Municipal Finance Management Bill: deliberations

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Finance Standing Committee

30 July 2002
Chairperson: Ms B Hogan (ANC)
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Meeting Summary

Morning Session
The committee deliberated on Chapter 4A Cooperative Governance , Chapter 6 Councillors for Financial Matters and Chapter 7 Duties of Municipal Officers. Mr Momoniat noted that the language in the Bill still had to be worked on to be made consistent.

The Committee agreed that the Clause 23 L dealing with unfunded mandates would not address fully the problem and that this Bill was not the right place to solve that problem. They agreed that they would have to work on adopting a broad policy to address the issue.

Afternoon Session
During the discussion on Clause 38 it was proposed that Clause 1(a) and (c) be consolidated into a single provision.

Under Clause 39 concern was raised with the requirement that the functions be performed weekly, the use of the word "due" in Clause 39(1)(a) and its implications was discussed, as well as the ninety day period on Clause 39(2). The possible incorporation of informal settlements within the definition of "customer" and the implications thereof was discussed, and the problem with the double exemption created by Clause 39(1)(c) and (d). The hazards in public servants owing funds to the government under Clause 39(2) was discussed.

The wide ambit of the phrase "any impending" in Clause 39A(a) was discussed, and whether the provision should be strengthened to protect the municipal managers from errors in the revenue calculation.

The discussion on Clause 40 highlighted the concern with whether the municipal council is obliged to implement the procurement policy, especially in view of the position in Section 217 of the Constitution.

All the relevant issues have not yet been incorporated in Clause 40, but a limit placed on the expenditure referred to in the provision and the expenditure should be categorized. The clause is designed to ensure contributions are made in good faith, and to avoid incidences of abuse of such funds.

Meeting report

Chapter 4A - Co-operative Governance
Mr Momoniat (National Treasury) said that an example of how co-operative governance can be measured is by looking at whether government departments in the various tiers provide information timeously. Often they give the information late but then blame the recipient government tier. He then commented on fiscal dumping which is not a major problem but it is a problem. This takes place by "dumping" funds into a municipality or an agency simply so that the money can get spent.

Treasury wants allocations to municipalities to be published with the budget. They want municipalities to table their budgets around 1 April.

They also want to introduce a mediation mechanism. In terms of this they will appoint a mediator to solve disputes for payment problems.

Clause 23H - Transfers from national and provincial spheres of municipalities
This clause makes a statement. The PFMA will have some of these provisions.
Clause 2(b)(ii) is not necessary as Treasury does not want to be informed of the changes. They have inserted the date of 10 March because they want it to be part of the budget.

Mr Smith (IFP) said that it does not give the recipient an idea of the amount of the transfer as it only says ''a transfer''.

Mr Carrim (ANC) commented that 10 March might be too soon in that the National Budget is tabled in February and the Provincial Budget is tabled within two weeks thereof.

Ms Joemat (ANC) highlighted the problem of municipalities that do not transfer funds and wondered if it would be appropriate to impose a deadline.

Mr Momoniat replied that those grants go to municipalities first then to other entities. They do not need these kind of deadlines.

Ms Hogan (ANC) however agreed with Ms Joemat saying that if one is asking for co-operative governance then there must be deadlines.

Mr Momoniat said that he would note these comments.

Mr Nkosi (SALGA) commented that fiscal dumping is not a money problem but a capacity problem. It must be addressed in terms of layout for decision making and implementation of decisions.

Mr Momoniat said that the provisions of this clause need to be refined as the area of transfers to another sphere has been found to be problematic. A reference to it is therefore necessary.

Clause 23 I - Stopping of funds to municipalities
This was taken out of Chapter 2 dealing with powers of the National Treasury. The change now is that they specify a consultative approach. It provides for notice to the National Council of Provinces (NCOP) and the National Assembly (NA) because it is a serious step to be taken.

Ms Hogan commented that the subclause should clarify that decisions should take place ''after consultation''.

Mr Carrim asked about the effect of Clause 23 I(2) as the NCOP or the NA cannot disagree. The clause simply provides that they must be informed. He noted that he was not suggesting that they should have a say but wondered about the significance of simply providing for informing them.

Mr Momoniat explained that in terms of the Constitution the National Treasury may withhold funds to provinces if there is a transgression in terms of Section 216 of the Constitution. It goes to the NCOP if it is the stopping of an equitable share of a province. The Constitution sets this out. He added that they do not want to be seen as "bad boys" withholding funds. This should come from the accounting officer.

Mr Smith asked if it is implied that once Treasury decides that requisite grounds have been met they can resume transfer.

Mr Momoniat said that Parliament could instruct the resumption of a transfer. He will check with Advocate Grove (Treasury). For the Bill under discussion they envisage a process similar to the process outlined in the Constitution for provinces whereby they can withhold and resume payment.

Ms Hogan asked if some of these provisions do not come in Chapter 11 on financial emergencies and if they wanted to replicate this provincial process for local government.

