PROVINCIAL SUPPORTPROVINCIAL SUPPORTMUNICIPAL FINANCEMUNICIPAL FINANCE

PRESENTATION TO THE SALGA LIMPOPO PRESENTATION TO THE SALGA LIMPOPO FINANCE WEEKFINANCE WEEK7-8 February 20137-8 February 2013

General Manager: Municipal FinanceMrs Joey Krishnan

CONTENTCONTENT

• Mandate• Stakeholders• Principles and Approach• Support Initiatives• Institutional Arrangements and Municipal

Engagements• Audit Outcomes and Financial Results• Challenges• Recommendations

MANDATEMANDATE

• Constitution – Sections 155 and 139– Monitoring– Support– Capacity Development– Intervention

MANDATEMANDATE• Municipal Finance Management Act, 2003

– Supervision over local government finance management – Chapter 2• Monitor and assess

– Budget preparation and implementation, including expenditure; revenue collection and borrowing– Compliance

– Capacity Building – Chapter 5• By agreement assist in building capacity• Support efforts by municipalities to identify and resolve financial problems• Monitor and share results• Inter-governmental relations in fiscal and financial relations

– Intervention – Chapter 13• Discretionary• Mandatory

– Various executive obligations of the MECs for Finance and Local Government• In-year monitoring and reporting to the Provincial Legislature• Budget intervention – section 26 read with section 55• Unauthorised, irregular, fruitless and wasteful expenditure – section 32(4)• Councillor’s Remuneration – section 167• Annual Reporting – section 131

MANDATEMANDATE• Municipal Systems Act, 2000

– Co-operative government – section 3• Principles of co-operative government – section 141 of the Constitution• Must within the constitutional system of co-operative government, exercise

executive and legislative authority in a manner that does not impede a municipality’s ability or right to exercise its legislative and executive authority– Develop common approaches– Enhance co-operation, mutual assistance and sharing of resources among municipalities– Find solutions for problems relating to Local Government generally– Facilitate compliance with the principles of co-operative government and

intergovernmental relations

– Various executive obligations of the MECs for Local Government• IDPs• Appointment of section 57 managers• Municipal Performance Management• Monitoring – section 105• Investigation – section 106• Councillor discipline

MANDATEMANDATE• Municipal Structures Act, 1998– Powers and functions– Full time councillors– Participation by Traditional Leaders in municipal councils

• Municipal Property Rates Act, 2004– Establishment of Valuation Appeal Boards– Provincial monitoring and intervention – section 81

• Intergovernmental Relations Framework Act, • Disaster Management Act• Various other legislation pertaining to Local

Government

STAKEHOLDERSSTAKEHOLDERS• Municipalities– Locals and Districts– Metros

• Mec for Local Government• Mec for Finance• Organised Local Government – SALGA• National and Provincial Sector Departments• Community• Legislature• Professional Bodies

PRINCIPLES AND APPROACHPRINCIPLES AND APPROACH• Principles

– Primary responsibility to avoid, identify and resolve financial problems in a municipality rests with the municipality itself – MFMA section 135

– Accountability is critical• Department is accountable to the Provincial Executive, Legislature, National Minister and

Legislature• Municipal officials and councils are accountable within the municipality, to the MEC for

Local Government and to the community– Respect for mandates

• Approach– COGTA to perform its monitoring, capacity building, support and intervention

role• Support does not entail doing the work of officials employed in municipalities

– COGTA to promote a single window of co-ordination– Continuous engagement and dialogue– Good working relations amongst provincial and municipal officials– Politics managed

SUPPORT INITIATIVESSUPPORT INITIATIVES• Operation Clean Audit

– Preparation of Annual Financial Statements– Audit response plans and eliminating audit queries

• Reconciliations• Clearing of Suspense accounts• Grants• Fixed asset registers/loan registers/investment registers• Cashflow analysis and projections• Internal controls

– Annual reports– Oversight reports– Training of MPACs

• 865 Councillors and officials trained in 61 municipalities in collaboration with Provincial Treasury, SALGA KZN, Auditor-General and the Provincial Legislature APAC members

SUPPORT INITIATIVESSUPPORT INITIATIVES

• Operation Clean Audit– Programmatic support

• Simplified Revenue Plans• Expenditure Management• Unauthorised, irregular, fruitless and wasteful expenditure• Economic Viability assessment• Legislative Compliance• Proactive Anti-corruption programmes• Investigations

