Learner guide US 116364 - 1 - SPL Short Courses

Learner Guide Municipal budgeting and implementation

Unit Standard Title Plan a municipal budgeting and reporting cycle

Unit Standard ID

116364

Learner Guide: Plan a municipal budgeting and reporting cycle

Unit Standard ID 116364

Copyright © National Treasury 2008

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Notice This material has been developed by National Treasury as part of a broader skills development initiative to support the implementation of the Municipal Minimum Competency Regulations, Gazette 29967, June 2007. The material should be used as part of the broader context of curricular content and was designed to achieve the recognised municipal financial management qualifications Only those service providers that appear on the National Treasury website list of “Service Providers and Modules” are authorised to use this product, which must be used for the express purpose of providing approved learning programme(s) towards municipal competency regulations. Service providers will appear on this list only after formal accreditation in full or in part have been reviewed and approved in respect of related training by the National Treasury. Service Providers wishing to confirm if they have been listed as preferred service providers for use by municipalities should visit the National Treasury website at www.treasury.gov.za/legislation/mfma under “Training and Validation” – which will be updated from time to time. Service Providers are not permitted to substantially amend or change this material without the express authorisation in writing of the National Treasury MFMA Implementation Unit. Any requests to amend or alter this publication must be submitted to [email protected], prior to the commencement of any training or activity that the material may relate to. Notwithstanding the above limitations, National Treasury encourages those Authorised Service Providers using this product to further develop the material with the inclusion of case studies and practical examples where appropriate, to enhance practical relevance for learners where possible. We remind you that this material has been provided as a resource to assist practitioners in local government to become qualified municipal finance management professionals, it is not intended to provide legal or other advice on which a municipality should rely on in fulfilling their statutory or social responsibilities. Other parties not referred to above, may use this material for training purposes only, provided that such purposes will be not for profit only, and prior approval is granted by National Treasury. MFMA Implementation Unit 3rd Floor, 40 Church Square, Pretoria September 2008




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Table of Content

Module Outline .......................................................................................................... 4 1. UNIT STANDARD TITLE ........................................................................................ 4

2. MODULE STRUCTURE ......................................................................................... 4

3. UNIT STANDARD OUTCOMES ............................................................................. 6

4. UNIT STANDARD PURPOSE ................................................................................ 7

5. LEARNING ASSUMED TO BE IN PLACE ............................................................. 7

6. UNIT STANDARD CONTENT ................................................................................ 8

7. UNIT STANDARD ASSESSMENT ......................................................................... 8

8. MODERATION ..................................................................................................... 14

9. REFERENCES ..................................................................................................... 15

Introduction to municipal budgeting and reporting cycle in South Africa ........ 18 1. LEARNING OUTCOMES ..................................................................................... 18

2. KEY CONCEPTS ................................................................................................. 18

3. LEARNING ASSUMED TO BE IN PLACE ........................................................... 19

4. INTRODUCTION .................................................................................................. 19

5. THE BUDGET AND REPORTING CYCLE .......................................................... 20

6. A STRATEGIC APPROACH TO BUDGETING .................................................... 25

7. SEPARATION OF ROLES AND RESPONSIBILITIES ......................................... 26

8. ACCOUNTABILITY CYCLE ................................................................................. 27

9. CONSULTATIVE PROCESSES ........................................................................... 32

10. LEGISLATIVE FRAMEWORK .............................................................................. 34

11. ASSIGNMENTS ................................................................................................... 40

12. ASSESSMENT CRITERIA ................................................................................... 41

Components of the budget and reporting cycle .................................................. 42 1. LEARNING OUTCOMES ..................................................................................... 42

2. KEY CONCEPTS ................................................................................................. 42

3. LEARNING ASSUMED TO BE IN PLACE ........................................................... 43

4. INTRODUCTION .................................................................................................. 43

5. BUDGET PREPARATION PROCESS ................................................................. 44

6. BUDGET IMPLEMENTATION PROCESS ........................................................... 75




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7. BUDGET EVALUATION PROCESS .................................................................... 96

8. ASSIGNMENTS ................................................................................................. 103

9. ASSESSMENT CRITERIA ................................................................................. 110

Roles and responsibilities in terms of the municipal budget and reporting cycle ....................................................................................................................... 111

1. LEARNING OUTCOMES ................................................................................... 111

2. KEY CONCEPTS ............................................................................................... 111

3. LEARNING ASSUMED TO BE IN PLACE ......................................................... 112

4. INTRODUCTION ................................................................................................ 112

5. ROLE OF THE COUNCIL .................................................................................. 116

6. ROLE OF THE MAYOR ..................................................................................... 121

7. ROLE OF THE MUNICIPAL MANAGER (THE ACCOUNTING OFFICER) ....... 123

8. ROLES OF SENIOR MANAGERS AND OTHER OFFICIALS ........................... 126

9. DELEGATIONS BY THE MUNICIPAL MANAGER ............................................ 129

10. ROLE OF THE CHIEF FINANCIAL OFFICER ................................................... 132

11. BUDGET AND TREASURY OFFICE ................................................................. 133

12. ROLES AND RESPONSIBILITIES OF OTHER LEVELS OF GOVERNMENT .. 137

13. ASSIGNMENTS ................................................................................................. 140

14. ASSESSMENT CRITERIA ................................................................................. 141

Municipal finance management calendar ........................................................... 142 1. LEARNING OUTCOMES ................................................................................... 142

2. KEY CONCEPTS ............................................................................................... 142

3. LEARNING ASSUMED TO BE IN PLACE ......................................................... 142

4. INTRODUCTION ................................................................................................ 143

5. MUNICIPAL BUDGET AND REPORTING CALENDAR .................................... 144




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Module Outline 1. UNIT STANDARD TITLE 1.1. Plan a municipal budgeting and reporting cycle, US 116364

2. MODULE STRUCTURE

2.1. Qualification: Certificate in Municipal Finance Management

2.2. Unit Standard: Plan a municipal budgeting and reporting cycle, US 116364

2.3. Credits: 8

2.4. NQF level: 6

2.5. Type: Core

2.6. Duration: 80 notional hours

2.7. The following table contains the unit standards required for qualification

Certificate in Municipal Finance Management, NQF level 6 (SAQA ID 48965).

Modules SAQA US ID Unit standard title

Credit values

Municipal legislative

environment and policy

116344

NQF level 6

The Inter-governmental Fiscal

Relations Act in municipal

financial management

10 credits

x116361

NQF level 6

South African legislation and

policy affecting municipal

financial management

8 credits

Cooperative

Governance and

stakeholder relations

116348

NQF level 6

Conduct stakeholder

consultation around municipal

finance

8 credits

x116343

NQF level 6

Principles of ethics in a

municipal environment

10 credits

Municipal financial

reporting and

performance

x116341

NQF level 6

Conduct performance

management in a South

African municipal environment

12 credits




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Credit values

management 116363

NQF level 6

Prepare and analyse municipal

financial reports

12 credits

Municipal strategic

planning and

implementation

x116358

NQF level 6

Strategic planning process in a

South African municipality

15 credits

x116342

NQF level 6

Apply approaches to

managing municipal income

and expenditure within a multi-

year framework

15 credits

Managing risk in a

municipal context

116357

NQF level 6

Contribute to internal control

and internal control evaluation

framework

8 credits

116339

NQF level 6

Risk management in South

African municipalities

10 credits

116351

NQF level 5

Contribute to audit planning

and process in a South African

municipality

12 credits

Municipal budgeting

and implementation

116345

NQF level 5

Apply the principles of

budgeting within a municipality

15 credits

116364

NQF level 6

Municipal budgeting and

reporting

8 credits

Management of

municipal assets and

liabilities

116346

NQF level 6

Apply techniques and South

African statutes to cash and

investment management

10 credits

116362

NQF level 6

Manage a municipality’s

assets and liabilities

11 credits

Cost management and

capital planning

116347

NQF level 6

Contribute to capital planning

and financing

15 credits

116340

NQF level 6

Apply costing principles to

municipal operational and

service-based costing

11 credits




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Credit values

116360

NQF level 6

Manage information

technology resources in a

municipal finance environment

8 credits

Municipal supply chain

management

116353

NQF level 6

Participate in the design and

implementation of municipal

supply chain management

12 credits

Public-private

partnerships in

municipals service

delivery

119353

NQF level 6

Plan and implement public-

private partnerships for

municipal service delivery

12 credits

2.8. Completion of this qualification provides a significant proportion of the unit

standards required to meet the municipal competency levels. To meet the

regulatory requirements for the minimum competency levels for prescribed

positions in municipalities please refer to the local government: Municipal

Finance Management Act: Municipal Regulations on Minimum Competency

Levels at www.treasury.gov.za/legislation/mfma/training.

2.9. This unit standard may also be utilised in other qualifications. Refer to

www.saqa.org.za.

3. UNIT STANDARD OUTCOMES

3.1. ON COMPLETION OF THIS UNIT STANDARD, YOU SHOULD BE ABLE TO:

3.1.1. Advise on the application of the South African local government legislative

framework for local government budgeting processes.

3.1.2. Advise on the timing of budget related events and the integration of budget

related processes with budget processes to ensure compliance with the

legislative requirements.




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3.1.3. Ensure legal requirements that non-budget documentation is correctly

referenced in budget documentation is complied with and vice versa.

3.1.4. Advise on the roles and responsibilities of financial and non-financial

management and political executives in the budget process, which should

contribute to the overall process of social and economic development.

4. UNIT STANDARD PURPOSE

4.1. This Unit Standard is intended for practitioners in local government who are

involved in policy decision-making and strategic planning. Learners who are

required to advise on the legislative mandate of municipalities from a provincial

and national government perspective will also benefit from this Unit Standard.

4.2. The Unit Standard will contribute to social and economic transformation by

equipping practitioners with skills in budgeting which could translate into better

use of resources and improved delivery services. That is, the unit standard will

contribute to understanding the vital role that local government plays in

delivering basic services.

4.3. The scope of this unit standard covers the budget and reporting cycle in a

municipality and in municipal entities. This unit standard provides considerable

detail regarding the additional requirements where municipalities use municipal

entities to deliver services.

5. LEARNING ASSUMED TO BE IN PLACE

5.1. IT IS ASSUMED THAT LEARNERS ARE COMPETENT IN:

5.1.1. Communication at Level 4.

5.1.2. Mathematical Literacy at Level 4.




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6. UNIT STANDARD CONTENT

6.1. Introduction to municipal budget and reporting cycle in South Africa

6.2. Components of the budget and reporting cycle

6.3. Roles and responsibilities in terms of the municipal budget and reporting cycle

6.4. Municipal finance management calendar

7. UNIT STANDARD ASSESSMENT

7.1. THE STRUCTURE OF THE ASSESSMENT IS AS FOLLOWS

7.1.1. 10% Attendance

7.1.2. 10% Participation in facilitated classroom environment

7.1.3. 10% Presentation to class of selected assignment

7.1.4. 40% Assignments

7.1.5. 30% major assignment

7.2. ATTENDANCE (10%)

7.2.1. The attendance mark shall be given for attending entire workshops. Attending a

partial workshop will be assessed as non-attendance for that workshop. There

are 6 workshops and full attendance for all six workshops will be awarded the full

10%. Attendance for 3 full workshops will be awarded 5% (3/6 * 10%).




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7.3. PARTICIPATION (10%)

7.3.1. To be eligible to receive a mark for participation the learner must demonstrate

that they have successfully completed the MFMA learning modules assigned in

the module notes. The facilitator must confirm this on the learner management

database and award a zero for participation if the MFMA learning modules have

not been completed.

7.3.2. A participation score out of 10 shall be given for each full workshop attended and

the total divided by the number of full workshops attended to arrive at an

average mark out of 10. As with attendance, the participation mark cannot be

awarded for partial workshops attended. The facilitator will need to see that all

learners are contributing to discussion in a way that demonstrates an

understanding of the concepts and provides value to the discussion.

< 5 Inadequate participation

5 – 6 Just adequate participation

7 Better than adequate participation

8 Good participation

9 – 10 Very good participation

7.3.3. As an example, a learner attends 4 workshops and scores 5, 7, 6 and 10 for

participation. Assuming they completed the required MFMA learning modules

they would receive a participation mark of 7 ((5+7+6+10) / 4). If, however, the

learner had not completed the required MFMA learning modules they would

receive a participation mark of zero.

7.4. PRESENTATION OF SELECTED ASSIGNMENT (10%)

7.4.1. In the first workshop the facilitator will nominate learners to present one

assignment (not a major assignment). The facilitator will determine if some

assignments may be presented by a group to ensure a fair distribution of

assignments. However, all individual learners must make a presentation of




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approximately 15 minutes. That presentation will be assessed based on the

following:

5 marks for knowledge of subject and preparation of presentation

5 marks for presentation skills and leadership of discussion

7.5. ASSIGNMENTS (40%)

7.5.1. Except for the two major assignments, the assignments at the end of each

chapter are to be handed in to the facilitator at the beginning of the next

workshop following the completion of the chapter.

7.6. MAJOR ASSIGNMENT (30%)

7.6.1. The major assignment will count for 30% of the total assessment. Learners have

two weeks to complete the assignment.

7.7. ASSESSMENT CRITERIA

7.7.1. The assessment criteria are provided for each assignment.

7.7.2. Copying of the text is discouraged. Students should use their own words as

much as possible to complete the activities.

7.7.3. The following areas should be considered: Originality, knowledge, insight,

application, analysis ability, comprehension.

7.8. ASSESSMENT AND LEARNING METHODS

7.8.1. Assessment for this module will be undertaken according to the five methods set

out in section 7.1 above. It consists of

7.8.1.1. A mark for attendance at class (workshop)




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7.8.1.2. A mark for participation in class discussion activities

7.8.1.3. A mark for presentation to class of one assignment

7.8.1.4. A mark for turned in assignments

7.8.1.5. A mark for turned in major assignment

7.8.2. The suggested approach for teaching and learning is as follows:

7.8.2.1. The module is split into 5 chapters. Chapter 1 is the module outline and contains

general information. Chapters 2 – 5 contain the module learning material and

assignments.

Module outline

Introduction to municipal budget and reporting cycle in South Africa

Components of the budget and reporting cycle

Roles and responsibilities in terms of the municipal budget and reporting

cycle

Municipal finance management calendar

7.8.2.2. Chapters 2 – 4 consist of

module notes,

assigned additional reading and study activities,

class discussion activities,

assignments, and

1 Major assignment

7.8.2.3. Chapter 5 consists of a reproduction of the municipal finance management

calendar published by the National Treasury.




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7.8.2.4. Learners are expected to review the module notes, complete assigned additional

reading and study, and prepare for class discussion activities prior to each

workshop.

7.8.2.5. Except for the major assignment, they are expected to complete the

assignments after the workshop in which the material is covered and hand

prepared answers in for marking at the commencement of the following

workshop.

7.8.2.6. There is one major assignment which must be handed in for marking no later

than one week after the final workshop.

Estimated learning hours required

Workshops 4 x 8 hours = 32 hours

Individual Study 4 x 8 hours = 32 hours

Major assignment = 16 hours

Total = 80 notional hours

Note that individual study includes reading the module notes, additional

assigned reading, completing assigned MFMA learning modules, preparing

answers to in class discussion activities and assignments.

Workshop topic plan

workshop 1 – Chapter 2

workshop 2 – First part of Chapter 3

workshop 3 – Conclude Chapter 3 and Chapter 4

workshop 4 – Chapter 5

Sample learning methodology

Pre Workshop 1

Read through the module notes applicable to workshop 1




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Complete any additional reading or study as required by the module

notes (e.g. a module of MFMA learning)

Complete the discussion activities – these will be discussed in

workshop 1

During Workshop 1

The facilitator will present the material in the module notes related to

this workshop

Discussion activities will be discussed by the group in the workshop at

the relevant point

Pre Workshop 2

Complete the assignments from workshop 1 to be handed in at

workshop 2

Read through the module notes applicable to workshop 2

Complete any required additional reading or study as required by the

module notes (e.g. a module of MFMA learning)

Complete the discussion activities – these will be discussed in

workshop 2

During Workshop 2

Turn in answers to assignments from workshop 1

The learners who have selected assignments for presentation will

make a 15 minute presentation to answer the chosen activity. 15

minutes will be allowed for discussion.

The facilitator will present the material in the module notes related to

this workshop

Discussion activities will be discussed by the group in the workshop at

the relevant point




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Workshops 3 and 4

Same as workshop 2, also refer to the relevant chapters for further

information under the heading “Learning assumed to be in place”.

8. MODERATION

8.1. This module has been designed to have marks for attendance, participation, a

presentation, completed assignments (short and 1 major assignment). The

assignments incorporate both formative and summative assessment.




