Municipal Finance Management Bill: deliberations

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Finance Standing Committee

06 May 2002
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Meeting Summary

A summary of this committee meeting is not yet available.

Meeting report

7 May 2002

Ms Hogan (ANC)

Relevant Documents
Municipal Finance Management Bill [B1 - 2002]
Summary of Submissions on the Municipal Finance Management Bill
Department of Provincial & Local Government (DPLG) submission - Appendix 1

The Committee started deliberating from Clause 21. The discussion on Clause 22 dealing with unauthorised and irregular expenditure was left in abeyance because it was not clear how the accountability arrangements currently envisaged in the Municipal Structures Act related to Clause 22. For this reason the Committee jumped to Chapters 6 & 7 that provide for the duties of officials since these chapters might shed light on the Clause 22 discussion. The Department of Provincial and Local Government handed in its input on the Bill. This was not discussed in this sitting.

Clause 21 - Municipalities to submit reports on the state of budgets
Mr Pillay said that the clause is about submitting timeous reports to the relevant role-players. It is important that the information is made available so that the municipal council can take corrective action at an early stage.

The Urban Sector Network submission notes that while the reporting system proposed in the Bill is both important and necessary, it is important that this process does not end up being too onerous for municipalities, especially category B and C municipalities.

Ms Hogan commented that normally there is a quarterly reporting requirement but thought that the provisions were not particularly onerous.

Mr Momoniat said that two important issues were that the reports must be tabled in the municipal council and that National Treasury must at least every quarter publish the information in the gazette.

Ms Hogan replied that there is no provision in the clause for tabling in the council. She added that in line with previous discussion, National Treasury should be the central agency receiving the reports. Treasury must thereafter distribute the reports to the relevant role-players. She instructed them to clean up the clause accordingly.

Ms Fubbs (ANC) suggested that that the reports must be tabled in council within a specified time.

Mr Momoniat replied that the concern was that council should at least have sight of the reports but a clause can be added to provide a time limit. He suggested that it would useful for council to look at financial statements on a quarterly basis and said that something to this effect can be drafted.

Ms Taljaard (DP) warned that the draft should not be overly prescriptive as to what the council must do.

Ms Hogan agreed but added that it is important for transparency that the financial statements are discussed.

Clause 21(4)(b): provides that a budgetary report for a specific period must detail the expenditure incurred up to that point in comparison to the budget and must distinguish between capital and operating expenditure. The Department of Traditional & Local Government Affairs of Kwazulu-Natal submits that since there is a need to distinguish between operating and capital expenditure, the following should be added to the definitions section:

"operating expenditure means the day to day running costs of a municipality relative to the provision of services to the community and includes salaries, wages and allowances, general expenses, repairs and maintenance, capital charges, contributions to fixed assets and contributions to statutory funds, reserves and provisions."

"capital expenditure means any expenditure incurred or incidental to the acquisition or improvement of land, buildings, engineering structures and machinery and equipment. This expenditure normally confers a lasting benefit and results in acquisition of, or extends the life of a fixed asset or long-term work. It includes vehicles, office furniture and equipment but would exclude minor items that are generally regarded as being expendable even though in some instances their useful lives may extend beyond one year."

Ms Hogan thought that the definitions provided were useful.

Mr Momoniat told the Committee that Treasury used the GFS specifications and thought that the definitions provided could be too restrictive. He undertook to get back to the Committee on this.

Ms Hogan found it surprising that SALGA had made no comment on whether the clause was too onerous.

Ms Taljaard was surprised that SALGA had not submitted that the clause is too prescriptive.

Mr Felix (SALGA) replied that SALGA's view is that it is too cumbersome especially since the norm is quarterly reporting as opposed to monthly reporting.

Clause 22 - Unauthorised and irregular expenditure
Mr Momoniat advised that the provisions are the same as in the Public Finance Management Act (PFMA). Currently virement is at the discretion of managers so the logical approach was to bring unauthorised and irregular expenditure in line with the approach of provinces. He said that much responsibility is given to the municipal manager but clause 22(3) puts some kind of responsibility on the political structure. He added that one needs to bear in mind that political problems can get in the way of the municipal manager being able to do his/her job.

