Municipalities (II): Assessing mechanisms of municipal oversight
18 July 2019
Municipal councils have considerable powers. As both the legislative and executive authority within a municipality, a council is responsible for ensuring laws and policies are formulated and effectively implemented in a manner that ensures the delivery of basic services to its community. National legislation has regulated a separation between legislative and executive power and functions to an extent, which allows for checks and balances within local government. As legislative authorities, municipal councils must ensure executive functions are performed lawfully and wisely. In addition, the council is tasked with holding the administration and municipal manager – as the municipality’s accounting officer and head of administration – accountable for the financial management of the municipality and its service delivery performance.1
To assist the council, oversight functions are funnelled through two important committees within municipal structures before reaching the council, which exercises the ultimate oversight role.2 On the one hand, municipal public accounts committees (“MPACs”) perform an internal oversight role while municipal audit committees, on the other hand, are structured more independently to perform a fairly external oversight role. Though both institutional arrangements have existed for quite some time, reports of municipal maladministration and corruption are rife and on the rise.3 The Auditor-General’s latest report on local government has highlighted its dismal performance and lack of accountability.4 All this begs the question: is municipal oversight flawed? This brief explores whether or not the two oversight committees are sufficiently empowered to perform their functions effectively; and what should be done to enhance their functioning.
MUNICIPAL AUDIT COMMITTEES
Every municipality must have an audit committee that serves as an independent advisory body to the council on financial accountability and oversight.5 The committee performs five important functions:
1. Advising the council, the executive authority and the municipality’s management staff on internal financial controls and internal audits, risk and performance management, accounting policies, the adequacy, reliability and accuracy of financial reporting information, legislative compliance and performance management.
2. Reviewing the municipality’s annual financial statements to provide the council with an authoritative and credible view of the municipality’s financial position, its efficiency and effectiveness and its overall level of compliance.
3. Responding to the council on any issues raised by the Auditor-General.
4. Investigating the financial affairs of the municipality when requested by the council.
5. Performing any other functions that may be prescribed.
Its structural independence is statutorily protected, at least in part, by ensuring that (i) the majority of its committee members and the chairperson are external appointments, not employed by the municipality in any capacity; (ii) at least three members have the appropriate experience; and (iii) no councillor occupies a seat as a member of the committee.6
Still, deficiencies exist. First, while the committee is composed largely of external members, it is not entirely clear what constitutes the “appropriate experience” required to qualify for selection. This ambiguity leaves it to the discretion of council to determine the level of expertise necessary for appointment to the audit committee. While National Treasury has published guidelines to assist municipal councils, councils may choose to disregard them.7 The relationship between the committee’s capacity and its performance cannot be overemphasised. Building a strong, independent body to oversee executive and administrative action is key to enhancing the municipal council’s ability to take appropriate action against poor governance and maladministration. Clearly defining the experience required to become a member of the audit committee will surely help.
The second major concern is operational. The committee’s ability to accurately evaluate performance is reliant on the information given to it by the municipality’s administration. Information on how the municipality has implemented its audit plan – including internal controls, risk management, loss control and legislative compliance – is reported to the committee through its internal audit unit. These units often lack resources, capacity and expertise to provide reliable and quality reporting to the audit committee. Where this is the case, the important advisory role of the committee, as the sole independent voice within municipal structures in the reporting process to council, is significantly diluted. But perhaps even more concerning is the lack of any powers enabling the audit committee to require information from municipal structures. Despite the fact that these structures are expected to produce needed information voluntarily, audit committees struggle to obtain it. This may be, in part, because of the lack of consequence management within municipalities.
While the audit committee performs an important function in monitoring, reviewing and investigating administrative and executive performance, its role is limited to an advisory one. The committee is well placed, as a significantly more independent voice, to ensure effective oversight by the municipal council, but it has no enforcement powers. It remains up to the council to decide how it will respond to maladministration, corruption and the mismanagement of public funds.
MUNICIPAL PUBLIC ACCOUNTS COMMITTEES
MPACs are traditionally borne from what is known simply as “section 79 committees”, established in an effort to assist the municipal councils in performing their functions more effectively and efficiently.8 Legislation outlines key features of a section 79 committee that impacts its functioning:
- Members of the committee, along with a chairperson, are appointed by the council from amongst its councillors;
- Members may be removed by the council at any time;
- The committee’s functions are determined by the council;
- The council delegates to it duties and powers in terms of section 59 of the Systems Act;
- External advisors, who are not councillors, may be brought in to assist the committee where its members lack the technical knowledge and capacity necessary to perform its functions;
- The council may determine the committee’s procedures; and
- The committee may be dissolved by the council at any time.
Additionally, the Constitution states that all committees of the council must be constituted in a manner that fairly represents the parties and interests reflected in the council itself. 9 As MPACs are established by municipal councils, their composition should be reflective of this constitutional imperative.
MPACs perform functions similar to those carried out by the Standing Committees on Public Accounts, or SCOPA, found at national and provincial levels. They serve as internal oversight committees, not much different from audit committees although structurally less independent, designed to review the municipality’s financial statements, audit reports, performance reports and annual reports and report to the council with recommendations. Some MPACs are also mandated by councils to initiate and develop oversight reports on the municipality’s performance claims in its annual report. An MPAC may also be required to investigate matters referred to it by the council that affect the municipality. But these two functions are discretionary, not peremptory.
