The Report of the Select Committee on Finance on the oversight visit to North West Municipalities from 20

Report of the Select Committee on Finance on its Oversight Visit to the Municipalities in the North West on the 20 – 23 July 2010, dated 14 September 2010

1. Introduction

The Select Committee on Finance (the Committee) was established in terms of section 4(1) of the Money Bills Amendment Procedure and Related Matters Act, No. 9 of 2009. In terms of section 4(2) of the Act, the Committee has the powers and functions conferred to it by the Constitution, legislation, the standing rules or resolution of a House, including considering and reporting on:

(a) the national macro-economic and fiscal policy;

(b) amendment to the fiscal framework, revised fiscal framework and revenue proposals and Bills;

(d) any other related matter set out in this Act.

Furthermore, the mandate encompasses the Committee’s function to legislate, conduct oversight of the Executive; promote public participation, facilitate international agreements and review matters of public interest in relation to National Treasury (NT) and its entities, and the South African Reserve Bank (SARB). The Money Bills Amendment Procedure and Related Matters Act makes provision for this Committee to amend Money Bills.

1.1 Delegation

The oversight visit took place from 20 to 23 July 2010. Meetings were held at Mafikeng/Mmabatho (Mmabatho Palms Hotel) and in the City of Matlosana (Metcourt at Rio Hotel) in the Province of North West.

1.2 Terms of reference

The visit formed part of the Committee’s ongoing interactions with municipalities in monitoring collaboration and co-ordination pertaining to the provision of municipal services and support given to the municipalities by Provincial and National Departments. The municipalities in North West that were identified for the visit are: Ditsobotla Local Municipality, Greater Taung Local Municipality; Kagisano Local Municipality; Lekwa-Teemane Local Municipality; Tswaing Local Municipality; Tlokwe Local Municipality; Moses Kotane Local Municipality; Naledi Local Municipality; Maquassi Hills Local Municipality; Mamusa Local Municipality; Mafikeng Local Municipality; Madibeng Local Municipality, Moretele Local Municipality; Kgetlengrivier Local Municipality; City of Matlosana Local Municipality; and Ventersdorp Local Municipality. Greater Taung Local Municipality could not attend the oversight meeting and Tlokwe Local Municipality presented on the 2008/09 financial year instead of the 2009/10 financial year. The Committee resolved to re-invite these two municipalities to appear before it in Cape Town, Parliament, at a date that will be communicated to them in the near future.

The stakeholders (including National and Provincial Departments) that accompanied the Committee on this visit are the following: Department of Co-operative Governance and Traditional Affairs (CoGTA), North West Department of Local Government and Traditional Affairs (LGTA), National Treasury (NT), North West Provincial Treasury (PT), South African Local Government Association (SALGA), Department of Energy (DME), Financial and Fiscal Commission (FFC), National Department of Water and Environmental Affairs (DWEA), National Department of Public Works (DPW), Provincial Department of Public Works (PDPW), Auditor General (AG), Development Bank of Southern Africa (DBSA) and ESKOM.

1.3 Purpose of the Visit

The purpose of the oversight visit was to engage with the above-mentioned municipalities along with national and provincial departments, and other stakeholders on the following areas:

Development and implementation of municipal budgets;
Municipalities’ compliance with the Municipal Finance Management Act, No. 56 of 2003;
The spending and performance of municipalities with regard to conditional grants;
The municipalities’ relations and collaboration with various national and provincial departments and entities;
Capacity constraints of the municipalities (if any);
The extent to which municipal services are provided; and
The alignment of municipalities’ Integrated Development Programmes with the Provincial Growth and Development Strategy.

2. Presentation by Auditor General

The Office of the Auditor General (AG) briefed the Committee on the 2009/10 audit outcomes of municipalities in the North West and indicated the following:

· The report showed that, of the 24 municipalities in the province, 13 audit reports were issued (as on 30 April 2010) of which 4 reports were not yet issued and 7 municipalities had not submitted their financial statements for auditing purposes.

· Of the 13 issued audit reports 2 received an unqualified audit opinion, 3 qualified audit opinions, 1 adverse audit opinion and 7 received disclaimer audit opinion.

· The report further showed that 7 municipalities (namely, Madibeng, Naledi, Ditsobotla, Tswaing, Ventersdorp, Greater Taung and Moses Kotane) within the province are currently under administration, 4 municipalities (namely, Tlokwe, Naledi, Maquassi Hills and Dr Kenneth Kaunda) had vacant municipal manager positions, 6 municipalities (namely, Madibeng, Mafikeng, Tswaing, Greater Taung, Rustenburg and Dr Kenneth Kaunda) had their municipal managers on suspension, and 2 municipalities (namely, City of Matlosana and Dr Kenneth Kaunda) had their chief financial positions vacant while 4 municipalities (Moretele, Ventersdorp, Rustenburg and Ngaka Modiri Molema) had their CFOs on suspension.

· The report further showed non-compliance with section 71 of the Municipal Finance Management Act, 2003 (reporting not always done or often submitted late) by some municipalities.

· The AG conducted what it calls a door-to-door campaign within certain municipalities to provide them with support.

Committee Recommendation

The Committee recommended that the office of the Auditor-General should compile a report on the door to door campaign/survey they undertook in the province and that the expected report should be forwarded to the municipalities and stakeholders that were involved, and should also be forwarded to the Committee for future reference.

