Mangaung Metropolitan Municipality: engagement with Municipality, Provincial Treasury, SALGA & DCOG

Meeting report

Opening Remarks

The Chairperson said that discussions with the Mangaung Metropolitan Municipality were held on the challenges and opportunities of the amalgamation of municipalities. Before the 2016 local municipal elections, Manguang was subject to incorporate the Naledi local municipality and the Free State office of Cooperative Governance and Traditional Affairs (COGTA) compiled a presentation on the effect of the amalgamation on the financial institution of Mangaung. The Mangaung Metro presented a surplus of R11.4 billion in the 2016 financial year. Four years after the amalgamation, council sustained a deficit of R268.7 million and current liabilities exceed current assets by R135.6 million which resulted in the municipality being declared bankrupt.

The Chairperson also highlighted that unspent conditional grants of the Metro increased by 333% from R106 million in June 2016 to R459 million in June 2019 which reveals a cashflow problem for the metro to use grants for non-intended purposes. Unauthorised expenditure increased by 267% from R654 million in June 2016 to R2.4 billion in June 2019 which resulted in the metro being the biggest contributor to unauthorised expenditure.

Irregular expenditure also increased from R32.7 million in June 2017 to R1 billion in June 2019. The Chairperson said the data shows evidence that the amalgamation reversed the financial viability of the metro instead of advancing it which has contributed significantly to the current state of the metro and led to the invocation of the constitutional intervention of Section 139 (5)(a)(c). National Treasury had foreseen the financial viability challenges of the amalgamation and advised against it. The Chairperson questioned why the amalgamation took place even after Treasury was against it. The report of the Auditor-General for the 2019 financial year identifies other serious problems and states that the financial viability challenges are not a result of the amalgamation alone. Matters such as the lack of accountability for sound financial management, lack of performance monitoring and evaluation, lack of consequence management, increased non-compliance with the Municipal Finance Management Act and the supply chain policy on the payment of service providers within a prescribed period and the high vacancy rates which affect the operations of the municipality.

The Chairperson said the purpose of the meeting is to uncover the extent of the financial recovery plan in assisting to address the financial crisis in the metro since the invocation of the intervention on 9 December 2019. Other matters of interest include an update on the implementation of the post audit action plan in respect of the 2018/2019 financial year, institutional capacity in relation to critical structures such as the Municipal Public Accounts Committee (MPAC) and the Municipal Demarcation Board (MDB) as well as any other relevant party.

The Chairperson welcomed everyone present and requested the first presentation proceed.

State of Mangaung Metro Municipality

Mr Thomas Mkaza, part of the provincial administration team, said that there have been serious challenges and a programme has been put together to assist in addressing the matters. A campaign to rescue the municipality on the challenges it faced was launched as well as a stabilisation programme to stabilise governance of the municipality so that it operates independently. Three programmes were started which include financial recovery, which identifies targets that would assist the municipality recover and service delivery improvement to assist due to lack of machinery, aging staff and aging infrastructure in the municipality.

Cllr Lebohang Masoetsa, Acting Mayor: Mangaung Metropolitan Municipality, outlined the towns that the metro is comprised of and the political parties represented in the council. In the hopes of maintaining stability, previous MMCs have been re-elected and there are ten section 80 committees which include MPACs, the COVID Conduct Disciplinary Board and the Municipal Planning Tribunal. The whip committee meets regularly to provide both political and administrative direction for the metro. Cllr Masoetsa said that the council can process and execute legislative mandates and that recommendations are made regularly by the council committee. COVID Command Centres have been established for administration and political leadership. A sharp increase in COVID-19 infections has happened in the metro and the increase is being managed effectively. He said that the current financial challenges relate to the high Free State Development Corporation (FDC) debt, the high number of Section 21 schools not paying for services, the debt owed to Bloem Water and the high domestic debt due to high unemployment rates. He explained that the metro does not owe Eskom but there are challenges with the dealing of payments. Service delivery challenges relate to huge infrastructure blocks in various surrounding areas. He said that there is a serious water shortage in the metro because of a limited availability supply, as a result the Gariep water project needs to be fast-tracked so that Bloem Water has access to water.

