Municipal Finance Management Bill: hearings

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Finance Standing Committee

14 February 2002
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Meeting report

FINANCE PORTFOLIO COMMITTEE

FINANCE PORTFOLIO COMMITTEE
14 February 2002
MUNICIPAL FINANCE MANAGEMENT BILL: HEARINGS

Chairperson:
Mr Moloto (ANC)(Acting)

Relevant Documents
Municipal Finance Management Bill [B1 - 2002]
Submission by the Office of the Auditor General (Appendix 1)
Submission by SALGA (Appendix 2)

SUMMARY
The Office of the Auditor General and the South African Local Government Association (SALGA) made their submissions on the Municipal Finance Management (MFM) Bill. The Office of the Auditor General supports the Bill and acknowledges the need for legislation to address the legislative vacuum and to impose stricter and more effective measures. SALGA also supports the Bill but raises constitutional concerns about the Bill in that it diminishes the political autonomy of the local sphere.

MINUTES
Office of the Auditor General submission
The representatives from the Office of the Auditor General were Mr Conradie and Mr Kamedien. The Auditor General's submission (see Appendix 1) raises two issues:
- The auditing of municipal entities.
It is submitted that if entities are going to exist, then in the light of the lack of accountability, the entities must be audited by the Auditor General (AG) unless otherwise agreed. This measure will protect public interest.
- The current legislative framework is insufficient to ensure payment for municipal auditing.
To remedy this situation, the AG suggests that Treasury should be able to modify the payment schedule of transfers or grants to municipalities in certain circumstances. One such instance is when audit fees are not paid.

In an attempt to address the problems of accountability the AG suggests that public account committees could be a good idea rather than the current system where there is no clear separation between the executive and the structure that review the audit report.

Discussion

Prof. Turok (ANC) wanted a definition of what a municipal entity is because the concept was popping up all over the place and it is a bit vague.

Mr Pillay (Treasury) replied that there are different types of entities. There is a provision in the Bill that will require that all entities are listed. The list will then be in the public domain.

Mr Conradie added the he supports the idea of a list but the criteria used to determine an entity must be clear. A critical factor is whether the 'entity' spends public money. It is not good to rely on a definition because it opens the door for debate.

Mr Andrew (DP) asked if there are entities that are independent of municipalities, that is, juristic persons in their own right. Secondly he commented that a high proportion of the AG's work is wasted if there is no oversight and asked if the AG has given consideration as to what mechanisms can be used for oversight.

Mr Conradie replied that a study needs to be done on what kind of entities exist and why. But at the end of the day the establishment of criteria as to what an entity is, will go a long way in solving the confusion. He added that the criteria can be in the form of regulations.

In response the second question, he said that the AG's office has submitted regulations to Treasury on how to fulfill the oversight function. There are limited resources to create pubic accounts committees in all 284 municipalities. The AG's office has suggested that the existing audit committees be used but that they should be given more powers. For example, they should report to the provincial legislature and the NCOP rather than just to the council.

Ms Joemat asked if the AG was saying in the submission that the financial year is different in certain municipalities and that is why financial statements are late.

Mr Conradie replied that the year end is the same for municipalities but is different between the tiers of government.

Mr Smith (IFP) asked what steps is the AG taking in respect of auditing fees owed to it. Secondly, he asked if anyone knows what the problems with entities are because one would not want to fix something that is not broken. He commented that nobody is saying what is wrong with the entities.

Mr Conradie said that a lot of resources has been spent on credit control and recovering fees. Assets of municipalities have been alienated and legal steps have been used. He added that this was not very helpful because when the vehicles are alienated as in Poppies, the community now receives fewer services. The alienation covers the current debt but the next year's audit also needs to be paid for.

In response to the second question he said that legislation is not just intended to solve problems. New legislation looks at local government holistically and at that level there are unknown and unregulated entities and nobody knows what is going on. There are certainly success stories but the important consideration is the prevention of inefficiency and the misuse of funds.

