Committee to take a full assessment of the entity’s financial and service delivery performance during the 2017/18 financial year.

The Department and its entities must heed and act on the Committee’s recommendations of the previous financial year, particularly in respect of reducing irregular expenditure and ensuring that there is no unauthorised, fruitless and wasteful expenditure incurred.

The Department and its entities incurred irregular expenditure to the value of R716.6 million, which represents a 70 per cent increase from the R423 million incurred in the previous financial year.

The Department and its entities must heed and act on the Committee’s recommendations of the previous financial year, particularly in respect of ensuring that all municipalities enforce competency standards for Managers and appoint persons with the requisite skills, expertise and qualifications, and that the Department takes corrective measures in instances where municipalities contravene the Systems Act and its regulations

Ongoing.

The Department and its entities must heed and act on the Committee’s recommendations of the previous financial year, particularly in respect of improving the management of contracts signed with implementing agents of CWP and maintaining an assets register that adheres to the minimum requirements for assets registers as prescribed by National Treasury.

The Department still had unavoidable actions to perform in relation to CWP assets, which rendered it unable to submit the 2017/18 Annual Financial Statements by 31 May 2018 to the National Treasury and the Auditor-General of South Africa. The delay affected the timeframe for the finalisation of the 2017/18 Annual Report, which was still outstanding at the time of the BRRR process.

The Committee must ensure greater oversight over the spending of conditional grants including examination of quarterly performance reports.

Ongoing.

Where a municipality is in serious or persistent breach of its service delivery or financial performance obligations, the Committee must assist to ensure timely provincial executive intervention in terms of s139 (5) of the Constitution.

Ongoing.

 

4.OVERVIEW AND ASSESSMENT OF FINANCIAL AND SERVICE DELIVERY PERFORMANCE 2017/18

 

4.1.Department of Cooperative Governance

 

At the time of the BRRR process, the Department of Cooperative Governance had not yet tabled its Annual Report for the 2017/18 financial year due to delays relating to the CWP, which rendered the Department unable to submit the 2017/18 Annual Financial Statements within the stipulated period. This delay affected the timeframe for the finalisation of the 2017/18 Annual Report, and the Department envisages tabling the signed-off Report by the end of November 2018.

 

4.1.1.Financial performance

2017/18

Irregular expenditure

  • Management did not prevent irregular expenditure, which resulted from extension of CWP contracts without the required prior approval from National Treasury.

 

  • The Department did not take disciplinary steps against officials who incurred irregular expenditure.

 

 

 

4.1.2.Audit findings

2017/18

Disclaimed audit opinion

AUDIT FOCUS

AREAS

FINDINGS

Quality of submitted financial statements

  • The Department received a disclaimed audit opinion, as the Auditor-General could not expressed an opinion on the Department’s annual financial statements.

 

  • The Auditor-General identified material misstatements in respect of submitted Annual Financial Statements.

 

  • The Department’s financial management required intervention.

Quality of submitted performance reports

  • The Auditor-General identified material misstatements in respect of submitted Annual Performance Reports.

 

  • The Department’s performance management required intervention.

Compliance with legislation

  • Non-compliance with SCM prescripts i.e. Local content and BBBEE requirements

 

4.1.3.Key reported achievements

 

  • Implemented a secondary city support programme in Polokwane Local Municipality.

 

  • Implemented a municipal specific revenue plan in 30 municipalities.

 

  • Assessed 110 municipalities on compliance with the rating aspects of the Municipal Property Rates Act and issued findings and recommendations.

 

  • Supported 80 municipalities to institutionalise community complaints management processes.

 

  • Rolled out an anti-corruption strategy to 18 district municipalities.

 

 

4.1.4.Key reported challenges

 

  • The management of the CWP has remained a key challenge, as the Department was still unable to account for the Programme satisfactorily. This has resulted in the Department receiving a disclaimed audit opinion for the financial year under review, which is a regression from the qualified audit opinion obtained in the previous financial year.

 

4.2.Department of Traditional Affairs

 

4.2.1.Service delivery performance

 

In terms of service delivery performance, the DTA registered the following:

 

  • Implementation of 30 per cent of the projects in the Traditional Leadership Transformation and Socio-Economic Development Programme, i.e. Women Empowerment Project, Food Security; and HIV and Aids Prevention Projects.

 

  • Capacitation of eight provinces on the Framework for Resolution of Traditional Leadership Disputes and Claims.

 

  • Conducting of four initiation campaigns.

 

  • Capacitation of two communities on HIV and AIDS.

 

4.2.2.Financial performance

 

The Department did not incur any irregular expenditure during the year under review.

 

4.2.3.Audit findings

 

During the financial year under review, the Department received a clean audit. However, the Auditor-General recommended that management should enhance timely remedial action to improve the Department’s cash management.

