Kannaland Local Municipality: WCPG, SALGA, AGSA, COGTA interaction

Meeting report

Portfolio Committee on Cooperative Governance and Traditional Affairs
1 September 2020
Kannaland Local Municipality: WCPG, SALGA, AGSA, COGTA interaction

Chairperson: Ms F Muthambi (ANC)

Documents handed out:
Status of municipalities and progress made with provincial intervention
2018/19 audit outcomes: PT’s response and support to underperforming municipalities.
Kannaland Municipality: Financial sustainability and financial controls
SALGA Support Rendered to Kannaland
Kannaland: State of the Municipality
State of Kannaland Local Municipality
MFMA implementation. Kannaland Local Municipality

Meeting summary
The Committee was briefed by the Western Cape Department of Local Government (WCDLG), the Western Cape Provincial Treasury (WCPT), the Kannaland Local Municipality, the South African Local Government Association (SALGA) and the Auditor-General of South Africa (AGSA) on the state of the Kannaland Local municipality.

Officials from Kannaland provided a brief background of the municipality saying that Kannaland is based in the Western Cape and was a rural municipality. With agriculture accounting for 17% of the local economy, the municipality was termed as being an agrarian economy. Much of the population is poor and unemployed. Due to poor financial management, Kannaland Municipal Council in December 2016 requested a section 139(5) intervention. Subsequently, a financial recovery plan was formulated. Ever since, it has been under administration and the municipality had noted progress in its financial management and capacity – as well as in its governance structures.

Whilst they recognised that more work needed to be done to capacitate the municipality, Members were pleased with the progress. There was broad concern that the municipality had not implemented consequence management for officials involved in financial misconduct. The municipality indicated that it had recently taken consequence management measures against officials and it would provide the Committee with a report on the details. It had also laid charges against a former Chief Financial Officer and Municipal Manager for financial misconduct and both cases were with law enforcement agencies.

The Committee heard that the provincial government had provided significant assistance to the municipality through the Provincial Treasury and the WCDLG. The municipality received assistance with drought relief, its ICT systems and financial support from both departments. These efforts represented the joint cooperation between the provincial government and the municipality during the intervention. Members said that this method of joint cooperation should be used as a standard for other interventions as it had proved successful. This was because they had noted that interventions in other municipalities had brought little to no change in their functioning.

SALGA, in agreement with the Members, suggested that the entire local government be looked at by national government because in its current composition there were several shortfalls. Many municipalities relied on external funding to survive, as they are unable to collect both debt and revenue. They said that both national and provincial government should begin to pay municipalities money owed to them. This has been a historical problem for municipalities and it was unfair for national and provincial government to further entrench municipal financial insecurity – as this had a direct effect on the residents.

The Committee encouraged the provincial department and the municipality to continue working together in the future. Their continued cooperation would ensure that financial and political stability would be brought to the municipality.

Meeting report
Chairperson’s opening remarks
The Chairperson mentioned that Kannaland was the only municipality in the Western Cape that had been placed under a Section 139(5) intervention. It was the only municipality in the province that had failed to submit its financial statements for the past two consecutive years by the required date of 31 January 2020. Whilst the submission was late, unlike other municipalities that had appeared before the Committee, it had managed to have its annual financial statements (AFS) finalised by 25 March 2020. The municipality obtained an unqualified audit with findings and had not regressed in its audit outcomes. Consultants were hired to prepare the financial statements, which cost the municipality R10.8 million. Since it had obtained a fair audit outcome, the Committee felt that expenditure was not unjustified. However, it found it unacceptable that none of the finance staff in the municipality had achieved the prescribed minimum competency levels. Consultants could not substitute the work of the financial staff. With the lack of skilled financial staff, the Committee was not surprised that that the Council was unable to prevent instances of fruitless, wasteful and irregular expenditure. AGSA had found numerous material misstatements which were subsequently fixed by the municipality. This was unlike Polokwane Municipality where AGSA had found material errors in its financial statements and it had used consultants costing R69 million – which exceeded the financial department’s salary budget of R48 million by 144%.

