Update on Operation Clean Audit by 2014, Local Government Turnaround Strategy & Municipal Infrastructure Support Agent: y, briefing by Department of Cooperative Governance and Traditional Affairs

Meeting report

Opening Statement
The Chairperson stated that the Committee wanted the Department of Cooperative Governance and Traditional Affairs (COGTA) to brief it because its mandate was to monitor the expenditure patterns of municipalities, which would also include making sure that there was compliance with legislation, especially with issues raised by the Auditor-General (AG) in particular. These matters had to be taken seriously by all involved if the 2014 clean audit targets were to be met. The Committee needed to know what the COGTA was doing to get everyone involved so that their targets could be met. Members needed to know what still had to be done as well.

Ms Shanaaz Majiet, Deputy Director-General: Provincial and Municipal Government Support, COGTA, gave apologies for the Minister and the Acting Director-General, who could not attend the meeting. The Minister wanted to be at the meeting but was called away to deal with an urgent crisis.

The Chairperson noted what Ms Majiet said but stated that it was a pity that he did not receive a direct apology from the Minister nor his Deputy. This was quite concerning given that the DG was not at the meeting as well. He wanted to note that the Committee did not receive any formal apology from the Minister. He was hopeful that the presentations would meet the Committee's expectations. 

Progress on the Local Government Turnaround Strategy
Mr George Seitisho, Head of the Local Government Turnaround Strategy, COGTA, reminded the Committee that the Local Government Turnaround Strategy (LGTAS) found its roots in various government support programmes. The implementation of the Outcome 9 Delivery Agreement between the President and the Minister found expression in the roll out of the LGTAS. The focus of the LGTAS was to coordinate various stakeholders, to enhance a developmental local government, to consolidate pre-2011 priorities and to implement post 2011 priorities. COGTA branches were in the process of incorporating and mainstreaming LGTAS into their Annual Performance Plans (APP).

COGTA acknowledged that the majority of municipalities required some support. After assessments and consultations, it was determined that 108 municipalities required integrated support. All 108 municipalities were visited and thorough engagements took place.

Key stakeholders were various national departments such as Energy, Water Affairs and Public Works, as well as heads of provincial COGTA departments, provincial sector departments, provincial LGTAS coordinators, municipal managers, COGTA technical support units and Salga officials.

81 of the 108 municipalities that were identified to need integrated support have fall under the Municipal Infrastructure Support Agent (MISA). These include: 16 municipalities from the Eastern Cape, four from the Free State, two from Gauteng, 11 from Limpopo, 23 from KwaZulu-Natal, eight from Mpumalanga, seven from Northern Cape, four from North West, and five from the Western Cape.

The LGTAS team will provide hands on support to provincial COGTA departments in supporting municipalities. MISA has finally been proclaimed and established as part of implementation of the pre 2011 priorities and Operation Clean Audit is in progress. 

Discussion
The Chairperson asked what criteria COGTA used to identify which municipalities needed more support.

Mr Seitisho replied that the identification was mainly around the lack of expenditure in terms of money that was given to municipalities. Many of the municipalities did not have the necessary support in terms of skills and MISA did a diagnostic assessment that established that most of them needed support. The provinces and the national departments also decided that these municipalities needed special focus so they could spend the money that they were allocated.

The Chairperson noted that there were municipalities that spent their allocations, but not on what they were supposed to spend their money on. He asked COGTA to forward the diagnostic report to the Committee.

Mr Seitisho answered that they would forward the reports to the Committee.

Progress Report on Operation Clean Audit by 2014
Mr Mzilikazi Manyike, Executive Manager: Intergovernmental Fiscal Relations in COGTA, stated that the presentation looked at how big the challenge was and how much COGTA still had to do to achieve Operation Clean Audit by 2014. He stated that the picture of performance had to be viewed against the background that government has set a target in terms of one of the Turn-Around Strategy Projects: Operation Clean Audit, which directed that no municipality should receive a disclaimer or adverse rating by 2010/11, that at least 60% of the 278 municipalities should receive unqualified Audit Opinions by 2011/12, that municipalities achieving unqualified audit opinions should increase to 75% by 2013, and that all municipalities should achieve a clean audit opinion by 2014.
The Auditor-General (AG) identified some of the root causes for disappointing audit outcomes to be that key officials lacked minimum competencies and skills, there was a lack of consequences for poor performance and transgressions, there were slow responses to AG’s messages and not taking key controls, non compliance with laws and regulations and non reporting of performance information.

COGTA has started a process of intensive engagement with municipalities to understand root causes to performance linked to the five LGTAS priorities. So far, COGTA has engaged with three municipalities on the matter – namely, Mamusa Local Municipality in the North West, eMadlangeni Local Municipality in KwaZulu-Natal, and Ehlanzeni District Municipality in Mpumalanga. COGTA will engage with municipalities that did not obtain financially unqualified audit opinions over the next three months.