Mr Felix asked what was the division of power and responsibility between the municipal manager and the chief financial officer (CFO)

Mr Momoniat replied that the CFO is the head of the Treasury Office. The CFO is designated by the municipal manager and is accountable to the municipal manager. Clauses 43 & 44 deals with the CFO.

Ms Hogan said that it was evidenced by experience that unauthorised expenditure can never be recovered from the municipal manager.

Mr Momoniat replied that the idea is not to recover funds. There are other legal proceedings for that. The aim is a punitive one for gross negligence. The municipal manager must know that if wrong decisions are taken knowingly and it leads to loss, then his/her own assets are threatened. The approach is the same as the PFMA.

Ms Hogan asked what is the line of accountability between the municipal manager and the political structure.

Ms Lobe (ANC) said that the Bill is not clear on the distinction between the accounting authority and the accounting officer.

Ms Mahlangu (ANC) referred to clause 22(3) and said that the municipal manager is responsible unless the relevant political structure / functionary has been informed that the expenditure is likely to be unauthorised or irregular. She wanted to know what 'relevant political structure or functionary meant'.

Mr Momoniat replied that municipalities are not like other spheres of government in that there is one accounting officer who is the municipal manager. The municipal manager would be accountable to the mayor or the executive committee depending on the type of municipality. Therefore the head of the health department for example is accountable to the municipal manager who is accountable to the mayor as the case may be. In terms of the Municipal Structures Act there is no legal link between the councillor for health and the head of the health department.

Mr Felix disagreed and said that the mayor delegates the portfolio to a specific councillor.

Ms Hogan said that the point was that there is no accountability relationship between the head of the health department for example and the councillor responsible for health.

Mr Felix reiterated that there is a direct relationship.

Ms Hogan told Mr Felix that the municipal manager is like a super Director-General that all the other heads of departments must work through. Unlike at national level where the DG for each department is the responsible accounting officer.

Mr Momoniat said that the formal needs to be distinguished from the informal. Legally spending is done in the name of the municipal manager. The councillor responsible for health cannot instruct the head of the health department who is responsible to the municipal manager.

Rev Goosen (ANC) referred to clause 32 and said that the councillor responsible for finance oversees expenditure. He said if this was the case the municipal manager would not have to worry about unauthorised expenditure because the councillor will prevent such an occurrence.

Mr Momoniat said that Treasury was attempting for formalise the relationship between the municipal manager and the political structure but it seems as if the wording needs to be checked. The idea is that there must be some sort of political oversight.

Ms Hogan commented that it is clear that the accountability problems need to be sorted out but for now the Finance Portfolio Committee cannot impinge on the Structures Act.

Mr Momoniat said that the way municipalities are working currently, there are a lot of contradictions and inconsistencies. It is not the job of this committee to fix these. The Department of Provincial & Local Government must look at the governance arrangements.

Mr Smith (IFP) said that Treasury's description of the legal arrangement is correct. It has been discussed in the Provincial and Local Government Committee that certain aspects of the Structures Act need to be reviewed. He was not sure if the issues under discussion were also included therein.

Ms Hogan tried to sum up. The Municipal Manager deals with a whole range of managers. The municipal manager is the chief accounting officer and the buck stops there. There is no stated relationship between the political representatives and the heads of departments. It is the municipal manager that accounts on behalf of all managers to the council. There is one councillor for financial affairs who prepares the budget. She said that what needs to be checked is whether there are any contradictions in respect of the councillor for finance, the municipal manager and other managers. The submission by Rev Goosen was relevant in that the role of the councillor for finance is not clear in clause 30(2)(b)

Mr Momoniat said he would get back to the Committee in respect of Rev Goosen's point because the idea is that there must be some kind of political process that oversees what is going on.