The Committee welcomed the relative political stability since the invocation of the section 139(5) intervention. It is critical that the provincial departments continued to minimise political interference in the administration. The municipality should prioritise all the matters that have negatively impacted service delivery, such as the shortage of skills.

Kannaland Local Municipality briefing
Kannaland Acting Municipal Manager, Mr Roland Butler, said Kannaland is a rural municipality and its economy is primarily based on agriculture – which accounted for 17.7% of the GDP. The municipality’s economic decline was intensified by the pandemic and created further employment losses. Due to lockdown, the municipality’s revenue collection decreased substantially. The municipality noted the increase in debtors due to the loss of jobs, and predicted that this would lead to a further decline to revenue collection. Service delivery was affected because the municipality had reprioritised its budget to fund its Covid-19 response. To prevent the mismanagement of funds, the municipality reported on a weekly basis to the Provincial Treasury on its Covid-19 expenditure. The municipality indicated that it had struggled to attract the best professionals to work for it, as it could not offer the same salary packages of their urban counterparts.

Due to poor financial management, the municipality applied for a Section 139(5) of the Municipal Financial Management Act (MFMA) in December 2016. Subsequently, a financial recovery plan was formulated. Key positions, such as the CFO, the MM and the Director: Technical Services, were filled. These actions were intended to bring about institutional and financial capacity, and good governance within the municipality. The municipality had noted an improvement particularly with service delivery.

An audit action plan was drafted by the municipality to resolve the outstanding findings by AGSA. An online software programme was developed to improve its accountability to AGSA – through the provision of audit evidence to AGSA. It had received an extension from AGSA for the submission of its financial statements and it believed that this extension might assist the municipality to obtain a clean audit outcome.

The municipality believed that it was on the right track to solve its challenges, and with the assistance of both the WCPT and WCDLG, it would correct all of its problems.

The Committee was displeased that one of the delegates did not know which Portfolio Committee he was in front of. The Chairperson asked that he treat the meeting with the decorum that it deserved and that he apologise to the Committee.

Western Cape Provincial Treasury (WCPT) briefing
Mr Christopher Mapeyi, Director: Local Government Revenue and Collection: WCPT, said Kannaland had for years been plagued with political instability – which was a large contributor to its financial instability. After the Section 139 intervention, the Provincial MEC approved a financial recovery plan in terms of Section 143(2)(a) of the MFMA.

Some of the financial management challenges it faced were continuing to adopt an unfunded budget over the years, slow supply chain management (SCM) processes, delayed payment of contractors, and persistently weak financial ratios. Treasury committed to continuing to assist Kannaland overcome its financial challenges so that it could provide better services to its residents.

Auditor-General briefing
Business Executive: Auditor-General South Africa, Ms Sharonne Adams, said that of the 32 auditees in the Western Cape's local government, Kannaland was the only one that had not submitted its financial statements by the cut-off date of 31 January 2020. Since then, it had submitted its AFS and had been audited. For the second year in a row, the municipality received an unqualified audit with findings which was an improvement, as its audit outcome in 2016/17 was qualified with findings and 2015/16 was adverse with findings.

AGSA reported that the Section 139 intervention had a positive impact on the municipality’s financial discipline, but this could still be improved on. Other challenges still remain. For instance, the municipality had still not formed an internal audit and it relied on financial consultants to prepare its financial statements. More cooperation would be required between governance structures to ensure the intervention would be successful.

One of AGSA’s recommendations was that the municipality implement consequence management for fruitless, wasteful and irregular expenditure – as it had failed to do so in previous cases.

SALGA support to Kannaland Municipality
Programme Manager for Municipal Finance at SALGA, Mr Nkosinathi September, said SALGA assisted the municipality with audit support, its revenue management strategy, capacity building and its labour relations.

Western Cape Department of Local Government briefing
Ms Eda Barnard, Chief Director: Municipal Performance Monitoring and Support, Western Cape Department of Local Government, spoke about the status of municipalities in the Western Cape. The provincial government aimed to provide support to municipalities to ensure their functionality. The success of its support was illustrated by the fact that 12 of the 20 top performing municipalities – according to Government Performance Index 2019 – were in the Western Cape. There had only been three changes to municipal councils in the province – which showed a great level of stability in municipalities. All municipalities have functioning Municipal Public Accounts Committees (MPACs).

