Municipal Finance Management Bill: deliberations on chapters 10, 12 &13

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Finance Standing Committee

28 May 2002
Chairperson: Ms Hogan (ANC)
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Meeting Summary

The committee completed their first reading of the Bill. Treasury will have another look at most of the provisions and redraft them taking into consideration all the discussion. The contentious Clause 106 is included in the provisions that Treasury will redraft and thereafter the committee would be able to deliberate more extensively thereon. The committee will process the Taxation Laws Amendment Bill at the next couple of sittings. The MFM Bill is on the programme for the 18 June 2002 when the committee will have the Constitutional discussion.

Meeting report

Chapter Ten - continued
Mr Momoniat advised that when drafting Clauses 75 - 79 the principle that council must take responsibility for its own finances were not taken into account. These clauses will have to be looked at again by Treasury.

In relation to Clause 75 he said that that the Constitution obliges meetings to be open and can only be closed for good reason.

Clause 76 obliges the MEC to submit the municipalities' financial statements to the provincial legislature and the Auditor-General must submit its audit report to the provincial legislature as well.

Clause 77 makes it a serious offence not to comply with provisions in this chapter. The question is who gets blamed for the offence and the nature of the disciplinary steps that needs to be taken. If there is a persistent breach then national government can withhold funds.

Ms Hogan referred to Clause 76(3) that states that the provincial legislature may deal with the documents referred to it in terms of 76(1) and (2) in accordance with its Constitutional powers. The Chair wanted to know what this meant.

Mr Momoniat replied that the power referred too is the Section 139 monitoring responsibility.

Ms Hogan asked if it was correct to presume that the MEC submits the financial statements to the provincial legislature after it has already gone through council.

Mr Momoniat said that it presumption is correct but Treasury would make it clear. He added that the provincial legislature must only get the audit report after it has been tabled in council. The council's response must also be tabled in the provincial legislature.

Ms Hogan commented that the timing of the process is unclear. It is not clear at what point the MEC must submits the information to the provincial legislature.

Ms Mahlangu asked if the information given to the provincial legislature is solely for information purposes or is there another purpose.

Mr Momoniat replied that he would get back to the committee on the timing issues. The principle is that after the council has commented then all the documentation along with the response of the council goes to the province. i.e. after the council process is complete.

In response to Ms Mahlangu's question Mr Momoniat said that the provision serves as an additional oversight mechanism. Once the province has the information it can decide whether the municipality needs advise on certain issues or if stronger action is required.

Ms Hogan going through the process said that the public accounts committee would look at the financial statements and make recommendations to the council. She suggested that the Auditor General (AG) should be the body that tells the provincial legislature that the council is not appropriately attending to the problems raised by the AG. i.e. the AG has the discretion to refer the matter upward. The Chair asked if the provincial legislature should have the ability to do something at their own initiative or just on recommendation by the AG. If the answer to that question is yes, then there needs to be grounds for provincial legislature intervention. The Chair was of the view that an additional legislative check is needed.

Secondly, The Chair was still concerned about Clause 76(3) in that Section 139 refers to executive power but sub (3) refers to the provincial legislature.

Mr Momoniat said that the MEC implements the recommendations made by the legislature.

Ms Hogan felt it was still not clear because sub (3) referred to the Constitutional power of the provincial legislature and said that something more specific about what Treasury has in mind is needed to make the process clearer.

Mr Momoniat said that he wanted to raise a cheeky question and asked if the AG should refer the problem to the National Assembly if the provincial legislature does not act.

Dr Woods (IFP) commented that the Auditor - Generals Act is being re-written and the issue of the AG making recommendations is very controversial. A conflict of interest could arise in that the AG could make recommendations in on year. If the recommendations do not solve the problem does the AG report in the next year that its recommendations were wrong.

Ms Hogan said that there were two types of recommendations. The first type gives a solution to the problem and the other is one that says that the problems are not being satisfactorily resolved. What is wanted is a recommendation whether further hearings are needed at the provincial level.

Dr woods replied that there are practical advantages but it is a tricky issue because an additional issue is the Constitutionality thereof in relation to impinging the oversight role of parliament.

Ms Hogan commented that the problem at the moment is if the problems gets bumped up to province, the provincial legislature is not obliged to do anything about it.

Mr Momoniat said that the role of the AG comes up all the time. When the PFMA was debated the preference was for all references to the AG to go into the AG Act. The problem is that there are many pieces of legislation that gives various roles to the AG and sometimes the exact role of the AG is unclear. Mr Momoniat said that he was very happy to put everything to do with the AG in the AG Act but it was put in the PFMA because the AG act was not ready. Now the MFM Bill is being dealt with and it is still not ready.

Dr Woods highlighted the importance of discussion with the AG's office but added that first the route that is to be taken needs to be decided on. The route in the PFMA allows managers to manage. The AG says if they are doing things right or wrong. Parliament serves the public by getting the managers fired if they do not do a proper job. He said it becomes problematic when the AG is asked to recommend how to put things right.

