ATC111207: Report Follow-up visit to North West Municipalities from 12 – 14 October 2011
NCOP Finance
Report of the Select Committee on Finance on the follow-up visit to North West Municipalities from 12 – 14 October 2011, dated 07 December 2011
1. Introduction
The Select Committee on Finance (herein after referred to as “the Committee”) undertook a follow-up visit to municipalities in the Province of North West on the 12 to 14 October 2011. The meetings were held in Potchefstroom at the Elgro Hotel. A subsequent meeting was held at Parliament on the 23 November 2011.
1.1 Purpose of Visit
The purpose of the visit was to engage the identified municipalities on the progress made since the previous Committee visit during 2010. The main focus of these meetings was on governance matters and issues identified by the Committee in its previous visit. This follow-up visit was also meant to assess the extent to which relevant stakeholders cooperate with municipalities in order to accelerate service delivery.
In preparation for these meetings, municipalities were required to prepare a presentation on its performance focusing on the thematic areas of the Local Government Strategic Agenda which are:
· Municipal Transformation and Institutional Development;
· Basic Service Delivery;
· Local Economic Development;
· Municipal Financial Viability and Management;
· Good Governance and Public Participation; and
· Other cross-cutting matters.
1.2 Delegation
The delegation consisted of the following Members:
Hon CJ de Beer, (Northern Cape - ANC) [Chairperson];
Hon TE Chaane, (North West - ANC);
Hon RA Lees (KwaZulu-Natal - DA);
Hon BL Mashile (Mpumalanga - ANC);
Hon SS Mazosiwe (Eastern Cape - ANC);
Hon SD Montsitsi (Gauteng - ANC); and
Hon JMG Bekker (Western Cape - DA).
The parliamentary officials who accompanied the delegation were: Mr. Z Rento (Committee Secretary: Select Committee on Finance); Mr. L Nodada (Committee Secretary: Select Committee on Appropriations), Mr. S Mncwango (Committee Researcher: Select Committee on Finance), Ms. Y Joseph (Committee Researcher: Select Committee on Appropriations), and Mr. G Mankay (Committee Assistant).
1.3 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 following municipalities in North West were identified by the Committee for the revisit:
- Mamusa Local Municipality;
- Moses Kotane Local Municipality;
- Moretele Local Municipality;
- Mafikeng Local Municipality;
- Kgetlengrivier Local Municipality;
- Ventersdorp Local Municipality;
- Tswaing Local Municipality;
- Ditsobotla Local Municipality;
- City of Matlosana Local Municipality; and
- Maquassi Hills Local Municipality.
The following stakeholders were invited to participate:
- National Department of Cooperative Governance;
- North West Provincial Treasury;
- South African Local Government Association (SALGA);
- Department of Energy;
- Financial and Fiscal Commission (FFC);
- Provincial Department of Cooperative Governance;
- Department of Water Affairs;
- National Treasury;
- Office of the Auditor-General;
- Development Bank of Southern Africa; and
- Eskom.
2. Presentation by the Office of the Auditor-General in the North West Province
2.1 Mamusa Local Municipality
The office of the Auditor General (AG) reported that Mamusa Local Municipality’s finances were being handled by Dr Ruth Mompati District Municipality due to a lack of capacity at the municipality.
It was reported that the most significant financial statement qualification areas are debtors and revenue collection. It was further reported that the Council did not prepare a performance report which reflects the municipality's performance during the 2007/08 financial year. The Council failed to provide a comparison with the targets and the performance in the previous financial year and report on measures that were to be taken to improve performance.
2.2 Moses Kotane Local Municipality
The Auditor-General (AG) reported that Moses Kotane Local Municipality had not submitted its 2009/10 annual financial statements as required by the Municipal Finance Management Act No. 56 of 2003 (MFMA). The AG further reported that the majority of the items in the financial statements were qualified due to a lack of sufficient information and appropriate supporting documentation, as well as, non-compliance with the requirements of Generally Recognised Accounting Practice (GRAP) 17. As a result of the lack of supporting documentation, the Special Investigation Unit was conducting investigations.
2.3 Moretele Local Municipality
The AG reported that financial statements for the 2009/10 financial year were submitted late as the municipality struggled to complete the GRAP conversion process. It was reported that the audit for the 2009/10 financial year was in process at the time of the Committee engagement with the Municipality. The entity, Moretele Development Agency, has a backlog of audits (for the 2008/09, 2009/10 and 2010/11 financial years).
It was mentioned that, as a result of the delay in the submission of the consolidated annual financial statements, the audit reports will also be delayed. The internal audit unit is significantly understaffed which resulted in the ineffectiveness of the unit. Currently, there was only one staff member in the unit. The shared audit committee provided by the Bojanala District Municipality was not making any impact at Moretele Municipality.
2.4 Kgetlengrivier Local Municipality
The AG office reported that the financial statements for the 2009/10 financial year were submitted late as the municipality struggled to complete the GRAP conversion process. It was reported that the financial statements for the 2009/10 financial year were still being audited.
It was reported that the bank reconciliation was incorrect. Irregular expenditure was incurred because the municipality could not provide evidence of supply chain management processes followed for expenditure amounting to R23.5 million.
2.5 Mafikeng Local Municipality
The AG office reported that Section 57 vacancies are filled by acting officials which include the municipal manager and chief financial officer of the Municipality. These vacancies have negatively contributed to the current position of the municipality. This is combined with a lack of adequately skilled staff, specifically in the finance section, which continues to restrain the municipality in resolving audit qualifications from previous years and achieving GRAP compliant financials.
2.6 Ventersdorp Local Municipality
The AG office reported that annual financial statements for the 2009/10 financial year were submitted late as the municipality struggled to complete the GRAP conversion process. The audit report for the 2009/10 financial year is in the process of being finalised.