Mr Momoniat said that the Constitution only refers to equitable share. They want to emulate this for local governments. The difference between the two grants (that is, a transfer which is an equitable share and a transfer which is not an equitable share) must be clear and they must have different processes for each. Municipalities will receive their equitable share because one cannot punish residents for the sins of the councillors. It would be a very extreme form of punishment.

Mr Nkosi added that one does not want to do something negative to the residents. The interventions should be quick and should be helpful.

Ms Hogan asked if the drafters were going to spell out what the process involved more clearly and Mr Momoniat said that they would.

Clause 23J - Regulation of tariffs, rates, taxes and other municipal revenue services
If a regulator makes a decision on prices it should be done timeously. If done after the requisite time it binds the municipality only for the following financial year.

Mr Momoniat said that although the clause does not seem to be written that way, they were trying to say that all price sectors must ensure that they announce prices timeously. The National Electricity Regulator (NER) is the major regulator. The Water Act has certain provisions.

Mr Momoniat said that they would look at the language to give it the right sense. They have not completed consultations. It does affect other Acts of Parliament and these cannot be changed here with this Bill. They will have to formalise the consequential changes which this Bill has on other Acts by effecting consequential amendments to the affected Acts.

Ms Taljaard (DP) commented that if this legislation does not automatically change other Acts and the other Acts have to be formally amended then it must be done in such a way that the Acts can be promulgated together to prevent any delays with this Bill. She said that they must check with the Treasury on this.

Mr Smith commented on the time period, 28 February to 1 July, which he said must be earlier as they want extensive consultation before the budget. This means that they will need more time.

Ms Hogan agreed that the time period made the timing tight in which to discuss tariff increases. The committee flagged this issue.

Mr Smith commented that subclause 23J(1)(e) talks about enforcement for 3 financial years, and said that this made for good planning but wondered if it was wise to limit in this way.

Mr Momoniat agreed that 3 years is desirable but said that it would probably be only for one year. The NER said that they would look at individual applications. The provision will allow for long-term contracts by municipalities. There needs to be a rigorous process to deal with municipalities long-term borrowing and so forth. They have a draft clause which they will circulate on 1 August. They want to create a better climate for the private sector. Once a contract has been signed, it also means that Treasury cannot come in and change figures. They had held meetings with NER and the Water Board to look at new wording. The date should be at least one month before the municipality tables its budget.

Ms Taljaard asked if there has been a policy decision on a sliding scale price regulation. She said that this issue should be discussed.

Mr Momoniat replied that the issue of regulation is complicated and they are still at an early stage. They do need discussions on this but they cannot finish it before the Bill is complete, however, they can start. Many regulators, such as Water Affairs, are the policy maker, regulator, and pricing strategy maker. In some cases the NER can look at individual applications. They can use this opportunity to get the debate going.

Ms Hogan asked if provincial and local governments are involved in these discussions. Mr Carrim replied that they were.

Mr Carrim asked about Clause 23J in practice. Does it mean for example that Eskom will have to wait for 12 months before a municipality is obliged to give effect to the price change? If that is the cas,e then it is hard to believe that Eskom will agree.

Mr Momoniat said that Eskom does not determine prices. This function has to go to the NER.
In terms of Section 229 of the Constitution, municipalities have the right to impose a levy on electricity. The question is how high it will be. One needs a regulator to differentiate between different types. They have started meetings with local government about how it affects them.

Ms Taljaard referred to Clause 23(J)(2) and said that they must guard against creating confusion. She warned that they must not confuse subordinate legislation with the modus operandi of regulators and their regulations. The current drafting creates this confusion.

The Committee believed that Clause 23(J)(2) should possibly be deleted.

Mr Smith referred to Clause 23J(1)(a) which states "that a regulation promulgated during the period 28 February to 1 July of any year, does not bind that municipality before the start of the second financial year following the promulgation of the regulation" and commented that this is an extraordinary statement to make. He asked if they do not need the obligation that 'tariffs increase when they need to increase'. Otherwise people will be paying the incorrect price because the notification arrived late.

Ms Hogan wondered what the consequences would be if they did not have that obligation.

Mr Mokoena (SALGA) added that they should build in a consequential outcome if the notification arrives late.

Mr Dorfling (SALGA) said that if the price was not raised by a certain time then they cannot charge the public, that is what this clause says.

Ms Taljaard commented that if this legislation is not supreme to the Property Rates Bill then there will be a conflict in regards to the cap applied on the property rates.

Clause 23K - Dispute between organs of State
There are similar provisions in the Division of Revenue Act. A major point is whether both sides have done everything possible to see the issue is resolved. Organs of state must resolve the issue amongst themselves before resorting to Court.

Mr Momoniat said that this would be more general if they put it into the Intergovernmental Fiscal Relations Act. He noted that municipalities can still go to court if the mechanisms outlined here have been exhausted.