Ms Borman (DP) commented that many of the problems identified are management problems and asked how the Bill will rectify this.

Mr Conradie replied that legislation will not always fix this problem. The transitional phase of local government is not properly concluded. The old system of local government is only partially replaced and the possibility of loopholes is created. The Bill closes loopholes but will not solve problems such as a lack of resources. The Public Finance Management Act resulted in a marked improvement in financial management and this represents a positive track record.

Mr Kannemeyer (ANC) on the suggestion that Treasury should be allowed to modify payments to municipalities said that he would be hesitant to have National intervention in all instances when municipalities do not do things properly.

Mr Conradie replied that one tier should not be allowed to impede the other and the suggestion is an attempt to increase accountability.

Mr Kotze (ANC) asked what the effect the non payment of audit fees has on the Office of the Auditor General.

Mr Conradie replied that only at local government level is there a problem with audit fees. He cited financial trouble as a reason for this. The effect was that the scope of the audit is limited.

Ms Joemat commented that the AG outsources some of its work and wanted to know if those companies would be paid.

Mr Conradie said that only a quarter of the work is outsourced and this was an international practice. He added that the AG is far from bankrupt.

Mr Andrew noted that he was a member of the audit commission and the non payment of fees was a big problem as the AG is owed tens of millions of Rands. In some provinces the situation is getting better but in some nothing is being done. The payment of outsourced firms is always on the due date and this creates cash flow problems for the AG.

An ANC member commented that the PFMA has a phasing-in problem because of capacity and wondered what the effect of the MFM Bill would be for municipalities and how compliance could best be phased in.

Mr Conradie admitted that the PFMA has created difficulties but yet the level of compliance has been surprising. He said that experience shows that capacity at provincial level is not much better than at local level. Non compliance is not the end of the world and it does not mean that the Act should not have been passed. Compliance is a point that must be aimed for and reached.

There were no further questions.

South African Local Government Association (SALGA) submission
The SALGA delegation consisted of Mr T Mokwena, Mr Mokwena and Mr Mettler.

The main points of the submission can be summarised as follows:
- SALGA emphasises the constitutional provisions relating to local government and submits that the framework created by the Constitution must be followed. SALGA submits that there are provisions in the Bill that are unconstitutional and it is incorrect to make laws outside of the Constitution and hope to amend the Constitution thereafter.

- The Bill has been tagged as a Section 75 Bill. SALGA submits that the Bill should be a Section 76 Bill so that the NCOP can be involved in the process and to ensure that the provisions are thoroughly discussed.

SALGA reminds the Committee that there is existing legislation such as the Municipal Structures and Systems Act and all the legislation should not be treated separately but there should rather be cross referencing.

In the submission, SALGA makes specific recommendations on chapters they find problematic.

Discussion
Mr Mnguni (ANC) commented that SALGA is creating a perception that the MMF Bill is usurping the role of local councils. He pointed out that in fact the finance management in local government is in shambles and wanted to know if the Bill did not go a long way in addressing this.

Mr J Mokwena replied that the SALGA submission is clear in that it supports the Bill. However what is in the Bill must still be subjected to discussion. The main issue highlighted by SALGA is that the Bill should be a Section 76 Bill.

Ms Mahlangu (ANC) asked whether SALGA had considered the creation of public account committees at local level.

Mr J Mokwena replied that SALGA is not opposed to public account committees but at the moment there are audit committees that can be improved on to fulfill the role of public account committees.

Mr T Mokwena added that the statistics given by the AG is based on the old system of municipalities. The new municipalities only came into existence in December 2000. There first budgets were only passed in 2001 and the first financial year only ends in 2002. He said that he has read the AG reports for provincial and local government and even at these levels there are always queries.

