BILL

To secure sound and sustainable management of the financial affairs of municipalities and other institutions in the local sphere of government; and to provide for matters connected therewith.

BE IT ENACTED by the Parliament of the Republic of South Africa, as follows:—

ARRANGEMENT OF ACT

CHAPTER 1

INTERPRETATION, OBJECT, APPLICATION AND AMENDMENT OF ACT

1. Definitions

2. Object of Act
3. Local government institutions to which Act applies
4. Amendments to Act

CHAPTER 2

SUPERVISION OVER LOCAL GOVERNMENT FINANCE MANAGEMENT

5. General functions of National Treasury
6. Delegations by National Treasury

CHAPTER 3

MUNICIPAL REVENUE

7. Opening of bank accounts
8. Primary bank accounts

9. Bank account details to be submitted to Auditor-General
10. Control of municipal bank accounts
11. Withdrawals from municipal bank accounts

12. Relief, charitable and trust funds

13. Cash management and investments
14. Disposal of capital assets

CHAPTER 4

MUNICIPAL BUDGETS

15. Appropriation of funds for expenditure
16. Annual budgets

17. Contents of annual budgets and supporting documents

18. Funding of expenditures

19. Capital projects

20. Matters to be prescribed
21. Budget preparation process

22. Publication of annual budget

23. Consultations on tabled budgets
24. Approval of annual budgets

25. Failure to approve budget before start of budget year
26. Consequences of failure to approve budget before start of budget year

27. Non-compliance with provisions of this Chapter
28. Municipal adjustments budgets

29. Unforeseen and unavoidable expenditure
30. Unauthorised, irregular and fruitless and wasteful expenditure

31. Contracts having budgetary implications

32. Capacity building

33. Promotion of co-operative government by national and provincial institutions

34. National and provincial allocations to municipalities

35. Promotion of co-operative government by municipalities

36. Stopping of funds to municipalities

37. Stopping of equitable share allocations to municipalities

38. Stopping of other allocations to municipalities

39. Decisions to increase cost of bulk services or to cap increases in municipal revenue

40. Disputes between organs of state

CHAPTER 6

DEBT

41. Short-term debt

42. Long-term debt

43. Conditions on which short- and long-term debt may be incurred

44. Security

45. Disclosure

46. Municipal guarantees

47. National and provincial guarantees

CHAPTER 7

48. General responsibilities of mayors

49. Budget processes and related matters

50. Budgetary control and early identification of financial problems

51. Report to provincial executive if conditions for provincial intervention exist

52. Exercise of ownership control powers over municipal entities

53. Municipalities which do not have mayors

54. Municipalities with executive committees

55. Delegation of mayoral powers and duties

CHAPTER 8

RESPONSIBILITIES OF MUNICIPAL OFFICIALS

56. Municipal managers to be accounting officers

57. Fiduciary responsibilities of accounting officers

58. General financial management functions

59. Asset and liability management

60. Revenue management

61. Expenditure management

62. Expenditure on staff benefits

63. Funds transferred to organisations and bodies outside government

64. Budget preparation

65. Budget implementation

66. Impending shortfalls, overspending and overdrafts

67. Monthly budget reports

68. Reports on proposed new municipal entities

69. Reports on failure to adopt or implement budget-related and other policies

70. General reporting obligation

71. Protection of accounting officer

72. Top management of municipalities

73. Managers and other officials of municipalities

74. Delegations

CHAPTER 9

MUNICIPAL BUDGET AND TREASURY OFFICES

75. Establishment

76. Role of chief financial officer

77. Delegations

78. Competency levels of professional financial officials

79. Application of this Part

80. Statutory regime for appointment of external mechanisms

81. Appointments to be effected through written agreements

82. Private sector external mechanisms

83. Selection of private sector external mechanisms

84. Management of agreements

85. Establishment of, and acquisition of interests in, corporate bodies

86. Status of corporate bodies established by or in which municipalities hold interests

87. Conditions precedent for establishing, or acquiring interests in, companies

88. Conditions precedent for co-owning of companies

89. Disposal of companies and equity interests in companies

90. Investments

CHAPTER 11

GOVERNANCE OF MUNICIPAL ENTITIES

91. Powers and duties of municipalities having sole or shared ownership control

92. Powers and duties of municipalities having sole ownership control

93. Powers and duties of municipalities having shared ownership control

94. Disposal of capital assets by municipal entities

95. Establishment of, and acquisition of equity interests in, corporate bodies

96. Members of governing boards

97. Selection process

98. Meetings of governing boards or bodies

99. Disclosure of interests

100. Accounting authorities

101. Fiduciary duties of accounting authorities

102. General financial management functions

103. Asset management

104. Revenue collection management

105. Bank account details to be submitted to controlling municipalities and Auditor-General

106. Expenditure management

107. Monthly reconciliation of revenue and accounts

108. Preparation of business plan

109. Submission of business plan to controlling municipality

110. Budget implementation

111. Impending under collection, shortfalls, overspending and overdrafts

112. Irregular and fruitless and wasteful expenditure

113. Interference by councillors

114. General reporting obligations

115. Duties of other officials

116. Delegation of powers and duties by accounting authority

117. Bank accounts

118. Business plans

119. Expenditure to be in accordance with business plan

120. Borrowing of money

CHAPTER 12

FINANCIAL REPORTING AND AUDITING

121. Preparation of annual reports and financial statements

122. Compulsory disclosures

123. Auditing of financial statements

124. Tabling of annual reports, financial statements and audit reports in municipal councils

125. Preparation of annual reports and financial statements

126. Compulsory disclosures

127. Auditing of financial statements

128. Compliance to be monitored

130. Tabling of annual reports, financial statements and audit reports in municipal council

131. Adoption of annual report and financial statements

132. Council meetings open to public and certain public officials

133. Issues raised by Auditor-General in audit reports

134. Submissions to provincial legislatures

135. Consequences of non-compliance with certain provisions

136. Annual report to Parliament

137. Investigations and special audits by Auditor-General

CHAPTER 13

FINANCIAL EMERGENCIES

138. Primary responsibility for resolution of financial problems

139. Decisions on provincial interventions

140. Discretionary provincial interventions

141. Criteria for determining serious financial problems

142. Mandatory provincial interventions

143. Criteria for determining serious or persistent material breach of financial commitments

144. Preparation of financial recovery plans

145. Criteria for financial recovery plans

146. Approval of financial recovery plans

147. Amendment of financial recovery plans

148. Implementation of financial recovery plans in discretionary provincial interventions

149. Implementation of financial recovery plans in mandatory provincial interventions

150. Regular review of provincial interventions

151. Termination of provincial interventions

152. Access to information, records and documents of municipalities

153. National interventions

154. Legal rights

155. Application for stay of legal proceedings

156. Application for extraordinary relief

157. Suspension of financial obligations

158. Termination of financial obligations and settlement of claims

159. Matters to be prescribed

160. Establishment

161. Functions and powers

162. Appointment Head

163. Responsibilities of Head

164. Staff

165. Delegations

CHAPTER 14

GENERAL TREASURY MATTERS

166. Procurement and asset disposal policies

167. Liabilities and risks payable in foreign currencies

168. Audit committees

169. Councillors’ remuneration

170 Official website

171. Treasury regulations and guidelines

172. Consultative processes before promulgation of regulations

173. Departures from treasury regulations, instructions or conditions

CHAPTER 15

FINANCIAL MISCONDUCT

174. Financial misconduct by mayors

175. Financial misconduct by municipal officials

176. Financial misconduct by accounting authorities and officials of municipal entities

177. Permissible disciplinary steps

178. Applicable legal regime for disciplinary proceedings

179. Offences

180. Penalties

181. Regulations on financial misconduct procedures and criminal proceedings

CHAPTER 16

MISCELLANEOUS

182. Limitation of liability

183. Exemptions

184. Transitional provisions

185. Repeal and amendment of legislation

186. Short title and commencement

CHAPTER 1

INTERPRETATION, OBJECT, APPLICATION AND AMENDMENT OF ACT

Definitions

1. (1) In this Act, unless the context indicates otherwise—

"accounting authority" means an authority referred to in section 100;

"accounting officer" means the municipal official referred to in section 56;

"allocation", in relation to a municipality, means–

(c) any allotment of a sum of money to a municipality in terms of a provincial budget;

