Western Cape Province progress on Covid-19 Expenditure Audit

Meeting report

Opening Remarks by the Chairperson
The Chairperson opened the virtual meeting, first welcoming the Members. He then welcomed the Western Cape Provincial Government delegation, and acknowledged the presence of the Deputy Minister of the Department of Corporate Governance and Traditional Affairs (COGTA). He recounted that the Western Cape Province was the first to be called by the Portfolio Committee on 23 June 2020 to account on its Covid Response Plan. This had followed interaction with some metros that had revealed that metros were not competent to respond to all the questions by the Committee. Hence, the resolution to engage the Provincial Government.

This was a follow-up meeting after the Special Report by the Auditor-General and the Special Investigating Unit (SIU) Report. The interests were not criminal offences but what the Committee would like to hear from the province was consequence Management. Because, when engaging the Auditor-General and law enforcement agencies, it seemed as though the government was not doing enough in terms of oversight and ensuring that people account. The Western Cape was coming after other provinces, and this round was almost completed. The Committee had resolved, after not receiving qualitative responses from provincial governments when accounting on municipalities, to call the municipalities that were identified by the Auditor-General to be taken into confidence as to what is being done. So, whilst the Committee expects a presentation from the province, some comments must come from the municipalities.

Briefing by Western Cape Province on the progress on Covid-19 Expenditure Audit
Ms Mireille Wenger, Western Cape MEC for Finance and Economic Opportunities, and Mr David Savage, Head of Department for Western Cape Provincial Treasury, gave a presentation to the Committee on the findings of the Auditor-General’s Special Report on the Financial Management of Covid-19 Initiatives.

Western Cape Government implemented precautionary measures to strengthen controls, ensure compliance and enable an agile response within the framework of the Public Finance Management Act from a procurement and financial management perspective:
Established a COVID-19 coordination function within the Provincial Treasury (PT) for the Finance and Supply Chain Management (SCM) Cluster to ensure financial governance, procurement and financial management requirements were met in terms of the Disaster Management Act and Its regulations.
Established a Central Procurement Advisory Committee (CPAC), consisting of key senior management officials within PT, Head of the PDMC, Internal Audit and CFOS from the Departments of Health; Transport and Public Works; Local Government; Community Safety and Social Development.
Deployed Provincial Treasury logistics support and advisory teams to support the Humanitarian Relief Stream, and procurement of medical supplies and PPE.
Established a database for medical and non-medical PPE suppliers (including cloth mask manufacturers) that provided for central management of governance requirements, supply and demand availability, lead times and benchmark pricing for departments and municipalities;
Managed queries, and provided procurement support, assistance and guidance through the SCM helpdesk to departments, municipalities, entities and suppliers
Engaged with National Treasury to:
Develop exemption notice (GG 43188 notice 437 of 31 March 2020) extending compliance dates (e.g., AFS submission from 31 May to 31 July)
Address audit scoping matters considering the impact of the revised dates on audits.
Engaged with provincial AGSA on suspension of non-essential audit-related work until the lockdown was lifted, in accordance with national AGSA instructions.

Conclusions
AGSA did not find any significant issues with the financial statements of any of the Western Cape institutions, providing “reasonable assurance” that all transactions are free from material misstatements, and have complied with the relevant laws and regulations. All instances of irregular expenditures (e.g., non-compliance with a regulatory requirement) are processed through a condonation working committee once identified by a department. Provincial Treasury addresses all AGSA recommendations through a continuous programme of assessing findings and developing approaches.

See presentation for more details

Discussion
Mr K Ceza (EFF) asked a question in relation to what MEC Wenger spoke of – the presence of economic opportunities in the Western Cape. Most rural municipalities’ residents migrate to Cape Town, Johannesburg or Gqeberha as a result of a lack of economic activities in their areas of birth. What feasibility studies have been conducted to industrialise rural municipality spaces, which will lead to employment, improvement of revenue within the rural municipalities and closing the disparities between the rich and the poor within the province? In terms of Human Settlement, Section 152(d) of the Constitution speaks of the promotion of a safe and healthy environment. What measures have the Department put in place to ensure the eradication of street dwellers in the City of Cape Town, and what are the timeframes to deal with this? His view was that homelessness is an asset for the spread of diseases, particularly as it relates to Covid-19.