3. Presentations by Municipalities

3.1 Kgetlengrivier Local Municipality

Kgetlengrivier Local Municipality (KRLM) reported that their integrated development plans (IDP) has been aligned to the North West’s Growth and Development Strategy (NWGDS). However, the non-core functions of local government are truly dependent on the strategic plans of Provincial Departments which are expected to be aligned to the NWGDS as well.

KRLM reported that their supply chain management policy had been developed, reviewed and is being implemented, and that they were having three bid committees (bid specification, evaluation and adjudication committees) which had been established in June 2010 and were functional. KRLM mentioned that their budget and treasury office (BTO) functions were reviewed and aligned to sections 80 and 81 of the Municipal Finance Management Act.

It was also reported that the 2008/09 annual financial statements were submitted after the deadline to the office of the Auditor-General and the audit will be finalised by 31 July 2010. It was mentioned that section 71 reports were submitted. However, due to lack of capacity, these reports were not submitted on time. However, KRLM reported that they do not have an internal audit unit, the unit was included in the revised organizational structure and appointments will be done before the end of September 2010. The Bojanala Platinum District Municipality offered to share their Audit Committee in assisting the KRLM.

KRLM reported the following capacity constrains: several key positions are occupied by aged staff in their Finance Department, and as a result it makes it difficult to build capacity and to introduce new legislation. Training on the Municipal Finance Management Act, GRAP and the new Financial Management System was still needed. KRLM reported that their employee related cost was at 35 per cent (R28, 8 million) of the operating budget and the repairs and maintenance costs at 7 per cent (R5, 7 million) of the operating budget. KRLM reported that 87 per cent of their funding was in the form of capital grants and subsidies dependency. Their own revenue was 13 per cent of the total funds.

Committee Recommendations

The Committee recommended that:

all sector departments should provide the municipality with the necessary support in order to enable it to overcome challenges;

The municipality should utilise the funds that were invested with ABSA in order to be able to deliver basic services needed by the communities;
Services of inmates from the local correctional services centres and those of the learners from local FET Colleges in engineering disciplines could be utilized to the benefit of the municipality;
Services of interns trained by Provincial Treasury could be utilized to address capacity challenges; and
The North West Provincial Treasury should submit a detailed report on the status of financial management of KRLM to the Committee within three months after the adoption of this report by the House.

3.2 Moretele Local Municipality

Moretele Local Municipality (MLM) reported that the focus and approach of IDP was aimed at the attainment of the Provincial Growth Development Strategy (PGDS) but the challenge was that targets were set for the Bojanala Platinum District Municipality. MLM reported that, in terms of section 111 of the MFMA, they had developed and implemented a supply chain management policy. Three bid committees had been established, (namely, the specification committee, evaluation committee and adjudication committee). It was reported that members of the bid committees were appointed by the Municipal Manager.

MLM reported that the 2008/09 financial statements were submitted late on 14 January 2010 due to employee/labour strikes. All section 71 reports for the 2008/09 financial year have been submitted to the Provincial and National Treasury as per MFMA requirements. It was reported by MLM that section 71 reports for the 2009/10 financial year had been submitted up to March 2010 but the Municipality had experienced serious challenges with regard to making submissions as required in terms of the MFMA.

MLM reported that their internal audit unit had been established by the Municipality. This unit reports directly to the accounting officer (Municipal Manager) and had been established due to a serious lack of capacity that was identified in the unit in the 2008/09 financial year. With the assistance of the Development Bank of Southern Africa (DBSA) finance secondee, the Municipal Manager has revitalized the internal audit unit. It was reported that the internal audit unit was better capacitated and functional in the 2009/10 financial year and, as a result, the unit accomplished some work in certain areas. It was reported that R28 million (33 per cent) was allocated from the Municipality’s overall budget for salaries. The Municipality was dependant on capital grants and on operational grants.

MLM identified the following as their service delivery and capacity constraints:

The continuity of water supply in the areas was serviced by the City of Tshwane.
The Temba and Klipdrift water purification plants were operated beyond their capacity and could not cope with the demand.
The City of Tshwane was restricting bulk water provisions due to late or non-payment of accounts by MLM.
MLM reported that it could not afford to pay the monthly bulk water invoice from the City of Tshwane amounting to approximately R3.5 million per month.
MLM reported that an amount of approximately R120 million is required in order to remedy the challenges of bulk water supply.
The incapacity of the MLM to maintain water borne sanitation makes it rely on Bojanala Platinum District Municipality.

Committee Recommendations

The Committee recommended that sector departments (namely National Treasury, Provincial Treasury, Co-operative Governance and Traditional Affairs, Department of Water and Environmental Affairs and the City of Tshwane), should meet to assist the MLM on the financing of a debt amounting to R84 million for water supplied by the City of Tshwane;
A need was identified that all municipal managers should be trained by the Association of Public Accounts Committees on their roles and responsibilities;, and
The Department of Water and Environmental Affairs should assist MLM by providing services of environmental assessment expected at this municipality.

3.3 Moses Kotane Local Municipality

The Moses Kotane Local Municipality (MKLM) was placed under administration in terms of Section 139 of the Municipal Finance Management Act No. 56 of 2003. It was reported that the administrator had reviewed the organisational structure of the MLM, and that vacant posts would soon be filled. The DBSA had been requested to provide technical support. MKLM reported that salaries, including those of councillors, accounted for 39, 7 per cent of the total budget allocation. It was reported that the municipality was using a developmental agency and that it was of the view that it should be disbanded.

MKLM reported that they launched a water demand project that was funded by the Department of Water and Environmental Affairs (DWEA) and the local mines. The sector departments were not participating to the satisfactory level in the IDP process of the MKLM. It was reported that, although Eskom provided electricity in the MKLM, the progress was at a slower pace than it was expected.