Adv Tankiso Mea, Municipal Manager: Mangaung Metropolitan Municipality, presented on the state of finances from the 2018/2019 financial year to the 2019/2020 financial year, the state of finance relating to the capital spending and asset base as well as the state finances relating to the funding of the capital budget. He outlined the state of finances relating to debtors and debt collection rates, the state of finances relating to creditors and FRP implementation as well as the audit outcomes from 2015 to 2019. He presented on the revenue collection from March-June 2020 and provided a breakdown of COVID-19 expenditure as well as a breakdown of unauthorised, irregular, fruitless and wasteful expenditure. The implementation of the post audit action plan was highlighted and the consequence management action that the metro took in 2018/2019 and 2019/2020. Institutional capacity relating to key positions was outlined as well as the internal audit committee and MPAC capacity, functionality and effectiveness.

[see presentation attached for further details]

State of Mangaung Metro Municipality: Department of Cooperative Governance (DCoG) briefing

Mr Mokete Duma, Head of Department, Free State Department of Cooperative Governance and Traditional Affairs, said strife has become a norm across the three centers of power in the municipality. The Executive Mayor was recently ousted on a motion of a vote of no confidence. The intervention team is constantly at loggerheads with management, however; a meeting was held in October between the two teams to resolve issues and clarify respective roles and responsibilities. There is a dispute between the metro and Bloem Water which National Treasury (NT) attempted to intervene in, but is still not resolved. The intervention team lacks financial and governance capacity. A proposal has been advanced by the provincial treasury to appoint PSP to assist with the finance component of the recovery plan.

In terms of financial management, the debtors book currently stands at R6 669 336 931. This debt consists of residential debt of R3 518 263 917-00, business debt is R1 730 201 803 and government debt is at R1 420 871 211-00. The lockdown and economic situation has led to a reduction in payments and the effect is expected to last for some time. The Metro currently has a cash flow equivalent of R567 854 000-00, which includes unspent grants of R508 952 000-00.

Mr Duma discussed the progress as at 30 August 2020 – see presentation attached for details

Regarding service delivery, the Metro has been improving on service delivery matters since the team took over. Weekly refuse removal has been maintained, potholes in roads are fixed and cleaning of streets has been stepped up. Service delivery has been affected by recent labour unrests due to issues of overtime for workers. Workers were abusing overtime and when the team dealt with it, the workers reacted by striking. The Metro has reduced the number of leakages to 20% of what they used to be.

In terms of support provided by COGTA, on grants, the Metro only gets disaster relief funding from the Department.  In the current financial year, there has not been any allocation because there was no application from the Metro and the COVID-19 Relief Grant was not allocated to Metros. With other support, the Department participates in the War Room established by National Treasury to monitor progress on the implementation of the S139 (5) intervention. The Department participated in the development of the Financial Recovery Plan. The Municipal Infrastructure Support Agent (MISA) has not seconded technical personnel and/or engineers to the municipality because Metros are supported on an ad hoc basis

Input by the South African Local Government Association (SALGA)

Ms Olly Mlamleli, SALGA NEC Chairperson: Free State, said the role of SALGA is to appreciate and put emphasis on the Auditor-General’s report. Assurance is provided by the Executive, the council and the audit committee. She said municipalities will be supported to improve on the figures highlighted in red in the DCoG presentations especially on MPACs and administration. SALGA is satisfied with how the H.D presented on all the municipalities and said that the main problem is the debt owed by municipalities. SALGA is helping municipalities even when there are disputes between the municipalities and debtors. She said that there is an interest by SALGA in the interventions and the implementation of the financial recovery plan. SALGA is on board to assist municipalities once the updated report has been completed.

Briefing by the Auditor-General South Africa (AGSA) on the Mangaung Metropolitan Municipality 2018/29 audit outcomes    

Mr Sam Zwane, Senior Manager: Auditor-General South Africa, said the metro’s audit outcome improved from a disclaimer in the 2017/18 year to a qualified opinion in the 2018/19 year. The disagreement between the metro and its entity relating to the treatment of Centlec receivables and Centlec intercompany loan resulted in a disclaimer of opinion in the prior year, which was resolved in 2018/19. The basis for qualification was a lack of preventative controls as similar qualification areas recurred from the previous year. During 2018/19 oversight did not fulfil their duties of holding the administration accountable. The city manager failed to exercise his authority to hold senior managers accountable for poor performance.