Ms Hogan said that Chapter 6 and 7 deals with the duties of the various role-players and suggested that the Committee first look at Chapter 6 and 7 and then return to unauthorised expenditure and Chapter 5 that deals with debt. The Committee agreed.

Chapter 6 - Councillor for financial matters
Mr Momoniat said that Clause 31(1) says who the councillor for financial matters is and suggested that in line with previous discussion the councillor should at least be a member of the executive committee if it is not the mayor. Clause 31(2) says who exactly must be the councillor for financial matters in each type of municipality. Sub (a) refers to large metros, sub (b) refers to municipalities with the executive mayor system and sub (c) refers to the plenary system.

Mr Smith suggested that the bill should just say that the Council must appoint a person to be the one responsible for financial matters and that way many problems will be avoided.

Mr Momoniat supported that approach where the responsibility is with the mayor / executive to take responsibility for the duties that are imposed on the councillor for finance throughout the Bill. Then references to councillor for finance can be dealt throughout the Bill.

Mr Felix said that section 53(3) of the Systems Act defines the power of councils.

Mr Momoniat replied that a cross referencing would help align the Bill with the Systems Act. He added that if the references to councillor for finance falls away then some accountability problems disappear. He said that all references to councillor for financial matters will be deleted and the council must take responsibility in whatever arrangements they see fit.

Ms Maabe asked what would happen to Clause 32 & 33.

Ms Hogan replied that throughout the Bill references to councillor for financial matters will be removed. All the responsibility will be on the council.

Chapter 7 - Duties of Municipal Officials, Part 1: Municipal Managers
Mr Momoniat said that this was the heart of the Bill in terms of financial administration. The responsibilities are word for word from the PFMA.

Clause 34 Municipal managers to be accounting officers
This is a standard clause and in line with the PFMA.

Ms Hogan mentioned that Treasury said that there would be a definition of accounting officer provided.

Mr Momoniat replied that the best that can be provided is that the definition will say that the accounting officer is the person referred to in Clause 34.

Clause 35 Fiduciary duties of municipal managers
This clause is part of a package of amendments that will be introduced into the PFMA. It provides for the fiduciary duties of the municipal manager and is borrowed from the Company Act.

Mr Smith suggested that 35(1)(c) should oblige the municipal manager to provide the council with information that might influence a decision that they will make. As it currently stands the information must be provided if requested by the council.

Ms Hogan agreed but was concerned that too much discretion is given to the municipal manager.

Mr Momoniat replied that the municipal manager is well paid and should use discretion.

Ms Hogan confirmed that 'on request' would be deleted.

Clause 36 Duties of the municipal manager
Mr Momoniat noted that this clause might need to be broken up because it is very long.

Clause 36(a)(iii) states that the municipal manager must ensure that there is an appropriate procurement system.

Ms Hogan asked who is responsible for procurement.

Mr Momoniat replied that currently there are councillors who sit on tender committees and this clouds accountability and gives rise to conflict of interest. He said that after the Bill was finalised Treasury finalised a framework for procurement for national and provincial government. It was thought that local government was in need of such a framework. It is important that there is a uniform procurement practice because the private sector wants to know that procurement is the same at all levels of government.

Mr Felix agreed that the process needs to be reviewed and that there is a need for an independent body to deal with procurement in terms of standard norms and practices.

Ms Mahlangu said that independent procurement committees were appropriate.

Mr Momoniat referred the Committee to Clause 106(d) that allows Treasury to make regulations on a procurement framework.

Ms Hogan said that issue is one of councillor participation. It can either be dealt with in terms of 106(d) or it can be dealt with in the Bill and the clause will state that there will be consultation on the arrangement. The Chair asked if members agreed that councillors should not be on the tender committees.

A few members felt that if the private sector constituted the board there is also danger of corruption.

Ms Hogan said that all that is wanted is fair and transparent system. She said that councillors were public representatives that were elected and should not serve in a position that could lead to a conflict of interest. She said that it was easy to fire an official but not an elected representative.