Committee Recommendation

The Administrator should provide the Committee with a progress report on the service delivery and financial affairs of the MKLM within three months after the adoption of this report by the House.

3.4 Madibeng Local Municipality

Madibeng Local Municipality (MDLM) is currently under administration in terms of Section 139 of the Municipal Finance Management Act No. 56 of 2003. MDLM reported that senior managers were resigning from their positions. This meant that the recruitment process had to start all over again. Approximately 350 officials of the MDLM were registered with the Company and Intellectual Property Rights Organisations (CIPRO). There were 10 ‘ghost’ workers, but at the time of the oversight visit the MDLM was in a process of addressing these issues. MDLM further reported that 20 per cent of its budget and treasury office might be suspended due to allegations of fraud, maladministration and corruption.

MDLM informed the Committee that they budgeted R47,9 million for repairs and maintenance but enough had not been done as they only managed to spend R20 million of the budget. MDLM further reported that salaries were at 27 per cent (R224, 9 million) of operating budget. Furthermore, it reported that an investigation of funds at the Britz Treatment Plant amounting to R20 million was commissioned.

Committee Recommendation

The Committee recommended that the administrator of MDLM should adopt the management model demonstrated by the administrator of the Moses Kotane Municipality because it had a hand on approach when the daily operations of the municipality were concerned.

3.5 Naledi Local Municipality

The Mayor of the Naledi Local Municipality (NLM) reported that he has requested the MEC for Finance to intervene in the running of the municipality, and were provided with the services of an Acting Municipal Manager and a Chief Financial Officer. It is reported that both of these officials have performed very well. It was reported that the troika was functioning well until January 2010 when the situation changed due to personal interests in the housing project.

NLM reported that a budget and treasury office had recently been established. However, it was still experiencing a high vacancy rate that would soon be addressed in consultation with the human resources unit. NLM further reported on its inability to implement the Municipal Credit Control Policy due to a lack of co-ordination in the NLM as there was no agreement.

NLM reported that, between August 2009 and June 2010, its Council took a decision to appoint staff in acting managerial positions. This practice led to wasteful expenditure amounting to R810, 000. The Council resolved to stop the process and those affected were expected to pay back the monies.

NLM reported that there was a loss of electricity due to illegal connections to the value of R11 million. They have arranged payments with ESKOM and managed to pay their last installment in March 2010.

NLM was also faced with a lack of co-operation by some of the local farmers when it wanted to provide services to the farm dwellers.

Committee Observation

The Committee observed that there was a need for the Municipal Manager to get all stakeholders on board in order to enable the NLM to resolve the challenges it was facing. The Committee advised that the Municipal Manager enhances his negotiating skills.

Committee Recommendations

The Committee recommended that:

The Naledi Local Municipality should engage with Agriculture South Africa on the matter of farm dwellers in order to reach a common understanding on the service delivery issue; and

The Department of Water and Environmental Affairs should make a plan for the Kagisano communities who are nearby the Vaal Dam to get access to clean drinking water that was running through their residential area.

3.6 Kagisano Local Municipality

Kagisano Local Municipality (KLM) reported that their 2010/11 IDP was aligned to the PGDS and that their supply chain management policy was reviewed and adopted on 29 June 2010. It was reported that two of the three bid committees had been established, namely the evaluation committee and the adjudication committee.

KLM received an unqualified audit opinion for the 2006/07 and 2007/08 financial years. The annual financial statements for 2008/2009 had not been submitted to the Office of the Auditor-General as yet, whereas they had to be submitted by 31 July 2010. The KLM reported that the delay to submit the financial statements on time was due to a lack of capacity (skills and human resources), and compliance with the Generally Recognised Accounting Principles (GRAP) 17. The conversion of the fixed assets register to GRAP proved to be a challenge. Submission of section 71 reports to the relevant Treasuries were delayed due to the following reasons/challenges faced by the Budget and Treasury Office: high staff turnover (due to payment of non market- related salaries), lack of capacity (skilled personnel), and having to deal with multi-year processing and finalizing the annual reports and financial statements for the 2008/09 and 2009/10 financial years.

Furthermore, KLM reported that lack of service delivery such as refuse removal had been caused by a lack of capacity such as human resources and an insufficient budget, partly because these services should be a function of the district municipality. KLM did not have a refuse removal unit that deals with this function due to a lack of funds, human resources and equipment.

Committee Recommendations

The Committee recommended that:

The Department of Water and Environmental Affairs should find options to pump water from the Vaal Dam for use by the communities of Kagisano;
National Treasury and the Departments of Co-operative Governance and Traditional Affairs and Water and Environmental Affairs should resolve the issue relating to refuse removal of municipalities;
KLM should hire graders from private companies and farmers to enable them to grade roads because they budgeted for this particular activity;
KLM should hire local people for the removal of refuse at an affordable fee;
Senior officials from the sector departments should attend the IDP processes of the municipalities as they are binding on commitments;
The Chief Financial Officers at municipalities should attend the training sessions, offered by National Treasury in order to enable them to gain and plough back the knowledge to their municipalities; and
Fraudulent cases against municipal officials should fast-track in collaboration with the Special Investigating Unit (SIU).

