Progress and Implementation Plan for 2019/20 MFMA Audit & corrective measures at underperforming municipalities

Meeting report

Municipal performance: Briefing by Department of Local Government

Ms Eda Barnard, Chief Director: Municipal Performance Monitoring & Support, WC Department of Local Government (DLG), reported there had been an improvement in the municipal audit outcomes for the 2019/20 financial year. 18 out of 30 municipalities in the province have received clean audit opinions, and nine had received unqualified opinions with findings. This translated into 90% of the 30 municipalities in the Western Cape that had received either clean or unqualified opinions with findings. Beaufort West was the only municipality in the Western Cape that had received a disclaimer, while Kannaland and Laingsburg had received qualified opinions.

The executive had resolved to put Kannaland local municipality (LM) under Section 139 (5) mandatory intervention, with a financial recovery plan (FRP). A dedicated official had been identified and deployed to act as an administrator to implement the new FRP, which had been developed and approved by National Treasury (NT) with a Section 154 support package. The executive had instituted urgent court proceedings against the municipality. There was ongoing litigation.

There was continued support in terms of the Back-to-Basics programme in the Laingsburg Municipality. A diagnostic assessment had been conducted with the aim of reviewing the current support package. The executive had further resolved to put Beaufort West Municipality under Section 139 (5), adopted by Cabinet. The NT had been requested to commence with the development of the FRP, with the DLG to refine the Section 154 support package.

Addressing matters raised by the Auditor-General (AG), she said that every municipality prepared an audit action plan. This plan was adopted by the audit committee, and progress reports were submitted accordingly. Each plan was tailor-made to address the findings of the AG in a given year. The plan details the exact highlighted finding, identifies the root cause for each finding and stipulates recommendations by the AG. A responsible official is assigned to address the finding. Controls are identified to be put in place by management. A target date is assigned. The province uses an automated system to monitor and track the progress made by the municipalities to address these issues. Quarterly reports are submitted to the provincial executive to reflect progress per municipality.

She said positive audit outcomes were achieved by instilling a culture of good governance through ethical, efficient and effective leadership that enables service delivery. Administration should be led by experienced and competent executive management and staff who ensure effective service delivery while maintaining statutory compliance by putting measures in place to institutionalise good administrative and cooperative governance practices. The administration should uphold the integrity and credibility of the municipality by ensuring that public funds can be accounted for, by putting measures in place to ensure good financial management and quality reporting, strong internal control measures, efficient systems of delegation, compliance and oversight, and focus on putting the community first and ensure universal access to quality services.

Provincial support efforts were aimed at strengthening council oversight, governance and service delivery in municipalities. In achieving this, strong focus is put on transversal support initiatives, comprehensive and holistic, bespoke support packages, and the provision of financial support to municipalities based on predetermined criteria. To strengthen oversight and administrative leadership, there is a dedicated training and personal capacity development session for councillors, with emphasis being on ethical training and sessions on roles and responsibilities. There is ongoing support, guidance and monitoring of functionality of oversight structures through the Municipal Public Accounts Committee (MPAC).

There is also monitoring of critical vacant senior management posts and providing legal guidance on the appointment of competent, qualified and skilled senior managers through the distribution of good governance practice notes and advices, and enforcement of statutory prerequisites. The hosting of intergovernmental support forums continues regarding the sharing of best practices, guidance and assistance with legal interpretations through the Municipal Property Rates Act (MPRA) focus group, and the Infrastructure Forum. The province conducts infrastructure and service delivery assessments to determine the root cause and make recommendations in response to specific challenges, and continues with the provision of direct engineering support and technical advisory services, such as hands-on and dedicated support by deployed engineers and geohydrologists.

When it came to municipal support plans, she indicated that ten municipalities had started, and to date four had exited the programme. Due to the successes achieved through the model, municipalities request to be included in the programmes. The plan was premised on the five pillars of the Back-to Basics programme. Applicable national and provincial departments had been secured to provide support where required, and co-ownership with the municipal leadership was a prerequisite -- the plan must be adopted and supported by the council.

Lastly, Ms Barnard touched on the status of the implementation of the Joint District and Metro Approach (JDMA) – a vehicle that reinforces horizontal alignment between the Western Cape Government departments, and vertical alignment between the three spheres of government, to ensure that the needs and priorities of the citizens were reflected in national, provincial and private sector planning, budgeting and implementation. Revised implementation plans had been submitted to the Department of Cooperative Governance (DCoG) on 28 July.

The Western Cape government and the City of Cape Town had agreed on a “Committee System” as a version of the JDMA, where they would engage and share information on strategic plans and policies to:

ensure alignment between the two spheres of government;
engage and share information and assumptions on infrastructure plans and pipelines, and identify overlaps or gaps and address provincial infrastructure plans and pipelines within the metro;
engage and share information on the delivery of services and co-ordinate services: municipal, provincial and concurrent functional areas of competence; and
engage and share information on governance matters affecting local government.