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9. REFERENCES

9.1. REFERENCES USED IN THIS MODULE:

9.1.1. National Treasury website - www.treasury.gov.za/legislation/mfma

9.1.2. Local Government: Finance Management Act, No. 56 of 2003

9.1.3. Local Government: Municipal Budget and Reporting Regulations

9.1.4. Local Government: Municipal Systems Act, No. 32 of 2000

9.1.5. The Constitution of the Republic of South Africa

9.1.5.1. Chapter 7, Chapter 13 (sec 215 & 216), schedules 4 & 5

9.1.6. White Paper on Local Government (National Treasury)

9.1.7. MFMA Learning:

9.1.7.1. Module 3 – Budget Process

9.1.7.2. Module 6 – Annual Reporting

9.2. OTHER REFERENCES APPLICABLE TO LOCAL GOVERNMENT:

9.2.1. Local Government: Municipal Structures Act, No. 117 of 1998

9.2.2. Local Government: Municipal Property Rates Act, No. 6 of 2004

9.2.3. Local Government: Municipal Demarcation Act, No. 51 of 2002

9.2.4. Intergovernmental Fiscal Relations Act, No. 97 of 1997

9.2.5. Intergovernmental Relations Framework Act, No. 13 of 2005




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9.2.6. Local Government Transitions Act Second Amendment Act, No 97 of 1996

9.2.7. Municipal Fiscal Powers and Functions Act, No 12 of 2007

9.2.8. MFMA Budget Format Guide – July 2008 (National Treasury) -http://www.treasury.gov.za/legislation/mfma/guidelines/budget%20formats/default.aspx

9.2.9. Introductory Guide to the MFMA, Updated Edition – August 2004 (National

Treasury) -http://www.treasury.gov.za/legislation/mfma/guidelines/Introductory%20guide%20Revised.pdf

9.2.10. A Guide to Municipal Financial Management for Councillors (National Treasury)

9.2.11. Specimen Annual Financial Statements, June 2005 (National Treasury)

9.2.12. Funding Compliance Guideline, March 2008 (National Treasury)

9.2.13. National Treasury MFMA Circulars:

9.2.13.1. Circular 42 – Funding a Municipal Budget (30 March 2007)

9.2.13.2. Circular 32 – The Oversight Report (15 Mar 2006)

9.2.13.3. Circular 28 – Budget Content and Format (12 Dec 2005)

9.2.13.4. Circular 19 – Budget Process 2006/07 (15 Aug 2005)

9.2.13.5. Circular 13 – Service Delivery and Budget Implementation Plan (31 Jan 2005)

9.2.13.6. Circular 10 – Budget Process 2005/06 (8 Oct 2004)




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TO EACH WORKSHOP, PLEASE BRING ALONG:

MFMA pocket guide (National Treasury)

Municipal Budget and Reporting Regulations

The Constitution of the Republic of South Africa

Local Government: Municipal Systems Act, Act 32 of 2000 as amended

ACCESS TO:

MFMA learning modules (National Treasury)




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Introduction to municipal budgeting and reporting cycle in South Africa

1. LEARNING OUTCOMES

1.1. Understand the concept of the budget and reporting cycle in a municipal context

and the legislative framework.

2. KEY CONCEPTS

2.1. Key stages of the budget and reporting cycle

2.2. Budget preparation process

2.3. Budget Implementation process

2.4. Budget evaluation process

2.5. Accountability cycle

2.6. IDP, sector plans, budget, SDBIP, adjustments budget, in-year reports, annual

financial statements, annual reports, oversight reports

2.7. Monthly budget statements, quarterly reports, mid-year budget and performance

assessment

2.8. Schedule of key deadlines

2.9. Medium Term Revenue and Expenditure Framework (MTREF)

2.10. Municipal budget policy statement

2.11. Consultation in terms of the budget and reporting cycle




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3.1. Communication at level 4

3.2. Mathematical literacy at level 4

3.3. The learner is reminded that prior to attending a workshop on this chapter they

must:

3.3.1. read this chapter module notes;

3.3.2. complete assigned reading or study which includes MFMA Learning modules

3.3.3. bring completed answers to the activities/class discussion for this chapter for

discussion during the workshop.

4. INTRODUCTION

4.1. A budgeting and reporting cycle is a sequence of interrelated events that occur

throughout a budget period. The cycle is continuous and repetitive, meaning that

events reoccur in a predictable and carefully planned sequence.

4.2. In the modern day local government context, a number of budget and reporting

cycles are occurring concurrently and are interrelated, each informing and

contributing to the other. This is because the cycle of budgeting spans beyond

any given financial year generally commencing one year before the start of the

financial year and concluding almost one year after the financial year end.




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ENTITIES and the budget cycle

Note that municipalities with municipal entities will have an added layer of

complexity to deal with in planning the municipal budget and reporting cycle. The

mayor of the municipality must coordinate the budget process including the

inputs required from municipal entities. Notwithstanding the added complexities

many of the concepts for planning a municipal budget and reporting process

generally apply to municipal entities

5. THE BUDGET AND REPORTING CYCLE 5.1. Let’s illustrate a single budget and reporting cycle for the 2008/09 financial year.

Diagram 2a: A single budget and reporting cycle

BUDGET PREPARATION

PROCESS

BUDGET IMPLEMENTION

PROCESS

BUDGET EVALUATION

PROCESS

2008/09 BUDGET

1 Aug 07 – May 08

2 Jul 08 – Jun 09

3 Jul 09 – Mar 10

DOCUMENTS &

REPORTING

IDP SP

MTREF MBPS

Schedule Key Deadlines

SDBIP

AB MBS QPR

MBPA

AFS AR OR

BEC

Key to abbreviations: IDP Integrated Development Plan SP Sector Plans MTREF Medium Term Revenue and Expenditure Framework MBPS Municipal Budget Policy Statement SDBIP Service Delivery and Budget Implementation Plan AB Adjustments Budget MBS Monthly Budget Statements, S.71 MFMA QPR Quarterly Performance Report, S.52(d) MFMA MBPA Mid-year Budget and Performance Assessment, S.72 MFMA AFS Annual Financial Statements AR Annual Report OR Oversight Report BEC Budget Evaluation Checklist




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5.2. Diagram 2a shows that the 2008/09 cycle begins with the budget preparation

process, which includes reviewing the IDP and preparing the budget and

(SDBIP) documentation. The second phase of the cycle is the budget

implementation process, which includes implementing and monitoring

implementation. The third phase of the cycle is the budget evaluation process

which includes the audited Annual Financial Statements, Annual Report and

Oversight Report.

5.3. Now let’s see how in practice, multiple budget and reporting cycles occur

concurrently and demonstrate how at any one point in time the municipality will

be operating in a different process of each of the three cycles. Diagram 2b below

shows a typical municipal scenario where three budget and reporting cycles are

in operation.

Diagram 2b: Multiple budget and reporting cycles

BUDGET PREPARATION

PROCESS

BUDGET IMPLEMENTATION

PROCESS

BUDGET EVALUATION

PROCESS

2008/09 BUDGET

1 Aug 07 – May 08

2 Jul 08 – Jun 09

3 Jul 09 – Mar 10

2009/10 BUDGET

1 Aug 08 – May 09

2 Jul 09 – Jun 10

3 Jul 10 – Mar 11

2010/11 BUDGET

1 Aug 09 – May 10

2 Jul 10 – Jun 11

3 Jul 11 – Mar 12

DOCUMENTS &

REPORTING

IDP SP

MTREF MBPS

Schedule Key Deadlines

SDBIP

AB MBS QPR

MBPA

AFS AR OR

BEC

5.4. Diagram 2b shows the budget and reporting cycles for 2008/09, 2009/10 and

2010/11. The un-shaded area represents a particular point in time where the

municipality is busy with it’s:




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5.4.1. budget preparation process for 2010/11;

5.4.2. budget implementation process for 2009/10; and

5.4.3. budget evaluation process for 2008/09.

5.5. Note how the date ranges in the un-shaded boxes overlap.

5.6. The diagram above also shows the key documentation that needs to be

prepared for each of the three processes.

5.7. Note that throughout the three processes there are a range of technical activities

which in the main are managed by the budget and treasury office. For example,

these include:

5.7.1. maintaining accounting and information systems for management, statutory and

other requirements;

5.7.2. maintaining systems of internal control and risk management;

5.7.3. preparing budget estimates for recurring activities and new programmes / capital

projects;

5.7.4. identifying potential efficiency savings and alternative sources of revenue;

5.7.5. testing funding compliance of the budget;

5.7.6. providing budget documentation which facilitates prioritisation by council;

5.7.7. preparing management reporting and providing advice;

5.7.8. preparing in-year reports required for submission to the mayor, council and

stakeholders

5.7.9. supporting the council committees in place dealing with financial matters; and




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5.7.10. preparing statutory reporting such as the

5.8. These technical activities are mentioned to provide the learner with insight into

what sits behind the three budget and reporting processes but are not covered in

detail by this unit standard.

5.9. The next chapter will consider the three processes (preparation, implementation,

and evaluation) in detail.

ACTIVITY / CLASS DISCUSSION:

Consider the budget and reporting cycle in your municipality. Using those listed

in the diagram above as a checklist, write down the documents and reports

currently prepared. Which ones are not being prepared?

Do you think there is a common understanding amongst the key role players that

there are three processes going on at any one time? What could you do to

improve that understanding?




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5.10. MEDIUM TERM REVENUE AND EXPENDITURE FRAMEWORK (MTREF)

5.10.1. As with the national and provincial governments, municipalities are required to

table and adopt an annual budget covering three-years. Through a continuous

cycle of forecasting, implementation and review municipalities must manage

their finances across the three-year timeframe.

5.10.2. By adopting three-year budgets linked to longer-term goals contained in the IDP,

municipalities can adopt more forward looking and better-informed approaches

and make better judgements about the future priorities for capital development

and service delivery in their communities.

5.11. SEVEN YEAR HORIZON

5.11.1. During the budget prepartion process it is useful to consider a seven year

horizon. In the diagram below a municipality is preparing the 2008/09 Budget,

which is a Medium Term Revenue and Expentiture Framework (MTREF). A

municipality bases its 2008/09 MTREF on the strategic direction in the IDP and

information about past performance, including the current year and audited

information on previous years.

5.11.2. This format above is consistent with National and Provincial budget

requirements.

5.11.3. It provides for three years of audited outcome figures providing background trend

verification. which overcomes the disadvantage that one year of audited history

alone is not a sound basis of performance comparison. The additional

information will improve the analysis of the budget as an early-warning

mechanism and a forecasting tool.




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5.11.4. Four columns are required for the year currently being implemented - ‘Original

Budget’, ‘Adjusted Budget’, ‘Full-year forecast’ and “Pre-audit outcome”. The

term ‘Full-year forecast’ is also known as estimated actual outcome. This

information of recent trends and performance is vital for strategic decisions on

the new budget. Furthermore, it is critical to note the importance of the original

budget as this was the budget that was extensively consulted on. Significant

differences between the original budget, adjusted budget and full year forecast

would tend to indicate poor planning and unrealistic budgets.

5.11.5. Three columns are required for the medium term revenue and expenditure

framework (MTREF), showing the budget year, and the projections for two years

following the budget year. This is now a standard feature for municipalities.

5.11.6. In South Africa, the local, provincial and national spheres of government are

required to focus on three simultaneous budget cycles. So while preparing the

budget for the next three years, each is still implementing the current year’s

budget whilst also closing off and preparing financial statements and annual

reports for the previous financial year.

5.11.7. Planning for a budget cycle requires an understanding of the sequence of events

and the governance principals that underpin sound financial management. The

following headings will discuss these important principals and the legislative

framework behind the budget and reporting cycle.

6. A STRATEGIC APPROACH TO BUDGETING

6.1. At this point it is worth briefly noting the new focus on a strategic approach to

budgeting.

6.2. Prior to the reforms of the Municipal Finance Management Act 2003 (MFMA)

and Municipal Systems Act 2000 (MSA) municipal budgets focused on one-year

of estimates and were based mainly on applying increments to the previous

year’s budget. The budgeting and planning processes were not integrated, often

operating completely separately. Budgets were not presented to council in a

summary form to highlight the financial implication of policy decisions. This




26

hampered effective policy and planning processes making consultation unwieldy;

revenue and capital estimates were unrealistic, resulting in poor service-delivery

performance and disappointing community expectations; and there appeared to

be little or no linkage to a comprehensive long-term fiscal or financial strategy.

6.3. With the introduction of the MFMA these past practices have been addressed.

The following extract provides a synopsis of the objective behind the change.

Extract from the White Paper on Local Government, March 1998

Municipal budgets are a critical tool for re-focusing the resources and capacity of

the municipality behind developmental goals. To this end, budgets must be

developed in relation to the policies and programmes put forward in municipal

integrated development plans.

Given that resources are scarce, community participation in the development of

both integrated development plans and municipal budgets is essential.

Participation provides an opportunity for community groups to present their

needs and concerns. It enables them to be involved in the process of

prioritisation, and to understand and accept the trade-offs which need to be

made between competing demands for resources.

7. SEPARATION OF ROLES AND RESPONSIBILITIES

7.1. Councillors have a constitutional role as politically elected representatives of the

community, to approve policies and budgets proposed by the executive mayor or

committee and then oversee the performance of the municipality in implementing

these policies and budgets. For this reason, the MFMA assumes a separation

between councillors serving on the executive (i.e. mayor or executive committee)

and non-executive councillors. The executive mayor or executive committee are

expected to provide the municipality with political leadership, by proposing

policies, budgets and performance targets for the municipality and its officials.




27

7.2. The MFMA differentiates between the role of executive councillors and municipal

officials by making the executive mayor or committee responsible for policy and

outcomes and the municipal manager and other senior managers for

implementation and outputs. The executive mayor or committee is expected to

oversee the performance of its officials, using the service delivery and budget

implementation plan (SDBIP) and monitoring performance through monthly

progress reports. Non-executive councillors are expected to hold both the

executive mayor or committee and the officials accountable for performance, on

the basis of monthly, quarterly, mid-year and annual reports.

7.3. This separation of responsibilities between executive councillors, non-executive

councillors and officials is important for good governance and is in line with

modern practices of effective public management. The aim of the MFMA is to

allow managers to manage, but to make them more accountable.

7.4. All these various roles are possible only because of the reporting requirements

of the MFMA, as the MFMA recognises that effective service delivery is possible

only with good-quality and timely management information. Such information

allows management to be proactive, identifying and solving problems as they

arise. Roles and responsibilities of the key players is discussed in detail in

Chapter 5 of these module notes.

8. ACCOUNTABILITY CYCLE

8.1. The requirements for municipal budgeting in South Africa have undergone a

significant modernization since 2004. Municipal budgeting is now seen as a

strategic tool focusing on non-financial as well as financial targets. Targets in a

municipal Integrated Development Plan (IDP) are linked to the targets in the:

8.1.1. budget;

8.1.2. the service delivery and budget implementation plan (SDBIP); and

8.1.3. annual performance agreements of senior managers.




28

8.2. Once the three items above are finalised the SDBIP is used as a tool to

implement the budget. Monitoring and evaluation of performance against budget

is done through mid year and annual reporting. It’s a constant process to review

strategic direction, plan, implement, assess actual performance and discharge

accountability.

8.3. At this point it is useful to consider some key definitions and concepts. The

purposes of the definitions below are to give a brief introduction and not to teach

everything there is to know.

DEFINITIONS:

IDP An Integrated Development Plan (IDP) is an all

encompassing strategic plan for the municipality giving due

regard to community needs and the strategic plans of other

stakeholders such as national and provincial departments,

public entities and other municipalities. It contains long

term strategic goals and targets.

Budget In the municipal context a budget is a Medium Term

Revenue and Expenditure Framework (MTREF) covering

at least 7 years. Three years of audited history, the current

year being implemented, the budget year and two outer

year forecasts. The objective of the budget is to allocate

limited resources to policy priorities set out in the IDP. The

medium term aspect of a municipal budget facilitates a

more strategic and sustainable result.

SDBIP The Service Delivery and Budget Implementation Plan, is

more detailed than the budget. It is the operational plan

required to implement the budget and will include quarterly

service delivery targets and monthly targets for revenue

and expenditure. Managers can use the SDBIP as an

implementation tool and council can use it to assess

performance.




29

DEFINITIONS:

Adjustments Budget

An adjustments budget is the mechanism to amend an

approved budget under certain specified conditions. The

most appropriate time for an adjustments budget would be

together with the mid-year budget and performance review

although other circumstances may require alternate timing

and regulations will specify requirements.

In-year Reports In-year reports for municipalities consist of monthly budget

statements, quarterly reports and a mid-year budget and

performance assessment.

Annual Financial Statements

The annual financial statements of a municipality conform

with accounting standards applicable to local government.

They reflect the financial performance and financial

position of a municipality and increasingly include

information on non-financial performance. Annual Financial

Statements must be audited and an audit opinion is

expressed on their accuracy.

Annual Report The municipal annual report is a comprehensive public

document that encompasses the audited financial

statements and focuses on accountability for financial and

non-financial performance against the targets in the SDBIP

for the year completed.

Oversight Report The municipal oversight report contains council’s

comments on the annual report and includes a statement

approving, rejecting or referring the annual report back for

revision and thus completing the accountability cycle.

8.4. Council has a key oversight role in order to ensure accountability to the

community and other stakeholders. This process is known as the accountability

cycle and is illustrated by the following diagrams. A basic knowledge of the

definitions above will assist your understanding of the diagrams.

8.5. The first diagram focuses on the processes in the accountability cycle and the

second diagram shows the roles and responsibilities in the accountability cycle.




30

ACTIVITY / STUDY:

Take 5 minutes to study the first diagram referring back to key definitions and

concepts.

Think about the role of each step in terms of preparing, implementing and

monitoring and evaluating the budget.

ACTIVITY / STUDY:

Take 5 minutes to study the second diagram whilst reading the explanatory text

below the diagram.

Think about the roles and responsibilities of each role player in terms of:

budget preparation

budget implementation (including monitoring)

budget evaluation




31

Diagram 2c: Accountability cycle processes




32

Diagram 2d: Accountability cycle roles & responsibilities

8.6. The accountability cycle commences with policy direction from the community

and other stakeholders through council to the municipal administration. In turn

the administration is accountable to council for implementing policy. The council

is accountable for performance to the community and other stakeholders.

9. CONSULTATIVE PROCESSES

9.1. Both the MSA and MFMA require extensive consultations with the local

community and other stakeholders for important decisions like budgets,

borrowing, IDPs, performance systems, and annual reports.

9.2. Section 16 of the MFMA requires the budget resolutions; proposed revisions to

the IDP; budget related policies; and other required supporting documentation to

be tabled before a full council meeting by 1 April (i.e. at least 90 days before the

start of the budget year). This allows adequate time for consultation prior to




33

approval of the budget and ensures that councillors are aware of the budget

implications so they can consult with their constituents.

