Follow-up engagement with Amathole District and its local municipalities; with Deputy Minister

Meeting report

Opening Remarks

The Acting Chairperson said that the meeting was a follow up to the meeting that was held on 3 March, at which matters were raised by the Municipal Manager of the Amathole District municipality which were directed to the MEC for Cooperative Governance and Traditional Affairs (COGTA). These included allegations that the MEC had conducted a section 106 investigation into the municipality illegally, and that the provincial COGTA Department was not supportive in assisting the municipality to address its financial proposals. The MEC had not been afforded the chance to respond to the allegations made by the municipal manager, and questions directed to other municipalities had not been responded to. The MEC and the municipalities would be given an opportunity to respond to the questions that were raised by the Committee.

The MEC was asked to respond to the concerns and questions raised by the various municipalities.

MEC's response to concerns

Mr Xolile Nqatha, Eastern Cape MEC for Cooperative Governance and Traditional Affairs, said that in a previous engagement, the municipal manager had responded to the questions that were raised and a view was expressed concerning one of the main issues that there was a dispute on the kind of support that the provincial and national treasury and the provincial and national Departments of COGTA provided to the municipalities. A portfolio of evidence was also submitted to support the work that was being done to support the municipalities since 2016, which would assist the Committee in observing the work that had been done by the provincial and national Departments of COGTA. Many of the issues that were raised were disputed by the municipal manager.

The Acting Chairperson asked Members whether there were any follow-up questions on the presentation by the Amathole district and the response that had been given by the MEC on the portfolio of evidence that had been submitted. In the previous engagement, the municipal manager had highlighted that section 106 was invoked illegally in the municipality and that the municipality was not fully supported. The two main issues of the Amathole district was that the municipality had a bloated organogram, and the municipal grading.

Discussion

Mr K Ceza (EFF) said that in the previous engagement there was an exchange of words between the municipal manager and the MEC, and the municipal manager said that there was no money after the Committee had asked about the provision of water. The issues in the municipality which were raised by the Committee included the provision of water, the un-serviced system in the Raymond Mhlaba local municipality, and the uncertainty of wages for municipal workers. He asked the MEC about the action that had been taken to mitigate the situation in Raymond Mhlaba and said that the back-and-forth between the officials said a lot about the intention for change in the municipality.

He also asked what the working relations were between the MEC and the municipal manager, and how the issues experienced by the communities in the Ngqushwa local municipality and all the other municipalities would be addressed and mitigated, especially the provision of water, which was a necessity. Were there strained relations between the administration and the MEC which could be resolved so that services could be provided? He said that the same people who did not have water would be expected to vote in the elections, and that sustainable solutions should have been drafted especially since the municipality was near the sea, the conversion of sea water into fresh water should have been discussed.

Mr G Mpumza (ANC) asked about the cost containment measure that had been taken by the Amathole district leadership when they were appointed in 2017, especially regarding the municipal manager being appointed on a salary scale of 1.7. Answers were still required on how the municipal manager’s salary had increased when the municipality was still in financial distress. The municipality had also employed officials despite the bloated organogram, which was concerning because adequate responses were not given and a proper action plan was not provided on the issue. 

Ms H Mkhaliphi (EFF) said that concerns were raised by the Auditor-General (AG) on the Amathole district spending more than R27 million on a financial consultant, which had contributed to the inflation of the organogram. She asked how the municipality planned on addressing the issue, because the proposal by the municipality to retrench workers and not paying the salaries of traditional leaders and councillors was not supported by the Committee.  She also asked for the MEC’s view on the issue of people losing their jobs, especially during the COVID pandemic. A clear intervention should be provided by the municipality.

She asked if the MEC had instituted section 106 in the municipality, because people must be held accountable for the financial responsibilities of the municipality. On the issue of workers being retrenched and salaries not being paid, she highlighted that a lot of municipalities were using the same strategy, and said that National Treasury had proposed that a disciplinary board was needed to deal with the mismanagement of funds and lack of financial control in the municipalities. She requested a report on the status and progress of the disciplinary board, and said that municipal workers could not be punished for the mistakes of the municipality.

The Acting Chairperson said that matters of concern had been raised by the Committee, and that there were powers delegated to every sphere of government, with a clear mandate on the duties of each sphere. The Amathole district’s main challenge was that there was no proper coordination between the province and the local municipality, and there were evident challenges with understanding the mandate of each of the spheres of government. Despite the challenges, answers were still required on the resolution of the bloated organogram and the incorrect grading, because if the matter was not resolved then the municipality would face the same challenges of service delivery, which could not be compromised. The relationship between the municipality and the province must improve so that issues could be resolved to improve service delivery. She asked for clarity on the implementation of section 106, and whether there had been progress in the intervention process in the municipality.

Amathole District Municipality's response

Cllr Khanyile Maneli, Executive Mayor: Amathole District Municipality, confirmed that a letter on invoking section 139(5)(a) had been received by the municipality from the provincial Department of COGTA, and a resolution was taken to establish all the work streams to fast-track the process. However, the political work stream had not been established, which had caused a delay. He said there was no retrenchment of workers by the municipality, but a decision that was taken by the court prompted the decision to try and address the issue of the bloated organogram. The municipality had requested money from the national and provincial treasuries so that there was a mutual separation agreement to cater for people who wanted to take a severance package to avoid retrenchments. The response from the treasuries was still awaited.

He confirmed that there was stability in the municipality, and that the local forum had been strengthened, so all the workers of the unions and employees were working in a coordinated way. The municipality had anticipated that salaries would not be paid, but the collection of money had been aggressive and salaries had been paid, mainly through the equitable share that had been received.

The issue of service delivery and water shortages in the Ngqushwa municipality had been an ongoing challenge, and there were attempts to resolve the issue by drilling more boreholes.

COGTA's role

MEC Nqatha said the provincial Department of COGTA had tabled the work that had been done to support and assist the municipalities in the form of a portfolio report. The Committee could evaluate and critique the submitted report.

On the relationship between the provincial Department and the municipality, he said that the conflict with Amathole district was historic because of how the municipality conducted itself. The non-cooperation of the municipality was demonstrated in the implementation of section 106 and the allegations against the salary of the municipal manager, and intervention could be done through section 139 (a)(b)(c). However, the root of the problem needed to be identified. The provisions had been quoted extensively, and those provisions stated that information must be sought. The disputed issue was that the provision was an empowering provision for the MEC. Sub-section (b) had then been invoked because enough information had been gathered on the damning allegations against the municipality, which was why the municipality was claiming that the investigation was illegal. Cooperation would ensure that the allegations were false, but there had been non-cooperation from the municipality. The section had been invoked and investigations began in 2019, but delays were a result of the non-cooperation of the municipality which resulted in the root cause not being identified and issues remaining unresolved.

The Commissions Act was then used to empower investigation in order to subpoena those who had pending allegations. The municipality then wrote a letter stating that there was a financial crisis. When there was a financial crisis, there were prescribed steps in the legal provisions that could be invoked, otherwise section 139 (a)(b)(c) could not be invoked. A financial recovery plan was being developed by National Treasury, which was where the hold-up was.

Another difficulty was that there was no abundance of money in the country and even if there was, no one facing serious allegations could just pump resources without the pillars of governance being in place to ensure that the resources would be used for their intended purpose. A thorough assessment had been drafted by all the spheres of government to identify the focus areas that would ensure a turnaround, and the mandatory financial recovery plan was being finalised by NT, which had to be implemented and monitored.

Regarding service delivery, work had been done to deal with the water shortage challenges by distributing water tanks and drilling boreholes, and water trucks were distributed to various municipalities, especially those with the low dam levels which were now recovering.

He said the provincial Department would work hard to ensure that the forensic investigation was finalised, which would require cooperation. If section 139(a) failed, then (b) would have to be implemented, and it included the dissolution of the municipality. The ultimate decision on the future of the municipalities was not a secret. If the municipality was unable to pay salaries in June and July, there would be a crisis because workers would not be paid and service delivery would not be delivered, and the provincial COGTA would be forced to dissolve the municipality. As long as the forensic investigation was not finalised, then the road to recovery would not be achieved.