Ms Hogan replied that the AG is not being asked how to solve the problem. At the moment there are many municipalities that do not have audited financial statements but nobody does anything. In terms of the Bill the public accounts committee in the municipality will make a resolution on how the council should deal with any problems relating to the financial statements. If the council does not act the problem gets bumped up to the provincial domain. The question therefore is what triggers further action in the provincial domain. Ms Hogan reiterated her previous comment that the province should themselves decide if they want to act, but at the same time there cannot be a situation where there is a parallel process in the municipality and the province to solve the same problem. That will be too chaotic.
The recommendation that the AG makes is that the province should look at the problem because council is not resolving it satisfactorily. The Chair asked if this type of recommendation is within the ambit of the AG.

Dr Woods said yes but only up to the point that the AG says what province must do. He used National government as an example and said that the AG says if the financial statements are in order or not and then parliament decides whether to call the CFO or not, with no input from the AG.

Ms Hogan asked what would be the signal that province must act, because at the moment at national level SCOPA makes the resolutions but the department takes a very long time to correct the problems.

Ms Maabe (ANC) suggested that the AG's office should be present to assist in the debate.

Ms Hogan said that what is needed is a consecutive approach to prevent a parallel process. She made some suggestions on what could be done:
- The municipal public accounts committees could refer the matter to province itself;
- If there is a generic problem across a few municipalities the province could intervene to identify the uniformity of the problem;
- If there is a problem with an individual municipality then the province should hold hearings - after consultation with the municipal council.

The Chair stressed the importance of a consultative process in respect of hearings.

Ms Mahlangu responding to the chairs input said that it only applies when a municipality accepts that there are problems, but what if the municipality does not agree that there are problems.

Ms Hogan replied that the executive could act in terms of Section 139.

Dr Woods expressed concern about legislating how legislatures should practice oversight. At the national level the committees decide whether and how to intervene.

Ms Hogan agreed but said that at the local level there has never been a public accounts process.

Mr Momoniat in the interest of saving time said that the discussion was useful and asked the committee for Treasury to come back with a framework. He agreed that legislatures cannot be told how to act, but the legislatures need to be made aware of the opportunities that exist for then to act. He added that the input of the AG would be sought.

Ms Hogan was happy with this approach and stressed the importance of consultation between the province and the municipality around hearings.

Clause 77 - Consequence of non-compliance with certain provisions
Mr Momoniat said that at national and provincial level there are no extensions if the financial statements are not submitted on time. The legislature should be outraged if the financial statements are not submitted to the AG. He asked what would happen if there is a failure to submit. He answered and said that the failure is on the part of the municipal manager. Mr Momoniat proposed that if there is such a failure then 10% of the municipal managers' salary should be deducted. There should not be a situation developing where it is common place to grant extensions.

Referring to Clause 77(c) he said that the provision should be de-linked from the Clause 77 because the community should not be punished. This subsection also sends the wrong signal.

Ms Hogan asked the committee if they were entertaining the 10% deduction.

Dr Woods supported the thrust towards greater sanctions but suggested that advice be sought whether such deduction is allowed. He was not sure whether it was permissible.

Ms Hogan was also unsure if this could be done but added that salary increases and promotions could be withheld.

Mr Momoniat replied that the municipal manger is on contract and the deduction could be factored into the contract. Municipal managers are not ordinary workers and get paid huge salaries. The submission of financial statements is an important performance indicator.

Ms Mahlangu agreed with Mr Momoniat.

Ms Hogan said that all agreed that there must be some kind of penalty, the only question is how the legislation is worded.

SALGA supported sanctions but said that there should be some qualification because there could be a reasonable explanation as to the delay.

Ms Joemat (ANC) commented that the same kind of provisions should apply to DG's because the same problems exist at national level and it is only the municipal managers that are being targeted.

Dr Koornhof (UDM) supported the idea of a penalty with a qualification but wanted subsection (3) to remain.

Ms Hogan replied that if the penalty is going to be included then that would be a corrective measure and the sub (3) is not needed.

Mr Momoniat added that the failure to submit financial statements could fall within the ambit of Section 216 of the Constitution but asked that it not be discussed further because Treasury was going to redraft Clause 77. In response to Ms Joemat he said that the PFMA amendments will come before the committee and she could take up her concern there.

Ms Hogan closed the discussion because all agreed that there must be a penalty but that there must be grounds for imposing the penalty.

Clause 78 & 79
Treasury will have a loom at both clauses and get back to the committee on this.

Part 2 - Auditing of municipal entities & Part 3 Appointment of auditors
Mr Momoniat dealt with these parts simultaneously. His personal preference was that both parts must go to the AG Act, but if this is not possible then it must be included now.

He told the committee to get forget about Clause 81 Treasury will come back on that one. Clause 82 was discussed yesterday and there will be consequential amendments to Clause 83.

Ms Hogan added that the AG had commented on these clauses and suggested that discussion be held over.

Mr Momoniat agreed and said that the AG should be present and even the audit commission.