The municipality received a qualified opinion for 2018/19 in the following areas:

-Payables from exchange transactions – sufficient appropriate audit evidence for accrued leave pay was not available as management could not provide support for the accrued leave due to the status of the accounting records in relation to leave

-Employee benefit obligation – during 2018, the municipality did not value the employee benefit obligation in accordance with financial standards, which also impacted on 2018-19

-Fines, penalties and forfeits – the municipality did not account for all fines revenue due to an inadequate system of internal control for the accurate record keeping of fines by the municipality

- Irregular expenditure – not all instances of irregular expenditure were disclosed in the financial statements.

The usage of consultants for financial reporting did not result in improved quality of financial statements:

- Material misstatements were identified or findings were raised by the auditors on the work performed by the consultant or in areas of the consultants’ responsibilities

-The work of the consultant was not monitored by a staff member who is sufficiently senior and had the relevant skills/ experience to ensure that work is performed and the progress made is effective

-There is no evidence of formal skills transfer

Credible performance reporting: material misstatements were again identified in the annual performance report submitted for auditing. The findings below were included in the audit report:

-The reported achievements in the annual performance report were not consistent with the planned indicators and targets approved in the service delivery and budget implementation plan.

-The measures taken to improve performance against targets did not include the comparison between the previous year’s actual, planned and achieved targets in the annual performance report.

-The system and processes that enable reliable reporting of the achievement against the indicator were not adequately designed, as they could provide information relating to the 2018/19 financial year only.

-Sufficient appropriate audit evidence was not available to clearly define the predetermined source information and method of collection to be used when measuring the actual achievement for certain indicators. This was due to lack of formal standard operating procedures or documented system descriptions.

-Sufficient appropriate audit evidence was not available for the reported achievements of certain indicators.

-The municipality did not have an adequate record keeping system to enable reliable reporting on the achievement of all indicators.

Non-compliance areas:

-Annual financial statements and annual report – material misstatements were identified and corrected during the audit relating to non-current assets, current assets, liabilities, expenditure and disclosure items.

-Expenditure management – creditors not paid within 30 days, expenditure not recognised when it occurred, and reasonable steps not taken to prevent UIFWE.

-Revenue management – an effective system of internal control for fines revenue was not in place

- Procurement and contract management – non-compliance with various supply chain management regulations, the Preferential Procurement Policy Framework as well as the Preferential Procurement Regulations.

-Human resource management – sufficient appropriate audit evidence not available to confirm whether senior managers appointed had previously been dismissed for financial misconduct; appropriate systems and procedures to monitor, measure and evaluate staff performance were not developed and adopted.

- Conditional grants – certain grants were not spent for its intended purposes.

-Consequence management – some irregular as well as fruitless and wasteful expenditure were not investigated.

Grant utilisation findings:

-Unspent conditional grants, namely the urban settlement development grant, the municipal disaster recovery grant and the public transport network grant, were utilised to fund operational activities, which had a negative impact on infrastructure development. As a result of this as well as low repairs and maintenance expenditure, the municipality incurred water distribution losses of R187 million

-Findings on the procurement of goods and services for the projects listed under the Public Transport Infrastructure Grant were reported

Emphasis of matter:

- Material losses of R349 974 014 (2018: R70 380 966) were incurred as a result of a write-off of consumer and other trade debtors

-Material water distribution losses of R186 748 463 (2018: R266 368 991) were incurred. This was mainly due to technical losses, burst water pipes, leakages, faulty meters and unmetered sites

-Consumer and other receivables were impaired by R3 373 376 111 (2018: R2 875 352 522) as a result of uncollectable debt.

Service delivery:

- The municipality is part of the national process driven by the national Department of Transport to develop an integrated transport network in the metropolitan areas. The municipality has developed and approved an operational plan for phase one of the integrated public transport network (IPTN) that covers the period 2016 to 2020. Since commencement of the process, the municipality has spent R435 653 265 on planning and feasibility studies and R43 300 500 for the initial stages of the construction process of the project for phase one, which included construction of certain roads and a bus depot in the current year. The project is being done in phases and is taking significantly longer than expected.

-In 2012/13, the municipality started with the planning and establishment of the airport development (N8) node to establish a new township development area. Since the commencement of this project, the municipality has spent R142 839 754 on the planning and establishment costs. In the previous year and the year under review, there’s been some progress as the land survey was completed and approval for the township establishment has been obtained from the Mangaung Municipal Planning Tribunal. However, this project has been negatively affected as it is taking significantly longer than expected.