"annual Division of Revenue Act" means the Act of Parliament which must be enacted annually in terms of section 214 (1) of the Constitution;

"approved budget" means an annual or adjustments budget –

(a) approved by a municipal council; or

"Auditor-General" means the person appointed as Auditor-General in terms of section 193 of the Constitution, and includes a person exercising a power or performing a duty of the Auditor-General in terms of a delegation by the Auditor-General;

"basic municipal service" means a municipal service that is necessary to ensure an acceptable and reasonable quality of life and, if not provided, would endanger public health or safety or the environment;

"budget and service delivery implementation plan" means a detailed plan prepared by a municipality for implementing its budget, and which must include –

(b) quarterly service delivery targets; and

(c) any other matters that may be prescribed;

"budget-related policy" means a policy of a municipality affecting or affected by the annual budget of the municipality, including –

"business plan", in relation to a municipal entity, means a plan adopted by the accounting authority of a municipal entity in terms of section 118;

"category", in relation to municipalities, means a category A, B or C municipality referred to in section 155(1) of the Constitution;

"chief financial officer" means a person designated in terms of section 75 (2) (a);

"councillor" means a member of a municipal council;

"creditor", in relation to a municipality, means a person to whom money is owing by the municipality;

"current year" means the financial year preceding the budget year;

"debt" means—

"delegation", in relation to a duty, includes an instruction or request to perform the duty;

"district municipality" means a municipality that has municipal executive and legislative authority in an area that includes more than one municipality, and which is described in section 155(1) of the Constitution as a category C municipality;

"external service provider" means an external mechanism referred to in section 76 (b) of the Municipal Systems Act;

"financial recovery plan" means a plan prepared in terms of section 144;

"financial statements" means statements consisting of at least—

(a) a statement of financial position;

(b) a statement of financial performance;

(c) a cash-flow statement;

(d) any other statements that may be prescribed; and

(e) any notes to these statements;

"financial year" means a year ending on 30 June;

"financing agreement" includes any loan agreement, lease, instalment purchase contract or hire purchase arrangement under which a municipality undertakes to pay the capital cost of property, plant or equipment over a period of time;

"fruitless and wasteful expenditure" means expenditure that was made in vain and would have been avoided had reasonable care been exercised;

"governing board", in relation to a company or service utility, means a board of directors or equivalent governing structure appointed in terms of the legislation under which the company or service utility was established;

"Head", in relation to the Municipal Finance Recovery Service, means a person –

1. appointed in terms of section 162 as the Head of the Service; or
2. acting as the Head of the Service;

"irregular expenditure" means expenditure, other than unauthorised expenditure, incurred in contravention of, or that is not in accordance with, a requirement of this Act, the annual Division of Revenue Act or any other applicable legislation;

"investment", in relation to funds of a municipality, means –

"lender", in relation to a municipality, means a person who provides debt finance to a municipality;

"local community" has the meaning assigned to it in section 1 of the Municipal Systems Act;

"local municipality" means a municipality that shares municipal executive and legislative authority in its area with a district municipality within whose area it falls, and which is described in section 155(1) of the Constitution as a category B municipality;

"long-term debt" means debt that is repayable over a period exceeding one year;

"mayor", in relation to –

"MEC for local government" means the member of the Executive Council of a province responsible for local government in that province;

"Minister" means the Minister of Finance;

"municipal council" or "council" means the council of a municipality referred to in section 18 of the Municipal Structures Act;

"municipal debt instrument" means any note, bond, debenture or other evidence of indebtedness issued by a municipality, including dematerialised or electronic evidence of indebtedness intended to be used in trade;

"municipal entity" means—

1. a service utility or other corporate entity to the extent that may be prescribed;

"Municipal Financial Recovery Service" means the Municipal Financial Recovery Service established by section 160;

"municipality", when referred to as—

"municipal manager" means a person appointed in terms of section 82 (1) (a) or (b) of the Municipal Structures Act;

"Municipal Structures Act" "means the Local Government: Municipal Structures Act, 1998 (Act No. 117 of 1998);

"Municipal Systems Act" means the Local Government: Municipal Systems Act, 2000 (Act No. 32 of 2000);

"National Treasury" means the National Treasury established by section 5 of the Public Finance Management Act;

"official", in relation to a municipality or municipal entity, means –

(a) an employee of a municipality or municipal entity;

(b) a person seconded to a municipality or municipal entity to work as a member of the staff of the municipality or municipal entity; or

(c) a person contracted by a municipality or municipal entity to work as a member of the staff of the municipality or municipal entity otherwise than as an employee;

"organised local government" means an organisation recognised in terms of section 2(1) of the Organised Local Government Act (Act No. 52 of 1997), to represent local government nationally or provincially;

"overspending"—

"ownership control", in relation to a private company or a service utility, means the ability to exercise any of the following powers to govern the financial and operating policies of the company or service utility in order to obtain benefits from its activities:

(b) to appoint or remove the chief executive officer of that company or service utility;

"participating municipality" –

"political structure", in relation to a municipality, means—

(a) the council of the municipality; or

"prescribe" means prescribe by regulation in terms of section 171;

"primary bank account" means a bank account referred to in section 8 (1);

"private company" means a company referred to in sections 19 and 20 of the Companies Act,1973 (Act No. 61 of 1973);

"provincial department" means a department listed in Schedule 2 of the Public Service Act, 1994, (Proclamation No. 103 of 1994), which falls within a provincial administration listed in Schedule 1 of that Act;

"provincial treasury" means a treasury established in terms of section 17 of the Public Finance Management Act;

"Public Finance Management Act" means the Public Finance Management Act, 1999 (Act No. 1 of 1999);

"public-private partnership", in relation to a municipality, means a commercial transaction between a municipality and a private party in terms of which –

(i) compensation from the funds of the municipality;

(iii) a combination of such compensation and such charges or fees;

"security" means any mechanism intended to secure the interest of a lender or investor, and includes any of the mechanisms mentioned in section 44 (2);

"service delivery agreement" has the meaning assigned to it in section 1 of the Municipal Systems Act;

"shared ownership control" means ownership control which is shared by a municipality with another municipality or an organ of state in another sphere of government;

"short-term debt" means a debt that is repayable over a period not exceeding one year;

"sole ownership control" means ownership control which is vested in a single municipality;

"standards of generally recognised accounting practice" means an accounting practice complying with standards applicable to municipalities or municipal entities and issued in terms of the Public Finance Management Act;

"this Act" includes regulations made in terms of section 171 or 181;

"unauthorised expenditure", in relation to a municipality, means an expenditure for which no provision is made in the budget of the municipality, and includes—

(a) overspending the budget;

(b) overspending a vote; or

(c) expenditure unrelated to the department or functional area covered by the vote;

"vote" means—

(2) In this Act, a word or expression derived from a word or expression defined in subsection (1) has a corresponding meaning unless the context indicates that another meaning is intended.

Object of Act

2. The object of this Act is to secure sound and sustainable management of the financial affairs of the local government institutions to which this Act applies by establishing norms and standards for –

(d) borrowing;

Local government institutions to which Act applies

3. (1) This Act applies to—

(a) municipalities;

(b) municipal entities; and

(2) In the event of any inconsistency between a provision of this Act and any other legislation in force when this Act takes effect and which regulates any aspect of the financial affairs of municipalities or municipal entities, the provision of this Act prevails.

Amendments to Act

CHAPTER 2

SUPERVISION OVER LOCAL GOVERNMENT FINANCE MANAGEMENT

General functions of National Treasury

5. (1) The National Treasury must—

(c) enforce compliance with the measures established in terms of section 216 (1) of the Constitution, including those established in terms of this Act.

(2) To the extent necessary to comply with subsection (1), the National Treasury may—

(ii) comply with Chapter 4;

(c) monitor and assess compliance by municipalities and municipal entities with—

(i) this Act; and

(f) take any other appropriate steps necessary to perform its functions effectively.

(3) The functions assigned to the National Treasury in terms of this Act are additional to those assigned to the National Treasury in terms of the Public Finance Management Act in relation to municipalities.

(4) The Minister, as the head of the National Treasury, takes all decisions of the Treasury in terms of this Act, except those decisions taken as a result of a delegation in terms of section 6.