Prof. Turok (ANC) commented that the Portfolio Committee gives priority to the views of Treasury about the financial system because its responsibility is to the national interest. He said that the Constitution is clear in giving the political autonomy to local government but asked if the financial management cannot be separated from political autonomy. He could not understand why SALGA would object to National Treasury exercising vigilance should mismanagement take place.

Mr J Mokwena replied that SALGA is not saying that it does not want Treasury to ensure the best municipal finance management is in place. What is being is said is that at the moment there is sufficient legislation to do this. SALGA agrees with the spirit and intention of the MFM Bill but do raise concerns about what is in the Bill.

Mr T Mokwena again commenting on the AG presentation said that the figures refer to the 834 municipalities that were amalgamated. After amalgamation has taken place nobody knows who is responsible for submitting financial statements for non existing municipalities. He agreed with Prof. Turok that political autonomy must be separated from financial management but at the moment SALGA is of the view that the Bill is tampering with political autonomy.

Mr Andrew (DP) recognised that it could be difficult to deal with the current problems and at the same time to enact legislation with a long term outlook. He asked SALGA if putting a time limit on the operation of certain provisions would help. He added that he was also surprised that the MFM Bill was tagged as a Section 75 Bill because provinces have a direct interest.

Mr Smith, referring to the constitutional issues raised by SALGA, was of the view that there could be constitutional implications because what they were saying seemed right. He asked if SALGA had raised them before. Secondly, he wanted to know if the Municipal Systems Act is sufficient for provincial supervision of local government.

Mr Mettler said that SALGA would support a time limit for operation on certain clauses but the broader question is one of implementation. At the moment it is unclear if the MFM Bill applies to all municipalities.

In response to Mr Smith, he said that the constitutional issues had been raised before but they were being raised again.

On the second question, he said that MFM Bill is one of two pieces of legislation needed to complete the local government dispensation. The MFM Bill must fit properly into the dispensation. In the Systems Act the MEC must establish a regime for monitoring. SALGA is saying that everything in the MFM Bill must be in that regime. There cannot be more than one system.

Mr Pillay (Treasury) advised that the Bill had gone through the Joint Tagging Mechanism (JTM) and the State Law Advisers. Only the emergency provisions were seen to pose constitutional difficulties but the rest of the Bill was found to be constitutional. He further advised that the MFM Bill will be phased in and the different types of municipal categories will be taken into account.

Mr Nene (ANC) asked SALGA to comment on the relationship between the PFMA and the MFM Bill.

Mr Mokwena replied that the two laws are consistent in respect of accounting and reporting but the provisions of the MFM goes beyond supervision and monitoring.

There were no further questions.

Ms Mahlangu (NCOP: Chair of Select Committee on Finance) said that a letter would be drafted by herself and Mr Moloto to the JTM to ask what had informed them when tagging the Bill as a section 75 bill.

Mr Andrew then asked for an explanation for the absence of the chair, Ms Hogan.

Mr Moloto replied that he did not have an answer.

Mr Andrew indicated that nobody knew the reasons for the absence of the chair.

Ms Mahlangu said there would be no discussion on the issue. If there is a problem, the Committee would be informed about it and if not, the chair will return to work.

The meeting was closed.

Appendix 1:
Submission by the Office of the Auditor General on the Municipal Finance Management Bill
The Auditor-General has reported over the past few years that the status of financial management of several municipalities is in dire straits. More recently, in his General Report tabled in Parliament during 2001, he reported that, amongst others:

- More than 60% of all municipalities submit their financial statements for audit later than the legal due date.

- 17% of all municipalities are more than a year late with the submission of financial statements and are effectively not demonstrating accountability for their finances.

- For the relevant financial year, audit reports in respect of 69% of all municipalities were qualified in some or other way, which means there were material concerns about the state of the municipalities' affairs.

- Several municipalities are not complying with the requirements of the Auditor-General Act of 1995 with regard to payment of audit fees, either because of virtual insolvency or intentional obstruction of the accountability process. Most recently, in excess of more than R20 million of municipal audit fees were long outstanding in contravention of the Auditor-General Act, and this has already compromised the accountability process.