Ms Taljaard added that if the municipal manager is responsible for ensuring an appropriate procurement process and his/her principal serves on the committee then accountability becomes muddy.

Mr Theron (DP) highlighted the separate oversight role that the council had to play in procurement.

Mr Momoniat said that there must be a national framework on procurement and suggested that there be clause calling for consultation and the detail can be in put into the regulations.

Ms Fubbs thought it was a question of governance rather than integrity of councillors and therefore it would be better to exclude councillors.

Mr Fankomo (ANC) also felt that the council should play an oversight role and councillors should be excluded from sitting on tender committees.

The members agreed and Mr Momoniat will draft provisions that will exclude councillors and deal with disclosure of interests, the oversight function of council and the need for consultation on the finer details.

Mr Momoniat said that it was important that the council need not approve every expenditure.

Ms Hogan agreed that there is certain expenditure that can be dealt with administratively because government should not come to a standstill.

Clause 36(a)(ii)
Mr Smith asked how can the audit committee control and direct a system that it is not a part of.

Ms Hogan said that the function of the audit committee is to assist managers and to check the systems. For this reason it is outside the department. This committee notifies managers of risk and assists then to get things right. It is not however clear to whom the audit committee reports.

Dr Woods (IFP) said that the internal audit functionary reports to the audit committee. The accounting officer is part of the audit committee. The PFMA envisages that members of the audit committee are from outside the department.

Clause 36 (b) & (c)
Mr Momoniat said that these were standard clauses in line with the PFMA. (b) obliges the municipal manager to keep proper records of the financial affairs of the municipality and (c) makes the municipal manager responsible for effective, efficient, economical and transparent use of resources.

Dr. Woods said that (c) implies a performance budgeting system. He wanted this bill to state clearly that what is being referred to is performance budgeting with outputs.

Mr Momoniat replied that he would see how it could be brought in.

Clause 36(d)
This clause is also in line with the PFMA. In terms of sub (i) the municipal manager must take steps to collect all money due to the municipality and in terms of (ii) must prevent unauthorised and irregular expenditure and any losses resulting from criminal conduct.

Dr. Woods asked why the definition of unauthorised expenditure was not the same as in the PFMA. In the Bill there is no reference to fruitless and wasteful expenditure. He felt the definition is reduced in the Bill.

Mr Momoniat replied that he cannot give a reason as to why the definition is not the same. He agreed that the definition should be the same as in the PFMA.

Mr Smith wanted clarity on the meaning of 'collect all money due.' He was thinking about the situation where the council might write off a debt.

Mr Momoniat replied that if the council writes off debt then it is not reflected in the budget and the municipal manager is not obliged to collect this.

Ms Borman (DP) commented that R22 billion is owed to municipalities and asked what action can be taken for not collecting. She added that R14 billion was owed by unicities who could pay.

Ms Hogan said that the R22 billion was reported in the Business Day.

Mr Momoniat said that if it is seen that council has given up on collecting revenue then provinces must use Section 139 of the Constitution.

Mr Felix said that the collection process was cumbersome. He added that in many instances it is government that owes the money. For example, the departments of education, health and welfare owe local government for services. He said that in the spirit of co-operative governance, local government would not evict or take steps against other government departments. At the same time local government gets accused of doing a lousy job when all monies are not collected.

Ms Hogan commented that one of the problems would then be that there is no framework for revenue collection.

Mr Momoniat said that he took the point but the main issue is political will to collect and for this reason the municipal manager is obliged to put a system in place where all the accounts will be sent out.

Ms Lobe added that a high proportion of the R22 billion was owed by government departments. She questioned the spirit of co-operative governance. Local government must provide free basic services as per the policy of national government but it is higher spheres of government that are not paying what they owe.

Mr Momoniat said that non-payment by government departments is a problem but that he has never seen a list to show who owes what to whom. The PFMA states that accounts must be paid within 30 days otherwise it is financial misconduct and action can be taken.