9.3. The MFMA also requires consultation with relevant government departments and

municipalities affected by the budget. Consultation with provincial and national

sector departments such as, Agriculture, Health, Housing, Education, Welfare,

Water Affairs and Mineral and Energy Affairs will ensure improved co-operative

governance between the spheres. It is recommended that municipalities contact

their Provincial Treasuries to coordinate consultation meetings with relevant

provincial departments. This engagement will ensure better coordination,

alignment and resource allocation from provincial and national governments.

9.4. District and local municipalities must consult each other when finalising plans

and budgets to ensure that allocations between them are aligned, priorities are

addressed and implementation is executed during the year. Historically, delays

in project approval, spending and implementation have occurred undermining

service delivery due to a lack of this early consultation. District municipalities

must consult all municipalities within its area and must notify relevant

municipalities of projected allocations, for the next three budget years, no later

than 2 March (120 days prior to the start of the budget year). These allocations

must be published with the draft municipal budget and will be audited by the

Office of the Auditor- General to ensure consistency of amounts reflected in the

transferring municipality and the recipient municipality.

9.5. The MFMA requires that municipalities submit their tabled and approved budgets

to National Treasury and the relevant provincial treasury.

9.6. Municipalities will need to keep abreast of developments in the various sectors to

ensure their budgets for water, sanitation, electricity etc are well informed.

Municipal IDPs and budgets should inform and be informed by the development

plans of sector departments to ensure a coordinated approach to infrastructure

planning and service delivery. Furthermore, municipalities should have a good

knowledge of all grants from government departments including their objectives,

conditions and medium term allocations as gazetted. To assist municipalities in

proper planning and budgeting all role-players are to provide information on




34

allocations in provincial budgets and the annual Division of Revenue Act around

February and March that reflect transfers to municipalities over a multi year

period.

9.7. Hence, it is critical that early on in the budget process, the mayor coordinates a

schedule of key deadlines for all of the required meetings, workshops,

community forums etc and makes this schedule public so that those being

consulted are aware of their opportunities for input into the IDP and budget

process.


List the different consultative processes undertaken at your municipality. Are

they considered as part of ONE overall process?

10. LEGISLATIVE FRAMEWORK

10.1. For the purposes of planning a municipal budget and reporting cycle it is

necessary to have a broad understanding of the legislative framework applicable

to local government. The following discussion considers some of the more

important aspects and synergies between the applicable legislation. Learners

should understand the applicable legislation so that they are able to refer to

specific requirements in practice.

10.2. The Municipal Finance Management Act (MFMA) must be read with other

national legislation, particularly close linkages and alignment between the MFMA

and the Municipal Systems Act (MSA). This should be recognised early on for a

better understanding, correct interpretation and application of the two pieces of

legislation. These two Acts are complementary to each other in many areas, and

should therefore be read together. For example, chapter 5 of the MSA deals with

IDPs and the preparatory process, whilst chapter 4 of the MFMA deals with

budgets and their preparatory process. These two processes are however ONE




35

process, and not two separate processes, as the IDP and budget must be fully

aligned and consistent with each other.

10.3. Other legislation impacting on local government includes, the Constitution of the

Republic of South Africa, Intergovernmental Fiscal Relations Act, Structures Act,

Demarcation Act, Property Rates Act, Water Services Act, Electricity Act,

Transport Act, annual Division of Revenue Act, Municipal Fiscal Powers and

Functions Act and their supporting regulations. Below we discuss only some of

the main areas of linkages and alignment that must be considered.

10.4. CONSTITUTIONAL AMENDMENTS

10.4.1. Areas of significance include recent amendments to the Constitution. The first

relates to section 230A on borrowing, providing that loans may be raised for

capital or current expenditure, with loans for current expenditure limited to use

for bridging purposes during the fiscal year, and binding current and future

councils to honour this decision. The other significant amendment relates to

section 139 and deals with provincial interventions in a municipality. This allows

the provincial executive to take appropriate steps in the event of a municipality’s

failure to fulfil an executive or legislative obligation, including the power to

dissolve a council. The legislative obligation relates to the approval of a budget

or other revenue-raising measures. This includes the imposition of a recovery

plan in the case of an emergency when there is a persistent material breach of

its obligations to provide basic services or to meet financial commitments.

10.5. THE MFMA AND THE MUNICIPAL SYSTEMS ACT

10.5.1. Both the Municipal Systems Act and the MFMA deal with the internal processes,

consultative processes, performance systems and reporting and accountability

mechanisms. Parliament devoted a great deal of effort to ensure that the two

Acts are totally consistent with each other, leading to amendments to the MSA. It

is important to ensure that the MSA is read with the two sets of amendments, as

per the Local Government Laws Amendment Act (Act 51 of 2002) and the MSA

Amendment Act (Act 44 of 2003).




36

10.6. DEFINITIONS

10.6.1. The first point to note is that the definitions in both the MSA and MFMA are

similar, and there is much cross-referencing in the MFMA to definitions in the

Municipal Systems Act. This applies to key definitions on municipal services,

service delivery agreements, local community etc.

10.7. IDP AND BUDGETS

10.7.1. The MFMA and the Municipal Systems Act contain practical synergies that relate

to good governance, consultation and accountability issues. A direct

interrelationship exists when a municipality contemplates its processes with

regards planning and budgeting. The amendment to the Municipal Systems Act

and the MFMA chapter on budgeting require that a revised IDP be adopted at

the time of adopting the budget. It follows that, in practice, the planning and

budgeting processes will commence together at least 10 months before the start

of the municipal financial year, when the mayor announces the process for

revising the IDP and preparation of budget. Also, the alignment of policies

through the adoption of the budget and other related policies such as the levying

of fees for municipal services is made more explicit at the time of drafting and

adopting the budget.

10.8. PERFORMANCE SYSTEMS AND ANNUAL REPORTS

10.8.1. Both the MFMA and MSA are built on the adoption by the municipality of a

performance system. The budget of the municipality must contain performance

targets and measurable objectives, which are set out at the beginning of the

financial year (section 17 of the MFMA). Linked to these performance targets are

the adoption of the annual service delivery and budget implementation plan

(SDBIP) and annual performance agreement between the mayor (or executive

committee) and municipal manager (refer to section 57 of the MSA as amended,

and sections 53 and 69 of the MFMA).

10.8.2. At the end of the financial year, the municipality must publish an annual report,

reporting on both its financial and non-financial performance. Whilst the MFMA




37

focuses on financial performance (chapter 12), the MSA focuses on non-financial

performance (section 46 of MSA as amended). The annual report will be

considered by the municipal council using the process outlined in chapter 12 of

the MFMA.

10.9. ROLES OF MAYOR, COUNCILLORS AND OFFICIALS

10.9.1. Both the MSA and MFMA make common assumptions about the role of various

stakeholders in the municipality. Such roles also inform the code of conduct for

councillors and officials as set out in Schedules 1 and 2 of the MSA. In addition,

if there are financial transgressions, financial misconduct provisions and criminal

sanctions apply in terms of chapter 15 of the MFMA. Where councillors or

officials transgress their role or code of conduct, strict provisions apply.

10.10. ASSIGNMENT OF FUNCTIONS

10.10.1. Cooperation between governments is strengthened through these Acts, and

when there is an assignment of a function or power to a municipality there must

be comment by the Financial and Fiscal Commission and consultation with the

Minister of Finance on the assignment, including possible liabilities. This aspect

strengthens co-operative government and links with chapter 5 of the MFMA and

directly impacts on the Division of Revenue Act. The other area of cooperation

relates to the provision of services through service delivery agreements and the

use of external mechanisms. An important area of alignment relates to the

process of establishing an external mechanism to provide municipal services.

The community consultation, assessments, capacity, feasibility studies, value for

money, measurement of risk, projected borrowing and fiscal implications are all

linked to the IDP and budget process.

10.11. OTHER LEGISLATION AND THE MFMA

10.11.1. The earlier sections draw attention to those linkages with other legislation that

set the foundations of the system and structure of local government, but also

important is the sector-specific focus. Apart from the Constitution and Municipal

Systems Act and other national local government legislation like the Local




38

Government: Municipal Structures Act, Property Rates Act and Municipal

Demarcation, there are a number of national Acts of Parliament that impact on

the MFMA. These include the following:

10.11.1.1. Financial legislation like the Constitution of the Republic, Intergovernmental

Fiscal Relations Act, Financial and Fiscal Relations Act, Preferential

Procurement Policy Framework Act and the annual Division of Revenue Act

10.11.1.2. Other local government legislation like the Municipal Structures Act,

Demarcation Act and Property Rates Act

10.11.1.3. Sectoral legislation like the Water Services Act, Electricity Act, Transport and

Environment Acts

10.11.1.4. The Remuneration of Political Office-bearers Act

10.11.1.5. Planning legislation like the Land Development Objectives Act

10.11.1.6. Labour legislation, including the Labour Relations Act, Skills Development Act,

as well as pension and medical aid legislation

10.11.2. The Intergovernmental Fiscal Relations Act establishes the process of

consultation for budget allocations, including the role of the Budget Forum. The

annual Division of Revenue Act is one of the important pieces of budget

legislation for local government, as it provides national allocations for the local

government sphere by municipality, for each of the coming three years.

10.11.3. The Financial and Fiscal Commission Act (FFC) is also important for the local

sphere. Not only does it spell out the process for filling vacancies to the FFC, but

also includes rigorous provisions in the revised section 5 on the role of the FFC

before any new function is shifted to local government. This assignment clause

should also be read with section 10 of the amended MSA. Some of the other

pieces of legislation that impact on and should be read with the MFMA are the

sectoral legislation relating to water and electricity and transport. The Water

Services Act, Act 108 of 1997, contains provisions relating to norms and




39

standards, the development of plans and tariff mechanisms. Whilst the Electricity

Act, Act 41 of 1987 (as amended), also contains provisions relating to the

electricity regulator, it deals with aspects of licensing, the sale and supply of

electricity within municipalities and tariffs. Note that where there is any conflict

between such national legislation and the MFMA or MSA, it is the latter two Acts

that take precedence, depending on the issue.

10.11.4. Particular note should be made of sections 42 and 43 of the MFMA, which take

precedence over section 94(1)(c) and section 10 of the Water Services Act if a

municipality properly consults (in terms of sections 33 and 46) with the relevant

national departments when setting tariffs for long-term contracts. The

applicability of these provisions and those in the MFMA especially that relating to

budget preparation and consultation in chapter 4, co-operative government and

pricing of bulk services in chapter 5 will assist in better management of

processes whilst offering a mechanism for dispute resolution between organs of

state. The MFMA requires that a structured process be followed to ensure that

consultation is appropriately addressed. The improvement in the content and

quality of municipal budgets will also assist. These provisions promote co-

operative government between the national and local spheres in the tariff setting

process. Sector departments will have to monitor the achievement of sector

priorities.

10.11.5. The Property Rates Act contains further related provisions that deal with the

adoption and contents of a rates policy, increases and their timing and

documentation that must accompany the budget as outlined in the MFMA. It also

requires alignment with community participatory processes and specifically

publication of information with the budget. The period for which rates are levied

is the same as the budget, unless imposed as part of a recovery plan. The

limitation on increases in rates is directly aligned with the MFMA. There are also

linkages with the supply chain management framework when securing the

services of private providers in the execution of the municipal valuation exercise.




40

10.12. SUMMARY

10.12.1. The above brief explanation should not be considered as exhaustive, but it

highlights the linkages and synergies with the MFMA and other legislation. It also

attempts to clarify the policies of government. It should serve as an illustration of

the extent to which other pieces of legislation impact on the applicability of the

MFMA and vice versa.


What are the two main pieces of legislation impacting on the municipal budget

and reporting cycle? Why have they been synchronised?

11. ASSIGNMENTS

11.1. The following assignments are to be completed after the workshop on this

chapter and handed in prior to, or at the beginning of, the next workshop.

11.2. ASSIGNMENT 2.1 (15 MARKS)

Describe the budget and reporting cycle. Explain how the processes interrelate

using an example.


In the context of the municipal budget and reporting cycle explain the need for

separation of roles and responsibilities.




41

12. ASSESSMENT CRITERIA

12.1. In terms of the regulatory framework for the municipal budget cycle, identify the

roles and responsibilities of municipal political executives, accounting officers

and senior managers in the budget preparation [SO1AC2]

12.1.1. Include roles and responsibilities of Mayor, municipal manager, council, CFO,

senior managers [SO1ACR1]

12.2. Plan the tabling and adoption of a municipal budget as required by legislation

[SO2AC1]




42

Components of the budget and reporting cycle 1. LEARNING OUTCOMES

1.1. Understand the components of the budget and reporting cycle in a municipal

context.

2. KEY CONCEPTS

2.1. Budget preparation process

2.1.1. Budget preparation process timeline

2.1.2. Six steps to preparing a budget (Planning, Strategising, Preparing, Tabling,

Approving, Finalising)

2.1.3. Schedule of key deadlines

2.1.4. Budget evaluation checklist

2.1.5. Format of budget documentation to be tabled

2.1.6. Consultation

2.2. Budget implementation process

2.2.1. Using the budget and SDBIP to implement the budget

2.2.2. Monthly budget statements

2.2.3. Quarterly reports

2.2.4. Mid year budget and performance assessments

2.2.5. Adjustments budgets – conditions and frequency




43

2.2.6. Shifting funds between multi-year appropriations

2.3. Budget evaluation process

2.4. Audited annual financial statements

2.5. Annual reports

2.6. Oversight reports


3.1. Prior to commencing this chapter of the module notes the learner must have

completed the previous chapter(s).


must:





3.2.4. bring completed answers to the short assignments for the previous chapter to be

handed in for marking.

4. INTRODUCTION

4.1. This chapter will consider the detail behind the budget and reporting cycle

processes (preparation, implementation and evaluation). Chapter 5 will then




44

present a financial management calendar which incorporates all of the legislative

requirements for the budget and reporting cycle.

ACTIVITY / STUDY:

Complete module 3 of MFMA Learning now.

5. BUDGET PREPARATION PROCESS

5.1. The budget preparation process will commence about 12 months before the start

of the budget year. It is considered that a well-run budget preparation process

that incorporates the IDP review will facilitate community input, encourage

discussion, promote a better understanding of community needs, provide an

opportunity for feedback and improve accountability and responsiveness to the

needs of the local communities. It also positions the municipality to represent the

needs of the community and to provide useful inputs to the relevant provincial

and national department strategies and budgets for the provision of services

such as schools, clinics, hospitals and police stations.

5.2. SIX STEPS TO PREPARING A BUDGET

5.2.1. The following table sets out six distinct steps to the preparation of a budget. It is

important to mention up front that consultation on the budget occurs throughout

the preparation process.




45

Diagram 3a: Six steps to preparing a budget

ACTIVITY / STUDY:

Study the table above and refer to the budget preparation process timeline

below.




46

Diagram 3b: Budget preparation process timeline

5.2.2. Now let us consider each of the steps in more detail.

5.3. STEP 1: PLANNING

The Mayor will lead a review of the previous budget process and incorporate

findings into planning the next budget process.

This step commences at the latest on the 1st of July and must be completed by

no later than 31st of August with the tabling of the schedule of key deadlines.

5.3.1. Coordination of the budget preparation process

5.3.1.1. Section 21 of the MFMA is the primary provision relating to the municipal budget

preparation process. It requires the mayor to coordinate the processes for

preparing the annual budget and for reviewing the Integrated Development Plan

(IDP) and budget related policies. The mayor must table in council by 31 August

(10 months before the start of the budget year) a schedule of key deadlines for

various budget related activities spelled out in section 21. The accounting officer




47

is tasked by section 68 of the MFMA with assisting the mayor in developing and

implementing the budget preparation process. The process should provide for

both internal (within municipality) and external (local community and other

stakeholder) consultations.

ACTIVITY / READ:

Read sections 21 and 68 of the MFMA.

5.3.1.2. The schedule of key deadlines (below) is an example that can be adapted to suit

individual municipalities. Please note that where a specific time frame is shown

in the example, it is a deadline requirement of the MFMA and must be complied

with. Municipalities are advised to make public a simplified version of the

schedule to ensure the community is aware of the timelines, process and

opportunities and to have input to the IDP and budget. A simplified version of the

schedule should be placed in local newspapers, newsletters and the municipal

website alerting the public that more information on the budget process is

available on the municipal website and in offices, including how the public can

make an input into the budget process.

ACTIVITY / STUDY:

Spend 30 minutes studying the schedule of key deadlines below. Read each

section of the appropriate Act referred to and note the definitions at the end of

the schedule.




48

Diagram 3c: Time schedule of key deadlines

TIME SCHEDULE OF KEY DEADLINES Mayor to Table in Council 10 Months Prior to Start of Budget Year

Month Municipality ___________________________ Budget Year __________________________

Mayor and Council / Entity Board Administration - Municipality and Entity

July Mayor begins planning for next three-year budget in accordance with co-ordination role of budget process

MFMA s 53 Planning includes review of the previous years budget process

and completion of the Budget Evaluation Checklist

Accounting officers and senior officials of municipality and entities begin planning for next three-year budget

MFMA s 68, 77 Accounting officers and senior officials of municipality and entities review

options and contracts for service delivery MSA s 76-81

August Mayor tables in Council a time schedule outlining key deadlines for: preparing, tabling and approving the budget; reviewing the

IDP (as per s 34 of MSA) and budget related policies and consultation processes at least 10 months before the start of the budget year.

