REPORT ON FAILURES OF GOVERNANCE WITHIN BITOU MUNICIPALITY SUBMITTED TO MEC BREDELL BY THE PLETTENBERG BAY RATEPAYERS’ AND RESIDENTS’ ASSOCIATION
14 February 2020 Executive Summary
The Plettenberg Bay Ratepayers and Residents Association operates as an independent entity within the Bitou Municipality. It endeavours proactively to promote the welfare of ratepayers and residents irrespective of race creed or political affiliation. It operates both proactively, by supporting community in initiatives, and reactively by exercising a role overseeing and combatting maladministration and corruption in the ranks of municipal representative.
In 2019 a forensic report, commissioned by the Province, was submitted to the MEC for action. Its findings are recommendations are important as far as they go, but the downhill slide detected by the auditors has gathered speed since then.
This report brings the analysis and evaluation up to date and uncovers much malfeasance besides. It shows levels of corruption and maladministration and sets them within the context of an environment in which costs are soaring and revenues are stagnant. It concludes that intervention is urgently needed if the municipality is to escape the collapse of many of its counterparts. The report has been sent to MEC Bredell. He is invited to send another team into the municipality to discover whether the allegations made in this report are well-founded. Without an engagement of this sort, the culprits, who range from the top down, will continue to abuse their positions and milk the ratepayers for what they can get.
In common with many corporate entities, Bitou Municipality has a mission statement that commits it to a series of lofty goals. In the statement we are told that the ‘political office bearers’ (ie Councillors) and staff of Bitou commit to: ‘effecting participative and accountable development [of] local government and governance’; ‘facilitating sustainable people-centred development [and] providing effective basic services’; and ‘adhering to the Batho Pele [ie ‘People First’] principles for its community.’ It undertakes to achieve these goals by securing an ‘active and engaged citizenry’; building ‘a capable and corruption-free administration’; and ‘managing expenditure prudently’.
By its own account, the Municipality sees no reason why these goals and objectives should be beyond reach. In matters of this sort, some exaggeration is only to be expected, but even so, the Municipality must believe it has a basis for characterizing Plettenberg Bay as –
‘a modern town that is comparable with Monaco, an exquisite emerald on shores of the azure-blue Indian Ocean [that] basks between enchanting old villages that celebrates with passion, culture, spectacular nature offers, delicious cuisine, restoration of mind and body, high adrenaline activities and land and water sports.’
Discounting the hyperbole in this description, it is fair to say that, compared with other municipalities, Plettenberg Bay has every reason to flourish. It is the premier holiday resort in the country, a retirement haven, and a mecca for indigent workers who are drawn to it, sometimes vainly, in quest of work, housing and a decent life. Singularly, the town has a revenue stream that is high and claims on its expenditure that are relatively low – a segment of its population is affluent and, because vacationers come and go, the demands on its facilities are relatively low. As a result, it can readily fund the provision and maintenance of basic services provided it is properly run.
Properly run, however, it is not. Its coffers, which should be full to overflowing, act as a magnet for opportunists who seek to loot them and, as a result, governance in the area is characterized by self-seeking, corruption, nepotism and greed. The community believes salaries are being padded, houses being misallocated, tenders being twisted, grants being misdirected, back-handers being demanded, and allowances being abused. A consideration of the Municipality’s achievements is guaranteed to heighten levels of adrenaline rather than produce the promised restoration of mind and body.
Judging by the information we have garnered; these rumours have a solid foundation. In this memorandum, we explain why we reach this conclusion and recommend steps that might be taken to combat the problem. Resolving the problem entirely is, we recognize, an idle dream – opportunism and corruption are a hazard in every institution – but it can be minimized by the proper implementation of existing controls, excellent in theory, that at best are ignored and at worst are shamelessly flouted. The current situation, in which corruption is permitted to flourish in an environment of maladministration, cannot be permitted to continue.
The object of this report is to inform the Minister of Executive Council (MEC) responsible for local government in the Western Cape of the problems that confront the Bitou Municipality. The underlying belief is that the MEC, MR Bredell, will intervene if he is satisfied there is a basis for acting. The report is written, however, not in officialese, but in a way that makes it accessible to lay people in all sectors within the constituency. The hope is that, once informed, they will respond with inputs that help to promote the investigation in a comprehensive and constructive way.