The municipality has to make use of consultants to compile the annual financial statements as the necessary expertise does not exist in the municipality. The Municipality is experiencing a financial crisis and is unable to pay the outstanding audit fees of R6 million. The financial situation of the municipality could be attributed to, but not limited to, lease agreements entered into where the value of the goods were less than 3 per cent of the amount paid for the leases. These leases resulted in payments of up to R7 million a year over a five year period. No procurement processes were followed.
2.7 Tswaing Local Municipality
The AG office reported that the financial statements for the 2009/10 financial year were submitted late due to administration challenges and the Section 139 intervention. The Municipality then undertook a commitment to address issues raised by the AG in the audit report for the 2008/09 financial year, before implementing GRAP conversion. Despite the appointment of consultants and the AG’s interactions, this process took longer than anticipated and the final adjusted set of the financial statements for the 2009/10 financial year were submitted for audit purposes on the 19 April 2011.
It was further reported that, despite the use of consultants to prepare the annual financial statements due to a lack of such skills in the municipality, the quality of the financial statements and the municipality’s ability to support and substantiate the disclosed financial data, have not improved. Financial and performance management information was not identified and captured in a format and timeframe to support accurate and reliable financial and performance reporting. The financial statements were subject to material amendments resulting from the audit. Supply chain management and structures were not fully effective.
2.8 Ditsobotla Local Municipality
The AG office reported that Ditsobotla Local Municipality was qualified regarding its status as a going concern. There is doubt on the recoverability of debts and funds, and reserves are not cash backed. The financial statements for the 2009/10 financial year were submitted late as the municipality struggled to complete the GRAP conversion process. The audit for the 2009/10 financial year is currently in process. An investigation into alleged tender, procurement, payment irregularities and instances of conflict of interests at the municipality for the period of 1 July 2006 to 30 June 2008 was in progress.
There was no proper asset management and revenue collecting system in place at the municipality. Supply chain management policies and procedures were not adhered to. The Municipality did not submit the annual performance report for auditing.
2.9 City of Matlosana Local Municipality
The AG office reported that, despite the use of consultants to prepare the financial statements due to a lack of such skills in the municipality, the quality of the financial statements has not improved. The majority of the items in the financial statements were qualified either as a result of not adhering to the GRAP requirements (like infrastructure assets, provisions, etc) or due to a lack of sufficient appropriate supporting evidence. In addition to an irregular expenditure of R7.9 million that was incurred in the 2009/10 financial year, there was a limitation placed on the audit of the awarding of tenders amounting to R105.4 million which resulted in a qualification.
2.10 Maquassi Hills Local Municipality
The AG office reported that the financial statements for the 2009/10 financial year were submitted late due to administration challenges. The municipality then undertook to address and correct prior year misstatements, before implementing the GRAP conversion. Despite the appointment of consultants and the AG’s interactions, the compilation of the financial statements took longer than anticipated and the final adjusted financial statements for the 2009/10 financial year were only submitted for audit purposes on the 1 July 2011.
It was reported that pertinent information was not identified and captured in a format and time frame to support accurate and reliable financial and performance reporting. The financial statements were subject to material amendments resulting from the audit. Supply chain management was not fully effective. Requested information was not always available or supplied without delay.
2.11 Summary of Unauthorised, Irregular and Fruitless Expenditure
Table 1 (below) shows the amounts that could not be accounted for by municipalities through unauthorised, irregular and, fruitless and wasteful expenditure for the 2009/10 financial year.
|
No. |
Municipality |
Unauthorised expenditure
(R) |
Irregular expenditure
(R) |
Fruitless and wasteful expenditure (R) |
|---|---|---|---|---|
|
1. |
Mamusa Local Municipality |
0 |
0 |
0 |
|
2. |
Moses Kotane Local Municipality |
0 |
128 846 106 |
0 |
|
3. |
Moretele Local Municipality |
52 888 194 |
8 243 050 |
566 728 |
|
4. |
Kgetlengrivier Local Municipality |
0 |
0 |
0 |
|
5. |
Mafikeng Local Municipality |
87 457 118 |
11 887 095 |
22 686 |
|
6. |
Ventersdorp Local Municipality |
10 481 462 |
28 272 339 |
0 |
|
7. |
Tswaing Local Municipality |
0 |
20 251 189 |
1 051 783 |
|
8. |
Ditsobotla Local Municipality |
132 822 006 |
0 |
83 396 |
|
9. |
City of Matlosana Local Municipality |
324 708 853 |
7 961 170 |
0 |
|
10. |
Maquassi Hills Local Municipality |
109 680 678 |
15 881 871 |
623 079 |
3. Presentation by National Treasury
The National Treasury (NT) indicated to the Committee that they had continuous engagement with municipalities to discuss certain issues which contributed to poor financial management and performance by municipalities. The National Treasury also indicated that there is poor financial management capacity, inappropriately qualified staff and high staff turnover in the Budget and Treasury offices of municipalities, as well as key service delivery departments. There was preparation of poor quality budget documentation with weak linkages to the IDP and, municipal budgets were not credible. The NT has observed weak political oversight on the preparation and implementation of budgets. There was political interference in administrative decision making, which often undermines the principles of good governance and places the sustainability of municipal finances at risk.
The National Treasury has provided training and support to the Provincial Treasury and municipalities over the past fourteen months which included, among others, the following:
· In-year reporting processes, including the completion of annual and monthly return forms to the National Treasury LG Database;
· Municipal Budget and Reporting Regulations;
· Cash flow management including revenue; and
· Use of the funding compliance assessment; and General financial management functions.
The National Treasury indicated that support has been directly given to the following municipalities: Madibeng; Mafikeng; Moretele; Ngaka Modiri Molema; Ratlou and Tswaing.
The National Treasury further reported that the North West municipalities have 11 vacancies for chief financial officers and 14 vacancies for municipal managers. These positions have officials on acting capacities which has an adverse effect on the financial performance of the municipality. The other common challenge in North West municipalities is the increasing number of debtors and poor collection rates either as a result of the high number of indigents, poor implementation of credit control policies and inefficiencies in the billing system. There is also lack of commitment by both the political and administrative leadership, which result in inefficiencies in terms of service delivery.
