Polokwane Local Municipality: follow up meeting

Meeting report

Follow up responses

The Chairperson welcomed the South African Local Government Association (SALGA) delegation, the Polokwane Local Municipality Executive Members, and representatives from  National Treasury. The meeting agenda was to follow up on some questions from the previous meeting of 18 August 2020, which Committee Members did not receive satisfactory answers to.

The Chairperson summarised the outstanding issues left over from the previous meeting. Those issues were: the Municipal Public Accounts Committee’s (MPAC) response on its outstanding oversight report on the municipality and human settlements; the procurement of personal protective equipment (PPE); the settlement agreement between the municipality and the previous municipal manager (MM), and managers who report to the MM; a detailed report of the recovery of monies from the loss resulting from unauthorised, irregular, fruitless, and wasteful expenditure, over the past three financial years.

Ms Thembi Nkadimeng, Executive Mayor of the Polokwane Local Municipality, replied to questions left by Members in the previous meeting.

The Executive Mayor (EM) replied to Ms H Mkhaliphi (EFF) question on why the Municipal Council did not proceed with the forensic investigation as recommended in its resolutions dated 25 July 2018.  The EM said since 2016, no such resolution was taken in the Municipal Council on forensic investigation.

The EM replied to Members questions on Resolution No. 27 dated July 2017. She said she provided the Committee with all resolutions taken by the Council regarding unauthorised, irregular, fruitless, and wasteful expenditure. The resolution the Committee referred to was sent to this very Committee on the 17 July 2017. Thereafter, it was sent to the Mayoral Committee on the 19 July, before it was sent to the City Council on the 27 July 2017. Upon the resolution reaching the City Council, the Council decided to refer those resolutions to the Limpopo Member of Executive Council (MEC) in Local Government. There it determined if there are expenditures which can be recovered, and which expenditure cannot be recovered.

She assured Committee Members all items on irregular expenditure was thoroughly checked. She sent the Committee two attached annexures. Annexure A showed the deviation which amounts to R30 million and Annexure B shows the irregular expenditure of R191 million.

On PPE, she said Members will find the six companies in the documents. These companies collectively provided PPE to the municipality to the amount of R5.3 million. The payment made to each company is also provided in the same document. The service was procured in accordance with the National Treasury’s Circular No. 100 and 102.

Overall, the municipality did not overspend any of its budgets. It even accrued savings from those purchases. On the settlement agreements reached between the municipality and its former employees, the Executive Mayor said real written records of the hearings and Council reports were submitted to the Committee.

A question was raised by Members about the debt of an official. The debt of the person went up from R28 to R7 600 in January 2016.  Another official had debt which went up from R400 to R7 000 in the span of two months.

The EM said it is a difficult question to answer because she could not locate the one official in the system. The system picked up nearly 40 people with the same surname and the initial S. It is very difficult to verify those two persons information. She asked the Committee for more information.

Speaking on incomplete projects she said so far there are about 30 incomplete projects. The municipality set contractual obligations for all its service providers. In the event contractors fail to complete a project, the municipality can remove the contractor from the municipal database for a period of five-years, and terminate the service agreement immediately. If a project is abandoned, the contractor will only be paid for the work the contractor did.

The Chairperson thanked the Executive Mayor for her response. She asked National Treasury to provide further information around how National Treasury is assisting the Polokwane local municipality to migrate from its old financial system to the new one.

Mr Sifiso Mabaso, National Treasury, said despite the challenges the municipality faces as it migrates to its new financial system, it has done remarkably well in the migration process. The municipality managed to produce its own Annual Financial Statement in 2018/19. National Treasury will continue to provide support and advice to the municipality in its migration of financial systems of accounts. National Treasury also provides circulars to advise on areas of focus.

Discussion

Ms H Mkhaliphi (EFF) asked the Committee Secretary to display the Mayor’s report on screen. She said the case she referred to is from 25 July 2018. The Executive Mayor replied about the resolution from the 25 July 2017. The EM was not responding to the issue she referred to.

The Mayor carefully went through every page and said there was no resolution on forensic investigation by the Council.

Ms Mkhaliphi said she will need to prove her statement regarding the Council resolution, but for now she takes the Mayor’s word for it.

She asked for the amounts by which the municipality deviated from in its policies in 2017 and 2018.