Are there people who benefitted from the Finance Linked Individual Subsidy Programme (FLISP) that were not supposed to benefit, given their income being above the threshold of the intended beneficiaries? If yes, what is AGSA doing about this? In addition, there have been recent promises made by the Premier, Mr Alan Winde, that the DA Provincial Government is committed to addressing the issue of spatial planning in the province, and that his government will support the building of social housing in the inner city. Most poor black people cannot afford the actual expensive costs of renting apartments in the inner city, and a greater percentage of salaries is spent on transport to work in the inner city. What is the envisaged project intended to achieve? Why has the government turned down an opportunity to develop Tafelberg property into social housing for the poor to address the inequalities and chronic disparities associated with spatial planning in the province?

He stated that municipalities generally struggled before the Covid-19 pandemic; it is now worse, with the huge increase in unemployment grant funds redirected away from the normal service delivery. What measures had the province put in place to assist municipalities with service delivery challenges? As noted, non-payment of municipal accounts due to unemployment decreases the revenue derived from rates and taxes, what mitigation plan does the province intend to implement? In terms of detection of non-compliance in selecting/approaching existing suppliers and premiums above benchmark prices, what is the nature of the disciplinary actions that have been taken against the one official in the forensic report and the two officials? What is the nature, and where are they located in the municipality? In which department?

Regarding the recently concluded forensic report into water supply for informal settlements, which found that the city was overcharged, what is the name of the supplier and the amounts involved? What action has the City taken against the supplier besides referring the matter to the Municipal Public Accounts Committee (MPAC)? On municipalities and provincial government having reallocated grants and funding to counter the effects of the Covid-19 pandemic: how does this impact on current and future normal municipal funding and basic municipal service delivery? Was analysis done on such an impact?

Mr A Matumba (EFF) found it difficult to speak on the report because it was not complete; it did not give a proper picture for oversight to be done. On precautionary measures implemented in the Municipal Finances Management Act (MFMA), the report stated that instances of irregular expenditure had to be addressed by municipalities in terms of their own policies and through MPAC structures. Irregular expenditure in municipalities is dealt with using a uniform approach that is Section 32 of the MFMA. It does not say that municipalities have their own policies for dealing with irregular expenditure. So, it means that all municipalities in South Africa must adhere to Section 32 of the MFMA and use it to deal with irregular expenditure. What do they mean when they say that municipalities will have to use their own policies? He asked because, in accordance with Section 32, municipalities are even compelled to report to the Provincial Government on irregular expenditure. So, the report should have shown the exact irregular expenditure that had taken place, and the actions that municipalities took through the Act. Where are the reports from municipalities on irregular expenditure?

On the special audit matters of the City of Cape Town, there is still no proper report. He proposed that the City of Cape Town go back and produce a proper report. The report stated that, in terms of water supply for informal settlements, it was referred to forensic investigation, and MPAC is considering recovery of overcharging. It goes back to Section 32(2) of the MFMA that says the municipality must recover – where does MPAC come in? He asked because it is not known what MPAC is doing until MPAC gives a report to council on its decision. When it is said that MPAC is considering then it means that the decision that MPAC is going to make is already known, which means that the MPAC that the matter had been taken to is no longer an independent body because the decision that is going to be taken is known. Hence, there is Section 32(2) that states that municipalities must recover unauthorised, irregular, fruitless or wasteful expenditure from people that are liable. What the Committee would like to know, in terms of water supply for informal settlement, is the irregular expenditure, the people liable and the decision taken by Council to recover overcharging – not MPAC considering. The report gave a different picture of MPAC. It also stated that it has been referred to forensic investigation.

On PPE procurement, the report stated that there is disciplinary action taken against one official linked to contracts. But what did this official do? How was this official involved? The report also stated forensic investigations of crimes conducted reported to National Treasury and Competition Commission. What was happening with disciplinary action against two officials? What was the picture there? The Committee needs to do oversight. What disciplinary action was taken, or is it still planned? What was really happening? He submitted that the City of Cape Town needed to compile a proper report that will allow the Committee to do oversight and hold relevant parties accountable.

Ms S Buthelezi (IFP) stated that there were serious concerns regarding the suppliers that were used in emergency procurement. For example, Top ‘n Nos is listed multiple times but the supplier was blacklisted by National Treasury, as per media report dated 12 July 2017. How did Top ‘n Nos get these multiple contracts with the City of Cape Town? Several of the other service providers listed did not have websites or information available about the services offered. How were these service providers selected? The supplier, Simnet House, received multiple contracts, one worth R3 728 745. However, this service provider has no website. References online describe it as being part of a residential building construction industry. If this is the case, how then did Simnet get such large emergency contracts for meals and food parcel procurement?