4. Provincial Treasury
Provincial Treasury reported that they had assisted Tswaing and Ventersdorp Local Municipalities through the office of the MEC with the payment arrangements with ESKOM. Tswaing had adhered to the arrangement but Ventersdorp had defaulted.
5. Presentation by the Department of Water Affairs
The national Department of Water Affairs reported that they were busy with feasibility studies for the augmentation of the bulk water supply for various local municipalities in the province and that the costs of the feasibility studies would amount to R119 million for the 2011/12 financial year. For the 2012/13 financial year, it would amount to R174.9 million.
It was reported that, for the regional bulk infrastructure programme, an amount of R107.7 million has been allocated for the 2011/12 financial year. The Department further reported that this programme has an allocation of R124.9 million for the 2012/13 financial year.
The Maquassi Hills project is the only Regional Bulk infrastructure project completed in the Province of North West. The project value is R157.9 million and is co-funded by various stakeholders: Regional Bulk Infrastructure Grant amounting to R 66 million, R10 million from Sedibeng Water Board, Municipal Infrastructure Grant (MIG) amounting to R 55.9 million and the balance from municipalities.
The Department reported that they were supporting municipalities with a Local Government Support action/intervention plan for the 2011/2012 financial year.
The Department reported that they were running councilor development programmes but there had been poor attendance by councillors. It was also reported that the department had assisted the Maquassi Hills Local Municipality in developing its water development disaster plan which was finalised in the previous financial year (2010/11).
The Department of Water Affairs reported that they were busy with a feasibility study that would be completed by March 2012. The feasibility study would potentially benefit Tswaing Local Municipality with its water challenges. It was also reported that the department had assisted Ventersdorp Local Municipality with the development of its water management development plan.
6. Eskom
Eskom reported to the Committee that there were discrepancies in the municipal backlog figures reported to the Committee and that which was reported to Eskom by the municipalities. In most instances, the electrification backlogs figures were not the same, and despite the fact that municipalities submitted signed letters to Eskom confirming the number of electrification backlogs.
Table 2 shows Eskom electrification programme and expenditure incurred by relevant municipalities.
|
No. |
Local Municipality |
2010/11 |
2011/12 |
2012/13 |
|---|---|---|---|---|
|
1. |
Mamusa LM |
R5.6 million |
R41 million |
Engaging municipality on projects |
|
2. |
Moses Kotane LM |
R4.7 million |
R13.4 million |
1380 houses will be electrified |
|
3. |
Moretele LM |
R4.5 million |
R6.8 million |
Engaging municipality on projects |
|
4. |
Kgetlengrivier LM |
R1 million |
Municipality indicated that there were no backlogs |
Engaging municipality on projects |
|
5. |
Ditsobotla LM |
R8.4 million |
R9 million |
Engaging municipality on projects |
|
6. |
Tswaing LM |
R8.2 million |
R3.2 million |
Engaging municipality on projects |
|
7. |
Ventersdorp LM |
R8.2 million |
No connections planned |
Municipality has not provided data to Eskom |
|
8. |
Mahikeng LM |
R18.2 million |
R29.1 million |
Engaging municipality on projects |
|
9. |
City of Matlosana LM |
R8.2 million |
R5.2 million |
Engaging municipality on projects |
|
10. |
Maquassi Hills LM |
R22 million |
R3.2 million |
Engaging municipality on projects |
Eskom reported that the following municipalities have made payment arrangements: Naledi Local Municipality, Tswaing Local Municipality, Ventersdorp Local Municipality, and Maquassi Hills Local Municipality. It was further reported that Ventersdorp Local Municipality seems to be the only municipality not complying but others were honouring the payment agreements.
7. South African Local Government Association (SALGA)
SALGA reported that the municipalities should utilise the services of its provincial office in dealing with some of their challenges as they might be resolved at that level.
8. Development Bank of Southern Africa (DBSA)
DBSA reported that Maquassi Hills Local Municipality owed them R56 million and were in default on a loan that was meant to deal with backlogs. DBSA had engaged them with regards to formulating payment mechanisms. On the above matter, DBSA reported that they had also engaged Provincial Treasury and the Provincial Department of Cooperative Governance and Traditional Affairs.
9. Presentations by Municipalities
9.1 Mamusa Local Municipality
Mamusa Local Municipality reported that they have managed to collect R23.6 million - representing 47 per cent of the projected revenue for the 2010/11 financial year. For the July to September 2011 period, they had billed for R16.5 million and have managed to collect R7.9 million – almost of half of the billed amount.
The municipality reported that, for the 2011/12 financial year, they had spent 0 per cent for the following grants: the Municipal Infrastructure Grant (MIG) and the Municipal System Improvement Grant (MSIG).
The municipality reported that indigent beneficiaries were registered and renewed on an annual basis. Indigents were registered during the outreach program, as well as during individual visits at municipal administration offices. The municipality had an indigent policy in place. The total number of indigent beneficiaries registered amounts to2 655 indigents.
The municipality reported that with regard to electricity backlogs, the following information was submitted to ESKOM and the Department of Minerals & Energy: Ipelegeng 3500 units depended on housing delivery; Migdol 550 units project completed, Nooitgedacht 500 units depended on housing delivery.
The municipality reported that with regard to electricity infrastructure, an investigation by Ingplan Consulting Engineers (Pty) Ltd revealed that the substations, MV and LV distribution networks are at a critical level. Repair and maintenance work to the substations and network should be done as a matter of urgency to minimise the losses in the system and outage time. The municipality reported that with regard to water infrastructure, the water supply network consists of 21 boreholes, of which16 boreholes are operational and in good condition. It was reported that they were in the process of replacing stolen cable & motors in other boreholes. The municipality further reported that there was a contractor on site for backlog maintenance of water treatment works and the anticipated completion time was the end December 2011.
The municipality reported that with regard to sanitation infrastructure, they had just recently upgraded two sewer pump stations and that the 3 megalitre sewer plant was operational and being upgraded to 9 megalitre.