Many recommendations were made by the Auditor-General in this regard, but one of them was that the expedient implementation of a Public Finance Management Act for local government, not only to clarify and address the legislative vacuum, but also to impose stricter or more effective measures in some cases, should be a highest priority. National and provincial government were also urged to increase support, monitoring and revenue sharing with local government, and that good co-ordination between the various role-players was essential and required more attention.

The introduction of this Bill in Parliament is therefore supported most strongly by the Auditor-General. We have repeatedly commented on the Bill over the past few years, but some of our comments have not yet been addressed. As some aspects are of less importance or merely cosmetic, or can addressed by regulations, and due to time constraints, we would like to limit ourselves to the following:

1. The requirements regarding municipal entities may be quite onerous[T1I in respect of smaller entities and it is suggested that the continued creation of such entities should be subject to certain criteria to protect the public interest. In light of the lack of accountability and the risk of a lack in financial management, the municipal entities should be audited by the Auditor-General, unless agreed to otherwise by the auditee and Auditor-General.

(1) The annual financial statements of a municipal entity must be audited annually by -

(a) the Auditor-General; or

(b) a person registered in terms of section 1 5 of the Public Accountants and Auditors' Act, 1991 (Act No.80 of 1991), as an accountant and auditor, and engaged in public practice as such; who may not provide other services to, or share or earn other fees from, the same entity

(2) If the Auditor-General elects not to perform the audit in terms of subsection (1)(a), a municipal entity -

(a) may appoint any person referred to in subsection (1)(b) as its auditor; and

(b) must give notice of such appointment to the Auditor-General and the municipality or municipalities exercising ownership control over it.

2. The current legislative framework is insufficient to ensure that resources are provided for municipal auditing and this could jeopardize the accountability process for funds and services that are essential for the achievement of government's objectives. It is strongly suggested that, with regard to the relevant stipulations of the annual Division of Revenue Act, this Act should provide that:


"The relevant transferring officer or the National Treasury may modify the payment schedule of any transfers or grants to municipalities if -

(a) the municipality has in a material respect failed to use funds already transferred to it under that allocation;
(b) the municipality has failed to meet its statutory financial obligations, including audit fees; or
(c) there is another exceptional reason for the modification;

and such modification may include remitting such statutory financial obligations from the intended transfer. It should be noted that nonpayment of audit fees could limit the scope of an audit to such an extent that the Auditor-General will withhold an audit opinion in accordance with International Auditing Standards. The limiting of the Auditor-General's resources in this way is furthermore in contravention of the spirit of section 181 of the Constitution.

Finally, the governance / accountability process within the local government sphere is problematic owing to the conflict of interest between the executive management of the municipalities and the oversight structure required to review the accountability information seeing that there is not always a clear separation between the structure that reviews the external auditor's report and the members of the executive, i.e., members of the executive should not be represented on the review structure, The Committee should therefore consider in what way the Bill could ensure independent oversight structures similar to the public accounts committees within the other two spheres of government.

Thank you for this opportunity. As we have limited our comments to the absolute essentials (refer to Annexure A), we respectfully request that the Bill be amended accordingly.

Please be assured of the Auditor-General's full co-operation to ensure
accountability at local government level.


ANNEXURE A
Recommended amendments to Local Government: Municipal Finance Management Bill [B1-2002]:

The following amendments mentioned in our submissions are strongly recommended:

1. Clause 82(2) Appointment of auditors (municipal entities)


(2)If the Auditor-General elects not to perform the audit in terms of subsection (1 )(a), a municipal entity -

(c) may appoint any person referred to in subsection (1)(b) as its auditor; and

(d) must give notice of such appointment to the Auditor-General and the municipality or municipalities exercising ownership control over it.