MFMA s 21,22, 23; MSA s 34, Ch 4 as amended

Mayor establishes committees and consultation forums for the budget process




49




September Council through the IDP review process determines strategic objectives for service delivery and development for next three-

year budgets including review of provincial and national government sector and strategic plans

Budget offices of municipality and entities determine revenue projections and proposed rate and service charges and drafts initial allocations to functions and departments for the next financial year after taking into

account strategic objectives Engages with Provincial and National sector departments on sector

specific programmes for alignment with municipalities plans (schools, libraries, clinics, water, electricity, roads, etc)

October Accounting officer does initial review of national policies and budget plans and potential price increases of bulk resources with function and

department officials MFMA s 35, 36, 42; MTBPS

November Accounting officer reviews and drafts initial changes to IDP MSA s 34

December Council finalises tariff (rates and service charges) policies for next financial year MSA s 74, 75

Accounting officer and senior officials consolidate and prepare proposed budget and plans for next financial year taking into account previous

years performance as per audited financial statements




50




January Entity board of directors must approve and submit proposed budget and plans for next three-year budgets to parent

municipality at least 150 days before the start of the budget yearMFMA s 87(1)

Accounting officer reviews proposed national and provincial allocations to municipality for incorporation into the draft budget for tabling.

(Proposed national and provincial allocations for three years must be available by 20 January)

MFMA s 36 February Council considers municipal entity proposed budget and service

delivery plan and accepts or makes recommendations to the entity

MFMA s 87(2)

Accounting officer finalises and submits to Mayor proposed budgets and plans for next three-year budgets taking into account the recent mid-year

review and any corrective measures proposed as part of the oversight report for the previous years audited financial statements and annual

report Accounting officer to notify relevant municipalities of projected

allocations for next three budget years 120 days prior to start of budget year

MFMA s 37(2)




51




March Entity board of directors considers recommendations of parent municipality and submit revised budget by 22nd of month

MFMA s 87(2) Mayor tables municipality budget, budgets of entities, resolutions, plans, and proposed revisions to IDP at least 90 days before start

of budget year MFMA s 16, 22, 23, 87; MSA s 34

Accounting officer publishes tabled budget, plans, and proposed revisions to IDP, invites local community comment and submits to NT,

PT and others as prescribed MFMA s 22 & 37; MSA Ch 4 as amended

Accounting officer reviews any changes in prices for bulk resources as communicated by 15 March

MFMA s 42 April Consultation with national and provincial treasuries and finalise

sector plans for water, sanitation, electricity etc MFMA s 21

Accounting officer assists the Mayor in revising budget documentation in accordance with consultative processes and taking into account the

results from the third quarterly review of the current year




52




May Public hearings on the budget, and council debate. Council consider views of the local community, NT, PT, other provincial

and national organs of state and municipalities. Mayor to be provided with an opportunity to respond to submissions during consultation and table amendments for council consideration.

Council to consider approval of budget and plans at least 30 days before start of budget year.

MFMA s 23, 24; MSA Ch 4 as amended Entity board of directors to approve the budget of the entity not

later than 30 days before the start of the financial year, taking into account any hearings or recommendations of the council of the

parent municipality MFMA s 87

Accounting officer assists the Mayor in preparing the final budget documentation for consideration for approval at least 30 days before the start of the budget year taking into account consultative processes and

any other new information of a material nature




53




June Council must approve annual budget by resolution, setting taxes and tariffs, approving changes to IDP and budget related policies,

approving measurable performance objectives for revenue by source and expenditure by vote before start of budget year

MFMA s 16, 24, 26, 53 Mayor must approve SDBIP within 28 days after approval of the

budget and ensure that annual performance contracts are concluded in accordance with s 57(2) of the MSA. Mayor to

ensure that the annual performance agreements are linked to the measurable performance objectives approved with the budget

and SDBIP. The mayor submits the approved SDBIP and performance agreements to council, MEC for local government

and makes public within 14 days after approval. MFMA s 53; MSA s 38-45, 57(2)

Council must finalise a system of delegations. MFMA s 59, 79, 82; MSA s 59-65

Accounting officer submits to the mayor no later than 14 days after approval of the budget a draft of the SDBIP and annual performance

agreements required by s 57(1)(b) of the MSA. MFMA s 69; MSA s 57

Accounting officers of municipality and entities publishes adopted budget and plans

MFMA s 75, 87

Abbreviations: IDP - Integrated Development Plan; MFMA - Local Government: Municipal Finance Management Act, No. 56 of 2003; MSA - Local Government: Municipal Systems Act, No. 32 of 2000, as amended; MTBPS - National Treasury annual publication, Medium Term Budget and Policy Statement; NT - National Treasury; PT - Provincial Treasuries; SDBIP - Service Delivery and Budget Implementation Plan




54

5.3.2. Review of previous budget process – budget evaluation checklist

5.3.2.1. While the MFMA does not explicitly require a review of the previous budget

process, it is strongly recommended that this is undertaken in July (and

completed by 31 August) by the mayor and municipal manager before

determining the new schedule of key deadlines. Such a review can provide

information about what worked well, what didn’t, where to improve and issues to

address for legislative compliance.

5.3.2.2. A Budget Evaluation Checklist (BEC) template has been developed and will

assist municipalities to evaluate the budget process. This is available on the

National Treasury website for learners that may be interested

(www.treasury.gov.za/legislation/mfma).

ENTITIES and planning the budget process

Municipalities with entities will have a slightly more complex budget preparation

process as they must include plan for coordination of entity budget preparation

processes. The entity budget processes must be shaped by, and be within the

framework of, the municipality’s budget process. This will be coordinated by the

mayor. In particular, it will be necessary to ensure that the entities strategic plan

and budget is consistent with the direction of the parent municipality’s IDP and

budget.

5.4. STEP 2: STRATEGISING

This step involves the review of the Integrated Development Plan and budget

related policies through internal and external consultations. Internal consultation

means consultation with staff within the municipality. External consultation

means consultation with the community and other stakeholders.

This step commences early in the process and carries on until October.




55

5.4.1. Review of IDP and budget related policies 5.4.1.1. The Municipal Systems Act (MSA) and chapter 4 of the MFMA require that a

revised IDP be adopted at the time of adopting the budget. Therefore, the

process leading to the adoption of the 2005/06 budget and IDP must be

incorporated into the one process, together with the approval of taxes, levies,

user charges and budget related policies. This will ensure credible plans and

budgets that are realistic and implementable. Furthermore, the IDP should be

informing the entire budget, not just the capital budget, which has been the case

prior to the MFMA coming into effect.

5.4.1.2. Budget related policies include but are not limited to policies on: tariff setting;

credit control / debt collection; indigents; cost recovery; investment; borrowing;

cash management; spending delegations or authorisations; other supply chain

considerations such as purchasing limits for sole supplier versus quote or tender;

and so on. Some of these are required to be passed as a by-law and may

require significant planning before changes can be made.

ACTIVITY / READ:

Read the provisions of the Municipal Budget and Reporting Regulations

“Preparing and amending budget-related policies”.

5.4.2. Internal consultations within the municipality

5.4.2.1. The Budget process is consultative and the collective product of many role

players within a municipality. If treated as an accounting exercise only, the

mayor and accounting officer will have failed in their obligations to the

municipality and the community. The budget process must involve all the senior

managers and, importantly, it must be guided by the strategic priorities of the

municipality.




56

5.4.2.2. The budget process should be preceded by a number of strategic and

consultation processes within the municipality, involving the mayoral/executive

committee and councillors. These processes are not legislated and are left to the

discretion of each municipality.

5.4.2.3. The internal strategic consultation should be undertaken during

September/October, with the mayor convening a meeting of the mayoral or

executive committee and senior managers. The purpose is to determine the

priorities of the municipality for the coming budget, taking into account the

financial and political pressures facing the municipality. It should also consider

what revisions should be considered to its current IDP. This process need not

involve any non-executive councillors at this stage.

5.4.2.4. The above process ideally would culminate in a major council strategic workshop

around the beginning of October involving the entire council (or if the council is

too large, at least the chairpersons of all council committees). The purpose of the

workshop is to gain understanding of budgetary pressures and to win the support

of councillors to the budget priorities proposed by the mayor. It should be noted

that at this stage the mayor and mayoral/executive committee determine the

budget priorities – the council should not be asked to vote on such priorities and

the mayor should strive to only win the broad support of the council. The actual

priorities will be approved by the council when it approves the budget and

revisions to the IDP at the end of the process.

5.4.2.5. The budget priorities are tentative at this stage and offer a basis for consulting

with internal stakeholders. It may be necessary for the mayor to revise the

priorities following the consultation process.

Note that external consultation with the community and other stakeholders is discussed under its own heading further on.

ENTITIES and strategising

Consultation and setting of priorities in the IDP must take into account all




57

services provided by the municipality whether through municipal departments or

external mechanisms such as municipal entities.

5.5. STEP 3: PREPARING

The preparation of the budget is a lengthy process spanning many months. It

can be said to start in August at the time the mayor tables the schedule of key

deadlines and concludes when the mayor approves the Service Delivery and

Budget Implementation Plan and annual performance agreements with senior

managers.

5.6. In practice the budget preparation process is an ongoing function where

processes and budget years will overlap. There are generally three different

budget processes operating in parallel all the time - reporting on the past year

(e.g. annual reports and audited financial statements), current year

implementation, and preparations for the coming budget year. Refer to diagram

2b which shows how there are always three budget and reporting cycles in

progress at any one time.

5.7. Budget preparation includes the following:

5.7.1. assessment of previous year performance and corrective action to be

incorporated in the next budget;

5.7.2. prioritising activities to be included in the annual budget and MTREF

5.7.2.1. winning support for the priorities that will shape the way budget allocations will

be determined;

5.7.2.2. integration of strategic objectives with budget allocations;




58

5.7.3. appropriate planning and improved project management;

5.7.4. assessing affordability of rates and service charges, and identifying poor

households unable to afford such rates and charges;

5.7.5. accurate estimation of revenue and expenditure projections

5.7.5.1. Projecting the cost of existing routine activities

5.7.5.2. Developing costed proposals for new programmes and capital projects;

5.7.6. consultation and review of national, provincial and local priorities;

5.7.7. testing of funding compliance to ensure budget is funded according to the

MFMA; and

5.7.8. preparing budget documentation.

5.7.9. Previous performance

5.7.9.1. Throughout the budget process, and specifically at key times, consideration

should be given to the effect that previous performance will have on the medium

term plan and the current and forthcoming budgets. This should include past

year and current year information.

5.7.9.2. Whilst the technical preparation of the Budget is undertaken by the municipal

manager, senior managers and chief financial officer, it is important that the

mayor meet with the municipal manager and CFO on a monthly basis after the

priorities are set, particularly during November, January, February and March.

Such political oversight is necessary to guide officials and to assist in making the

hard trade-offs necessary to determine the budget.

5.7.9.3. A key step in preparing the budget occurs at the end of January, when the mayor

is required to table the annual report for the past year and the mid-year report on

the current financial year.




59

5.7.9.4. For example, on 31 January 2009, the mayor will be tabling the 2007/08 annual

report, and will be submitting the mid-year report on the 2008/09 budget. This

mid-year report will also inform the mayor and municipal manager on

adjustments that need to be made to the 2008/09 current year budget. It is

recommended that a municipal adjustment budget be tabled at the end of

February 2009 which takes into account adjustments to be addressed in the

current budget, such as under-collection of revenue, to address emergencies

and adjustments in national and provincial allocations. All the above

considerations must be used to determine the coming budget for the 2009/10

budget year.

5.8. STEP 4: TABLING

5.8.1. The MFMA stipulates that the budget and revised Integrated Development Plan

must be tabled together 90 days before the start of the budget year, together

with the draft resolutions and budget related policies.

5.8.2. This step may commence as early as January and must be completed no later

than 31 March.

5.8.3. Diagram 3d below illustrates the sequence of events to table the proposed

budget and amendments to the IDP.

Diagram 3d: Budget tabling and approval timeline

5.8.4. Tabling of annual budgets

5.8.4.1. To ensure facilitation of consultation the budget tabled for consultation (at least

90 days before the start of the budget year) must be in exactly the same format

as the budget that is approved. Furthermore, the budget tabled for consultation




60

must also be realistic and capable of being implemented as tabled. That is, the

budget must be funded according to section 18 of the MFMA such that all

resources are available to implement the budget. Tabling a budget which could

not be implemented is not useful as a consultation device. The next heading

briefly considers funding the budget.

5.8.4.2. Note that the MFMA does not talk about submitting a ‘draft’ budget to council. It

rather talks about tabling the budget to council. The word ‘draft’ has deliberately

been omitted because it has connotations of something incomplete. The budget

tabled for consultation must in fact be capable of implementation to ensure

useful consultation can take place.

5.8.4.3. Further to the points above, the proposed resolutions which accompany the

tabled budget must be the resolutions that would be required to approve the

tabled budget. Referring to the previous paragraphs, the tabled budget is

capable of being implemented and therefore the proposed resolutions would give

effect to the budget if they were in fact resolved by council. Council will note

these proposed resolutions but cannot pass them until consultation has been

completed.

5.8.4.4. The draft service delivery and budget implementation plan is the operational plan

that would need to be carried out if the tabled budget was approved as tabled.

The formulation of this plan is necessary to arrive at a realistic budget for tabling.

Its existence proves that the tabled budget could be implemented as tabled. The

portfolio committee responsible for the budget may decide whether this detailed

plan should be tabled to council alongside the budget.

5.8.4.5. Once the budget is tabled the local community must be invited to make written

submissions to the council on the budget and to make representation at the

council hearings. Key stakeholders like national and provincial departments (e.g.

treasuries, local government, water, environment, health) should also be invited

to submit written comments to the hearings.




61

5.8.4.6. The council may also wish to host special sessions with community

organisations, business organisations and public sector institutions prior to

convening the hearings on the budget.

5.8.4.7. The council is required to have hearings on the budget before it considers the

budget for adoption. Such hearings can take the form of various committee

hearings and should be convened soon after tabling the budget. The hearings

may need to extend over a number of weeks, after which a full council meeting

should be convened to consider and make recommendations arising out of the

hearings process. The council must consider all the submissions and

representations received during its hearings process. The mayor must be given

an opportunity to respond to the recommendations (at that or a subsequent

council meeting), and where necessary, to make revisions and amend the tabled

budget.

5.8.5. Funding the budget

5.8.5.1. A budget must be credible and funded according to section 18 of the MFMA. All

projected revenue and expenditure must be realistically achievable and backed

by documented evidence.

5.8.5.2. The Municipal Budget and Reporting regulations set out the requirements for

funding the budget including the determination of realistic revenue and

expenditure projections, and the funding of reserves.

5.8.5.3. The intent is that funding can only be included in the budget when it is properly

documented and the funding is certain to eventuate. Budgets that make

unrealistic service delivery promises by inclusion of unrealistic funding sources

are not useful planning devices and only serve to falsely raise the expectations

of the community.

5.8.5.4. Likewise, estimates of expenditure need to be based on past performance and

realistic future assumptions.




62

ACTIVITY / READ:

Read MFMA Circular 42 and the guideline MFMA Funding Compliance, 10

March 2008 which provide detailed guidance on funding of the budget.

Note that municipalities must use the funding measurement self assessment to

determine whether the budget is funded before it is tabled to council for

consultation. National treasury and the relevant provincial treasury will

independently assess whether budgets are funded according to the MFMA and

reject those budgets that do not comply.

5.8.6. Publication of annual budgets for consultation

5.8.6.1. The accounting officer must immediately (on the same day the documents are

tabled) post the budget, revised IDP and all related documents onto the

municipal website so that the budget is accessible to the public.

5.8.6.2. When making the tabled budget public for consultation the overarching

requirement is that it is the documentation set out in Schedule A to the

regulations that is made public. A key principle of the regulations is that for

adequate consultation with a wide range of stakeholders it is critical that the

minimum required documentation is standard for all municipalities and municipal

entities.

5.8.6.3. This information must at a minimum be made available at municipal offices and

placed on the municipal web site.

5.8.6.4. Additional information may be made public including budget summaries in

alternate languages. Any additional information must however address both

service delivery and financial implications for the medium term. This must at

least include the previous year’s actual outcome, the current years forecast

outcome, the budget year and the following two years. It is important that




63

summary information which may be more accessible to large sections of the

community demonstrate service delivery as well as financial implications and

present a medium term view.

5.8.7. Submission of annual budgets after tabling for consultation

5.8.7.1. Once the annual budget has been tabled for consultation it must immediately be

submitted to National Treasury, the relevant provincial treasury and other

municipalities affected by the annual budget. Submission to other organs of state

is on receipt of a request.

5.8.7.2. The information submitted to National Treasury and the relevant provincial

treasury must include the documentation as per Schedule A to the regulations in

printed and electronic format. The draft service delivery and budget

implementation plan must also be submitted in both printed and electronic

format. Finally, the electronic budget return forms must be submitted.

5.8.7.3. Note that the regulation specifically separates requirements for ‘publication’ and

‘submission’ differentiating between the acts of ‘making public’ and ‘submitting’.

In each case the minimum documentation required includes the annual budget

and supporting documentation set out according to Schedule A.

5.8.8. Format of annual budget documentation to be tabled and approved

5.8.8.1. Of key importance is the notion that the format for the budget tabled for

consultation must be the same as the format of the budget approved by council.

This improves transparency during the consultation process, allows a clear

comparison between the budget tabled for consultation and that which is finally

approved, and demonstrates that the tabled budget is in fact credible and could

realistically be implemented as is, should the consultation process result in no

changes. The accountability cycle would be completely disrupted if Council were

to consult on a budget that had a different format to the one approved.

5.8.8.2. Annual budgets for municipalities must be presented according to Schedule A to

the Municipal Budget and Reporting Regulations and for entities according to




64

Schedule D. The sequence for presenting the annual budget documentation for

a municipality follows a logical flow and for explanation purposes can be split into

two parts. Part 1 provides an overall summary of the affect of the annual budget

and is the same format for each schedule. Part 2 provides further detail.