3.7 Mamusa Local Municipality

Mamusa Local Municipality (MMLM) reported that the alignment of municipal IDP to PGDS was guided by the five Pre-determined Local Government Development objectives. One of the objectives of PGDS was to halve unemployment by the 2014 calendar year and to create jobs. MMLM mentioned that the Council adopted the supply chain management policy which was aligned to the National Treasury Guidelines. MMLM reported that the bid evaluation and adjudication committees were established and that they were functioning effectively, with the exception of the bid specification committee. Amounts of R26 million (37, 7 per cent) had been budgeted for salaries and R7 million (11 per cent) for repairs and maintenance.

MMLM reported that a budget and treasury office had been established but that it was under-staffed. The existing organisational structure was approved in 2003 and the officials need training in Microsoft Excel, MFMA and GRAP. The annual financial statements for the 2007/08 financial year had not been submitted due to challenges experienced with the conversion from Institute of Municipal Finance Officers (IMFO) to General Recognized Accounting Practices (GRAP). MMLM reported that it has complied with the submission of the section 71 and conditional grants reporting requirements as at 31 March 2010.

Dr Ruth S Mompati District Municipality provided internal shared services for auditing to MMLM. The annual report for the 2007/08 financial had not been finalised due to outstanding annual financial statements for the 2007/08 financial year.

Service delivery and capacity constraints were hampered by the poor debt collection rate (23%), impediments to debtor’s collection, and limited legal action caused by outdated by-laws. The issue of funds being consumed by operational expenses resulted in a lack of funds for capital items, refurbishments, infrastructure maintenance and general maintenance of equipment. The national and provincial Departments of Public Works had been identified as the main debtors. The Municipal Infrastructure Grant (MIG) funding amounting to R11.4 million for the 2010/11 financial year had been allocated to them to address the huge backlog but it was insufficient.

Committee Recommendations

The Committee recommended that:

Provincial Treasury should fast track the payment of monies owed by sector departments to municipalities and individuals;
Provincial Treasury should assist municipalities with the auditing function because a system of sharing an audit committee by municipalities was not functioning in most cases; and
Sector departments present should assist municipalities by drafting a strategy to deal with the challenges.

3.8 Tswaing Local Municipality

Tswaing Local Municipality (TLM) was currently under administration in terms of Section 139 of the Municipal Finance Management Act No. 56 of 2003 and it was reported that its IDP was not wholly aligned to PGDS. However, it was focusing on the Small Medium Micro Enterprises’ (SMMEs) development as part of the Local Economic Development (LED). TLM reported that it appointed 120 employees within a short space of time, hence the salary bill exceeded its monthly income.

TLM reported that the supply chain policy was reviewed and approved by council on 31 May 2010 Annual financial statements were submitted to the AG on time and section 71 reports of the MFMA were also submitted for the period up to 31 May 2010. The internal audit committee was in place and functional (and shared service with the district), and a plan had been developed to address concerns raised by the AG. The conversion from Institute of Municipal Finance Officers (IMFO) to General Recognized Accounting Practices (GRAP) and updating of the asset register has started.

TLM reported that it was faced with the following service delivery and capacity constraints:

Stronghold of the ratepayers association that was withholding payments and paying ESKOM directly to avoid service cuts;
Access to potable water was still a serious challenge in the areas of Letsopa/Ottosdal and Agisanang/Sannieshof;
Lack of funding for bulk infrastructure in Agisanang where 1 000 housing units had been allocated in 2005;
Lack of basic infrastructure, especially roads; and
Solid waste disposal and refuse removal remain a serious challenge as old unserviceable equipment are being used.

Committee Recommendations

The Committee recommended that:

ESKOM should transfer funds paid by the Ratepayers Association into the municipality’s bank account with the interest that it has generated; and
The Department of Water and Environment Affairs should assist the relevant district municipalities in its planning on the supply of clean drinking water to communities.

3.9 Mafikeng Local Municipality

Mafikeng Local Municipality (MFLM) reported that the alignment of IDP to PGDS was guided by the five pre-determined local government strategic agenda that includes amongst others, local economic development. MLM reported that it had developed their Local Economic Development Strategy in line with to the PGDS. It was reported that salaries as a percentage of operating expenditure was 53 per cent.

It was further reported that supply chain management policy was adopted by Council and was aligned to the National Treasury Guidelines and had been implemented since 2007. MFLM reported that bid specification, evaluation and adjudication committees were established and they were functional. However, the bid specification committee was meeting on ad hoc basis. It was reported that a budget and treasury office had been established. The existing structure was approved in 2003. However, financial management skills remained a challenge and GRAP and the MFMA introduced further challenges. MFLM complied with section 71 of the MFMA and conditional grants reporting requirements, and endeavours were being made to improve the quality of reporting.

MFLM reported that its annual financial statements for 2008/09 were prepared on Institute of Municipal Finance Officers (IMFO) standards of accounting, and they were submitted to the AG on time. MFLM received a “disclaimer” audit opinion due to a lack of supporting documents, a fixed assets register, debtors database and provision for bad debts, funds created under the IMFO without cash-backing, the non-implementation of risk management (internal control systems, internal audit, audit committee) and, lastly, the non-functional internal audit shared service. MFLM reported that the following steps would be taken to remedy the situation:

1. Drafting of a project plan to convert annual financial statements (AFS) from IMFO to GRAP during the 2009/10 financial year.

2. Appointment of consultants to assist with the proper management of a fixed assets register and debtors database.

Committee Recommendations

The Committee recommended that:

The Member of Executive Council (MEC) for Finance (North West) should assist municipalities in the timely payment of intergovernmental accounts;
Municipalities should use the funds invested in the money market to address service delivery backlogs; and
The Department of Co-operative Governance and Traditional Affairs should review its approach and strategy, and improve on assisting poor municipalities.