 

4.2.4.Key reported achievements

 

  • A second consecutive unqualified audit opinion with no emphasis of matters (clean audit).

 

  • The constitution of the Local and Provincial Houses of Traditional Leaders and subsequently the 2017-2022 National House of Traditional Leaders in November 2017, following the end of the term of Office of the Previous Houses.

 

4.2.5.Key reported challenges

 

  • A legislative and policy vacuum, which has caused most of the setbacks in the traditional affairs sector. These include the lack of a legal instrument for the recognition of the Khoi-San leadership and communities; the absence of legal constitution of kings, queens, principal traditional leadership and traditional councils; cultural initiation fatalities; inconsistencies in the provision of tools of trade for traditional leaders; and the level of participation of traditional leadership in municipal councils.

 

4.3.Municipal Infrastructure Support Agent

 

4.3.1.Service delivery performance

 

  • The entity achieved 70 per cent (21/30) of the performance targets set in the 2017/18 Annual Performance Plan (APP). The Annual Report attributes this low performance to internal capacity challenges.

 

  • Provided ongoing technical support to at least 60 municipalities.

 

  • Rolled out the Regional Management Support Contractors Programme in three pilot regions: Amathole, OR Tambo and Sekhukhune Districts.

 

  • Trained 303 apprentices towards qualifying as artisans.

 

  • Trained 557 municipal officials in various aspects of municipal infrastructure delivery.

 

  • Placed 102 qualified artisans and water process controllers in low capacity municipalities.

 

4.3.2.Financial performance

2017/18

Irregular expenditure

Management did not take effective and appropriate steps to prevent irregular expenditure amounting to R12.1 million. The irregular expenditure related to the lease of office space.

 

4.3.3.Audit findings

2017/18

Unqualified with findings

AUDIT FOCUS

AREAS

FINDINGS

Quality of submitted financial statements

  • The Accounting Officer did not exercise adequate oversight responsibility regarding financial reporting, resulting in material misstatements.

 

  • Management did not prepare regular, accurate and complete financial reports that were verifiable.

Quality of submitted performance reports

  • The Accounting Officer did not exercise adequate oversight responsibility regarding performance reporting, resulting in material misstatements in the annual performance report.

 

  • Management did not prepare regular, accurate and complete performance reports that were verifiable.

Compliance with legislation

  • The entity incurred irregular expenditure in contravention of the Public Finance Management Act and Treasury Regulations.

 

  • MISA did not advertise all the invitations for competitive bidding for the required minimum period, in contravention of Treasury Regulation 16A63(c). This is a repeat finding from the 2016/17 financial year.

 

  • The Accounting Officer did not ensure compliance with Supply Chain Management (SCM) regulations.

 

 

 

4.3.4.Key reported achievements

 

  • Achieved an unqualified audit opinion on Annual Financial Statements, with only one matter of emphasis, namely, material underspending of allocated budget.

 

  • Awarded bursaries to 202 students for studies in technical professions.

 

4.3.5.Key reported challenges

 

  • Internal capacity challenges, which contributed to MISA’s relatively low performance level and the concomitant underspending of allocated budget.

 

4.4.South African Local Government Association

 

4.4.1.Service delivery performance

 

  • Achieved 95 percent (58/61) of the targets set during the year under review. The entity’s targets had increased by almost 100 percent, from 35 in 2016/17 to 61 in 2017/18.

 

  • Continued to roll out the Small Town Regeneration Project in the Karoo region.

 

  • Concluded research and finalised a report on regional economies and categorisation thereof.

 

  • Developed a position paper on the Legislative Framework for Environmental Management to assist Local Government to clarify the responsibilities about environment function, as well as a policy position paper on funding requirements for Environmental performance.

 

  • Hosted an energy summit to have a wider conversation around the policies impeding the operations of municipalities in the energy space.

 

  • Conducted a capacity development workshop aimed at capacitating Organised Local Government and Local Governments to facilitate the implementation of Agenda 21 for culture.

 

4.4.2.Financial performance

2017/18

Quality of financial statements

No findings.

Under-expenditure

Incurred under-expenditure amounting to R8.2 million.

Fruitless and wasteful expenditure

Incurred fruitless and wasteful expenditure amounting to R14 000, which was not recoverable.

Irregular expenditure

Identified irregular expenditure amounting to approximately R1 million due to failure to procure goods through a competitive bidding process.

 

 

 

4.4.3.Audit findings

 

SALGA achieved a sixth consecutive unqualified audit opinion with no emphasis of matters (clean audit).