9.2 Moses Kotane Local Municipality
Moses Kotane Local Municipality reported that they have billed for R79.5 million for the 2010/11 financial year and managed to collect R74.2 million which represents 93.2 per cent. It was also reported that they have billed R20.7 million for the July to September 2011 period and managed to collect R8.3 million representing 40 per cent.
The municipality reported that outstanding consumers (i.e. debtors) was amounted to R121.1 million and that the Council had adopted an incentive scheme on the 28 February 2011, whereby consumers will receive a 50% discount on the arrears amount as at 31 December 2010 on condition that the full account is settled before 31 December 2011. It was reported that outstanding creditors amount to R297 916 with an amount of R55 677 being under dispute.
The municipality reported that the budget performance for the 2010/11 financial year in terms of operating budget was as follows: revenue was R272.3 million and expenditure was R342.9 million. It was reported that the actual operating revenue for the 2010/11 financial year was R305 million and the actual expenditure was R314 million. The municipality indicated that it had migrated to a new financial system and data cleansing was in process.
The municipality indicated that the number of households in the municipality were 63 000, of which 58 000 households had access to water and 47 100 had access to sanitation. This means that 5 000 households do not have access to water in terms of RDP standards and that 15 900 households do not have access to sanitation in terms of RDP standards.
It was reported that household’s electrification needs was being serviced Eskom. A backlog of 4 500 households was estimated to have no access to electricity.
The municipality further reported that a new waste disposal site has been completed in Mogwase and that the municipality’s water works was operating at full capacity,
9.3 Moretele Local Municipality
The Moretele Local Municipality reported that it was not doing well when it comes to the spending of conditional grants. For example, spending on DWAF, MSIG, and FMG were at 0 per cent. The equitable share was R115.6 million. The Municipality reported that their cash flow position (bank balance) was R 97.8 million as at the end of 31 August 2011.The Municipality reported that debtors, as at 31 August 2011, amounted to R83 million. This debt is owed by government departments, business and households.
The municipality reported that their major outstanding creditor was the water account owed to Tshwane water. The outstanding account, as at 31 July 2011, was R91.5 million. It was reported that several engagements took place and resolutions were taken including, amongst others, the following: a contribution of R15 million by Bojanala District Municipality, the Department of Water Affairs to settle R17 million which was in arrears and accumulated on the account as from the 2006 calendar year. It was agreed that the City of Tshwane should waive all arrears and penalties accumulated by the initial service level agreement between the City of Tshwane and the Moretele LocalMunicipality.
Service delivery backlogs to households are as follows, water 13969, sanitation 26920, housing 12398, electricity 12502, roads 691 km and waste removal amounting to R 2.1 billion,
The municipality reported that there were currently 3,903 indigents registered on the debtor system and the municipality had appointed consultants to do revenue enhancement, data cleansing that includes updating the information of the indigents. The project was only started at the end of September 2011.
The municipality indicated that they had established a development agency (Moretele Development Agency) in 2008, and that the return on investment and the objectives of the agency had not been realized.Measures to review will be considered at the next council meeting.
The Municipality has established ward committees in all 28 wards. Necessary support (i.e. stationary, training, allowances) is given to ward committees to ensure effectiveness.
The municipality reported that community meetings and other structured forum meetings (IDP, LED Forums etc) are held to promote and enhance participatory democracy particularly on the budget, IDP and other critical processes.
The municipality indicated that two new positions (Audit Manager and Audit Manager Assistant) had been created for 2011/12 and the appointments are expected by the 1 January 2012 to strengthen the audit unit. Currently, the Municipality relies on the District Shared Services for audit support. The plan is to build institutional capacity towards the establishment of an Audit Committee.
9.4 Mafikeng Local Municipality
The Mafikeng Local Municipality reported that allocated government grants amounted to R135 million for the 2010/11 financial year but they had received R128 million. The Municipal expenditure is R123.9 million (91.74 per cent). It was reported that budget allocation was R149 5 million for the 2011/12 financial year, but they had received R72.7 million and spent R52.8 million (48.16 per cent). The Municipality reported that service delivery projects under MIG amounted to R55.3 million and were under way for the 2011/12 financial year, which would result in 546 job opportunities.
The municipality reported that, in terms of the road master plan, 22 per cent (59.4 kilometers) of the roads need to be rehabilitated at an estimated cost of R56 million, and 49 per cent would need resurfacing/resealing at a cost of R43.7 million. The total backlogs for surfaced roads would cost R123.5 million. It was reported that the municipality would require approximately R1.7 billion for the improvement of gravel roads.
The municipality reported that debtors were at R456.8 million as at 30 September 2011. The accounts of the following debtors were outstanding: Botshelo Water (R24 million), and Department of Environmental Affairs (R4.5 million for refuse removal pilot project at peri-urban areas). It was further reported that the municipality had engaged the entity and the department to pay the outstanding amounts.
The municipality reported that of the total 70 306 households located in its jurisdiction, 49 265 or 70.1 per cent of all households have access to water. The backlog is therefore comprised of 21 041 or 29.9 per cent of all households in the municipality do not have access to water.
A total of 20 030 or 28.5 per cent of urban households have access to basic sanitation (i.e. flush toilet connected to a sewerage system), 9 015 or 12.8 per cent of rural households have access to basic sanitation (i.e. 2 445 households have access to flush toilets with septic tank, 6 570 households have pit latrines with ventilation and 37 200 households have pit latrines without ventilation). A total of 41 261 or 58.6 per cent of rural households in the municipality do not have access to basic sanitation.
The municipality indicated that 53 511 or 76.1 per cent of all households have access to basic electricity, while 16 795 or 23.9 per cent of all households in the municipality have no access to basic electricity (i.e. these households are using alternate energy sources such as paraffin and/or candles). The Municipality is currently looking at alternative energy options available (solar energy and bio-fuel). It was reported that public consultation will unfold by January 2012 with regard to alternative energy sources.
