COSTING THE EASTERN CAPE: Patronage, corruption, incompetence and a lack of will to right things

BY FEATURE - JULY 23, 2014

Nearing conclusion, government’s Operation Clean Audit 2014, launched back in 2009, is woefully off target in the Eastern Cape. None of the province’s 45 municipalities have so far managed to achieve the grand prize in municipal management, a Clean Audit.

Businesses in the Eastern Cape are all too aware of how badly many municipalities are managed and for those that are brave enough to tender, they know the difficulties involved in overcoming poor supply chain management and the cash-flow problems associated with late payments.

It is true that the Eastern Cape is endowed with natural splendour, beautiful peoples, resources and vast potential as a prime global investment destination shown by the relative successes of the East London and Coega industrial development zones. However, these positives are all offset because so many incompetent, greedy and corrupt people run its affairs. 

Auditor-General Report – billions wasted by unqualified and incompetent officials

In his general report for the Eastern Cape, issued in July 2013, for the 2011/12 cycle, former Auditor-General, Terence Nombembe, summed it all. He said; “It is clear that very few of the key role players in local government in the Eastern Cape live up to their responsibilities and they add very little in terms of assurance on, or credibility of, what is being done at municipal level.”

The report noted that vacancies in key positions or key officials lacking appropriate competencies and the lack of consequences for poor performance and transgressions were prevalent at over 70% of the municipalities that were audited.

Of the 45 municipalities, only 21 had qualified Municipal Managers and just 15 had qualified Chief Financial Officers (CFO’s). ‘Qualified’ here means individuals meeting the lowest competence levels set by Finance Minister, Pravin Gordhan, in 2007 – and officials were given until January 2013 to comply.

Municipal Managers are supposed to have a relevant Bachelor’s degree, a certificate in municipal finance management and five years’ experience at senior management level. CFO’s and directors in metros and large municipalities should have an Honours degree, a Postgraduate certificate or registration as a Chartered Accountant and seven years’ senior management experience while those in smaller municipalities should have a relevant Bachelor’s degree and a certificate in municipal finance.

Incompetence or corruption on the part of managers and officials cost the Eastern Cape R3 billion in 2011/12 – an increase from R2 billion in the 2010/11 period. More than R671 million in tenders could not be audited for 2011/12 due to missing documentation. The AG also found that councillors, municipal officials, their families and other civil servants received more than R117 million in municipal tenders that year.

In terms of fruitless and wasteful expenditure, over 84% of the audited municipalities were found guilty. The number of municipalities guilty of unauthorised spending nearly tripled from the 2010/2011 audit.

The province also had the highest number of municipalities (19) with adverse opinions and disclaimers plus findings – the worst possible audit outcome. All this was despite 80% of the audited municipalities having been assisted by financial consultants at a cost of R63 million.

In November last year, Eastern Cape MEC for Finance, Phumulo Masualle, revealed that municipalities owed creditors – who include the Auditor-General’s office, Eskom, Telkom and small privately-owned businesses more than R811 million. More than 25% of this amount was owed for more than 30 days, against Treasury regulations. 

Not many sweeping improvements are expected in the yet-to-be-released municipal audit reports for the 2012/2013 cycle and it seems unlikely that the province will meet the 2014 Clean Audit deadline.

Deliberate and negligent flouting of laws and regulations

Previously, Auditor-General Nombembe explained poor audit outcomes as a lack of capacity, however, in the last audit he pointed out “political leaders and municipal officials that deliberately or negligently ignore their duties and disobey legislation…”

It is not only disobedience that is worrying, quite a number of officials have also been caught with their hands in the till. Yet some have either remained in their jobs or are suspended with full benefits awaiting investigations; others have resigned or were sacked from one position only to re-appear in another municipality or another organisation – effectively recycling the rot.

A prime example of this occurred at the Ikwezi Local Municipality where the former acting Municipal Manager at Oudtshoorn Municipality, Thembani Gutas, took over from Thandekile Mnyimba. During Mnyimba’s tenure at Ikwezi, from 2007 to 2011, the municipality only achieved either Disclaimers or Qualified Audit Opinions.