6. (1) The Minister may delegate any of the powers or duties assigned to the National Treasury in terms of this Act to—

(a) the Director-General of the National Treasury; or

(2) The Minister may not delegate the National Treasury’s power –

(a) to stop funds to a municipality in terms of section 5 (2) (e); or

(b) to make regulations in terms of section 171 or 181.

(3) A delegation in terms of subsection (1)—

(a) must be in writing;

(b) is subject to any limitations or conditions which the Minister may impose;

(3) The Minister may confirm, vary or revoke any decision taken in consequence of a delegation or sub-delegation in terms of this section, but no such variation or revocation of a decision may detract from any rights that may have accrued as a result of the decision.

CHAPTER 3

MUNICIPAL REVENUE

Opening of bank accounts

7. (1) Every municipality must open and maintain at least one bank account in the name of the municipality, into which all money received by the municipality must be paid.

(2) Money received by a municipality must be paid into its bank account or accounts promptly and in accordance with this Chapter and any requirements that may be prescribed.

(3) A municipality may not open a bank account –

(a) abroad;

(4) Money may be withdrawn from a municipal bank account only in terms of section 11 (1).

Primary bank accounts

(a) the municipality’s share of local government equitable share;

(b) all allocations to the municipality –

(i) in terms of the annual Division of Revenue Act; and

in subsection (2) are paid into its primary bank account.

transfer money referred to in subsection (2) to a municipality except through the municipality’s primary bank account. All allocations due by an organ of state to –

(a) a municipal entity under the sole ownership control of a municipality, must be made through the municipality; or

(b) a municipal entity under the shared ownership control of two or more municipalities, must be made through any of those municipalities, as may be agreed.

(5) The accounting officer of a municipality must submit to the National Treasury and the Auditor-General, in writing, the name of the bank where the primary bank account of the municipality is held, and the type and number of the account. If a municipality wants to change its primary bank account, it may do so only after the accounting officer has informed the National Treasury and the Auditor-General, in writing, at least 30 days before effecting the change.

Bank account details to be submitted to Auditor-General

9. (1) The accounting officer of a municipality must submit to the Auditor-General, in writing –

(2) The Auditor-General must keep a list of all bank accounts of each municipality, and make such list available to the National Treasury on request.

10. (1) The accounting officer of a municipality —

(b) is accountable to the municipal council for the municipality’s bank accounts; and

(c) must enforce compliance with sections 7, 8 and 11.

(2) The accounting officer may delegate the duties referred to in subsection (1) (c) to the municipality’s chief financial officer only.

11. (1) Only the accounting officer or the chief financial officer of a municipality, or any other senior official of the municipality acting on the written authority of accounting officer, may withdraw money or authorise the withdrawal of money from any of the municipality’s bank accounts, and may do so only—

(e) to pay over to a person or organ of state money received by the municipality on

behalf of that person or organ of state, including –

(f) to refund money incorrectly paid into a bank account;

(g) to refund guarantees, sureties and security deposits;

(i) for such other purposes as may be prescribed.

(2) Any authorisation in terms of subsection (1) to a senior official to withdraw money or to authorise the withdrawal of money from a bank account must be in accordance with a framework as may be prescribed. The accounting officer may not authorise any official other than the chief financial officer to withdraw money or to authorise the withdrawal of money from the municipality’s primary bank account if the municipality has a primary bank account which is separate from its other bank accounts.

(3) Money may be withdrawn from a bank account in terms of subsection (1) (b) to (i) without appropriation in terms of an approved budget.

(4) The accounting officer must within 30 days after the end of each quarter —

12. (1) No political structure or office-bearer of a municipality may set up a relief, charitable or trust fund except in the name of the municipality.

(2) A municipality may in terms of section 7 open a separate bank account in the name of the municipality for the purpose of a relief, charitable or trust fund.

(3) Money received by the municipality for the purpose of such a fund must be paid into a bank account of the municipality, or if a separate bank account has been opened in terms of subsection (2), into that account.

(4) Money in a separate account opened in terms of subsection (2) may be withdrawn from the account without appropriation in terms of an approved budget, but only –

Part 2: Cash, investment and asset management

Cash management and investments

13. (1) The National Treasury may prescribe a framework within which municipalities—

(a) must conduct their cash management and investments; and

(b) must invest money not immediately required.

(2) A municipality must establish an appropriate and effective cash management and investment policy in accordance with any framework that may be prescribed in terms of subsection (1).

(3) A bank where a municipality at the end of a financial year holds a bank account, or held a bank account at any time during a financial year, must—

(4) A bank, insurance company or other financial institution which at the end of a financial year holds, or at any time during a financial year held, an investment for a municipality must—

Disposal of capital assets

14. (1) A municipality may not transfer ownership as a result of a sale or other transaction or otherwise permanently dispose of a capital asset needed to provide the minimum level of basic municipal services.

(2) A municipality may transfer ownership or otherwise dispose of an asset other than one contemplated in subsection (1), but only after the council, in a meeting open to the public—

(3) A decision by a municipal council that a specific capital asset is not needed to provide the minimum level of basic municipal services, may not be reversed by the municipality after that asset has been sold, transferred or otherwise disposed of.

(4) A municipal council may delegate to the accounting officer of the municipality its power to make the determinations referred to in subsection (2) (a) and (b) in respect of movable assets below a value determined by the council.

be fair, equitable, transparent, competitive and consistent with the asset disposal policy which the municipality must adopt in terms of section 166. The public must be given at least 30 days’ prior notice of any sale of an asset.

(6) This section does not apply to the transfer of a capital asset to another municipality or to a municipal entity or a national or provincial organ of state in circumstances and in respect of assets approved by the National Treasury.

CHAPTER 4

MUNICIPAL BUDGETS

15. A municipality may, except where otherwise provided in this Act, incur expenditure

only –

16. (1) The council of a municipality must for each financial year approve an annual budget for the municipality before the start of that financial year.

(2) In order for a municipality to comply with subsection (1), the mayor of the municipality must table the annual budget at a council meeting at least 120 days before the start of the budget year.

Contents of annual budgets and supporting documents

17. (1) An annual budget of a municipality must be a schedule in the prescribed format –

(a) setting out realistically anticipated revenue for the budget year from each revenue source;

(b) appropriating expenditure for the budget year under the different votes of the municipality;

(c) setting out indicative revenue per revenue source and projected expenditure by vote for the two financial years following the budget year;

(d) setting out –

(i) estimated revenue and expenditure by vote for the current year; and

(ii) actual revenue and expenditure by vote for the financial year preceding the current year; and

(e) a statement containing any other information required by section 215 (3) of the Constitution or as may be prescribed.

(2) An annual budget must be divided into a capital and an operating budget.

(3) When an annual budget is tabled in terms of section 16 (2), it must be

accompanied by the following documents:

(a) draft resolutions –

(i) approving the budget of the municipality;

(e) any proposed amendments to the budget-related policies of the municipality;

(f) particulars of the municipality’s investments;

18. (1) An annual budget may only be funded from –

(a) realistically anticipated revenues to be collected;

(b) accumulated funds from previous years’ surpluses not committed for other purposes; and

(c) borrowed funds, but only for the capital budget referred to in section 17 (2).

(a) collection levels to date for the current year; and

(b) actual revenue collected in previous financial years.

19. (1) A municipality may spend money on a capital project only if –

(a) the project, including the total cost, has been approved by the council;

(b) money has been appropriated in the capital budget referred to in section 17 (2); and

(2) Before approving a capital project , the council of a municipality must consider –

20. The National Treasury –

(a) must prescribe the form of the annual budget; and

(iii) inflation projections to be used with regard to the budget;

Budget preparation process

21. (1) The mayor of a municipality must—

(2) When preparing the annual budget, the mayor of a municipality must —

22. Immediately after an annual budget is tabled in a municipal council, the accounting officer of the municipality must –

23. (1) When the annual budget has been tabled, the municipal council must consider the views of –

(2) After considering all budget submissions, the council must give the mayor an opportunity –

(a) to respond to the submissions; and

(b) if necessary, to revise the budget and table amendments for consideration by the council.

(3) The National Treasury may issue guidelines on the manner in which municipal councils should process their annual budgets, including guidelines on the formation of a committee of the council to consider the budget and to hold public hearings.