Most of the municipalities had master plans in place for water, sanitation and electricity. Bulk reticulation and infrastructure in municipalities could provide growth in the short and medium-term. To measure its progress, in 2016 the WC government conducted a survey of 1.93 million households which indicated – amongst other things – that: 82.4% of households had access to formal housing, 96.5% had access to electricity and 98.9% had access to piped water.

To improve monitoring of municipalities, the provincial government developed the WC Monitoring and Evaluation System. The provincial government hoped that this would improve data collection and consolidation – and assist in its transition towards evidence-based decision making.

Department of Cooperative Governance (DCOG) comments
Mr Themba Fosi, Acting Director-General: DCOG, said that the presentations had covered and confirmed that there had been collaborative work to support Kannaland. The province always adopted a joint approach to assist troubled municipalities and this has included the national department. Kannaland has systemic challenges that have contributed to its weak economic base. The municipality should focus on its key growth sectors such as the agro-processing sector. Issues such as water security and the persistent drought have had a significant impact on weakening its economy. COGTA committed to continue working with the municipality. The municipality's challenges should be dealt with by good governance, which would assist it to reach its full potential.

Questions
Mr C Brink (DA) asked how much do traffic fines and fees compromise the municipality’s revenue base. How would the Administrative Adjudication of Road Traffic Offences (AARTO) affect the municipality’s revenue.

Ms G Opperman (DA) asked what other governance challenges, besides the lack of sufficient funding, had Kannaland experienced.

What drought support had the municipality received from the provincial government – and how had the municipality mitigated the effects of the drought on its revenue collection.

Why had the municipality not conducted an internal audit for the past three years? Why had it not implemented corrective actions?

Why had they not monitored the performance of their contractors on a monthly basis, as required by the MFMA?

What had hindered the MPAC from fulfilling its oversight ability on the municipality’s irregular and fruitless and wasteful expenditure?

Mr G Mpumza (ANC) noted that the municipality stated that revenue collection had contracted due to the decrease in debt collection and contact services. With the shrinking revenue, what had the municipality done to address this challenge. Why had it struggled to collect revenue as it has a small population with only seven ward councillors.

He commended Kannaland for moving from a qualified to an unqualified audit with findings. However, the Committee would prefer a clean audit.

The municipality said that it had struggled to attract skilled professionals. What had the municipality done to address the skills shortage challenge. Both DCOG and WCDLG were aware of the skill shortage. What had they done to assist it with this challenge.

The Western Cape Provincial Government (WCPG) had stressed that political instability within the municipality had been a significant factor for its financially distressed position as it had disrupted the management of affairs by the political leadership. What had WCPG done to address the political instability in the municipality. Also, why had WCPG tolerated the deterioration of governance and had not invoked a Section 154 intervention when the problems first arose. What prevented DCOG and WCDLG from intervening as he believed that they had not acted promptly.

It was reported that the municipality had submitted unfunded budgets. What measures had WCPG put in place to prevent the municipality adopting unfunded budgets.

What had DCOG and WCDLG done after they analysed the financial situation.

Whilst the Committee had noted the progress in the municipality, it questioned if the support measures provided to Kannaland had yielded the desired outcome.

WCDLG was encouraged to continue ensuring that the performance areas, such as record keeping and risk management, were attended to and strengthened.

Ms H Mkhaliphi (EFF) stated that Mr Mpumza had covered all of her questions.

Mr K Ceza (EFF) said that AGSA found irregular expenditure amounting to R14 million in the municipality. There were also allegations of fraud and corruption in the contracting of five service providers. He asked for the names of the service providers and how they had been appointed. Had municipal officials been involved and, if so, what consequence management was initiated by the municipality?

AGSA had mentioned that due to a culture of no consequence management, several WC municipalities had seen an increase in irregular expenditure. What corrective measures had WCDLG taken to ensure that irregular expenditure decreased. AGSA also mentioned that there is slow or a lack of implementation of its recommendations by some municipalities. It highlighted that there are many vacancies and a lack of competence.