While national government and the South African Local Government Association (“SALGA”) have issued guidelines for the establishment and functioning of MPACs, no further constitutional or statutory provisions currently regulate MPACs other than those applicable to section 79 committees. This means that the council appoints members to the MPAC from amongst its councillors, and while National Treasury and SALGA advise against the appointment of any executive councillors or municipal office bearers to avoid obvious conflicting interests, appointment remains at the discretion of council. The council is also able to dismiss MPAC members or dissolve the MPAC at any time. Therefore, councils have significant discretionary power to influence the structural integrity of their MPAC. Councils also have significant discretion in determining the operational dynamics within their MPACs. This is rarely a problem in the metros and larger municipalities, but poses great threats to smaller municipalities where political tensions play out within confined spaces and are often more concentrated. Dubious political or individual interest is harder to quell, especially when the opposition is small.
Some MPACs comprise solely of councillors with little or no expertise in the role of scrutinising financial reports. While councils are empowered to authorise MPACs to co-opt external members with the necessary expertise to assist, this is often not a viable option for smaller municipalities with constrained budgets.
ARE THESE COMMITTEES SUFFICIENTLY EMPOWERED?
Municipal councils rely heavily on their audit committees and MPACs for reliable and credible information, insight and advice. When these committees are inadequately empowered, lack of financial control filters to the council and compromises its oversight function. There is considerable room left to strengthen the structure and operations within these committees to ensure municipal oversight is improved.
Making the establishment of MPACs mandatory. A proposed amendment to the Structures Act will make the establishment of MPACs mandatory for all municipal councils.10 Mandatory functions are also proposed, aligned to those already suggested in Treasury guidelines, which councils may supplement with additional functions. MPACs established under this provision, once enacted, are prohibited from including executive councillors, the speaker or whip, or any municipal official as members. In a world where all councillors truly represent the interests of their electorate, without vested interest, this is a step in the right direction. But MPACs can still be dissolved by the council and any member dismissed at any time.
Strengthening access to information. Neither MPACs nor audit committees have any subpoena or similar evidence bearing powers. As a result, requests for information by these committees may go unanswered, with little recourse. This severely affects their ability to accurately report to the council on financial and institutional performance, in turn hindering the council’s ability to adequately perform its oversight function. It is not suggested that MPACs now be bestowed powers to subpoena, but providing for binding procedures to access information, and redress for failure to provide it, will strengthen their performance and yield more credible results.
Enforcing accountability. Recognising the relationship between effectively performing oversight and the quality of the instruments produced by municipal administrators to account for their actions, it is important to enforce consequences for non-compliance with the deadlines and standards for accountability measures. The Municipal Systems Act and the Municipal Finance Management Act provide the avenues to enforce consequences but, as the Auditor-General has lamented, little action is taken for non-performance and non-compliance.11
Clearly define and build capacity. Although municipal audit committees comprise external members with “appropriate experience”, legislatively defining the experience needed in concrete terms will ensure the committee’s capacity to effectively perform its function is notably strengthened. As it stands, “appropriate experience” is too vague. While MPACs consist only of councillors, councils that do not have the resources to co-opt external expertise, particularly at the local municipality level, may consider a shared services MPAC model at district level.12 While this has the potential to strengthen oversight as committee members may possibly be more objective, MPACs may become over-burdened. Therefore, the process must be tightly managed between participating local municipalities and roles must be clearly defined. Aligned with their constitutional duty to support and strengthen municipalities,13 provincial and national governments may and should provide training to strengthen the knowledge and capacity of these committees to effectively perform their functions.
Minimise duplication of labour. MPACs and audit committees perform near identical roles. With limited resources and capacity constraints, particularly in smaller municipalities, councils must ensure that work is not duplicated by clearly defining their respective roles and functions in the terms of reference that are set. Clear mandates for both committees will yield better outcomes.
By Michelle Toxopeüs, Legal Researcher, HSF, 18 July 2019
In terms of the Local Government: Municipal Systems Act 32 of 2000, municipal managers, as head of administration, are responsible for managing the provision of services in a sustainable and equitable manner and the formation and development of an economical, effective, efficient and accountable administration. As the accounting officer, the municipal manager is also responsible and accountable for all the municipality’s income and expenditure. The council is only able to effectively perform its oversight function if complete and credible financial statements and performance reports are submitted to it by the municipality’s administration.
Other structures exist that perform important oversight functions and inform the municipal council, including internal audit units and section 79 oversight and governance committees, which are not discussed in this brief, as information from these committees is eventually channelled to MPACs and municipal audit committees.
Municipal audit committees have been established since the enactment of the Municipal Finance Management Act in 2003. MPACs have been established from around 2011, in line with Treasury guidelines published in that year. Despite this, allegations of maladministration and corruption persist. See, for example, https://www.dailymaverick.co.za/article/2018-05-24-overspending-underperforming-threats-welcome-to-failed-local-government-rsa-2018/.
Only 8% of municipalities in the country received a clean audit, while 92% of municipalities were reported to disregarded compliance with key legislation. See AGSA, 2019, MFMA 2017/2018 Local Government Audit Outcomes Report, accessed at https://www.agsa.co.za/Reporting/MFMAReports/2017-2018MFMA.aspx.
Section 166 of the Municipal Finance Management Act, 56 of 2003 (MFMA).
Section 166(4)(a) read with section 166(5) of the MFMA.
National Treasury, MFMA Circular No 65, 2012.
Section 79 of the Local Government: Municipal Structures Act 117 of 1998.
Section 160(8) of the Constitution.
Local Government: Municipal Structures Amendment Bill [B19B 2018] accessed at http://pmg-assets.s3-website-eu-west-1.amazonaws.com/190220B19B-2018.pdf.
Above note 4.
SALGA, Municipal Public Accounts Committees (MPAC) Guide and Toolkit, accessed at http://www.salga.org.za/event/mmf/Documents/Guide%20and%20Toolkit%20for%20Municipal%20Public%20Accounts%20Committees.pdf.
Section 154(1) of the Constitution.