3.10 Lekwa-Teemane Local Municipality

The Mayor of the Lekwa-Teemane Local Municipality (LTLM) reported that it was in need of assistance as it was nearly the end of term for Councilors. LTLM reported that it was spending well on conditional grants. However, The LTLM reported that it was experiencing challenges on the deals with the Library Grant amounting to R2,5 million, and the confusion on the roles and responsibilities of the department and the municipality on the spending of grants.

LTLM reported that they were facing service delivery and capacity constraints. These included sector departments that were not participating in the IDP process, and most of the land that belong to the municipality were used as dumping sites. Over the past five years, they have been discussing this issue with the Department of Mineral and Energy (DME), requesting it to come to the rescue by relocating these sites. LTLM further reported that is was also experiencing a challenge at Bloemhof, in the sense that it was being serviced by two DME regions that were not operating in terms of the same set of rules (namely, North West Region and Gauteng Region).

LTLM further reported that they were a water service provider and that the district was not coming clear on the equitable share for funding water services and that this creates a challenge as people were drinking water from the rivers. LTLM further reported that National Treasury and Provincial Treasury were assisting them with regard to compliance with financial management matters.

Furthermore, the following issues were raised:

Ageing infrastructure, causing approximately 15 per cent distribution losses.

The supply of electricity to Geluksoord Extension 2 through Integrated National Energy Plan (INEP) was problematic as it was a Greenfield development and the Department of Mineral Resources is reluctant to approve the project as those sites are not occupied at present.
Maintaining the effluent within the acceptable standards.
Approximately 70% of the stands in Christiana as well as the entire Hoek portion in Bloemhof still use septic tanks.
The internal reticulation of sanitation in certain areas of Utlwanang and especially Boitumelong Extension 5 is problematic.
The road infrastructure was not properly maintained over the past 20 years while most of the roads are gravel roads that need regular maintenance.

Committee Observations

The Committee observed that although the municipality was struggling, there are plans in place to deal with the challenges;
The Committee undertook that district municipalities should be invited to participate in oversight visits;
The Committee expressed its disappointment on the report presented by the Department of Water and Environmental Affairs (DWEA), the reason being that a high number of people was exposed to contaminated water and cholera was killing people; and
A meeting had to be scheduled urgently to meet the DWEA on the spillage of sewerage into the Vaal Dam.

Committee Recommendations

The Committee recommended that:

Municipalities should use available funding to hire graders, for repairs and maintenance in order to deliver services;
The municipal engineer need to check the sewer network plan to establish whether it was properly designed;
LTLM should review policies on the establishment of an agency as the current ones are not doing what is required of them;
LTLM should also review human resources’ policy with an aim to address the limitations of its workforce (including the possibility of early/voluntary retirement) ;
DME should continuously interact with the municipalities in order to support them (Section 154 of the Constitution of the Republic of South Africa); and
The Department of Transport, together with the Department of Co-operative Governance and Traditional Affairs, should assist the LTLM with road infrastructure; and
The Department of Water and Environmental Affairs, together with the Department of Co-operative Governance and Traditional Affairs, should, as a matter of urgency, assist the municipalities on their water and sanitation issues.

3.11 Ditsobotla Local Municipality

The Ditsobotla Local Municipality (DLM) was currently under administration in terms of Section 139 of the Municipal Finance Management Act No. 56 of 2003, and the administrator has been appointed since October 2009.

DLM reported that it requested the SIU to investigate fraud with regard to the MIG amounting to approximately R40 million. DLM’s report indicated that a service provider for the evaluation of properties delivered a below-standard project. DLM pointed out that there was a need to conduct an investigation as their IDP was aligned to the PGDS. DLM was also investigating the monthly crash of the information system that was creating difficulty in terms of reporting.

DLM reported that, as a result of difficulties in the municipality, the Council did not renew some of the manager’s contracts and that that has hampered service delivery.

Further challenges were as follows:

The estimated water backlog for the municipal area based on households below RDP standard is 18 023 of the total 38 582 households and this requires a capital investment of R133 million.
The rural backlog accounts for 75% of the backlog.
The number of households with sanitation below the RDP standards stands at 10 274 of the total 38 582 households.
Conditional grants are used by the municipality to cover operational expenditure.
The municipality does have tarred roads but with potholes and an amount of R100 million is required for refurbishment of these tarred road.
Boikhutso, Itsoseng and Coligny are rural areas whereby houses were flooded during heavy rains.

Committee Recommendation

The Committee recommends that:

The Department of Water and Environmental Affairs, together with the Department of Co-operative Governance and Traditional Affairs, should investigate challenges in Boikhutso, Itsoseng and Coligny, and to report to the House on how the Department of Water and Environmental Affairs and the Department of Co-operative Governance and Traditional Affairs plan to address these challenges within three months after the adoption of this report by the House.

3.12 Maquassi Hills Local Municipality

Maquassi Hills Local Municipality (MHLM) reported that they were having the following bid committees: specification committee, evaluation committee and an adjudication committee and that these Committees were approved by the Council on 11 August 2005. MHLM’s budget and treasury office were not fully staffed. Furthermore, MHLM reported that it had appointed Sediesy Consulting to assist the municipality with financial reporting (including GRAP implementation).

MHLM reported that illegal connections of water and electricity, and employment of unskilled and unqualified staff led to service delivery and capacity constraints. MHLM’s needs for funding were as follows: R24 million for the mainline sewer connection of Makwassie Town; the annual estimated costs for a multi-year plan for road and storm water amounted to R300 million. The estimated cost for the wasted water treatment plan at Wolmaranstad is R64 million.