 

4.4.4.Key reported achievements

 

  • SALGA has raised all systemic and structural challenges in the Electricity Reticulation Industry through IGR platforms, which led to the formation of the Inter-ministerial Task Team (IMTT) in March 2017. SALGA’s participation in the IMTT assisted in elevating the discussion on electricity reticulation challenges, which led to some achievements – including commitments and plans of action from relevant institutions.

 

  • Published over 50 media releases and advisories, which generated media coverage, increasing visibility for SALGA and the sector.

 

  • Achieved a clean audit for the sixth consecutive year.

 

4.4.5.Key reported challenges

 

  • Decrease in projected total revenue – from R619 million to R605.6 million – due to the absence of National Members Assembly (NMA) registration fees and the absence of grants leveraged for the induction of incoming councillors in the prior year. The NMA did not convene, in line with constitutional amendments adopted during SALGA’s 2016 National Conference.

 

4.5.CRL Rights Commission

 

4.5.1.Service delivery performance

 

  • Achieved 100 percent of the targets set during the year under review, despite severe budgetary and human resource constraints.

 

4.5.2.Financial performance

2017/18

Quality of financial statements

  • The Commission did not prepare the financial statements submitted for auditing in accordance with the prescribed financial reporting framework set out in section 40(1) (b) of the Public Finance Management Act, No. 1 of 1999.

 

  • Management did not prepare regular, accurate and complete financial reports that were verifiable.

Irregular expenditure

Incurred irregular expenditure amounting to R1.1 million. The Auditor-General could not obtain appropriate audit evidence to the effect that the Commission took disciplinary action against the officials responsible for the irregular expenditure.

 

4.5.3.Audit findings

2017/18

Unqualified audit opinion, with emphasis of matters

AUDIT FOCUS

AREAS

FINDINGS

Quality of submitted performance reports

The Accounting Officer did not exercise adequate oversight responsibility regarding performance reporting and related internal controls.

Compliance with legislation

  • Non-compliance with Treasury Regulations 8.2.1 and 8.2.2. (regulates approval of public expenditure), which resulted in the bulk of irregular expenditure reported above.

 

  • Management did not adequately review and monitor compliance with applicable laws and regulations.

 

4.5.4.Key reported achievements

 

  • Compiled an investigative report on the commercialisation of religion and abuse of people’s belief systems. The Report, which the Commission has tabled in Parliament and presented to the Portfolio Committee on Cooperative Governance and Traditional Affairs, has generated much controversy and debate, and contributed to the entity’s strong media presence. The Report also prompted the South African Revenue Service (SARS) to engage religious institutions with the intention of investigating possible tax non-compliance in the sector.

 

  • Released a Report on the Commission’s findings relating to deaths in initiation schools. This followed public hearings in Limpopo, Western Cape and the Eastern Cape, which the Commission pursued in response to increased deaths, beatings, assaults and health dangers in initiation schools across the country.[1]

 

4.5.5.Key reported challenges

 

  • Regression from a clean audit in 2016/17 to an unqualified audit opinion owing to irregular expenditure amounting to R1.1 million. The Auditor-General could not obtain appropriate audit evidence to the effect that the Commission took disciplinary action against the officials responsible for the irregular expenditure.

 

  • Budgetary and human resource constraints.

 

4.6.Municipal Demarcation Board

 

4.6.1.Service delivery performance

 

  • Increased performance on pre-determined objectives from 65 percent in 2016/17 to 89 percent in 2017/18. This is a significant performance improvement from the previous financial year where the Auditor-General found the articulation of performance indicators weak. In 2016/17, the leadership did not exercise adequate oversight responsibility with regard to performance reporting. This contributed to the MDB’s failure to achieve its clean audit target.

 

4.6.2.Financial performance

2017/18

Quality of financial statements

The Board did not prepare annual financial statements in accordance with prescribed financial standards, resulting in material misstatements.

Under-expenditure

Incurred under-expenditure amounting to R9.6 million due to delays in the implementation of the capacity assessment project.

Irregular expenditure

Incurred irregular expenditure amounting to R17 million, which is nearly six times higher than that incurred in the previous financial year.

 

4.6.3.Audit findings

2017/18

Unqualified audit opinion with emphasis of matters

AUDIT FOCUS

AREAS

FINDINGS

Quality of submitted performance reports

Material misstatement of performance information.

Compliance with legislation

Non-compliance with SCM prescripts in respect of:

 

  • A lease agreement, where the Board did not appoint a service provider with the highest score in terms of points.

 

  • Bid documentation, which did not meet the stipulated minimum threshold.

 

4.6.4.Key reported achievements

 

For the 2017/18 financial year, the MDB highlighted the following achievements, among others:

 

  • Finalisation of spatial boundaries descriptions for 18 municipalities.

 

  • Convened two seminars in collaboration with the South African Human Sciences Research Council. These related to the categorisation of municipalities into category A municipalities; and citizen engagement and social cohesion.