The Chairperson asked if the Amathole district municipality was a non-delegated municipality.

Cllr Laverne Jacobs, Portfolio Head: Budget and Treasury, Amathole District Municipality, said that when the term began in 2016, a diagnostic analysis performed and it outlined the challenges that were faced by the municipality, which included the high employee cost and some of the rentals. On the organogram, processes were followed and recommendations were made, and one of the proposals was the retrenchment of workers. This proposal was disregarded because it would have a big impact on the staff and different options were considered, which included a mutual separation agreement which had been costed at R150 million when looking at how many people would qualify for the agreement.

A five-year financial recovery plan was also developed, which included the different components that the municipality wanted to deal with. The first component was the reduction of human resources (HR) -- not the staff, but the costs -- because the staff had high-cost benefits such as housing and cell phone allowances. The proposals were not accepted by the staff, and the staff had approached the courts on the matter. The court had then instructed the municipality that in the event that agreements were not met through the review of the policies, the municipality could implement the section in the Labour Relations Act (LRA) which dealt with retrenchments. She said that if the financial recovery plan could be implemented, the municipality would be financially stable.

On the salaries of the municipal manager and the directors, she said an organogram on the salary scale had already been established when the council was appointed in office, and that general managers were already earning more than the municipal manager. Performance bonuses would not be given until the issue of the bloated organogram was resolved.

Referring to the R27 million that was allegedly paid for one financial consultant, she said that the claim from the Auditor-General was disputed because there were no records in the municipality that stated that a financial consultant had been paid R27 million.

On the sustainable water solutions, she said that with the money that was received from NT, projects were being implemented within the district and after the drought, an assessment was done to determine the type of water solutions that would resolve the issue. An amount of R12.5 billion was concluded as the money needed to provide sustainable water solutions. In the Raymond Mhlaba municipality, there was a project for the construction of a dam in the district that required funding which needed to be unlocked. In Ngqushwa and Amahlathi, there were plans to upgrade the water treatment plants, and the construction of the dam which would require R5 billion. A feasibility study had been done on the projects.

Cllr Nceba Ndikinda, Speaker of the Council: Amathole District Municipality, said that the MEC kept saying that there was no cooperation from the Amathole council, and requested clarity on these statements. The council had last met with the MEC in 2019, and the meeting did not last 10 minutes because of the questions that were put to the MEC by the Council, which included himself, the then acting executive mayor and chief whip. The MEC had been asked why the leading politicians in the Council were not involved in the investigations, and the MEC had apologised. The MEC had been interacting with the Amathole administration daily, so the claims of non-cooperation by the municipality were not substantiated. The portfolio of evidence that the MEC had drafted was not received by the municipality, and the information in the portfolio was compiled by using the letters sent by the municipality on the issues experienced. He requested that the portfolio be forwarded to the municipality.

On the issue of service delivery, he said that the municipality was doing what was within the mandate of the district, and that there were contractors on site who carried out sanitation and water projects. Because there was no money to pay workers did not mean that the municipality was not doing anything. He also mentioned that the executive mayor would be doing a site handover to a contractor in Xhora/Elliotdale to provide water reticulation in the villages.

Follow-up discussion

Ms Mkhaliphi proposed that the national Department of COGTA should have a say in the matters raised, because there was no coordination between the provincial COGTA and the municipality. When the mayor was explaining the issue of service delivery, he had said that the April salaries were paid, but going forward there was anticipation that salaries would not be paid. She asked whether there had been a clear and broad intervention programme into the matter, and highlighted that the municipal officials kept saying that ‘retrenchment’ was not in the vocabulary of the municipality. She said that honesty was necessary especially, because there was a crisis in the municipality and that the workers would not just approach the court.

She said that section 189(3) of the Labour Relations act clearly stated that a notice must be issued by the employer in order for consultations to happen, and argued that Cllr Jacobs was not specific on the sections that were applied by the municipality, but had briefly touched on the topic. The mayor’s response on the payment of salaries was comforting, but details on the plan were not specified because the future of the payment of salaries was unknown, which showed that the municipality did not have a detailed plan. A detailed plan on the matter must be clarified by the mayor.

She noted that there had been a dispute when the MEC wanted to invoke section 106, and in a previous engagement the MEC was asked on the way forward, considering the powers vested in the MEC in addressing the issues raised by the Auditor-General. She asked how the processes of the AG had been challenged, especially on the R27 million that was paid to the financial consultant and considering the level of mismanagement in the municipality. She observed that the municipality’s 2018 organogram had been reworked, but it had more posts than the 2014 organogram, and she asked for clarity on the difference in the posts because they should have reduced instead of increasing.

Mr B Hadebe (ANC) asked about the letter from the provincial executive committee that was received by the municipality on invoking section 139(5)(a), and noted that the financial recovery plan had not been finalised and that National Treasury was still busy with the plan. He asked when the plan would be finalised. While the plan was still being finalised, what was the current method of operation in the municipality -- was it functioning as usual, or had the provincial executive put measures in place in the meantime to prevent the situation from worsening?

The MEC had mentioned that the Amathole district municipality was a classic example of state capture, and that the municipal council was protecting the rot within the municipality. The statement made by the MEC was concerning, and there were expectations that the municipal council would dispel the comments made by the MEC, but it had not. This meant that in terms of the code of conduct that governed councillors, the councillors had performed their functions in bad faith, dishonestly and not in a transparent manner. The councillors had also failed to act in the best interests of the municipality in such a way that the integrity and credibility of the municipality was not compromised. The councillors had not acted in a manner that was expected of them.

He asked National Treasury and the national Department of COGTA, given the admission made by the MEC, what they were going to do with a municipality that was facing a financial crisis, that had been "captured," and that had council protecting the rot within the municipality. He also asked if the MEC had raised the issues of the municipality with them, and if so, what had been the feedback and what was the action plan to address the issue, because it was pointless to come up with administrative solutions to political problems. He raised concerns on the issues and the admissions that had been made.

Mr Mpumza said that the Committee had to consider the statement made by the MEC, as raised by Mr Hadebe, and questioned the extent that the code of conduct had been sanctioned by the municipal council to deal with some of the issues that contributed to the Amathole district crisis.

On the regulations governing the determination of the upper limits of municipal managers, he said that provisions were made for the application by the municipality for a raise in the remuneration of a senior manager when the need arose. He noted the responses given by Cllr Jacobs on the matter, and asked whether the municipality had adopted the provision to apply for an increase in remuneration. Clarity was needed on the assistance required by the municipality on the payment of salaries, and he asked what credible measures had been taken to resolve the issues in the municipality, and whether the invoking of section 106 was a direct interference in the administration by the MEC. Why was there a resistance by the municipality to the investigations as per section 106, which was mandated by law? He said that the resistance could possibly make the statements by the MEC true. He asked what was illegal in the invoking of section 106.

Mr Ceza commented on the submission made that the municipality needed R12.5 billion for the construction of water provision projects, and asked what had caused the situation to escalate to a point where the Committee was being told the specific amounts needed instead of the plans that were in place. The problems seemed to be resolvable through monetary solutions, rather than plans. He asked the MEC what had taken so long to dissolve the municipality, because the water service delivery issues were long overdue -- where were the plans for the water provision projects all along? He also asked about the proceedings of the 2019 meeting held with the municipal council.

He noted that the MEC had mentioned that there was no proper coordination between the province and the municipality, and asked about a solution to the matter and the remedies which would improve service delivery in the district.

The Chairperson said that the MEC mentioned that there was non-cooperation on the invoking of section 139(5)(a), and that the financial recovery plan was still being finalised by National Treasury. The invoking of section 139(5)(a) would bind the municipality to exercising its legislative and executive authority in order to resolve the financial crisis.