(3) The Auditor-General may -

(a) either on own initiative or at the request of the municipality or municipalities exercising ownership control over the relevant municipal entity reject an auditor appointed in terms of subsection (2); and

(b) appoint a different auditor.


2. Clause 38A

"The relevant transferring officer or the National Treasury may modify the payment
schedule of any transfers or grants to municipalities if -


(d) the municipality has in a material respect failed to use funds already transferred to it under that allocation;

(e) the municipality has failed to meet its statutory financial obligations, including audit fees; or

(f) there is another exceptional reason for the modification;

and such modification may include remitting such statutory financial obligations from the intended transfer."


Appendix 2
SALGA
SOUTH AFRICAN LOCAL GOVERNMENT ASSOCIATION
SUBMISSION ON THE MUNICIPAL FINANCE MANAGEMENT BILL

Introduction
The Municipal Finance Management Bill is an essential piece of legislation that, together with the Municipal Demarcation -, Structures - and Systems Acts, forms the legislative framework within which local government must fulfil its constitutional mandate. A critical component of the legislative framework for local government is, in fact, the Constitution which, not only lays the basis for the legislation referred to above, but also provides a framework for the interaction between the various pieces of legislation that forms the local government legislative framework. When evaluating the MFMB, it therefore becomes critical to appreciate the constitutional scheme in place for local government and the carefully crafted constitutional space that the MFMB must fill.

The following constitutional provisions (among others) form the bedrock for our local government dispensation:
· Section 40 constitutes government as national, provincial and local spheres which are distinctive, interdependent and interrelated;
· Section 139 regulates the intervention by a province (only) into the affairs of a municipality;
· Section 151 vests legislative and executive authority of a municipality in its Council, gives a municipality the right to govern subject to national
and provincial legislation, and prohibits national and provincial government from impeding or compromising a municipality's ability to exercise its powers or perform its functions;
· Section 152 sets out the objects of local government which includes democracy, accountability, transparency, and participatory governance;
· Section 153 sets out the developmental duties of local government including budgeting that must give priority to the basic needs of the community;
· Section 154 enjoins national and provincial government to support and strengthen the capacity of municipalities to manage their own affairs;
· Section 155 sets out the powers and functions of municipalities, places an obligation on provinces to monitor and support local government, and obliges provinces to develop the capacity of local government to perform their functions and manage their affairs
· Section 1 60 provides the framework for the exercise of municipal executive and legislative authority in respect of internal procedures such as the constitutional right of a Council to make decisions concerning the exercise of all the powers and the performance of all the functions of the municipality;
· Section 215 determines that municipal budgets and budgetary processes must promote transparency, accountability and the effective management of the economy, debt and the public sector, and that national legislation must provide for the form of municipal budgets and what budgets must contain;
· Section 216 introduces measures for generally recognised accounting practice, uniform expenditure classifications, and uniform treasury norms and standards to be prescribed to municipalities and the halting of the transfer of funds for serious or persistent material breaches of such measures; and
· Section 229 provides for the imposition of rates on property and surcharges on fees for services provided by the municipality. It provides
further that where two municipalities have the same fiscal powers and functions in
respect of the same area, national legislation must effect an appropriate division on the
basis of certain criteria.

It appears from the abovementioned Constitutional provisions that Parliament envisaged a strong local sphere of government with municipalities having clearly defined roles and responsibilities allowing them to operate as a distinct sphere of government.
It is also clear from the Constitution that provincial governments have a unique role to play in monitoring, support, supervision and capacity building in respect of municipalities within their boundaries.

The Municipal Systems Act regulates the executive authority of a municipality by determining processes and procedures in respect of a range of issues.
In terms of the Systems Act, municipalities must exercise their executive and legislative authority within the constitutional system of co-operative government envisaged in section 41 of the Constitution. On the other side of the coin, the national and provincial spheres of government must, within the constitutional system of co-operative government envisaged in section 41 of the Constitution, exercise their executive and legislative authority in a manner that does not compromise or impede a municipality's ability or right to exercise its executive and legislative authority.