The municipality indicated that 26 851 rural households have no access to refuse removal services. Water pipes and valves within urban areas are over 100 years old and needs to be replaced as they have exceeded their life-span. It was reported that there were two sewer treatment works, one at Danville with a capacity of 5 mega litres per day, which was operating at full capacity and one at Mmabatho with a capacity of 24 mega litres per day of which about 16 mega litres was utilized,
The municipality reported that the length of the sewer networks is approximately 200 kilometres (km) throughout the urban area and is presently maintained manually. The total backlog for surfaced roads amounted to R123.5 million. The indigent register was being updated on a monthly basis.
The municipality indicated that there was a problem with the certified valuation roll that could not be submitted on an electronic version by the valuator to verify property values and numbers, as a result, the assessment rate for government properties was based on an incorrect valuation roll and was assessed too low for the 2011/12 financial year,
9.5 Kgetlengrivier Local Municipality
Kgetlengrivier Local Municipality reported that they have billed for revenue to the amount of R44.8 million for the 2010/11 financial year, but they only managed to collect R24.3 million (54.3 per cent). For the 2011/12 financial year, they had billed for R8.2 million in revenue for the July to September 2011 period and managed to collect R3.2 million (38.9 per cent).
The municipality reported that an amount of R2.4 million was allocated in the 2010/11 financial year for patching of potholes and edge repairs. An amount of R2 million has been allocated for maintenance of roads in the 2011/12 financial year.
It was reported that they had managed to spend 100 per cent of allocated government grants for the 2010/11 financial year amounting to R21 million. It was further reported that, with regard to the 2011/12 financial year, they were busy with MIG projects amounting to R16.6 million, and another one that was funded by Bojanala Platinum District Municipality to value of R7 million.
It was mentioned that, for the municipality to eradicate all the outstanding backlogs (water, sanitation, electricity, housing, roads, and solid waste and landfill sites), it would require approximately R781 million.
Furthermore, it was reported that the total debt owed to the municipality amounts to R115.7 million as at 31 August 2011. It was further reported that an item has been sent to the Council to write–off prescribed debts estimated atR74.3 million (64 per cent) and this was in line with the Council write-off policy. The municipality reported that rate payers association had opened a trust account where some of the monies meant for payment of municipal services and taxes are paid into.
The municipality reported that 55 per cent of all households in the municipality were classified as indigent; the indigent policy was reviewed in June 2011. The audit committee was a shared service with Bojanala District Municipalityand two meetings were held during the 2010/11 financial year.
The municipality reported a high rate of absenteeism amongst municipal employees. It was also mentioned that the finalisation of job-evaluation process resulted in employees taking the municipality to the South African Local Government Bargaining Council (SALGBC).
The municipality reported that the challenges experienced with regard to water service delivery were due to old infrastructure, illegal connections and an out-dated water service development plan.
The municipality reported that the total sanitation backlog was estimated at 3 127 households and that there was raw sewer spillages into the river systems in the area of Swartruggens. It was reported that the constant blockages of sewer lines leading to raw sewer flowing on streets was due to inferior substances being flushed into the system. The municipal landfill sites were not licensed and there was no proper equipment for maintaining it to acceptable standards.
The municipality mentioned that the electrification backlog in terms of households was currently estimated at 3 161 which includes Mazista (500 households), Borolelo extension 4 (1000 households) and Leeuwfontein (1661 households). The estimated backlog on the provision for houses was 5 028 households, mostly in informal settlements.
The municipality reported that municipal roads were currently in a bad state, both tarred and gravel. This also includes certain provincial roads that are passing through municipal towns.
The municipality reported that the 2010/11 annual financial statements were submitted on the 6 September 2011.
9.6 Ditsobotla Local Municipality
Ditsobotla Local Municipality reported that their revenue collection as billed for the 2010/11 financial year, was R89.6 million and they had managed to collect R71 7 million (80 per cent). For the 2011/12 financial year, they had billed for R58.6 million in revenue for the July to September 2011 period and managed to collect R49 million representing 84 per cent.
The municipality reported that its operating budget for the 2011/12 financial year amounted to R340 million. It was reported that the capital budget of the municipality amounted to R65.6 million, and the actual expenditure to date amounts to R64 million and income amounted to R82.8 million. Furthermore, it was reported that the municipality does not have any loans.
It was reported that water shortage in Itsoseng and Tlhabologang areas has been addressed through two bulk-water projects to the amount of R60 million. The district municipality has set aside R20 million to rectify the Boikhutso sewer network problem and address future capacity problems. A loan application of R20 million has been submitted to the Development Bank of Southern Africa for the Lichtenburg electricity supply as part of supporting investments and expansion.
The provincial Department of Roads has allocated R9 million for potholes in Lichtenburg and Itsoseng areas. It was reported that the municipality has purchased new vehicles as part of improving its response to service delivery to the value of R5.8 million.
The municipality reported that the total amount owed to creditors stands at R564 810, and bad debt was totalling to R151.5 million.
The municipality reported that they had completed the construction of a total of 1 458 houses making it the best performer within the district (and province). The estimated backlog in terms of housing delivery amounted to 11 700 households. The municipality provides formal refuse removal to all households in the urban and semi-urban areas, which excludes all rural areas.
There is no formal (legally registered) dumping site within the municipal area. The one used in Lichtenburg does not meet legal specifications or requirements,
The municipality reported that they had submitted both 2009/10 and 2010/11 sets of the annual financial statements to the Auditor-General for auditing. It was reported that the replacement of the financial systems to address incorrect opening and closing balances would cost the municipality R3 million.
The municipality reported that the total number of indigents registered were 6 449. The Municipality had advertised the positions of section 57 managers and will be finalising the process by November 2011. The ward committees were established and have received training, which was organised by the municipality in partnership with the Department of Local Government and Traditional Affairs. The relationship between the Speaker, Mayor and Accounting Officer is healthy as evidenced by weekly interactive meetings to discuss governance related matters.