She asked for clarity from the Department of Cooperative Governance (DCOG) whether the provisions of section 139(6)(a) and (b) meant that the relevant Minister and the National Council of provinces (NCOP) had been informed. She asked for the timeframes on the finalisation of the financial recovery plan, because the section 106 that was invoked was being contested. What was the status of the invoking of the section, and on what basis was the process illegal? Why should the MEC be stopped from interfering in the municipality, and had the court adjudicated on the matter because, if not, what had happened? Why did the municipality not have the appetite to review the level of the salary scales within the municipality?

Ms M Tlou (ANC) said that the municipality was not prepared to be honest with the Committee on what was happening within the municipality. She asked what the root causes of the issues were, because even if the Committee was prepared to assist the municipality, there would be no progress and she noted the statement made by the MEC that the municipality was "captured." She said that if there were wrongdoers in the municipality, they should be held accountable.

She asked when the financial recovery plan would be implemented, and how it would be implemented if the root problem of the municipality was unknown. The South African Local Government Association (SALGA) and the provincial COGTA needed to be included in the resolution of the issues in the municipality, using the financial recovery plan. The communities were suffering the most. She also asked about the retrenchment plans for the municipal workers.

Responses

On section 106 being invoked, Dr Thandekile Mnyimba, Municipal Manager: Amathole District Municipality, said that the communication on the matter was between the MEC and the executive mayor, and the argument was that the municipality had accepted the MEC’s decision on invoking section 106(1). When the MEC had complaints on mismanagement and maladministration in municipalities, the MEC had the authority to write a notice to the municipality to request responses and information on the issues. If the MEC was not comfortable with the responses from the municipality, then the MEC could invoke section 106(2).

The municipality supported the invoking of section 106(2) except when the MEC wanted to appoint a firm to conduct the investigations, which was against the law. Section 106(2)(2) stated that the MEC must appoint a natural person or the legal unit in the MEC's office, which must be appointed in the Amathole municipality. The legal unit would be welcomed. The MEC had already appointed the firm even before section 106 was invoked. There was no dispute against the investigations taking place.

He said that the MEC had requested a meeting with the council in 2019 at which he stated his intention of invoking section 106. One of the issues raised by the municipal representatives was that the MEC was sitting with employees, and not the senior management of the municipality. The accounting officer was the only one who could release information, not employees, which was why the MEC could not use the information he had because it had been obtained illegally. The process was mismanaged by the MEC. If the MEC was confident with the information at hand, then section 106(2) would have been invoked already.

He said that there was political stability in the Amathole district municipality, and that all the meetings had taken place because there was always a quorum, the municipal public accounts committee (MPAC) was solid and was performing its duties. Since 2019, the issue that had been evident in Amathole was labour. The labour strikes were not a coincidence and were well-orchestrated because of the meetings the MEC had had with employees, instead of with senior management.

On the support from the provincial government, he said that the municipality received support from the provincial and national treasuries, so the MEC should not confuse issues. Support was also received from the provincial and national SALGA. The only issue was the support from COGTA.

He said that in March 2019, employees who embarked on illegal industrial action in the municipality were disciplined, and 30 employees were successfully dismissed. The MEC had then argued that so many employees could not be dismissed and that the matter must be taken back to the MEC’s political party. This had ended in a settlement agreement when the employees embarked on a second illegal industrial action, which was a result of Amathole applying for a waiver of salary increments because of affordability.

He said that there were intentional collapses of the labour forum in the municipality, where matters of mutual interest were supposed to be discussed. The forum was intentionally collapsed so that there was a parallel political platform created, which was championed by the MEC. Decisions were taken outside government and were imposed on the municipality for implementation. He said that if the salary waiver was not withdrawn, then the months that salaries could not be paid would increase from two months to four months, as advised by the municipality in 2019, but this advice had been ignored because of a political agreement. The increments had had to be implemented and the 30 employees had to be reinstated as a result.

COGTA's method of operating was also applied in the Amahlathi municipality, which was why the municipality had collapsed. It was the worst municipality in the country according to the survey that had been done. Amahlathi had dismissed employees successfully and COGTA had forced the council to reinstate them, and for salaries to be paid back, which had cost the Amahlathi municipality R2 million.

He said that Amathole, like Amahlathi, had the same problem with the introduction of standardisation, and council took a decision to approach the court for a judicial review. COGTA had then forced the Amahlathi municipality to withdraw the application and implement standardisation. Now COGTA wanted the standardisation to be reviewed. When the salary increments resulted in an extension of the non-payment of salaries, it was not new because the MEC had been informed in the cash flow projection reports. Provincial treasury was on the municipality’s side, because section 71 and section 52 reports were submitted to treasury, and annual reports were submitted to COGTA and treasury. The circular was released internally, and were maliciously leaked outside the municipality.

He said the provincial COGTA and the MEC were the reasons why the municipality was where it was today.

The Chairperson said that there was a mandatory intervention in section 139(5) which compelled COGTA and national and provincial treasuries to support the municipality. She asked whether the municipality was not accepting the intervention because the reality was that salaries could not be paid, that the municipality had been incorrectly graded, and the feedback from the MEC was that national treasury was finalising the recovery plan. Had the provincial executive committee (PEC) been given the necessary information that was required since section 139(5)(a) had been imposed? She requested that the findings of the Auditor-General be addressed.

On the imposing of section 139(5)(a), Dr Mnyimba said that the executive mayor had taken the matter to council, and that the municipality fully supported the section.

The Chairperson asked when the municipality had responded to fully support the section, because the MEC had stated that if there was no cooperation, section 139(5)(b) would be invoked. It seemed as though the MEC had not received the response from the municipality on its support for the section.

Dr Mnyimba said that the MEC was stating he had predetermined objectives, and had admitted that that was what he would have loved, regardless of the law. The provincial Cabinet had invoked section 139(5)(a), which was clear, and three meetings had been held by the municipality with National Treasury because it was mandatory, in the financial recovery checklist, for all of the required documents to be forwarded to the municipality-- and they had been submitted. After the documents were submitted, a situational analysis was conducted and the draft had been presented to all the parties involved. The document had to be refined in all the work streams. He said that work had been done, and the MEC envisaged failure for the municipality.

Regarding the Auditor-General’s report, he said that the issue of the R27 million had been noted in January and was disputed during the audit, but the AG had put a small note on the matter. He said that there was no service provider or tender that had been awarded to one consultant for R27 million. The annual financial statements of the municipality were developed internally, and there was no consultant that had developed the financial statements on its behalf. What was raised by the AG during the audit was that any consultant that was appointed and had any amount in the financial statements was considered as such, and the municipality had disagreed.

The Chairperson asked if the management letter on the matter could be shared with the Committee, because the AG would have to be called back to the Committee. If there were disputes with the AG, then a middle ground had to be determined. The findings of the AG could not be disputed, because that would be disrespecting a Chapter 9 institution.

Dr Mnyimba said that a service provider had been appointed to collect value-added tax (VAT) returns from the South African Revenue Service (SARS) as part of the municipality’s revenue enhancement, which had been done successfully. The service provider had been paid based on the service fee that was determined by how much was recovered. The total amount was R27 million, based on how much was collected from SARS. The AG had been asked to correct the finding, and it had been raised correctly in the current financial year.   

Mr Hadebe appealed that the municipality should not be defensive and place the blame on everyone else, because the truth was that the municipality was facing a financial crisis even though there were claims that the municipality was stable politically and administratively. The MEC could not be blamed for all of the instability in the municipality. The Committee was not trying to see who could defend who the best.

The Chairperson asked why the municipality had not yet reversed the wrong grading, which was a source of the financial difficulties in the municipalities. The municipality had revoked a lot of council decisions, so it should not be difficult to do the same thing with the grading.

Ms Mkhaliphi asked why the number of posts in the organogram was more than what the municipality had in 2014.

