Western Cape 2020/21 Local Government Audit Outcomes: Department of Local Government, SALGA & Provincial Treasury briefing

Meeting report

Local government audit outcomes: Western Cape Department of Local Government briefing

Ms Eda Barnard, Chief Director: Municipal Performance Monitoring and Support, Western Cape Department of Local Government, informed the Committee there was continued improvement in audit outcomes in the province. 90% of the 30 municipalities in the Western Cape had received either clean or unqualified opinions with findings. There was only one regression. A strong leadership tone and focus on good governance significantly contributed to the positive audit outcomes. The Departments of Local Government and Environmental Affairs and Development Planning, the Provincial Treasury and others were working with municipalities to achieve this positive outlook in the province.

Strengthening intergovernmental relations (IGR) has contributed to positive municipal audit outcomes. Over time, the provincial government, under the leadership of the Department of Local Government, had invested and succeeded in building and establishing strong intergovernmental relationships with municipalities. Strategic forums had been established, where contemporary and pertinent matters were discussed and debated to enrich the functioning and strategic direction of municipalities. Strong working relationships had been created with other key stakeholders, which included ESKOM and the Auditor-General. Regular meetings took place, where matters of strategic importance were discussed to guide and further improve processes and systems and encourage strong governance. The Joint District and Metro Approach (JDMA) had been conceptualised and adopted as an operating model by the leadership in the province, and has since been effectively implemented across all districts and a number of projects have been successfully completed.

The provincial executive prioritised its monitoring and oversight responsibility. Mechanisms and internal capacity had been established to consider and, where required, investigate any allegations of fraud, corruption and maladministration in a municipality. A dedicated team of investigators had been appointed in the Department of Local Government, which had established a close working relationship with other legal authorities such as the National Prosecuting Authority (NPA) and the Hawks.

Ms Barnard said the Kannaland and Beaufort West municipalities had been identified as experiencing challenges. The Beaufort West Municipality was currently under intervention. To address its challenges, a financial recovery plan was developed and implemented, with the provincial treasury taking the lead. The Department had led a diagnostic assessment to ensure the root causes related to oversight, governance and service delivery were understood. The diagnostic assessment findings would inform the contents of a Section 154 support plan that was currently being finalised.

For the Kannaland Municipality, on the other hand, an agreement had been endorsed by the municipality's council for the Department to conduct a diagnostic assessment which would inform the support to be addressed in the form of a Section 154 support plan. Ad hoc support was currently being provided by a departmental engineer who had been designated to help the municipality with water quality challenges, and had facilitated a session with all stakeholders to review the current state of infrastructure and identify priority areas that require support.

Provincial departments have adopted strategies to provide "hands-on and targeted support" to municipalities to improve and enhance their functioning and service delivery. Under the leadership of the Department of Local Government, the province has established capacity across national and provincial departments to be able to conduct diagnostic assessments to determine the current state of affairs in a municipality and to develop specific support plans to enhance and improve the status of the municipality. Targeted support packages were prepared in line with specific challenges experienced in municipalities. These support packages were tailor-made and included projects to improve systems, processes, procedures and ultimately the "lived experience" of community members in a specific municipality. The provincial treasury had also adopted an audit action plan support strategy, where municipalities were actively supported to address matters raised by the Auditor General (AG).

Lastly, she said the Department had established a knowledge management hub and digital municipal status reporting platform, where the status of municipalities could be tracked in real-time and informed decision-making, guided budget allocations and influenced support strategies by all stakeholders.

Briefing by Provincial Treasury

Mr Aziz Hardien, Chief Director: Financial Governance and Accounting, Western Cape Provincial Treasury Department, said the AG had called on municipal leaders to transform local government to improve people's lives. The administration had to instill a culture of performance, accountability, transparency and integrity. A clean audit was the gold standard in South Africa. However, one must not become complacent -- one has to compare with world standards to be the best in class.

For the 2020/21 financial period, 22 municipalities (54%) had achieved an unqualified opinion with no findings. Five municipalities (5%) got unqualified opinions with findings, while three municipalities (4%) recorded a qualified opinion with findings. Five municipalities recorded an improvement; 24 remained unchanged, while one had regressed.

Regarding municipal support during the Municipal Finance Management Act (MFMA) audit of 2022, there would be annual financial statements consistency workshops during August. Municipalities were expected to submit draft annual financial statements for a high-level independent review. The hosting of the Zoho Desk platform would deal with daily municipal issues related to accounting, auditing, and laws and regulatory matters. There would be weekly provincial audit steering committee meetings with weekly updates, and a review of the annual management report summaries was being sent out.

