COGTA Audit outcomes; 2019/20 Annual Reports of DCOG & MISA, with Minister

Meeting report

Department of Cooperative Governance Annual Report 2019/20

Ms Avril Williamson, Director-General, Department of Cooperative Governance (DCOG), said that the Department had spent almost 92% of the allocated budget.

Under programme 1, only 15% of actions had been implemented by 31 March due to some of them not being effective. Under programme 2, 75% of the planned targets had not been achieved, though a support programme had been implemented in three municipalities -- KwaDukuza, Rustenburg and Steve Tshwete. Only Mogale City had not been concluded by the end of the financial year.

The Department had achieved 13 out of 21 (62%) targets set in the annual performance plan and eight out of 21 (38%) had not been achieved. It was pointed out that of the eight unachieved targets, some significant work had been carried out towards the achievement thereof.

The Department received a qualified audit opinion which is an improvement from the past years' disclaimer audit opinion. The Department continues to work hard to address the remaining areas as highlighted by the AGSA to ensure the attainment of  an unqualified audit opinion.

Basis for qualified audit opinion:

-Goods and services

-Movable tangible assets

-Prepayment and advances

AGSA on 2019/20 audit outcomes for the cooperative governance and traditional affairs (COGTA) portfolio

Mr Casper Kruger, Audit Manager, Auditor-General of South Africa (AGSA) said that the overall audit outcomes for the COGTA portfolio improved slightly with DCOG moving from a disclaimer to qualified audit opinion in the current year. The overall driver is the commitment by management to engage the auditors and implement auditors recommendations. Management response to limitations and the implementation of actions plan initiatives also assisted in maintaining and improving the audit outcomes. The result of the rest of the auditees remained the same as last year with all clean audits except for CRL, which remain unqualified with findings. The 2019/20 audit outcomes were as follows:

-DCOG: qualified with findings

-CRL: Unqualified with findings

-MISA: Unqualified with no findings

-SALGA: Unqualified with no findings

-Municipal Demarcation Board MDB: Unqualified with no findings

-Department of Traditional Affairs (DTA): Unqualified with no findings

Key reflections on audit outcomes of DCOG and CRL:

-Corrective actions to address prior year’s qualification areas relating to accruals and payables not recognised and irregular expenditure were implemented.

-There were no material findings on performance information in the current year. Covid-19 implications could have had a positive contribution.

-Material misstatements identified due to amounts disclosed in the financial statements not agreeing to the supporting schedules and MCS non-adherence, but the magnitude of these misstatements reduced.

-Inadequate review and monitoring processes by leadership and management led to material non-compliance with laws and regulations

-Last year, National Treasury approved a departure for the Department pertaining to Community Development Work (CWP) to comply with SCM processes until 31 March 2021.

-If the departure comes to an end without any traction on corrective measures, the Department will most likely revert back to incurring irregular expenditure.

-The CWP leadership instability contributed to inadequate controls over effective oversight and monitoring of payments to implementing agents. However, the Department has filled the position of DDG and has appointed a finance head within CWP.

-The impact of the appointments will be evident in the next financial year as the appointment happened late in the audited financial year

-CRL: Slow implementation of post audit action plans added to repeat findings being identified and non compliance reoccurring.

Municipal Infrastructure Support Agent (MISA) Annual Report 2019/20

MISA reported that it had achieved 19 of the 24 key performance indicators in the annual performance plan (APP) for 2019/20. No irregular expenditure had been incurred in the period under review.

This overall achievement of 79% for 2019/20 performance reflected a decline in comparison to the achievement of 91% in the previous financial year. This decline was due mainly to the outbreak of the Coronavirus pandemic before the year-end.

The Agency had received an unqualified audit opinion without material findings (clean audit) for the second consecutive year.

MISA had a total of 221 posts on the approved staff establishment, and as at 31 March, 167 of the posts had been filled. This left 54 posts still vacant, which indicated a vacancy rate of 24% against the targeted prescribed threshold of 10%.

Chairperson’s overview

The Chairperson recalled that the Committee had dealt with the key issues of concern at DCOG and MISA during the tabling of their respective quarterly reports. According to DCOG’S Annual Report, the majority of programmes had spent almost 100% of their allotted budgets, yet the performance on predetermined objectives did not reflect the expenditure. Overall expenditure had totalled 96.2%, yet DCOG had achieved only a 62% performance rate.