PART 1 of a municipal budget

1. Mayor’s report

2. Resolutions

3. Executive summary

4. Annual budget tables (including charts and explanatory notes)

The mayor’s report will introduce the documentation tabled to council. It

will be a very high level overview which covers key issues only and

presents the political flavor. The executive summary on the other hand

provides a summary of the affect of the entire budget.

The annual budget tables are the main tables containing the budget

amounts that will be approved in the resolutions. Additional tables will

feature in Part 2 under the relevant heading.

PART 2 of a municipal budget

4. Overview of annual budget process

5. Overview of alignment of annual budget with Integrated Development

Plan

6. Measurable performance objectives and indicators

7. Overview of budget related policies

8. Overview of budget assumptions

9. Overview of budget funding

10. Expenditure on allocations and grant programmes

11. Allocations and grants made by the municipality

12. Councillor and board member allowances and employee benefits




65

13. Monthly targets for revenue, expenditure and cash flow

14. Annual budgets and SDBIPs – internal departments

15. Annual budgets and SDAs – entities and external mechanisms

16. Contracts having future budgetary implications

17. Capital expenditure details

18. Legislation compliance status

19. Other supporting documentation

20. Annual budgets of municipal entities attached

21. Municipal manager’s quality certification

Part 2 provides summary disclosure of key information relevant to the

budget. While more detailed than the executive summary it will refer the

reader to additional detailed documentation where necessary. For

example, “8. Overview of budget related policies” will not contain a copy

of each policy but must include a reference on where to find that detail.

ENTITIES and tabling

Submission of annual budgets to parent municipality

To ensure facilitation of consultation the entity budget submitted to the

parent municipality (at least 150 days before the start of the budget year)

must be in exactly the same format as the budget that is approved. If

revisions are made taking into account any recommendations from the

parent municipality, the revised annual budget must be submitted to the

parent municipality at least 100 days before the start of the budget year.

This process allows the annual budget of the municipal entity to be

consolidated into the annual budget of the parent municipality to be

tabled for consultation (at least 90 days prior to the start of the budget

year).

Furthermore, annual budgets of entities submitted to the parent




66

municipality must be realistic and capable of being implemented as

submitted. Submitting a budget which could not be implemented is not

useful as a consultation device.

The proposed resolutions which accompany the submitted budget must

be the resolutions that would be required to approve the submitted

budget. Referring to the discussion above, the submitted budget is

capable of being implemented and therefore the proposed resolutions

would give effect to the budget if they were in fact resolved by the board.

Note that the parent municipality will publish the municipal entity budgets

along with the parent municipality budget for the purposes of

consultation.

5.9. STEP 5: APPROVING

After the mayor has responded to the recommendations and made amendments

to the tabled budget, the full council must meet to consider the budget for

approval no later than 31 May (30 days before the start of the budget year).

This step may commence as early as March and must be completed prior to the

start of the budget year.

5.9.1. Approval of capital projects

5.9.1.1. There are two processes for approving capital projects depending on the total

projected cost of the project compared to the total revenue budget. The intent is

to allow approval by programme (a group of projects) in certain circumstances

and streamline the approval and monitoring process while at the same time

ensuring that large projects are considered individually. Where the cost of

individual projects is greater than a certain percentage of revenue (as

prescribed), those individual projects must be approved individually.




67

5.9.2. Consideration of the annual budget for approval

5.9.2.1. Ideally the council should consider approving the budget, and related policies, at

the same meeting that the mayor tables any revisions/amendments.

5.9.2.2. If the budget is not approved at that meeting it must be reconsidered at least

within seven days and it must be continued to be reconsidered as often as

necessary until it is approved before the start of the budget year. Generally as

part of the municipal budget process a number of meeting dates will have been

set aside to consider approval of the budget and ensure that adequate time is

provided to achieve budget approval prior to the start of the budget year.

5.9.2.3. Failure to approve the budget before the start of the budget year will have

serious operational consequences for the municipality (as no payments can be

made without an approved budget) and could result in a section 139

constitutional intervention in terms of sections 25 and 26 of the MFMA. Should

the municipality fail to approve the budget before the start of the budget year, the

mayor must inform the MEC for Finance that the budget has not been approved.

5.9.2.4. To facilitate discussion and eventual approval, the mayor tables a report

detailing the communities views on the tabled budget and comments received

from stakeholders. The budget and supporting documentation as per Schedule A

should be represented as amended to take into account where appropriate the

comments received. This enables the council to see the budget that they are

considering for approval.

5.9.3. Approval of annual budget

5.9.3.1. Council must consider the annual budget and supporting documentation as set

out in Schedule A and pass separate resolutions for at least the items covered in

Schedule A under the heading ‘Resolutions’.




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5.9.4. Publication of approved annual budget

5.9.4.1. The requirements for publication of the approved budget are very similar to those

for the budget tabled for consultation. For the approved budget, publication must

also include information pertaining to the consultation that was undertaken.

5.9.4.2. Within five working days after the budget has been approved, it must be made

public. The annual budget and supporting documentation set out according to

Schedule A must be made public together with the consultation information set

out in the regulations and the most recent version of the Integrated Development

Plan.

5.9.4.3. This information must at a minimum be made available at municipal offices and

placed on the municipal web site.

5.9.4.4. Additional information may be made public including budget summaries in

alternate languages. Any additional information must however address both

service delivery and financial implications for the medium term. This must at

least include the previous year’s actual outcome, the current years forecast

outcome, the budget year and the following two years. It is important that

summary information which may be more accessible to large sections of the

community demonstrate service delivery as well as financial implications and

present a medium term view.

5.9.5. Submission of approved annual budget

5.9.5.1. Note that this requirement for submission of the approved budget is identical to

the requirement for the submission of the budget tabled for consultation.

5.9.5.2. Once the annual budget has been approved it must immediately be submitted to

National Treasury, the relevant provincial treasury and other municipalities

affected by the annual budget. Submission to other organs of state is on receipt

of a request.




69


treasury must include the documentation as per Schedule A to the regulations in

printed and electronic format. The draft service delivery and budget

implementation plan must also be submitted in both printed and electronic

format. Finally, the electronic budget return forms must be submitted.



In each case the minimum documentation required includes the annual budget

and supporting documentation set out according to Schedule A.

ENTITIES and approving

A revised municipal entity budget taking into account any recommendations from

council should have already been tabled with the municipal budget. The board

must approve the entity budget by 1 June.

Approval of annual budget

The entity board must consider the annual budget and supporting documentation

as set out in Schedule D taking into account any hearings and recommendations

received from the parent municipality. The board must pass separate resolutions

for at least the items covered in Schedule D under the heading ‘Resolutions’.

Publication of approved annual budget

Immediately after the board of the municipal entity has approved the budget, the

chief executive officer must submit the approved annual budget set out in

accordance with Schedule D to the municipal manager of the parent municipality

in both printed and electronic form.

Concurrently, the chief executive officer must also submit to the municipal

manager any additional information that the municipal council considers

appropriate to facilitate public awareness about the annual budget.




70

The municipal manager is then required to make the above information public

along with the annual budget of the parent municipality.

Submission of approved annual budgets to National Treasury and others

The municipal manager of the parent municipality is responsible for the

submission of all entity annual budgets and supporting documentation.

5.10. STEP 6: FINALISING PLANS TO IMPLEMENT THE BUDGET

This step of the budget preparation process involves the finalising of plans to

implement the budget, through the approval of the Service Delivery and Budget

Implementation Plan and the performance agreements for the municipal

manager and other senior managers for the coming financial year.

This step may commence as early as April and should ideally be completed prior

to the start of the budget year.

The timelines depicted here are generally absolute outer limits and municipalities

are encouraged to complete processes earlier.

5.10.1. Once the budget is finalised, the process for implementation (or preparing to

implement) commences.

5.10.2. The recommended approach to prepare the SDBIP is to develop implementation

plans for each vote in the budget (departmental SDBIPs). The vote

implementation plans would show:

5.10.2.1. monthly projections of revenue by source and expenditure by vote;

5.10.2.2. quarterly projections of measurable performance indicators; and service delivery

targets.




71

5.10.3. The SDBIP approved with the budget or shortly after would be a summary of

these plans. Diagram 3b below demonstrates how draft departmental SDBIPs

roll up into the municipal SDBIP.

5.10.4. A delegations policy of spending authority on budget votes is critical for

successful budget implementation and subsequent monitoring and evaluation. It

is important that delegations required to give effect to sections 79, 82 and 106 of

the MFMA are addressed.

ACTIVITY / READ:

Read sections 79, 82 and 106 of the MFMA

5.10.4.1. Approval of SDBIP and annual performance agreements of senior managers

Section 53(1)(c)(ii) of the MFMA states that the SDBIP must be approved by

the mayor within 28 days of approval of the budget at the latest. And section

57(2)(a) of the Municipal Systems Act states that the annual performance

agreements of senior managers must be concluded within one month of the

start of the financial year.

These time requirements are outer limits and it is recommended that the draft

SDBIP and performance agreements be tabled with the budget and

considered in conjunction with the budget approval, if possible.

The MFMA and MSA allow extra time following budget approval for approval

of the SDBIP and annual performance agreements in case there are

changes that may need to be made following the consideration for approval

of the budget. However, the time frames in the Act are maximum limits and a

well planned and executed budget process should see the SDBIP and

annual performance agreements approved shortly after if not at the same

time as the budget.

Note the requirement in the regulations under “Tabling of annual budgets in

municipal councils” for the municipal manager to submit a draft SDBIP to the




72

mayor along with the budget to be tabled for consultation. This draft SDBIP

must be able to be implemented to give effect to the budget tabled for

consultation hence proving that the budget tabled for consultation is a useful

consultation tool and could be implemented as tabled. Given this, a well

planned budget process should provide for an updated SDBIP to be available

with the budget to be considered for approval.

5.10.4.2. Publication of approved service delivery and budget implementation plan

The service delivery and budget implementation plan (SDBIP) must be made

public within five days after approval by the mayor.

5.10.4.3. Submission of approved SDBIP

The municipal manager must submit to the National Treasury and the

relevant provincial treasury, in both printed and electronic form the approved

service delivery and budget implementation plan within five working days

after the mayor has approved the plan.

ENTITIES and finalising

The entity budget must include a multi-year business plan (which is essentially

an SDBIP for the entity) and it must be consistent with the SDBIP of the

municipality. See MFMA section 87(5)(d).

5.10.5. Alternative view of the budget preparation process

5.10.5.1. The following diagram shows the budget preparation process from the

perspective of various documents that are prepared and approved.




73

ACTIVITY / STUDY:

Study the process flow indicated by the arrows in the diagram below. Refer to

the explanation following the diagram.

Diagram 3e: Documentation for budget preparation

5.10.5.2. Reading the above diagram from left to right in the direction of the arrows:

the council sets strategic direction and priorities for the municipality in the

IDP;

the municipal budget and treasury office prepares the municipal budget

policy statement which shows allocations for revenue and expenditure

including initial tariff modeling etc;

prioritised IDP Goals and the municipal budget policy statement are used to

prepare the draft departmental SDBIP’s;

the draft departmental SDBIP’s are then consolidated to develop the draft

SDBIP for the municipality;

from the draft SDBIP a budget is prepared and tabled for consultation;




74

the budget is then approved by council subject to consultation and

deliberation; and

the municipal manager prepares the final draft SDBIP and draft annual

performance agreements and submits them to the mayor for approval. The

mayor approves the SDBIP and the annual performance agreements for the

municipal manager and senior managers.

5.10.5.3. Note that the measurable performance objectives in the budget will link to the

quarterly service delivery targets in the SDBIP and the annual performance

agreements of the municipal manager and senior managers.

5.10.6. External consultations with the community and other stakeholders

5.10.6.1. There are two external consultation processes envisaged in the MFMA and

Municipal Systems Act.

5.10.6.2. The first external consultation process is informal, and open-ended, and relates

to the preparation of the budget prior to tabling, which begins around October

and includes the following:

public meetings with residents and small businesses in local communities - to

identify and prioritise the greatest local needs (e.g. housing, water, electricity,

recreation facilities, schools, clinics, streets and street lighting, refuse

removal, social services and related issues, crime and functioning of local

police stations, etc). To obtain the views of the community the council should

consider the use of ward committees to gain an understanding of the issues

in each ward;

meetings with key stakeholders (e.g. residents associations, NGOs, business

organisations) - to identify community and business needs and concerns,

including the level of municipal tariffs and charges; and

consultations between the municipality and other municipalities, provincial

and national departments and entities.

5.10.6.3. This first phase of informal or open-ended consultations ends when the mayor

tables the budget and revisions to the IDP around the end of March.




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5.10.6.4. The second external consultation process is more formal and takes place after

the tabling of the draft budget, when the council convenes hearings on the draft

budget and revisions to the IDP. The municipality must invite the public and

stakeholder organisations to submit comments and submissions in response to

the draft budget and revised IDP. Since specific proposals are contained in the

draft budget and revised IDP the public comments and responses tend to be

more directed to these proposals.

5.10.6.5. It should be noted that since municipalities are the closest interface between the

community and government (all three spheres), they are best placed to consult

communities on matters of a national and provincial function, such as policing,

schools, clinics and housing - in a sense they are the eyes and ears of national

and provincial governments. In this respect, it is important the municipalities

and/or councillors act as a channel between local communities and the relevant

national and provincial government departments and entities feeding information

into the relevant department’s budget process.

5.10.6.6. The IDP co-ordinates the needs of the community with respect to local services

provided by all three spheres of government. It follows that the IDP of a

municipality should differentiate between responsibilities – one part related to

municipal responsibilities and a second part relating to national and provincial

responsibilities. The budget of the municipality can only fund municipal functions

and services. In terms of provincial and national responsibilities, the municipal

manager would co-ordinate with national and provincial departments advocating

on behalf of the local community.

6. BUDGET IMPLEMENTATION PROCESS

6.1. We have now discussed the budget preparation process, the first of three

processes in the budget and reporting cycle. Let’s now consider the second

process that deals with budget implementation.

6.2. This process covers implementing, monitoring and amending the budget. It is

important to note that implementation, monitoring and amending are integrated,




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they feed into each other. For our purposes we will discuss implementation first,

then monitoring and finally amending, noting the integration throughout.

Implementation:

Implementation using the budget and SDBIP

Monitoring

Monthly budget statements

Quarterly performance review

Mid-year budget and performance assessment

Amending:

Adjustments budget

6.3. IMPLEMENTATION

6.3.1. SDBIP and Budget

6.3.1.1. The municipal manager is responsible for implementation of the budget and

must take steps to ensure that all spending is in accordance with the budget and

that revenue and expenditure are properly monitored.

6.3.1.2. To implement the budget , line managers will use the SDBIP in conjunction with

the approved budget and supporting documentation. The SDBIP is the main

implementation tool for line managers as it has more detail than the budget.

However the budget is useful for implementation and plays a key role in

monitoring and amending the budget.

6.3.1.3. The SDBIP is essentially the management and implementation tool which sets

quarterly service delivery and monthly revenue and expenditure targets, and

links each service delivery output to the budget of the municipality. It is a detailed

plan for how the municipality will provide such services and the inputs and

financial resources to be used. The SDBIP indicates the responsibilities and

outputs for each of the departments and therefore the senior managers in the top




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management team, the inputs to be used, and the time deadlines for each

output.

6.3.1.4. The SDBIP targets agree to the targets in the performance agreements of the

municipal manager and senior managers, including the outputs and deadlines for

which they will be held responsible. The SDBIP should also provide all

expenditure information (for capital projects and services) per municipal ward, so

that each output can be broken down per ward, where this is possible, to support

ward councillors in service delivery information.

6.3.1.5. The SDBIP is therefore used by line managers to implement the budget and

performance can then be monitored through in-year reporting and evaluated

through the annual report process.

6.4. MONITORING

6.4.1. Introduction

6.4.1.1. The system of reporting developed in the MFMA will assist in making available

improved and regular internal and external information. Managers, as part of

implementing policy, should use this opportunity to provide regular and relevant

information in order to analyse performance and address shortcomings and

improve internal controls and service delivery. Recommendations and

explanations should assist the mayor and councillors to play their oversight

roles, to monitor implementation of the budget and to make informed policy

decisions.

6.4.1.2. The monthly, quarterly, mid-year and annual reports will always come with a lag,

for example the first-quarter reports must be available by the 30th day of the

month after the end of the first quarter. These reports should be made public

after debate in council. At this meeting the in-year performance must be

monitored and corrective action taken. It is important to note that the six month

report together with the audit and oversight reports of the previous year will be

presented to council by 25 January, allowing for the mayor to recommend and

council to consider adjustments to the budget.




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6.4.1.3. Financial transparency and ongoing performance - In order to achieve an

effective oversight mechanism and the appropriate fiscal discipline and

managerial accountability, financial management systems must provide sufficient

transparency to accurately measure the ongoing performance of the

municipality.

6.4.1.4. The Act facilitates this by requiring the municipality to develop measurable

performance objectives for revenue and expenditure, taking into account the

IDP, and to report against these measures in the mid-year and annual reports.

6.4.1.5. Monitoring progress and financial reporting - Managerial oversight of

performance should operate in the first instance within the municipality itself.

With this in mind, the Act has stipulated that certain reporting mechanisms must

be established within a municipality to monitor the financial position of the

municipality and review ongoing progress toward performance objectives.

6.4.1.6. In addition to this, and mindful of the role of national and provincial government,

the Act requires the municipality to report on certain issues that identify problems

as they arise, in order to ensure that, where required, prompt remedial action is

taken by the province or National Treasury.