9.7 City of Matlosana Local Municipality
The City of Matlosana Local Municipality reported that their revenue as billed for the 2010/11 financial year, was R900.5 million and they had managed to collect R 761.6 million (85 per cent). For the 2011/12 financial year, they had billed R265.5 million for the July to September 2011 period, and managed to collect R187 million (70,43 per cent).
It was reported that they had managed to spend the allocated government grants for the 2010/11 financial year, except for the NDPG R880 000 and EPWP R1.7 million. It was further reported that, for the 2011/12 financial year, the only grant they had not spent on was the Integrated National Electrification Programme Grant (R8.7 million), whereas only R2.5 million has been received. It was further reported that, for the 2011/12 financial year, the municipality was busy with MIG projects amounting to R107.9 million
Furthermore, it was reported that debtors were at R456.8 million as of 31 August 2011. As at 30 September 2011, creditors were at R146.8 million.
The municipality reported that mines were closing down. The Municipality is faced with serious financial problems. The previous MM was suspended and later dismissed. A strategy was implemented to turn the financial position of the municipality around. Government departments are not paying their outstanding debt, which is having a detrimental effect on the municipality’s finances. Committees were appointed to monitor assets and supply chain management processes.
The Council has put in place an indigent relief policy and register. The Council has put in place more stricter monitoring and evaluation systems by reviewing the indigent register on an annual basis from the date of an acceptance so that the monitoring and evaluation can be done on a staggered basis. The Council communicated the indigent policy to community members through IDP meetings, Imbizo’s, public participation and as well as ward meetings. The number of indigent households as at the end of September 2011 is 42 174 households.
The municipality reported that the Council was currently reviewing its strategic position with Agenda 16 PLUS. 16 Revised strategic programmes were being developed to place the municipality within the top 5 municipalities. An organizational restructuring was planned to ensure the effectiveness and efficiency of the municipal administration.
9.8 Maquassi Hills Local Municipality
Maquassi Hills Local Municipality reported that they projected revenue of R248.1 million for the 2010/11 financial year. At the end of the 2010/11 financial year, the municipality managed to collect R189.6 million or 70 per cent of the estimated revenue. For the 2011/12 financial year, it had budgeted R257.5 million. The main source of this revenue is from grants and subsidies which were estimated at R71.1 million for the 2011/12 financial year which has increased significantly from the R63.6 million received by the municipality in the 2010/11.
The municipality reported that its total debt was R176.5 million at the end of June 2011. Of this amount, R151 million was more than 120 days overdue from its debtors, and R5.9 million is more than 90 days in arrears. The debtors balance had increased by R25.6 million compared to the previous financial year.
It was reported that the municipality had managed to spend its equitable share of R56.9 million (100 per cent) as allocated in the Division of Revenue Act No. 1 of 2010 for 2010/11 financial year. In terms of conditional grant spending for the Municipal System Improvement Grant, the municipality had managed to spend R573 466 (78 per cent) of the allocated and transferred revenue which was a total of R735 000.
Regarding the Municipal Infrastructure grant, the municipality managed to spend R21.3 million of the R23.6 million allocated and transferred to it. MHLM had also spent the approved rollovers from the previous financial year of R3.3 million. With regards to the Financial Management Grant (FMG), the municipality spent R773 441 (77 per cent) of the allocated and transferred amount of R 1 million.
The municipality reported that they had a challenge in terms of making payments towards their main creditors: ESKOM and Sedibeng Water. It had met the two creditors in terms of making payment arrangements. At the time of reporting, the municipality owed Eskom an amount of R13.7 million of which R3.3 million is 90 days overdue. Meanwhile, the total amount owed to Sedibeng Water was R16.7 million.
The municipality reported that the last tabled and approved annual report was for the 2005/06 financial year. The 2006/07, 2007/08 and 2008/09 annual reports had been compiled and finally completed and would be tabled before Council and the Oversight Committee before the 31 January 2012. It was reported that the 2009/10 annual report was however attended to and receiving the attention of the Auditors and that a disclaimer audit opinion was released. The 2011/ 12 annual report still requires a lot of work before finalization thereof.
The municipality reported that in dealing with the issue of informal settlements, they have done the following: Established a new township in Wolmaransstad with 970 residential sites and were in the process of establishing new townships in Leeudoringstad and Rulaganyang. A request will be submitted to either the District or province to assist the municipality with funding. The municipality reported that the Department of Human Settlement topped-up 466 units in order to unblock the blocked projects, which amounted to 544 housing units.
The municipality reported that roads and the storm-water system had collapsed. A roads master-plan was developed for all the towns and townships, with the aim of surfacing all the roads either with tar or paving. The Municipality has challenges in terms of funding this programme, which will cost up to R810 million.
The municipality reported that 6 000 kiloliters was serviced to the total 1 427 indigents households units per month. It was reported that villages such as, Boskuil, Oersonskraal and Kareenpan access potable water from the stand pipes (200m) National RDP standard. Bulk Water projects which cost R156 million was completed and portable water was supplied to all the towns and townships of the municipality. The Council was in a position to supply water for the next 10 to15 years.
9.9 Tswaing Local Municipality
Tswaing Local Municipality reported that for the 2011/12 financial year, their equitable share allocation was R 56.2 million, and it received R 21.6 million. At the end of August 2011, the Municipality managed to spend the entire funds that had been received. The following conditional grants have not been spent by the Municipality; Expanded Public Works, Integrated National Electrification Programme, and Municipal System Improvement Grant.
In terms of its revenue collection, the municipality has billed a total of R45.8 million for 2010/11. However it had managed to collect or receive a total of R27.5 million or 60 per cent of the total bill. In its capital expenditure, the municipality has projected R17.4 million for 2010/11. However, at the end of the financial year it only spent R10.2 million. The projected operating expenditure for 2010/11 was R187.3 million and at the end of the financial year the Municipality under spent by R114.3 million.