24. (1) The municipal council must consider an annual budget for approval at least 30 days before the start of the budget year.

(2) An annual budget –

(a) must be approved before the start of the budget year;

Failure to approve budget before start of budget year

25. (1) If a municipal council fails to approve an annual budget, including revenue raising measures necessary to give effect to the budget, the council must reconsider the budget and again vote on the budget, or on another version thereof, within seven days of the council meeting that failed to approve the budget.

including revenue raising measures necessary to give effect to the budget, is approved.

measures necessary to give effect to the budget, by the first day of the budget year, the mayor must immediately comply with section 51.

26. (1) If a municipal council has not approved by the start of the budget year an annual budget and revenue raising measures necessary to give effect to the budget, the provincial executive must intervene in the municipality in terms of section 139 (4) of the Constitution by taking any appropriate steps to ensure that the budget and those revenue raising measures are approved, including dissolving the council and –

(2) Sections 34 (3) and (4) and 35 of the Municipal Structures Act apply when an MEC for local government dissolves a municipal council.

(3) When approving a budget for a municipality in terms of subsection (1) (b), the provincial executive is not bound by any provision relating to the budget process applicable to a municipality in terms of this Act or other legislation. Such a budget must after the intervention has ended be replaced by a budget approved by the newly elected council, provided the provisions of this Chapter relating to annual budgets are substantially complied with in line with any revised time lines approved by the MEC for local government in the province.

(4) Until a budget for the municipality is approved in terms of section 24 or subsection (1) (b) of this section, funds for the requirements of the municipality may, with the approval of the MEC for local government in the province, be withdrawn from the municipality’s bank accounts in accordance with subsection (5).

(5) Funds withdrawn from a municipality’s bank accounts in terms of

subsection (4) –

(b) may not –

appropriated for the budget year, and any funds withdrawn in terms of subsection (5) must be regarded as forming part of the funds appropriated in a subsequently approved annual budget for the budget year.

27. (1) The mayor of a municipality must upon becoming aware of any impending non-compliance by the municipality of any provisions of this or any other Act pertaining to the tabling or approval of an annual budget, or compulsory consultation processes, inform the MEC for local government in the province, in writing, of such impending non-compliance.

(2) If the impending non-compliance pertains to a time provision except section 16 (1), the MEC for local government may, on application by the mayor and on good cause shown, extend any time limit or deadline contained in that provision, provided that no such extension may compromise compliance with section 16 (1). An MEC for local government

must –

(3) The mayor of a municipality must upon becoming aware of any actual non-compliance by the municipality of a provision of this Chapter, inform the council, the MEC for local government and the National Treasury, in writing, of –

(a) such non-compliance; and

(4) Non-compliance by a municipality with a provision of this Chapter relating to the budget process or a provision of the Municipal Systems Act relating to the approval of a budget-related policy, does not affect the validity of an annual or adjustments budget.

(5) The provincial executive may intervene in terms of the appropriate provision of section 139 of the Constitution if a municipality cannot or does not comply with a provision of this Chapter, including a provision relating to process.

28. (1) A municipality may revise an approved annual budget through an adjustments budget.

(4) Only the mayor may table an adjustments budget in the municipal council, but an adjustments budget in terms of subsection (2) (b) to (g) may only be tabled within any prescribed limitations as to timing or frequency.

(5) When an adjustments budget is tabled, it must be accompanied by –

(a) an explanation how the adjustments budget affects the annual budget;

(b) a motivation of any material changes to the annual budget;

(d) any other supporting documentation that may be prescribed.

(6) The consultation processes in Chapter 4 of Systems Act do not apply for the tabling and approval of an adjustments budget.

(7) Sections 22 and 23 (3) apply in respect of an adjustments budget, and in such application a reference in those sections to an annual budget must be read as a reference to an adjustments budget.

Unforeseen and unavoidable expenditure

29. (1) The mayor of a municipality may in exceptional circumstances authorise unforeseeable and unavoidable expenditure for which no provision was made in an approved budget.

(2) Any such expenditure –

(a) must be in accordance with any framework that may be prescribed;

(b) may not exceed a prescribed percentage of the approved annual budget;

(c) must be reported by the mayor to the municipal council at its next meeting; and

(d) must be appropriated in an adjustments budget.

(3) If such adjustments budget is not passed within 60 days after the expenditure was incurred, the expenditure is unauthorised and section 30 applies.

30. (1) Without limiting liability in terms of the common law or other legislation—

(2) A municipality must recover unauthorised, irregular or fruitless and wasteful expenditure from the person liable for that expenditure unless the expenditure—

(a) in the case of unauthorised expenditure, is—

(i) authorised in an adjustments budget; or

executive committee of the municipality, as the case may be, has taken a decision which, if implemented, is likely to result in unauthorised, irregular or fruitless and wasteful expenditure, the accounting officer is not liable for any ensuing unauthorised, irregular or fruitless and wasteful expenditure provided that the accounting officer has informed the council, the mayor or the executive committee, in writing, that the expenditure is likely to be unauthorised, irregular or fruitless and wasteful expenditure.

(4) The accounting officer must promptly inform the speaker of the council, the MEC for local government in the province and the Auditor-General, in writing, of—

(b) the steps that have been taken—

(ii) to prevent a recurrence of such expenditure.

fruitless and wasteful expenditure as irrecoverable, is no excuse in criminal or disciplinary proceedings against a person charged with the commission of an offence or a breach of this Act relating to such unauthorised, irregular or fruitless and wasteful expenditure.

cases of alleged –

all cases referred to in subsection (6) are reported to the South African Police Service if –

(a) the charge is against the accounting officer; or

(b) the accounting officer fails to comply with that subsection.

regulation in terms of section 171.

Contracts having budgetary implications (Clause still to be discussed)

31. (1) A municipality may enter into a contract which will impose financial

obligations on the municipality beyond the financial year in which the contract is concluded, but only if –

(a) the municipal council –

(i) has considered financial projections of the municipality’s financial obligations in terms of the proposed contract beyond the financial year in which the contract is made; and

(ii) has approved the contract in principle as part of its budgetary process; including the impact on future tariffs and revenue; and

(b) the municipality, after approval in principle of the proposed contract –

(i) has published a notice in a newspaper of general circulation in the municipality –

(iii) has considered any views of the local community on the matter.

(2) Subsection (1) does not apply to –

(a) contracts regulated in terms of section 43 (3) for long-term debt;

(a) employment contracts; or

1. If the municipality long term contract involves the provision of water, electricity or a prescribed service, the municipal must also –

1. notify the national department responsible for that service 30 days before the council tables its intention to do so as part of its budget process in 1(a)(ii), and takes any recommendations received into account;
2. invites the national department to submit its written comments for consideration at the public hearings in (1)(b).

(3) All contracts that impose a financial obligation on a municipality must be made available in their entirety to the municipal council and may not be withheld from public scrutiny, except that –

(4) Notwithstanding (3), the Council must specifically approve all provisions in the contract relating to future tariffs, transfers, payments and financial risks for the municipality

32. (1) The national and provincial governments must by agreement assist municipalities in building their capacity for efficient, effective and transparent financial management.

(2) The national and provincial governments must support the efforts of municipalities to identify and resolve their financial problems.

(3) When performing its monitoring function in terms of section 155 (6) of the Constitution, a provincial government –

(4) Non-compliance with this section or any other provision of this Act by the national or a provincial government does not affect the responsibility of a municipality, its political structures, political office-bearers and officials to comply with this Act.

33. National and provincial departments and public entities must –

34. (1) In order to provide predictability and certainty about the sources and levels of intergovernmental funding for municipalities, the accounting officer of a national or provincial department and the accounting authority of a national or provincial public entity responsible for the transfer of any allocations referred to in that subsection, must by no later than 20 January of each year notify the National Treasury or the relevant provincial treasury, as may be appropriate, of all proposed allocations, and the amounts of those allocations, to be transferred to municipalities during each of the next three financial years.

Promotion of co-operative government by municipalities

35. (1) Municipalities must –

municipality must, by no later than 120 days before the start of its budget year, notify the receiving municipality of the projected amount of any allocation proposed to be transferred to that municipality during each of the next three financial years.

