Municipal Finance Management Bill: deliberations

Meeting report

FINANCE PORTFOLIO COMMITTEE
8 May 2002
MUNICIPAL FINANCE MANAGEMENT BILL: DELIBERATIONS

Chairperson: Ms Hogan (ANC)

Relevant Documents
Municipal Finance Management Bill [B1 - 2002]
Summary of Submissions on the Municipal Finance Management Bill
Committee Programme (see Appendix)

SUMMARY
The Committee continued deliberations from Clause 36(e). Chapter 7 & 8 was completed and thereafter the committee returned to Chapter 5. The Committee will be dealing with the budget votes of Treasury, SARS, FFC and Stats SA for the next week and will continue deliberating on the MFM Bill on 21 May 2002.

MINUTES
Ms Hogan noted that due to all the work that still needs to be done on this Bill, deliberations on it would have to continue after 14 June. The clause-by-clause analysis and work on the constitutional opinions and the reconciling of the Bill with other legislation would not be completed in the time allocated by the committee programme. The schedule after 14 June would need to be negotiated with Provincial & Local Government Portfolio Committee and the NCOP. If the committee is not able to attend to the Bill during that time then it would have to be completed during the July recess.

Chapter 7 - continued
Clause 36(e)
Mr Momoniat said that this clause is not in the PFMA but is included in regulations thereto. If the bank has an overdraft for more than 10 days then the municipal manager must report on it. This was a quick and effective first indicator of the municipality possibly having problems because it relates to cash flow.

Ms Hogan thought that the 10 day period was a bit short especially since municipalities could borrow for bridging finance.

Mr Momoniat said even if it is 20 days it is fine but it must be less than 30 days. Treasury was looking for a structural imbalance because there should be enough revenue to cover expenditure.

Ms Joemat (ANC) commented that the clause suggests that the municipal manager must monitor the bank account on a daily basis which seemed a bit onerous.

Mr Momoniat felt that it was not onerous because another official could monitor it every day but the head of the department should at least check it every week. He suggested that the period be 21 days.

The committee agreed to this amendment.

Mr Lyle (ANC) was concerned that the municipal council is not told of the problem at this stage.

Ms Hogan replied that the measure is an early warning system and is just about the flow of information. At this point there is no crisis that the council needs to be informed about.

Clause 36(f), (g), (h) and (i)
The committee was satisfied with these clauses and did not comment.

Clause 36 (j)
If the municipal manager discovers unauthorised or irregular expenditure it must be reported to the municipal council and the Auditor General. Mr Momoniat said that all references to unauthorised expenditure now includes wasteful and fruitless expenditure as per the discussion yesterday. He added that Treasury will do an audit on all reporting requirements contained in the Bill. He suggested that for the purposes of this clause the report must first go the mayor who should be given the discretion to inform council. Sometimes if information is first given to the council it gets blown out of proportion.

Mr Lyle disagreed with giving the discretion to the mayor.

Ms Hogan understood Mr Lyle's point but said that there are two kinds of information. One needs to be brought to the attention of council and the other is still work in progress. She said that the audit of the reporting requirements will be a help.

Ms Taljaard was concerned that the oversight role of council was being undermined.

Ms Hogan replied that even at national level, departments are not obliged to report unauthorised expenditure to Parliament. The DG however is obliged to tell the Minister. The issue is how the Auditor General's report is dealt with by the council.

Clause 36(k)
There were no problems with this clause.

Clause 36(l)
Mr Momoniat said that this is a mechanism for if there is interference by a councillor in the staffing or financial management of a municipality. The clause says that the municipal manager should inform the MEC. Mr Momoniat suggested that it should be changed to read that the municipal manager must report the interference to the mayor. He added that the speaker of the council also had a role to play because of his/her responsibility in respect of the disciplinary code.

Ms Nqodi (ANC) asked what would the procedure be if the mayor was the problem.

Mr Kompela (ANC) replied that in that case the speaker must inform council accordingly.

Ms Taljaard commented that if there is going to be interference, it will more than likely be from the mayor and suggested that the municipal manager should report it to the Auditor General as well.

Mr Momoniat said these are all governance issues and something like staffing can probably be dealt with in the Municipal Systems Act.

Ms Hogan said that it seemed as if the committee favoured the municipal manager reporting any interference to the speaker. The clause will therefore be amended to replace MEC with the speaker and the reference to staffing will be taken out.

Clause 36(m)
This subclause deals with transfers to entities. The municipal manager must ensure that the entity has implemented an effective, efficient and transparent financial management system. Mr Momoniat said that at the moment the reporting is very opaque and after the funds are transferred there is no monitoring. He added that the clause needs to be stronger and Treasury will add another clause to beef it up.

Prof. Turok (ANC) asked how receipts by municipalities are catered for.

Mr Momoniat replied that receipts are dealt with in the banking clauses.

Ms Hogan clarified that Prof. Turok was referring to a receipt from an international organisation for example.