Ms Hogan said that as it takes long to do amendments, they will keep it in here and include it in the Inter-governmental Fiscal Relations Act later.

Mr Carrim believed that this clause is appropriate here as a key element of co-operative governance is the settlement of disputes outside of the court process.

Ms Hogan asked if the clause was saying that the two parties would decide on mediation and if the problem was not solved, the Minister would stop funds after consultation. They could have a cross-referencing for example but with the exception of Section 216 measures.

She continued that one should not include mediation in a Section 216 process as there is nothing to mediate. There must be consultation, not mediation. They want something more decisive for that process.

Ms Taljaard said that if one says: for a Section 216 procedure, one cannot go to mediation, but for other procedures one can go to mediation - is that constitutionally permissable or would it be a problem?

Mr Momoniat said that he would put it to the drafter. He noted that the parties can still go to court after mediation.

Clause 23L - Assignment of functions
Mr Momoniat commented that unfunded mandates are not always due to assignment of functions. This provision provides a strong role for the FFC. Section 9 of the Municipal Systems Act is a similar clause, the two are related.

Mr Carrim said that in the Municipal Systems Act (MSA), they did not want to do a cost assessment for specific municipalities, only municipalities in general. He wanted to know if they were assigning to municipalities in general or to specific ones.

Ms Taljaard said that they should create some parameters so that the FFC can engage. The Council's office must run according to strict procedures in respect of how deficits are run.

Dr Fast (FFC) said that they must distinguish between taking the cap into account or commenting on the growth cap. The growth cap is part of the FFC's mandate and is part of the Constitution.

Mr Smith raised the issue of unfunded mandates. Clause 23L (1)(c) relates to how additional expenditure will be funded. He asked what it means. Also, he commented on the reference to Section 9 of the MSA in Clause 23L (2) saying that he did not want two sets of procedures to be complied with.

He asked why Clause 23L (4) would be required if the parties were happy with the assignment. He said that he understood the clause in the context of an individual assignment between Cabinet and municipality.

Mr Carrim commented that municipalities may agree to the assignment without understanding it. He said it was fine to have Clause 23L (1)(c) there as a warning to national and provincial ministers. It also alerts, it should be there.

Ms Hogan asked if the additional expenditure referred to is for an already existing function or additional expenditure for a new function. If it was for an existing function then it would be legitimate but if it was for a non-existent function then it would be a problem as it was not in the budget. It must be in the appropriation.

Mr Smith urged against unfunded mandates.

Mr Carrim replied that they would love to prohibit unfunded mandates but they cannot do so for various reasons. One of them being that it is unconstitutional.

Mr Momoniat said that the clause does not solve the problem of unfunded mandates but it is there to make sure that every municipality knows what it is in for. It makes it harder for them.

Mr Mokoena (SALGA) said that consultation with the local government should take place and should be built into this section.

Ms Hogan said that they need an overall policy approach to unfunded mandates. That cannot be done in this particular legislation. The Ministry has to apply its mind to funding. Parliament needs to discuss with the FFC about unfunded mandates.

Mr Carrim said that he thinks that they should refer to assignment of additional functions in the Municipal Systems Act (Section 9) as a cross-reference. He said that they should agree with the two Departments that this becomes a Municipal Systems Act amendment.

Mr Momoniat said that he agrees with Mr Carrim in that they do not want to repeat the Systems Act. They need a policy that applies to national and provincial governments. They cannot have a law banning unfunded mandates, that is just a game of bluff. Possibly they could consider amending the Constitution on this. They must have a policy. The consultation with SALGA could eventually only be a 'rubber stamp'. They do not have these answers. "Clause 5" is necessary. Perhaps not for all assignments, and they can call it something else. Treasury wants to be consulted on these things.

Ms Taljaard said that the clause would not have an immediate impact in arresting unfunded mandates. Municipalities will still have unfunded mandates although procedures have been complied with. The end result could still be an unfunded mandate. In respect of unfunded mandates they must look for a broad policy.

Mr Momoniat said that he would take these comments into account. He addressed Ms Taljaard by saying that the municipalities will be allowed to run a deficit because of unfunded mandates. The Division of Revenue Bill is there, when the vertical division is done, they must comply.

Ms Hogan noted that funding an unfunded mandate did not necessarily mean that a municipality was running a deficit, it could be an expenditure elsewhere.

The committee agreed that this clause would not solve the problem. They need a process on how to solve the problem.

Does the Bill need "Clause 5"? Ms Hogan said that she thinks they do need it.

Ms Hogan asked if any other amendments were proposed. The Committee responded as follows:
- Mr Carrim said that they must cross-reference it to the Systems Act.
- Ms Joemat said that the language must be more consistent.
- Ms Taljaard said that it was minor but she felt that they must make a cross-reference to the Constitution in respect of the FFC.