Choosing Gutas as a replacement was no improvement. He had been suspended from the Oudtshoorn Municipality in 2009 before eventually being sacked. It came as no surprise that on 28 February 2014, Gutas was again placed on suspension while the Ikwezi Municipality investigates allegations of fraud levelled against him.

Business suffers; entrepreneurs stifled

The consequence of this municipal nightmare is that the very businesses that pay taxes to fund these municipalities are suffering.

“The most frustrating part is every municipality or metro has a vision and a mission statement. None of them deliver on that!” said Les Holbrook, Executive Director at Border-Kei Chamber of Business.

“Every investor monitors this very closely. It is extremely damaging – yet local government appear to be unconcerned.

“For a long time, I have said that everyone knows what needs to be done. It’s getting it done that counts. Unfortunately government is pivotal to this and frankly, at the moment, they have neither the will nor the ability to respond.”

A Port Elizabeth-based entrepreneur, Ayanda Mredlana, said youth businesses were also finding it hard to survive without political patronage.

“The corporate world has been politicised to an extent that if you are not affiliated to a certain political party, your bids are not considered or you are just side-lined – it’s happening before our eyes.

“As long as government or those in authority cannot show the will to right what is wrong in the municipalities, we are not going anywhere.”

Canaan Kangausaru, who runs an FET college in PE, concurred.

“Corruption, mismanagement of public funds and the so-called political deployments are hurting us,” he said.

“Public office has become an easy route to riches for a few who happen to find themselves on the gravy train while citizens are denied better living and opportunities that they are entitled to. Maladministration is everywhere and the transgressors often go unpunished or are rewarded with posts in other organisations – only in a kleptocracy should we see these things. It does not paint a good picture to potential investors at all.”

Athol Trollip, Democratic Alliance (DA) Leader in the Eastern Cape, said poor governance and patronage for wrongdoers has dented the province.

“It is just an environment where poor service delivery prevails,” he described.

According to him, fewer and fewer businesses were doing business with municipalities because of favouritism and questionable tender allocations.

“[Private business] just ply their trades elsewhere because doing business with local government is such a nightmare – you don’t get paid on time or you are not paid at all and the officials are just corrupt,” said Trollip.

“There is a smaller and smaller pool of businesses that municipalities will do business with and they are all questionable as well as their capacity to deliver on the services – it’s a vicious circle.”

Municipal salaries competitive 

“Poor management at municipal level has nothing to do with a shortage of skills or competent people in the province. It’s not like municipalities can’t attract the right people or their salaries are not competitive or there are not enough qualified people, the problem is the ANC has a policy of cadre deployments which undermines service delivery,” described Trollip.

In April this year, to ensure municipal salaries were competitive with the private sector, the Minister of Cooperative Governance and Traditional Affairs, Lechesa Tsenoli, approved guidelines for some municipal managers in the country’s metropolitan municipalities to earn up to R740 000 more than President Jacob Zuma – if they get the regulated 20% premium allowance on a R2.8 million salary package.

Consequently, even the unqualified municipal managers, depending on the size of the municipality, will now earn an annual salary of between R576 000 (for the smallest municipalities) and just below R2.8 million (metros).

Tsenoli also approved regulations that compel competency tests for all new appointments to address widespread nepotism in senior appointments in municipalities. Nonetheless, the measures will apply only to new appointments, meaning unqualified and overpaid officials already in their posts will be allowed to complete their contracts. The new salary caps and skills regulations come into effect on July 1 and can only be put aside in exceptional circumstances.

Qualifications made clear by National Government

National Government is doing what it can to ensure that the right people are employed in the municipalities. They have passed laws and approved guidelines that will see people with the right skills employed at highly competitive salaries.

The Municipal Finance Management Act states the minimum competencies that municipal staffs are required to have. The deadline for municipalities to reach these competencies was January 2013 and needless to say most municipalities in the Eastern Cape did not come close to achieving this objective.

Had Godhan kept to his minimum competency levels deadline, many municipalities would have been thrown into recruitment chaos. In April this year, he allowed an extension of 18 months (or until September 2015). In the meantime, unqualified municipal officials will be among those handling more than R40 billion in taxpayers monies which Treasury allocated to municipalities this financial year.