Dr Mnyimba said that a detailed presentation had been submitted to the council. A decision was taken by council in 2019 to reverse the decisions of the re-categorisation from a 6 to a 7, and the second decision was on the standardisation of salaries. The decisions were currently in court, but there had been delays because of the lockdown. On the waiver of salary increments, he said that council had won the matter in the bargaining council, and the judgment had been received. The court had sided with the municipality that it was not in a position to pay any salary increments.

He said that the current organogram had more positions than the old one because the old one was fat at the top and thin at the bottom, resulting in more people sitting in the offices and fewer for service delivery. There needed to be fewer administrative positions and more delivery-oriented personnel. He highlighted that Amthole had a shortage of plumbers, which was why it took a while for a simple leak to be repaired.

He said that Amathole had taken ownership and responsibility from day one. The municipality had approached both the national and provincial governments to present the challenges that were facing the municipalities, and a long-term vision had been developed, as well as a municipal turnaround strategy that had a voluntary financial recovery plan. Support was required from both the national and provincial governments on section 154.

Mr Hadebe said that the municipal manager could not say that the municipality had taken responsibility, because the very same council was misled by the then municipal manager and could not perform its responsibilities. The same council still could not interpret the law to see that they were being misled. There was no responsibility because the municipality was still in a financial crisis. He asked whether all the councillors who were part of the meeting where the matter of re-categorization was brought up by the then municipal manager, had been disciplined. All the councillors were probably still enjoying their salaries. The council was in court disputing matters that were enforced illegally, because they were misled and wrong decisions were made. It was disturbing to listen to claims that correct decisions had been taken.

Cllr Sithembele Zuka, Economic Development Portfolio: Amathole District Municipality, said that the Amathole district had a diagnostic report, and among the issues raised in the report was that there was a wrong decision on the matter that was taken to court regarding the municipality being graded incorrectly. He agreed with Mr Hadebe that if some of the statements were left undisputed, they might create the wrong perception, especially the perception that the Amathole district was on a mission, as ANC members, to retrench workers. This not true, because there was no form of retrenchment process, except for a separation agreement with workers.

On the imbalanced water tariffs between the Amatola board and the Amathole district, money was mostly lost because Amathole serviced different categories of communities. The imbalances meant that the money that was used to buy water from Amatola was too high compared to its selling price, which was why intervention was requested from the Committee, to ask for an amnesty on the debt from Amatola.

He said that the characterisation of Amathole as a municipality being a classic example of state capture, and the council protecting the rot within the municipality, was misleading because there was no evidence to support the claim of state capture in the municipality, and to accuse councillors. He disputed the claims, and confirmed that the municipality did have financial constraints which was why the council had agreed on section 139(5)(a).    

Cllr Zibuthe Mnqwazi, Portfolio Head: Service Delivery and Infrastructure, Amathole District Municipality, asked for clarity on the characterisation by the MEC of the municipality being captured. Explaining why the council allowed for re-categorisation and standardisation, he said the term came from the diagnostic report which focused on the reasons for the financial crisis in the municipality. He appealed to the Committee that when the municipality appeared before it, the issue of its financial distress should be discussed, not the hopes and wishes that were wanted by the municipality. The Amathole council agreed that section 139(5)(a) was needed, and that full cooperation would be given. There had been no signs of dispute over the section.

He said that when the MEC was approached in a meeting, there was anticipation of shortcomings, if there were sections that needed to be invoked, then the MEC should approach the council. It was therefore surprising that the MEC should say that there had been no cooperation from the municipality. While the municipality awaited the invoking of the section, there should unity for the benefit of the surrounding community of Amathole. Political differences should be addressed on the appropriate platforms. If there was an issue with the payment of salaries, it should be handled seriously, and the mood of fighting should be avoided. The claims that the municipality worked with the national department of COGTA rather than the provincial department was not true because multiple letters had been sent to the office of the MEC, with no response.

Mayor Maneli dispelled the claims of the municipality being a victim of state capture, and that councillors were protecting a rot in the municipality. He also expressed disappointment at the comments made by the MEC on multiple occasions, especially in the discussions of the study groups. In the study groups, there had been a resolution for the invoking of section 139(5)(a), so the decision to dissolve the municipality was shocking, and showed that the MEC was more interested in dissolving the municipality instead of assisting it. The work streams that had been planned had not yet been implemented. He said that the MEC had written to him proposing the invoking of section 106(2), and it was suggested that section 106(1) would have to be invoked first. This could be the reason why the MEC had said that there was no cooperation from the municipality.

There was also no way that the rot within the municipality could be protected. The municipality had identified the root causes of the crisis within the municipality, and remedial solutions were also drafted. The progress report on how the municipality was resolving its issues had been forwarded to the Committee.

On the issue of re-categorisation, the matter was taken to judicial review because it was the only route that would allow for a reversal of what had been done, and the process was before the court.

The matter of employee benefits had been taken to the council for the policies to be reviewed, but before the implementation of the new policies could happen, the workers had already approached the court, and the court had voted in the workers’ favour. The court had then advised the municipality to invoke section 189.

The Committee needed to note that the municipality had solutions to the challenges it faced. It had approached the provincial and national treasuries to request funding for the implementation of the mutual separation agreements for those workers who were willing to take the early packages. For the past year, the management of the municipality had been engaging with the local labour forum to try to reach an agreement, but the engagements had not yielded any results so the only option left for the municipality had been to approach the court. The municipality would not have been able to pay salaries from February to April, but through aggressive methods it had been able to raise money to pay salaries.  

Cllr Ndikinda expressed satisfaction that the MEC had shown his appetite to the Committee on the Amathole district municipality -- the appetite to dissolve the municipality. Throughout the MEC’s presentation, the topic of dissolving the municipality had been repeated. On the re-categorisation, he said that in 2016 the council was appointed and the decision that had created the problems in the municipality had been taken for judicial review, and a way forward was awaited from the court. 

Mr Andile Fani, Head of Department: Eastern Cape Department of COGTA, said that there were laws that protected officials when tough decisions were made. On the issue of the provincial and national treasuries, as well as provincial and national Departments of COGTA, he said that the memo that was proposed to Cabinet on the dissolution of the municipality had to be evaluated, because the Head of  Department (HOD) was responsible for writing the memo to the executive committee (EXCO), but the memo on the dissolution had not been received. The only memo that was received was on the financial recovery plan, and the clarity that was required referred to the presence of an administrator in the financial recovery plan, which was mandatory. The response was that there was no administrator.

He said that the MEC had been probing the establishment of work-streams, and that COGTA, together with treasury, were working on exchanging the chairperson at some of the meetings. The problem of political work-streams in the municipality not meeting was not created by a member of the executive council, but was created by a period of collation of information. He asked that a presentation and a roadmap of the political work-stream be created. The work-streams were functional, but the only thing missing was the roadmap and an assessment by the team from the treasury to be presented. The meetings were not chaired just by the National Treasury, but by other officials as well.

He said that when the matter of the Amathole district municipality not being supported was raised, an assessment had been done. The Municipal Infrastructure Support Agency (MISA) which helps Amathole was housed by the provincial COGTA in local government to support Amathole. The Gesellschaft fur Internationale Zusammenarbeit (GIZ) was also an economic development initiative that supported municipalities in the province. There was a district support centre office which had a regional director who was responsible for availing support to municipalities, including Amathole.

He said that politics needed to be left to the politicians, and that administrators had to focus on what needed to be done. The issue of Amathole was constantly discussed by the Department, and support was ready to be provided to the municipality.

Mr I Groenewald (FF+) asked for clarity on the issue of the grading of the municipality, because the municipality in the previous term had upgraded the municipality to a higher grade, which came with certain privileges such as salaries being increased. However, a downgrade had happened after the AG had found that the municipality was in the incorrect grade. He asked whether the issue of the grading was the cause for the financial distress in the municipality.

MEC Nqatha said that time would not stand still, and the truth would be revealed with time. He would not apologise for doing his work, and said that the municipal manager paraded as the MEC’s counterpart. The municipality wanted to prescribe how the provincial COGTA should perform its duties.