 

  • Conducted an extended stakeholder and public participation process as part of the municipal boundary re-determination process.

 

4.6.5.Key reported challenges

 

For the 2017/18 financial year, the MDB reported the following challenges, among others:

 

  • A small staff complement due to inadequate budget allocation, which constrains the MDB’s ability to enhance public consultation.

 

  • Consecutive non-achievement of the envisaged unqualified audit with no emphasis of matters (clean audit). As in the previous financial year, the Board had findings relating to material misstatement of performance information, as well as non-compliance with Supply Chain Management (SCM) prescripts that resulted in irregular expenditure.

 

  • Despite an additional allocation of R7 million in 2017/18, the Board did not achieve the target of conducting capacity assessments in 81 municipalities.

 

  • Incurring of under-expenditure amounting to R9.6 million due to delays in the capacity assessment project.

 

  • Delays in the process of amendments to the Municipal Demarcation Act, which will have a negative bearing on the upcoming ward delimitation process.

 

  • Inadequate spatial description hinders the process of addressing municipal boundary misalignments affecting areas under traditional communities.

5.committee observations

 

5.1.General observations

 

  • The Committee noted the good work of the CRL Rights Commission during the year under review, especially in relation to highlighting the abuses perpetrated under the guise of religion. 

 

  • The Committee further noted and appreciated MISA’s service delivery performance during the year under review, including the placement of 102 qualified artisans and water process controllers in low capacity municipalities.

 

5.2.Technical issues

 

  • The Committee noted and accepted the explanation by the Minister of Cooperative Governance and Affairs in relation to the late tabling of the 2017/18 Annual Report of the Department of Cooperative Governance.

 

5.3.Governance and operational issues

 

In respect of governance and operational issues, the Committee noted:

 

  • The gaps in section 71 reporting where municipalities could place deposits in banks in contravention of Treasury Regulations, as demonstrated in the VBS Mutual Bank matter.

 

  • The need to amend reporting requirements in respect of section 71 reports to encourage more transparency and greater accessibility to the wider public.

 

  • The problems around the customary law of succession, for example differences of opinion within the Royal Families.

 

5.4.Service delivery challenges

 

  • The MDB planned its work much later, resulting in failure to implement the target relating to capacity assessments of municipalities.

 

5.5.Financial performance

 

  • The Committee welcomed and congratulated SALGA and the Department of Traditional Affairs on the achievement of consecutive clean audits.

 

  • The Committee noted that MISA had not made much progress in dealing with Supply Chain Management issues, which the Auditor-General had raised in the previous financial year.

 

  • The Committee further noted that the CRL Rights Commission and the MDB did not comply fully with financial reporting standards and Treasury Regulations.

6.table of committee’s reporting requests

 

Reporting matter

Action required

Timeframe

Brief the Committee on the customary laws of succession in relation to all the Kingships/Queenships and chieftaincies.

Department to take the Committee through this with their lawyers

Before the Committee deals clause by clause with the Customary Initiation Bill

Statistics on initiation casualties

Department to furnish the Committee with information on initiation casualties

After the December initiation season.

VBS Mutual Bank matter

The Minister of Cooperative Governance must brief the Committee on this matter

Fourth week of October 2018

 

7.Recommendations

 

In respect of the annual performance of the Department of Traditional Affairs and its entities for the 2017/18 financial year, the Committee recommends the following:

 

  1. The Department of Cooperative Governance must address the weak levels of assurance, which the Auditor-General identified in respect of the Executive Authority, Accounting Officer and Senior Management.

 

  1. The Department of Cooperative Governance must table its Annual Reports within the stipulated timeframes, to afford the Committee opportunity to assess the Department’s financial and service delivery performance in line with its oversight mandate.

 

  1. The Department of Cooperative Governance must consider undertaking a comprehensive review of the Community Work Programme, including identifying the key problem areas and devising mechanisms to deal effectively with the identified challenges.

 

  1. The Portfolio Committee must invite all the municipalities with deposits in the VBS Mutual Bank in order to understand better the impact of the Bank’s possible liquidation on the financial and service delivery performance of these municipalities.

 

  1. The MDB should explore the possibility of submitting its proposed amendments to the Demarcation Act directly to the Portfolio Committee, which can deal with the amendments as a Committee Bill.

8.appreciation

 

The Committee wishes to thank the Department of Cooperative Governance and Traditional Affairs, CRL Rights Commission, Auditor-General of South Africa, SALGA, Municipal Demarcation Board, and MISA for their fruitful, cordial and constructive engagements. The contributions of Committee Members, as well as Committee support staff is highly appreciated.

 

 

Report to be noted for consideration

 

 

 

 

 


[1] The New Age Reporter (2017).

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