The municipal council of a municipality has the right to govern on its own initiative the local government affairs of the local community; exercise the municipality's executive and legislative authority, and to do so without improper interference; and finance the affairs of the municipality by charging fees for services; and imposing surcharges on fees, rates on property and, to the extent authorised by national legislation, other taxes, levies and duties (section 4).
In general, the municipal council of a municipality, within the municipality's financial and administrative capacity and having regard to practical considerations, has the duty to, amongst others, exercise the municipality's executive and legislative authority and use the resources of the municipality in the best interests of the local community; provide, without favour or prejudice, democratic and accountable government; encourage the involvement of the local community; strive to ensure that municipal services are provided to the local community in a financially and environmentally sustainable manner; consult the local community about the level, quality, range and impact of municipal services provided by the municipality, either directly or through another service provider; and the available options for service delivery; give members of the local community equitable access to the municipal services to which they are entitled; promote and undertake development in the municipality; contribute, together with other organs of state, to the progressive realisation of the fundamental rights contained in the Constitution.

The Systems Act further provides that the MEC for local government in a province must establish mechanisms, processes and procedures in terms of section 155 (6) of the Constitution to monitor municipalities in the province in managing their own affairs, exercising their powers and performing their functions; monitor the development of local government capacity in the province; and assess the support needed by municipalities to strengthen their capacity to manage their own affairs, exercise their powers and perform their functions.

The Constitution restricts interventions by national and provincial governments by making provision for certain checks and balances. These checks and balances include the participation of the National Council of Provinces in any section 139 intervention by a provincial executive into a municipality.

The Municipal Finance Management Bill, 2002
In evaluating the Bill, it will be measured against the constitutional and legislative provisions
establishing the new local government dispensation as set out above.


SALGA also supports the comments made by the Institute of Municipal Finance Officers on
certain technical aspects of the Bill.

Chapter 1
If regard is had to the provisions of the Constitution concerning the obligations placed on national and provincial government to support municipalities and to build capacity, it is important that the Bill includes, as one of its objects, measures to support municipalities to comply with the dictates of the Act. This additional object must, of course, be fleshed out in the Bill in Chapter 2 that deals with supervision.

Chapter 2
The first aspect we want to highlight is the extent of supervision as contemplated in this chapter.
Firstly, supervision was described by the Constitutional Court in the First Certification judgment as being a process of review that consisted of monitoring, support and, in the last instance, intervention. This is significant because remedial action can only be embarked upon after monitoring and support have taken place. The Constitution places an obligation on national government to support municipalities. However, the Bill determines that support to a municipality "to build capacity for efficient, effective, and transparent financial management" is discretionary. This must be corrected.
Secondly, the framework for supervision in the constitution clearly contemplates a significant role for provincial governments. The significance here is that there are political actors engaged in the system of supervision, for example the provincial executive and the national executive. The Bill patently ignores the constitutional regime and leaves supervision to the Treasury Department. It is critically important that the constitutional regime for supervision finds application in the Bill. The Bill must be amended to make adequate provision for supervision as contemplated in the Constitution.

The second aspect we want to highlight is the purported stopping of funds to a municipality as a result of a serious or persistent material breach of the Act. The section makes reference to section 21 6(2) of the Constitution where it states that funds may be stopped for a serious or persistent breach "of the measures established in terms of subsection (1)". The measures that the Constitution refers to are those relating to generally recognised accounting practice, uniform expenditure classifications, and uniform treasury norms and standards. The point we want to make in this regard is that the ambit of the Act is much wider than that contemplated in the Constitution because a serious or persistent breach of the Act (as opposed to the three categories referred to in the Constitution) will attract the sanction. This subsection clearly exceeds the limitations of the Constitution and must, consequently, be brought in line with the Constitution.