Regarding Section 170 of the Municipal Finance Management Act (MFMA), Polokwane City Council asked National Treasury to condone non-compliance with regulations in 2018. She asked the representative from National Treasury to explain this.

She asked if the Limpopo MEC allowed the City Council to deviate from a ratification of minor breaches in its 2017 resolutions. If this is the case, it means Council did not resolve the issue and had to mention the issue again in the 2018 resolutions.

She asked for the actual amount requested for deviation. For instance, when the report was tabled PM488 under “Repairs Project” in the spreadsheets, there were objections from Councillors who flagged the issue. Councillors said the repair might not be worth the value of the Nissan bakkie. Council bought cars and repaired it, but it did not make sense to purchase a car costing R66 000 whereas the repair cost amounts to more than a million rand. In light of this, she urged the National Treasury and Limpopo MEC to work together with the Polokwane municipality to avoid misappropriation of funds in such incidents.

Ms D Direko (ANC) also asked about the municipality’s deviation.

The Chairperson asked the municipality to explain its liquidity in filling senior management financial positions, as reported by National Treasury. The municipality regularly uses consultants to do the financial work, incurring the cost at 144% higher than what it would be to employ an entire finance department. She asked what functions National Treasury provides to the municipality.

Municipality’s Response

The Executive Mayor (EM) asked if Ms Mkhaliphi could furnish her with more details of the particular Council resolution on forensic investigation. She provided the Portfolio Committee with all the direct records of Council resolutions during the period of time. There was no mention of such a resolution.

The EM said the deviation amounts, as requested by Members, are also provided in Annexure A and B. The itemised listing is also provided.

The EM said the City Council’s Resolution No. 4, reflects Council is obligated to report all deviations to the Limpopo MEC for Local Government. 

On the high cost of vehicle repairs and other Councillors expressed disapproval, the Executive Mayor said there are many decisions in the Council which a minority number of Councillors might be uncomfortable with. She reminded the Committee the decisions of the Council are collective decisions and those decisions are what the municipality brought and tabled to the Committee.

The Executive Mayor said the City Council is always subject to the oversight of the Municipal Public Accounts Committee (MPAC). MPAC always physically inspects the cost of items such as those vehicle repair costs. It looks at matters such as those Members raised, and then the MPAC reports according to its own findings. In addition to the MPAC’s audit, there is also an Auditor-General’s audit which oversees the municipal accounts and informs the municipality of irregular expenditure. Given the number of authorities monitoring and auditing the municipal account, the Executive Mayor said it is unlikely. Further, there has never been any double payment to any contractors.

Mr Dikgape Makobe, Municipal Manager, Polokwane local municipality, told the Committee deviation from policies is a norm in any municipality. Procuring services at the municipal level is regulated by the municipal supplier chain policy. Regulations are set out by National Treasury. Sometimes it is not always practical to follow an official procurement process when running a municipality. By example, one can look at a municipal cable which only has one supplier for it in the city centre. Given the urgency of the situation to replace cables, the municipality will not have time to follow the policy to advertise for companies in the required timeframe of 30 days, and then wait for a company based in Johannesburg, or Cape Town to supply a cable. In these cases, the municipality will go straight to the supplier in the Polokwane City centre using the existing municipal supplier chain policy.

Under this circumstance, the amount will be categorised under deviation. He asked Committee Members to carefully review the attachments submitted by the municipality. There is a specific reason specified for each deviation item. Given the complex nature of Polokwane Local Municipality, there will always be deviations. He summed up by saying deviation is a standard practice of all municipalities.

The Municipal Manager assured the Committee the Polokwane Council has sufficient mechanisms and processes to detect and recover any misappropriated expenditures. The Municipal Public Accounts Committee (MPAC) goes line by line to check deviations. The MPAC is also able to determine if deviation caused any loss of money, or if there is a need to recover money. The Executive Management usually acts even before MPAC comes in to recover money in most scenarios.

The Municipal Manager (MM) said the approval of deviation can only be given by City Council’s resolutions. The Auditor-General will also review the outcomes as discovered by MPAC. During most of its tenure, the MPAC has not discovered anything about the loss of municipal money.

The Municipal Manager denied the municipality purchased old vehicles. Regulations will not allow this. There is an entireprocess to be adhered to when repairing an old vehicle. The first thing is to obtain approval from the municipality. The municipality will never approve of a scenario as described by Ms Mkhaliphi, where the cost of repair exceeds the real value of the vehicle.