Ms Hogan asked if the bills are being sent out because residents are always complaining that they have not been billed. For this reason she said that it was important for the municipal manager to set up proper systems. She commented that in the Bill local government is compelled to pay audit fees and felt that the same should be done for other spheres of government not paying their dues.

Mr Smith followed up his previous question and said that writing off debt is different from what is realistic revenue.

Mr Momoniat thought that the provision might needed to be cleared up to say what is intended.

Ms Hogan suggested that the Bill should just say that the municipal manager must set up a system for the collection of revenue. She instructed Treasury to think about how the clause can be amended.

The meeting was adjourned.

Appendix 1

The Municipal Finance Management Bill is one of the cornerstones for the reform of local government finances in this country. It sets the necessary requirements for efficient and effective management of revenue, expenditure, assets and liabilities of municipalities and municipal entities. It regulates the overall management of municipal finances and starts to define the key roles and responsibilities with regard to municipal financial management.

However, the Department of Provincial and Local Government still has certain reservations and concerns regarding some provisions of this Bill. The Department has contributed towards the development of the Local Government: Municipal Finance Management Bill in the following ways:
· active participation by officials in discussion groups on the Bill;
· bilaterals between the National Treasury and the Department of Provincial and Local Government to clarity certain issues and to understand the thinking behind certain clauses in the Bill;
provision of comments on the various drafts of the Bill;
· ensuring that DPLG comments were incorporated, wherever possible (examples of the influence of the Department can be seen in the clauses incorporating the Integrated Development Planning process, the Performance Management System and the inclusion of the Performance Report in the Annual Financial Statements);
· alignment of existing programmes to take into account the enactment of certain clauses contained in the Bill; and
· discussions in 2001 at a Director-General level on the clauses dealing with financial emergencies.

While a few of the comments have been incorporated into the Bill, other issues have not yet been addressed. This document again brings out those comments and tries to outline some of the current problem areas that the Department has identified in the latest draft of the Municipal Finance Management Bill.

In general, the Bill should be commended as it brings to the Local Government sphere a semblance of accountability and order, along the same lines as the Public Finance Management Act. The latter has resulted in major improvements in the financial administration in national and provincial departments.

The Municipal Finance Management Bill should be read with the Municipal Systems Act, Act 32 of 2000. The Municipal Finance Management Bill stipulates the procedures for the correct management of municipal finances for the various municipal systems described in the Municipal Systems Act. It is therefore imperative that these two pieces of legislation are adequately synchronised and use the same definitions and descriptions. This is the first area identified within the Bill as requiring further attention.

Other areas include:
· the recognition of concepts raised in the Municipal Systems Bill and retaining consistency in reference to these procedures;
· provision of various capacity building initiatives to ensure that municipalities can comply with the requirements of the Bill; and
· the introduction of a framework for the final implementation of the financial emergency provisions.

General Comments
The Bill transfers most of the responsibilities and functions performed by national and provincial departments responsible for local government over to the National Treasury. It is quite evident, when referring to Chapter 2 of the Bill, that the oversight role currently played by these departments is primarily being handed over to both national and provincial treasuries. While there are some provisions for the delegation of these responsibilities, these are negated by the constant reference to the provision of information to National Treasury and the relevant provincial treasury, to the exclusion of any delegation made in terms of clause 6 of the Bill. (These references can be found in the following clauses: 12, 17 (3), 18 (5), 36(p), 40,47, 50, 59 (k), 85 (3) and 86(3).)

The fact that National Treasury has the sole mandate to supervise municipalities on finances, notwithstanding the fact that this may be delegated, has far reaching consequences. Within the body of the Bill various responsibilities are allocated to the MEC responsible for local government. However, should the monitoring of municipal finances not be delegated to the provincial department responsible for local government, the MEC would be dis-empowered through the lack of relevant information. Section 154 of the Constitution clearly mandates provincial government to monitor the local government sphere and provide the necessary support to ensure that the municipalities can fulfil their Constitutional mandate. This provision is not specific to finances and would thus encompass all aspects of municipalities, placing the mandate squarely on the shoulders of departments responsible for local government matters.