She pointed out the implementation of the JDMA had come with new ways of working and doing business. There had been improvements in relationships, coordination and collaboration across functional areas and beyond mandates. The implementation also came with effective collaboration which had resulted, amongst other things, in water security programmes such as the Drought Response Action Plan (DRAP); JDMA structures being effectively utilised to support the provincial response to the COVID-19 pandemic and related economic recovery initiatives, with close working relationships established with the Joint Operations Committee (JOC); and JDMA structures and networks using part of the COVID-19 humanitarian relief efforts. As a result of these success stories, the support of new stakeholders and resources for the JDMA initiatives had been secured, and the model had been used to resolve cross-cutting challenges in districts.

Discussion
Mr A Van der Westhuizen (DA) commended the online forums of officials, where they get together and discuss matters, because that was adding value to the work of the Department. He remarked that supply chain management (SCM) systems and financial statements were the biggest source of trouble. Maybe this could be the result of the training provided to officials. The challenge seemed to be to get the best practices for specifications. He also wanted to know what the current situation was at Kannaland Municipality, and if the assisting administrator was still there. He wanted to know what the legislation said about executive powers and the councils in the running of the municipalities.

Mr Aziz Hardien, Provincial Accountant-General, Western Cape Provincial Treasury, said the forums were there for the officials to learn best practices, especially on SCM matters. Each municipality had its own specifications it had got to deal with. SCM was one of the issues that was being addressed, because it was important to have qualified people. The provincial treasury had an SCM help desk for municipalities that had problems.

Ms Barnard added the forums were valuable in improving the work the Department was doing, as they tried to bring in experts, and were a platform for networking. She indicated that there were currently a number of senior vacancies in the Kannaland Municipality. Filling the vacancy of technical director and deputy technical director was proving to be a challenge. The administrator was still on site and was still in contact with the newly appointed mayor. She added that the matter of the oversight role and legal opinion would be referred to the head of department (HOD) to respond in writing to the Committee.

Ms M Maseko (DA) commended the Department for getting into the details of what it had done and the plans to be implemented. She wanted to know how optimistic it was about dealing with the dynamics of political instability, because it appeared that the same municipality received the same negative audit outcomes every year. What would the Department be doing differently regarding interventions? She asked if the Department was planning to save costs by reducing the use of consultants where there were chief financial officers (CFOs) employed, thereby avoiding a duplication of roles because the CFOs were qualified to do the work. She requested that the Committee be furnished with the quarterly report on the Five Pillars of Municipal Support.

Mr Hardien said the AG's report stated that the country had spent R781m on the preparation of financial statements. On average, a municipality spends R3m on consultants. The Western Cape municipalities had spent R42m on consultants. On the accounting side, there were technical matters and a lot of interpretations that CFOs could not attend to. It had therefore been agreed to use consultants, because things change all the time, and CFOs should be assisted with development. The rate of the consultants and the service they provide was monitored by Treasury. If CFOs could not cope with some of these technical matters and interpretation, they were free to make use of consultants.

Ms Barnard stated some councils were not stable most of the time. The legislation was clear on the functions of the councils and if the functions were not fulfilled, the Department had to do a follow up and implement regulations so that councils could render services.

Mr P Marais (FF+) remarked that nothing was going to materialise from what the Department was saying, because the problems were chronic. As a result, Beaufort West, Kannaland and Laingsburg were political delinquents because political parties were protecting the people who were ruling these municipalities. He suggested all political parties in the province should get together and dissolve all dysfunctional municipalities and strengthen their capacity.

Mr Marais wanted to know if the boundaries of the Kannaland municipality should not be reviewed, because it did not have the skills for administration, and questioned whether the municipality could not be administered virtually, seeing that the accounting authority was always on leave.

Ms Barnard said a turn-around at Kannaland municipality could work only if one had a physical team on the ground which was supported technically. That model had worked for the Department in the past, and that she had worked on municipal recovery for a long time.

The Chairperson commented that the presentation had been sufficiently detailed for the Committee to get to know of the interventions of the Department at the municipalities in the province. The presentation had displayed commitment to achieve good outcomes. He asked if there were measures in place to avoid recurrences in municipalities with adverse or qualified findings, because audit action plans were drawn up every year. Then he wanted to know to what extent the Department was prepared to correct non-compliance on SCM, particularly when it came to local content. He also asked if there was an agreement between the municipalities and treasury on the continued use of consultants, or if municipalities would continue to be free to do as they pleased. He remarked that the audit fees were said to be astronomical and monopolistic. The astronomical fees reduced the services that could be rendered by small municipalities like Swellendam.