Despite National Governments efforts, most of the municipalities in the Eastern Cape continue to undermine the progress of this province through mismanagement and incompetence. Cadre deployment, improper screening and complete disregard for laws and regulations continue. The Nelson Mandela Bay Metropolitan Municipality is a perfect case study with Municipal Managers being replaced because they were not towing the political line – not because they weren’t doing their job properly.

Vuna Awards – good or bad?

The Vuna Awards are the initiative of the Department of Provincial and Local Government (DPLG), together with the South African Local Government Association (SALGA), Development Bank of Southern Africa (DBSA) and the National Productivity Institute (NPI). These awards are aimed at “Celebrating Excellence in Government”. This is all good and well but when looking at the awards for 2014 it is interesting to note that despite irregular and unauthorised expenditure increasing by R1 billion and R2 billion respectively, the award prize money has also increased by 60%.

Many of the awards were issued to municipalities that achieved the ‘best’ or the ‘highest’ but did not in fact achieve the targets set by AGSA. As mentioned already, not a single municipality from the Eastern Cape achieved a Clean Audit.  

Not all doom and gloom

Although there are many problems in municipal management in the province, there are a few municipalities that are, for the most part, very well run. The Cacadu District Municipality consistently receives Unqualified Audit reports and its Executive Mayor, Eunice Kekana; Director of Finance and Corporate Services, Dannie de Lange and Municipal Manager, Ted Pillay, are known to be dynamic, careful of their communities and are business-friendly. 

At this year’s Vuna Awards, five municipalities were recognised for maintaining unqualified audits for three consecutive years; one for five consecutive years and one for six. The Cacadu District Municipality received its seventh consecutive Unqualified Audit Opinion while Executive Mayor Kekana received the ‘Eastern Cape Mayor of the Year’ award twice in a row – both unprecedented feats in the province.

Senqu Local Municipality, maintained an unqualified audit for five consecutive years and walked away with the most (five) awards that were given at the event. In total, 13 municipalities out of the 45 received some form of recognition at the awards showing that where there is a will and the right people in positions, it is possible to turnaround the fortunes of the province.    

By the time you read this article, the 2014 national elections will have been and gone. Will a new administration make any real difference and will there be a reverse of fortunes of some municipalities or will the ineptitude continue? 

Efforts to get comment for this article from the office of the Eastern Cape MEC for Local Government and Traditional Affairs, Mlibo Qoboshiyane; the South African Local Government Association (SALGA); Eastern Cape Chairperson, Nomakhosazana Meth, and the Institute of Municipal Finance Officers (IMFO) Eastern Cape Chairperson and Cacadu District Municipality Director of Finance and Corporate Services, Dannie de Lange, before going to print, proved fruitless.

 


Foot notes:

The Office of the Auditor-General of South Africa (AGSA), who monitors the state of local government entities, has a different scope to the private sector. The AGSA identifies the performance of government entities as follows:

1. Clean Audit Outcome

 If the following three items are as the AGSA wants them, then the government entity receives a Clean Audit Outcome:

  • Auditing of financial statements,
  • Reporting of performance against predetermined objectives
  • Compliance with laws and regulations..

Thus, a municipality may have an unqualified audit but, if its performance is not up to scratch and it does not comply with laws and regulations then it will not receive a “Clean Audit”.

 2. Financially Unqualified Audit Opinion means the financial statements contain no material misstatements. However, the AG has raised issues on either reporting on predetermined objectives or non-compliance with legislation, or both these aspects.

3. Qualified Audit Opinion means the financial statements contain material misstatements in specific amounts, or there is insufficient evidence for the AG to conclude that specific amounts included in the financial statements are not materially misstated.

4. Adverse Audit Opinion means the financial statements contain material misstatements that are not confined to specific amounts, or the misstatements represent a substantial portion of the financial statements.

5. Disclaimer of Audit Opinion is the worst possible audit outcome. It means the auditee provided insufficient evidence in the form of documentation on which to base an audit opinion. The lack of sufficient evidence is not confined to specific amounts, or represents a substantial portion of the information contained in the financial statements.