He hoped that national government had put measures in place for rural municipalities. As Kannaland fell into the category of a rural municipality, what steps had it implemented to close the gap in performance between it and its urban counterparts. Had the municipality found mechanisms to attract skilled professionals to work for it.

The Department of Water and Sanitation had committed to providing water tanks to water scare municipalities in the country. He asked how many water tankers the municipality had procured and which service providers were appointed. How much had the procurement cost and where in the municipality were they located.

Had the municipality taken greater effort to ensure that it improved its internal audit capacity. An improvement in its internal audit capacity would enable it to conduct its financial management and it would put an end to the outsourcing of consultants.

The municipality had faced challenges with the provision of drinking water, as a result of the drought and poor water management. What measures were in place to correct this.

Mr H Hoosen (DA) said that unlike other distressed municipalities that had presented to the Committee recently, Kannaland was moving in the right direction. He attributed this to the joint collaborative effort between the municipality, the provincial government, SALGA and DCOG. SALGA had mentioned in previous engagements that Section 139 interventions had not worked in other municipalities in the country. Kannaland could be used as a case study for provincial governments on how to intervene in municipalities. Prior to the intervention, Kannaland had been plagued by political instability, that had caused the municipality to fall apart. It was clear that for intervention to succeed, there had to be the will from municipal leaders to ensure success. He suggested that leaders of political parties should hold their party representatives accountable for their misconduct. In addition, a forum – that allowed senior politicians and municipal political leaders to collaborate together – should be developed. Whilst the Committee acknowledged that Kannaland still faced several challenges, it recognised the tremendous progress made.

He recommended that DCOG should look into the current structure of local government funding – as the current system is not working. For instance, many municipalities are heavily dependent on revenue they collect from water and electricity tariffs. With this heavy reliance, the financial sustainability of many municipalities would continue to face challenges. Another challenge was debt recovery as municipalities are owed millions in tariffs but did not have the funds to recover their debts – further plunging them into financial decline.

The Committee was not yet ready to celebrate Kannaland’s achievements as it was still lacking consequence management. He asked if the municipality’s leadership had taken action against individuals involved in corruption and irregular expenditure. It had noted that certain individuals had been charged with corruption. At what stage were these cases?

There had been misappropriation of funds in the municipality. Had it since taken action to recover the monies lost. The culprits should be targeted and they should be jailed. This would only occur if the municipality instituted criminal charges against the officials.

Ms D Direko (ANC) asked how far the municipality was in ensuring good governance and financial stability. As many municipalities had experienced a decline in revenue collection, she asked how Kannaland planned to generate extra revenue for itself.

If the municipality identified instances of corruption, it should report these immediately. Had there been cases of corruption and if so, had the municipality charged these officials. What was the current status of each case.

The Provincial Treasury reported that Kannaland had adopted an unfunded budget. Had it drafted a plan to deal with the resulting shortfall? She asked that the Treasury explain its regulations about municipal councils adopting an unfunded budget. Irregular expenditure had occurred because Kannaland had not strengthened its internal controls. Had it ensured that it has proper controls in place and what was its plan retrieve lost monies?

What had contributed to Kannaland’s late submission of its financial statements.

The Chairperson asked what Kannaland had spent on PPE and to provide details.

There was evidence that senior officials were dismissed for financial misconduct. She asked for an explanation why they had been reappointed.

The municipality stated that it had lost data due to hacking. What kind of data had been lost and how had that affected it. The Committee welcomed that Kannaland had instituted a post-audit action plan to ensure its ICT system and data would be protected.

She asked what support measures WCPG had provided to Kannaland. What had WCDLG done to ensure that the support is proactive and did not emerge only once it had noted poor audit outcomes in municipalities.

WCDLG mentioned that it had a rationale for changing administrators in municipalities if needs be. She asked that they explain this as a change in administrators disrupted continuity and was a reason in other cases why Section 139 interventions had not been successful. Had it changed administrators because of poor performance. If that were the case, had there been consequence management against the administrator.