Chapter 12 - General Treasury Matters
Clause 106 - Treasury regulations, instructions and guidelines

Mr Momoniat advised that he did not want to get into the constitutionality debate now. He said that Clause 106 comes from all parts of the Bill. Where all the detail is left out in the body, Clause 106 just gives Treasury the power to make regulations. In respect of instructions, he said that the legal advisor had explained that Treasury can issue an instruction when a norm or standard is not followed. He added that he wanted to review this with the legal advisor. Further, 106 must be read with Clause 108 that calls for public comment on all draft regulation.

Ms Hogan, referring to a constitutional lawyer, said Section 106 goes beyond what is a Treasury norm and standard. The lawyer says that Parliament, in terms of the Constitution, has the right to impose legislation on a uniform norm and standard. The problem is that the Chair was not sure what a uniform norm and standard was as envisaged in the Constitution. At the beginning of the Bill, Clause 5(2)(c) says that Treasury must prescribe the norms and standards but the Constitution says that national legislation must do this. The legislature must give the parameters of the norms and standards otherwise Treasury is given a blank cheque to do as it pleases. The Chair felt that Clause 106 looked like norms and standards but the heading referred to regulations and instructions and this was confusing. She asked what was the difference between a norm and standard, and a Treasury regulation/instruction.

Mr Momoniat replied that many of the provisions in the Bill are norms and standards. He was not sure what the differences are, but undertook to explore if Clause 106 is just adding further detail to the Bill or if it is s further power to regulate. To save time he said that it would be better to put some provisions of Clause 106 in the bill itself because by having it under Clause 106 it gets read out of context. He asked that Treasury be given the opportunity to come back with a revised Clause 106.

Ms Hogan reiterated that Clause 5(2)(c) was also a problem.

Mr Momoniat replied that the comment had been noted and Treasury would get back to the committee.

Ms Hogan said that when the constitutional opinions are considered the committee will discuss what a norm and standard is.

Chapter 13 - Financial Misconduct
Mr Momoniat noted that the approach in Clause 110 and 111 is the same as one applies to municipalities and the other to entities. Having done the PFMA, one realises that misconduct must be put into categories, ranging from the very serious to serious. Clauses 110 and 111 should not be used for anything and everything because the PFMA has shown that it can be used for political purposes. There should be objective criteria to determine misconduct and the focus should be on gross financial misconduct. Mr Momoniat said that in the civil service it was difficult to force persons to institute action against another person - the political heads will not allow it. He felt that an independent trigger would solve the problem. He said that the clauses are the same as in the PFMA.

The principle that should be legislated is that the misconduct should apply to senior managers. The other normal disciplinary measures can apply to the other officials.

Instead of going clause by clause Mr Momoniat said that it was first necessary to know what is going to be in the Bill before it can be made clear what is completely unacceptable.

Ms Hogan said she was glad Treasury was rethinking the provisions and asked the members if discussion should be held over until the clauses are reformulated.

Mr Momoniat said that it would be useful to hear the member's views on an independent trigger.

Dr Woods supported Mr Momoniat's comments and encouraged the use of an independent trigger. He suggested that the AG be brought in to identify serious financial misconduct.

Ms Hogan agreed that the AG could be a useful trigger.

Ms Mahlangu reminded the committee that at a previous occasion the AG was not happy with this role.

Mr Momoniat replied that a discussion is needed with the AG and the audit commission on what the AG should do. He added that political heads should also be able to lay charges but it must be after investigation by the AG so that frivolous charges can be prevented.

MS Hogan said that discussion would be held over until the provisions are reformulated and the AG has provided input.

Chapter 14 - Miscellaneous

Mr Momoniat said that the clauses in this chapter were standard provisions and that it was too early to deal with it now. The exemption and phasing in clause would be better dealt with after the bill has been finalised. He said that even if the bill is phased in there are some provisions that would have to apply immediately while others would not be able to be implemented by some municipalities even in the next five years. He added that Treasury was thinking about putting a points system in place for financial managers to ensure that there is good financial management.

Ms Hogan agreed that this chapter could be dealt with later.

Councillor Von Ronge referred to Clause 119(2)(b) and reminded the committee it was previously decided that arrears of a councillor should only be included in the report if it was overdue by more than 90 days. He said that in this clause the same principle should apply. The MEC should only be notified of the arrears after 90 days but the speaker of the council should be notified after 30 days.

The above amendment was agreed to.

Mr Dorfling (SALGA) commented that old ordinances were sometimes getting in the way of municipalities doing their work.

Mr Momoniat replied that there were many ordinances but national legislation could not repeal provincial ordinances, it was up to the provinces.

There were no further questions.

Looking at the process going forward, Ms Hogan said that the committee would be dealing with the Taxation Laws Amendment Bill for the next couple of days. The MFM Bill will be returned to on the 18th June 2002 when the committee will consider the Constitutional issues.

Mr Momoniat advised that the financial emergency provisions and the governance framework would be ready on the 18th.

Ms Hogan said that those issues could be dealt with immediately after the Constitutional discussion.

The meeting was adjourned.


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