Mr Mabaso (National Treasury) said the Polokwane Local Municipality has many challenges, especially with residents accessing municipal services. Currently the municipality has a dysfunctional management register which allows ineligible residents to access services.

On the municipality’s use of consultants, from National Treasury’s perspective, it does not encourage the use of consultants. Hiring consultants will only be allowed if those consultants add value, and there are no available skills at the municipality. Also, National Treasury implemented the cost containment provision for hiring consultants at municipal level.

This is all National Treasury can do. It is within the Municipality’s and Municipal Council’s discretion to determine to use consultants or not.

Ms Mkhaliphi said she found the Municipal Manager’s (MM) explanation unacceptable. She cited the example of the municipal payment to the Water Board. Although money is spent on water, the aging infrastructure implies more water will be wasted. She called out the MM’s claim of deviation being a standard process in municipal accounts. She further called out the MM’s claim saying no money is lost at the Polokwane Municipality. She said this is a falsehood. In the very same document which the Committee was discussing, Ms Mkhaliphi pointed to Annexure 433, which says electrical materials were paid by the municipality on several occasions. The item was flagged and the reason is because of deviation from the supply chain management process. The service provider failed to deliver the service. In the same document, she questioned how the repair of a car could cost the municipality R1.9 million. She expressed her disapproval at the MM saying deviation is a standard practice, and which is an excuse to cover up corruption.

She said the Committee was informed that some companies were double paid. She needs to get to the bottom of what happened.

Mr K Ceza (EFF) said the Municipality did not make any mention about attending to its aging water infrastructure in the reports. The Auditor-General flagged Polokwane Municipality. It lost a staggering amount of R48 million because of aging water infrastructure. He demanded to know what the municipality’s maintenance plan is. The submitted report did not have any targets and timeframes to resolve the matter.

He asked about the oversight inspection work done by a company in the municipality. It was awarded the construction of 90 houses, each at the cost of R150 000. It totalled R10 million. He noted the importance of the role of inspection, and reaffirmed the Committee’s view on quantity vs. quality. He said under no circumstance can the quantity of construction undermine the quality of a house. He does not want a situation where there is a storm and the house is eroded, or collapses. This will cause further unnecessary expenditure.

Mr Ceza asked about the MPAC’s view on the aging water infrastructure in the municipality.

Mr Ceza also asked the municipal officials to explain why 54% of the municipal wage bill was spent on the finance department to improve audit outcomes. It amounts to R49 million.

Mr G Mpumza (ANC) said his questions were covered by previous Members.

The Chairperson referred to the institutional capacity of the municipality. Since the Chief Finance Officer (CFO) assumed the position on 1 September 2017, the CFO oversaw most of the 2016/17 financial year. The CFO also oversaw the subsequent two financial years. The CFO managed to bring the municipality’s financial statements to qualified audits. The CFO is a qualified chartered accountant registered with the South African Institute of Chartered Accountants. Given the CFO’s background in finance and achievement, there was a huge amount spent on financial consultancy. The Chairperson asked what the financial department is doing with the R49 million. She wanted a breakdown of the organisational structure of the Municipal Finance Department, as well as the skills and qualifications of each employee under the financial department.

The Chairperson referred to the Municipal Manager’s comment about Polokwane Municipality being a complex municipality. Every municipality is complex. Regarding ensuring compliance, being a complex municipality is not a responsible answer to Members questions. In the Municipality, there are currently 14 projects which are undergoing without service level agreements. She asked the MM which projects those are, and what these projects cost.

The Chairperson wanted clarity on the 11 tender contracts which were awarded to individuals linked to government officials. She wanted to know the value of those contracts.

The Chairperson said the Auditor-General flagged an issue. It was the issue about there not being enough information to audit all the extensions and modifications of contracts, after those contracts were appropriately approved. No meeting minutes were taken in those scenarios.

The Chairperson emphasised the issue of monitoring the performance of contractors. The monthly monitor is currently absent. She said many contractors work is incomplete because of the lack of proper regular monitoring.

The Chairperson asked for clarity on the Municipality’s settlements with its former employees. She wanted to know how much was paid to the previous Municipal Manager, and Chief Finance Officer. She wanted to know what the causes are for those settlements.

