ATC121004: Report of the Select Committee on Appropriations on the Progress of Twelve Eastern Cape Municipalities visited by the Committee on 27-29 July 2010, dated 19 September 2012

REPORT OF THE SELECT COMMITTEE ON APPROPRIATIONS ON THE PROGRESS OF TWELVE EASTERN CAPE MUNICIPALITIES VISITED BY THE COMMITTEE ON 27-29 JULY 2010, DATED 19 SEPTEMBER 2012

1. Introduction

The Select Committee on Appropriations (the Committee) had requested the Eastern Cape Department of Local Government and Traditional Affairs (EC-LGTA) to present a progress report on the following 12 municipalities visited by the Committee from 27-29 July 2010:

· Joe Gqabi District Municipality ,

· Maletswai Local Municipality ,

· Inkwanca Local Municipality ,

· Nkonkobe Local Municipality ,

· Mbhashe Local Municipality ,

· Ingquza Hill Local Municipality ,

· Engcobo Local Municipality ,

· Emalahleni Local Municipality ,

· Makana Local Municipality ,

· Nxuba Local Municipality ,

· Chris Hani District Municipality , and

· Ngqushwa Local Municipality .

The meeting took place on 6 June 2012, at Parliament in Cape Town .

In its July 2010 report, the Committee had made certain findings and recommendations on the twelve municipalities. It was against this background that the Committee requested the EC-LGTA to report on progress in the implementation of the Committee recommendations.

2. Report by Eastern Cape Department of Local Government and Traditional Affairs (EC-LGTA)

The report by the EC-LGTA outlined progress made towards the implementation of the Committee’s findings and recommendations on the 12 municipalities visited in July 2010.

With regard to the Integrated Developmental Plans ( IDPs ) the EC-LGTA reported that, during the April 2012 IDP assessment, all 12 municipalities’ IDPs had been found to be aligned with the Provincial Growth Development Strategy. Guidance had been provided by the EC-LGTA on the importance of developing Spatial Development Frameworks with demographics. The EC-LGTA reported that it had worked together with the Office of the Premier to organise two district-wide IDP engagements. Moreover, the Outcomes Based Approach had been introduced to align national, provincial and local priorities.

The EC-LGTA further reported that all Mayors, Speakers, Chief Whips and Section 56 Managers of the 12 municipalities had been empowered with regard to leadership and financial control measures. EC-LGTA submitted that processes were underway to workshop the 12 municipalities on credit control -, debt collection -, tariff -, revenue management -, and asset management policies and some corresponding by-laws.

With regard to the establishment of Budget and Treasury Offices ( BTOs ), the EC-LGTA reported that all municipalities had established BTOs with qualified personnel. However, three municipalities ( Mbashe , Engcobo , and Makana Local Municipalities ) did not have Chief Financial Officers ( CFOs ). Selection processes were underway at the time of reporting. CFOs in two local municipalities ( Nxuba and Chris Hani ) were on suspension and the position of CFO in Inkwanca Local Municipality was vacant. The EC-LGTA further reported that national and provincial treasuries were in the process of ensuring that municipal officials within BTOs go through an accredited training programme that would ensure that they achieved minimum competency levels in financial management by 2013.

The EC-LGTA reported that all 12 municipalities had audit committees, whether their own audit committee, or a shared service. Those that were reported to be utilising shared services were Chris Hani District Municipality , Emalahleni Local Municipality; Engcobo Local Municipality , and Emalahleni Local Municipality . On the establishment of internal audit units, the EC-LGTA reported that all 12 municipalities had audit units. However, five of these municipalities did not have their own audit units. Two local municipalities ( Maletswai and Makana ) had out-sourced audit units and three municipalities ( Nxuba and Emalahleni Local Municipalities and Joe Gqabi District Municipality ) had co-sourced audit units.