Mr Momoniat replied that organisations normally have their own strict mechanisms when they make funds available, to ensure the money was spent on its intended purpose. The principle in the Bill is that all revenue must be reflected in the budget.

Ms Hogan commented that even at national level it was difficult to get information on off-budget funding.

Clause 36(n) - (q)
There were no discussion on these clauses as they are standard and straightforward. In respect of 36(o) Mr Momoniat said that it deals with entities. When there is a new entity, Treasury wants to know about it. He requested that the committee not discuss this clause now because entities will be dealt with later in the Bill.

Clause 37 & 38
Mr Momoniat advised that the clauses are actually a repeat of Clause 21 that deals with the reporting on the budget. He said that Treasury would consolidate Clauses 21, 37 & 38.

Ms Hogan asked the committee if they were happy with the rationalisation and the content of clause 37 & 38.

Ms Taljaard pointed out that there are some submissions that say the 10 day period for reporting is too short.

Mr Momoniat replied that the 10 days is a point that municipalities must get to. He added that certain provisions will be phased in.

Clause 39 - Virement
Mr Momoniat explained what virement is. He said at National level there is a vote for health and education for example. Virement is the movement of funds between votes. For national, no virement between the health and education vote is allowed. Within education there could be the higher education and further education programme. The PFMA provides that there can only be virement up to a certain % between programmes within a vote. Clause 39(1) says that there cannot be movement between votes unless authorised by an adjustment budget. 39(2) says that that if specific programmes has been voted within a vote then subclause (1) applies.

Dr Koornhof (UDM) said that it was a good principle but asked how practical it was for smaller municipalities.

Mr Momoniat replied that even small municipalities have budget votes so there is no reason why the same principle should not apply.

A member asked how this provision would be enforced.

Mr Momoniat gave an example: assume that R200 million is voted for water and R100 million is voted for electricity. If only R80 million is spent on electricity and the other R20 million is spent on water then the Auditor General will report it as unauthorised expenditure because the Auditor General reports against the budget, that is, he uses the budget as the guide.

The members were satisfied with the clause.

Clause 40 - Information to be submitted by municipal managers
Mr Momoniat said that this was a standard clause but Treasury would look at all the reporting requirements.

Ms Taljaard said that 'as may be prescribed' in 40(1) is open ended.

Ms Hogan said that the words 'in terms of this act' must be included after 'as may be prescribed'.

Mr Momoniat replied that everything is prescribed in terms of clause 106 and will be in regulation.

Ms Taljaard commented that there were still constitutional concerns to address in that regard.

Ms Hogan said that the constitutional issues will be looked at later.

Clause 41 - Delegation of powers and duties by municipal managers
Mr Momoniat said that this was a standard clause on delegation and allowed for the municipal manager to delegate to other managers in the municipality. He felt that there should probably be a stronger delegation by senior management because there is only one accounting officer. An example of strong delegation was where there is the head of the electricity department. It has the biggest budget and the municipal manager would want the head to run this department.

Ms Taljaard said that in law there was no such thing as strong and weak delegation. She suggested that a 'strong and weak' delegation should be catered for in performance contracts.

Mr Momoniat replied that all that is wanted is an explicit clause that gives the responsibilities of the heads of department in terms of this Bill.

Clause 42 - Duties of other officials of municipalities
Mr Momoniat said that this clause was linked to delegation and it states the extent to which officials are responsible in terms of this Bill.

Ms Hogan referred to 42(b) and said that the officials cannot be responsible for effective, efficient, economical and transparent use of resources. It should state that officials 'must ensure'. She added that others have submitted that clause 42 is not necessary because the municipal manager is responsible for everything. She agreed with this submission.

Mr Momoniat replied that the clause is the same as section 45 of the PFMA, but agreed that it seemed superfluous.

Ms Hogan summarised by saying that Treasury would look at senior delegation and how to deal with it and would get back to the committee whether clause 42 is necessary.

Chapter 8 - Municipal Budget & Treasury Offices
The chapter deals with the establishment of the budget and treasury offices, the role of the chief financial officer and the delegation of functions.

The committee was happy with clauses 43 - 45 and there was no discussion.

Ms Hogan said that the submissions on the clauses discussed need to be looked at.

The submissions on clause 36(e) had been covered in the discussion.

36(o): while this is simply a reporting duty, the Community Law Centre submits that it may easily lapse into an informal permission-seeking exercise.

Ms Hogan said that this is not the intention of the legislation and if the municipality turns it into a process where they ask Treasury for permission to form a new entity then it is their problem.

36(l): provides that the municipal manager must promptly report to the MEC any interference by a councillor in the staffing or financial management responsibilities of the municipal manager. The Community Law Centre submits that the first responsibility is to report such a matter to the entire council so as to enhance local self-reliance to resolve their own problems, rather than create a culture of running to "big daddy".

The committee discussion has resulted in the clause being amended to take care of these concerns.

The submissions that deal with constitutionality issues and questions of aligning the Bill to other pieces of legislation will be dealt with later.