– Ad hoc municipal assessments

SUPPORT INITIATIVESSUPPORT INITIATIVES• Other Support Activities and Programmes– Filling of CFO posts in particular as well as other section 57

managers• Interview questionnaires• Technical assessments• Advisor at interviews• Interim deployments including payment where necessary

– MPRA• SCM• Condonations and extensions of GVs• Data Management• Valuation Appeal Boards

– Standard Operations Manual– Compliance Monitoring

INSTITUTIONAL ARRANGEMENTS INSTITUTIONAL ARRANGEMENTS AND MUNICIPAL ENGAGEMENTSAND MUNICIPAL ENGAGEMENTS

• Audit Committees• AG Engagements• District Area Finance Forums• Provincial CFO Forums• MPACs• EXCO and Council meetings• MEC engagement with non-compliant and poor

performing municipalities• MUNIMEC• Mediation• Community facilitation on financial matters

AUDIT OUTCOMESAUDIT OUTCOMES

Type of Opinion 2010/2011 2009/2010 2008/2009

Number % Number % Number %

Financially unqualified (with no other matters)

5 8% 0 0% 0 0%

Financially unqualified (with other matters)

46 75% 53 86% 44 72%

Qualified 8 13% 6 10% 8 13%

Adverse 1 2% 1 2% 0 0%

Disclaimer 1 2% 1 2% 9 15%

TOTAL 61 100% 61 100% 61 100%

AUDIT OUTCOMESAUDIT OUTCOMES

MATTERS OF EMPHASISMATTERS OF EMPHASIS

AUDIT OUTCOMES – MAIN ISSUESAUDIT OUTCOMES – MAIN ISSUES• Ethical discipline resulting in irregular expenditure • Financial discipline with monthly and daily reconciliation activities not performed• Lack of dedicated resources and interpretation of GRAP• Governance structures not in place including the following:

– MM and CFO (not same persons)– Availability of key officials during the audit– Inadequate oversight on financials and predetermined objectives

• Lack of supporting documents (proper filing of information)• Low capacity municipalities – full GRAP compliance• Adoption of GRAP 17 – fixed assets• Misinterpretation and application of standards• Lack of understanding of requirements for previously determined objectives• Consultants did not achieve objectives and lack of monitoring• Lack of adequately skilled resources on financial and performance information

TRACKING FINANCIAL RESULTSTRACKING FINANCIAL RESULTS• Revenue• Grant Dependency• Conditional Grants• Cash and Cash Equivalents• Short Term Debt• Bank Overdraft• Creditors• Debtors• Repairs and Maintenance• Councillor Arrears• Employee Related Costs

CHALLENGES – 2011/2012CHALLENGES – 2011/2012• The following factors either independently or in combination led to

challenges in municipalities and the overall regression in the province;– Local Government elections – 80% of councilors totally new, impacting on the

reduced ability of councils to exercise effective oversight on financial and predetermined objectives.

– Section 57 management contracts expiring or terminated leading to administrative instability, impacting on availability of officials during the audit. Lack of commitment by officials whose contracts were extended on a month to month basis. Statistics that are significant:• 19 municipalities had acting, consulting or month to month CFOs and vacancies• Five municipalities did not have audit committees• Two municipalities internal audit units were not functional or in place

– Political instability in mainly coalition led municipalities as well as a few others created governance instability, poor decision making and indecisiveness impacting on the filling of key positions of section 56 managers including MMs and CFOs.

– The lack of dedicated staff to deal with predetermined objectives and performance management and limited knowledge and skills in this area.

RECOMMENDATIONSRECOMMENDATIONS• Political Leadership• Administrative Leadership• The right skills in the right place• Effective municipal oversight• Effective provincial monitoring• Sharing of results of provincial monitoring and continuous engagement

with municipalities• Institutionalising provincial support and being relevant to municipal needs• Accountability and the right Attitude• Collaborative and holistic approach• Respect for statutory obligations• Good Relations and trust amongst provincial and municipal officials• Complementing and supplementing municipal gaps• Reducing dependency on consultants and effective management of

service providers

General Manager: Municipal Finance6th Floor Southern Life Plaza

271 Church StreetPietermaritzburg, 3200

Tel: +27(0) 33 355 6562Fax: +27(0) 33 355 6292

E-mail: joey.krishnan@kzncogtal.gov.zahodenquiries@kzncogta.gov.za

Website: www.kzncogta.gov.za