The revenue of the Municipality is derived from rates and taxes and the proceeds of retailing water and electricity. (To be comprehensive, we should add grants from the Province to the figure, but they fall beyond the direct managerial competence of the Municipality and are typically earmarked for special projects such as housing development. They are, as a result, only marginally relevant in the present context.)
The amount that should be collected is a factor of the tariffs that are set, the number of people who are levied, and the extent to which the fee-earning services are utilized. The levies typically increase from year to year to keep pace with inflation and the aim, according to Treasury, is to make sure that revenue covers costs. But, as every enterprise knows, budgeting for revenue is one thing, collecting it quite another.
Bitou’s history of revenue collection is spiralling out of control. In the mid-term Budget Assessment, the Municipality records that ‘total debtors outstanding amount to R269, 045, 000 which represents an increase of R70m from the previous year’s debtors of R198 470,434.’ The increase, it should be noted, is measured over six months – there is still half a year to go – and the debt represents around a third of the annual revenue figure of slightly less than R800 million.
Householders’ debt comprises 96% of the total. In effect, rates, taxes and service charges are not being collected from most of Bitou’s swelling population. Not all the outstanding debts will be written off. Far from it. But in the last financial year seventy million rand has been written off as bad debt where in previous years the figures were successively eight, six, and thirty-one million rand. A debt collection agency, whose annual charges have trebled and now stand at nearly half a million rand, is retained to recover the outstanding amounts, but if the figures are indicative, its efforts are proving futile. The Municipality itself, noting that debt collection is ‘poor’ and that credit control measures are ‘weak’, states that ‘the average debt collection for the [current] financial year is 82% which is way below the [requisite] norms [as a result of reduced collection of cash’. The Municipality itself accepts that the debt is ‘huge’.
Meanwhile the Municipality ‘is continuously increasing the operating cost’ to the detriment of the cash position, which has decreased from R140 to R90 million in the same period. These dismal figures mean that the liquidity ratio (ie expenditure as a factor of revenue) has fallen from 1.9 to 1.6 in a single year. In the mid-term budget, unsurprisingly, we find the following: ‘The overall operating expenditure budget performance is not satisfactorily [sic] …. It is upon management to reduce expenditure to ensure that budget is realistic and is funded.’
The figures, disconcerting enough in absolute terms, represent a trajectory that cannot continue indefinitely. Little concern is shown by the municipal authorities, however. Without proper funding in a well-managed revenue stream, Bitou will be unable to fulfil its service delivery mandate.
This, as the next section shows, is starting to emerge as a real problem.
The performance of a private firm is typically evaluated by reference to its profitability, but a municipality, which is concerned not with gain but with service delivery, cannot be assessed in this way. Municipalities share with their private counterparts, however, the capacity to be assessed by the output – they can see how much was delivered in the current year and how this compares with previous years. In the municipal sphere, this means evaluating service levels: how effectively was sewerage handled? waste managed? electricity supplied? road network maintained? and so on. In the same spirit, municipalities evaluate the resources by means of which it supplies these services: the levels of staffing and the training they have been given; the equipment with which they perform their role and its serviceability; and the degree to which they have been properly managed and deployed. Comparisons are made with previous years to show the progress, positive or negative, over the current year, and some effort is made to assess the quality of the service provided.
A conscientious effort must be made to ensure the figures are reliable. If they are not, the old saying ‘garbage in, garbage out’ applies. Happily, there is no obvious reason to doubt the validity and reliability of the figures produced by Bitou, which conform with national requirements and are comprehensive and detailed. Where there is no room for complacency, however, is in the narrative they currently supply. The figures in the latest annual report (mid 2018-2019, just received) are not dismal, but they reveal a level of performance well below par. In this report it is impossible to convey the concerns that are expressed in the municipal reports. Of major concern is the fact that the engineering services, electrical and roads, and community services departments, are recorded as underperforming significantly. They constitute important components of service delivery – they represent the tangible face of municipal performance. In the same vein is the underperformance on capital expenditure, which is dramatic – a mere 25% of the budget has been spent. This figure is alarming not just in itself, but because the allocation, being a provincial grant, is forfeited to the extent that, in a year, it is not spent. This may seem strange, but this is how the grant system works.