Ms Hogan responded to Ms Taljaard's comment saying that she thought that it was superfluous because the powers of the FFC are already in the Constitution.

The Chairperson said that these proposals must go in the report to Parliament, particularly the role that the FFC can play on unfunded mandates.

Chapter 6: Councillors for Financial Matters
The committee decided that this chapter would be taken out.

Chapter 7:Duties of Municipal Officials
Mr Momoniat said that this is an important chapter in the Bill in terms of financial management. It revolves around the role of the financial manager.

Clause 34 - Municipal managers to be accounting officers
Here there is a minor technical change. It simply says that they must take reasonable steps to comply with the Act.

Clause 35 - Fiduciary responsibilities of accounting officers
A new subclause 3 has been added. This sets out technical issues.

Clause 36 - General financial management functions
The responsibilities are set out clearly. They extracted the national financial management clauses.

Ms Taljaard commented on 36(d)(i). She asked what the status of secondary regulations is. She also asked what the purpose of the adoption is and then asked "Which policy frameworks"?

Mr Momoniat replied that there are many frameworks which the municipality must adopt.

Ms Taljaard said that under the regulations - status of national legislation - the distinction is important.

The Chairperson said that every institution has financial policies. She asked if they were talking about internal financial policies.

Mr Momoniat said they were not, it was the policies that the municipalities would make public.

Mr Smith noted that they could only discuss 36(d)(i) when they know what the cross-referenced section is.

Regarding Clause 36(2), Mr Mokoena and the Chairperson asked if they must maintain the website as a whole or only the financial information on the website.

Mr Momoniat replied that because (b) is there it was felt that (a) is necessary.

Mr Smith suggested that they make subclause (a) and (b) one clause and replace the joining word ''and'' with ''by''.

Clause 36A: Asset and liability management
Mr Smith asked if there must be maintenance of the assets.

The Chairperson replied that that the drafting is correct - the financial manager must maintain information on the assets, not maintain the assets.

Clause 37: Budget preparation
This acknowledges that the municipal manager must assist in certain things that is"do all the donkey work".

Clause 38: Budget implementation
Mr Momoniat commented that this clause is bringing a performance angle as well. It is all part of one process which should link to the performance contract.

Mr Momoniat said that in practice one draws up one's own performance contract and your boss must approve it.

Mr Dorfling asked why "30 days after tabling"?

Mr Momoniat explained that the budget is tabled on 1 April. By then they must already have thought of their objectives for implementation. On the 1 May the municipal manager gives the mayor a draft implementation plan. They negotiate, engage. Then it should be 30/40 days until they approve the budget. They finalise it within 30/40 days.

Mr Smith said that the municipal manager is employed on a five year contract. He asked if this is reviewed each year.

Mr Momoniat said that the contract is annually reviewed. The budget sets outputs and one holds people responsible for that.

Ms Taljaard commented on Sections 56 and 57 of the Municipal Systems Act. She said that there is a provision for a spec. manager to be appointed by Council. This is a deputy so there is already one other person in the process that they have to take cognizance of. The MSA sets out detail in respect of performance contracts. The contracts have to communicate with one another. They must make a connection to ensure that the performance contracts they are referring to are aligned to the same goal.

Mr Momoniat replied that Mr Carrim had said earlier that if it is necessary, they can amend the Systems Act. All this clause does is to clarify further. The heads of department should be people who are responsible for a vote on the expenditure side. They want the performance contract to apply to that core of managers.

Ms Taljaard asked if the deputy DG would naturally take over as accounting officer.

Mr Momoniat said not necessarily. He said he did not know if Parliament wanted to legislate this.

Mr Dorfling commented that the performance contracts be measured according to the Key performance Indicators (KPI) in the regulations (which sets out 7 objectives).

Mr Momoniat said that the area is evolving. They do not want to regulate everything. They simply want to provide a gentle signal on everything.

Afternoon Session
Chapter 7 Duties of municipal officials:
Clause 38: Budget implementation
Mr P Smith (IFP) suggested that Subclauses 1(a) and (c) be consolidated into a single provision, rather than be read separately.

Mr Ismail Momoniat, Deputy Director-General: Intergovernmental Fiscal Relations - Treasury, replied that this proposal would be considered.

Clause 39: Revenue management
Mr Momoniat informed Members that many of the revenue provisions have been consolidated in the new Clause 39, and some concern was raised regarding the use of the word "due" in Subclause 1(a). Subclause 3 is important as it ensures that payments are made in full to the relevant organ of state and any deductions would then be effected only after the full payment has been made, not before. In this regard a separate account could be created as well.

Mr Dorfling, from the South African Local Government Association (SALGA), requested clarity on the use of the phrase "weekly basis" in Subclause 3(a).

The Chair asked if this was indeed the intention behind the formulation of this provision.