He said that the only undelegated municipalities were the O.R Tambo district municipality and the metros in the province, and even in these municipalities, COGTA was empowered to provide support and ensure that there was good governance.

There had been interactions with the executive mayor and the deputy mayor on the invoking of section 106. A multi-disciplinary team headed by Ms Nomphelo Roboji, Deputy Director-General: Developmental Local Government, had been sent to interact with the municipality before forensic investigators were appointed, and a report would be generated by the disciplinary team that would be used by the MEC to determine the way forward.

More than three meetings had been cancelled at the last minute by the municipality, which demonstrated non-cooperation. The chief financial officer (CFO) was also aware of this behaviour by the municipality, and that the portfolio of evidence outlined these incidents of non-cooperation. The provincial Department and treasury had also tried to advise the municipality when a non-compliant financial system was bought.  The system had cost R75 million, and it now cost more than R110 million. The system could not even produce reports.

He said that the Committee was being misled that the municipality was committed to good governance, because there was no evidence of this commitment. If a new municipal officer found that there was a wrong grade from the previous municipal council, then there should be efforts to correct the wrong grading, but nothing had been changed by the current municipal office for almost three years.

On the issue of state capture, he said that the issues were not generated suddenly, but from incidents that had happened. Conspiracy theories were being created to hide the wrong that was happening in the municipality. He had met with workers of the South African Municipal Workers Union (SAMWU) because they had wanted to meet with the MEC, which could not be denied. Information had been provided by these workers, and some of the employees were attacked. The public protector in the Eastern Cape had invited the municipality as a result of the information that was received, but the municipality did not attend the meeting. The provincial COGTA was notified about the issues that were raised, and had been instructed to act.

The municipal manager had defended the fact that a list of service providers had been given to the bank so that they were paid directly by the bank, but this was disputed because the process had to happen at an institutional level, with all processes being followed. There was a network of a clique of municipal councillors that seem to be captured in the municipality. The invoking of section 139(5) was initially rejected by the municipality, and was accepted only after the Minister supported the decision by the MEC to invoke the section in the municipality. Someone had to support the municipality in the turnaround strategy. He said that through cooperation in the Enoch Mgijima municipality, an administrator had been appointed, so the same process could be followed for the Amathole municipality to have an administrator.

He said the decision on the dissolution of the municipality was based on the trends within the municipality, and that the renewal of public institutions would be effective only if the rule of law and due processes were adhered to, to ensure that the trust of the people was restored. Those who benefited from looting public institutions did so by weakening the accountability mechanism, councils, audits and MPACs. People had to be held accountable for their wrong-doings.

He invited the municipality to share the portfolio with the Committee, and the Department would share its evidence.

Deputy Minister's comments

Deputy Minister Obed Bapela said that a solution needed to be created in a difficult situation, as there was mistrust between the municipality and the provincial department. The mistrust would result in the resolutions being difficult to implement, because the Constitution compelled all three spheres of government to work together. This issue would be deliberated in the national government, to ensure that there was collaboration so that service delivery was efficient.

He said that National Treasury would be doing a road show to all the provinces from 14 April to evaluate interventions, to determine the prevalent challenges with the interventions, what the Constitution stated on the issue, and why a seamless process had not been found. In other provinces, the municipalities had ended up taking the provincial EXCOs to the courts. After all the provinces had been visited, the national department would reflect on the information that had been collected from the road show and focus on strengthening the municipalities by using section 154. A final report would be produced and shared once the whole process was complete.

The Chairperson asked the municipalities from the previous engagements to respond to the questions that had been asked by Members, and requested an update on the invoking of section 139(5) from the MEC in the Amathole district municipality, and the progress thus far. The leaders in the province should find mechanisms to address the issues in the municipality, because the issues were political, which was why some of the municipal council members felt attacked. The MEC was within his rights to invoke section 139(5)(b).

She pleaded with the MEC to assist the municipalities, and said National Treasury had to play its part. There were lessons to be learnt from the Amathole municipality. The Amatola water board and O.R Tambo municipality would be called to brief the Committee on the issues raised.

Responses to previous engagement questions

Mbashe Local Municipality

Cllr Samkelo Janda, Executive Mayor: Mbhashe Local Municipality, said there had been an improvement in its revenue collection because of the improved investment interest returns, income from SARS and other revenue collection streams. The challenges of the municipality were related to the residents and the business sector, where there was a low response to the revenue collection, but efforts were being made to improve.

On the valuation roll which was challenged by the ratepayers, he said that the lifespan of the valuation roll had come to an end and that engagements were held with the ratepayers and a new valuation roll had been developed and was in place. There were positive results, even though it was not a big movement in terms of revenue collection.

Irregular expenditure had been recurring from the previous financial year, even before the new municipal council was appointed. However, through the strength of the oversight committees, such as the audit committee and MPAC, which were fully functional, the municipality was able to deal with the irregular expenditure, which had been reduced in the 2019/20 financial year to R53 million. The municipality was in the process of trying to reduce even that amount, and hopefully the next audit would reveal a decrease because the bulk was a result of recurring irregular expenditure from the composition of the big committees. All of the procurement done through the big committees was mainly multi-year, so all the transactions were still considered "irregular." The municipality had had discussions with the AG during the last audit, and suggestions had been given on how to deal with the expenditure.

The Mbashe municipality had established a disciplinary board in June 2019, and there were already cases that were being handled.

The Chairperson reminded the executive mayor of some of the questions, including the one on the Special Investigating Unit (SIU) report that was tabled in February, and on the nature of the irregular expenditure that amounted to R6.7 million, and the unauthorised expenditure which had been written off as irrecoverable. Why was the amount irrecoverable, and had the expenditure been referred to the MPAC for investigation. What was the outcome of the investigation?

Cllr Janda said the SIU report went to the council in 2020, and a decision was taken for a legal opinion to be sought on the recommendations that were made. However, during the deliberations, COVID had delayed many programmes and processes which were supposed to be undertaken by the legal team on the action plan for the recommendations. There were other areas which were tackled, as part of the resolutions included that there should be disciplinary processes for the implicated officials. Committees had been set up and assistance was requested from COGTA and SALGA on how to resolve the issues. Some of the committees were about to release their final reports. One of the officials had approached the courts, and the municipality was working together with COGTA to look into the matter and how to approach it. The matter could have implications, especially since it was being handled by a legal representative. Work was being undertaken by the municipality to ensure that the report was finalised.

He confirmed that the irregular expenditure amounts were referred by the council to the MPAC for investigation, and the MPAC had worked in collaboration with treasury and COGTA to assist and guide the process. Council had written off the amounts after the MPAC had presented the report. It could be verified that work was done, that some of the implicated officials were no longer in the municipality, and that some of the costs could be traced back to the amounts involved, which was why the expenditures were written off. The chairperson of the MPAC should have been part of the meeting so that a proper report on how the council had reached the decision could be explained and clarified. Recommendations were given to the municipality after the investigations were done. He asked the chairperson of the MPAC to provide details on the decision regarding the written off amounts.

Great Kei Local Municipality

Cllr Ngenisile Tekile, Mayor of Great Kei Local Municipality, referred to the disciplinary board, and said that the council took a decision that the municipality would have a shared service with the district, but a recommendation was made by the provincial treasurer that the municipality should stand alone. The item would therefore be forwarded to the council to rescind the decision so that the municipality established its own disciplinary board.

The fruitless and wasteful expenditure arose because creditors were not paid on time due to the financial problems. There was no unauthorised expenditure in the past eight months, but there was an opening balance from previous years which had been forwarded to the MPAC for investigation. The AG had also instructed the municipality to re-investigate, because investigations were not done according to circular 68 and section 32 of the Municipal Finance Management Act (MFMA). Irregular expenditure was incurred through pre-contracts with the property valuer who was appointed by regulation 32, but because of the money that was paid to the property valuer, the amount was an incurred debt. The other involved Nashua, where the contract expired and the money that was paid was also a problem. The other was Newly Path, a service provider that collected revenue for the municipality, where the contract had expired.