COGTA reassured the Committee that they were committed and working with all relevant stakeholders to implement measures aimed at building a responsive, accountable, effective and efficient local government system. 

Discussion
The Chairperson noted that the report did not tell Members how far exactly the Department was in achieving the objectives of the turnaround strategy. The assessment and analysis of whether they were achieving their goals was supposed to have “kicked in” already. From the 2010/11 results, the Committee had expected that there would be no disclaimers from any of the municipalities. COGTA was not telling the Committee how far it was in achieving this goal. None of the municipalities were supposed to have disclaimers this year. This goal had not been achieved. The Committee needed to know why. He understood that COGTA was going to municipalities to try to understand the root causes, and the causes had already been tabled by the AG. The problems went as far back as 2008 and 2009. The same issues were still there. The coordination of the whole project resided with COGTA. The Committee wanted to know if the outcome of the audit that was currently underway would reach a stage where COGTA could say that 60% of municipalities would receive unqualified audits. The presentation did not speak to these things – it did not paint a picture of what was happening. Have municipalities adopted plans to address the AG's concerns? Did these municipalities have the capacity to address those particular concerns? Was there leadership in the municipalities? The presentation was supposed to address these matters.

Mr Manyike answered that if the Committee looked at the picture, nationally, in terms of those municipalities that had received clean audits; the country was at 5%. In terms of those that were financially unqualified with findings, the country was at 41%. Adding these two, it would tell the Committee that 46% of municipalities were performing well in terms of the 2010/11 financial year. Municipalities with qualifications made up 20% of total municipalities. 5% of municipalities received adverse opinions and 23% received disclaimers. There were about 6% of municipalities whose audits had not yet been issued as they had not submitted their annual financial statements to the AG on time. By 27 July 2012, 3% of these late submissions had not been submitted; however, support measures have been put in place for them.

He stated that one of the issues that had to be addressed was the timeliness of how municipalities started taking ownership of dealing with issues raised by the AG by developing municipal audit remedial action plans. Close to 89% of municipalities already have remedial action plans to address some of those issues. These matters were being taken very seriously.

Mr Manyike added that some of the root causes of problems had to do with governance structures. Of the initiatives that COGTA has started championing with provinces was around municipalities establishing municipal public accounts committees. About 84% of municipalities have these committees since July 2012. There is a push for the rest of the municipalities to get there. The National Treasury had also deployed finance experts to municipalities through the Municipal Finance Improvement Grant (MFIG). Approximately 79 municipalities received finance experts.

Mr C De Beer (ANC, Northern Cape) asked if the provincial departments had the capacity to implement COGTA's strategy in terms of Section 154 of the Constitution. In terms of the Municipal Finance Management Act (MFMA), what actions were taken when officials in the departments, after several workshops were conducted over the past few years, were still not complying with the prescriptions of the MFMA? What did the COGTA do in cases like these? In the North West there was regression and in the Northern Cape there was stagnation. The late Minister Shiceka told Parliament in 2010 that an audit would be done on the qualifications of municipal managers, chief financial officers and senior managers in municipalities. Up until today, the Committee had never seen this audit. It was one thing to give the Committee this presentation, but Members wanted to know what was happening at grassroots level. He wanted to know if councillors of each municipality were meeting with the people in terms of accountability as stated in the MFMA. In order to have clean audits by 2014, COGTA had to tighten its grip on municipalities.
Ms Majiet replied that there was very limited capacity in the provinces to execute COGTA's strategy – COGTA knew it and the Committee knew it. The Department’s approach and strategy had been to work more closely with the provincial departments for cooperative governance so that support plans that had to be rolled out could be intensified. A fresh round of engagements with provincial departments and the 108 municipalities was recently finalised to develop and sign off very specific action plans that needed to happen. The plans addressed what the provincial departments needed to do, where the capacity existed, what national sector departments needed to bring to the party, what COGTA would be doing and Treasury had to do. There was a very vibrant monitoring structure that was being put in place so that momentum was not lost on the rolling out of these plans. In terms of further intensifying COGTA's actions around capacity, from the recent MINMEC in August, the Minister held each and every MEC to account as well as the municipalities, to say what specifically they were doing. 

She stated that in July 2011 the Municipal Systems Amendment Act ushered in a very important change in how to ensure better quality appointments and the kinds of competence and qualifications that municipal managers must have. This piece of legislation passed through Parliament and the regulations were being finalised by COGTA.