Unauthorised expenditure in 2018/29 increased from 2017/18 from R852m to R1 364m

Irregular expenditure in 2018/29 increased from 2017/18 from R95m to R843m. Irregular expenditure totalling R222 million was as a result of non-compliance with supply chain management regulations. Irregular expenditure totaling R276 million was as a result of service provider’s contracts extended without council approval.  Expenditure in contravention of Section 33 of Division of Revenue Amendment (DORA) amounted to R345m. It should be noted that all the irregular expenditure identified by the auditors was not disclosed which resulted in a qualification on the completeness of irregular expenditure.

Fruitless and wasteful expenditure in 2018/29 decreased from 2017/18 from R26m to R9m. Fruitless and wasteful expenditure to the amount of R5.2 million incurred due to interest on late payments. Fruitless and wasteful expenditure to the amount of R3.7 million incurred due to payments made to suppliers where the work was not as per the required standard.

Most common SCM findings:

- Quotations were not always obtained.

-Lack of audit evidence: Contracts were awarded without required declarations on whether the bidders were employed by the state or connected to any person employed by the state.

-Lack of audit evidence: That the bidders tax matters had been declared by the South African Revenue Service to be in order.

- Uncompetitive and unfair procurement processes.

-Bid adjudication committee that was not composed in accordance with SCM regulation

-Some construction contracts were awarded to a contractor that did not qualify for the contract.

- Bid documentation for Local content was inadequate.

-Contract performance and monitoring measures and methods were not sufficient to ensure effective contract management.

Root causes:

Slow or no response to improving key controls and addressing risk areas: management (accounting officer and senior management), the political leadership (executive authorities) and oversight bodies (MPAC) do not respond with the required urgency to our messages about addressing risks and improving internal controls

Inadequate consequences for poor performance and transgressions: If officials who deliberately or negligently ignore their duties and contravene legislation are not held accountable for their actions, such behaviour can be seen as acceptable and tolerated

Vacancies, instabilities and competencies: There had been a level of instability in the finance unit since the resignation of the CFO in 2018. This resulted in the metro relying heavily on an individual that had been appointed on a temporary/fixed-term contract for all matters related to the financial statements. The practice of overreliance on one individual was common in the metro as it is also applied in asset management, revenue management and SCM. The risk of over-reliance was shown when the applicable person in the SCM unit was transferred to another section within the municipality, which resulted in increased instances of material non-compliance with procurement legislation included in the audit report, as well as the magnitude of irregular expenditure. The over-reliance on certain individuals was a high risk for the metro as it disabled the basic principle of segregation of duties. It also hampered the institutionalisation of preventative internal controls, thus not ensuring the sustainability of the institution, in the event that the official resigned or was promoted

The Chairperson allowed the Department of Cooperative Governance extra time to conclude its presentation.

DCoG

Mr Themba Fosi, Acting Director-General, Department of Cooperative Governance, said that the HOD has covered the main points in the presentation. He highlighted that the Mangaung metro has been placed under administration and that an intervention plan that focuses on bringing stability to the management and finances of the metro has been drafted. The plan has three phases which are the rescue phase, stabilisation phase and the sustainability phase. He said that there are concerns on the time taken to initiate the plan because the plan is still in the rescue phase. The plan also focuses on three programmes which include the financial recovery plan, service delivery improvement and governance and administration. He said that the plan is supported by tasked teams and war rooms that meet regularly and report weekly to the administrative team. He said that the financial recovery plan consists of a set of indicators that help track progress and the war rooms help process and monitor the terms of information. The tension that existed between the intervention team and management has been resolved to refocus on the intervention plan.

Discussion

Ms P Xaba-Ntshaba (ANC) welcomed all the presentations. To Mangaung, she said that there is a problem relating to the R28 million increase due to the misalignment of billing between Eskom. She asked how the problem of the billing period of 30 days and 15 days was going to be resolved.