Like other municipalities, Bitou has a system of Key Performance Indicators (KPIs) by which it monitors the performance of its departments and their staff. The KPIs are set at the beginning of the year and, when the year comes to an end, an assessment is made of the extent to which they have been fulfilled. Since the system has a subjective element to it, the evaluation typically tends to paint a rosier picture than is warranted. In Bitou’s case, the results are anything but rosy. Taken as a whole, nearly half of the KPIs went unrealized in the past year and only ten percent of them fell into the category of ‘extremely well met’.
Expenditure within state entities is evaluated in the normal way. Expenses are broken down into classes and categories, reflected accordingly in the accounts and compared year on year. The figures can be misleading, especially when compared, since categories are sometimes reframed or re-aligned, but notes to the line item are typically included to explain the anomaly. Comparing the entries with the corresponding figures in previous years provides a good guide when the reader is unaware of what is actually being done.
The comparator is, ultimately, no substitute for an evaluation of expenditure in absolute terms as well. Expenditure can in isolation be condemned as hopelessly excessive or, rather more rarely, as far too low. The cost of entertainment, for instance, might be high enough to suggest that an official is living the high life at the town’s expense and it will be of small comfort to know that last year the person in question lived as sumptuously. A good dose of sound common sense can do wonders in this sphere.
The figures make very unhappy reading. Instances are captured in the table below – here we simply enumerate a few, in the process converting the figures to round numbers. Postage costs amount to nearly a million rand when two years ago the figure was just over R50 thousand. Printing and stationery costs, which last year stood at almost thirty thousand rand, have shot up in this financial year to almost half a million rand. Fuel costs have jumped from just over R1 million three years ago to over R8 million today. No one needs to be told that this far exceeds the amount that might be represented by the inflation of the petrol price.
The list of increasingly wasteful expenditure goes on and on. Legal expenditure, a warning light of poor performance, was R2 million three years ago but now hovers around R8 million. Legal costs are, in the municipality’s own words, ‘skyrocketing’. Hiring expenditure stands at R7 million odd where a bare three years ago it stood at R2,5 million. Included in the charges is the cost of a car hired for the Mayor in breach of National Treasury protocols that, over about three months, amounted to nearly R200 000 and the provision of a security detail, obtained from independent contractors in a process forensically condemned as ‘fruitless and wasteful expenditure’, that over a nine month period totalled well over a million rand.
Junkets – that is, expenditure on luxury items – are rocketing. The National Treasury requires expenditure for congresses and seminars to be cut back substantially, but in Bitou the costs have increased from less than half a million rand to about R2 million over the last few years (we adjust the figures to make the comparison valid). Catering costs – party time, folks! – have doubled over the past year and now stand at nearly a million rand. Subscriptions and membership fees – anyone for tennis? – have also doubled and have now reached a whopping R5 million. Travel costs have risen from R1,2 million to nearly R2 million and event promoters, who provide the circuses that supposedly divert the populace, have recently been retained at a cost of R1 million.
Until 2017 no bonuses were payable, but since then over eight million rand has been paid out annually. The Council is, as far as we know, under no obligation to make these payments but gratuitously line pockets, both their own and municipal employees, by doing so. This liberality with ratepayers’ funds is echoed in a resolution by Council late last year voting to give a 20% ‘scarce skills allowance’ to Bitou’s top six municipal executives, whose salaries already approach or exceed the prescribed ceilings. Since the jobs these people do and the skills they deploy are entirely conventional, the resolution speaks volumes for the Council’s reckless handling of ratepayer funds.
In short: all non-essential expense categories such as seminars, conferences, professional services, advisory, sponsorship, entertainment expenses are significantly overspent and essential costs such as engineering services are significantly underspent. The municipality is increasingly being used to serve those who run it, not those for whom it should be run.