The municipality reported that they were owed R131 million by their debtors, and had now implemented their policy in terms of cutting services for those that were not making payments. As a result of that action, more people started to make payment arrangements with the municipality and some have already paid. It was also reported that creditors’ debts amounted to R 17.4 million. ESKOM is the major creditor of the municipality, being the highest with R11.6 million. The Municipality also owes South African Revenue Services (SARS) an amount of R1.5 million.
The municipality reported that it had applied for rollovers to National Treasury but its application was declined and in turn requested assistance from the parliamentary Committee in this regard.
In terms of debt analysis, the municipality had a total of R120.5 million owed by its debtors. The municipality reported that with respect to its debtors, R24.1 million was owed by Government departments; R36.2 million by businesses; R48.2 million by households and R12.1 million comprises “other” debtors.
The municipality reported that the rates payers association in Sannieshof were still withholding payments. The Municipality is not a water authority. Access to portable water still poses a serious challenge in Letsopa/Ottosdal and Agisanang/ Sannieshof. Utilization of underground water sources was not enough with respect to the current demand. The municipality reported that 31 villages across Tswaing utilise the underground water supply. In the long- term, the municipality will need to access Maquassi Hills water scheme about 40 km away.
The municipality reported that the following were the District’s competencies: provision of water and sanitation in rural areas (restitution programmes). Solid waste disposal and refuse removal remains a serious challenge (old unserviceable equipment, manpower, old fleet). Regarding sanitation, there is a waterborne sewer system, but there were sewer leakages on streets especially in the townships.
The municipality reported that the annual financial statements were not yet submitted as the previous audit report was received late i.e. August 2011. This late submission was as a result of conversion from GAMAP to GRAP. Section 71 reports were submitted up to October 2011. The Internal audit service and Internal audit committee was in place, however was not functioning (i.e. Municipality entered into a shared service agreement with the district). It was reported that Gobodo Inc. was appointed to address queries raised by the AG for the 2009/10 and 2010/11 financial years.
It was also reported that 4 000 beneficiaries were registered in the indigent register.
9.10 Ventersdorp Local Municipality
Ventersdorp Local Municipality reported that it had billed R47.2 million, and received R32.6 million for revenue collection representing 68.98 per cent for 2010/11 financial year. In the first quarter of 2011/12 financial year, it had billed R9.8 million, and received R6.6 million representing 66.92 per cent.
The municipality reported that the municipality is financially not sustainable, and that the operating income could potentially increase when there’s proper billing as well as limited bridging of electricity and water by introducing smart meters.
The municipality reported that they had overspent in all its conditional grants for 2010/11 financial year as allocated in the Division of Revenue Act. For the MSIG, they had overspent by R16 351 of the allocated and transferred R750 000. For the MIG they had overspent the allocated and transferred of R 16.7 million by spending R16.9 million and also overspent of the allocated and transferred R 1 million spent R 1.1 million of the FMG.
It was reported that for the 2011/12 financial year, they had not managed to spend the allocated MIG of R 20 million, and transferred R4.2 million. The municipality was allocated and received R790 000 for the MSIG, but managed to spent R24 700. On FMG the municipality spent R81 861 of the allocated and transferred R 1.3 million.
The municipality reported that their outstanding creditors as at 30 September were R29.3 million; of those their major creditors among other included Eskom, Auditor General, DWAF, INCA, and DBSA. Due to the negative cash flow, the municipality was unable to pay creditors within the 30 day timeframe. It was also reported that their debtors owed R40.5 million.
On debt collection, the municipality reported that it was able to collect 65 per cent of debt from its debtors per month. As a result, the municipality entered into an agreement with a service provider that would collect the remaining 35 per cent outstanding debt. The agreement allows for 80 per cent of the collected amount to be paid to the service provider and 20 per cent to be paid to the municipality.
It was reported that they had acquired funding from the Department of Water Affairs to the value of R6 million for their water challenges.
The municipality had a vacancy rate of about 36 per cent.
The municipality indicated that a total of 5 600 household receive waste collection services and had one unlicensed land fill site. An application for funding has been made to the district. The Municipality had acquired two compactors and one 4 ton truck for weekly refuse collection. The contract between the municipality and two service providers for refuse collection has been terminated and the municipality performs the function.
The municipality reported that they had a total of 30 kilometres of surfaced roads in Tshing and 40 kilometres in Ventersdorp town. Tshing has a backlog of 18 kilometres of road and Ventersdorp has 8 kilometres. It was reported that there were no surfaced roads in the villages. The municipality indicated that they had a roads maintenance plan but there was no funding to implement and provision shall be made in the budget for the next financial year.
The municipality indicated that there were 1 000 housing units approved at the following villages: (Goedgevonden; Boikhutsong; Boikhutso; Welgevonden; Ga-Mogopa & Tsetse), thus far 492 housing units have been completed and handed over to beneficiaries. The housing project in Tsetse could not commence due to dolomatic conditions in the area and the Provincial Department (Human Settlement) has appointed specialist to address the matter.
The municipality reported that they had an approved LED strategy that was aligned to the District Growth Development strategy, and that they did not budget for LED projects for the 2011/12 financial year.