Mr Hardien referred to the adverse findings and audit action plans, and said the law states that every municipality must draw up an action plan based on the AG's findings. The treasury analyses the trends of the municipalities after submitting audit action plans to see if they were addressing the root causes. An assessment was done on a quarterly basis to see what progress had been made, and there were annual assessments as well. The action plans were meant to address what the AG identified. The provincial treasury and the Department go beyond the audit outcomes to see how municipalities deal with budgets, SCM matters, etc. and to ensure action plans were implemented consistently. He indicated that SCM was art, not science. Cases were assessed individually, although the same law had to be applied irrespective of the locality of the municipality. If local content was not readily available in a rural district, transport costs would be factored in.

He said the use of consultants was not an evil thing to get rid of. Municipalities were autonomous organisations and did not need the approval of a provincial department or treasury, even though the treasury did monitor the work and rates charged for work by consultants. It monitored audit fees closely. A significant improvement had been seen in the cost of the audit fees, especially during lockdown. The AG’s biggest mandate was to deal with public funds and give many views and opinions. The AG had to make sure the figures of the municipalities were credible. There had been a higher level engagement between municipalities and the AG on audit fees. If internal controls of a municipality were found to be adequate, the audit fees were reduced.

Mr Van der Westhuizen wanted to know what the law said about the powers of the councils compared to those of local government, because problems with some municipalities were related to instability, changes in coalitions, and floor-crossing. The further one was away from Cape Town, the more unstable these municipalities were. He asked if ethical conduct was provided in training programmes, and what the AG had found about the fact that municipalities could not budget for a deficit because some figures in the financial statements did not give the actual figure on the ground due to the questionable accuracy of data.

Mr Hardien explained there was a mandatory programme for ethical leadership in the public sector. There were other specific programmes in place as well. He added that 8% of the municipal budget had to be spent on maintenance. No municipality had to budget for a deficit. If water came out of the tap, that meant the infrastructure was in place. An adjustment of the budget was allowed for unplanned or unforeseen things.

Ms Barnard explained that the law was quite clear on the powers and functions of the executive mayor and council. The Public Finance Management Act (PFMA) provides guides on where the boundaries of the council start and stop. From time to time, the Department gets information from municipalities that those lines were blurred, so when the Department receives information of this nature, it guides the municipality on the code of conduct and those of the officials. When it comes to ethics, the Department had spent two years on the personal growth of councillors, training them on ethics and their responsibilities as public representatives. This had not only become a training programme, but also a personal opportunity for their growth and development. 

Mr Marais stated that in the past, council members were not paid and work was done by the officials. He found it impossible that municipalities could do oversight on themselves. The municipal functions could be outsourced and managed virtually, and municipalities could then oversee themselves.

The Chairperson enquired what the role of the South African Local Government Association (SALGA) was in cultivating ethical leadership within municipalities to ensure good governance, leadership stability, and good audit outcomes. He also asked if there was a direct correlation between strong oversight bodies and strong assurance functions in a municipality vis-à-vis internal controls.

Ms Barnard said extensive training was done with SALGA to make the training programme practical, with a focus on ethics. Training manuals were being prepared for the new councilors coming in after the local government elections. The training was accredited, and one could progress to a post-graduate qualification.

Mr Hardien agreed there was a direct relationship, especially if one looked at the assurance functions happening in a municipality, where there would be an audit committee, internal audit, and risk management practices. If any of those was absent, there was going to be a collapse in internal controls. The highest authority in a municipality that supports the council was the audit committee, which meets four times a year, so it was important for the CFO and municipal manager to provide the audit committee packs. That was why the provincial treasury tried to ensure that if one wanted to be in the audit committee, one was trained to know what one was supposed to do and look at. The treasury informs the audit committee on things it needs to look at when it comes to internal controls, etc, and workshops the municipalities so that they know what needs to be done. Anything not monitored would fall by the wayside.

Mr Marais remarked when it comes to oversight for municipalities, it was important to look at the council itself and provincial government. The oversight role had to be given to the council. There were committees within the provincial government which had the authority to intervene when a municipality’s obligations were not fulfilled.

Committee Resolutions

The Committee resolved that the Department should forward the State of the Municipalities Report to it once it had been reviewed by the Cabinet; and that the audit opinion provided to the Cabinet would be circulated to all Committee Members.

It further resolved the Committee should be given more information on the legal opinion obtained by the province on the oversight role of provinces on local municipalities and obligations by municipalities to provide information to provinces.

It also resolved to compliment the Department on the good answers it had provided to the Committee and the good audit results. It agreed it would raise concerns about crucial vacancies in the Kannaland Municipality, and enquire about the suspension of municipal managers in municipalities.

Adoption of Minutes

The minutes of 17 August 2021 were considered and adopted.

The meeting was adjourned.