36. (1) The National Treasury may stop –

(2) Before the National Treasury stops the transfer of funds to a municipality in terms of subsection (1) (a) or (b), it must –

(b) inform the MEC for local government in the province; and

Stopping of equitable share allocations to municipalities

37. (1) A decision by the National Treasury to stop the transfer to a municipality of funds referred to in section 36 (1) (a) –

(a) lapses after the expiry of 120 days, subject to approval of the decision in terms of paragraph (b) of this subsection and renewal of the decision in terms of subsection (2); and

(b) may be enforced immediately, but will lapse retrospectively unless Parliament approves it following a process substantially the same as that established in terms of section 75 of the Constitution, and prescribed by the joint rules and orders of Parliament. This process must be completed within 30 days of the decision by the National Treasury to stop the transfer of the funds.

(2) Parliament may renew a decision to stop the transfer of funds referred to in section 36 (1) (a) for no more than 120 days at a time, following the process established in terms of subsection (1) (b).

(3) Before Parliament approves or renews a decision to stop the transfer of funds to a municipality –

(a) the Auditor-General must report to Parliament; and

(b) the municipality must be given an opportunity to answer the allegations against it, and to state its case, before a committee.

Stopping of other allocations to municipalities

38. If the transfer of funds to a municipality has been stopped in terms of section 36 (1) (b) for the rest of the relevant financial year, the accounting officer of the national or provincial department responsible for the transfer must reflect such stopping of funds, together with reasons, in the annual financial statements of the department.

Monitoring of bulk services to, and payment for those services by, municipalities (Clause still to be discussed)

39A. (1) The National Treasury must monitor –

(a) the pricing structure for the provision of of bulk services to municipalities by other organs of state; and

(b) payments made by municipalities for such services.

(2) Each organ of state providing bulk services to a municipality must within 15 days after the end of each month furnish the National Treasury and national and provincial departments of local government with a written statement setting out, for each municipality in a province –

(a) the amount to be paid by the municipality for services for that month, and for the financial year up to the end of that month;

(b) the arrears owing and the age profile of such arrears; and

(c) any actions taken by that organ of state to recover arrears.

39. (1) A national or provincial organ of state may increase the cost of water, electricity or other prescribed bulk service for municipalities only after the Minister and each municipality affected by the increase have been consulted.

provincial organ of state to determine the upper limit of a municipal tariff, rate or tax, or of revenue from any other source, may despite such legislation be exercised by such national or provincial organ of state –

(a) only with the approval of the Minister; and

(3) Unless approved otherwise by the Minister, a decision referred to in subsection (1) or (2) which is made known –

40. (1) Whenever a dispute of a financial nature arises between organs of state, the parties concerned must as promptly as possible take all reasonable steps that may be necessary to resolve the matter out of court.

(4) This section only applies if at least one of the organs of state referred to in subsection (1) is a municipality or municipal entity.

CHAPTER 6

DEBT

Short-term debt

41. (1) A municipality may incur short-term debt only in accordance with and subject to the provisions of this Act.

(2) A municipality may incur short-term debt only when necessary to bridge—

(3) A municipality—

(a) must pay off short-term debt within the financial year; and

(4) (a) No lender may wilfully extend credit to a municipality for the purpose of renewing or refinancing short-term debt that must be paid off in terms of subsection (3) (a).

paragraph (a), the municipality is not bound to repay the loan or interest on the loan.

(5) Subsection (4) (b) does not apply if the lender—

42. (1) A municipality may incur long-term debt only in accordance with and subject to the provisions of this Act.

(2) A municipality may incur long-term debt only for the purpose of—

(3) Capital expenditure contemplated in subsection (2)(a) may include—

(a) financing costs, including—

(i) capitalised interest for a reasonable initial period;

(ii) costs associated with security arrangements in accordance with section 44;

(iii) discounts and fees in connection with the financing;

(b) costs of professional services directly related to the capital expenditure; and

(c) such other costs as may be prescribed.

(4) A municipality may borrow money for the purpose of re-financing existing long-term debt, provided –

(a) the existing long-term debt was lawfully incurred;

Conditions on which short and long-term debt may be incurred

43. (1) A municipality may incur debt only if –

(2) (a) A municipality may incur short-term debt only if the accounting officer of the municipality has made a prior written finding that the debt either –

finding contemplated in paragraph (a) (ii), notify the council in writing as soon as practical of the amount, duration, and the cost of such debt, as well as options for repaying such debt.

(3) A municipality may incur long-term debt only if the accounting officer of the municipality –

(ii) the anticipated total cost in connection with such debt over the repayment

Security

44. (1) A municipality may, by resolution of its council, provide security for –

(a) any of its debt obligations;

(2) A municipality may in terms of subsection (1) provide any appropriate security, including by –

(3) A council resolution authorising the provision of security in terms of subsection (2) (a)—

(4) If the resolution has determined that the asset or right is necessary for providing the minimum level of basic municipal services, neither the party to whom the municipal security is provided, nor any successor or assignee of such party, may, in the event of a default by the municipality, deal with the asset or right in a manner that would preclude or impede the continuation of that minimum level of basic municipal services.

(5) A determination in terms of subsection (3) that an asset or right is not necessary for providing the minimum level of basic municipal services is binding on the municipality until the secured debt has been paid in full or the secured obligations have been performed in full, as the case may be.

45. (1) Any person involved in the borrowing of money by a municipality must, when interacting with a prospective lender or when preparing documentation for consideration by a prospective investor—

(b) take reasonable care to ensure the accuracy of any information disclosed.

(2) A lender or investor may rely on written representations of the municipality, if the lender or investor did not know and had no reason to believe that those representations were false or misleading.

Municipal guarantees

46. A municipality may not guarantee any debt of any entity unless –

(a) the entity is a municipal entity under its sole ownership control;

47. Neither the national nor a provincial government may guarantee debt of a municipality or of a municipal entity.

CHAPTER 7

48. (1) The mayor of a municipality—

3. that the annual performance agreements as required in terms of section 57 (1) (b) of the Municipal Systems Act for the municipal manager and all managers directly responsible to the municipal manager –

(3) The performance contract of the municipal manager and any other prescribed categories of officials must be made public no later than the first day of the financial year, and copies submitted to the council and MEC for local government.

50. (1) On receipt of a monthly budget report submitted by the accounting officer of the municipality in terms of section 67, the mayor must –

(a) consider the report;

51. If a municipality has not approved an annual budget by the first day of the budget year or if the municipality encounters a serious financial problem referred to in section 139 of this Act, the mayor of the municipality –

52. (1) The mayor of a municipality which has sole or shared ownership control over a municipal entity must guide the municipality in exercising its ownership control powers over the municipal entity in a way –

Municipalities which do not have mayors

53. (1) The council of a municipality which does not have a mayor, must designate a councillor to exercise the powers and duties assigned by this Act to a mayor.

a municipality which does not have a mayor, be construed as a reference to a councillor designated by the council of the municipality in terms of subsection (1).

Municipalities with executive committees

54.	The powers and functions assigned by this Act to a mayor must, in the case of a municipality which has an executive committee referred to in section 43 of the Municipal Structures Act, be exercised by the mayor in consultation with the executive committee.

55. (1) The powers and duties assigned in terms of this Act to the mayor of a

municipality, may –

(2) A delegation in terms of subsection (1)—

(a) must be in writing;

(3) The mayor may confirm, vary or revoke any decision taken in consequence of a delegation in terms of this section, but no such variation or revocation of a decision may detract from any rights that may have accrued as a result of the decision.

CHAPTER 8

RESPONSIBILITIES OF MUNICIPAL OFFICIALS

56. The municipal manager of a municipality is the accounting officer of the municipality for the purposes of this Act, and, as accounting officer, must –

57. (1) The accounting officer of a municipality must—

58. (1) The accounting officer of a municipality—

(c) must ensure that the municipality has and maintains—

(iii) makes or permits an unauthorised, irregular or fruitless and wasteful expenditure.

(2) The accounting officer of a municipality must take all reasonable steps to ensure that the municipality has and implements –

(3) The accounting officer must maintain and regularly update the municipality’s official website and promptly, not later than 5 days after its tabling, place on the website –

(b) all policies of the municipality referred to in subsection (2);

(c) the annual report, financial statements and audit report;

(h) any other documents that may be prescribed.