Much of municipal expenditure is characterized in the accounts as either ‘irregular’ (made without following proper processes) or ‘unauthorized’ (made without budgetary sanction). Irregular expenditure in the last year climbed from 1½ million rand three years ago, to 16 million rand, and now stands at 65 million rand. Unauthorized expenditure, which was 30 million rand last year, has climbed by quarter of a billion rand and now stands at a whopping R280 million rand. In the consolidated financial reports on these two categories of improper expenditure by Western Cape municipalities, Bitou is shown to be the worst offender by far. Shockingly, it accounts for about a third of all improper expenditure within the province.
The Municipal Council’s audit committee is supposed to check and control these excesses but, being either dormant or submissive, simply fails to do its job. Not so the Auditor General, the national watchdog, who has over recent years condemned the Bitou accounts by qualifying them. Recommendations for improvement have been made by this office, but it is in no way obvious that they have been implemented. Until they are, it must be accepted that, in the words of the national audit, ‘reasonable steps [are not being] taken to prevent irregular [and] unauthorised expenditure.’ In the view of the Auditor General, municipal leadership simply ‘does not monitor the implementation of action plans in a timely manner to address internal control deficiencies.’
A financial expert who considered the accounts and surrounding documentation has concluded that the ‘prescribed procedures, processes and internal controls are truly broken’. So indeed, they are. The latest financial statements, other reports and our own investigations show the following:
- Councillors and officials make no proper declaration of business interests, and nepotism and conflicts of interest appear rife.
- Expenses are run up by riotous living in places such as Down to Earth and Castleton and, even when entertainment is legitimate, claim forms are gerrymandered to reflect non-claimable items (such as alcohol) as food.
- Municipal houses are leased out at peppercorn rents to officials who are unqualified to receive the perk and, it is suspected, do not declare the benefit for tax purposes.
- Funerals are funded out of municipal coffers and uncontrolled discretion is exercised in funding projects such as Grants in Aid’.
- Subsidies are voted to support local events but are either waylaid or given subject to backhanders.
- Invitations to tender are framed to prefer a favoured contender over more efficient providers, and no control is exercised over the opening of tenders. In addition, tenders are awarded to fictitious or dormant entities and the requirement of tax clearances goes unenforced.
- Payments are made before the work is done and, in consequence, the job is never completed. Millions have been spent on prepaid electrical meters that proved incompatible or dysfunctional.
- Problems plague waste management. Compactor trucks continually break down and take an inordinate length of time to repair. Subcontractors, who stand to profit as a result, are said to be sabotaging the service, but there is no concrete evidence that this is so. So unsatisfactory is the service that, at one point, waste removal was non-existent for a period of five days on end.
- In the last six months, the municipality issued almost half the number of vehicle licences and, though nearly five times the number of traffic tickets were issued, fines collected dropped to three quarters of the previous year. In the municipality’s own words, ‘revenues for fines and permits has poorly performed due to traffic fines management not in place.’
- Within the fire service three fire engines are still unserviceable since there are ‘no capital funds to replace’ them.
- Nepotism and maladministration are rampant. A few instances suffice:
- The mayor’s brother in law, who doubles as a ‘political adviser’, is able to obtain salary increases, housing, fringe benefits and allowances at levels that are higher than even he has the temerity to request.
- The Speaker’s wife, previously dismissed by the Municipality for padding her paycheque, has been rehired in a post that she is woefully ill-equipped to handle.
- The Senior Manager of Security is retained, at an inflated salary, to provide protection for the mayor (three personnel are so deployed) and deputy mayor (he has two guards) even though he, the Manager, we believe lacks the requisite qualifications.
- Four airport refuellers are still on the municipal payroll even though they have nothing to do because the tender to supply fuel was withdrawn on grounds of corruption.
Procedures to ensure financial integrity and regularity exist precisely in order to prevent these dismal outcomes. They are the bulwark against corruption, fraud, theft, nepotism, malpractice and maladministration. Flouting them leads to financial decay, then a collapse in service delivery and finally levels of frustration in the community (especially among those who live in abject poverty) that provokes rioting and chaos. We have already had a taste of this anarchy and the damage inflicted on businesses and on tourism was serious. We are well down the road to more violent protest and unrest and it is imperative that we arrest this decline before we hit rock bottom.