The Minister for Local Government has a political mandate to ensure the sustainability of local government and as such must ensure the financial viability of local government. According to clauses 78 and 79, responsibility to report on the queries raised by the Auditor-General and the corrective action taken by municipalities, is firstly given to the M[C for local government and then the Cabinet member responsible for local government. It is also clear that the Cabinet member responsible for local government would be required to set up the proposed Municipal Emergency Authority and to ensure that it fulfils its functional mandate. However, these cannot be workable proposals if the MEC for Local Government and the Minister for Provincial and Local have no oversight role on local government finances through some monitoring process. If the provincial departments are expected to continue collecting their own data due to the mandate given in Section 155 (6) (a), there may be a continuation in the current duplication of the collection of data.

Also of concern is the direct accounting relationship between the Municipal Manager and National Treasury that runs through the entire Bill. This is very different from the accountability scheme found in other legislation such as the Municipal Systems Act.

Inconsistencies between the Municipal Systems Act and the Municipal Finance Management Bill
In order to be consistent with the Municipal Systems Act, the definition "minimum essential municipal service" should be changed to "basic municipal service", This will ensure a consistent definition and wording and avoid confusion.

Inconsistent recognition of concepts raised in the Municipal Systems Act
Integrated Development Planning
A major weakness identified in the Bill is the poor relation between its contents and that of the Municipal Systems Act (2000), particularly in respect of integrated development planning.

The budgetary process outlined in the Bill ignores the fact that the budgetary process has a starting point in the formulation of municipal Integrated Development Plans (IDPs). The energy, effort and community involvement in the IDP process is ignored. While it is not the intention to give the impression that the IDP and budgetary process should be part of one single process, they are certainly two interrelated processes. The IDP is not equal to a budget or the other way around. Rather, the principle that should be applied is that the IDP must inform the municipal budget. Ignoring the interrelation between the IDP process and the budgetary process is problematic for several reasons:

a)It would cause confusion for municipalities as there would be no legal clarity on the relationship between the IDP process and the budgetary process, which are so interlinked.
b)Municipalities would embark on two separately led community participation exercises, one for the IDP process and one for the budgetary process. This could result in a duplication of resources, time and effort.
c)Linking the two processes (IDP and Budget) clearly in legislation could have quality improvement benefits for both processes. The preparation of the IDP has to take into account budgetary constraints and the budgetary process has to take in to account municipal development priorities and objectives.
d)In terms of the Municipal Systems Act (2000) an IDP must contain a 5 year financial plan and budget projections for the next three years. This should be linked to the budgetary process otherwise the exercise in the IDP process is pointless and wasteful. A proposal would be to have as the starting point of the budgetary process a requirement for municipalities to indicate sources of funding for each priority, project, operational expenses identified in the IDP and to clearly indicate where there is no funding source available or where there is uncertainty of funding.
e)This mechanism would improve the way municipalities plan but would also allow the budgetary process to be sensitized to long term financial needs and priorities.

The Municipal Systems Act makes allowance for an IDP to be amended. It is unclear what the relationship is between this clause and the allowance for municipalities to adjust their budgets.

Financial Reporting and the Performance Management Report
Clause 21(1) should be amended to provide for reports on the state of the municipalities' budget to be submitted to relevant provincial local government department. This information could make the monitoring responsibility easier.

Clause 66 refers to an annual report on the activities of the municipality during that financial year whereas in the Municipal Systems Act there is reference to a performance report. It is essential that there is consistency in describing the constituent part of an annual report so that a clear message can be conveyed to municipalities. Section 66(2) (a) goes further to explain the contents of an annual report and primarily places emphasis on financial issues - financial results and performance against prescribed financial management performance indicators. It is essential that there is consistency by ensuring that:

· Section 66(1) (a) is reformulated to make reference to section 46 (1)(a) of the Municipal Systems Act; or
· Section 66(2) (b) is reformulated and broadened to include performance of municipalities on targets set on development and service delivery priorities in line with provision of the Municipal Systems Act - section 46(1) (a).