With respect to the submission of Annual Financial Statements (AFS) and Audit Outcomes in the 2010/11 financial year, the EC-LGTA reported that 11 of the 12 municipalities had submitted their Annual Financial Statements on or before 31 August 2011 and only Makana Local Municipality submitted its AFS later, on 20 September 2011. Regarding the Auditor-General of South Africa ’s ( AGSA’s ) audit opinions, the EC-LGTA reported that in the 2010/11 financial year, seven of the 12 municipalities had received disclaimer opinions. Inkwanca Local Municipality had moved from an adverse opinion in the 2009/10 financial year to a disclaimer opinion in the 2010/11 financial year; whereas Ngqushwa Local Municipality had regressed from a qualified audit opinion in the 2009/10 financial year to a disclaimer audit opinion in the 2010/11 financial year. Three local municipalities ( Mbashe , Nkonkobe and Maletswai ) had improved from receiving disclaimer audit opinions in the 2009/10 financial year to qualified audit opinions in 2010/11 financial year. Two municipalities ( Ingquza Hill and Joe Gqabi District) who had received qualified audit opinions in the 2009/10 financial year had improved by receiving unqualified audit opinions in the 2010/11 financial year. The EC-LGTA reported that it had deployed specialists in municipalities with disclaimers and adverse audit opinions to improve audit outcomes and to realise the 2014 Operation Clean Audit target.

With regard to intergovernmental relations, the EC-LGTA reported that technical and political provincial interactions between municipalities and Members of the Executive Council ( MuniMEC ) were fully functional and attendance by municipalities, national, and provincial departments as well as other relevant stakeholders was exceptional. The EC-LGTA explained that strategic agenda issues that were discussed at these sessions were mostly informed by inputs from District Mayor Forums ( DIMAFOs ) and other stakeholders, while resolutions were implemented and progress reported accordingly to the MuniMEC . The EC-LGTA added that there was cross-pollination on service delivery, as issues emanating from DIMAFOs were escalated to MuniMECs and further to the Premier’s Coordinating Forum, and vice versa.

The EC-LGTA further reported that an Intergovernmental Relations Provincial Strategy (IGRPS) as well as a handbook, meant to address IGR challenges, had been developed to make IGR more practical within the provincial and local government spheres. The EC-LGTA added that the King Sabata Dalindyebo Presidential Intervention, which they had championed and driven, had adopted a whole-of-government-approach and was proving to be a best practice for IGR in action.

The table below indicates the financial support provided to the 12 municipalities by EC-LGTA in the 2010/11 financial year:

Municipality	Amount (R’000)	Purpose of transfer
Joe Gqabi LM	350	Appointment of a Local Economic Development (LED) expert to supplement capacity
Maletswai LM	53 350	Appointment of an LED expert to supplement capacity Support for local government elections
Chris Hani DM	671	Appointment of an LED expert to supplement capacity
Emalahleni LM	1200	Support for local government elections
Engcobo LM	53 110 1200 345 445	Appointment of an LED expert to supplement capacity To compile socio-economic profile for revitalisation of 2 nd economy Support for local government elections To revise existing Spatial Development Framework Integrated Development Plan (IDP)
Inkwanca LM	53 100 150 280	Appointment of an LED expert to supplement capacity Support for local government elections To support land use valuations To revise existing Spatial Development Framework
Mbashe LM	65 53 110 700 1000 2000	To assist in paying salary difference to a seconded official of the EC-LGTA acting as Municipal Manager. Appointment of an LED expert to supplement capacity Revitalisation of 2 nd economy Financial Management Strengthening administrative capacity Support for local government elections
Nkonkobe LM	53 800 345 445	Appointment of an LED expert to supplement capacity Support for local government elections To revise existing Spatial Development Framework Support to develop IDP
Nxuba LM	53 250	Appointment of an LED expert to supplement capacity Support for local government elections
Ngqushwa LM	350 110 900	Appointment of an LED expert to supplement capacity Revitalisation of the 2 nd economy Assist in local government elections
Ingquza Hill LM	100 1050 445	Federation Of International Football (FIFA) World Cup Event Assisted in local government elections To support the development of IDP
Makana LM	100 150	Federation Of International Football (FIFA) World Cup Event Assisted with local government elections