Going forward, the provincial treasury would deepen the combined assurance for effective local government and governance. Recording zero material irregularities would strengthen consequence management by empowering officials with the appropriate tools. Great efforts would be focused on eradicating unwanted unauthorised, irregular, fruitless and wasteful (UIFW) expenditure and empowering municipal public accounts committees (MPACs) to effectively and efficiently deal with UIFW. The provincial treasury would try to enhance its metrics in year to ensure support did not become intervention. It would continually elevate the role of the chief financial officer (CFO), thus enabling risk and creativity to drive growth – front and centre. The provincial treasury would continue to implement the supply chain management (SCM) governance workstream and provincial treasury participation in National Treasury workstreams to address SCM interpretation and implementation challenges.

Municipalities would be kept abreast of developments related to the Preferential Procurement Policy Framework Act (PPPFA) regulations, associated risks and possible implementation challenges, and the provincial treasury would provide continuous guidance. The SCM executive development programme from the National Treasury would be focused on capacitating municipal executives. The provincial treasury was urging municipalities to participate in this executive development programme, and would prioritise support initiatives to proactively combat fraud and corruption within the SCM environment.

Mr Hardien took the Committee through the local government support framework. The historical financial performance success of the Western Cape was partly attributed to efficient oversight structures and entrenched in-year monitoring processes, which served as early-warning systems. Considering financial performance in organisational data was there to anticipate risk and detect areas of vulnerability before they translated into financial and operational distress. The proactive roll-out of support instruments was there to build capacity and strengthen resilience, while guidance was provided by legislative prescripts and compliance. Accredited training and peer-to-peer learning initiatives built multi-disciplinary capacity, guiding asset management and interpretation of SCM legislation. The intervention framework debunks popular negative perceptions regarding municipal interventions, and provides guardrails to stop financial and operational distress from impacting service delivery to the community.

(Tables and graphs were shown to illustrate metrics used to evaluate the health of a municipality, the Western Cape's lion's share of clean audits, its MFMA audit outcomes and audit outcome trends)

Briefing by SALGA

Councillor Paul Swart, South African Local Government Association (SALGA) Western Cape representative, said SALGA had launched the Municipal Audit Support Programme to assist municipalities in the red zone, based on the 2013/14 audit outcomes. The "red zone" involves municipalities with disclaimers and audits not finalised to provide targeted improvement and support. Through the Municipal Audit Support Programme (MASP), and working with the Provincial Treasury and Department of Local Government, and other stakeholders, SALGA would assist the six identified municipalities: Kannaland, Matzikama, Laingsburg, Beaufort West, Prince Albert and Oudtshoorn. This would ensure that good governance in these municipalities was enhanced. In addition to the hands-on support, SALGA would continue in the identified municipalities to convene the Municipal Speakers' Forum and the MPAC Chairs Forum to improve good governance and accountability in all our municipalities.

Mr Nkosinathi September, SALGA representative, said the Municipal Audit Support Programme followed a multi-disciplinary approach based on four pillars -- institutional capacity, financial management, leadership and governance. These four pillars needed to be strong and functioning effectively for a municipality to obtain and sustain unqualified audits and good service delivery. The pillars adequately covered the risk areas and root causes identified by the Auditor-General of South Africa (AGSA) and the three aspects audited. The differentiated support was focused on audit opinion drivers -- adverse and disclaimers, qualified opinion, and unqualified opinion.

SALGA's systematic support was focused on three phases: audit readiness, audit assistance, and audit action implementation. The audit readiness phase focused on reviewing asset management policy and drafting annual financial statements to ensure alignment to the MFMA, related treasury regulations and the South African standards of Generally Recognised Accounting Practices (GRAP). The special emphasis was on fair representation of the financial information; correction of prior period errors (asset register reconstruction); a GRAP-compliant asset register (disclosure); and completeness.

The audit assistance phase develops and implements corrective measures of findings. The audit action implementations phase then assists in developing municipal audit action plans. It supports the implementation of the corrective measures to improve the audit status by the end of June by listing all communications of audit findings (COMAFs) contained in the financial management report and listing all emerging risk areas identified in the financial management report for action. During August, SALGA will be engaging with the following municipalities: Oudtshoorn and Kannaland Municipalities (23 August), Prince Albert and Beaufort Municipalities (24 August), Central Karoo District and Laingsburg Municipalities (25 August), and Matzikama and Cederberg Municipalities (26 August).