Section 67 (1) places an obligation on the municipal managers to submit financial reports to the Office of the Auditor-General for Auditing within two months after the end of a financial year. The Municipal Systems Act places an additional responsibility on municipalities to prepare performance reports. Therefore the proposed timeframe of two months is not adequate. It is proposed that the timeframe be three months in view of enlarged responsibility of preparing a performance report.

There seem to be a contradiction between the provision of section 67(1) and section 70. The latter makes provision for the internal auditing process to take four months whereas the former oblige municipal managers to send financial statement to the Office of the Auditor-General for auditing within two months after the end of the financial year. Is the Bill prescribing a parallel process of external and internal auditing processes? If this is the intention, will it not be ideal that an internal auditing process precedes the external one so that margins of errors of financial statements and subsequent queries from the Office of the Auditor-General on these statements could be reduced?

Other Specific Areas that Warrant Further Attention Amendment to the Act
Provision should be made to allow the Minister for Provincial and Local Government to amend the Act or enact subordinate legislation in line with the Act. (Clause 4)

The micro-management of municipalities as suggested in clause 5 (2), and especially clause 5 (2) (g), appears to be inconsistent with the policy of National Treasury. Internal and external auditors normally carry out some of the functions mentioned.

Further micro-management, with a serious potential for delaying transfer payments, appears within the provisions relating to bank details. Authorisation to change its primary a bank account must be given by National Treasury. The financial institutions and the municipality must provide the new details to National Treasury. (Refer to clauses 8 and 12.) At this stage it is not clear if banks have agreed to these provisions. Financial must disclose information regarding all municipal accounts, as well information as requested by National Treasury, the provincial treasury , or the Auditor General. The powers conferred on these institutions by the Bill clearly go well beyond the intentions of Chapter 13 of the Constitutions.

Clauses 13 and 14 of the Bill prohibit the disposal or transfer of ownership of capital assets. This is contrary to Section 81 of the Municipal Systems Act where transfer can take place through the service delivery agreements. This clause also appears to be contrary to the Electricity Restructuring Programme embarked on by national government. It would also appear that there is no longer any provision for some of the concessions where assets are bought and maintained for a period, after which they are transferred back to the municipality. (Any fears of asset stripping can be allayed as Section 94 (1) (g) of the Municipal Systems Act contains the provision for drafting regulations that will guard against this practice.)

Clause 16 (1) (d) is extremely limiting on municipalities when a large portion of the growth in expenditure on the budget is determined through the central bargaining council when salary and wage increases are determined. These increases usually exceed the growth factor stipulated by National Treasury. The only portion of the budget that can be manipulated to accommodate this expenditure is the expenditure on repairs and maintenance. The proportionate reduction in maintenance has a direct impact on service delivery over the longer term.

Clauses 17, 18 and 20 contain various financially onerous conditions applicable to smaller municipalities. The draft budget, final budget and any further draft and final adjustment budgets have to be circulated to:
· the National Treasury,
· the provincial treasury,
· the district municipality in whose area it falls, in the case of a local municipality, and
· the local municipalities in its area in the case of a district municipality.
The draft budget is not submitted to the provincial local government department, yet if it is not approved, the MEC for local government must direct the council to approve a budget where it has not done so by the start of the new financial year. The MEC must also approve any second or subsequent adjustment budgets.

The draft municipal adjustments budgets are also subjected to a 40 day response period by National Treasury. The recommendations of the National Treasury, provincial treasury and any other municipality must be taken into consideration before the final approval of the adjustment budget. There is therefore no provision made for the immediate realignment of funding should there be an emergency, crisis or disaster.

Clause 21 requires municipalities to report on the expenditure and income performance against the budget. The deadline of 10 days is unrealistic as the municipal accounting systems work on the accrual basis while the report must show the cash expenditure and income figures. Once again the reporting mechanism appears onerous and, in some cases superfluous, as reports must be submitted to the district municipality as well as to the national and provincial treasuries. A district must support their submission with the submissions of the local municipalities that fall within its boundaries.