The EC-LGTA further reported that in the 2011/12 financial year they had supported four municipalities ( Emalahleni LM - R67 175, Chris Hani DM - R380 000, Maletswai LM - R67 180, and Joe Gqabi DM - R371 245) with funds to appoint Local Economic Development (LED) experts to supplement capacity. Another three municipalities ( Mbashe LM - R116 677 for a feasibility study; Ngqushwa LM - R116 677 for a master plan; and Engcobo LM - R116 667 for a feasibility study for a taxi rank) had been provided with financial support to undertake feasibility studies and develop a master plan. A further R5.8 million had been utilised to build five fire stations in five municipalities. The Chris Hani DM had been given R861 825 for operational costs to promote effective disaster management systems. Two instalments of R1.5 million and R1 million had been paid to Eskom in January and March 2011, respectively, on behalf of Nxuba LM. The Nxuba LM had no funds to pay Eskom, who had threatened to cut the electricity supply if not paid. The EC-LGTA reported that due to its support to the 12 municipalities, R51.6 million had been paid to them by government departments as at the end of March 2012.

Other support provided to district municipalities (Joe Gqabi and Chris Hani ) had been technical training on storm-water drainage for 33 officials and the secondment of senior officials to four municipalities (acting Municipal Managers at Mbashe , Ngqushwa , and Nxuba LMs and an acting CFO at Makana LM). The EC-LGTA had assisted all 12 municipalities to establish Municipal Public Accounts Committees ( MPACs ).

2.1 Progress report per municipality

In response to the Committee recommendations per municipality, the EC-LGTA reported the following:

2.1.1 Maletswai Local Municipality

The EC-LGTA reported that, since the Committee’s visit, the Maletswai Local Municipality had established a Budget and Treasury Office, with the CFO as its head. By the end of the 2010/11 financial year, partial compliance with generally recognised accounting practices (GRAP) had been achieved and as a consequence the municipality had improved from a disclaimer to a qualified audit opinion. The municipality’s reporting had also improved. The EC-LGTA further reported that the Provincial Water Forum was attending to the water challenges facing the province and the national Department of Co-operative Governance and Traditional Affairs was championing a political intervention for the Orange River water challenges to reduce the water shortages in the surrounding communities.

The EC-LGTA further reported that it was utilising the MuniMEC meetings to address service delivery bottlenecks and to accelerate the programme of eradication of housing backlogs. To achieve this, the department would engage with the Department of Human Settlements.

The municipality had improved in the provision of Free Basic Services (FSB) to the poor. The EC-LGTA reported that an indigent policy and an updated indigent register were in place and there was a dedicated FBS coordinator to monitor the implementation of free basic services. Because of that, 4 132 indigent households had access to free basic electricity; 100 indigent households were provided with free basic alternative energy in the form of a gel; 5 609 indigent households had access to free basic refuse removal; 4 470 indigent households had access to free basic water; and 5 169 indigent households had access to free basic sanitation.

2.1.2 Inkwanca Local Municipality

The EC-LGTA reported that the Inkwanca Local Municipality was small and rural with a low revenue base. It was struggling to attract competent financial personnel and had only financial interns, paid out of the Finance Management Grant (FMG). The EC-LGTA reported that, in collaboration with Provincial Treasury, the department would advise the municipality to consider right-sizing its organisation.

2.1.3 Nkonkobe Local Municipality

The EC-LGTA reported that Nkonkobe Local Municipality had employed two supply chain management (SCM) officers and two SCM interns and was in the selection process for an SCM Manager. The department further reported that it had deployed financial and SCM specialists to support and assist the municipality in financial management and the municipality had since improved from receiving a disclaimer audit opinion in the 2009/10 financial year to receiving a qualified audit opinion in the 2010/11 financial year.

2.1.4 Mbhashe Local Municipality

With respect to the Mbashe Local Municipality , the EC-LGTA reported that a partnership between themselves and Provincial Treasury had resulted in the recovery of R9.6 million owed by government departments to this municipality at the end of March 2012 and most of its accounts were up to date. The EC-LGTA further reported that through the Operation Clean Audit support, this municipality had improved from a disclaimer audit opinion in the 2009/10 financial year to a qualified audit opinion in the 2010/11 financial year.