Mr B Hadebe (ANC) welcomed the presentations. To DCoG, he said that clarification on the role of administration was not provided beforehand in the presentation on the imposed Section 139 (a)(c) on the financial recovery plan. On the meeting that was held to clarify roles and responsibilities, a summary of the roles should have been provided as well as the terms of reference for the administration especially since none of the administrators presented on their roles and responsibilities. He requested this summary of the roles and responsibilities. He said that the administrators started in January and asked for the status of what has been achieved so far. Under normal circumstances, four quarterly reports would have been received from the administration and he asked how long the two administrators are expected in office and their plan of action as well the key milestones projections that must be achieved and the status of what has been achieved. He raised concerns that the tension between the intervention team and management was only resolved in October and asked why it took so long for the tension to be resolved. This will assist the Committee in advising other municipalities facing similar challenges. To Mangaung, he said the presentation portrayed that council meets regularly and can execute its constitutional and legislative mandate but the report from the Auditor-General contradicts this statement. The report from the AG states that during 2018/2019, the people responsible for oversight did not fulfil their duties of holding administrations accountable. The City Manager failed to exercise authority to hold senior managers accountable for poor performance and he asked on the action that was taken to address the issue. The AG’s report also reveals that not all irregular expenditure instances were disclosed in the financial statement despite the assistance from external consultations in compiling financial statements.

Ms G Opperman (DA) asked Mangaung on the R135 million that led to the metro being bankrupt and asked whether the situation can be turned around, when and how. On the 333% unspent conditional grants, she said they have been increasing since 2015 and asked whether the grants are being used for unintended purposes, if yes, she asked for more details on the matter. Material water losses amount to R146 million and she asked how much of the R146 million is due to consumption and how much is due to theft and vandalism. On the R339 million that was written off as irrecoverable instead of irregular expenditure, she said that irregular expenditure is defined as per the legislation and that someone is responsible for writing off the amount without complying with the legislation. She asked if there was an MPAC investigation conducted and whether the person responsible was held accountable according to the MFMA Section 32(2)(b). She also asked why unauthorised, fruitless and wasteful expenditure of R3.4 billion was not prevented in the current and previous financial year. There has been an increase of R912 million which is 30% of consumer debt write off and she asked why this is happening when R349 million was written off during the 2018/2019 financial year. She asked why systems were not developed and adopted for Mangaung.

Mr K Ceza (EFF) disagreed with the view from the HOD that certain programmes in the municipalities should be suspended. He said that this is a view that political leaders and administration do not understand and are not in a position to acknowledge that everything has to operate concurrently. The view of the HOD would have been supported if the focus of addressing the challenges in municipalities was the division of revenue because if regularly evaluated, it will ensure that municipalities are allocated the correct fiscus. He noted that Mangaung’s presentation concluded that the water damages to technical and illegal issues are from informal settlements. This reasoning is shocking because the action plan of developing infrastructure in informal settlements is not known and on the housing backlog that has been reported. He asked for an explanation on the issues. He also asked on the progress of the investigation on the overtime register following allegations of corruption and fraud and he asked on the mechanisms in place to prevent corruption and to hold those implicated accountable. The PMFA on the tender process to purchase goods and services should be amended to allow the insourcing of goods and services that are required by municipalities. The owing of R776 million with a surplus of R30 million to municipalities has always been an area of concern as municipalities must be paid so that they can also pay their creditors. A timeframe should be initiated for payments to be made to municipalities. There is a high vacancy rate in the engineering services of 1 094 and social services of 742 which have impacted on the delivery of services. He asked on the status of Mangaung in relation to the vacancies and the measures in place to address the issue. Mangaung was a hotspot for COVID-19 when a church congregation was infected and he asked on the control measures in place during level one of the lockdown to prevent increasing infections and monitoring measures to ensure churches do not increase infections.

Mr H Hoosen (DA) welcomed the presentations and appreciated the information presented. In previous discussions, the lack of interest shown by the Executive Members of DCoG, including the Minister and Deputy Ministers, is disappointing especially when the Mangaung metro is slowly under-performing overtime and the current state of the municipality. The lack of interest has to be addressed especially when promises are made to people during elections and that there are issues that municipalities are trying to address. The important question to ask is how we got to the current situation and politicians not holding people accountable which is why there is no progress. He questioned whether the politicians in charge have genuine interest in furthering the interests of municipalities to ensure services are provided to the people on the ground. A lack of professionalism also exists when presentations are made because there seems to be a lack of preparation. He suggested that a proper oversight visit is conducted to Mangaung because the metro has the potential of being one of the best operational despite the current challenges. The Minister and the Deputy Ministers should also be brought along the oversight visit. The presentation highlighted the stabilisation of Mangaung and timeframes were provided and he asked on the progress compared to the set timeframes. Administrators are often appointed but not held accountable and he requested the administrators’ inputs on the progress that has been made on the situation in Mangaung. He expressed concern over the financial crisis in the Mangaung municipality especially when the Auditor-General identified that supply chain management processes are questionable. He asked for further details on the net loss from R42 million to R145 million in one financial year and asked how the loss happened. He also asked Mangaung on the latest report in relation to the councilors who owe the municipality money, who are they and how many are there. The Committee has become aware that when it comes to COVID-19 expenditure reports, municipalities report high expenditure. This raises a red flag because every little detail is not identified. He asked for a detailed report on how the COVID-19 funds were spent.