Mr M Makhubela (COPE, Limpopo) stated that it seemed that the goal of clean audits by 2014 would not be reached. COGTA had to “throw in the towel” and come to the Committee with a new strategy. It was the wish of the Minister to have a clean audit by 2014, but there seemed to be no will to do so by the implementers themselves.

Mr B Mashile (ANC, Mpumalanga) said it seemed to him that COGTA did not know what to do to address the audit challenge. COGTA was supposed to have known what to do by now and should have had a checklist of what they have done and how much work they still had to do. Quite a good number of municipalities seemed to be regressing over the last few years. He wondered if COGTA had the capacity to address the issues they were facing.

Mr J Bekker (DA, Western Cape) agreed with the Chairperson and Mr De Beer's sentiments. He thought that there was a problem with implementation of everything in the presentation. Nothing seemed to be happening. He wanted to know who had the power to implement the things that COGTA was talking about.

Ms Majiet replied that there was a lot more that COGTA could do, and that they should do in terms of “cracking the whip” and using their legislative authority to the full. This was where they wanted to focus on and think of how to strengthen ways to enforce legislation. The partnership between MECs and the Minister that has been taken to a new level gave COGTA more room to enforce compliance. There was a lot of power and authority vested in current legislation. However, there were times where they were failing there own legislation by not executing and implementing it to the full letter of the law, and having the capacity to match this was a gap that had to be addressed.

The Chairperson was worried. He welcomed Ms Majiet's comments but it seemed that very little was happening from the COGTA's side in terms of pushing forward for clean audits in 2014. The presentation showed that COGTA was only doing two things. One, they wanted to understand the root causes but they have only met with three municipalities to date. Two, COGTA still had to engage with all the municipalities that received disclaimers. To him, this meant nothing. COGTA was a national department with a specific agenda and now they were faced with challenges, which they were only addressing in two ways – meeting and engaging with municipalities. If this was really the case then he was quite disappointed. He was not expecting this from the department. The Committee had been going around the country meeting with municipalities. Some of the things that were happening in the municipalities were quite shocking. The AG complained about capacity and incompetence of those employed. The AG said that 70% of those employed in municipalities lacked competencies and skills. Out of 278 municipalities, there were only 197 municipal managers. Out of 278 municipalities there were only 176 CFOs. More often than not, the AG complained that at the time of the audits, there were no senior people to assist his office. This also led to the employment of consultants who were doing nothing but “milking” municipalities. By COGTA's own admission, their provincial departments were weak. How were they expected to assist and support municipalities when they, themselves, were not capacitated? This was why municipalities were stagnant. COGTA had to play a supporting role. The MFMA was clear about the responsibilities of everyone. There was tendency for departments to shift responsibility to Treasury as if it is a “super department”. Treasury had its own responsibilities and roles. The rest was up to COGTA to do. COGTA had to tell the Committee what they were doing to make sure the policy proposal for the 2014 operation clean audit is achieved. COGTA had to address the issues that the AG was consistently complaining about.

He noted that 46% of municipalities had clean audits. He wondered what COGTA was doing to ensure that these municipalities stayed at that level and what they were doing to ensure that the rest of the municipalities improved. If the Department was doing its work with provinces, they should have been able to tell the Committee some good news. Pressure should be put on provinces and municipalities to appoint municipal managers and CFOs. The perception in the public was that municipalities were corrupt and COGTA was not helping the matter.

The Chairperson suggested that the Department go back and prepare a presentation that would give the Committee a better picture of what they were doing to ensure operation clean audit by 2014. He did not believe that COGTA was not doing anything. The Committee could not accept this report. He was actually being kind to let them present it, but he should have rejected it from the beginning. The presentation was quite disappointing. He said the Committee would also appreciate it if the Minister and the DG accompanied COGTA when they made their next presentation.

Ms Majiet responded that the Department understood the Committee's disappointment and she knew that they were expecting more.

Progress Report on the Municipal Infrastructure Support Agent
Mr Ongama Mahlawe, Acting Chief Executive Officer of the Municipal Infrastructure Support Agent (MISA), informed the Committee that MISA is one of the LGTAS targets meant to introduce a turnaround mechanism for dealing with the provisioning, refurbishment and maintenance of municipal infrastructure. MISA is the direct successor in responsibility to the support programme that the Development Bank of South Africa (DBSA) was providing through the Siyenza Manje (SM) project.

SM was established in 2006 to provide hands on capacity building support to municipalities on engineering, project management and financial management. A total amount of R1.4 billion was spent by DBSA during the five years of SM’s existence with 70% of the amount coming from National Treasury and 30% from DBSA’s own contribution. In 2011, government took a decision to unbundle SM with the infrastructure component transferred to COGTA and the financial management component transferred to Treasury.