Regarding Chapter 8, Mr Momoniat said that there needs to be system of minimum standards and tests for CFOs. He added that Treasury was thinking of putting in a provision in this regard.

Ms Hogan replied that Treasury could not prescribe that possible CFOs must take tests but could legislate on the appropriate qualifications.

Mr Momoniat said that qualifications do not solve the problem but Treasury would draft something because appointing the wrong people is a real problem.

The committee had previously skipped Chapter 5 and the chair said that they would deal with it now.

Chapter 5 - Debt
Mr Glaasen (Treasury) said that five principles underlie this chapter.
- short term debt is for cash flow management;
- long term debt is for capital expenditure;
- National & Provincial government will not guarantee debt;
- If a municipality guarantees a debt of an entity - that guarantee is a contingent debt of the municipality;
- Municipalities can pledge assets as security for debt but only if the council has applied its mind as to whether the asset is required to deliver a minimum essential service.

Clause 24 - Short term debt
Mr Glaasen said that short term debt is for cash flow management only i.e. it funds the shortfalls in a the given year. The new constitutional amendment in November last year section 230A(1) states that a municipal council may raise loans for current expenditure only when necessary for bridging purposes during a fiscal year. [The amendment is contained in Act No. 34 of 2001.]

Ms Mahlangu (ANC) asked what is the situation if it is a bad budget and municipalities borrow as a result of this.

Mr Glaasen replied that a budget imbalance is different from a cash flow imbalance. If there has been a wrong calculation in the budget then either expenditure must be trimmed or revenue must be raised.

Ms Hogan said that a shortage of funds can arise if there is a wrong calculation or when there is cash flow problem. She asked how did council know what the cause was.

Mr Glaasen replied that the Council authorises borrowing and it is at that stage that the manager must be interrogated as to why there is the need for borrowing. He said that this interaction will have to be relied on.

Mr Pillay added that council must get the monthly cash flow reports so they will know what to expect going forward.

Mr Momoniat said that in certain countries, municipalities could only spend if they have money in the bank. Borrowing merely avoids confronting the hard problems. The intention behind the clause is therefore important.

Mr Felix understood the rationale but asked what would happen in the event of an emergency like a natural disaster.

Mr Glaasen replied that the ideal is that municipalities should have working capital at hand but this is not the case. Treasury was looking at ways of saying that in certain circumstances such as emergencies, the provision will not be strictly enforced.

Ms Hogan noted that time had run out and that this point will be picked up at the next sitting (Tuesday 21 May 2002) when the MFM Bill is discussed. The meeting was adjourned.

Appendix:
PORTFOLIO COMMITTEE ON FINANCE: DRAFT PROGRAMME
(Subject to change)

(Dated 29 April 2002)

Monday, 29 April 2002
09:30 - 13:00 Deliberations on MFMB

Tuesday, 30 April 2002
09:30 - 15:30 Deliberations on MFMB

Thursday, 2 May 2002
10:00 - 17:00 Deliberations on MFMB

Friday, 3 May 2002
09:30 - 13:00 Deliberations on MFMB

Tuesday, 07 May 2002
09:30 - 13:00 Deliberations on MFMB

Wednesday, 08 May 2002
09:30 - 13:00 Deliberations on MFMB

Friday, 10 May 2002
09:30 - 13:00 Budget Vote - STATS SA

Monday 13, May 2002
09:30 - 17:00 Budget Vote - National Treasury

Tuesday, 14 May 2002
09:30 - 13:00 Budget Vote - SARS

Wednesday, 15 May 2002
09:30 - 13:00 Budget Vote - FFC

Friday, 17 May 2002
09:30 - 13:00

Tuesday, 21 May 2002
09:30 - 13:00 Deliberations on MFMB

Wednesday, 22 May 2002
09:00 - 13:00 Deliberations on MFMB

Friday, 24 May 2002
09:30- 13:00 Deliberations on MFMB

Tuesday, 28 May 2002
09:00 - 13:00 Deliberations on MFMB

Friday, 31 May 2002
09:30 - 13:00 Deliberations on MFMB

Tuesday, 04 June 2002
09:30 - 13:00 Informal Briefing on Taxation Laws A/B

Friday, 07 June 2002
09:30 - 13:00 Hearings on Taxation Laws A/B

Tuesday, 11 June 2002
09:30 - 13:00 Hearings/Deliberation on Taxation Laws A/B

Wednesday, 12 June 2002
09:30 - 13:00 Hearings/Deliberations on Taxation Laws A/B

Friday, 14 June 2002
09:30 - 13:00 Deliberation on Taxation A/B

Tuesday, 18 June 2002
09:30 - 13:00 Legislation

Wednesday, 19 June 2002
09: 30 - 13:00 Meeting with the Public Investment Commission (PIC)

Friday, 21 June 2002
09:30 - 13:00 Formal Consideration of Taxation Laws A/B

Tuesday, 25 June 2002
09:30 - 13:00 Legislation

Friday, 28 June 2002
09:30 - 13:00 Meeting with Governor of SARB

(Friday, 28 June to Monday, 26 July - Recess)