The Chairperson asked why the AG had been unable to audit the 2018/19 financial statements of the municipality, and asked about the nature of the 2018/19 fruitless and wasteful expenditure amount of R3.1 million, and the unauthorized expenditure of R46.9 million which was written off as irrecoverable. Why was the amount written off as irrecoverable, and was the matter also referred to the MPAC for evaluation? She said there was a report from the MEC that was tabled for the municipality in relation to allegations of improper conduct in the Happy Valley River Community Hall and various sports fields on the mayoral golf day event, and asked about the action that had been taken by the council on the investigation of Gobodo, as tabled by the MEC.  

Mayor Tekile said that the AG was unable to audit during the 2018/19 financial year because the service provider that was going to deal with the system was appointed in April/May, and could not start working on the system because of the unrest. Reports could not be produced on the system, which was why the AG could not audit. The system now worked, and the AG had been able to audit. The fruitless and wasteful expenditure had been reported to the council and to the MPAC, but when investigations were done, recommendations were brought to council to write it off. The AG did note that the municipality did not follow the compliance procedure, and a re-investigation was proposed, with the help of expertise. The municipality would seek the assistance of provincial treasury and provincial COGTA on the matter.

The report from the MEC had been presented in 2019 and had been implemented. Internal disciplinary hearings had taken place and the cases had been reported to the police, and case numbers were issued. The municipal manager had been briefing the mayor on the progress of the cases with the Hawks.

Ms Ntombizanele Mgema, MPAC Chairperson: Great Kei Local Municipality, said that the irregular expenditure was from the non-payment of creditors within 30 days. She said that when the municipality did not pay creditors on time, the money would accumulate. On the nature of the fruitless and wasteful expenditure of R3.1 million and the R46.9 million, it was recommended to the council to write it off, which had happened because creditors were not paid on time.

The Chairperson requested that the documents on the fruitless and wasteful expenditure be shared with the Committee by the end of the following day, and asked for the details of the R46.9 million that had been written off, and whether the expenditure had been investigated by the MPAC.

Cllr Mgema said the amount was a result of non-cash items and unauthorised expenditure that had happened during past financial years.

The Chairperson commented that the MPAC chairperson was struggling to respond to the questions raised, and asked if the amounts were written-off without MPAC’s knowledge and with no investigations.

Mr Hadebe agreed with the Chairperson that the MPAC chairperson should be in a position to explain to the Committee whether section 32 of the MFMA was followed, especially since a decision was taken to write off the amounts as irrecoverable. He asked for an assurance that due process was followed, and said that the Cllr Mgema’s inability to answer the questions seemed as if due process was not followed.

Mr Groenewald agreed Mr Hadebe on the section 34 and 35 MFMA processes, which stated that the writing-off, in terms of section 2, of fruitless and wasteful expenditure as "irrecoverable" was no excuse in criminal or disciplinary proceedings against the person charged with the commission of an offence or a breach of the Act relating fruitless and wasteful expenditure. He asked what steps had been taken against the people that had violated the Act through fruitless and wasteful expenditure. Section 6 stated that the accounting officer must report to the South African Police Service (SAPS) all cases of alleged irregular expenditure which constituted a criminal offence, and he asked if any of this had taken place within the municipality. The council of the municipality had to take all reasonable steps to ensure that all cases referred to in subsection 6 were reported to the SAPS and charges laid against the accounting officer if he/she failed to comply with the sub-section, and he asked if this had been done.

On the writing-off of irrecoverable debt, the section stated that the accounting officer must inform the mayor, the MEC and the office of the AG in writing of any unauthorised irregular expenditure and whether any person was responsible for the irregular expenditure. He asked about the reasonable steps that had been taken to rectify such expenditure before writing it off.

Mr Hadebe asked whether there had been value for money. If not, the law was clear on the matter. The reports were supposed to be forwarded to the relevant structures in writing and that before writing off the amounts a rigorous process would have to be followed, with a thorough investigation identifying the responsible officials. He asked for an assurance of whether things were followed accordingly, to avoid incorrect conclusions.

Mr Groenewald said that in the MFMA's section 32 of 33, sub-section 3 stated that if the accounting officer became aware that the council had taken a decision that would result in unauthorised, fruitless and irregular expenditure, the accounting officer was not liable for any unauthorised expenditure provided that the accounting officer had informed the council, the mayor or the executive committee in writing that the expenditure was likely to be unauthorised, fruitless or irregular. He asked whether the MPAC had taken that section into consideration when the debt was written off, because the municipal manager also had a part to play in advising the council.

Ms Mkhaliphi expressed interest in what Mayor Tekile wanted to say in response to the questions that were directed to Cllr Mgema, because it was the MPAC chairperson’s role to take the Committee through the details of the unaccounted finances of the municipality.

Mayor Tekile said that as a mayor, he also played the role of Speaker of the council, and all the reports went through him. The unauthorised expenditure was from non-cash items made up of the provision for a landfill site and depreciation. The matter was taken to MPAC for investigation, but the AG had said that circular 68, section 32, of the MFMA was not followed. The provincial treasury was then approached for the training of the MPAC on the circular and the section in the MFMA, which took place virtually in 2020. The item had returned to the MPAC for evaluation, and MPAC had brought it back to the council and stated that more capacity and expertise was required by the MPAC committee. The provincial COGTA and treasury would be approached to assist the MPAC with the capacity and the expertise. The expenditures were written off because they were non-cash items, so no-one was going to account for them.

The Chairperson said that there was a legislative process which had to be followed before any item could be written off as irrecoverable, and whether the amounts would continually be written off as irrecoverable because there was no capacity. It seemed as though the MPAC chairperson had been told what to do by the municipality. 

Mayor Tekile agreed that the MPAC had not followed proper procedure, which was why it had been sent to treasury for training. The mistake would not be repeated, and it had been highlighted in the annual financial statements.

The Chairperson asked for details of the R46.9 million in unauthorised expenditure.

Mayor Tekile said that the R46.9 million was for the provision of landfill sites and depreciation.

The Chairperson asked how the council appointed incompetent people who could not do their work, and asked if there were no skilled people within the municipality to train the MPAC. The manner in which the chairperson of the MPAC had responded to the questions raised was appalling, and malicious compliance should not be dealt with. A sober council did not follow proper procedures in writing off the debts -- a council which was supposed to build the trust of the communities. Was the municipality doing justice to communities with the service it provided?

Ms Mkhaliphi said that even if the training was being addressed, a lot of money had been spent without the proper procedures being followed. A lot of money was written off by the municipality, which was taxpayers money, especially since it was a rural municipality.

The Chairperson said that throughout the years that the council had been in power, the municipality had been writing off expenditures as irrecoverable because of the capacity of the MPAC. She asked for the SALGA chairperson to respond to the reasons given by the municipality.

Mr Groenewald asked for clarity on the statement made by Mayor Tekile that the fruitless and wasteful expenditure was from non-cash assets, and explained that fruitless and wasteful expenditure was defined as expenditure that was made in vain and would have been avoided had reasonable care been exercised. He asked how the definition related to a non-cash item. Irregular expenditure was defined as expenditure incurred by the municipality, and he wanted to know how non-cash assets were unauthorised, because depreciation had to be authorised according to the financial statements. Fruitless expenditure could not be depreciated because it was not incurred in vain.

The Chairperson highlighted that the Great Kei Municipality had received a disclaimer audit opinion with findings in the 2019/20 financial year.   

Mr Lance Joel, Chief of Operations (COO): South African Local Government Association (SALGA), said that feedback on the matters raised would be given to the Committee, because the details were not at hand. The concerns raised by the Committee were serious. The MPAC issue was a joint training programme with other key players, and not limited to SALGA. The training provided by SALGA was focused on other areas, and not the MPACs.