Discussion

Ms C Murray (DA) wanted to know the causes behind the findings against Beaufort West, Kannaland and Oudtshoorn municipalities, and how these findings affected service delivery in these municipalities. She also asked what the timeline was for the municipal dashboard.

Ms Barnard replied that the findings were a combination of many matters, like supply chain management, human resources, information communication technology (ICT), etc. The team looks at areas that need support. Service delivery was affected because it did not reach the communities. The Department first had to start to find the cause of the problem. For instance, it had sent an engineer to Kannaland to address water challenges. She added that the dashboard was being tested internally, and would go live around September. The Department had its own set of indicators that would determine the screening of the status of the municipalities.

Mr Graham Paulse, Head of Department (HOD), Western Cape Department of Local Government, said when there were challenges, municipalities also experienced service delivery challenges. The Department had purchased equipment from the City of Cape Town so service delivery could occur in the affected municipalities. The Department had deployed its own staff to alleviate infrastructure challenges.

Mr Hardien added that the challenges in Beaufort West and Kannaland involved capacity and political instability due to coalitions. Coalitions presented an opportunity for lack of accountability. He also indicated there was nothing that prevented Oudtshoorn from improving on its audit outcomes. The AG had raised 13 concerns, and the municipality had tried to address some of the findings.

Ms N Makamba-Botya (EFF) asked if there were plans or recovery plans for the three affected municipalities of Beaufort West, Kannaland, and Oudtshoorn. She asked for clarity on what was being measured by the performance appraisals of intelligence, and how the audit was aligned with service delivery in municipalities like George that had received an unqualified audit while there were unfinished projects.

Ms Barnard said a document about recovery plans in Beaufort West would be made available to the Committee, and it had been uploaded on the provincial treasury's website. The document had specifics on what the municipality needed to submit to the Department. She asked the Member to provide details to the Department about the unfinished projects in George so that it could make a follow-up.

Mr Paulse commented that the projects in George were multi-year designed, and did not affect the audits.

Mr Hardien said the AG would not give an opinion if the project was still running, especially if nothing was reported. The AG gave an opinion only when the project was selected for audit. The AG would ensure all the SCM and contract management processes had occurred. The performance appraisal intelligence had to do with intelligence teams within the treasury department who came from the supply chain, budget, accounting and governance spaces. They were called a municipal intelligence team to bring intelligence or information on what was happening in a particular municipality. The information was stored so that anybody in the treasury department could access it and bring more intelligence quicker when executives were discussing matters pertaining to a certain municipality. The information was available 24 hours a day, making intervening easy.

Ms M Maseko (DA) asked if there was a plan to create information hubs for municipalities to communicate or share information without approaching the Department. She wanted to know how value was attached to support to the municipalities, because both departments were doing great work to provide them with support.

Ms Barnard indicated there was cross-border sharing that had to do with peer-learning to share information with all municipalities in the province. For example, there was a municipal property rates group, and bigger municipalities were providing support to smaller municipalities in order to learn from each other and become stronger.

Mr Paulse added there were protocol agreements in place. Information had been shared with all the coastal provinces so they could learn from and support each other in disaster management.

Mr Hardien said National Treasury had rolled out two circulars that unpacked the audit action plan for a municipality regarding what would be done to improve the situation. The second thing that had been done was to provide a system where National Treasury and the provinces could monitor the financial management capability and maturity of the municipality on a sustainable and periodic basis, as outlined in both 113 and 114 treasury municipal finance management (MFM) circulars. In the first week of August, the provincial treasury team trained all the municipalities so that when they complete the assessments, the provincial treasury had insight which it could share with the Departments of Local Government (DLG) and Environmental Planning. The provincial treasury had a dashboard that covered all the metrics to ensure proper financial management within the municipalities.

Mr C Dugmore (ANC) asked the provincial treasury to explain why there had been no single matter on material irregularities that had been reported since 1 April 2019, when the AG had been given the power to do so. He wanted to know if officials recognised the appointment of district champions since the Department had adopted the district approach model. He also asked about the content of the reports about the suspensions that had happened in the Beaufort West Municipality, how this was affecting service delivery, and when the departmental portal would go live.

Ms Barnard replied that the team had dealt with investigations in six municipalities into allegations of fraud, etc. Criminal cases had been referred to the South African Police Service (SAPS), while others had been referred to relevant structures. Kannaland would be visited during the week commencing 15 August. Senior officials from five departments, including technical specialists, would do site visits and interview the political and administration leadership of the municipality. At Beaufort West, she indicated that when there was a suspension and a recovery plan, there was a process that was always followed according to the legislation.