Further challenges were reported as follows:

No sufficiently qualified and competent staff within the finance directorate.
Organs of state owe the municipality a sum of R1 094 985.
Compliance with GRAP reporting requirements

Committee Recommendations

The Committee recommended the following:

That the Department of Water and Environmental Affairs should assist the Maquassi Hills Local Municipality on their plans for clean drinking water to the communities of this municipalities; and

That the Department of Public Works should consult the community on the building of a correctional services centre because it was not adding value to the community.

3.13 Ventersdorp Local Municipality

Ventersdorp Local Municipality (VLM) is currently under administration in terms of Section 139 of the Municipal Finance Management Act No. 56 of 2003. It reported that an electricity substation that had not been functioning for the past two years was a problem. Assistance was sought from ESKOM but nothing came of it. It was reported that the service provider who could not finish a project had now taken the municipality to court, suing it for R2 million. It was further reported that they did not have a single electrician at the municipality but had advertised for the post.

VLM informed the Committee that, for the first time, they were having an Information Technology section that was fully operational through the assistance of the secondees through the Development Bank of Southern Africa’s Siyenzamanje programme. VLM further reported that their major challenge was that of not having vehicles for refuse removal but were previously using a fleet. The company took the municipality’s truck as a deposit. The district municipality committed to assist them but could not do so, and now they entered into an agreement with the City of Matlosana to assist them during weekends when refuse has to be removed. The district municipality budgeted funds for the existing financial year in order to deliver the abovementioned services.

Committee Recommendations

The Committee recommends that:

Provincial Treasury and Provincial and National Department of Co-operative Governance and Traditional Affairs should assist the municipality as they are aware that it was struggling;
VLM should table its solar system project to ESKOM as it was involving electricity;
VLM should consider using prepaid electricity system for communities in order to minimise bad debts;
National Treasury, Provincial Treasury, Infrastructure Finance Corporation Limited and the VLM should discuss and resolve the dispute between Infrastructure Finance Corporation Limited and the VLM; and
The VLM should operate on the cheapest model for the removal of refuse.

3.14 City of Matlosana Local Municipality

The City of Matlosana Local Municipality (CMLM) reported that the Mayor was the chief ambassador for the clean audit. CMLM further reported that it was surrounded by a mining area and mining was scaling down and this was increasing there unemployment rate. Furthermore, there was a challenge with the indigent register. CMLM reported that the former Department of Local Government and Housing appointed a service provider to build houses on behalf of the municipality. In addition, there was a court case that was costing the CMLM huge amounts.

Committee Observations

CMLM could not adequately provide free basic services to communities that were living in rural areas;
CMLM had R19 million in a bank account and R88 million in investments which could have been used for delivering services to the rural communities;
CMLM was not paying all their employees a grade 10 level as those paid at lower levels were taking it to court; and
CMLM did not inspect their housing project as some of them were in a process of being demolished.

Committee Recommendation

The Committee recommends that:

CMLM should consider releasing funds that they were invested in bank accounts (investments) and use them for the provision of basic services to the communities, especially those who reside in rural areas (farms).

4. Comments by Stakeholders

4.1 MEC of Finance

The Member of Executive Council (MEC) for Finance (North West) reported that Provincial Treasury was looking at enhancing its own organogram in order to assist the struggling municipalities. It was further reported that, with regard to the issue of GRAP 17, Provincial Treasury was designing a plan to assist municipalities, especially with respect to asset management. Furthermore, National Treasury visited municipalities which were under administration in terms of section 139 of the Constitution of the Republic of South Africa, Act No. 108 of 1996.

With regard to the issue of the Moses Kotane Municipality which has an agency called Moses Kotane Development, the administrator had been approached to disband it as it was not able to submit annual reports. The MEC reported that the Province of North West took over the responsibility of housing from municipalities but the actual payment was still done by municipalities. The Province of North West made it clear that municipalities should reduce the use of consultants.

4.2 Auditor General

The Office of Auditor-General (AG) reported that district municipalities were complaining that municipalities were not participating in their IDP processes. The AG further reported that it was experiencing a challenge as some municipalities do not have chief financial officers. Furthermore, most of the finance unit’s officials did not understand and cannot implement the GRAP 17.

A challenge of reports being modified by entities after having been provided by the AG was highlighted. For example, entities tend to change figures that do not correspond with those in the AG’s office. The AG resolved to provide them with an unsigned report for the purpose of not tampering with figures, and following upon this, a signed one is provided as the official annual report to be tabled in the Council.

4.3 South African Local Government Association

The South African Local Government Association (SALGA) reported that it had agreed to a workshop to further capacitate Councilors on their oversight role.

4.4 National Treasury

National Treasury (NT) reported that the budgets of most municipalities that made a presentation were unrealistic, even though they had been provided with training on how to prepare their budgets. It was reported that the Mafikeng Local Municipality required assistance from NT, but when the secondees arrived at this municipality, no senior officials, including the CFO, were present. Municipalities were also having a challenge in terms of the reporting standards on section 71 reports. Some of them submitted their reports late and others did not submit at all even though they had been trained together with Provincial Treasury.

NT reported that they were assisting municipalities in developing their by-laws and community development programmes such as drafting of audit plans. They were also capacitating them land evaluation. NT cautioned Municipalities against the high salary rate versus the high vacancy rate as reported by most of them.

NT advised that municipalities should start to monitor their contractors in order to prevent a wasteful expenditure. With regard to the dispute between Ventersdorp Local Municipality and INCA, NT reported that they attempted to intervene, and suggested that the municipality should pay the company what was owed to it.