The Executive Mayor referred to a situation where Council rejected a deviation claim. She said the Municipality formalised administrative processes to approve or disapprove a deviation. At the end of the Council meeting, the submitted report was also taken to the Limpopo Standing Committee on Public Accounts (SCOPA) for the process to be checked. She said she does not think there was any dereliction of duties in the deviation matter.

Responses

The Executive Mayor (EM) gave updates on the Municipality’s solution to water losses caused by aging infrastructure. The Municipality is working together with the Department of Water and Sanitation to repair the municipal water infrastructure which is in excess of 40 years old. The Municipality has a water master plan which was submitted to the Department. Portions of the infrastructure were already repaired, improving the water situation in some areas. Unfortunately the Municipality does not have limitless resource to complete the repair of its entire infrastructure.

The EM said the 2017 report was to show Members what the Municipal Council resolved in 2017. She did not recall the Auditor-General picking up the same supply chain issue in the 2018 report.

The EM said the 625 officials have nothing to do with deviations. The Municipality provided the list of officials to account to Members of those who were charged for double payment. Ever since then, double payment did not happen.

The EM explained why there is an absence of monitoring on the construction of houses. Polokwane Municipality is not licensed to build houses, nor does it hire contractors or give contracts. Monitoring and evaluation processes must be put in place by Ward Councillors and owners of houses. Non completion of houses is a challenge, but it is beyond what municipalities can do. Although the municipality requested the National Department to monitor contractors, it is not Polokwane Municipality’s responsibility to monitor.

The EM said the municipal system generally keeps former employees information for a certain period of time. After the time lapses, the information will be archived, and will be more difficult to access. The former Municipal Manager and Chief Finance Officer fall under this category.

Mr Naazim Essa, Acting Chief Finance Officer, Polokwane Local Municipality, said when he took office, he had to assess the issues at stake. The audit outcomes of 2016/17 identified the skills gap in the finance department, so the municipality had no option but to utilise the services of consultants to build capacity. Among other issues, there was also the issue of an aging staff workforce. The finance department has many staff members near retirement age. There is a trend for the finance department to become less dependent on consultants. It is a positive sign reflecting hiring consultants paid off.

The finance department appointed four accountants. It includes one qualified chartered accountant. The newly appointed chartered accountant is assisting to deal with the technical issues in the municipal finance department, as flagged by the Auditor-General.

The CFO said regarding dealing with compliance in supply chain, the municipal finance department also has its own capacity to deal with the matter. It recently formed a unit with two additional staff members. The purpose is to investigate irregular expenditure. There has been no new irregular expenditure in the past two financial years.

The CFO said the municipal finance department is also able to do its own financial statements now. After consultants contracts expire, the municipality will take on a more supportive role, instead of a leading role in doing the municipal financial statement.

On the settlement figures he said due to the employment being five to six years ago, he does not have the information at hand. He needs more time to obtain the information.

The Chairperson interjected. She said she noted those settlements did not come with figures in the documents sent to the Committee. This is absurd. Also, she asked about the amount of lawyers fees involved in reaching those settlements.

The Executive Mayor said she can provide figures of what a normal settlement figure will be, based on this pay scale. As for the settlements for the former Municipal Manager and the CFO, there could have been other benefits and deductions which are not at the panel’s disposal. This is why she and the CFO need more time to obtain information, to provide accurate figures. She said she did not have the cost for lawyers’ fees, but said she will submit it to the Committee as soon as the information is available.

The Chairperson said she wanted to know how much the Council spent in total for those settlements. She asked the Mayoral Committee to submit all the information before Tuesday the following week.

The Executive Mayor said it would take some time to obtain the information from the company deaing with the old municipal system. She guaranteed the whole set of information will be sent to the Committee.

The Chairperson asked the CFO to provide an overview of his finance department’s organisational structure, and staff components.

The CFO said it consists of a Deputy CFO, an Asset Manager, a Supply Chain Manager, a Revenue Manager, an Expenditure Manager, and a Budget Reporting Manager. Five in total and each of these managers have an assistant manager, as well as staff reporting to them. He does not have the exact numbers of them. He said he can send the information to the Committee after the meeting.

The Chairperson said given the huge amount of money the municipality spends on consultants, she strongly urges the finance department to build its own capacity. She can understand why the CFO needed consultant firms when he first took office, but she is not convinced the amount spent on consultancy firms must still be this high after three years since the CFO is in office. The Chairperson highlighted consequence management for the finance department to hold all its employees accountable, and to ensure staff members do the jobs they are paid to do.