She lamented that service delivery expenditure did not match performance, and when she browsed the annual report, she had noticed that three programmes -- administration, regional and urban development and legislative support, and the CDW programme had very low performances, yet they had spent almost their entire budgets.

She reminded DCOG officials that the Committee had made its feelings known about challenges with the CWP and the lack of consequence management for implicated officials. She indicated that the Committee had resolved to delve deeper into this matter.

She commented that in the foreword to DCOG’S Annual Report, Minister Dr Nkosazana Dlamini-Zuma had commented on the challenges with the CWP, and had on previous occasions noted the same. She reminded the Minister that the Committee had heard of these challenges before, and had expected solutions and decisive action to correct these anomalies.

The Chairperson also lamented the poor performance that had been achieved under programme two. The poor performance worried the Committee, as DCOG had expected this programme to support the implementation of the District Development Management (DDM).

She also expressed her displeasure with the vacancy challenges at DCOG, and recalled that during a meeting on 20 November, the Committee had also cited the R3.3 billion under-expenditure on institutional development for local governments. DCOG had also been requested to provide feedback to the Committee on their engagements with the troubled municipalities that could not spend their Division of Revenue Act (DORA) allocations. It seemed as if DCOG had decided to withhold these funds, without taking into account the impact on service delivery.

She congratulated MISA on obtaining a clean audit, but the Committee still had serious concerns about human resource constraints at the entity. The budget allocation had decreased, yet the entity had a bloated organogram. She accused DCOG of not being forthcoming about the challenges at MISA. Instead, Minister Dlamini-Zuma had spoken only about MISA having to drive fundraising efforts from the private sector.

She recalled that the Minister had indicated that DCOG envisaged an expanded role for MISA to provide technical support to local governments and to act as an implementing agent for struggling municipalities, yet no mention had been made of how MISA would be capacitated to undertake this role. MISA had recorded only a 79% performance rate, and this could not be a strong case for additional funding if MISA did not meet predetermined targets.

Minister’s remarks

Minister Nkosazana Dlamini-Zuma conceded that DCOG was not where the Department should be. However, there had been an improvement with the submission of statutory reports -- before she arrived at DCOG, statutory reports like audit reports would often be submitted late. This had changed since her arrival. She cited the achievement of a qualified audit as a boon, given that DCOG had received a disclaimer during previous years.

She acknowledged the issues raised by the Chairperson, and pointed out that the new Director General (DG) had taken up office only in May. She added that they had to question the issues that happened before she arrived. She hoped that DCOG 's overall performance would improve in the new financial year.

Although MISA had received a clean audit, more work needed to be done to improve the impact on the ground. She did not want to dwell on the past, as these events had already happened. MISA would learn from the experience and improve its performance going forward.

Discussion

Mr C Brink (DA) recalled that in the questions posed to officials from AGSA, the presentation had detailed certain tender irregularities. He wanted the AG to give details of the tenders in question and whether the bidders had complied with prescripts.

He also recalled that during the presentation, Mr Kruger had mentioned that National Treasury had given DCOG a reprieve that allowed the latter the latitude to not report on the CPW expenditure until March 2021. He wanted to ascertain how this provision worked, and its implications. He asked whether Members should just ignore the irregular expenditure on the CWP for the time being.

He expressed his concern with the major audit findings on the CWP, and reminded the meeting that DCOG had not yet revised the model.  The CWP therefore operated as a "flawed model."

He found it interesting that DCOG had indicated that two targets had been achieved on one deliverable involving the DDM. He wanted to know whether it was standard to have two targets on one deliverable.

On the CWP, he said that it had been difficult to formulate an opinion about the financial performance targets, as they had not been audited.

On the Integrated Urban Development Framework (IUDF) strategy and the implementation programmes for small-town regeneration integrated development and the township economic development programmes (TEDPs), he lamented the lack of implementation due to the service providers not having been appointed. The decision to employ service providers seemed nonsensical. He reminded the meeting that a lot had been said about the use of consultants by government entities, and especially by municipalities, yet DCOG wanted to make use of service providers. He wanted to ascertain how these service providers would have been paid, given that the Department had already spent the entire budget.