Ms D Direko (ANC) asked on the political state of the Mangaung municipality and the progress of the process of appointing the Executive Mayor. She also asked if there is an element of accountability in the municipality especially if senior managers sign the performance agreement. If there is failure to perform by these senior managers, she asked if action is taken against the senior managers. At the 24 December 2019 council meeting, she said that a resolution was taken to for the Speaker to investigate the non-implementation of MPAC resolutions highlighted in the oversight report of 2016/2017 - she asked for the Speaker to brief the Committee on the investigation. She also asked if action is taken against the irregular, fruitless and wasteful expenditure, if so, how many cases have been opened against those that have been implicated and asked if there are disputes between the metro and Bloem Water, if there are, she asked on the type of dispute and whether it has been resolved.

Mr Hadebe highlighted that the Auditor-General’s report relating to areas of qualification stated that not all instances of irregular expenditure were disclosed, meaning that those that were disclosed were because of the Auditor-General. He expressed concern because the Mangaung presentation portrays the internal audit committee and MPACs as fully functional but irregular expenditure of R22 million relating to non-compliance of the supply chain management policy was observed by the Auditor-General and not the internal audit structures. On the contravention of section 33 of the Division of Revenue Act of 2013 which amounted to R345 million, he said that fruitless and wasteful expenditure means there is no value for money especially for the R3.7 million that was to a supplier that provided substandard work. He asked for an honest reflection of whether the internal committees are performing their duties and if they are, how it was possible that the irregularities were only discovered by the Auditor-General and not the Committee. On the Auditor-General’s report on what has been done, the report was forwarded to the MPAC by council and some matters related to the financial misconduct and the disciplinary board. Th report was forwarded but there is no mention of the number of officials involved and the positions they occupy as well as the nature of the offences. A detailed report must be provided on how the municipality is dealing with the implicated officials. There is a municipality in financial crisis, but the various grants were not spent 100% and for their intended purposes. He asked what led to the grants not being spent and requested a clear detailed report. He noted that the Auditor-General’s report stated that the unspent grants led to a water distribution loss of R187 million and an operational plan to integrate public transport network was supposed to run from 2016 to 2020 and that the Auditor-General’s states that that to date only R435 million was spent on planning and R43 million on construction phase. In 2020, the money spent on planning exceeds what was spent on construction and he asked on the money allocated for construction in the operational plan, when construction was expected to be completed, whether a revised date has been set for construction and the impact of the extension. On the project that started in the 2012/2013 financial year of the establishment of the airport development to establish a new township, to date the municipality spent R142 million on planning even though the progress of the project has been negatively impacted and asked on the expected completion date, whether the completion has been revised, the reasons for the delay, the total project costs. To the DCoG HOD, there has been a portrayal of the disclaimer audit opinions and he asked why administration was ended in the municipalities because the Auditor-General highlighted the administration did not produce the intended results - R4.5 million is owed to Eskom by the municipalities and municipal workers are paid without working because there are not tools. He asked for a summary on the political situation at the Maluti-a-Phofung Local Municipality.

Mr G Mpumza (ANC) said to Mangaung that there are some areas within the jurisdiction of the metro and during the transition period, a transformation task team was initiated and was responsible for working out pre-amalgamation and transfers of assets to Mangaung. He asked why the assets for electricity supply remained in Eskom’s control and not Mangaung. The Executive Mayor and HOD indicated that Mangaung was financially viable before the amalgamation and currently the fiscal decline is linked to the amalgamation. Besides the external factors that resulted in the fiscal decline, there were internal factors that contributed to the decline. The report shows that the municipality was financially viable but overtime there have been issues of accountability and transparency on financial management. He asked why the accounting officers and administrators were not held accountable for financial management. To the DCoG, he said that municipalities in South Africa are legislated to generate Section 71 reports monthly including Mangaung. The data in the reports has to be evaluated during assessments and he asked what the provincial and national departments as well as National Treasury have been doing in assessing the reports on the financial status of Mangaung before the financial crisis happened. Another contributing factor is the role of governance and oversight especially since some assurance was identified by the Mayor. Full assurance must be provided from Mangaung to ensure that admin is accounting. The MFMA makes provision for adequate financial accounting systems but the report reveals that a manual system is being used and he asked why this system is used. He also asked why the situation on the job cuts without quotation was allowed and when a report of municipal assets abuse was made. He said that the leadership in governance must be reviewed to avoid similar issues from repeating themselves.    