Mr Momoniat replied that it was and this was in fact the standard practice employed by the South African Revenue Service (SARS), as it separates the Department's budget and the trust money. This provision has to be included because it seeks to remedy a serious problem, and also aims to introduce a level of discipline in this regard. This should, in fact, be done daily.

The Chair requested Mr Dorfling to explain the possible impact this provision would have in practice, should this tasked be required to be performed on a weekly rather than a monthly basis.

Mr Dorfling responded that it does not pose any problem though it would only impose an administrative burden on municipalities. This provision would be beneficial, as SALGA has in fact waited for a period not shorter than four months for its 5% commission from certain municipalities.

Mr Momoniat stated that this provision would also create a reciprocal obligation which would ensure that payment is made timeously.

Mr Dorfling asked whether the exemption contained in 39(1)(c) is truly desirable, as municipalities in rural areas might not be able to abide by this requirement, for a variety of reasons.

Mr Momoniat replied that the monthly requirement is important because it seems that, were it not for SARS, South Africa would not collect the money owed to the government. The problem experienced 50% of the time is that people simply fail to pay their taxes. Mr Dorfling's concern could easily be remedied by expressly creating an exemption here for rural municipalities or certain special categories of exemptions.

Mr Dorfling stated that the inclusion of the phrase "all customers" in 39(1)(c) is tricky, because not all pay directly to the municipality.

The Chair asked whether "customer" included informal settlements and those without registered title. It would appear that these are still customers of the service provided by their municipality. Mr Momoniat was requested to consider this issue further.

Ms R Joemat (ANC) noted that Mr Momoniat had said earlier that Subclause 3(b) is aimed at ensuring that the transfer costs are not deducted immediately, but clarity was requested as to whether the provision accommodates an agreement that such amounts may be deducted.

Mr Momoniat replied that such agreements could be incorporated.

Mr Y Carrim (ANC) stated that the word "the" should be inserted after "within" in Subclause 1(d).

Mr Smith suggested that rates do not seem to be incorporated in Subclause 1(c) and, if they are in fact included, the position with regard to property rates in unclear. People would therefore prefer to be taxed annually, instead of on a monthly basis.

The Chair contended that it does not presuppose that payments have to be made monthly, only that the accounts must be issued by the municipality on a monthly basis.

Mr Momoniat replied that the provision would be reformulated.

Ms R Taljaard (DP) suggested that the title of the clauses should also be reconsidered as greater emphasis is not placed on the revenue collection aspect, and the entire picture has to be detailed. This is important especially in view of the fact that Subclauses 1(b) and (d) deal specifically with revenue collection. Furthermore, the inclusion of the phrase "to the extent possible" in Subclause 1(d) not only creates a certain degree of risk but also appears to grant the municipal manager discretion in executing his/her mandate.

Mr Mononiat agreed with Ms Taljaard.

The Chair requested clarity on the decision to include the word "due" in Subclause 1(a), as a previous formulation had contained the phrase "revenue systems".

A member of the SALGA delegation replied that this has been a contentious issue throughout this process, and the revenue becomes "due" when the bill arrives after the service provided by the municipality has been used by the customer. This then requires an accurate and up-to-date record system at the municipality, to add legitimacy.

Mr T Mokoena, a member of the SALGA delegation, stated that there appears to be no consistency in the collection of revenue due to the municipality and the far too lengthy ninety-day period contained in Subclause 2.

Mr Momoniat responded that this period was decided upon in an effort to avoid the unnecessary and costly delays in paying the municipalities. Should it be discovered that a particular customer has not paid the municipality for services rendered, his/her services would simply be terminated and the financial misconduct offence could then be employed. The reality of the matter is that customers very rarely fail to pay.

The Chair stated that Subclause 2 deals with ensuring delivery by certain government departments, and provides that should a government department of organ of state fail to pay its arrears, the municipal manager is obligated to inform the Treasury of the failure to pay.

Mr Momoniat agreed.

Mr Dorfling stated that Subclause 3(a) deals with "a weekly basis", yet the Public Finance Management Act (PFMA) requires such funds to be transferred every thirty days. Clarity was requested in this regard.

Mr Momoniat replied that Subclause 2 only deals with the situation in which funds are collected by the municipality on behalf of the principal creditor. The relevant oversight function is not efficient here with the result that the budget is adversely affected, and opens the door to corruption. Thus the weekly requirement is welcomed.

Ms Joemat asked if it would be possible to send out the monthly accounts mentioned in Subclause 1(c) to the informal settlements and rural areas as well, and how exactly this would be done.

Mr Mokoena informed Ms Joemat that this has not been a problem in the Gauteng Province.

Mr Dorfling stated that informal settlements are rife throughout the Republic and these do not register with their municipal council, but they do however pay a gesture to the municipality on a monthly basis. This situation can be remedied by including an express exemption for such communities in this provision.

The Chair contended that the primary issue here is whether such communities can properly be defined as "customers" within the Municipal Finance Management Bill [B -200 ] (the Bill). They do not consume the services provided by their municipality, and can therefore not be considered as customers under the Bill.