He asked whether the number of municipalities supported to have functional ward committees had been a "tick box exercise," and what the nature of the support had been to the 113 municipalities that included the three DDM pilot sites.

He recalled that slide 17 had referred to the number of district municipalities/metros where training on the local government anti-corruption strategy had been rolled out. He wanted the Minister and the DG to indicate whether the anti-corruption strategy had been successful.

Slide 14 had indicated that DCOG had been able to assist 35 municipalities with municipal specific revenue plans to increase their revenue base, revenue collection rates and payment of creditors. He wanted to know whether revenue collection had improved in these 35 municipalities. He said the Department should not be measured against its success rate in assisting municipalities, but rather on the actual implementation of such plans.

He asked MISA whether the entity had devised and conducted a review/assessment of the engineering skills that had been available to the municipalities for the implementation of infrastructure projects. If such an assessment had not been done, he asked MISA to indicate whether such an assessment would be seen as an objective.

Mr I Groenewald (FF+) said he had reviewed the AG's presentation, and one thing that stood out had been the comment about poor leadership at DCOG that had resulted in weak controls and ultimately in weak outcomes. The performance by DCOG should be contrasted with the good leadership at MISA, and the subsequent good performance.

Ms H Mkhaliphi (EFF) said that she wanted to find out from the Minister and the DCOG leadership, why the Department could not implement 85 actions set out in the 2018/2019 post-audit plan. If DCOG failed to implement AG recommendations, how could it expect municipalities to follow suit? South Africa had a service delivery crisis and relied on DCOG to come to municipalities' rescue. Municipalities had to function optimally. She expressed her concern, and commented that she had raised these issues continuously with the Minister.

She requested a detailed explanation of why DCOG had failed to implement the post-audit action plan, which that had been punted as a step in the right direction.

She also expressed her concern with the targets achieved by MISA, as it had well-known capacity challenges that made it ill-prepared to deal with ageing municipal infrastructure.

She reminded the meeting that in 2019, the Minister had informed the Committee that the Cabinet had directed that MISA should be capacitated. She once again called on the Minister to explain why MISA had not been capacitated.

Ms G Opperman (DA) wanted to know who had been responsible for the R7.5 million in fruitless and wasteful expenditure on the CWP. She recalled that during the last financial year, Members had been told that millions had been paid to deceased people. She wanted to know whether this had been cleared, and what had happened to the money.

She turned her attention to GovChat, and wanted to ascertain how DCOG kept track of whether municipalities responded to complaints lodged on the portal.

On the integrated township plan for economic development, she asked whether a service provider had been appointed, and whether the plan to assist municipalities to increase their revenue bases had been implemented, and whether it had been a success.

Ms P Xaba-Ntshaba (ANC) posed questions in isiZulu.

The Chairperson asked whether DCOG, as the competent authority on disaster management, had learnt any lessons during the Covid-19 disaster.

DCOG’s responses

Mr Themba Fosi, Deputy Director-General: DCOG, responded to the question on the IUDF strategy, and said this strategy was still a policy document, and that Covid-19 had impacted its implementation. He explained that the strategy called for interventions in three areas. These focus areas included focusing on all eight metros, intermediate cities and small towns. This covered the whole spectrum of municipal spaces. It was a new programme that had been developed with a targeted approach.

He added that it had been a learning curve for DCOG to understand how to go about with the implementation of an integrated township economic development programme. This was a new programme that would look at economic potential and how to stimulate economic development in townships. It was meant to provide a dedicated focus on to deal with the township economies and the opportunities they harboured.

He reminded the meeting that DCOG's budget had also been shifted to other areas during the reprioritisation, and that Siteplan had been appointed as the service provider.

An official from DCOG responded to questions posed about the CWP. He said that DCOG had engaged with the relevant non-profit organisations (NPOs) which had managed to provide clarity on the irregular and wasteful expenditure incurred. The evidence that they had provided had proved helpful to DCOG, and had been helpful in terms of making sure that they could verify matters related to personnel administration system (Persal) participants. In some cases, where evidence had not been produced, DCOG had recouped funds.

He told Members that CWP participants had all received a Persal number from DCOG, and that this number remained tied to them after they had left the CWP after six months. He vowed that DCOG would ensure alignment to policies.