Neither WCPG nor Kannaland mentioned if an economic recovery plan was in place. Its Integrated Development Plan (IDP) had not expressed such a plan. Did it have an economic recovery plan?

Drought continued to be a problem in Kannaland. Had either WCDLG or Kannaland developed a practical drought-risk management plan. If such a plan had been developed, when had it been implemented. She asked that it be provided to the Committee.

Kannaland response
Mr Pumezo Mngeni, Acting CFO: Kannaland Local Municipality, replied that the total revenue contributed by traffic fines was 4% of Kannaland’s budget which was small in comparison to other municipalities.

Mr Mngeni replied that Kannaland had struggled to attract skilled personnel, such as engineers, to work for it. Salary packages offered by Kannaland do not match those of urban municipalities. The lack of skilled personnel was the reason Kannaland had outsourced for consultants. To remedy this problem, Kannaland had made use of programmes such as the Financial Management Grant (FMG) internship – that was offered by the National Treasury. This internship provided unemployed graduates an opportunity to gain financial training and to be employed by Kannaland in the future. The municipality expected positive outcomes in the next three years. Local graduates had been targeted as there was a greater chance that they would want to build their careers in Kannaland.

Kannaland was concerned about its dwindling revenue base. Once it had looked at the reasons for this, it formulated strategies that would improve the situation. One of which was the use of data-cleansing, so that it could better evaluate its financial data. It planned to initiate a project on 25 November that would look at the role of revenue generation evaluation in assisting Kannaland with revenue.

Debt collection had remained a challenge for Kannaland, particularly electricity debt. As many of the towns are serviced by Eskom and the residents had purchased electricity from Eskom, they were not able to implement their debt collection policies. The municipality found that it was usually those residents who had higher outstanding amounts in their accounts. As most residents are low-income, Kannaland had high debt levels and poor debt collection. With the job losses caused by the pandemic, additional pressure was added. However, with the implementation of its revenue projects, Kannaland was confident that it could turn the situation around.

He repeated that the FMG internship programme was one initiative to address the skills shortage. University graduates would be provided training by the municipality.

Of the five services providers involved in irregular expenditure, R5 million of the R12 million that had been lost, was due to piggybacking procurement regulations. This had been a contentious matter and had to be adjudicated by the court. Kannaland was not the only municipality that had suffered from the lack of clarity on piggybacking. He added that the cases of irregular expenditure are under investigation.

An MPAC meeting had been scheduled for 15 September 2020, and all the matters under investigation – as well as consequence management – would be discussed. All the cases are still with the law enforcement agencies and the municipality continued to cooperate with them to strengthen their evidence.

Mr Mngeni replied that Kannaland would continue to struggle to compete with its urban counterparts as they could not offer similar or better packages to professionals. Also, the urban municipalities had better infrastructure. The municipality was not able to provide an answer on how it intended to comprehensively deal with the matter. At some point it had thought to offer scare-skills allowances to attract professionals, but it realised that the allowances would not be sustainable in the long term. It also recognised that this allowance would be flagged by AGSA in future audit reports, and Kannaland would have to account for its decision.

The municipality used the equitable share formula but the way it has been structured had disadvantaged it. If Kannaland found a method to increase its equitable share, it would be able to drastically improve its output.

The municipality appreciated the positive feedback from the Committee. It could not provide the Committee with the number of cases underway in this meeting. Once it had sourced the information from its files, it would provide the information to the Committee.

The municipality confirmed that it had prepared a financial recovery plan, and this could be confirmed by WCDLG and WCPT. It ensured that it was in constant communication with both departments on the contents of the plan.

To increase its revenue, Kannaland had put in place revenue enhancement projects, which had already begun. This included the data-cleansing project, previously mentioned, to assist it to understand how accurate its data is.

The unauthorised expenditure had been caused by incorrect budgeting. The municipality had begun implementing a new system in 2016/17 and had not a good grasp of it at the time. This had resulted in overspending in some of the items purchased.

The municipality confirmed that it had preventative measures in place. It had placed preventatives measures within the Budget and Treasury Office (BTO), and it believed that this would filter down positively to other departments. With such acts, Kannaland believed that it had lowered the instances of irregular, fruitless and wasteful expenditure.