Both the SM Evaluation Report and the Submission by the Financial and Fiscal Commission (FFC) to the Select Committee on Finance have identified a number of lessons to be learned from the implementation of SM. MISA’s new model for supporting municipalities has taken these lessons into account and has identified five key strategic focus areas – municipal infrastructure diagnosis (that will assess the state of municipal infrastructure required for the provisions of basic services), technical support, municipal capacity development, sector capacity and skills development interventions, and monitoring and evaluation.

A total of 88 municipalities have been put under a diagnosis to evaluate their municipal infrastructure provisioning. They were identified in conjunction with provincial governments using criteria that prioritised high infrastructure and basic service backlogs, low technical capacity, high vulnerability and low economic bases or the inability to collect revenue.

The key findings from the diagnosis process differed from province to province; however, there were a few common findings. It was found that there was a lack of appropriate skills in planning and technical units for infrastructure maintenance, infrastructure master plans did not exist, overloaded infrastructure required refurbishment, ageing infrastructure caused service interruptions and there were serious challenges in the supply chain management process when procuring infrastructure projects. Other findings showed that there was a lack of infrastructure maintenance, a lack of bulk infrastructure coupled with huge infrastructure backlogs, insufficient government funding, and some municipalities had difficulties in attracting and retaining technical staff which led to there being a high vacancy rate in technical positions.

MISA noted that there was a need for central and effective coordination of support for the programme to succeed. MISA’s programmes would focus on the sustainability of the infrastructure and the municipality. All MISA’s interventions would recognise the central role of skills development and capacity building and all MISA’s support programmes had to have clear deliverables and milestones and there had to be consequences for non-delivery.

MISA is currently staffed on short-term transferees and employees of the DBSA with contracts ending by the end of September 2012 to allow the entity to finalise its organisational development as well as operational policies. All of this has been accomplished and full implementation is targeted for 7 September 2012. The 2012 Medium Term Expenditure Framework provides a total amount of R613 million for MISA with R197 million for 2012/13, R202 million for 2013/14 and R214 million for 2014/15.

MISA believes that the sustainable turnaround of municipalities required effective coordination, intensive support and alignment of efforts by all stakeholders. MISA is designed as the mechanism to facilitate this.

Discussion
Mr De Beer thanked Mr Mahlawe for giving the Committee good news. He informed COGTA that a process to analyse the fiscal framework for local government was started with Treasury and the Financial and Fiscal Commission (FFC). The FFC held public hearings in February 2012 and the report was now available. He asked what the Department's analysis was because the Deputy Minister informed the Committee that the Local Government Fiscal Summit would be held in February 2012. He asked for feedback on this.

Mr Mahlawe answered that he did not know much about the Fiscal Framework for Local Government.

Mr Manyike added that by the end of November last year, a technical fiscal summit was held within government that was more at an official level or “technocratic” level, hosted by Treasury and COGTA with the involvement of various national departments that were affected. The fiscal summit that was supposed to include players outside of national government has not taken place yet. COGTA did not know when the summit was going to take place.

Mr Mashile noted that COGTA's trademark seemed to be incapacity. He was worried that MISA was another institution that was not going to deliver. The entity needed warm bodies in order to deliver.

Mr Mahlawe replied that MISA would come back to brief the Committee on its progress whenever it wanted them to. MISA would like to share with Members its long term programmes. He also assured the Committee that MISA was in the process of employing technical experts, programme managers and “back-office” staff.

Mr Bekker congratulated MISA on an outstanding presentation that pinpointed all the problems. However, he was worried about coordination and communication between the Committee, municipalities, the provinces and COGTA.

Mr Mahlawe assured the Committee that MISA was working with the provinces. There was a steering committee structure in place that comprised of national as well as provincial officials that were driving MISA's objectives. Provinces were given specific duties pertaining to the implementation of the programme. MISA was not there to take over the functions of the municipalities; they still had to perform their duties according to the law. MISA was there to provide municipalities with support.

The Chairperson asked MISA to clarify what their role was in rolling out of infrastructure in municipalities. He asked how the projects mentioned in the presentation were going to be funded and who would take responsibilities for any mishaps.

Mr Mahlawe explained that there were people within MISA that were involved with infrastructure. For example, the technical support unit has engineering professionals.

He stated that although the provinces were involved with the projects, MISA was responsible for the implementation of the programme and they would be held accountable at the end of the day.

The Chairperson noted that the Committee understood now what MISA was and they would keep monitoring the entity's successes and challenges. He thanked Mr Mahlawe and the COGTA team. The Committee would be in contact with COGTA to discuss the follow up meeting with them.

Adoption of Minutes
The Committee adopted the minutes of 7 and 8 August 2012 without amendments.

The meeting was adjourned.