(4) The accounting officer is responsible for all bank accounts of the municipality, including any bank account opened for any relief, charitable or trust fund set up by the municipality in terms of section 12, and must account for such bank account.

Asset and liability management

59. (1) The accounting officer of a municipality is responsible for the management of—

(b) the liabilities of the municipality.

(2) The accounting officer must for the purposes of subsection (1) –

60. (1) The accounting officer of a municipality is responsible for the management of the revenue of the municipality.

(2) The accounting officer must for the purposes of subsection (1) –

(3) The accounting officer must immediately inform the National Treasury of any payments for municipal services or rates and taxes due to the municipality by a national or provincial organ of state which are regularly and consistently in arrears for periods of more than 30 days.

(4) The accounting officer must ensure –

61. (1) The accounting officer of a municipality is responsible for the management of the expenditure of the municipality.

(2) The accounting officer must for the purpose of subsection (1) –

(ii) contributions for pensions and medical aid;

(vii) any other type of benefit or allowance related to staff; and

63. (1) Before transferring funds of the municipality to an organisation or body outside any sphere of government otherwise than in compliance with a commercial or other business transaction, the accounting officer must be satisfied that the organisation or body –

(2) The accounting officer must through contractual and other appropriate mechanisms enforce compliance with subsection (1).

(3) Subsection (1) (a) does not apply to an organisation or body serving the poor or used by government as an agency to serve the poor, provided that –

(a) the transfer does not exceed a prescribed limit; and

64. The accounting officer of a municipality must –

65. (1) The accounting officer of a municipality is responsible for implementing the municipality’s budget, including taking effective and appropriate steps to ensure that –

(b) revenue and expenditure are properly monitored.

66. (1) The accounting officer of a municipality must report in writing to the municipal council –

(a) any impending—

(i) shortfalls in budgeted revenue; and

(ii) overspending of the municipality’s budget; and

(b) any steps taken to rectify such shortfalls or overspending.

(2) If the consolidated balance in a municipality’s bank accounts shows a net overdrawn position for a period exceeding a prescribed period , the accounting officer of the municipality must notify the National Treasury in the prescribed format of –

(a) the amount by which the account or accounts are overdrawn;

(b) the reasons for the overdrawn account or accounts; and

(c) the steps taken or to be taken to correct the matter.

corresponding amounts budgeted for in the annual budget as revised by any adjustments budget.

electronic format.

in subsection (1) (e) during a relevant month must, by no later than seven working days after the end of that month, submit that part of the report reflecting the particulars referred to in subsection (1) (e) and (f) to the national or provincial organ of state or municipality which made the transfer.

68. The accounting officer of a municipality must notify the National Treasury, in writing, of any new municipal entity which the municipality intends to establish, or in the establishment of which it intends to take the initiative or to participate, at least 60 days before the municipality takes any step towards establishing, or initiating or participating in the establishment of, the entity.

69. The accounting officer must inform the MEC for local government in the province and the National Treasury, in writing, of –

70. The accounting officer of a municipality must submit to the National Treasury, the MEC for local government in the province or the Auditor-General such information, returns, documents, explanations and motivations as may be prescribed or as the National Treasury, that MEC or the Auditor-General may require

Protection of accounting officer

71. Any action taken by a political structure or office-bearer of a municipality against the accounting officer of the municipality solely because of that accounting officer’s compliance with a provision of this Act, is an unfair labour practice for the purposes of the Labour Relations Act, 1995 (Act No. 66 of 1995).

72. (1) The top management of a municipality’s administration consists of –

(a) the accounting officer;

(b) the chief financial officer;

(d) any other senior officials designated by the accounting officer.

(2) The top management must assist the accounting officer in managing and co-ordinating the financial administration of the municipality.

73. A manager referred to in section 56 of the Municipal Systems Act or other official of a municipality—

74. (1) The accounting officer of a municipality –

(2) A delegation in terms of subsection (1)—

(a) must be in writing;

(3) The accounting officer may confirm, vary or revoke any decision taken in consequence of a delegation or sub-delegation in terms of this section, but no such variation or revocation of a decision may detract from any rights that may have accrued as a result of the decision.

CHAPTER 9

MUNICIPAL BUDGET AND TREASURY OFFICES

Establishment

75. (1) Every municipality must have a budget and treasury office.

(2) A budget and treasury office consists of—

76. (1) The chief financial officer of a municipality—

(a) is administratively in charge of the budget and treasury office;

(2) The chief financial officer of a municipality is accountable to the accounting officer for the performance of the functions referred to in subsection (1) who may for good reason amend the delegations for such powers. Where such amendments are effected, the accounting officer is directly responsible for the exercise of such powers, which cannot be delegated to any other person

77. (1) The chief financial officer of a municipality may sub-delegate any of the functions referred to in section 76 (1) (b), (c) and (d)—

(a) to an official in the budget and treasury office;

(b) to the holder of a specific post in that office; or

(c) with the concurrence of the accounting officer, to—

(i) any other official of the municipality; or

(ii) any person contracted by the municipality for the work of the office.

(2) If the chief financial officer sub-delegates any functions in terms of subsection (1) to a person who is not an official of the municipality, the chief financial officer must be satisfied that effective systems and procedures are in place to ensure control and accountability.

(3) A sub-delegation in terms of subsection (1)—

(a) must be in writing;

(b) is subject to such limitations or conditions as the chief financial officer may impose; and

(4) The chief financial officer may confirm, vary or revoke any decision taken in consequence of a sub-delegation in terms of subsection (1), but no such variation or revocation of a decision may detract from any rights that may have accrued as a result of the decision.

Competency levels of professional financial officials

78. (1) All professional financial officials of a municipality and any municipal entity, including the chief financial officer and all senior and professional staff of a budget and treasury office, and the accounting officer and heads of department, must meet the prescribed competency levels.

(2) A municipality must for the purposes of subsection (1) –

CHAPTER 10 (draft, for discussion, not legally refined)

UTILISATION OF EXTERNAL MECHANISMS

following institutions or persons as a mechanism to assist the municipality in the exercise of any of its functions or powers, or to provide any service on behalf of a municipality:

(2) This Part does not apply to the purchase of goods and services in the ordinary course of business in accordance with any applicable procurement legislation.

(b) in connection with the provision of a municipal service, Chapter 8 of the Municipal Systems Act must also be complied with.

80A. (1) Except for a municipal entity that is wholly owned and controlled by the municility, a municipality may not appoint or utilise any other external mechanism, unless-

(a) the municipal council has first identified the use of an external mechanism as its preferred option, following the council’s consideration of a pre-feasibility study, which must include:

1. clear identification of the functions, powers or services for which the municipality intends to consider an external mechanism;
2. the number of years for which an external mechanism might be considered;
3. the outputs an external mechanism might be expected to produce;
4. The impact on staff, assets and liabilities of various forms of internal and external mechanisms;
5. The impact on the IDP of the municipality of various internal and external mechanisms;
6. The impact on future budgets, for each year for which an external mechanism might be used, including impacts on revenue, expenditure, borrowing and debt;
7. Projected impacts on the municipality and on its residents and service customers, including impacts on tariffs, grants, dividends, subsidies, and service delivery; and
8. comparison of the advantages and disadvantages of internal mechanisms, and of various kinds of external mechanisms, including public sector and private sector external mechanisms;

(b) the municipal council has approved the specific external mechanism, following consideration of community comments and of a detailed feasibility study, which must include:

1. the matters described in paragraphs (i) through (vii) of subsection (1)(a), with reference to the specific external mechanism to be appointed;
2. the strategic and operational costs and benefits of the external mechanism, in terms of the municipality’s strategic objectives;
3. an assessment as to the extent to which use of the proposed external mechanism will –
1. provide value for money;
2. be affordable for the municipality; and
3. transfer appropriate technical, operational and financial risk;
4. an assessment of the municipality’s capacity to effectively monitor the external mechanism and to enforce the service delivery agreement.

(c) if a private sector external mechanism is to be appointed,

1. the municipality must solicit competitive bids or proposals; and
2. the selection of the private party must be in accordance with the municipality’s procurement policy referred to in section 166 and other applicable procurement legislation, which may limit participation to pre-qualified persons.