The municipality ensured that it reported weekly on its PPE expenditure to the WCPT and the reports could be provided to the Committee. Their reports stated that they had spent just over R1.5 million on Covid-19 expenditure. It had received R748 000 worth of grants.

Mr Mngeni clarified that the hacking of its server had occurred in August 2019. Many of the files were infected with viruses and as a result, it could not retrieve the files on the server. With this data loss, it had lost valuable information. It attempted to retrieve the data, but it could not, as the hackers had demanded a ransom, which Kannaland could not afford. The files were related to revenue data, but Kannaland was relieved that it was not all this data. It had only lost information that accounted for nine months of the 2018/19 financial year. All the 2019/20 financial information had not been lost; thus the submission of its AFS was not interrupted. Ideally, Kannaland should have had backup storage, but it did not because it did not have the means. National government had recently promised that it would fund the purchase of a another server.

The municipality recognised and appreciated the assistance it received from the Provincial Departments of Treasury and Local Government.

Provincial Treasury response
Mr Steven Kenyon, Deputy Director-General: Fiscal and Economic Services, Western Cape Provincial Treasury, replied that Kannaland had provided a comprehensive set of responses to the questions. Interventions are always a collaborative effort and the department saw collaboration as part of the system of cooperative governance. He confirmed that traffic fines had represented a small fraction of the Kannaland budget.

The WCPG did not expect that Kannaland would resolve all of its financial challenges in one action. Instead, it expected that the progress would be slow and steady. It was concerned by municipalities that had tabled unfunded budgets, including Kannaland. Nationally there over 100 municipalities that have tabled unfunded budgets. In their budget engagements with the municipalities, WCPT showed them how their budgets were unfunded and how Section 18 of the MFMA required that expenditure must be backed by realistic revenue. During these engagements, it was also able to look at their projected revenue and current expenditure. Provincial Treasury wrote to Kannaland and provided a report that advised it to revise its budget, so that it could table a funded budget. Both Treasury and Kannaland have continued to engage on the matter. WCPT planned to meet with National Treasury to discuss unfunded budgets across municipalities in the country. He explained that an unfunded budget meant that a municipality had an unrealistic financial plan for the financial year, and it would encounter financial trouble.

The Provincial Treasury viewed the appointment of a CFO as a major milestone for the turnaround process. He emphasised that the turnaround process was a slow and steady process and with the continued collaboration, Kannaland would continue to see progress.

Kannaland, unlike other rural municipalities, did have a significant revenue base and did not rely on external funding as much. It had shown that it was serious about ensuring its revenue collection plans were implemented – which pleased the Provincial Treasury.

The WCPG budget was reprioritised at the onset of the pandemic to ensure it was able to provide an immediate response. An economic recovery plan would be included in the WCPG second adjustments budget tabled in November. It worked with the municipalities to coordinate their efforts to include economic recovery plans in their budgets.

Kannaland received an additional R4 million in equitable share from National Treasury.

Mr Mapeyi added that Provincial Treasury officials had been in Kannaland in October 2019 and had assisted them in turning around their budget from unfunded to funded. Treasury also provided Kannaland with R4.8 million in 2019/20 to assist with the temporary appointment of a Supply Chain Management (SCM) expert, to fund its Annual Financial Statements (AFS) preparations, formulate a Financial Response Plan (FRP), to fund BTO capacity building and assurance governance. The municipality also received R3.8 million from WCDLG. Recently Kannaland had asked for assistance on human capital resources and Provincial Treasury had asked it to provide details on what exactly it needed for it to deploy resources. It was clear that Kannaland had received a great amount of assistance from WCPG.

Provincial Treasury used the monthly reports to identify all the problem areas in Kannaland’s budget performance and to communicate with them on a quarterly basis on their problems. The municipality and Treasury had daily discussions and recently these discussions were on WCPG’s debt to Kannaland.