Dr Manyedi Nkase, Chief Director: Anti-Corruption, DCOG, responded to the question about the anti-corruption strategy. He responded that he would not be able to give a definitive confirmation, as the Department had been in the process of assessing the strategy, and that the onset of the Covid-19 pandemic had stymied progress.

On assistance to municipalities, he said the training had been conducted by the sector education and training authority (SETA), and that participants had been given a national qualifications (NQ) level 2 accreditation.

He responded that when a query had been posted to the GovChat portal, DCOG was able to monitor whether the query had been responded to.

Ms Williamson said that DCOG had a report on the impact on the 35 municipalities that had been assisted to increase their revenue base. The outcomes varied from municipality to municipality. The DG cited the Alfred Duma Municipality has an example, saying that it had been able to generate an additional R24 million a month more.

On the lack of implementation of 85 post-audit recommendations, she said that this was related to DCOG 's institutional implementation committee, that should have had the will to drive and implement the recommendations.

MISA’s responses

Mr Victor Mathada, Chief Director: Executive Support, Strategy and Systems, MISA, said that there had been an agreement that MISA would come up with a detailed business plan that identified areas for potential intervention.

Mr Sam Ngobeni, Chief Director: Technical Skills, MISA, added that MISA had not yet conducted an assessment of the technical and engineering skills required by municipalities. If it conducted such an assessment, it would focus on the type of skills and the number of engineers required.

He told Members that MISA was not shooting in the dark when it came to the required skills, and that the entity was guided by the municipal services offered by a municipality. The type of support focused on civil engineering, electrical engineering, regional and town planning, construction and project management, as well as solid waste management. MISA had also been requested to assist with property evaluation.

He added that MISA relied on credible studies to gain insight on the numbers needed in municipalities where the engineering skills shortage had been widely reported. MISA intended to conduct such a study.

Minister’s response

Minister Dlamini-Zuma recalled that she had been asked a question about leadership within DCOG. She said that when she arrived at COGTA in 2019, she could not simply just fire the officials that she found there. There were relevant processes that had to be followed, and if DCOG had not received a new DG, the Department would have received another disclaimer for the third year running. The new DG had worked hard to prepare and submit the audit report to the AG. The Minister reminded Members that the new DG had arrived only in May, and that she had not yet been at the Department for a year.

She said that the then former chief financial officer (CFO) of DCOG had gone through a disciplinary process that had been stalled for months by the then former chief executive officer (CEO). The then former CEO had dodged the process and eventually, when she ran out of excuses, had opted to resign. DCOG could do nothing about the resignation, but her departure had been mitigated by the appointment of a new CFO in November and a deputy director general (DDG): Corporate Services, who officially started on 1 December.

Minister Dlamin-Zuma said these appointments had been her first steps in bringing about a strong leadership team. She said that when new Ministers came into a department, there was always talk about new Ministers just wanting to get rid of people. She hoped that the new leadership would make a difference, in tandem with the rest of the team. DCOG officials had been motivated by not having received a disclaimer for the third year running.

She told Members that she would be looking into the DDG’s institutional development report, as well as the challenges within the CWP.

The Minister said DCOG did not place ''parts" on the ground, and that it had been common cause that it provided technical support to municipalities so that the latter could place the ''parts" on the ground. Water sources in South Africa were not readily available, and DCOG had assisted through MISA on the issue of bulk infrastructure.

The water source supply function did not reside with DCOG. Municipalities had been made responsible for water reticulation, yet Members had also be made aware of instances where pipes had been laid for reticulation without there being any water source. She also recalled her challenges with water at her rural Kwazulu-Natal homestead. The community had been promised for years that a dam would be built, and yet no dam had been built. She shared the frustration of Members on this matter. She recommended that they should direct their frustration to where it belonged, and that she could not be made to answer for a competency that resided with municipalities. DCOG did not have the mandate to take over these functions.

Follow-up questions

The Chairperson wanted the name of the service provider that had been appointed to implement the IUDF strategy. She also wanted to know what the involvement of the South African Cities Network had been in the UIDF strategy.

She recalled that in the foreword to the annual performance report on the poor municipal audit outcomes for the period under review, the Deputy Minister had indicated that a process would be initiated to rethink municipal finances. She requested more information on this new process.