Mr Hadebe said that the mayor had mentioned that training was provided, so the issue of training could longer be a factor unless the training was a certificate of attendance instead of competence. If the MPACs were trained, they should be able to implement what was taught at the training. He questioned whether the mayor was part of the MPAC, because he was better able to respond to the questions that were asked than the chairperson of the MPAC. This was concerning. He agreed with the Chairperson on what happened in the past four years, and questioned how the issues had been dealt with. Issues of capacity should have been identified earlier when the committees were appointed and placed, not towards the end of the term in office. An induction should have taken place in the beginning for the MPAC, and materials made available to deal with issues.

MEC Nqatha agreed with the Committee that the responses from the MPAC chairperson demonstrated that there was an inability to relate with the task at hand and to deploy the required capacity in the municipality for functionality. He said that the accountability mechanisms, such as the MPAC and the internal audit committee, had been weakened over time so that they were not effective. This was applicable in every municipality, and not just Great Kei. The mayor had forgotten to mention that during the riots, the municipality had been burnt down and many documents were burnt, so that the AG could not audit.

The Chairperson asked when the municipality had been burnt down.

MEC Nqatha said it happened in 2018, and as a result shelters had had to be organised by the provincial COGTA for the municipality to use as offices.

Great Kei had been cooperating in the investigations that had been conducted, and had adopted and implemented the action plans that were proposed and tabled by COGTA. He said that the concerns raised by Members were serious, and that the issues were also a reflection on the leadership both nationally and provincially in ensuring that the mechanisms were strengthened to ensure effectiveness.

The Chairperson said that competent people should be appointed to deal with the issues facing Great Kei, and appreciated the input made by the MEC.

Raymond Mhlaba Local Municipality

Cllr Bandile Ketelo, Mayor: Raymond Mhlaba Local Municipality, said that all the questions had been responded to in the previous engagement.

Mnquma Local Municipality

Cllr Sithembiso Ncetezo, Executive Mayor: Mnquma Local Municipality, said the disciplinary board had been established by the council in 2020. In the 2018/19 and 2019/20 financial years, irregular expenditure had amounted to around R5 million, and the MPAC had conducted investigations. The irregular expenditure was from the previous administration, as investigated by the MPAC. During the investigation, the municipal manager had passed away, and all the directors were no longer in the municipality. The problem was that there were no controls, and the accounting officer was given instructions to authorise and make decisions.

The council had political and administrative instability which had contributed to the irregular expenditure. During the 2016/17 financial year, there were fraud and corruption cases that were reported because of the instability. In 2019/20, there was fruitless and wasteful expenditure of R6 000 by an official, and consequence management had been implemented -- the official was demoted and had paid back the money.

There was no unauthorised expenditure during the 2019/20 financial year, but in 2018/19 it had been on non-cash items and valuation roll. The valuation roll was about to expire and a decision was taken by council to revisit it. Water and sanitation was a problematic matter, especially because the municipality was not the service authority. Interventions had been made because of the water tankers that had been provided by COGTA, Amathole and the Department of Water Affairs to support the communities without water. There was a programme on the interventions in Gcuwa. Referring to the permanent solutions, he said that there were interventions from the province and national on the Tsomo Ngqamakhwe bulk water pipeline, where the service provider had already been appointed and was in the process of establishing the site where water could be transported from the Tsomo river.

He said that the disclaimer audit opinion due to instability had been received since 2016/17, but during 2017/18, the audit opinion was a disclaimer due to operating with an unfunded budget. The turnaround strategy which had been applied in the municipality had helped in moving it to a funded budget and away from the unqualified audit opinion.

The Chairperson thanked the executive mayor and applauded the work of the municipality in improving the audit outcomes from a disclaimer to qualified with findings. She asked about the nature of the unauthorised expenditure of R276.3 million for the 2018/19 financial year, and said that the expenditure was written off as irrecoverable, and wanted to know if the matter had been referred to the MPAC for investigation.

Cllr Zakhele Mkiva, MPAC Chairperson: Mnquma Local Municipality, said that the irregular expenditure dated back to the 2014/15-2016/17 financial year, because the municipality had no policies. In 2018, there were no cash items of fruitless expenditure because during internal investigations it was determined that the amount could not be linked to an individual because the former municipal manager had passed away. The other items were investigated and reported to the council because the money could not be found, and a decision was taken to write off the amount.

The fruitless expenditure of R4.1 million was because of the delay in payments to Eskom and Telkom, and a decision had been taken that management must write a decisive letter to the officials who were not fulfilling their duties, because interest had been placed on the delayed payments.

The Chairperson asked whether the remedial action for the fruitless expenditure was for management to write the decisive letter -- and asked what this decisive letter was. She said that there was no willpower to write off things and to implement consequence management for the delegation of duties and responsibilities.

Cllr Mkiva said that the officials who were supposed to make the payments did not do so on time, so management took these officials through a disciplinary process. A report on the fruitless expenditure was sent to the council, and there was an agreement to write off the amount so that management could discipline the officials to pay back the money.

The Chairperson asked about the progress on this process, since the decision was left with management to initiate disciplinary action. What was the status of the remedial action and how many officials were disciplined?

Cllr Mkiva said two officials were involved.

Mbhashe Local Municipality

The Chairperson asked about the unauthorised expenditure of R102 million and R6.7 million of fruitless and wasteful expenditure, and whether the MPAC had investigated the matter because it was written off as irrecoverable.

Cllr Siphiwo Kalityi, MPAC Chairperson: Mbhashe Local Municipality, said that the MPAC had investigated the matter. The fruitless and wasteful expenditure was related to the amount that was paid to the Khwane plant, which had accumulated interest from the expenditure. There were documents that were overlooked on the claim certificates. The amount was investigated after the AG had found the amount to be fruitless and wasteful. MPAC had then followed the due processes and requested the necessary information from the technical department on the incurred expenditure.

On the procurement processes, the MPAC discovered that a lot had been done by the technical department and that there were mistakes in the procurement process. It determined whether the service was rendered on the plant and initiated an investigation to ensure that the plant was there and how much the plant had been purchased for. After probing the process, the MPAC had invited other oversight Committees like the AGSA, Treasury, COGTA and internal audit to advise on the matter because it was discovered that something wrong had happened. The MPAC then decided that the money for the plant should be written off, because the service had been rendered after extensive consultations and thorough investigations.

The consequence management matter was referred to the disciplinary board and to the SIU. The disciplinary process was conducted within the municipality and the report was about to be submitted in April by the committee of the disciplinary board.

The Chairperson asked how many officials were involved in the disciplinary process.

Cllr Kalityi said that there were six officials, and three were no longer in the municipality.

The Chairperson asked about the outcome of the disciplinary process.

Cllr Kalityi said that they were waiting for the outcome.

The Chairperson asked where the six officials were currently.

Cllr Kalityi said that they were still working within the municipality had not been suspended because the outcome report had not been received.

He said the wasteful expenditure of R102 million was related to the composition of the big committees, because at the time there were not enough officials to keep pace with the expansion of the municipality, so the composition of the big committees was not properly planned because there were no senior managers in some positions and departments, and some officials were just appointed. The expenditure was related to this matter. It also included the interest owed to Eskom. The matter was investigated and found by the AG, and MPAC had investigated the matter as well. The MPAC had focused on whether the service was rendered, except that the big committees were not properly established. After the investigations and interrogations, the MPAC discovered that there was no malicious practice because the money was used, but the contracts were irregular. There was no corruption detected, but the matter was referred to the council to be rectified.

The Chairperson said that when procurement processes were not followed, it was a transgression against the MFMA. It seemed to be the attitude of the MPAC not to follow processes.

Cllr Kalityi said that the MPAC investigated the reasons for the manner in which the big committees were established, and had discovered that there were vacancies in the municipalities where there were no senior managers -- just officials acting in the positions. The services that had been rendered were rendered properly, but the problem was the establishment of the big committees. Consequence management could not be implemented because of the situation on the ground.

The Chairperson asked whether the vacancies in the big committees had been filled.