Mr Paulse added that the national Minister had enquired about the three suspended officials. The municipality had to do an investigation and come up with recommendations. The report was expected to be tabled before the council. He further indicated the Joint District and Metro Approach (JDMA) was about collective planning, budgeting and implementation across the process. Its focus was on catalytic projects. The Department had worked with the national Department on achieving the DMA outcomes, because there were similarities as well. This collaboration had been used to respond to the drought and Covid-19 pandemic. The Cabinet had endorsed the deployment of MECs to these districts. The Premier had written to the President regarding clarity on the roles of the national champions to avoid duplication. The municipality mayor took the lead in facilitating the meetings. The national Department helps in unblocking blockages in the provinces and municipalities. In many of the districts, there had been good support for implementing projects. The district teams work with the JDM leads from the Department, the SAPS and national departments collaborating on these initiatives.

Mr Hardien said the increased powers of the AG provided a tool for the AG to hold the municipalities accountable. The AG would conduct an audit. If it found a material irregularity, it would raise it to the municipality. The municipal manager could be charged in his/her personal capacity, not at a point when the material irregularity was raised, but when he/she had not done anything relating to the material irregularities. The AG now had the power to issue a certificate of debt to the accounting officer, which could be in his/her own name. The treasury had unpacked what the certificate of debt meant to the municipality, and how to prevent it.

Councillor Carl Pophaim said SALGA would embark on technical visits that would move alongside technical meetings with senior management delegates of the Department and political heads of departments, including mayors and MPAC chairs. An MPAC forum was formed in the Western Cape to capacitate and assist MPAC chairs in executing their duties. The legislation had assisted greatly, because MPAC chairs were now full-time councillors who were remunerated differently and received different tools of trade to do their work. Across the province, terms of reference matters assisted the MPAC chairs and committees in their functions and in holding the municipalities accountable. Over the coming weeks, SALGA will work on a framework to assist the MPAC chairpersons in taking the terms of reference to councils to do their work effectively. That was why it was important to include the executives of the municipalities so that the necessary financial and infrastructure support could be granted to MPAC chairs. He added that there was a correlation between the role of coalitions and the political instability in municipalities. In Gauteng, there were more coalitions, and when politicians were busy with party politics, the oversight function was not carried out properly. That was when maladministration and corruption issues took place. SALGA was also embarking on a coalition framework to target municipalities with a clear correlation between audit outcomes and performance and political instability.

Mr September referred to the interventions undertaken by SALGA, and indicated that they did not engage with any of the selected municipalities before the visits.

Ms Makamba-Botya asked what the aim of the dashboard was.

Ms Barnard said it was there to show how getting information would lead to action. It helped to get to know the status of the municipality. Intelligence was applied knowledge to make decisions and to take action.

Mr Dugmore proposed the national and provincial AG should brief the Committee on all material irregularities in the Western Cape, and why there had been no referrals. He wanted clarity on why in two DA-controlled municipalities on the West Coast, the MPAC chair was not given to the opposition, as this had been the convention. He also asked for comment on attempts to remove the acting municipal manager of Kannaland.

Mr Paulse said he had no knowledge about the removal of the acting municipal manager, even though he had spoken to him on the day of the meeting.

Mr Dian Cronje, Economist, Western Cape Provincial Treasury, referred to evidence-based planning, and said the provincial treasury department anticipated concerns and risks before going over financial risks. The Department looked at the technical basic compliance documents -- like financial statements, annual reports and performance reports that were produced monthly and quarterly -- and provided this information to the Member of the Executive Council (MEC).

Councillor Pophaim explained that historically it had been a convention that the MPAC chair be given to the opposition. With further amendments to the Municipal Structure Amendments Act, it has been made a recommendation that an opposition councillor should occupy the MPAC chair. However, it was not obligatory for municipalities. MPAC chairpersons were appointed by councils and were accountable directly to the councils regarding references approved for them. SALGA's position would be that of legislation, highlighting the MPAC chairperson's responsibility to account to the relevant council.

Mr Ashley Olkers, a representative from the Western Cape AG's office, suggested the Committee submit written questions on material irregularities to the head of the portfolio, who could address the processes on material irregularities.

Resolutions

The Committee resolved to invite the head of the portfolio for the Committee to get on top of the issue and to see if this was happening across the country. It further resolved it would request the Department to forward to the Committee the Beaufort West recovery plans; and to find out if it was possible for Members to be given an invitation to attend the visit of the Minister of Public Works and Infrastructure, Ms Patricia de Lille, to the Overberg.

The meeting was adjourned.