2.1.5 Joe Gqabi District Municipality

According to the EC-LGTA, Joe Gqabi District Municipality had improved in the timeous submission of financial reports, in particular Section 71 reports. This district municipality was reported to have obtained an unqualified audit opinion during the 2010/11 financial year. The EC-LGTA indicated that this had in part been due to the fact that managers, who had previously not availed themselves to the AGSA during audit season, were now cooperating. The EC-LGTA further reported that the provincial IGR structures would deal with the matter of the m municipality performing provincial functions, like procuring mobile clinics.

2.1.6 Ingquza Hill Local Municipality

With regard to the high percentage of personnel costs at Ingquza Hill Local Municipality , the EC-LGTA reported that the municipality intended to improve revenue collection in the hope of lowering the percentage of personnel costs. The EC-LGTA added that in the 2009/10 and 2010/11 financial years the department had deployed specialists through the Operation Clean Audit Programme to assist the municipality in improving audit outcomes. The municipality had subsequently obtained an unqualified audit opinion for the 2010/11 financial year.

2.1.7 Engcobo Local Municipality

With respect to Engcobo Local Municipality , the EC-LGTA reported that the Municipal Infrastructure Grant expenditure had improved and at the end of April 2012 it stood at 82%. The EC-LGTA further reported that public participation had been strengthened through the establishment of ward committees in all the wards, the deployment of 18 Community Development Workers ( CDWs ) and the signing of a memorandum of understanding (MOU) to guide the operations of CDWs . Moreover, the municipality had begun with the unbundling of assets in order to comply with GRAP. The EC-LGTA also reported that the municipality was currently finalising the appointment of a CFO. At the end of March 2012, R755 554 had been paid by government departments to the municipality and the departments’ accounts were fairly up to date.

2.1.8 Makana Local Municipality

The EC-LGTA reported that the Makana Local Municipality was struggling to attract qualified electricians. And at the time of reporting the municipality had four unqualified electricians who were to undergo trade tests. The EC-LGTA added that the organisational structure of this municipality had seven vacant posts for electricians which had already been advertised. Waterless toilets/ventilated improved pit-latrines (VIPs) had been erected in three settlements namely Seven Fountains, Conningham and some parts of Riebeeck East. Water was ferried through municipal trucks at varied intervals in most of the rural areas except for Seven Fountains where there is a windmill.

2.1.9 Emalahleni Local Municipality

With respect to the Emalahleni Local Municipality , the EC-LGTA reported that the problem of the municipality providing refuse collection services to urban areas only, would be dealt with through the intergovernmental structures. The EC-LGTA indicated that the municipality had committed itself to also provide free basic services to indigent households residing in rural areas.

2.1.10 Nxuba Local Municipality

The EC-LGTA reported that the problem that had existed, where farmers in Nxuba Local Municipality did not pay property rates, had been resolved and as a result farmers had begun paying property rates.

2.1.11 Chris Hani District Municipality

With respect to the investment of R150 million by the Chris Hani District Municipality, the EC-LGTA reported that it had been a short term investment, based on the cash flow and taking into account the time when the money would be paid out for projects implemented. The investment had not been meant to impact negatively on service delivery. The EC-LGTA reported that the municipality had since completed the unbundling of assets in order to comply with GRAP. Moreover, EC-LGTA reported that it was rendering support through Operation Clean Audit (OAC) to improve the audit outcome of the municipality.

2.1.12 Ngqushwa Local Municipality

The EC-LGTA reported that Ngqushwa Local Municipality had set aside the sum of R650 000 to complete the processes of valuation and componentisation of infrastructure assets. This exercise was scheduled to be completed by June 2012.

3. Observations

After interacting with the provincial Department of Local Government and Traditional Affairs of the Eastern Cape , the Committee concluded the following:

3.1 The Eastern Cape Department of Local Government and Traditional Affairs had attended to most of the recommendations made by the Committee. The Committee appreciates the progress made thus far.

3.2 The Committee noted the political and technical MuniMEC model that the Department of Local Government and Traditional Affairs had rolled out in the Eastern Cape .

4. Recommendations

Having considered the submissions by Department of Local Government and Traditional Affairs of the Eastern Cape , the Select Committee on Appropriations recommends the following:

4.1 All provinces should consider adopting the MuniMEC model that the Eastern Cape Province is utilising.

4.2 The Eastern Cape Province should ensure that it eradicates the bucket system in all municipalities.

Report to be considered.