(2) When the detailed feasibility study referred to in subsection (1)(b) has been completed, the accounting officer of the municipality must –

1. stating particulars of the proposed external mechanism and service delivery agreement;
2. stating the place, including the website address, where particulars concerning the proposed external mechanism, feasibility study, and service delivery agreement can be obtained; and
3. inviting the local community to submit written comments or representations to the council in respect of the proposed external mechanism, feasibility study, and service delivery agreement.

(3) The requirements of this section are in addition to the applicable requirements contained in Chapter 8 of the Municipal Systems Act, and the municipality may develop and use a process that simultaneously complies with the requirements of both Acts.

80B (1) No organ of state in the national or provincial sphere of government may accept an appointment to perform any function, exercise any power, or provide any service on behalf of a municipality unless-

1. it is legally entitled to perform that function or power, or to provide that service,:
2. the performance of the function, exercise of the power, or provision of the service will not encroach on the geographical, functional, or institutional integrity of the local sphere of government;
3. the commitments undertaken by the organ of state in connection with the appointment can be met in terms of the approved budget of the organ of state;
4. the organ of state determines that it can absorb any commitments, liabilities or employees involved, if and when the appointment ends.

(2) If a municipal council, pursuant to subsection 80A(1)(a), identifies an organ of state as the preferred option, the service delivery agreement with the organ of state must be negotiated only after securing the approval of the national Ministers responsible for finance and local government, and –

1. the Minister responsible for the organ of state, in the case of an organ of state in the national sphere;
2. executive authority responsible for the organ of state and the provincial treasury, in the case of an organ of state in the provincial sphere; or
3. the municipal council of the other municipality, in the case of another municipality or in the case of a municipal entity in which another municipality has an ownership interest.

(3) Before approvals can be given as required in subsection (2), the organ of state must prepare a feasibility study containing –

1. an assessment on the impact on the budget of the organ of state, and on its assets, liabilities and personnel expenditure for each of the financial years that it intends to serves as an external mechanism;
2. Whether the number of personnel will increase to enable the organ of state to be an external mechanism, and whether any staff from the appointing municipality will be transferred or seconded to or from the organ of state;
3. the ability of the organ of state to absorb any commitments, liabilities or employees involved, if and when the appointment ends; and
4. any other relevant information as may be prescribed.

(4) The organ of state must ensure that any expenditure and revenue connected with its appointment are approved when its annual budget is adopted.

agreement between the municipality and the external mechanism stipulating the terms and conditions of the appointment.

1. set out the term of the appointment;
2. identify specific outputs for each year of the agreement;
3. establish service delivery indicators, and appropriate systems for monitoring and reporting on these indicators;
4. make provision for the appointment to end at the discretion of the municipality, and for other remedial action, if the outputs or performance criteria are not met;
5. provide for a review on performance within three months after the end of each financial year of the municipality, and for a mid-year performance to be conducted one month after the end of the first six months of every financial year;
6. assure that the municipality and the external mechanism are able to establish and maintain effective financial management systems relating to the provision of the service;
7. bind the external mechanism to furnish the municipality with all information available to the external mechanism which the municipality needs to comply with this Act, including the monthly reporting requirements of section ___;
8. require accounting on a monthly basis to the municipality for –

(i) any fees collected for the provision of the service in terms of section 81 (2) (a) (vi) of the Municipal Systems Act;

(ii) any money collected by the external mechanism for or on behalf of the municipality;

(iii) any expenditure by or claim against the external mechanism for which the municipality is or may be liable;

(iv) any funds transferred by the municipality to the external mechanism, including funds referred to in section 81 (2) (b) of the Municipal Systems Act; and

(v) any assets transferred or made available by the municipality to the external mechanism; and

9. provide for mechanisms to resolve disputes between the municipality and the external mechanism;
10. provide for the rights and obligations of the parties, and the distribution of assets and liabilities when the agreement is terminated; and
11. regulate any other matters that may be prescribed.

(3) The municipal council must approve the service delivery agreement.

(4) If an external mechanism is appointed for the provision of a municipal

service, that appointment must also meet the requirements of the Municipal Systems Act.

(5) When a municipality enters into an agreement with an external mechanism other than a municipal entity that is wholly owned and controlled by the municipality, a copy of the agreement must be submitted to –

(ii) to oversee the day-to-day management of the agreement;

85. The national government may assist municipalities in carrying out feasibility or pre-feasibility studies referred to in section 80A, or in preparing service delivery agreements.

86. (1) No municipality may establish a company, corporative, trust, or any other corporate body except for a municipal entity.

(2) No municipality may –

1. a municipal entity to which chapter 11 applies s, and then only for the purpose of providing a municipal service within the municipality; or
2. a public entity to which the Public Finance Management Act applies, and then only for the purpose of providing a municipal service within the municipality, and for which the National Treasury has granted approval for good reason;
3. corporate securities acquired with money not immediately required for expenditure, as may be permitted in terms of the investment framework to be prescribed in terms of section 13;

86. (1) No municipality may establish acquire or hold an interest in a company, corporative, trust, or any other corporate body except for

(a) a municipal entity.to which chapter 11 applies s, and then only for the purpose of providing a municipal service within the municipality;

(b) a public entity to which the Public Finance Management Act applies, and then only where the majority share is held collectively by national or provincial organs of state, and for the purpose of providing a municipal service within the municipality, and for which the National Treasury has granted written approval;

(2) If a municipality on the date on which this section takes effect holds an interest or membership in any corporate body in contravention of subsection (1) –

88. (1) A private company referred to in section 87 (2) (a) (i) is a municipal entity under the sole ownership control of the municipality which established or acquired the company.

(2) An entity referred to in section 87 (2) (a) (ii) –

(a) is a municipal entity if ownership control in the company is held by one or more

municipalities; or

(i) is held by a national or provincial organ of state; or

(ii) is shared by a municipality and a national or provincial organ of state.

(3) The governing body of a multi-jurisdictional municipal service district must for the purposes of this Act be regarded as a municipal entity under the shared ownership control of the establishing municipalities.

(4) Any service utility referred to in section 87 (2) (c) is a municipal entity under the sole ownership control of the establishing municipality; except as may be otherwise prescribed in the authorising regulatory framework.

Disposal of companies and equity interests in companies

91. A municipality may transfer ownership or otherwise dispose of –

87. (1) A municipality may not establish, acquire or utilise a municipal or other corporate entity in connection with any of its powers and functions that are not municipal services.

(2) A municipality, in connection with the provision of municipal services, may only establish, acquire or hold an interest in –

(a) a private company in accordance with the Companies Act,1973 (Act No. 61 of 1973), provided that –

(i) the company is a wholly owned asset of the municipality; or

2. a multi-jurisdictional service districts or a service utility operating in terms of regulations prescribed by the National Treasury, and which regulates the governance, accountability, reporting, transparency and financial management arrangements of such corporate entity;

(3) If a municipality establishes, acquires or holds an equity interest in, a private company in terms of subsection (2), it must comply with the Companies Act, 1973 (Act No. 61 of 1973), and any other legislation regulating companies, but in the event of any conflict between such other legislation and a provision of this Act, the provision of this Act prevails.

Powers and duties of municipalities having sole or shared ownership control

92. A municipality which has sole ownership or shared control of a municipal entity –

CHAPTER 11 (draft, for discussion, not legally refined)

GOVERNANCE OF MUNICIPAL ENTITIES

Part 3: General

Disposal of capital assets by municipal entities

Governing boards

96. (1) Every municipal entity, service utility or any other corporate entity must have a governing board.

(2) Participating municipalities must ensure that the governing board of the entity has the requisite range of expertise to effectively manage and guide the activities of the entity.

Meetings of governing boards

Disclosure of interests

Accounting authorities

Asset management

Bank account details to be submitted to municipalities and Auditor-General

Duties of other officials

Delegation of powers and duties by accounting authority

Budgets

117A. (1) A municipal entity must have an annual budget –

(2) Any projected income to the entity from a participating municipality must be provided for in the annual budget of the participating municipality, and to the extent not so provided, the municipality entity’s budget must be adjusted.

(3) Any projected income to a municipality from a municipal entity must be provided for in the annual budget of the municipal entity, and to the extent not so provided, the municipality’s budget must be adjusted.

(4) A municipal entity may only expend funds in accordance with its approved budget.