The CFO said he cannot reply to the question on the exact figure for the amount the municipality paid to consultants in the 2017/18 financial year. He can confirm the municipality does utilise consultants.

The CFO commented on consequence management. The use of consultants is to help the finance department to build its internal capacity, which is lacking. The CFO noted a transfer of skills after using consultants. The most immediate effect is the finance department is less reliant on consultants. So for consequence management, the finance department has an action plan. The finance unit has both weekly and monthly meetings. The objective is to discuss progress on audit findings, and monitor progress related to those audit findings. The CFO assured the Committee the finance department is on par with steering away from consultants, and does municipal financial statements on its own.

Ms Mkhaliphi said she is not satisfied with the reason provided for the cause of deviation in the Municipal Financial Statements. She noted the Executive Mayor is also the President of the South African Local Government Association (SALGA). Only 20 out of the 257 municipalities received clean audits from the Auditor-General’s report. She is extremely concerned after receiving such responses from Polokwane Municipality. The Executive Mayor and the Municipal Manager may have tried to account to this Committee to the best of their abilities, but she is not satisfied. She proposed to schedule a follow up meeting with the Polokwane Local Municipality again. At this meeting, she proposed the Limpopo MEC for COGTA, as well as National Cooperative Governance and Traditional Affairs must be present.

Ms Mkhlaliphi noted her extreme concern on malpractice and maladministration in most of the municipalities in the Limpopo province. She said the Limpopo MEC for COGTA shared the same view. In a letter dated 19 March 2020, the MEC wrote to the Executive Mayor, expressing concern over the maladministration in the municipality. The Limpopo MEC for COGTA urged the Municipal Council to take action to remedy this. Given most municipalities in Limpopo are under Section 139 of the Constitution [under administration], she urged the Portfolio Committee to be more proactive in its dealing with municipalities, to tackle municipality challenges before it becomes dysfunctional, and then put under administration.

Ms Mkhlaliphi believed deviation is not the only concern at municipalities in the Limpopo province. There are a range of other issues suggesting elements of corruption are taking place. She cannot accept the Polokwane Local Municipality’s explanation on its deviation.

Mr Ceza found it unacceptable that the Polokwane Municipality CFO cannot even provide the Committee with the number of employees in his own department.

The Chairperson asked for an itemised breakdown of the irregular expenditure incurred in the 2016/17 financial year, which amounted to R198 million, and the R89.4 million in irregular expenditure incurred in the 2018/19 financial year. She also wanted to know what consequence management measures are put in place later to remedy it.

The Chairperson was not satisfied with the Municipal Public Account Committee’s (MPAC) oversight role, and asked the MPAC’s Chairperson, or the Speaker, to explain.

The Executive Mayor said the Councillors may have left the virtual meeting.

The Chairperson noted her disappointment. The Councillor did not even bid farewell to the Portfolio Committee before leaving. Mr Martinus Tsiri, Chairperson of MPAC, could not be reached for response.

The Chairperson asked if the Speaker of the Council was present.

Mr Mariri Ralefatane, Speaker of the Council, indicated his presence.

The Chairperson agreed with Ms Mkhaliphi that the Committee needs to be more hands on and more proactive in dealing with municipalities. She asked for a breakdown of irregular expenditure incurred by the Polokwane Local Municipality in the past three financial years. She asked to have the information by Tuesday of the following week for the latest.

The Chairperson said the settlement agreements, and the incurred costs of lawyers fees, need to be reported back to the Committee. In the meantime, the Committee will also schedule a meeting with the Limpopo MEC for COGTA, National COGTA, and National Treasury, to discuss the liquidity and financial position of the Polokwane Municipality.

The Chairperson asked for the responses to the remaining questions directed at the MPAC Chairperson, to be submitted in writing by no later than Tuesday, 8 September 2020.

The Executive Mayor said her team will send all questions to her in advance. Members of the Municipal Council cannot be expected to know everything.

The Chairperson said Members’ questions come from the Auditor-General’s report, and from the Mayor’s own presentations. All the information should be at the EM’s disposal. It should not be a surprise to her when Members of the Portfolio Committee ask those questions. For instance, the Municipality only provided the Committee with settlement agreements, without providing the Committee with actual figures. The correct manner in responding to the question should have been by including the actual figures of the settlement amounts.

The meeting was adjourned.