The third aspect that merits consideration is the patent lack of consultation measures with MECs, the Minister for Provincial and Local Government, and organised local government in relation to the prescription of uniform norms and standards, the establishment of monitoring processes, and the taking of appropriate steps where there has been a serious breach. The institutional integrity of municipalities stands to be severely compromised where such unilateral action is legislatively sanctioned. This is in contradiction with the constitutional rules of cooperative government and the dictates of the Systems Act where the monitoring authority is under an obligation to minimise the onerous burden that such measures can place on an administration. The Bill must be amended to bring it in conformity with the existing legislation and the Constitution.

Chapter 3
While we acknowledge that the internal financial affairs of a municipality may be regulated and that, for monitoring purposes, certain information must be relayed to a designated monitoring authority, the boundaries for regulation are clearly exceeded when provision is made for obtaining consent of National Treasury before an accredited bank account can be changed. The constitutionally protected executive authority of a municipality vests in its municipal council and this authority includes the right to open or change bank accounts. To inform Treasury of such a change is one matter, but for a democratically elected body to obtain permission, is quite another. Such a provision compromises or impedes a municipality's ability or right to exercise its powers or perform its functions (section 151(4) Constitution). This provision must be deleted.

Chapter 4
The assignment of functions to municipalities is already dealt with in the Systems Act and should not be repeated here. These provisions add nothing to the existing legislative regime. In addition, the requirement that a political functionary should consult with a national department as opposed to the political head of such a department, is problematic to say the least. This section must be deleted.

Chapter 6
The delegation by the councilor responsible for financial matters to another councilor appears to flout the accepted practice of delegation. It is generally accepted that delegation works most efficiently in a hierarchical structure where the delegator has general authority over the delegatee. This facilitates accountability and effective governance. For one councilor to delegate to another is problematic because both are elected and are on equal footing. Delegation in such circumstances is ill conceived and impractical. This section must be re-phrased to the effect that a municipal council, who has original authority, may delegate any of the powers that it delegated to the councilor for financial matters or to any other councilor. This will also mean that the Bill must be re-phrased to say that the municipal council is vested with the powers currently allocated to the councilor for financial matters and that it may delegate such powers to a councilor responsible for financial matters. In that way, the final responsibility rests with the Council as contemplated in the Constitution.

Chapter 8
The Constitution provides in section 160 that a municipal council may employ personnel that are necessary for the effective performance of its functions. This means that a Council has a constitutionally protected discretion to employ or not to employ. An example of where legislation regulates this discretion can be found in the Systems Act where it provides that the head of the municipal administration shall be the municipal manager. Important to note that the System Act does not compel the Council to employ a municipal manager but leaves that to the discretion of the Council. It must also be pointed out that each and every municipality, in fact, has a municipal manager. Therefore, where this chapter seeks to compel a municipality to have a particular structure, in this case a budget and treasury office, and to place certain personnel into that structure runs contrary to the Constitution and is out of sync with the Systems Act which places the responsibility to form a municipal administration into the hands of the municipal manager (section 55). This chapter must be amended to provide for the role of the chief financial officer only as delegations are already dealt with in the Systems Act. As far as delegations are concerned, it is doubtful whether national legislation can prescribe to whom delegations can be made - it is an internal municipal matter best left to senior management in a municipality.

Chapter 9
Chapter 10 of the Systems Act, dealing with national and provincial monitoring and standard setting, already provides that the MEC for local government in a province may by notice in the Provincial Gazette require municipalities of any category or type specified in the notice or of any other kind described in the notice, to submit to a specified provincial organ of state such information as may be required in the notice, either at regular intervals or within a period as may be specified." The MEC can easily issue a notice to municipalities to provide the required information to him as the supervisory political office bearer for local government affairs or to the provincial treasury that can then report to National Treasury. The point we want to emphasise is that we must guard against duplication of functions as this may lead to inefficiency and bureaucratic red tape.