4.5 Provincial Treasury

Provincial Treasury (PT) reported that they were assisting the struggling municipalities with their finances and also with issues raised by the AG on their annual reports. It further reported that the Mamusa and Tswaing Local Municipalities had an overdraft of R3 million and R1 million, respectively. Provincial Treasury was assisting Naledi Local Municipality with its bank reconciliation, and the municipality was advised to stop the use of a service provider and take over the full finance function.

4.6 ESKOM

ESKOM reported that it appointed a manager to deal with all the issues relating to electricity in the Bojanala District Municipality. It further reported that their system had been upgraded in order to allow customers to buy electricity over the counter in a number of outlets.

ESKOM reported that there was a need for municipalities to complete their indigent registers so that those, who are eligible, receive free basic electricity can do so. Furthermore, indigent registers should be shared with councilors as at times failure to do so create challenges between ESKOM and councillors.

ESKOM further reported that funds amounting to R5 million had been allocated to the Kagisano Local Municipality, but the main challenge lies with the quality of data and infrastructure on the side of the municipality.

4.7 Provincial Department of Local Government and Traditional Affairs

The Provincial Department of Local Government and Traditional Affairs (LGTA) reported that the issue of the North West Housing Co-operation needed to be addressed as it was creating a challenge to municipalities and had been there since the early 1990s.

LGTA reported that there was a need for the turnaround strategies of the Tlokwe and Lekwa-Teemane Local Municipalities to become part of their IDPs. It was reported that they were assisting the Lekwa-Teemane Local Municipality with the refuse removal at Bloemhof but the challenge was that of the district was not on board.

All municipalities in the Bophirima District Municipality were sharing an audit committee. However, sharing of an audit committee was not effective because the Audit Committee, itself, was not fully resourced.

4.8 Department of Co-operative Governance and Traditional Affairs

The Department of Co-operative Governance and Traditional Affairs (CoGTA) reported that all municipalities had been able to spend the Municipal Infrastructure Grant (MIG) except for the Kgetlengrivier Local Municipality. CoGTA reported that the Naledi Local Municipality project was not approved by the Council. CoGTA went onto say that they intended to assist the municipality in addressing this issue.

CoGTA reported that the Ventersdorp Local Municipality had not committed their MIG for the 2009/10 financial year and that they needed to speedily commit before the end of September 2010. It further reported that sector departments should not start projects in municipalities with proper consultation and buy-in because there is a need for a co-coordinated approach, taking into account the IDP.

4.9 Department of Energy

The Department of Energy (DME) reported that it was having four district energy forums in a year and that the Bojanala District Municipality was the most participating one and was showing positive results. There was a need for municipalities to update their data quality as it was incorrect in terms of their backlogs.

DME also reported that it was in a process of waiving their 80% occupancy policy by means of doing it in phases, and were in a process of moving away from the policy.

4.10 Department of Public Works

The Department of Public Works (DPW) reported that some municipalities were not aware of the Expanded Public Works Programme (EPWP) and that the programme could be of assistance to them. Furthermore, the spending by those who are benefiting from EPWP is not an acceptable standard.

DPW further reported that they would be assisting municipalities to rejuvenate some of their townships and that Mamusa Local Municipality has started the process. It also reported that DPW was billed by municipalities for properties that were not belonging to them and, that according to their records they owed them R10 million as compared to R159.9 million as reported.

It was reported that municipalities may approach the DPW when it comes to land being owned by DPW. However, they can only do this when land is required for projects and not for the purpose of selling it to other stakeholders or private companies.

4.11 Provincial Department of Public Works; Roads and Transport

The Department of Public Works, Roads and Transport (DPWRT) reported that it had outstanding liabilities that should have been paid prior to the devolution of the property rates fund to the province. Furthermore, DPWRT indicated that they were paying property rates to municipalities for properties that were owned by municipalities.

The issue of Tlaakamang where schools were burnt was raised. It was alleged that schools were burnt because Government promised to tare roads for them, and the MEC was concerned as no funds were available in the current financial year. Therefore the DPWRT has to examine the availability of funds in order to address the matter. The previous Government made a commitment that was even bigger than the provincial budget and this has created challenges.

4.12 Department of Water and Environmental Affairs

The Department of Water and Environmental Affairs (DWEA) reported that it provides regulatory assistance to municipalities in terms of the Blue Drop certificates that encourages local municipalities to improve their water quality management while empowering consumers with the right to information on what was running out of their taps. DWEA further reported that it assisted with the Green Drop certificate programmes for wastewater care works.

DWEA reported that municipalities were providing a water service that was not within their mandate. They had been doing this for years without having been funded (unfunded mandates). The Bophirima District Municipality had been allocated R27 million for the current financial year for the purpose of reticulating water at the Taung Dam. They were experiencing a challenge with the signing of service level agreements with municipalities, and were in a process of engaging district municipalities.

DWEA was of the view that the Department of Human Settlements should consider providing water tanks when new houses are being built.

The sewer plant for the City of Matlosana had been assessed and R5 million had been allocated for this project. The municipality spent 50 per cent of the amount. A further amount of R1 million had been allocated to the municipality for water purposes.

4.13 Development Bank of Southern Africa

The Development Bank of Southern Africa (DBSA) identified a need for better co-ordination of sector departments in terms of planning and in providing assistance to those municipalities that are still struggling. DBSA committed itself to assist the Lekwa-Teemane Local Municipality in terms of funding and in addressing the challenges of water and sanitation.