Western Cape Department of Local Government (WCDLG) response
Ms Barnard replied that the department had assisted Kannaland implement a project to strengthen its ICT communication and capacity. This formed part of the Back To Basics programme. WCDLG had also shared service models with the district and provided it with specialists that will assist Kannaland with its ICT. Kannaland was also assisted by the Garden Route district municipality on its ICT, and the two had agreed that the district would provide Kannaland with officials to help improve internal audit and risk. WCPG had donated laptops to Kannaland in the previous financial year. Both departments were committed to continue providing ICT assistance to Kannaland. WCDLG is prepared to host the servers for Kannaland until it was able to do so on its own.

The model that WCDLG had used for intervention in Kannaland had been used successfully before both in the Oudtshoorn and Swellendam Local Municipalities – and the DCOG could attest to this. After this intervention model was used, there had been a full turnaround in both municipalities.

Explaining the decision to intervene, Ms Barnard replied that the Kannaland Municipal Council requested intervention in 2018. A decision was taken by WCDLG to assign an administrator who would take responsibility for the rollout of the financial plan. A senior manager from a neighbouring municipality was appointed as administrator but he resigned shortly thereafter as he had other commitments in his municipality. A new administrator was appointed who had an extensive background in municipal affairs.

Financial recovery for municipalities in the province was a priority for WCPG. It had initiatives in place to bring about the economic revitalisation of municipalities. It received assistance from DCOG on this and it advised that there would be a joint collaboration between all three spheres of government to stimulate local economies, particularly in the rural municipalities.

The provincial government prioritised drought resilience and it had adopted a drought-resilience plan for the Central Karoo, Kannaland and Oudtshoorn. There was a two-pronged approach to the plan. First, augment current water services, which included equipping boreholes and drilling additional boreholes. Second, manage the water demand – which would ensure that the communities utilise water sparingly in drought affected areas. R13.8 million had been provided over the past three years. These areas were provided with geohydrologists and drought engineers to assist this programme. It pleased this project had progressed well and would be completed on time and within budget. It is committed to managing and monitoring drought in those areas.

Department of Cooperative Governance (DCOG) response
Mr Fosi replied that the funding model for local government is important for financial sustainability. The Department had been working with SALGA and National Treasury on rethinking municipal funding, but this had proved challenging, as it had to look at the current demarcation of municipalities.

Coalition governments had been a significant factor in the political instability seen in municipalities – and there are a number of coalitions in the Western Cape. With the local government elections next year, there might be an increase in the number of coalition formations. Many of the challenges municipalities face cannot be resolved through administration processes, but he agreed with Mr Hoosen that the administration process should be protected from the political instability in municipalities.

The Department believed that the District Development Model provided government with the opportunity to implement a targeted approach – that included all relevant sectors in government – where it could look at the challenges of a particular district and find solutions to assist it.

SALGA response
Mr Lance Joel, SALGA Chief of Operations, replied that there had been conversations in the Committee over the past two weeks on the success of interventions and they had concluded that interventions were not working. However, the success of the intervention in Kannaland stated that it is possible. There are lessons to be learned from this case, as mentioned by Mr Hoosen. He clarified that SALGA had not rejected interventions but had taken issue with how the municipalities had not improved afterwards. The intervention in Kannaland showed that the key to success is the joint collaboration between all stakeholders. He suggested that this example should be followed in future interventions.

He agreed that the local government structure had to be looked at by national government. Too often, the other two spheres of government implemented short-term solutions to the challenges faced by municipalities. It is important to look holistically at the entire structure, and to decide what changes needed to be implemented to better improve the local government structure – taking into account what was functioning well. SALGA hoped that the Committee would be able to assist it with the formulation of recommendations for distressed municipalities during this parliamentary term.

Debt owed by the other two spheres of government to municipalities posed a serious challenge to their financial stability. It was mentioned the previous week that the Department of Basic Education owed Mangaung Metropolitan Municipality R630 million. Government should not contribute to the collapse of another sphere of government.

Whilst coalition governments had (in some cases) brought political instability, the government had to accept that they would be a reality for the foreseeable future. He recommended that government monitor coalition formations to ensure that there is policy continuity in municipalities.