Mr Dorfling contended that they can be defined as "customers" within the general definition of the term.

Ms G Borman (DP) suggested that the administrative costs involved in actually sending out the notices could be too great.

Mr Momoniat replied that an exemption for such communities could be spelt out under "exempted" in Subclause 1(c).

Mr Smith suggested that a possible solution may be found in creating two separate categories in this regard: one which receives municipal accounts monthly and those that receive them on a weekly basis. Furthermore, what exactly is the municipality then able to do if it does not receive payment? Is it able to charge interest?

Mr Momoniat replied that this could be done.

Mr Dorfling informed Mr Smith that the municipality could simply withhold the service/s.

Ms Borman requested further clarity on the definition of "customer", and suggested that it would be better placed under the chapter following Chapter 4A.

Mr Momoniat agreed that it would fit in there.

The Chair agreed, as it would contribute to the Constitutional discussion in that chapter.

Mr Carrim asked as to the implications for Subclause 2.

Mr Momoniat stated that it would be considered, and this would bring the Bill in line with the corresponding provision in the PFMA.

Mayor Nkosi, a member of the SALGA delegation, proposed that the phrase "to the extent possible" in Subclause 1(d) should be deleted, as it seems to create an exemption for those debtors.

The Chair agreed, as the current formulations of Subclauses 1(c) and (d) seem to create a double exemption.

Mayor Nkosi added that public servants should not be allowed to owe funds to the government as the principal creditor, as government has to support itself from revenue sources falling outside its walls.

Mr Carrim informed Mayor Nkosi that the problem created here is that an earlier provision in the Bill provided that the delinquent public servant who failed to cover the arrears within three months would not be allowed to stand for re-election. Yet this provision had to be scrapped as it was considered unconstitutional. The result is that councilors may retain their positions.

Ms Borman stated that this is related to the earlier legislation, where it was discovered that the Constitution itself had to be amended to deter future delinquent public servants in this regard.

The Chair added that councilors could not lose their position in this regard because of the express powers and privileges of legislatures contained in the Constitution.

Mr Smith agreed with the Chair.

Mayor Nkosi asked whether the same hold true for public representatives.

The Chair replied that they would be governed by the relevant internal rules and procedures detailed in the Code of Conduct of their specific council, and thus public office bearers cannot be removed from office by resorting to the court system. Mr Momoniat was requested to explain whether the delinquent government officials can be pursued via the financial misconduct principle in this provision.

Mr Momoniat responded that it would prove too complex to include that aspect in this provision. A possible solution could however be found in simply deducting the arrears from their allowances.

The Chair contended that the problem here is that public office bearers are in a different position to the other officials affected here, and the two categories should not therefore be considered identical.

Mr Momoniat replied that the public office bearers are also subject to the various labour laws and unfair discrimination principles.

Mr Smith stated that Subclauses 1(b) and (c) place a significant burden on the municipal manager and s/he would not be able to properly satisfy these provisions if the allocated budget does not allow for proper metering systems and mechanisms to be put in place to ensure the mandate is met. Would it not be possible to ensure the municipal council appropriates the necessary funds needed in this regard.

The Chair stated that this important issue must be properly addressed.

Mr Smith suggested that the present definition of "customer" should be amended to provide "customer with a metered account", as this would seem to remedy the current uncertainty.

Mr Carrim stated that Section 95(d) of the Municipal Systems Act provides that the municipal council would do the metering.

Mr Smith asked whether this could not be included in Subclause 1 via a cross-reference.

Mr Momoniat replied that this proposal could be taken into account.

Mr Carrim suggested that the entire Section 95 be incorporated.

Mr Momoniat agreed.

Clause 39A: Impending under collection, shortfalls, overspending and overdrafts
Mr Momoniat informed Members that, contrary to the initial impression, this clause does not repeat the contents of Clause 39 of the Bill.

Mr Smith suggested that the use of the phrase "any impending" at the beginning of Subclause (a) does seem unrealistic, and in this regard a definite figure should be set or determined via regulation.

Mr Momoniat replied that the report to be compiled under this clause must be submitted to the municipal council and not the Treasury, and would in fact be forwarded to the MEC for Provincial and Local Government. Subclause (c) would be placed elsewhere, because the report has to be submitted to the Treasury.

The Chair asked whether Subclause (a)(iii) referred to overall overspending of the municipality's budget, or whether it relates specifically to the budget vote.

Mr Momoniat replied that it applied only to the vote.

Mr Smith contended that the phrase "under collection" in the title of the clause does not read smoothly as two separate words, and should instead be hyphenated.

Mr Carrim agreed, and stated that the "shortfalls" in Subclause (a)(ii) are actually deficits and not shortfalls, which really arise other than via under-collection.

Mr Dorfling stated that the "21 days" requirement in Subclause (c) is a problem as bank statements are dealt with over a thirty day period. Could not the same be done here?