The DBSA reported that it was working further with the Provincial Department of Local Government and Traditional Affairs on a water and sanitation programme and that R994 million had been approved for the following municipalities: Maquassi Hills; Dr Ruth Mompati District; Ngaka Modiri Molema District; Madibeng; Kgetlengrivier; Moses Kotane; Moretele; Rustenburg; City of Matlosana; and Ventersdorp.

4.14 Financial and Fiscal Commission

The Financial and Fiscal Commission (FFC) reported that they were participating in the review of the Division of Revenue, the Provincial Equitable Share, and the Local Equitable Share and were moving with speed under the current government. FFC further reported that all the municipalities which were experiencing challenges with unfunded mandates, should forward such mandates to the FFC.

5. Key Observations

The Committee observed that there was a lack of leadership with regard to intergovernmental relationships. This was also the case with regard to co-ordination amongst municipalities and sector departments. Some of them requested an increase in the grants allocations while investing huge amounts of money in the money market, and the Committee could not understand the rationale behind these requests for more money while other funds are locked in bank accounts.

Some of the municipalities who met the Committee reported on their challenges with regard to the late submission of the annual reports to the office of the Auditor-General. They reported that this delay was caused by lack of understanding for the implementation of GRAP 17.

The Committee observed that the work of municipalities that were administered in terms of Section 139 of the Municipal Finance Management Act No. 56 of 2003 was satisfactory. The Committee has identified a need for the municipalities to take forward the good work that was being done by the administrators.

The following additional observations were made:

Some municipalities did not have fully functional internal audit committees;
Training is needed with respect to the Municipal Finance Management Act, GRAP reporting requirements and financial systems;
Some municipalities do not submit reports according to the Municipal Finance Management Act;
The capacity of water purification plants does not cope with the demand for clean drinking water;
Most sector departments do not participate in the Integrated Development Plans;
Illegal electricity connections are costing municipalities a huge amount of money;
There is a lack of co-operation from most farm owners to allow delivery of services to communities living on farm lands;
The debt collection rate is poor;
Ratepayers Associations are refusing to pay for municipal rates;
The treasury and budget offices of most municipalities are not fully staffed;
Municipal budgets are unrealistic;
The indigent registers of most municipalities are not up-to-date;
The EPWP II programme is not known to most municipalities; and
There is poor co-ordination between sector departments and municipalities especially when the former is implementing projects in municipalities.

6. Further Committee Recommendations

The Select Committee on Finance, after a careful consideration of the service delivery and financial performance of the above-mentioned municipalities in the North West, recommends that the National Council of Provinces considers the following:

That the Department of Co-operative Governance and Traditional Affairs and the North West Provincial Treasury should ensure that municipalities appoint qualified officials;
That municipal managers should provide quality information to councilors to enable them to make quality decisions;
That the Department of Co-operative Governance and Traditional Affairs and the Provincial Department of Local Government and Traditional Affairs should develop a plan to further capacitate Councillors in their oversight role;
That the Department of Co-operative Governance and Traditional Affairs and the National Treasury should contribute to the Municipal Turn around Strategy by developing tools that are going to assist municipalities to comply with all provisions of the Municipal Finance Management Act;
That the Department of Co-operative Governance and Traditional Affairs and The presidency should develop rules and procedures on how the provincial and national government departments should fully and actively participate in the Integrated Development Plans (IDPs) of the municipalities and ensure that IDPs are aligned to the provincial Growth and Development Strategy;
That the Department of Co-operative Governance and Traditional Affairs and the National Treasury should develop programmes aimed at assisting municipalities (especially low-capacity municipalities) with the conversion from the Institute of Municipal Finance Officers to the Generally Recognised Accounting practice reporting systems;
That the Department of Co-operative Governance and Traditional Affairs and the National Treasury should ensure that the plans to establish internal audits, audit committees, and budget and treasury offices are included by municipalities in their municipal turnaround strategies;
That the Department of Water and Environmental Affairs should assist municipalities in providing communities with clean drinking water and the removal of refuse at Bloemhof;
That the Ministers of Correctional Services and Public Works endorse the cancellation of the planned correctional services centre at Ditsobotla Local Municipality;
That municipalities should honour agreements with regards to interventions;
That the Department of Co-operative Governance and Traditional Affairs, in consultation with National and Provincial Treasuries, should review conditional grants with an aim of improving appropriate spending on conditional grants;
That the Department of Co-operative Governance and Traditional Affairs, National Treasury and other affected shareholders should strengthen intergovernmental relations, in a co-coordinated way, when interventions are made in municipalities;
That National Treasury should examine the supply chain management matters as most of the municipal tenders are not taken through all the processes;
That the Select Committee on Finance, together with the Select Committee on Co-operative Governance and Traditional Affairs, should do a joint follow-up visit to the municipalities in the Province of North West to ascertain progress made by sector departments as per commitments they made during this oversight visit and that this follow-up visit be made three months after the adoption of this report.
That the Department of Cooperative Governance and Traditional Affairs should closely monitor the support that is given to the municipalities by national and provincial departments, Eskom, and SALGA in terms of intergovernmental relations framework and section 154 of the Constitution;
That the Select Committee on Finance should engage with the Chairperson of the National Council of Provinces on the establishment of a dialogue with the Premier and the political leadership of the Province of North West with regard to the Committee recommendations and monitoring of municipalities and provincial departments; and
That the Department of Co-operative Government and Traditional Affairs and the Department of Water and Environmental Affairs should engage with district municipalities on their status as water service providers.

Report to be considered.