6.4.1.7. Non-financial reporting - In order to communicate performance effectively,

reports must contain both financial and non-financial information. Non-financial

information, such as subjective narratives on service delivery backlogs, the

number of electricity and water connections and explanations of council policy on

indigents and free basic services, will supplement financial data and key

performance measures.

6.4.1.8. Variation from budget estimates - Generally, municipalities may incur

expenditure only if it is in terms of the budget, within the limits of the amounts

appropriated against each budget vote – and in the case of capital expenditure,

only if council has approved the project or programme.




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6.4.1.9. Expenditure incurred outside of these parameters may be considered to be

unauthorised or, in some cases, irregular or fruitless and wasteful. Unauthorised

expenditure must be reported and may result in criminal proceedings.

6.4.2. In-year reporting

6.4.2.1. This part deals with the process for the following in-year reports:

6.4.2.2. Monthly budget statements;

6.4.2.3. Quarterly reports; and

6.4.2.4. Mid-year budget and performance assessments

6.4.2.5. Prior to the compilation of an in-year report, the financial accounts must be

closed and reconciled up to the end of the month being reported on. Without this,

the municipal manager may find it difficult to sign the quality certificate and the

information contained therein would be of limited use, if any.

6.4.2.6. Note that when preparing in-year reports municipalities and entities are required

to compare actual against both the original annual budget and the latest

approved adjustments budget. Comparison against the original annual budget is

required to ensure accountability for promises made in the original budget.

6.4.2.7. Monthly budget statements must be prepared and submitted concurrently to the

mayor, National Treasury and relevant provincial treasury within 10 working days

of the end of the month.

6.4.2.8. The quarterly report on implementation of the budget submitted to council will

contain the relevant monthly budget statement and additional performance

information. It must be submitted to council within 30 days of the end of the

quarter.

6.4.2.9. The mid-year budget and performance assessment to be submitted to council

requires some additional disclosure over and above the normal quarterly report.




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Hence submitting the mid-year assessment satisfies the requirements of

submitting the December quarterly report. The mid-year assessment must be

submitted to council by 31 January.

ENTITIES and in-year reporting

Monthly budget statements must within 7 days be submitted by the chief

executive officer to the municipal manager of the parent municipality, the

chairperson of the board of directors of the entity, and other municipalities

affected. The municipal manager is then responsible for submission to National

Treasury and the relevant provincial treasury along with the monthly budget

statements of the parent municipality.

For the month of December, additional performance information as specified for

the mid-year budget and performance assessment must be added to the monthly

budget statement and submitted to council along with the mid-year budget and

performance assessment for the parent municipality.

Municipal entities are not required to produce quarterly reports. However, the

monthly budget statements must provide enough information for the parent

municipality to prepare a consolidated quarterly report.

Prior to the compilation of an in-year report, the financial accounts must be

closed and reconciled up to the end of the month being reported on. Without this,

the chief executive officer may find it difficult to sign the quality certificate and the

information contained therein would be of limited use, if any.

Note that when preparing in-year reports municipal entities are required to

compare actual against both the original annual budget and the latest approved

adjustments budget. Comparison against the original annual budget is required

to ensure accountability for promises made in the original budget.

The regulations cover the format and process for each of the two types of in-year

reports. The following two paragraphs describe how the three types of in-year




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reports are interrelated.

Monthly budget statements must be prepared and submitted concurrently to the

chairperson of the entity board and the municipal manager of the parent

municipality. The municipal manager of the parent municipality must then

prepare consolidated monthly budget statements. The municipal manager of the

parent municipality must then make public and submit the entity monthly budget

statements along with the consolidated monthly budget statements.

The mid-year budget and performance assessment to be submitted to the board

of the entity and the municipal manager requires some additional disclosure over

and above the monthly budget statements.

6.4.2.10. Now let us consider each of the in-year reports in more detail.

6.4.3. Monthly budget statements of municipalities

6.4.3.1. By the 10th working day of each month, the municipal manager must submit a

report on budget progress to the mayor and the relevant provincial treasury.

6.4.3.2. Submission of monthly budget statements

Monthly budget statements set out in accordance with Schedule C must be

submitted by the municipal manager to the mayor, National Treasury,

relevant provincial treasury and any municipality affected by the budget

within 10 working days of the end of the month.

On receiving the report, the mayor must take the appropriate steps to identify

and resolve any financial problems that may be evident.

The National Treasury may also specify other information to be submitted

including electronic return forms.

The monthly budget statements must also be submitted to any other organ of

state upon request.




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6.4.3.3. Publication of monthly budget statements

The municipal manager must make the monthly budget statements in the

format set out in Schedule C public on the municipality’s web site and

displayed at the municipality’s head office, satellite offices and libraries within

5 working days of submitting them to the mayor.

The municipal manager must also make public any other information the

council considers appropriate to facilitate public awareness of the monthly

budget statement.

6.4.3.4. Tabling of monthly budget statements

After receiving the monthly budget statements the mayor may then table

these before council and if so must include a mayor’s report covering at least

the minimum items where applicable as specified in Schedule C.

Note that the MFMA requires submission and publication before tabling.

ENTITIES and monthly budget statements

Submission of monthly budget statements

Monthly budget statements set out in accordance with Schedule F must be

submitted within 7 working days after the end of the month by the chief

executive officer to the municipal manager of the parent municipality, the

chairperson of the entity board and other municipalities affected by the

entity’s annual budget. The Schedule F information must also be submitted

to any other organ of state upon request.

The municipal manager of the parent municipality must then consolidate any

entity monthly budget statement information into the municipal monthly

budget statements. The municipal manager must then submit, make public

and table the consolidated monthly budget statements together with each

individual entity monthly budget statement. Note that Schedule C which




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provides the format for the municipal monthly budget statements requires

each entity monthly budget statement to be attached.

6.4.4. Quarterly reports

6.4.4.1. Submission of quarterly reports to council

For the months of September, December, March and June, additional

quarterly performance information must be added to the monthly budget

statements and submitted to council along with a mayor’s report on quarterly

performance. This is due by the 30th day following the last month of each

quarter, and must report on budget implementation and the municipality’s

financial position.

6.4.4.2. Publication of quarterly reports on implementation of the budget

Quarterly reports on implementation as set out according to Schedule C must

be made public on the municipality’s web site and displayed at the

municipality’s head office, satellite offices and libraries within 5 working days

of being submitted to council.

Note that the monthly budget statements will already have been made public.


council considers appropriate to facilitate public awareness of the monthly

budget statement.

6.4.4.3. Submission of quarterly reports on implementation of the budget

Quarterly reports on implementation as set out according to Schedule C must

be submitted to the National Treasury and relevant provincial treasury within

5 working days of being submitted to council. Note that the monthly budget

statements will already have been submitted.




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6.4.5. Mid-year budget and performance assessment

6.4.5.1. Submission of mid-year budget and performance assessment to mayor and

treasuries

By 25 January each year (and in addition to the monthly budget report), the

municipal manager must submit a mid-year budget report and performance

assessment (based on the council’s service delivery and budget

implementation plan) to the mayor, the National Treasury and relevant

provincial treasury. This report may be used to inform the mayor of any need

to consider an adjustments budget and should be used to inform the budget

process for the following year.

For the month of December, additional performance information as specified

for the mid-year budget and performance assessment must be added to the

monthly budget statement and submitted to council along with a mayor’s

report on the mid-year budget and performance assessment.

6.4.5.2. Publication of mid-year budget and performance assessment

The municipal manager must make the mid-year budget and performance

assessment in the format set out in Schedule C public on the municipality’s

web site and displayed at the municipality’s head office, satellite offices and

libraries within 5 working days of submitting them to the mayor.


council considers appropriate to facilitate public awareness of the mid-year

budget and performance assessment.

6.4.5.3. Submission of mid-year budget and performance assessment to council

After receiving the mid-year budget and performance assessment and no

later than 31 January, the mayor must submit it to council in the format as set

in Schedule C.




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Note that the MFMA requires submission to the mayor and treasuries, and

publication before submission to council. This ensures a separation of roles

and responsibilities and facilitates good governance.

ENTITIES and mid-year budget and performance assessment

For the month of December, additional performance information as specified

for the mid-year budget and performance assessment must be added to the

monthly budget statement and submitted to the entity board along with a

chairperson’s report on the mid-year budget and performance assessment.

Submission of mid-year budget and performance assessment to parent

municipality

Mid-year budget and performance assessments set out in accordance with

Schedule F must be submitted by the chief executive officer to the municipal

manager of the parent municipality by 20 January. The municipal manager

must then consolidate the entity assessments with the municipal assessment.

By 25 January the municipal manager must submit to the mayor the

consolidated mid-year budget and performance assessment with each entity

mid-year assessment attached.

Submission of mid-year budget and performance assessment to treasuries

The municipal manager must include each entity mid-year budget and

performance assessment in the format set out in Schedule F when it submits

Schedule C to the National Treasury and relevant provincial treasury.

Submission of mid-year budget and performance assessment to council

After receiving the consolidated mid-year budget and performance

assessment and the individual entity assessments and no later than 31

January, the mayor must submit these to council in the format as set out in

Schedules C and F.




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Publication of mid-year budget and performance assessment

The municipal manager must make the consolidated mid-year budget and

performance assessment in the format set out in Schedule C and each entity

mid-year budget and performance assessment in the format of Schedule F

public on the municipality’s web site and displayed at the municipality’s head

office, satellite offices and libraries within 5 working days of submitting them

to the mayor.


council considers appropriate to facilitate public awareness of the mid-year

budget and performance assessments of entities

6.4.6. General in-year reporting obligations

6.4.6.1. The municipal manager must advise the National Treasury, the relevant

provincial treasury and the Auditor-General about all bank accounts as they are

opened and must report to council, the provincial treasury and the Auditor-

General the details of certain prescribed withdrawals each quarter. The

municipal manager must also report on any unauthorised, irregular or fruitless

and wasteful expenditure as it occurs and on any impending budget shortfalls or

overspending.

6.4.6.2. Details of expenditure on staff benefits must be reported to council regularly. The

mayor must also report to the MEC for local government any issue that

necessitates provincial intervention as it arises. The chief executive officer of a

municipal entity must provide the municipal manager of the parent municipality

with regular reports on finance and performance.

6.5. AMENDING THE BUDGET – ADJUSTMENTS BUDGET

6.5.1. An adjustments budget is the mechanism to amend an approved budget under

certain specified conditions.




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6.5.2. It may be necessary on occasion for a council to consider a revision of its

original budget, owing to material and significant changes in revenue collections,

expenditure patterns, or forecasts thereof for the remainder of the financial year.

It may not result in further increases in taxes and tariffs and it must contain

appropriate justifications and supporting material when approved by council.

6.5.3. Adjustments budgets must be appropriately funded and supporting

documentation must contain an explanation of how the adjustments budget is

funded.

6.5.4. Municipalities should be practicing proper planning and reducing the need for

adjustments budgets particularly in the light of the MFMA provisions for multi-

year capital appropriations. With careful planning, realistic budgeting, and good

implementation and monitoring practices municipalities should be able to limit

adjustments budgets to once a year. The most appropriate time for a single

adjustments budget is at the time of the mid-year budget and performance

assessment.

6.5.5. Regulations on the adjustment budget specify the conditions and timeframes for

tabling and approving adjustments budgets.

6.5.6. Timeframes for tabling of adjustments budgets

6.5.6.1. Adjustments budgets can be split into five types. For explanation purposes these

can be described as:

Ordinary adjustments

So called ordinary adjustments must only be made once and this must

occur after the mid-year budget and performance assessment is tabled to

council and before 28 February of the current year.

Ordinary adjustments relate to those described in sub sections

28(2)(b),(d),(e), and (f) of the MFMA as follows:




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appropriating additional revenues to accelerate spending programmes

already budgeted for;

moving savings from one vote to spend on another vote;

authorising spending of funds unspent at the end of the previous year

where the under spending could not have been foreseen at the time

council approved the annual budget. (there is one exception covered

by the second type of adjustment relating to government allocations.

Refer to point 2 below); and

correcting errors in the annual budget.

It is intended that an adjustment budget for any of the reasons above

should only need to be done once and that the most appropriate time is

directly after the mid-year budget and performance assessment. In

practice the mid-year budget and performance assessment and the

adjustments budget would most likely be tabled to council at the same

time.

In terms of the third dot point, it is required that municipalities exercise

proper planning at the time of approving the annual budget. In particular,

it should be known which capital projects will not be completed at the end

of the year and the expenditure should be appropriated in the next year’s

budget. Failure to do so will mean that the spending on the project must

stop until an adjustments budget is passed in the middle of the year.

Government allocations

National and provincial adjustments budgets may occur outside of the

timeframe for the municipal mid-year budget and performance

assessment. In the case where a national or provincial adjustments

budget adjusts allocations to a municipality, the municipality must table

an adjustments budget within 30 days unless a longer period is otherwise

approved by National Treasury.




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Material under collection of revenue

An adjustments budget must be approved at any time it becomes

apparent that there will be a material under collection of revenue. The

intent is that this provision should not be needed if the approved annual

budget is realistic and funded according to section 18 of the MFMA. Use

of this provision is an indication that the approved budget was not

compliant with this section of the MFMA.

While it is expected that municipalities should not need this provision if

proper planning and budgeting has occurred, it is critical that the budget

is adjusted at the first sign that there will be a material under collection of

revenue.

Unforeseeable and unavoidable expenditure

An adjustments budget related to unforeseeable and or unavoidable

expenditure must be tabled to council at the first available opportunity

after the expenditure was incurred.

Unauthorised expenditure

An adjustments budget related to unauthorised expenditure must be

tabled and approved during the financial year in which the unauthorised

expenditure occurred.

6.5.7. Submission of municipal adjustments budgets

6.5.7.1. Once the mayor has tabled an adjustments budget (in the format set out in the

regulations) to council the municipal manager must submit it to National

Treasury, the relevant provincial treasury, and any other municipality affected by

the adjustment budget.

6.5.7.2. The municipal manager must also submit the adjustments budget to any other

organ of state upon request.




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6.5.8. Approval of adjustments budget

6.5.8.1. A municipal council must consider the entire content of the adjustments budget

and supporting documentation as set out in the regulations before approving the

adjustments budget.

6.5.8.2. Council can only approve adjustments dealing with unforeseeable and

unavoidable expenditure if the expenditure was authorised by the mayor in terms

of Chapter 5 of the Municipal Budget and Reporting Regulations.

6.5.8.3. The resolutions for approving the adjustments budget must cover at least those

set out in the regulations under the heading “resolutions”.

6.5.8.4. Subject to section 54(1)(c) of the MFMA, the mayor must revise the SDBIP

provided that council has approved the revisions to the service delivery targets

and performance indicators following the approval of the adjustments budget.

ACTIVITY / READ:

Read section 54(1)(c) of the MFMA

6.5.9. Publication of approved adjustments budget

6.5.9.1. The requirements for publication of the approved adjustments budget are very

similar to those for the approved annual budget.

6.5.9.2. Within five working days after the adjustments budget has been approved, it

must be made public. The adjustments budget and supporting documentation

set out according to the regulations and any consequential amendment of the

SDBIP must be made public.




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6.5.9.3. This information must at a minimum be made available on the municipal web site

and displayed at the municipality’s head office, satellite offices and libraries.

6.5.9.4. Additional information may be made public including adjustments budget

summaries in alternate languages.

6.5.10. Submission of approved adjustments budgets and other documents

6.5.10.1. Within 5 working days after the adjustments budget has been approved, it must

be submitted to National Treasury, the relevant provincial treasury and other

municipalities affected by the annual budget. Submission to other organs of state

is on receipt of a request.


treasury must include the documentation as per the regulations in printed and

electronic format. The amended service delivery and budget implementation plan

must also be submitted where relevant in both printed and electronic format.

National Treasury will also require electronic return forms to be submitted for the

purposes of automatically recording information.



In each case the minimum documentation required includes the adjustments

budget and supporting documentation set out according to the regulations.

ENTITIES and adjustments budgets

In terms of process the regulations impose limitations on when an adjustments

budget can be submitted to the board. Municipal entities should be practicing

proper planning and reducing the need for adjustments budgets particularly in

the light of the MFMA provisions for multi-year capital appropriations.

With careful planning, realistic budgeting, and good implementation and

monitoring practices municipal entities should be able to limit adjustments




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budgets to once a year. And the most appropriate time for a single adjustments

budget is at the time of the mid-year budget and performance assessment.

Framework for tabling of adjustments budgets

The allowable reasons for an adjustments budget for a municipal entity are more

restrictive than for a municipality. Adjustments budgets can be split into four

types. For explanation purposes these can be described as:

Ordinary adjustments

Ordinary adjustments relate to ‘other’ as described in sub section

87(6)(d) of the MFMA and further defined in the regulations:

Authorising spending of funds unspent at the end of the previous year

where the under spending could not have been foreseen at the time

council approved the annual budget.

Correcting errors in the annual budget

Ideally an adjustment budget for any of the reasons above should only

need to be done once and that the most appropriate time is directly after

the mid-year budget and performance assessment. In practice the mid-

year budget and performance assessment and the adjustments budget

would most likely be submitted to the board at the same time.

In terms of the first dot point, it is required that municipal entities exercise

proper planning at the time of approving the annual budget. In particular,

it should be known which capital projects will not be completed at the end

of the year and the expenditure should be appropriated in the next year’s

budget. Failure to do so will mean that the spending on the project must

stop until an adjustments budget is passed in the middle of the year.

Note that an adjustments budget may not be approved to appropriate

additional revenues unless they are additional allocations from the parent

municipality. See point 2 below.

Note that an adjustments budget may not be approved to move savings

from one vote to another vote.




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Allocations from the parent municipality

If a parent municipality has planned well it should only pass one

adjustments budget at the time of the mid-year budget and performance

assessment. In the case where a municipal adjustments budget adjusts

allocations to a municipal entity, the municipal entity must submit an

adjustments budget to the board. Ideally this would occur within 30 days

after the municipal council has authorised the additional funds.