Mr Momoniat agreed with Mr Dorfling.

The Chair requested Mr Momoniat to clarify the decision taken earlier to relocate Subclause (a)(iii).

Mr Momoniat replied that the report would be submitted to the Treasury as an early warning signal of a short-term debt.

The Chair requested clarity on what the overspending would be on. The two possible problems that arise here are with cash flow and overspending on the municipal budget, and in what circumstances would this happen?

Mr Momoniat replied that this is a potential duplication of Clause 39 of the Bill. This provision should properly be included in Clause 42A of the Bill, and a separate clause should be created to deal with notifiable cases over and above the reports.

Ms Taljaard contended that Clause 39A only seems to deal with shortfalls and under-collection, whereas Clause 39(1) also includes possible errors made in the actual calculation of the revenue stream. The latter is not accommodated in Clause 39A. Furthermore, overruns are not incorporated in Clause 39A.

Mr Smith contended that these concerns surely have to be adequately covered by the present formulation of Clause 39A.

Ms Taljaard suggested that a cross-reference between these two clauses should be effected to better protect the municipal manager.

Mr Momoniat responded that this could be done under Clause 42 of the Bill via the notifiable cases, in the case of errors in calculation or assessment.

The Chair questioned whether the budgetary calculation done in Clause 39(1) are for cash flow reasons.

Mr Momoniat answered that revenue is not budgeted for, but revenue due has to be established and calculated in terms of services rendered.

The Chair contended that it would not be desirable to begin incorporating the concept of mistakes in calculating revenue at this point, but the municipal manager must be required to execute the mandate to the best of his/her ability. Should a genuine mistake be made, it must be condoned.

Ms Taljaard agreed completely with the Chair, but the issue here is that the provisions should protect the municipal manager especially in view of the fact that the calculations are done by an external and independent body. Should the general consensus be that this concern is adequately covered in this provision, the matter would be laid to rest.

The Chair replied that it is indeed covered, and the municipal manager would be protected because the error would not be of his/her own doing.

Mr S Mshudulu (ANC) stated that this corresponds exactly with Section 95 of the Municipal Systems Act.

Mr Smith contended that Clause 23(2)(f) of the Bill would also be relevant here, and would remedy the concern raised by Ms Taljaard.

The Chair agreed.

Ms Taljaard proposed that the heading of the clause be reformulated, as it contains no reference to overruns.

Clause 40: Expenditure management
Mr Momoniat informed Members that this clause borrows largely from the old Section 36. The procurement aspect in the provision now provides that a series of municipal council policies is needed, which is currently contained in Subclause (h). The municipal council would also have to devise its own procurement policy in line with the provincial and national policy. Furthermore, Subclause (e) sets the default period at thirty days, and the use of the phrase "agreed period" is problematic as it does ultimately affect the price to be paid.

Mr Smith suggested that Subclause (b) seems tautological as it provides that the municipal manager has to ensure that the payment is made to the body to whom the payment is due. Surely this is done in every instance as a matter of course? The inclusion of the phrase "all reasonable steps" in Subclause (f) should be reconsidered.

Mr Momoniat informed Members that Subclause (b) was taken from New Zealand legislation and Subclause (f) would be reformulated to bring it in line with the PFMA, which stipulates "comply".

Ms Joemat stated that payment via cash cheques in this situation must be done away with, as it is here that fraud is most rife.

The Chair reminded Members that this Committee had passed the Bills Of Exchange Amendment Act, which expressly outlawed the use of cash cheques in such instances. Thus the current formulation of Subclause (b) has to be retained.

Mr Momoniat stated that the Treasury regulations specify that amounts in excess of R2000 cannot be paid via handwritten cheques, and financial institutions have reported enormous benefits since the introduction of that regulation.

The Chair asked whether Subclause (h) now provides that the municipal council would be obliged to implement the procurement policy, as required by the Constitution.

Mr Momoniat replied that Section 217 of the Constitution provides that this "may" be done, yet this word is still being interpreted as "must". Yet the recent Constitutional amendment in this regard has altered it to "must".

Mr Mokoena requested Mr Momoniat to explain the effect this would have on court orders which may require payment to be made in a certain format and to a person or body other than directly to the person or body to whom the payment is due.

The Chair contended that this concern is covered in Subclause (b)

Mr Momoniat said this matter would be considered further.

Clause 40A: Personnel expenditure
Mr Momoniat stated that this aspect is critical for the local government sphere.

The Chair requested clarity regarding the status of the report to be submitted to the municipal council.

Mr Momoniat replied that it would be included in the budget and financial statements of the municipality.

The Chair contended that the specific circumstances under which the report has to be compiled are not clearly articulated in the provision.

Mr Momoniat replied that this issue would be addressed.

Mr Smith questioned whether Subclause (b) should then be deleted.