Response

Free State DCoG

On the role of the provincial department in financial management, Mr Duma said that the metro is a non-delegated municipality and that it reports directly to National Treasury but this does not excuse the Department from not supporting the municipality. A team was appointed to investigate irregularities in the municipality and the Hawks are also investigating the matter. Issues of budget presentations are being addressed and there are close working relations between the Department, provincial treasury and the Mangaung municipality. The Department is part of the war rooms and the audit steering committee as part of intervention strategies. The dispute between the municipality and Bloem Water has also been resolved as part of the interventions to the municipality. On the R28 million bill to Eskom, he said that Eskom used to charge interest after the 15th day which is inconsistent with the provision in the PMFA while the municipality is governed by the MFMA. Payments need to be made within 30 days, but Eskom expects payments within 15 days and interest is charged after the 15th day if payments are not received, which is contrary to the PMFA. Metros also face the same situation with the Eskom billing and charging of interest. Mangaung is a rural municipality which is why the amalgamations resulted in a worsened financial crisis because the municipality adopted more liabilities and reduced revenue. Mangaung cannot be compared to other industry situated municipalities such as Buffalo City and the City of Johannesburg. The Department of Water and Sanitation must get involved because the quality of water has not been up to standard in terms of the Green Drop. Water from the municipality is not being paid for by residents which is why the municipality has not made revenue. The selling of still water has to be regulated and the Committee must assist in elevating the issue to higher authorities.

The Chairperson requested the input from National Treasury to discuss the issue of non-delegated municipalities because they seem to have the most problems.

Treasury

Ms Cethekile Moshane said that National Treasury supports the current provincial intervention at Mangaung, and that support is provided to the municipality. Monthly war rooms are held to discuss issues and guidance is provided to the municipality on the issues. From the intervention, National Treasury is aware of progress and the challenges at Mangaung. One of the major challenges is the lack of capacity with the intervention team because the team is not complete. The issue has been communicated with the Premier to assist the municipality.

Ms Bernadette Leon, Strategic Support Manager, National Treasury, said that since 2018, Treasury has developed a financial recovery plan with the municipality and the implementation process has been monitored. The province was supposed to be alerted on the failure of the implementation of the plan which would result in the initiation of the Section 139 interventions. A mandatory finance recovery plan was requested and has been received from the provincial executive committee.

DCoG (National)

Mr Fosi said that the initial financial recovery plan was supported together with National Treasury to address the challenges although some are beyond administration. On the lessons learnt, the approach to the interventions in Mangaung is a good example of implementation and that the interventions were a joint effort by both DCoG provincial and national departments. The structures that have been established ensure that the work of administrators is supported and that it has not been an easy task. There were many of misunderstandings on the role of administrators and administration. Progress has been made in the municipality on the focus areas of the recovery plan.  

SALGA

Ms Mlamleli said that the Committee has to assist SALGA in ensuring that municipalities are paid by water boards and other entities because there is not enough awareness raised on the matter. SALGA has always raised concerns on the formula of the equitable share especially now when there is an increased unemployment rate. Eskom overlooks the Intergovernmental Relation processes at the Maluti-a-Phofung Local Municipality and SALGA has compiled energy proposals from the Energy Summit that was held on the issue of Eskom. The use of prepaid meters needs to be increased to help increase revenue for municipalities and the relationship between the municipality and various entities is not stable but it has contributed to the improvement of the audit report. She admitted that the report presented by Mangaung does not align with the Auditor-General’s report and she confirmed that performance agreements have been signed. SALGA deploys teams to assist municipalities.  

The Chairperson requested that the responses from Mangaung are submitted in writing on the issues that have been raised by Members.

Meeting Adjourned.