She also wanted to know whether DCOG had engaged with municipalities on the need for alternative interventions to assist them with the expenditure of their equitable shares. She had concerns over DCOG withholding the equitable shares, as this impacted service delivery.

She commented that DCOG had incorporated the implementation of the DDM under DCOG's programme two, yet this programme had not had a dedicated DDG for the last couple of years. How could DCOG be expected to drive the DMM agenda in the absence of the necessary dedicated personnel?

She wanted to ascertain the nature of the qualifications obtained by CWP participants, and referred to the contingent liabilities related to the retention fees for service providers.

Ms Mkhaliphi commented that the Minister had not been specific in her replies on MISA. In an elevated tone, she reminded the Minister of 2019 Cabinet lekgotla that had instructed her to capacitate MISA. She called the Minister's reply "disturbing news."

She wanted to correct the Minister on the comments that had been made about the new DG. The newly installed DG had arrived in April when the issue of the disclaimer had already been "given." The credit had to go to the then Acting DG, Mr Themba Fosi. She commented that "we'' should not be shying away from telling people that they had done good work. The current DG would be appraised in the next financial year. She cautioned Members against what she called the "misrepresentation of events."

On the CWP that Members always complained about, she observed that the audit scope had been reduced as a result of Covid-19.

The Chairperson reminded the Minister that there had been no response to the disaster management question that she had posed.

Mr K Ceza (EFF) asked how the DDM ensured that corruption, mismanagement, political interference, irregular expenditure and other acts of malfeasance would be addressed.

Mr B Hadebe (ANC) welcomed the presentation and the responses provided.

He said that he agreed with the Minister's views about the need to redirect the questions posed about inadequate water supply to municipalities, especially the rural ones.

He pointed out that DCOG did administer conditional grants, and as such had the power to engage municipalities. The conditions had been clear that the integrated urban development grant had to be spent on basic residential infrastructure such as water supply, roads and waste management in poorer municipalities.

He conceded that municipalities had the legislative authority to govern municipalities on their own. However, DCOG could assist struggling municipalities through monitoring and evaluation exercises to establish whether the allocated grants delivered the desired results.

Response of Minister and officials

The Minister said she would not withdraw her comments about the success of the new DG. She recalled that Ms Makhaliphi had noted that Members had been happy at the appointment of the new DG, yet the new DG had not yet delivered the desired results. The Minister said that she had not compared the new DG with someone else, and that she stood by her comments.

She acknowledged that Mr Fosi had acted, but the new DG had driven the audit process. She had no qualms with Mr Fosi, and that it had been Ms Makhaliphi who had brought the names up.

The other issue she wanted to raise related to conditional grants and water supply. She had entered into discussions with the Minister of Finance and senior officials at National Treasury with a view to using conditional grants such as the Municipal Infrastructure Grant (MIG) for bulk water infrastructure. Currently, the MIG did not allow for bulk water infrastructure. If this could be done, then COGTA would have some leverage over municipalities. MISA could assist in this regard. She reminded Members that the Department of Human Settlements, Water and Sanitation administered the bulk water infrastructure grants.

On the capacity challenges at MISA, the Minister said that when the decision to capacitate municipalities, the MIG had been taken by Cabinet, and the country had not yet faced a pandemic or economic woes. There was just no money, the Minister lamented. That was why COGTA had encouraged municipalities to seek or mobilise resources outside of government.

On disaster management, she said a process had been initiated within COGTA to look at capacity issues and the establishment of a home for the Disaster Management Centre. This work was in progress, and would be submitted to Cabinet for approval once it had been approved,

Mr Mbulelo Sigaba, Chief Director: Municipal Finance, COGTA, said that the Deputy Minister (DM) thought that new financial interventions were required to drive infrastructure growth post-Covid-19. There had been inherent imbalances within the current revenue framework, and that should be seen against the background of constrained revenue bases and escalating governance failures in municipalities. These recommendations looked to enhance municipal borrowing power to assist municipalities to borrow capital and finance capital infrastructure. These had been the recommendations touted by the DM.