10. Committee observations:
The Select Committee on Finance observed the following:
10.1 That there has been little progress made by municipalities and sector departments on issues raised by the Committee since its last visit in 2010 except for Kgetlengrivier Local Municipality;
10.2 That expenditure at municipal level does not always correspond with service delivery outputs;
10.3 That most of the municipalities have a problem with revenue collection and the amount billed for electricity cost is less than what municipalities are paying to Eskom;
10.4 That municipalities are not spending conditional grants in terms of their intended purpose. Some municipalities have just invested conditional grants which delays service delivery;
10.5 That municipalities are outsourcing services whereas there are officials employed to carry out those functions;
10.6 That most municipal budgets are not credible;
10.7 That the Committee observed that in Tswaing Local Municipality, the revenue collection rate was low, while the municipality had the potential to collect more than the current rate of 65 per cent;
10.8 That Tswaing Local Municipality had not spent its conditional grant funds, while the funds had been transferred to the municipality;
10.9 That some government departments are in arrears with their municipal accounts and in some instances the debt is more than 90 days in arrears;
10.10 That Maquassi Hills Local Municipality was currently incurring fruitless expenditure with regards to the suspended municipal manager. This included the legal cost and the salary of the Municipal Manager;
10.11 That Maquassi Hills Local Municipality has a high wage bill;
10.12 That the delay in payment of municipal’ creditors is in non-compliance with the announcement by the President and the Finance Minister that all invoices must be paid within 30 days of receipt in order to avoid unnecessary penalties;
10.13 That Maquassi Hills Local Municipality has an outstanding debt of R56 million with the Development Bank of Southern Africa. Meanwhile there were no arrangements for its repayment;
10.14 That Maquassi Hills Local Municipality had not responded to issues and findings raised by the Auditor General;
10.15 That Maquassi Hills Local Municipality had not acted on the forensic report, which was conducted by the Auditor-General and the investigation that was instituted by the suspended municipal manager. Instead, it suspended the municipal manager on the basis of unauthorised expenditure incurred in this process;
10.16 That the majority of the municipalities were having unauthorised, irregular and, fruitless and wasteful expenditures;
11.17 That, in most municipalities, the usage of allocated funds is not always accounted for; and
11.18 That Ventersdorp and Mafikeng Local Municipalities, should be investigated with reference to the findings in the Auditor Generals audit report.
11. Recommendations:
The Select Committee on Finance makes the following recommendations:
11.1 That all municipalities that were under section139 of the Constitution of the Republic of South Africa should be provided with the reports of the administrators;
11.2 That municipalities should do away with the outsourcing of services, when there are officials that are getting paid to do the job;
11.3 That, in terms of section 154 (1) of the Constitution of the Republic of South Africa, and section 35 of the Municipal Finance Management Act, national government and provincial governments, by legislative and other measures, must support and strengthen the capacity of municipalities to manage their own affairs, to exercise their powers and to perform their functions, therefore, all sector departments should provide full support to the City of Matlosana Local Municipality as it has serious challenges;
11.4 That the National Treasury should conduct a workshop on the Municipal Finance Management Act, with all the municipalities that their budgets were not credible;
11.5 That all municipalities should verify the correctness of disclosure of companies of councillors and municipal officials through the Department of Trade and Industry;
11.6 That the Committee noted the investigations by the Special Investigation Unit (SIU) in all the 23 North West municipalities, but urges the unit to provide the public with a progress report;
11.7 That the Ditsobotla Local Municipality should provide the Select Committee on Finance with names of officials that are doing business with the municipality;
11.8 That the National and Provincial Treasuries should look at the leases that Ventersdorp Local Municipality had entered into and determine the legality thereof;
11.9 That the MEC of Cooperative Governance and Traditional Affairs should investigate the matter of a service provider which collects debts on behalf of Ventersdorp Local Municipality and receives 80 per cent of the collected amount and only reimburses the Municipality with 20 per cent of the collected amount, and the possibilities of nullifying those contracts and the municipality to take actions against those that defaulted;
11.10 That the Ventersdorp Local Municipality should minimise the use of consultants when preparing annual financial statements;
11.11 That the Kgetlengrivier Local Municipality should:
· consider taking the matter between themselves and ratepayers associations to court in order to receive municipal rate funds that are being kept in a trust fund; and
· ensure the establishment of the Supply Chain Management Committees which should include the Bid Committee, and the Adjudication Committee. A progress report on the establishment of these committees/ structures should be forwarded to the Select Committee on Finance within three months after the adoption of this report by the National Council of Provinces;
11.12 That the Provincial Department of Cooperative Governance should develop a clear programme for intervention in Mafikeng Local Municipality;
11.13 That the Department of Water Affairs should facilitate a meeting between Moretele Local Municipality and all the affected stakeholders to deal with the debt of Moretele Local Municipality to the City of Tshwane, and provide the Select Committee on Finance with a progress report within three month after the adoption of this report by the National Council of Provinces;
11.14 That the Moretele Local Municipality should:
· review the internal audit unit, as it is reported to be under staffed, and provide the required capacity so that it can improve its audit outcomes;
· ensure that the agreement signed with the City of Tshwane and work done is within their budget to avoid defaulting in its liabilities;
11.15 That the Moses Kotane Local Municipality should improve its filing system, which has led to a qualified audit opinion by the Auditor-General;
11.16 That the Mamusa Local Municipality should:
· review the whole system of their staff members being located at the Dr Ruth Mompati district offices as this arrangement might have legal implications, which will adversely affect the Municipality;
· establish governance structures that were being run from the District office, which includes an audit committee, and a bid committee to assist in improving its financial management;
· ensure the appointment of qualified staff and further interact with the Provincial Treasury and the Department of the Corporative Governance for assistance; and
11.17 That the Maquassi Hills Local Municipality should:
· review and take a decision on the issue of the suspended municipal manager as his contract ends 31 October 2012, which amounts to R750 000 of wasteful expenditure. Actions should be taken to avoid further engagement in legal battles that had already costed the municipality R700 000;
· work towards reducing the wage bill to be within the acceptable rate;
· endeavour that all outstanding debt is paid within 30 days and that the necessary arrangements are made and honoured with its major creditors;
· within three month organise a meeting with the DBSA in order to make the necessary arrangement to pay off the R56 million it owed the Bank;
· acting municipal manager should ensure that all outstanding annual reports are tabled before March 2012;
· forward an action plan on how they will address the findings of the Auditor General;
· act on the forensic investigation by the Auditor General and the one instituted by the suspended municipal manager as these two reports are addressing similar issues. The Council should deal with the issue of irregular expenditure separately instead of using this as a basis of rejecting the report;
· oversight committee of the Council established to deal with the audit report should fast track its process in dealing with the reports on the forensic investigations and implement the recommendations of the Auditor General; and
· Council should deal with its political instability in order for the municipality to able to provide services to its communities.
Report to be considered.
Documents
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