Mr C Brink (DA) stated that he was interested in the procurement disclosure reports. Were they limited to PPE-related goods? Did the Politicians/Executive as decision makers find the disclosure reports useful as a device for making decisions and exercising oversight over the administration?

Responses
MEC Wenger stated that part of the rural economic development strategy was to promote tourism, energy resilience and investment. There is a district unit within Westgro, Western Cape’s Tourism and Investment Promotion Agency, which focuses specifically on promoting investments outside the metro and in the Western Cape more broadly. Energy resilience projects are being developed throughout the province because this will help drive job creation. From the Provincial Treasury side, the province also produces the Municipal Economic Review and Outlook, which is a yearly analytical document that looks at economic and investment activities happening in municipal areas. This has been great to foster economic development in municipalities outside the metro.

On the procurement disclosure reports, the aim of those reports was to promote increased transparency and allow for scrutiny. They have helped to strengthen transparency and public oversight of government spending with respect to disaster procurement. The reports have also created an opportunity for departments to make improvements to the quality and credibility of the information in respect of Covid-19 expenditure. Initially, the procurement disclosure reports did focus on PPE but the scope of the reports has expanded to include all disaster-related procurement. This approach by the Western Cape Provincial Treasury has since been adopted by National Treasury. 

Dr Harry Malila, Director-General of the Western Cape Government, confirmed that the procurement disclosure reports did assist the executive. The province had an entire system for managing Covid-19. When issues of irregularities within the procurement system came up, the Executive decided to be more transparent and open to ensure that there are no issues in the procurement system. The Auditor-General did not find any major issues with the way that the province went about in procuring PPE. He indicated that the province had a structured approach and met with municipalities at least every week. The Premier highlighted to the municipalities that the procurement processes needed to be clean and transparent.

On spatial planning, there is a department responsible for planning and environment. There are also planning capabilities within the Department of Human Settlement. The province does this, given the legislative requirements, together with municipalities. In fact, issues of spatial planning are built into the Western Cape's Strategic Plan. Spatial planning is more than just planning for human settlements; it includes issues of economic opportunities, mobility and planning around other public services like hospitals and schools. This work is done together with municipalities. As the Committee knows, the country, in general, is battling with improving opportunities for the people and getting people closer to economic opportunities. That is a function of spatial planning. There is also the economic function of spatial planning, which is to bring people closer to work opportunities, reduce travel time and reduce public expenditure on transport. This was the objective of the Western Cape Government through the spatial planning regime and initiatives.

Mr Anton Bredell, Western Cape MEC for Local Government, Environmental Affairs and Development Planning, stated that the province had developed an inclusionary housing policy that would be taken to Parliament the next week. The province does recognise the mobility issues within the province, and it is part of the policy. A housing market study had also been conducted for the municipalities. It is especially focused on the secondary cities, to help understand the housing markets. The province has been struggling with revenue enhancement, and this is also work that has been done with municipalities, to help municipalities understand the billing system and balance the subsidies going out of the system to support the households that cannot afford services. Another important study that had been done was the growth potential study for towns, focusing resources on economic spaces to help grow the economies in towns. He stated that the province was working with municipalities on a daily basis to improve the spatial planning and inclusive housing policy.

Mr Savage stated that, in terms of rural development in the Western Cape, there had actually been faster rates of growth occurring in the Southern Cape. The strategy was adjusted for municipalities across the province and not just the City of Cape Town. In terms of human settlement, he stated that there had been a dramatic rise in homelessness over the pandemic. There have been measures by the Provincial Government such as the expansion of homeless shelters and the conversion of some provincial buildings to have beds in the city centre. This was in addition to the usual Department of Human Settlement initiatives that include informal settlement upgrades and the inclusionary housing programme.

He stated that the Provincial Treasury had not been aware of any irregularities with the beneficiaries of the Financial Subsidy; the Auditor-General had also not picked that up. It is a risk that has been closely managed. There has also been a growing portfolio of social housing projects in well located areas in the City of Cape Town. The Conradie project is near completion. Some beneficiaries had already occupied units there. The Tafelberg matter is still under litigation.