Other councils have. Country-wide, at least thirty councils have been put into administration in an effort to restore at least a vestige of proper service delivery. It would be a sad day if Bitou ended up at the same point, but no one should believe this cannot happen. When corrupt governance spirals out of control, the plunge into disaster can be very quick. Reports from Knysna bear witness to this – that Municipality’s cash shortfall is said to have risen from R30 million to R175 million in the course of a mere three months.
This state of affairs is anything but fortuitous. It did not result from a downturn in the economy or a flight of residents from the town. Human beings who hold office and who are statutorily accountable in all municipalities are responsible for malfeasance, and those who principally deserve to be held to account are typically the Mayor, the Municipal Manager and the remaining senior officials and executives. In form, all councillors may bear ultimate responsibility, but they depend heavily on the senior officials for information, advice, guidance and direction.
The Mayor, Peter Lobese, is in effect the chief executive officer of the Bitou Municipality. In the Bitou reports he is described, rightly or wrongly, as being ‘at the centre of the system of governance, since executive powers are vested in him to manage the day-to-day affairs [so he has] ‘overarching strategic and political responsibility.’ This may be an exaggeration, but he certainly is vested with very wide powers under the system of delegations that state bodies use.
He enjoys his position by reason of a coalition that his party, the AUF, struck first with the DA and then with the ANC. That this places him in a tenuous position is undeniable, but it cannot excuse his gross derelictions of duty and maladministration. What is recited above must be laid at his door – when he is not the actual perpetrator of misconduct, he is vicariously guilty of failing to correct it or, as captain of the ship, of permitting it to happen on his watch. He knows as much and, in an effort to protect his patch, has recently gone so far as to ‘predict’ violence and mayhem if the Ratepayers’ Association continues with its anti-corruption campaign.
In correspondence with the Mayor, we have pointed out that his language is not simply unbecoming, it is downright dangerous. This has done nothing to reform his blatantly intemperate behaviour. Responding to a measured evaluation of municipal shortcomings by Bill Nel, DA Councillor, he is moved to say the criticisms constitute Nel’s ‘desperate attempt to tarnish the image of the Mayor and that of Bitou Council and Administration to sustain the racist approach that when a Black person enters reason escapes and whatever action is taken can only be motivate [sic] by corruption.’ In concluding the diatribe, he makes so bold as to say: ‘It is important that as we do our work, we must not allow the interest of our people to be sacrificed at the altar of narrow and racist political opportunism which serves only to derail the interest of many in favour of the few. And the attempt to grab power by illegal means will not succeed.’
That he, without compunction, uses municipal staff to distribute the attack only compounds his folly. The mayor should be working to unite and promote the community as a whole; he should not be using racial slurs to divide it in an effort to divert the attention of residents from his own, very serious, shortcomings.
The Municipal Manager, Lonwabo Ngoqo, is unlawfully in his post. He previously occupied the same post but was dismissed for serious financial malpractices following an exhaustive enquiry chaired by a retired appeal court judge of great eminence. To clear the way for his re-employment, he concluded an agreement under which the current Bitou administration purported to rescind the dismissal with full back-pay (amounting to nearly R2 million). The Labour Court has declared that his re-employment is void because it breaches a statutory ban on rehiring municipal executives within ten years of dismissal for financial misconduct. The Municipality, which finances the litigation out of ratepayers’ funds, has noted an appeal and, in the meanwhile, refuses even to suspend Ngoqo. Given his past misconduct, he should never have been permitted to take up his present position of trust, and certainly should not be occupying it now. That he does speaks volumes for his own sense of accountability as ‘the chief custodian of service delivery’ and for the irresponsibility of the councillors who have voted to let him remain at work They know that all actions taken by him in his official capacity are unlawful once it is clear that his employment is void, yet they continue in blithe disregard of this fact.