In light of the comments made regarding the provisions of section 160 of the Constitution, it is of doubtful constitutional validity whether the national treasury may "in exceptional circumstances approve or instruct that another official of the entity must be the accounting authority for that entity". The ultimate authority to appoint an accounting officer vests in the municipal council of a municipality.

Chapter 10
It must be noted that section 46 of the Systems Act already contains provisions to allow inputs at a meeting on the annual report and the financial statements from the public, the MEC and the Auditor-General. Representatives of the Auditor-General and the MEC for local government in the province are entitled to attend and to speak at such meetings, and the municipal manager must be available to respond to questions related to the annual report. The municipality must adopt its annual report, and within 14 days make copies of the report accessible to the public, interested organisations and the media, free of charge or at a reasonable price; and submit a copy of the report to the MEC for local government in the province; the Auditor-General; and such other institutions as may be prescribed by regulation. In order to avoid unnecessary duplication, we want to suggest that National Treasury approach the Minister responsible for local government to make the necessary regulation, as he is permitted to do in terms of the Systems Act, for a copy of the report to be submitted to National Treasury and its relevant provincial offices.

Sections 47 and 48 of the Systems Act will in any case ensure that problems at local level are made known. In terms of section 47 the MEC for local government must annually compile and submit to the provincial legislatures and the Minister a consolidated report on the performance of municipalities in the province. The report must identify municipalities that under-performed during the year; propose remedial action to be taken; and be published in the Provincial Gazette. The MEC for local government must also submit a copy of the report to the National Council of Provinces. In terms of section 48 the Minister must also annually compile and submit to Parliament and the MEC's for local government a consolidated report of local government performance in terms of general key performance indicators.

It is further of doubtful constitutional validity whether the Minister can withhold the transfer of funds to a municipality for mere non-compliance with the provisions listed in section 77 of the Bill. As noted earlier in our submission, the transfer of funds may only be withheld for serious or persistent material breaches of the three measures listed in section 216(1) of the Constitution. We submit that section 77(c) be deleted or amended to comply with the Constitution. The same holds true for section 81 of the Bill where the Minister may withhold funds where the municipality fails to address any adverse finding of the auditor-General.

Chapter 11
It is extremely difficult to comment on this chapter without the benefit of having the text of the proposed constitutional amendments available that will allow for financial emergencies. What the financial emergency provisions boil down to is, in fact, an intervention by national government into the affairs of a municipality. The Constitution, as it currently stands, only allows for provincial intervention into the affairs of a municipality and only on the basis of the non-fulfillment of an executive obligation in terms of legislation. The chapter, as it currently reads, is unconstitutional. We hope to address this committee on the merits of this chapter at a later stage when the constitutional amendments become available.

Chapter 12
There are different legal consequences to regulations, instructions and guidelines respectively. These consequences relate to enforceability and applicability. It must be clearly spelt out in respect of which matters there intends to be regulations, instructions or guidelines. For example, it will be constitutionally problematic for there to be a regulation on the "establishment by a municipality of, and control over, municipal entities and business units". The establishment of these is solely within the discretion of the municipality but how they operate may be subject to regulation.
In addition, there are no consultative measures put in place before such regulations, instructions or guidelines may be promulgated. Such an omission is problematic in terms of the established practice of cooperative government. This omission must be corrected.

Chapter 13
We submit that this chapter be incorporated in the Code of Conduct for employees as per the Systems Act.

CONCLUSION
SALGA supports the need for a Bill / Act that regulates municipal financial management. It is, however, important that the Bill takes into account the full spectrum of the constitutional relations between the spheres of government as well as the legal regime for local government as stipulated in the Constitution, Structures Act and Systems Act. It is also of critical importance that this Bill is considered in conjunction with the proposed constitutional amendments and the municipal borrowing framework. Governance at all levels are integrated and legislation can no longer be submitted or evaluated in isolation.

We thank you for the opportunity to address you on this Bill and wish you all the best in your deliberations.

February 13, 2002

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