Cllr Kalityi said that they had been filled and the grey areas had been rectified. The big committees now operated accordingly and were fully compliant.

Ngqushwa Local Municipality 

Cllr Fumanekile Phumaphi, Head: Budget Treasury Portfolio, Ngqushwa Local Municipality, referred to the challenges that prevented the municipality from reporting on how the COVID-19 disaster relief grant was spent, and confirmed that the money allocated to the municipality for COVID-19 had been spent, but the management had said there was no template of reporting to Treasury.

The Chairperson asked if the Ngqushwa municipality was the only municipality without a template in the entire province. The district municipality should have been asked for a template.

MEC Nqatha said that templates and information were provided to all the municipalities outlining what was expected, as well as how municipalities should dispose of its expenditure.

Cllr Sanga Maneli, Council Speaker: Ngqushwa Local Municipality, said that the only report that was not submitted was the report to COGTA, but all reports to Treasury were submitted on a weekly basis.

The Chairperson asked why the report to COGTA was not submitted. This was strange, because the municipality was the only one that did not report to COGTA as per the condition of the grant.

Cllr Maneli acknowledged the non-submission to COGTA, and said it was a lack of oversight on the part of the municipality.

Mr Ceza asked how a report to COGTA would have been possible, since the municipality did not have a template, especially since the MEC provided the templates for the report.

The Chairperson said that the non-reporting of municipalities resulted in DCOGTA receiving qualified audit outcomes, and that all grants should be accounted for.

Mr Ceza said that the Committee was being taken advantage of. If Ngqushwa failed to report, how could the municipality get to a point of saying that certain infrastructure issues relating to the need for water would have been spent adequately to provide services, and where could this be reported without a template? 

Ms Zonke Siwundla, Acting Municipal Manager: Ngqushwa Local Municipality, said that there was a misunderstanding because in the current financial year, the municipality had not received the disaster grant. It was received in the previous financial year, and the spending was accounted for. The majority of the money that was received had been rolled-over and not approved, so there had been nothing to be reported on.

The Chairperson asked when the municipal manager had joined the municipality.

Cllr Siwundla said she had joined in November 2019 as acting municipal manager.

The Chairperson requested feedback on the matter from the municipality.

Amahlathi Local Municipality

Ms Ivy Sikhulu-Nqwena, Municipal Manager: Amahlathi Local Municipality, said that in the 2018/19 financial year there were community protests which had led to the burning of municipal assets which resulted in unauthorised expenditure from the impairment of the municipal assets and debt. In 2019/20, the expenditure resulted from the costs of employment. On fruitless and wasteful expenditure, she said that there was a challenge of financial viability in the municipality which was causing delays in the payments to creditors, which was increasing the interest burden.

The cash flow problems of the municipality had started during the 2014/15 financial year when the municipality had implemented the standardised salaries, which had increased the employment costs. Another issue was the procurement of the yellow fleet costing R92 million, which was deemed as irregular expenditure and was under investigation by the SIU. The municipality had already paid the R92 million, and the plant had been taken back by the service provider. The council had approached the provincial COGTA to assist, and there was an intervention in terms of section 139(b) after the community protest.

A turnaround plan was developed which was presented to the council, and COGTA was involved and had made recommendations after reviewing the organogram process of the municipality. Some of the recommendations included the reversal of the standardised salaries, and for investigations to be implemented. These had been implemented.

On the Unemployment Insurance Fund (UIF) expenditure, she said that all the reports from the council recommended that the MPAC investigate the expenditure. Some of the expenditure was investigated, but had not been finalised since the previous MPAC was replaced, and there were capacity challenges. SALGA had been requested to assist in the capacitation of the MPAC.  

Cllr Nicholas Monti, Portfolio Head: Engineering Services, Amahlathi Local Municipality, confirmed what had been said by the municipal manager, and said that COGTA had managed to come up with section 154 to support the municipality and to set up the system to ensure that there was progress in the municipality. The collection rate had improved to 60%, and the forensic report was being followed on the yellow fleet that was bought by the municipality. SALGA and COGTA had assisted the municipality in the formulation of policies, because some policies were not in place.

The Chairperson said that at the end of March, the municipality was at 24.6% of its municipal infrastructure grant (MIG) spending for the 2021 financial year, which was below the acceptable standard. What assistance was MISA providing to the municipality? What action had been taken by the council in respect to the KPMG report that was tabled by the MEC in relation to the allegations of improper conduct in the construction of certain streets, a sports field, the appointment of ARMS catering and security services, and the abuse of the municipal vehicle.

Cllr Monti said that through the Section 154 that was implemented by COGTA, COGTA had managed to approach the MISA to assist the municipality to unblock the stalled projects caused by the community protests. There were MISA officials that were deployed in the municipality’s engineering department, and it had assisted with the problem of electricity, because of the decaying electricity infrastructure. MISA had also assisted the municipality in facilitating the expenditure.

COGTA had presented the KPMG report to the council, and it was accepted. The mayor was supposed to take the report and hand it over to the police so that investigations could commence.

The Chairperson asked about the municipality’s internal disciplinary processes, because the police matter was separate. The police could not implement remedial action.

Cllr Monti said that there had been no consequence management arising from the report that was tabled by COGTA to the municipality.

The Chairperson asked whether the value that was attached to the findings in the report was appreciated, and how much was lost, to the extent that the municipality felt that it would not implement consequence management. This was another report that was gathering dust in the offices of the officials, and the provincial COGTA team had wasted time, energy and resources conducting the investigations to commission KPMG. She asked if the report was adopted by the council for implementation.

Cllr Monti said that the report had been adopted by the council.

The Chairperson asked what the resolutions were, because there seemed to be no appetite to deal with implicated officials. She asked why this was the case, because the report revealed some serious wrongdoing by officials. She asked that a detailed response to the matter be submitted by the municipality by the end of business on Thursday 15 April on the steps on what would be done, with clear timeframes.

The municipal officials agreed with the Chairperson.

Cllr Nqwena said that some of the employees that were implicated had since resigned from the municipality.

The Chairperson said that resignation was not consequence management, because not all the employees had resigned.

MEC Nqatha thanked the Great Kei municipality and the Emalahleni Local Municipality for cooperating, and said that because of this cooperation COGTA had been able to get a company to install high mast lights.

On whether the statutory bodies had been reported to on section 139(5), he said that COGTA had reported and there were signed letters to the NCOP, SALGA, Treasury and the Minister.

On the tolerance of wrongdoing that led to more transgressions, he said that the House had the responsibility to ensure that proper due process was followed, and that the lack of progress on the allegations in the various municipalities showed a reluctance to deal with the allegations of wrongdoing. Others sought a legal opinion on the matters instead of allowing the due process to take place. Due process needed to be followed, regardless of who was affected, to ensure that there was success in the municipalities.

He said that COGTA had to commit to take the matters in the municipalities seriously, and work very hard to ensure that local government was turned around so that the lives were people were improved. During the Deputy Minister’s road show, some of the issues could be presented to the national Department for assistance and support. He appealed to the Committee to consider the issues so that support could be provided, given the nature and capacity of the municipalities in the province. Municipalities had to be supported in planning to avoid issues with under-expenditure of the municipal infrastructure grants, because it was an insult to the communities when funds were not spent and were returned, given the level of unemployment in the province. The provincial COGTA would work hard to ensure that the situation at Amathole was turned around.

The Chairperson thanked everyone present, including the MEC, the officials and the districts. There were issues which needed to be followed up. The next time the MEC met with the Committee, the audit outcomes would be released and the municipalities would be held responsible, and progress would be checked and evaluated. The Committee wanted to see institutions that were functional and were able to respond to the plight of the people on the ground.

She commented that the MPACs in the Mbhashe municipality had problems and that people with capacity and skills must be deployed in the municipalities. The MPACs must be audited by the MEC to ensure proper oversight. The quarterly reports to the Minister were of interest to the Committee.

The meeting was adjourned.