The Chair answered in the negative, and informed Mr Smith that this would then be included in Subclause (a).

Mr Momoniat said the matter would be considered further.

Mr Mokoena suggested that the phrase "public service" in Subclause (b) is ambiguous and might cause unnecessary confusion.

Mr Momoniat responded that it does not pose a problem and that subclause should remain as it currently stands.

Clause 41: Monthly reconciliation of revenue and accounts
Mr Momoniat informed Members that the decision was taken to expressly include this provision as monthly reconciliation is frankly not done in the public service.

Dr G Woods (IFP) requested clarity as to what exactly the revenue and accounts have to be reconciled with.

Mr Pillay, from the Treasury, replied that it would have to be reconciled with bank statements, cash statements and the like in terms of usual accounting principles. Accurate and detailed records would thus have to be maintained by the municipal manager.

Mr Momoniat stated that this matter would be considered further to ensure that the suspense accounts of the municipality are cleared as well.

Mr Smith questioned the inclusion of the phrase "all reasonable steps" in Subclause (a), as it seems to justify any non-delivery by the municipal manager.

Mr Momoniat replied that the matter would be evaluated further.

Clause 42: Financial assistance to organisations and other entities
Mr Momoniat informed Members that this is a complex and difficult clause, and he is not entirely satisfied that it has been thoroughly covered in this draft as there is a problem with the transfer of funds outside government. Section 38(7)(i) and (j) of the PFMA and the Division of Revenue Act do not provide adequate solutions in this regard.

Ms Taljaard contended that comparative experience indicates that funding lines in foreign jurisdictions are far more independent, as third parties and agencies are employed in the arrangement. The result is that the transactions cannot properly be classified as transfers between municipalities and government itself, because the agencies involved are far more independent. Is this also the case nationally?

The Chair cautioned against the use of terms such as "agency" in this context, and non-governmental organisations (NGO's) should be employed instead.

Mr Momoniat replied to the concern raised by Ms Taljaard by suggesting that a division could be forged to exclude those within government who are audited by the Auditor-General (AG).

Mr Smith contended that this position is somewhat problematic, as the provision does not place any cap or limit on the expenditure.

Mr Momoniat responded that efforts have to be made to categorise the various groups of expenditure.

Mr Smith stated that Subclause (1)(c) is problematic here, and should perhaps be deleted. Furthermore, Subclause 2 contains the word "must" and creates a form of unwanted circularity within the provision, as the municipal manager can only execute his/her mandate detailed in the first portion of the provision if the necessary funds are available, which is provided for in the second portion of the provision.

Mr Momoniat stated that this is the weakest area of government, and the decision was thus taken to formulate as strong as provision as the current clause in an attempt to remedy this shortcoming. A distinction has to be made between the granting of funds by the municipality to a well known and established institution, in which case there is no urgent need to follow up religiously and expect the government mechanisms to kick in, and granting funds to unknown institutions, in which case the municipal manager has to take very careful stock of every transaction.

Ms Joemat contended that a cap should probably be placed on these types of transactions.

The Chair suggested that the monthly report requirement under Subclause 1(c) appears too onerous, and it goes without saying that the financial statements and the report would be submitted to the AG. A degree of uncertainty still remains however as to the actual recipient of the financial assistance.

Mayor Nkosi replied that there a variety of ways and institutions to which the funds can be granted, and would include the sponsoring of a table at a benefit dinner. The pivotal point here should be that the funds are given for a just cause and that the reach the intended recipient.

Ms Borman reminded Members that local government structures have been abusing this arrangement, and the municipal council is not held accountable at all. This has to be ensured to guarantee accountability.

Mr Momoniat informed the Committee that members of the Western Cape local government each have a R5m fund.

Ms L Mabe (ANC) contended that this sort of thing makes it all more important for the Bill to be passed by Parliament, as the mayoral funds have been abused in the past.

Mr Mokoena suggested that a practicability problem is created here and perhaps a mechanism should be devised to quantify the value which the funds add to the public, because the municipality could very well grant the funds in good faith while the recipients might not do the same.

Ms Taljaard stated that the use of the phrase "other entities" contained in the heading of the clause is problematic, because it may lead to confusion. It is proposed that "entities" be used instead.

Mr Smith contended that the oversight function is absent from this clause, as it only deals with the "end of the line" at which point the decision has already been taken to grant the funds. A solution could be found in doing away with discretionary funds as a whole, and the municipal council could then be made accountable for approving the granting of the financial assistance.

The Chair agreed with Mr Smith, and informed Members that the Non-Profit Organisations Act does impose certain requirements on those who have registered under it, and its provisions and protection offered could be relevant here. Efforts should be made to consult with those institutions and requisite officials that have made such contributions to NGO's, and question them on the levels of oversight and accountability accompanying such transactions.

Mr Momoniat agreed with the Chair, and assured Members that this would be taken up further.

There were no further questions or comments and the meeting was adjourned.


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