Material under collection of revenue

Ideally an adjustments budget would be approved at any time it becomes

apparent that there will be a material under collection of revenue. The

intent is that this provision should not be needed if the approved annual

budget is realistic and funded according to section 18 of the MFMA. Use

of this provision is an indication that the approved budget was not

compliant with this section of the MFMA. Where this provision is used,

the National Treasury and or the relevant provincial treasury will

investigate for possible non-compliance with the MFMA.

While it is expected that municipal entities should not need this provision

if proper planning and budgeting has occurred, it is critical that the budget

is adjusted at the first sign that there will be a material under collection of

revenue.

Unforeseeable and unavoidable expenditure

Ideally an adjustments budget related to unforeseeable and or

unavoidable expenditure would be tabled to council at the first available

opportunity after the expenditure approved by the mayor was incurred.

Unauthorised expenditure:

Note that there is no provision for approving an adjustments budget for

unauthorised expenditure for a municipal entity.




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Approval of adjustments budget

The chief executive officer of the entity must submit a copy of the proposed

adjustments budget set out in accordance with Schedule E to the mayor of the

parent municipality at the same time as it is submitted to the board of the entity.

Subject to 87(6) of the MFMA the board of the entity may only approve the

adjustments budget after receiving written confirmation that the mayor has

approved the adjustments budget. It may be necessary to revise the targets in

the service delivery agreement.

An entity board must consider the entire content of the adjustments budget and

supporting documentation as set out in Schedule E before approving the

adjustments budget.

The board must approve or reject adjustments dealing with unforeseeable and

unavoidable expenditure within 60 days of being submitted to the board and

before the end of the current year.

The resolutions for approving the adjustments budget must cover at least those

set out in Schedule E under the heading “resolutions”.

Publication of approved adjustments budget

The requirements for publication of the approved adjustments budget are very

similar to those for the approved annual budget.

Immediately after the board of the municipal entity has approved the adjustments

budget, the chief executive officer must submit the approved adjustments budget

set out in accordance with Schedule E to the municipal manager of the parent

municipality in both printed and electronic form.

Concurrently, the chief executive officer must also submit to the municipal

manager any additional information that the municipal council considers




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appropriate to facilitate public awareness about the adjustments budget.

The municipal manager is then required to make the above information public

within five working days after the board of directors has approved the

adjustments budget.

Submission of approved adjustments budgets and other documents

Within 5 working days of the end of each quarter, the municipal manager must

submit any entity adjustments budgets to National Treasury and the relevant

provincial treasury. This differs from the treatment of municipal adjustments

budgets which must be submitted to National Treasury and provincial treasury

when they are approved. The reason for this is to reduce the number of

submissions required and consolidate submissions on a quarterly basis in the

case of municipal entities.

Within 5 working days of receipt of an entity adjustments budget, the municipal

manager must submit the adjustments budget set out as per Schedule E to other

municipalities affected by the annual budget of the entity regardless of whether

the adjustments affect that municipality.

The municipal manager must submit the adjustments budget set out as per

Schedule E to other organs of state upon receipt of a request.

The information submitted to National Treasury and the relevant provincial

treasury must include the documentation as per Schedule E in printed and

electronic format.

Note that the regulation specifically separates requirements for ‘publication’ and


In each case the minimum documentation required includes the adjustments

budget and supporting documentation set out according to Schedule E.




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6.6. SHIFTING OF FUNDS BETWEEN MULTI-YEAR APPROPRIATIONS

6.6.1. The MFMA, under section 16(3), allows council to approve multi-year

appropriations for capital. Providing certain conditions are met, the budget may

be amended during the year to shift funds between multi-year appropriations.

Section 31 of the MFMA stipulates:

31. When funds for a capital programme are appropriated in terms of

section 16 (3) for more than one financial year, expenditure for that programme

during a financial year may exceed the amount of that year’s appropriation for

that programme, provided that –

(a) the increase does not exceed 20 per cent of that year’s appropriation

for the programme;

(b) the increase is funded within the following year’s appropriation for that

programme;

(c) the municipal manager certifies that –

(i) actual revenue for the financial year is expected to exceed

budgeted revenue; and

(ii) sufficient funds are available for the increase without

incurring further borrowing beyond the annual budget limit;

(d) prior written approval is obtained from the mayor for the increase; and

(e) the documents referred to in paragraphs (c) and (d) are submitted to

the relevant provincial treasury and the Auditor- General.

7. BUDGET EVALUATION PROCESS

7.1. We have discussed the first two processes in the budget and reporting cycle and

we will now discuss the third process - budget evaluation.

7.2. This process takes place after the end of the budget year, although planning will

start earlier. We will discuss the following components:

7.2.1. Audited Annual Financial Statements;




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7.2.2. Annual Report;

7.2.3. Oversight Report; and

7.2.4. Budget evaluation checklist.

7.3. The first three evaluate financial and service delivery performance against the

promised performance in the budget and SDBIP. The fourth (Budget evaluation

checklist) evaluates the budget process itself.

7.4. ANNUAL REPORTING TIMETABLE

7.4.1. Diagram 3f below shows the annual reporting timetable. Study the timetable

while referring to the following description:

7.4.1.1. the Annual Financial Statements for the municipality and municipal entities are

submitted to the Auditor-General by 31st August;

7.4.1.2. for municipalities with municipal entities the Consolidated Annual Financial

Statements must be submitted to the Auditor-General by 30th September;

7.4.1.3. the Auditor-General must complete each audit within three months of receipt;

7.4.1.4. the production of the annual report should commence no later than July so that

the full annual report can be completed and tabled in council no later than 31st

January as required by the MFMA;

7.4.1.5. the entity Annual Report must be submitted to the Municipal Manager by 31

December each year or earlier date as agreed with the parent municipality;

7.4.1.6. the Municipality’s Annual Report must be tabled to council by 31 January each

year; and




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7.4.1.7. council must consider the annual report of the municipality and all entities and

adopt an oversight report no later than two months from the date the annual

report is tabled.

Diagram 3f: Annual Reporting Timetable

ACTIVITY / STUDY:

Complete MFMA Learning module 6.

7.5. AUDITED ANNUAL FINANCIAL STATEMENTS

7.5.1. The audited Annual Financial Statements are prepared according to Generally

Recognised Accounting Practice (GRAP) and must be audited. It is important to

note that one of the formats for presenting the budget is the same as the format

used for the Annual Financial Statements. This facilitates evaluation of the

budget, in other words it is possible to evaluate audited actual financial

performance against the budget consulted with the community and adopted by




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council. The Annual Report looks at non-financial performance as well and must

include the audited Annual Financial Statements.

7.6. ANNUAL REPORTS

7.6.1. Council is vested with the responsibility to oversee the performance of their

respective municipality, as required by the Constitution, the Municipal Finance

Management Act (MFMA) and Municipal Systems Act (MSA). This oversight

responsibility of council is particularly important for the process of considering

annual reports.

7.6.2. The MFMA and MSA recognise that council has a critical role to play to ensure

better performance by municipal departments and entities. There now exists an

explicit linkage between the strategic goals, set by council through the IDP,

which are translated into the budget, and the delivery of those goals, which is

reported in the Annual Report. It is important for council to ensure that the

budget gives effect to priorities contained in the IDP. A good budget will lay a

basis for better oversight and cement the contracts between the

executive/council, the administration and the public.

7.6.3. Each municipality and each municipal entity must prepare an annual report for

each financial year in accordance with the MFMA and MSA. The purpose of the

annual report is to:

7.6.3.1. provide a record of the activities of the municipality or entity;

7.6.3.2. provide a report on performance in service delivery and against the budget;

7.6.3.3. provide information that supports the revenue and expenditure decisions made;

and

7.6.3.4. promote accountability to the local community for decisions made.

7.6.4. Annual reports are the key reporting instruments for municipalities to report

against the performance targets and budgets outlined in their strategic plans.




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Annual reports are therefore required to contain information on service delivery

and outcomes, in addition to financial statements. It is meant to be a backward-

looking document, focusing on performance in the financial year that has just

ended. It must demonstrate how the budget was implemented and the results of

service delivery operations for that financial year.

7.6.5. This requires the collection of information about the nature and extent of services

provided, with references to key performance targets and actual performance

data, explanations of variations and a narrative of policy and strategy.

7.6.6. When tabled, the annual report should include four main components, each of

which has an important function in promoting governance and accountability.

The main components are:

7.6.6.1. the annual performance report as required by section 46 of the MSA;

7.6.6.2. Annual Financial Statements submitted to the Auditor-General;

7.6.6.3. the Auditor-General’s audit report on the financial statements in terms of section

126(3) of the MFMA; and

7.6.6.4. the Auditor-General’s audit report on performance in terms of section 45(b) of

the MSA.

7.7. OVERSIGHT REPORTS

7.7.1. The oversight report is the final major step in the annual reporting process of a

municipality. Section 129 of the MFMA requires the council to consider the

annual reports of its municipality and municipal entities and to adopt an

“oversight report” containing the council’s comments on each annual report.

7.7.2. The oversight report must include a statement whether the council:

7.7.2.1. has approved the annual report, with or without reservations;




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7.7.2.2. has rejected the annual report; or

7.7.2.3. has referred the annual report back for revision of those components that can be

revised.

7.7.3. The oversight report is thus clearly distinguished from the annual report. The

annual report is submitted to the council by the accounting officer and the mayor

and is part of the process for discharging accountability by the executive and

administration for their performance in achieving the goals set by council. The

oversight report is a report of the municipal council and follows consideration and

consultation on the annual report by the council itself. Thus the full accountability

cycle is completed and the separation of powers is preserved to promote

effective governance and accountability.

7.7.4. Understanding the annual report and determining conclusions

7.7.4.1. A mechanism that facilitates better understanding of the annual report by all

councillors is essential, as the MFMA requires that Council, and not the

executive or administration, comment on the annual report and arrive at a

decision.

7.7.4.2. To facilitate consideration of the annual report in its entirety the council should

obtain the views of the Audit Committee, which is charged with providing council

with, among other matters as prescribed, an authoritative and credible view of

the financial position of the municipality or entity, its efficiency and effectiveness,

performance management and the level of compliance with the MFMA, Division

of Revenue Act (DORA) and other relevant legislation.

7.7.4.3. In order to approve the annual report without reservations, Council should be

able to agree that the information contained in the report is a fair and reasonable

record of the performance of the municipality and properly accounts for the

actions of the municipality in the financial year reported upon. Approval means

that the executive and administration have discharged in full, their accountability

for decisions and actions and that their performance meets the criteria set by

performance objectives and measures and is also acceptable to the community.




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7.7.4.4. Should the Council have reservations on any matter in the report then these

reservations should be outlined in the oversight report and the executive and

administration should address these as determined by council.

7.7.4.5. A conclusion that the report is approved without reservations is the preferred

outcome from the process. However, this conclusion should not be an outcome

of only cursory examination of the report but should be as a result of a rigorous

analysis by councillors with inputs from the public and other stakeholders.

7.7.4.6. Although the accounting officer is required to attend all meetings where the

report is discussed to respond to questions, it is incumbent on all councillors to

fully understand the report in order to identify matters that may require further

information from the accounting officer.

7.7.5. Staff performance bonuses - To promote continuous improvement in the

performance of the municipality and entities, it is strongly recommended that

council reward performance in a manner that is commensurate with achievement

of policy outcomes. Therefore, the payment of performance bonuses should be

measurable with the extent of outcomes achieved. If the level of acceptance

cannot be achieved then it follows that the performance of the administration has

not met the objectives approved in the IDP, Budget and Service Delivery and

Budget Implementation Plans. Where reservations exist, the seriousness of such

should be taken into account before considering any part-payment of bonuses.

7.7.6. Meetings to discuss the annual report - A council meeting open to the public

must be convened to discuss the annual report, at which the council addresses

issues raised. The provincial MEC for local government must assess the

statements to ensure that the council has addressed the appropriate issues and

responded accordingly. Any omissions by the municipality must then be reported

to the provincial legislature for further action.

7.7.7. The municipal manager must attend meetings and make the oversight report and

minutes of the meeting available to the Auditor-General and the national and

provincial government.




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ENTITIES and oversight reports

Where municipalities have one or more municipal entities, separate annual

reports from the municipality and each of the entities will be tabled in council.

Only the annual financial statements will be consolidated in the municipality

report. Although each of the annual reports is to be considered by council it

would be impractical to complete multiple oversight reports. It is recommended

that council adopt one oversight report that provides comments on each of the

annual reports. In this way council is able to reinforce the important linkages

between the municipality and its entities, their close interrelationship in the

provision of services and that performance of the municipality is an outcome of

performance by the municipal administration and all the entities.

8. ASSIGNMENTS

8.1. The following learning activities are to be completed after the workshop on this

chapter and handed in prior to, or at the beginning of, the next workshop.


Explain the main process characteristics of the following steps in the municipal budget preparation process with a few sentences on each:

Planning (2 marks)

Strategising (4 marks)

Preparing (1 mark)

Tabling (3 marks)

Approving (1 mark)

Finalising (4 marks)




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Explain in detail the processes of tabling, approving and finalising the budget. Include discussion on:

tabling the budget for consultation (14);

publication of the budget tabled for consultation (4);

submission of the tabled budget (8);

submission of entity budgets to parent municipality (9)

consideration of the budget for approval (9);

publication of the approved budget (8);

submission of the approved budget (9);

Approval of entity budgets (3);

Submission and publication of entity budgets (8);

SDBIP and annual performance agreements of senior managers (11); and

Entity multi-year business plan (2)

Your answer should clearly articulate:

The consultative aspects of the process;

Why it’s important to table documentation in the same format as the budget

that will be approved;

Why it’s important for the table budget to be a budget that could be

implemented and why “draft” unfunded budgets cannot be tabled to council;

Why its important to have a draft SDBIP which underpins the tabled budget;

and

The benefits of approving the SDBIP and annual performance agreements

before the start of the budget year.




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List the contents of the municipal budget documentation in sequence as per

the municipal budget and reporting regulations (1 mark).

Describe how the two parts relate to each other and how each item may

reference further detail (9 marks).

Explain the reasons for standardising this format across all municipalities and

for requiring it to be applicable to the tabled budget and approved budget. (4

marks)


What type of expenditure qualifies for shifting of multi-year appropriations? (1

mark)

Why does the MFMA make provision for shifting of funds during the year

between multi-year appropriations? (2 marks)

List the conditions which must be satisfied before shifting funds between

multi-year appropriations. (7 marks)


What is an adjustments budget? (3 marks)

Why are limitations placed on the use of adjustments budgets? (6 marks)

Explain the most appropriate time for an adjustments budget. (5 marks)




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Explain the five allowable reasons for a municipal adjustments budget including the conditions related to timing:

Ordinary adjustments (12 marks)

National and provincial allocations (2 marks)

Material under collection of revenue (5 marks)

Unforseeable and unavoidable expenditure (1 mark)

Unauthorised expenditure (1 mark)


Explain the four allowable reasons for a municipal entity adjustments budget.

Ordinary adjustments (8 marks)

Allocations from the parent municipality (2 marks)

Material under collection of revenue (5 marks)

Unforeseeable and unavoidable expenditure (2 marks)


In the context of the budget evaluation process, describe the annual reporting

timetable.




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8.10. MAJOR ASSIGNMENT (141 marks)

The following standard marking scheme will be used (where indicated) in this assignment:

< 5 Inadequate discussion to various degrees

5 – 6 Just adequate; very little use of budget implementation

concepts

7 Better than adequate, but some unclear points

8 Fairly thorough and clear, one or two unclear points

9 – 10 Very thorough discussion

Where the standard marking scheme is not used generally there will be one (1)

mark given for each point made. That is, the learner should make 5 points if the

question is worth 5 marks.

You are currently the chief finance officer of a municipality. You have been asked by the municipal manager to conduct a review of the budget implementation process in your municipality and prepare a report to be submitted back to the municipal manager. Structure your report according to the following headings.

Report Quality (5 marks)

2 marks for professional report layout including formal report headings

sub headings and recommendations. 3 marks for coherence of

discussion and justification of conclusions.

Executive summary (17 marks)

The learner will:

provide an introduction to the MFMA reforms around budget




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implementation and monitoring (5)

state that the purpose of the report is to review current implementation

processes with a view to improving them (2)

List the key findings in respect to current processes (5)

List the recommendations for each of the key findings (5)

Note that the executive summary should only highlight the broad

requirements in the MFMA and regulations. It should provide a summary of

the gaps in current processes and it should list all recommendations.

Implementation (33 marks)

The learner will:

Provide an explanation of the MFMA and regulatory requirements (13)

review the current situation in the municipality and identify gaps (10

standard marking scheme)

make recommendations for improvement (10 standard marking scheme)

Monitoring (39 marks)

Under the four sub-headings below, the learner will:

Provide an explanation of the MFMA and regulatory requirements (total

19)

review the current situation in the municipality and identify gaps (total 10 -


make recommendations for improvement (total 10 - standard marking

scheme)

Monitoring – Introduction (12)

Monthly budget statements (2)

Quarterly report (2)

Mid-year budget and performance assessment (3)

[Note: A total of 10 marks are allocated for your discussion on gaps in




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current processes for all the 4 areas above. Likewise, a total of 10

marks are allocated for your discussion on recommendations for all the

4 areas above.]

Amending - Adjustments budgets (47 marks)

The learner will:

Provide an explanation of the MFMA and regulatory requirements (27)

review the current situation in the municipality and identify gaps (10 -


make recommendations for improvement (10 - standard marking

scheme)

Instructions:

Where there is more than one learner for a particular municipality the facilitator

will discuss options and agree on an alternative assignment.