Mr Fosi added that COGTA had recognised that the success of the DDM was dependent on effective and functional institutions of local government. COGTA had decided to develop a targeted programme for local governments. It had just concluded a two-day workshop that focused on improved service delivery and local government issues. This programme had been geared towards the improvement of local municipalities' operations. He stressed that the DDM aimed to support local governments in terms of Section154 of the Constitution.

Mr Fosi advised the meeting that he was responsible for the DDM under programme two, and that his post had always been filled. COGTA had taken a collaborative approach that involved MISA and other role-players. These role-players assisted COGTA in the implementation of the DDM.

On the role of the South African Cities Network, he said the Network had been part of the IUDF conceptualisation process and that COGTA had continued to work with it on its. The Network also had capacity constraints, and that had been the reason why COGTA had solicited the help of external service providers.

On the support programme to cities, COGTA had been working closely with National Treasury, which had adequate capacity. Internally, COGTA had been worked on the intermediate cities strategy, and there would also be a focus on an urban-rural continuum. He added that COGTA needed to focus on the design of a clear support programme for targeted small municipalities.

Dr Batandwa Siswana, Head: Operation Clean Audit 2014, responding to the questions about the CWP, asked whether he could furnish the details about the qualifications obtained by CWP participants at a later stage.

On the contingent liabilities related to retention fees of CWP service providers, he said that COGTA remained seized with the matter, as many service providers still owed COGTA money. Retention fees would not be paid until service providers handed back money owed to COGTA.

Follow-up questions and comments by Members

The Chairperson once again brought up the withholding of conditional grants to municipalities. She reiterated the Committee's stance that this action impeded service delivery. She wanted to ascertain whether COGTA had reflected on the Committee's concern.

Ms Mkhaliphi said she did not understand why the Minister had become so emotional about the comments that had been made. She had never asked the Minister to withdraw -- she had only pointed out that the newly installed DG should not take the credit for the work done by Mr Fosi.

Replies by Minister and DG

Ms Williamson said that DCOG had reflected on the Committee's concerns about withholding conditional grants. There had been discussions around this specific issue in preparation for the upcoming budget lekgotla. Whether DCOG had the right answers at this particular point was debatable, and she would rather say that it was a work in progress.

The Minister added that she had had discussions with her Finance counterparts on municipal conditional grants. She acknowledged the point about service delivery being influenced by withholding conditional grants. However, certain municipalities could not spend these funds. Her Finance counterpart had agreed that these municipalities had to stop receiving conditional grants until they had the necessary capacity. This in itself created a challenge, as many of these municipalities had no revenue base and would ultimately struggle to attract competent engineers or technical experts. In the meantime, MISA had been asked to assist these municipalities.

A back and forth verbal confrontation between the Minister and Ms Makhaliphi ensued in isiZulu. It was later explained that the two had directed insults at one another.

The Chairperson took exception to the verbal confrontation that had ensued, and called for order. She said she did not want the meeting to degenerate.

She called on Mr Kruger to respond on behalf of the AG.

AGSA’s response

Mr Kruger informed the meeting that the contracts that COGTA had entered into with the CWP service providers had not followed prescripts. National Treasury had then called a meeting with the AG and COGTA to discuss the way forward. At this meeting, National Treasury had told the AG that the latter could not question National Treasury's authority on the waiver that had been granted to COGTA. National Treasury had initially ill-advised COGTA. They had advised COGTA to record the transaction as a transfer rather than expenditure on goods and services, in terms of Circular 21. National Treasury had stuck to their guns and granted a waiver in terms of Section 79 of the Public Finance Management Act (PFMA). He said that the model that had to correct the above anomaly had not been tabled yet, and the absence of such a model risked an adverse audit finding for 2021.

Follow-up comments

Mr Hadebe said that the Committee had always on previous occasions worked fine, and that there was a need for the Minister and her executive authority to be protected. He lamented how events had unfolded. He reminded Members that if they had not been satisfied by a ministerial response, there was still a need to respect the Minister. Members were entitled to their opinions, but not their facts.

Ms Mkhaliphi became visibly agitated with Mr Hadebe's remarks, and reminded him that he was not her whip and had no right to tell her how to speak in meetings. "How I speak is none of your business,” she said.

The Chairperson asked Members to refrain from allowing the meeting to degenerate further, and delivered concluding remarks.

The meeting was adjourned.