The Chief Financial Officer, Vincent Mkhefa, stands criminally charged with fraud arising out of tender irregularities that occurred when he occupied a comparable position within the Nketoana municipal area in the Free State town. The mind boggles at the very idea that a potential fraudster should be permitted to hold the purse strings in Bitou. Certainly, the MEC’s mind boggled: he called for the termination of Mkhefa’s appointment, but to no avail. The Council is obdurate: it is determined to keep him on its establishment and, unsurprisingly, financial malfeasance proliferates. A company of which he is a director is the beneficiary of a contract for the supply of uniforms for car guards – yes, those little vests the car guards wear – at a cost of R6 500 per item. The total cost for the 23 vests in question? A nice round sum of R150 000!
For nearly nine months, the position of Chief Risk Officer remained unfilled after the incumbent resigned at the beginning of 2019. As a result, the Risk Management Unit, which is meant to anticipate financial and similar trouble and implement preventive measures to combat it, completely stopped operating and resumed its work only when a new, albeit ‘inexperienced’, appointment was made. By the Municipality’s own account, the problem has its origins in a ‘lack of buy-in from management’, a startling comment to find in a set of official statements. The apathy is consistent with a reckless disregard for financial integrity and a refusal to take proper measures to combat maladministration and corruption.
The HR Manager, Tanya Wildeman, wields disproportionate influence in the Municipality stemming by reason of her relationship with her husband, the Speaker in charge of the Council. She has an unhappy past. Previously employed by Bitou, she was dismissed for giving herself a pay rise and car allowance. Her return to the office has nothing to commend it. Sick leave and overtime pay are out of control, vacation records are in a mess, municipal housing is given to officials free of charge, and perks are liberally granted. Staff turnover has doubled since the previous year and vacancies now stand at nearly 14% of staff establishment, and only 29% of the training budget has been spent this year, in comparison to 88% in the previous year.
Smuts Mana, the Mayor’s political adviser who is also his brother in law, leads a charmed life. No sooner did he ask for an increase from the bottom of his salary scale to the top than it was granted; his request for an increase to his cell phone allowance was deemed too modest and was granted twice over; his equally modest request for an increase in his 3G allowance was redoubled in precisely the same way; happily, the demands of transporting himself are catered for by a compendious transport package; and, to mitigate the rigours of being at the other end of the phone over weekends, he now receives a hefty standby allowance. His accommodation needs are satisfied by the Municipality, which has given him one of its houses to live in. Whether he accounts for this benefit is unclear, since no mention of a deduction is made in his salary slip.
These instances represent, we believe, only the tip of the iceberg. Discovering what is happening at more junior levels is an ongoing challenge. Last year we demanded information on the remuneration packages of top executives and were denied the figures. Efforts to obtain the material led to court proceedings under PAIA (the Promotion of Access to Information Act) that have still to be resolved.
Two forensic reports into Bitou’s affairs have been commissioned, the first into specific incidents of misconduct, the second into the broader acts of maladministration that seemed to be uncovered in the workings of the Municipality. The second, commissioned by the MEC, was delivered to the Speaker in his capacity as the head of the Council, but he resolutely refused to disseminate it beyond Mayco and the two firms of attorneys he retained. The stance was extraordinary since it is the Councillors, taken as a whole, who were expected to comment and respond. We invited MEC Bredell to send it to the frozen-out Councillors himself, but for reasons best known to himself, he refuses to do so. At last he has relented, and now we do have the report.
Be that as it may, it is clear that the dissemination of the report is being blocked by the top municipal executives. Not one but two firms of attorneys have been briefed by them and they have devised a strategy to object to the process. Laughable though it may seem, they propose to argue that the MEC acted irregularly by giving the report to the Hawks before submitting it to the Council for comment. A so-called Stalingrad defence can be anticipated in which the call for the report is rejected by saying the matter is sub judice. The production of the report will be prolonged while the matter is dragged through one court after another. The hope, of course, is that it will become stale and lose all sense of relevance.
By ordinary standards this is a case in which the Councillors and their Executive should be stripped of their authority, but if these standards were applied, a multitude of municipalities would be under administration. In the prevailing circumstances, the best course, it seems, is to set up a Provincial team that can investigate and get to the bottom of the allegations made in this report and any other instances of malfeasance that emerge. The MEC will be receiving this report, and he has the power and the resources to commission this investigative team. He should use them, and use them soon, in the interests of the residents of Bitou, the Province, and the country at large.
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