Clause 24 of the Bill is contrary to the stipulations made in Section 230 (1) (b) of the
Constitution that a municipality must pay off a short term debt within a 12 month period.
The Bill states the debt must be paid off within the financial year.

Clause 27 should be strengthen with a provision that any security should not hinder the basic service delivery in the area.

Chapter 7 of the Bill expands and overlaps with some of the provisions made in Chapter 7 of the Municipal Systems Act. This could be confusing to officials as both pieces of legislation would have to be referred to before compliance with legislation could be established.

Clause 36 (e) places a responsibility on the municipal manager to notify National Treasury and the provincial treasury if a bank account of the municipality is overdrawn for a period exceeding 1 0 days. It is clear that the majority of municipalities use overdraft facilities as a temporary bridging measure when consumers are slow to pay the municipality for services rendered. The rationale for this clause is unclear.

Provisions contained in Clauses 38 and 40 do not appear to be consistent. The municipal manager must submit a report to the accounting officer of any national or provincial department responsible for transferring funds to the municipality (Clause 38). However, should the municipal manager not be in a position to comply with this duty, this fact must be reported to the national treasury and the relevant provincial treasury. The Public Finance Management Act holds each transferring national and provincial department responsible for the municipal reporting on allocations made to municipalities. The transferring department should be the department receiving information on the inability to comply with the duty and should duly forward this information to national treasury in terms of requirements of the Division of Revenue Act.

Chapter 8 again appears to deal with micro-management issues that should be the subject of internal controls in the municipality. It would be far more beneficial to state that the internal controls should cover those areas as a minimum. This would promote the principle of co-operative governance while still upholding the principle that municipalities are a separate sphere of government.

Chapter 9 deals with the issues related to municipal entities. Once again confusion can be caused with two different pieces of legislation dealing with the same matter. All similar issues should appear in one piece of legislation only and it may be necessary to bring Chapter 9 into Chapter 8 of the Municipal Systems Act, or as regulations or guidelines in terms of section 94 of the Act.

Clause 51 is drafted much along the same lines as clause 13 and 14 and may well inhibit the transfer of Electricity Utilities to REDs. Clauses contrary to approved cabinet procedures (i.e. the restructuring of the electricity industry) should not be allowed to remain in proposed legislation.

Clause 63 (1): It would seem that the annual business plan of the entities are not informed by the IDPs.

Clauses 77 ( c) and 81 are both addressing the issue withholding the transfer of funds to municipalities, yet the requirements are different. This appears inconsistent. The practical implications of these clauses are also not clearly communicated. Other line-function departments are responsible for transfers to municipalities. It is important that these departments are informed of the decision to withhold funds timeously. It is also assumed that adequate provisions will be established to roll-over funds to the next financial year should this be necessary. It is essential that a framework be established for the processes involved in the withholding of funds.

The concept of audit committees appears to be widely accepted at this stage. However, the practical implementation of the system proposed in clause 107, where a single audit committee may be appointed for a district municipality and the local municipality and the local municipalities within that district is unclear. It is clear that there must be some financial and management responsibilities, however no guidance is given as to how these would be managed.

Chapter 13 appears to deal with similar issues raised in the Code of Conduct in the Municipal Systems Act. Once again confusion can be caused with two different pieces of legislation dealing with the same matter. All similar issues should appear in one piece of legislation only and it is recommended that chapter 13 be incorporated into the Municipal Systems Act.

Implementation of the Bill: Capacity Building
The processes and reporting procedures outlined in the Bill require that the implementation of the legislation be accompanied by a serious and concentrated local government capacity building drive on financial management and related issues. Equally, capacity development programmes for ward committees, community-based organisations, IDP Representative Forums and NGOs operating in the local government field should accompany the national strategy for capacity building to encourage for community participation in the budgetary processes.


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