Further questions
Mr Hoosen stated that the question on the misappropriation of funds and if Kannaland had taken action against the culprits, had not been answered.

The Chairperson said that the Committee acknowledged that instances of fruitless, wasteful and irregular expenditure had decreased. She asked Kannaland provide a document detailing the consequence management taken against the culprits.

Mr Ceza said that Kannaland had not answered his question on whether the Standard Bank loan had been used to service the Eskom debt. Also, he asked whether the R2 million set aside to service the poor – had been spent irregularly. Investigations by WCDLG found that the majority of procurement was done irregularly without following the correct SCM process. The irregular appointment of service providers led to irregular expenditure. He asked for the names of the service providers implicated and if there were officials involved, and what consequence management was taken by Kannaland.

Response
Mr Mngeni noted the Committee’s request for Kannaland to provide a report on the type of consequence management actions taken against officials.

The Chairperson asked that Kannaland answer the question on the consequence management taken against officials involved in irregular expenditure.  

Acting Municipal Manager, Mr Butler, replied that the investigations implicated a former CFO and former Municipal Manager. Further investigations are being conducted by the Hawks. The municipality could not reveal names as the investigations had not been finalised and brought before a court. The appointment of a senior manager had been scrutinised by Kannaland, and further details would be provided to AGSA. The municipality assured the Committee that there would be no reoccurrence of previous instances of financial misconduct, as it had implemented internal control measures. It had also signed a service level agreement with Garden Route district municipality for internal audit measures.

The Chairperson said that Kannaland had not answered the question on Eskom debt.

Mr Ceza clarified that he had asked how much had been loaned from Standard Bank and what had the money been used for.

Mr Kenyon replied that Kannaland had an overdraft facility with Standard Bank and according to the legislation it had to pay the amount due at the end of the financial year – which it did in June. These facilities are used as a bridging finance mechanism and only utilised by the municipality when awaiting its grant allocations. The municipality stated that it had honoured its debt repayments to Eskom.

The Chairperson asked if it was an overdraft facility that it could service

Mr Kenyon agreed and said it was used when needed.

Mr Ceza asked if it had used that money to pay Eskom.

Mr Kenyon replied that it had not. The municipality used money from their cash flow to service their Eskom debt, but they no longer did this.

The Chairperson stated that with the continuation of the joint collaboration, the problems Kannaland had faced would eventually be solved. The Committee was pleased that Kannaland had showed progress, unlike previous municipalities it had conducted oversight on. It seemed that the coalition government in Kannaland had been functioning properly. The Committee would continue to monitor the developments of Kannaland. She thanked all present for their input.

The meeting was adjourned.

List of delegation for Kannaland Local Municipality interaction 1 September 2020:

Kannaland Local Municipality
Cllr Antonie – Acting Ecxecutive Mayor/Chairperson of MPAC
Cllr Theron – Speaker
Mr Butler- Acting Municipal Manager
Mr Rabbets - Administrator
Mr Mgeni – Acting CFO
Mr Jonker – Director: Technical Service

Office of the Auditor General
Mrs Sharonne Adams – Business Executive of the Western Cape
Mrs NtoshNdzamela – Acting Deputy Business Executive
Mrs Anette Krieg – Senior Manager
Mrs Melanie Joffee – Senior Manager
Mr Gavin Van Der Hoven – Stakeholder Liaison Manager

Department of Local Government
Ms Eda Barnard - Chief Director: Municipal Performance, Monitoring and Support:
Dr Sandra Greyling - Director: Municipal Support and Capacity Building:
Mr Gary Birch - Director: Specialised Support

Provincial Treasury
Dr. Roy Havemann - Deputy Director-General: Fiscal and Economic Services
Mr. Steven Kenyon - Chief Director: Local Government Finance
Mr. Christopher Mapeyi - Director: Local Government Finance Group 1
Mr. Aziz Hardien- Chief Director: Financial Governance and Accounting
Mr. Faez Salie - Director: Local Government Accounting

SALGA
Lance Joel (COO);
Ms Khomotso Letsatsi (Chief Officer: Municipal Finance);
Mr Khalil Mullagie (Provincial Director of Operations)