Business plans

118. Each municipal entity must have a multi-year plan for the entity that—

120. (1) A municipal entity may borrow money but only in accordance with—

CHAPTER 12

FINANCIAL REPORTING AND AUDITING

Tabling and content of annual reports

Preparation of financial statements

125. (1) The financial statements of the municipal must include—

Auditing of annual financial statements

Council meetings open to public and certain public officials

130. (1) The meetings of a municipal council at which documents referred to in section 121 or 125 are to be discussed or at which decisions concerning those documents are to be taken, must be open to the public and any organs of state, and a reasonable time must be allowed –

(b) for members of the local community or any organs of state to address the council.

131. (1) A municipality must address any issues raised by the Auditor-General in an audit report. The speaker of the municipality must ensure compliance by the municipality with this subsection.

(2) The MEC for local government must—

Submissions to provincial legislatures

Annual report to Parliament

Investigations and special audits by Auditor-General

CHAPTER 13

Mandatory provincial interventions

Preparation of financial recovery plans

Termination of provincial interventions

1. the MEC for local government in the province;
2. the Minister;

(c) the Cabinet member responsible for local government;

(d) organised local government; and

(e) to the extent that they can reasonably be contacted, all persons to whom the municipality or the municipal entity owes an amount in excess of a prescribed amount, or if no amount is prescribed, in excess of R100 000.

(3) An application in terms of subsection (1) may for the purposes of section 139 (5) of the Constitution be regarded as an admission by the municipality that it is unable to meet its financial commitments.

Application for extraordinary relief

156. (1) A municipality may apply to the High Court for an order –

(a) to stay, for a period not exceeding 90 days at a time, all legal proceedings, including the execution of legal process, by persons claiming money from the municipality;

(b) to suspend the municipality’s financial obligations to creditors, or any portion of those obligations, until the municipality can meet those obligations; or

(c) to terminate the municipality’s financial obligations to creditors, and to settle claims in accordance with a distribution scheme referred to in section 158.

(2) The Court may make an order in terms of subsection (1) only if –

(a) the provincial executive has intervened in terms of section 142 and a financial recovery plan to restore the municipality to financial health has been approved for the municipality;

(b) the financial recovery plan is likely to fail without the protection of such an order;

(c) section 157 has been complied with, in the case of an application for an order referred to in subsection (1) (b); and

(d) section 158 has been complied with, in the case of an application for an order referred to in subsection (1) (c).

(3) Notice of an application in terms of subsection (1) must be given to –

(a) to the extent that they can reasonably be contacted, all creditors to whom the municipality owes an amount in excess of a prescribed amount, or if no amount is prescribed, in excess of R100 000;

(b) the municipality;

(c) the MEC for local government in the province;

(d) the Minister;

(e) the Cabinet member responsible for local government; and

(f) organised labour.

Suspension of financial obligations

157. Before issuing an order in terms of section 156 (1) (b) for the suspension of a municipality’s financial obligations to creditors, the court must be satisfied that –

(a) the municipality cannot currently meet its financial obligations to creditors; and

(b) all assets not reasonably necessary to sustain effective administration or to provide the minimum level of basic municipal services have been or are to be liquidated in terms of the approved financial recovery plan for the benefit of meeting creditors’ claims.

Termination of financial obligations and settlement of claims

158. (1) Before issuing an order for the termination of a municipality’s financial obligations to creditors in terms of section 156 (1) (c), the court must be satisfied that –

(a) the municipality cannot meet its financial obligations to its creditors and is not likely to be able to do so in the foreseeable future;

(b) all assets not reasonably necessary to sustain effective administration or to provide the minimum level of basic municipal services have been liquidated in terms of the approved financial recovery plan for the benefit of meeting creditors’ claims; and

(c) all employees have been discharged except those affordable in terms of reasonably projected revenues as set out in the approved financial recovery plan.

(2) If the court issues an order referred to subsection (1) the MEC for local government in the province must appoint a trustee to prepare a distribution scheme for the proportional settlement of all legitimate claims against the municipality as at the date of the order. Those claims must be settled against the amount realised from the liquidation of assets referred to in subsection (1) (b).

(3) A distribution scheme must –

(a) determine the amount available for distribution;

(b) list all creditors with claims which qualify for the purposes of a distribution scheme, indicating which of those are secured and the manner in which they are secured; and

(c) provide for the distribution of the amount available amongst creditors in the following order of preference:

(i) first preference must be given to the rights of secured creditors as to the assets with which they are secured in terms of section 44, provided the security in question was given in good faith and at least six months before the mandatory provincial intervention began;

(ii) thereafter the preferences provided for in the Insolvency Act, 1936 (Act No. 24 of 1936), read with the necessary changes as the context may require, must be applied; and

(iii) thereafter non-preferent claims must be settled in proportion to the amount of the different claims;

(4) A distribution scheme may not be implemented unless approved by the court.

Matters to be prescribed

159. The National Treasury must by regulation in terms of section 171–

(a) provide for an equitable process for the recognition of claims against a municipality for the purposes of sharing in a distribution scheme, provided that rejection of any claim does not prevent a creditor from proving the claim in a court; and

(b) provide for public access to a distribution scheme.

Part 4: Municipal Financial Recovery Service

Establishment

160. (1) A Municipal Financial Recovery Service is hereby established as an

institution within the public service.

(2) The Municipal Financial Recovery Service forms part of, and functions within, the National Treasury.

Functions and powers

161. The Municipal Financial Recovery Service –

(a) must perform the duties and may exercise the powers assigned to the Service in terms of this Act;

(b) may, on request by an MEC for local government, prepare a financial recovery plan for a municipality or instruct any suitably qualified person to prepare the plan in accordance with the directions of the Service;

(c) may, at the request of the MEC for local government in the province monitor the implementation of any financial recovery plans that it has prepared, and may recommend such amendments and revisions as are appropriate;

(d) may on request by any municipality that is experiencing financial problems, and in co-ordination with any other provincial or national efforts, assist the municipality to identify the causes of, and potential solutions for, these financial problems;

(e) may, with the approval of the Director-General of the National Treasury, obtain the services of any financial expert to perform any specific work for the Service; and

(f) may collect information on municipal financial problems and on best practices in resolving such problems.

 

 

Appointment of Head

162. (1) The Minister must appoint a person as the Head of the Municipal Financial Recovery Service, subject to subsection (2) and legislation governing the public service.

(2) A person appointed as the Head of the Recovery Service holds office in the

National Treasury on terms and conditions set out in a written employment contract which must

include terms and conditions setting performance standards.

Responsibilities of Head

163. (1) The Head of the Municipal Financial Recovery Service –

(a) is responsible for the performance by the Service of its functions and the

exercise of its powers; and

(b) takes all decisions of the Service in the performance of its functions and the exercise of its powers, except those decisions of the Service taken in consequence of a delegation in terms of section 165.

(2) The Head of the Service performs the functions of office subject

to the directions of the Director-General of the National Treasury.

Staff

164. The staff of the Municipal Financial Recovery Service consists of –

(a) the Head of the Service;

3. persons in the service of, or contracted by, the National Treasury and designated by the

CHAPTER 14

GENERAL TREASURY MATTERS

Internal audit unit (clause for discussion)

168 A (1) A municipality must establish an internal audit function that may be outsourced

(2) An internal audit unit must at least perform the following functions:

Audit committees

Councillors’ remuneration

169. (1) A municipality may remunerate its political office-bearers and members of its political structures, but only –

Treasury regulations and guidelines

Departures from treasury regulations or conditions

CHAPTER 15

FINANCIAL MISCONDUCT (Chapter for discussion)

Financial misconduct by municipal officials

(2) The chief financial officer of a municipality commits an act of financial misconduct if that officer wilfully or negligently—

Financial misconduct by accounting authorities and officials of municipal entities

Applicable legal regime for disciplinary proceedings

Offences

179. (1) The accounting officer of a municipality is guilty of an offence if that accounting officer wilfully or in a grossly negligent way contravenes or fails to comply with a provision of section 58, 59, 60, 61, 62, 64, 65, 66, 121 (1) or (2), 123 (1), 124 (1) or 130 (1) .

Regulations on financial misconduct procedures and criminal proceedings

CHAPTER 16

MISCELLANEOUS (chapter for discussion)

Limitation of liability

Exemptions