On assisting municipalities with service delivery and fiscal needs: from the side of Provincial Treasury, the focus had been on financial stability, encouraging municipalities to take measures to contain unnecessary expenditure and protect revenues where appropriate. This led to the development of a vulnerability monitoring dashboard, which tracked high frequency financial performance data on a regular basis. For the municipalities that were vulnerable, the Provincial Treasury worked to develop budget funding plans to make sure that services could continue to be delivered. That was integrated with the semi-annual budget engagements. There had been integrated support programmes from the local government departments in terms of Section 154, support to all local municipalities that cover service delivery, financial management and value management issues. These are reviewed and further developed every year. The integrated support programmes were useful in navigating the pandemic through meeting regularly on mutual issues of concern and individually where needed. The detailed data was that all municipalities faced financial pressure during the period. It was also a period where wage increase negotiations came through which added pressure.

On the question of irregular expenditure in terms of Section 32 of the MFMA: it is true that there is a regulated process that is complemented by the financial misconduct regulations in terms of the MFMA. Municipalities do report irregular expenditure, but it was not in this report because this report was confined to matters in the AG’s Special Report. On the procurement disclosure reports, what was innovative was that expenditures across departments were reported on in an integrated way on the specific procurement related to the pandemic. Information on unit cost of individual contract purchases were provided against benchmark prices. It helped with oversight.

Mr Siseko Mbandezi, Member of Mayoral Committee for Finance, City of Cape Town, stated that the City Mayor, Mr Geordin Hill-Lewis, was dealing with the matters of homelessness. The rise in the numbers of homeless in the city were exacerbated by the Covid-19 regulations. The mayor is taking the matter forward now with the lifting of regulations. The city has safe spaces for the homeless.

On the company Top ‘n Nos, he was not sure if the company would have been able to pass the supply chain process of scrutiny if it was barred from doing business with government. He does remember seeing a press report where the company won the case in a court of law. So, there was nothing irregular about doing business with them.

Mr Kevin Jacoby, Chief Financial Officer, City of Cape Town, stated that, in March 2020, one of the focal points was to say in two- or three-years’ time when being assessed was what will the City look like. It is one of the reasons why the City of Cape Town believed that it was to experiment with every component of the Supply Chain Management policy, as the city does continuously, while delivering services and installing a good set of governance principles in the city. There were 16 million items of PPE issued since March 2020. That was a remarkable system to have going in a time of a crisis. The waves and phases of Covid saw opportunity in the market. The City had a number of contracts in place where PPE could be procured from. The market had to also be approached given the volume of items.

On the question around the two officials related to the overpricing of face masks, hand gloves and disinfectants. The contracts were not big, but the overpricing was between 131% to 2 000% in the fourth wave. The officials left the city because they were under forensic investigation. The officials were both in the supply chain management component of the city – inventory management and procurement. The standard operating process was that, if overpricing was found through the controls, the matter would be reported to the forensic side so that consequence management would be exercised over the staff and the companies. The one company stated that they also were charged high prices and that fell onto the city. The city still did not hesitate to report the matter to National Treasury and Competition Commission to test overpricing.

On water supply, the city was overpriced by R1.724 million by the service provider. This was identified by the Auditor-General. The city is not trading with the service provider, at this point. And it does not intend to do so until the matter is finalised by MPAC. The water service and legal service were working on recovery and not waiting on the MPAC consideration. The reason that he had used the word “considering” was because he did not want to preempt the thought pattern of an MPAC decision. It is scheduled to be considered by MPAC on 28 June 2022.

Top ‘n Nos was indeed blacklisted. It was blacklisted for one month in 2019, so there was no reason to not use the company during the time of PPE procurement. On the question of websites, there is nothing that restricts the city from working with a company that does not have a website. There is a compliance checklist. The important things are the ability to deliver and fair pricing. With the company recalled to be in the building industry, during that time, various suppliers re-engineered to supply PPE during the time of the pandemic, and re-engineered themselves for the market.

Follow-Up Questions
Mr Ceza referred to what MEC Wenger had said about industrialisation of rural municipalities in terms of forced migrations because Ms Helen Zille had once referred to people who migrate to Cape Town as foreigners. How is it ensured that there is massive development of rural municipalities so that people being called foreigners does not manifest again? The view is that, in order to bridge the wage gap between the rich and the poor, some industrialisation and special economic zones must be developed consciously by a willing government. What are the timeframes in terms of the plans spoken about? He added that the question of the densification of Dunoon and Kosovo, has not been completed to date. The project was supposed to have been completed in the 2019/2020 financial year to mitigate against the spread of Covid-19.

Mr Matumba stated that he was taken aback by the response of homelessness – that it was said to be due to Covid. How was there a rise? Did Covid take homes away from people? What Covid did was expose homelessness in Cape Town. Covid forced people to go home, and it showed that there are a lot of people without homes to go to. The rise was not due to Covid. Covid exposed a situation that was already there. The Committee is told that municipalities are to take action. The action must not be something temporary. It must be that there has been land allocated to build for people. The issue of homelessness will continue because there is no economic activity where people are. Therefore, people must go work in town and find a place to stay. Only those who work formal work are able to get places to stay, but those who do informal work do not have a place to stay. Lastly, he thought that there would be a sincere apology from the City of Cape Town for the way it had been evicting people during Covid. An example of such was evicting a naked man in front of cameras. What did the city do to restore the dignity of the African child? It is something that the Committee was meant to be told in terms of what had been done to apologise to the man, and the steps taken to ensure that such does not happen again. He thought that the city would have the conscience to apologise to Parliament, but it seems that the city does not see anything wrong with the action taken against that man.

Ms E Spies (DA) stated that the brief for the meeting was the Auditor-General’s findings related to Covid-19. If there are more issues that the Committee would like to do oversight on or information on then the Committee should arrange to meet for that purpose. For example, economic development strategies and issues of homelessness were not in the brief given to the delegation, and Members are asking questions that have nothing to do with the brief.

Responses
MEC Wenger stated that there was no forced migration in the Western Cape. There are two industrialisation and special economic zones in the Western Cape. First is Saldanha Industrial Development Zone, which has just received a free port status. There is also the Atlantis Special Economic Development Zone, which focuses on Green Technologies. The province would be happy to provide the Committee with more information and specifics on these special purpose vehicles. She asked to put responses to the outstanding questions in writing.

Dr Malila states that the homelessness matter is one that is being taken seriously. The issues around the regulations were a massive stumbling block for the City of Cape Town and other municipalities. There have been sessions at Cabinet level, where it was discussed under the well-being theme. Other than safety, the economy and jobs, the Western Cape Government also prioritises well-being. The Premier is taking the issue seriously and working closely with the city and the rest of the municipalities to ensure there is proper integration of homeless people into communities or access to the many shelters in the province and metro. The Department of Social Development has particular strategies for dealing with the shelters from a funding perspective but primarily from a well-being perspective.

Mr Savage stated that, on the matter of rural industrialisation, the scope of the work being done was broad but the underlying strategy was to work with the assets of local communities and help build on those. It is all based on deep economic analysis of the assets and comparative advantage for what needs to be done to unlock economic growth.

On the question of Section 32 of the MFMA, the key was that the committee of council has to investigate irregular expenditure and recommend to council the actions that need to be taken in this regard. This was important to ensure that the consequence management system and internal control systems were strengthened. So, from the Provincial Treasury, the recommendation is that MPAC should be used as the committee to do these investigations, as their main purpose is to do governance oversight. Some municipalities have specific committees established in terms of Section 32 of the MFMA, and the Structure Amendment Act does provide for MPAC to be used to investigate these expenditures.

Mr Ceza stated that he had still not received an answer to the question of the densification of the Dunoon and Kosova project. He responded to Ms Spies's comment by stating that Members of the Committee are well prepared on questions to ask and will hold the Executive to account, given the Members’ duty as legislatures in the Committee. They will not ask superficial questions.

Mr Mbandezi stated that the sentiment of Ms Spies was appropriate and correct because he would not be able to respond in detail on the progress of the work that needs to be done in Dunoon. Mr Malusi Booi, MMC for Human Settlements and leads that project, would be the best person to respond to that. What will end up happening is that the delegation will be guessing responses to questions whereas the preference is to respond appropriately and accurately. Follow-up questions can be responded to in writing.

With regards to Kosovo, there had been a study done and the works had been completed. Human Settlement will be dealing with the matter. He was not privy to the project planning and preparations. However, the matter of Dunoon has been looked at, a study has been done, and a report has been generated and has been forwarded to the Department responsible.

The matter of the resident in Khayelitsha who was evicted and decided to strip was dealt with in this Committee. The City of Cape Town was summoned by the Committee to deal with the matter. So, to apologise for a matter that has been dealt with in the same Committee would be unusual. He stated that the mayor was very passionate about dealing with homelessness, and that one cannot force people to be in homes when they do not want to be in homes. There are many shelters and safe spaces in town. There are daily reports on how many beds are available, and people cannot be forced to use the spaces nor can people be forced into homes. It is a very delicate matter and everyone wants it to be solved.

Closing Remarks

The Chairperson stated that the Committee was appreciative of the sharing of information. The province was able to clarify matters and matters that have not been clarified would be posed in writing.

He thanked everyone for attending the meeting.

The meeting was adjourned.