Attach existing process documentation as appendices and make reference

where appropriate.

Attach proposed process documentation which takes into account your

recommendations as appendices and make reference where appropriate.

This report may be provided to councillors and as such needs to be informative

and clearly communicate requirements to non-finance professionals.

Learners should clearly demonstrate that gaps exist through a coherent

discussion using examples of current practice. If there appear to be no gaps in

current processes the learner must justify this.

Learners should provide a recommendation for each item identified in the gap

review including areas where it has been reasoned that there are no gaps. The

recommendation must be a clear direction for action to be taken should the

recommendation be approved / endorsed.




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Because gaps and the associated recommendations will be particular to each

municipality marking will be consistent for each section and follow the standard

marking scheme explained above


9.1. Plan the tabling and adoption of a municipal budget as required by legislation

[SO2AC1]

9.2. In line with the regulatory framework provide supporting documents that must be

tabled with a municipal budget [SO2AC2]

9.3. Using the regulatory framework identify the funds that can be transferred

between multi-year appropriations [SO2AC3]

9.4. In line with the regulatory framework recognise the conditions under which a

municipal adjustments budget may be tabled [SO2AC4]




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Roles and responsibilities in terms of the municipal budget and reporting cycle


1.1. Identify the roles and responsibilities of municipal political executives and senior

management required by the local government legislative framework for

budgeting [SO1]

1.2. Comply with the conditions for municipal delegations [SO4]

1.3. Develop a legislatively compliant budget and treasury office [SO3]

2. KEY CONCEPTS 2.1. Separation of roles and responsibilities in terms of the budget and reporting

cycle

2.2. Roles and responsibilities of the:

2.2.1. council

2.2.2. non-executive councillors

2.2.3. mayor

2.2.4. municipal manager

2.2.5. senior managers and other officials

2.2.6. chief financial officer

2.2.7. budget and treasury office




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2.2.8. municipal entities

2.2.9. other spheres of government

2.3. Delegations by the municipal manager





must:







3.2.5. have started work on the major assignment. Some time during this workshop

could be dedicated to discussing the major assignment.

4. INTRODUCTION

4.1. This chapter focuses on the roles and responsibilities of key players in the

budget and reporting cycle and the delegation of these responsibilities in terms

of the legislation.




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4.2. The Municipal Finance Management Act (MFMA) establishes clear roles and

responsibilities for financial management in municipalities. By clarifying and

separating the roles and responsibilities of the executive mayor or committee,

non-executive councillors and officials it puts in place a sound financial

management framework.

4.3. The Act empowers the mayor (or executive committee) to provide political

leadership by taking responsibility for policy and policy outcomes, and holds the

municipal manager and other senior managers responsible for implementation

and outputs. Non-executive councillors are empowered to play a key policy-

approval and monitoring role through the municipal council.

4.4. The Act aims to enable managers to manage whilst making them more

accountable through transparent reporting requirements. The challenge facing all

stakeholders is to use the management information produced in terms of the Act

to improve the efficiency and effectiveness of the municipality.

4.5. EMPOWERMENT, ACCOUNTABILITY AND OVERSIGHT

4.5.1. One of the most important objectives underpinning the MFMA is that of

developing a sound financial governance framework within every municipality.

This means developing a comprehensive system clarifying (and separating) the

responsibilities of mayors, councillors and officials. This framework is built

around accountability and oversight, which are in turn possible only if there is a

culture of transparency and regular reporting in that municipality.

4.5.2. Confusing or duplicating responsibility tends to weaken accountability and

oversight mechanisms, hence the need for separating responsibilities. The

executive mayor or committee is responsible for providing the municipality with

political leadership, proposing policy and overseeing its implementation. The

council retains responsibility for approving policy and exercising oversight over

its mayor, and the administration is accountable to the council via the mayor.

Officials are responsible for implementation and for providing the executive

mayor or committee with professional advice.




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Diagram 4a: The financial governance framework

4.5.3. The council holds the mayor responsible for promised outcomes and the

municipal manager for specific outputs. The mayor is expected to oversee and

manage the municipal manager to ensure delivery on the agreed outputs, and

the council must exercise oversight over the executive mayor or committee to

ensure they fulfil this responsibility of oversight. The mayor must ensure that

such outputs form part of the municipal manager’s performance agreement,

which must be revised at the start of the financial year so as to be consistent

with the budget and the service delivery and budget implementation plan

(SDBIP).

4.5.4. For these reasons, the Act stipulates certain procedures and assigns specific

responsibilities to the council, the mayor, councillors and municipal officials, in

particular the municipal manager and chief financial officer.

The MFMA, Municipal Systems Act and Municipal Structures Act are central to

developing the governance framework within a municipality, clarifying and

separating the roles of mayors, councillors and officials, and the system of

accountability and oversight.

4.5.5. The MFMA together with the Municipal Systems Act and the Municipal

Structures Act provides clear guidance on the roles and responsibilities of

councillors and officials. Diagram 4b below (repeated from the introduction to this

module) illustrates certain aspects of governance and accountability and the

political and administrative structures required for accountability.




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Diagram 4b: Political and administrative accountability

4.5.6. The diagram shows policy direction from the community and other stakeholders

through council to the municipal administration. In turn the administration is

accountable to council for implementing policy. The council is accountable for

performance to the community and other stakeholders.

4.5.7. In accordance with the financial governance principles discussed, the MFMA,

together with the Municipal Systems Act, clearly establishes a separation of roles

and responsibilities between the mayor and council and between the mayor and

the municipal manager and other senior officials.

4.5.8. It thus creates a clearer and single line of authority between the council and the

administration.

4.6. VARIATION BETWEEN MUNICIPALITIES

4.6.1. The principles of transparency, accountability and oversight are identical for

each and every municipality. However, the resources available and the capacity

of municipalities will vary considerably, particularly between metropolitan and

rural municipalities. The variations will dictate different approaches to systems




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and processes that may be established by the council, mayor and municipal

manager to ensure the principles are upheld. The number of officials employed

and their skills, qualifications and experience will vary significantly between large

and small municipalities. Some municipalities will have more committees than

others and the roles will be different. Small municipalities are sometimes unable

to separate roles and functions simply because there are insufficient employees.

4.6.2. It is important therefore that the municipal manager and the mayor in each

municipality work with the CFO, senior managers, internal and external auditors

to ensure that an appropriate and effective framework of accountability,

transparency and oversight is established and maintained, to suit the individual

circumstances of each municipality.

5. ROLE OF THE COUNCIL

5.1. The MFMA recognises the municipal council as the highest authority in the

municipality and vests the council with significant powers of approval and

oversight.

5.2. A council delegates its executive authority to the executive mayor or committee,

but does not delegate its legislative powers and also retains its power to approve

policy and budgets and to exercise oversight over the mayor in the

implementation of policy, budgets and by-laws. As the representative body of the

residents that it serves, it remains accountable to residents and to other

stakeholders like businesses and provincial and national government.

5.3. ROLE OF THE NON-EXECUTIVE COUNCILOR

5.3.1. Apart from the Speaker (where appointed), non-executive councillors generally

function in a part-time capacity and are expected to play a political role in

representing residents and other stakeholders in the municipality. Councillors

provide the critical political linkage between the executive (mayor or executive

committee) and the community. Councillors can therefore facilitate the

consultative processes envisaged in both the MFMA and the Municipal Systems




117

Act, particularly with regard to budgets, IDPs, budget-related policies, tariff-

setting for services, indigency policies, long-term borrowing and contracts.

5.3.2. The Municipal Systems Act and the MFMA also provide non-executive

councillors with important recommendation and approval roles. They are

expected to review, debate, modify and approve the policies recommended by

the executive (mayor or committee). These include by-laws and policies on

priorities that impact on council service delivery.

5.3.3. The Municipal Systems Act and the MFMA jointly establish the role of councillors

to include oversight through council (or committee) meetings. Councillors ensure

the establishment of effective operational and financial policies and procedures

that will produce desired outcomes. To be effective in their role, councillors need

to fully understand their oversight responsibilities. As overseers, they must

refrain from involvement with the implementation of policies, procedures and

directions that they have determined necessary for the community. Councillors

cannot have an operational role, as this would interfere with the role of the

executive (mayor or committee) and also weaken the accountability of officials to

the council (since councillors cannot be both players and referee). This is in line

with the role of elected representatives in Parliament and the provincial

legislatures, who do not become involved in the day-to-day activities of the

executive.

5.3.4. The approach of the MFMA is also consistent with the Code of Conduct set out

in Schedule 1 of the Municipal Systems Act, which clearly requires councillor

disclosure of conflicts of interest and prohibits councillor involvement in tender

boards or the boards of municipal entities.

ACTIVITY / READ:

Read Schedule 1 of the MSA




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5.3.5. The oversight role of councillors may be summarised as:

5.3.5.1. setting the direction for municipal activities;

5.3.5.2. setting policy parameters to guide these activities;

5.3.5.3. setting strategic objectives and priorities stating what outcomes and outputs are

to be achieved;

5.3.5.4. monitoring the implementation of policies and priorities by evaluating reports of

outputs and outcomes;

5.3.5.5. ensuring that corrective action is taken where outputs deviate from plans; and

5.3.5.6. accounting back to the community for performance in terms of objectives.

5.3.6. Given the importance of this oversight role, both the Municipal Systems Act and

the MFMA protect the councillors’ policy-making role by separating it from the

implementation role played by officials. Councillors are therefore not allowed to

be members of either the boards of entities (section 93F of the Municipal

Systems Act), audit committees (section 166(5) of the MFMA, or a tender or bid

committee (section 117 of the MFMA).

ACTIVITY / READ:

Read section 93F of the MSA and sections 166(5) and 117 of the MFA

5.3.7. Under the MFMA, the council is expected to undertake a number of financial

management tasks to fulfill its oversight function. These include the following:

5.3.7.1. considering and approving the annual budget and ensuring the budget and IDP

are aligned;




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5.3.7.2. approving budget-related policies on appropriate taxes, user charges, indigent

policies, credit control and supply chain management;

5.3.7.3. considering the views of the community and government regarding the budget

and in establishing a municipal entity;

5.3.7.4. reviewing the budget and performance of entities under council control;

5.3.7.5. dealing with audit and annual reports, and adopting an oversight report once the

report is received;

5.3.7.6. considering capital projects and contracts with financial implications of more than

three budget years;

5.3.7.7. taking responsibility for incurring debt and determining security over debt

(although some aspects of this may be delegated for short-term debt, subject to

certain conditions);

5.3.7.8. considering the sale, disposal or transfer of all capital assets (although this may

be delegated to the municipal manager to a value determined by the council);

5.3.7.9. reviewing unauthorised and unforeseen expenditure and reporting on

unauthorised, irregular and fruitless and wasteful expenditure; and

5.3.7.10. investigating allegations of financial misconduct and taking appropriate action

where necessary.

5.4. ROLE OF COUNCIL COMMITTEES

5.4.1. The MFMA also anticipates that each municipal council will strengthen its

oversight role by forming portfolio committees within the council, to facilitate the

oversight of financial performance. The Municipal Structures Act can be utilised

in this respect, through sections 79 and 80, which allows a council to form

various committees for the effective and efficient performance of any of its




120

functions or to exercise any of its powers. In terms of the financial function, most

Councils will have in place portfolio committees that deal with finance and

oversight matters.

ACTIVITY / READ:

Read section 79 and 80 of the MSA

5.4.2. Membership of financial portfolio committees needs to be tailored to best suit the

purpose and functions of each committee as determined by Council.

Membership should consist of a mix of councillors and sufficient officials with

expert knowledge in the functions of the committee. A finance committee would

be chaired by the mayor or a councillor selected to assist the mayor with the

finance responsibilities. Additional councillors can be appointed to ensure broad

community needs are represented. The Municipal Manager and/ or Chief

Financial Officer will be a member and also responsible for the executive support

to the committee, along with other senior officials providing expert advice as

appropriate to the functions of the committee.


Review the purpose and function of all finance related and oversight committees

in your municipality. In terms of each committee:

Do you consider the balance of membership between councillors and financial

experts (officials) is appropriate to ensure the needs of the community are

represented and there is sound financial advice provided? If not, what changes

would you recommend to the council?

What powers, if any, have been delegated to the committee? List the powers

that have been delegated and reference the legislation and section number that

applies.




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How do the committee’s decisions get acted upon, who is responsible for

ensuring decisions are carried out?

6. ROLE OF THE MAYOR

6.1. The MFMA assigns specific financial management powers and functions to the

mayor. A number of possibilities exist in terms how these powers and functions

are carried out. For the purpose of this discussion it is important to note that the

MFMA assigns the responsibilities to the mayor and then defines what happens

in certain circumstances as summarised below.

6.2. In the case where a municipality has an executive mayor, those powers and

functions must be exercised by the executive mayor.

6.3. In the case where a municipality has an executive committee, those powers and

functions must be exercised by the mayor in consultation with the executive

committee.

6.4. In the case where there is no mayor, those powers and functions must be

exercised by the councillor designated to exercise the powers and duties

assigned to a mayor by the MFMA.

6.5. For the remainder of this discussion any reference to the term “mayor” will be in

the context above.

6.6. As the executive authority of the council, the executive mayor or committee must

provide political guidance over the policy, budget and financial affairs of the

municipality and must ensure that the municipality complies with its obligations

under the legislation. Without interfering in the day-to-day administration of the

municipality, the mayor should monitor and oversee the municipal manager and

senior managers to ensure that they are carrying out their duties in an

appropriate manner. The key tools for doing so are the annual service delivery




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and budget implementation plan (SDBIP) and the annual performance

agreements with clear measurable outputs for each senior manager.

6.7. The mayor remains accountable to council for proposing and implementing

policy and overseeing the implementation of this policy by the administration.

The following are some of the responsibilities of the mayor:

6.7.1. providing political guidance on the budget process;

6.7.2. co-ordinating the budget process with the municipal manager;

6.7.3. reviewing IDP and budget-related policies and ensuring consistency with the

budget;

6.7.4. ensuring that the municipality complies with the legislative deadlines for the

tabling and approval of the budget;

6.7.5. approving the service delivery and budget implementation plan and the

performance agreements of the municipal manager and senior management;

6.7.6. monitoring the financial performance of the municipality through monthly

financial reports submitted by the municipal manager;

6.7.7. providing council with quarterly budget reports, mid-year budget and

performance assessments and taking action where necessary;

6.7.8. reporting instances of potential or real non-compliance with the budget chapter

of the MFMA or in relation to issues that may necessitate provincial intervention;

6.7.9. tabling an adjustments budget;

6.7.10. reporting instances of unforeseeable or unavoidable expenditure;

6.7.11. guiding the municipality in its dealings with its municipal entities; and




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6.7.12. tabling the annual report to council each year.

ACTIVITY / READ:

Read Chapter 7 of the MFMA

7. ROLE OF THE MUNICIPAL MANAGER (THE ACCOUNTING OFFICER)

The municipal manager is responsible for the financial management of the

municipality, ultimately ensuring that all financial systems are in place and are

properly maintained.

7.1. The municipal manager is the accounting officer and the administrative authority

for the municipality and is responsible for the implementation of approved council

policy and the achievement of the objectives set out by the mayor. In the first

instance the municipal manager is accountable to the mayor for the

implementation of specific agreed outputs. In the second instance the municipal

manager is accountable to the council for the overall administration of the

municipality.

7.2. The municipal manager is therefore the key officer responsible to the mayor and

council for the successful implementation of the legislation. In this capacity, the

municipal manager must be fully aware of the legislative requirements in order to

provide the mayor, councillors, senior officials and municipal entities with the

appropriate guidance and advice on financial and budget issues.

7.3. Whilst the municipal manager may delegate many tasks to the chief financial

officer or to other senior officials, this must be done carefully to ensure that all

tasks are completed appropriately by those officials.




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7.4. The municipal manager must project manage at the highest level the finance

management function, establishing appropriate objectives for senior staff,

project milestones, timeframes and responsibilities whilst managing those

outputs effectively and regularly reporting back to the mayor and council on

progress.

7.5. A skilled and well-rounded senior management team complemented with some

financial management background and knowledge is desirable, since their roles

and responsibilities, depending on the extent of delegations by the municipal

manager, will greatly support the expeditious implementation of good financial

management and governance. It is also appropriate to have the chief financial

officer regularly update senior management on finance-related policies and

areas of relevance.

7.6. The municipal manager is required to take on a number of specific

responsibilities, which include, but are not limited to, the following:

7.6.1. Budget preparation:

7.6.1.1. assisting the mayor in preparing the budget;

7.6.1.2. assisting in conducting community participation meetings;

7.6.1.3. making public the draft budget;

7.6.1.4. assisting in the preparation of budget-related policies ;

7.6.1.5. making public the approved budget;

7.6.1.6. developing and submitting the service delivery and budget implementation plan;

7.6.1.7. submitting annual performance agreements for all senior managers;

7.6.1.8. ensuring information is supplied to council and the public on debt proposals;




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7.6.1.9. making public any proposal to establish or participate in a municipal entity; and

7.6.1.10. making public and inviting comment on draft contracts with a term greater than

three years.

7.6.2. Budget Implementation:

7.6.2.1. implementing the approved budget;

7.6.2.2. ensuring revenue collection and expenditure is in line with the budget;

7.6.2.3. certifies where necessary to shift funds across budget years;

7.6.2.4. administering all municipal bank accounts;

7.6.2.5. developing and implementing a supply chain management policy;

7.6.2.6. assisting the mayor in preparing the adjustment budget;

7.6.2.7. reporting unauthorised, irregular or fruitless and wasteful expenditure;

7.6.2.8. reporting impending shortfalls or overspending, and any overdraft position;

7.6.2.9. reporting on monthly and mid-year budget progress;

7.6.2.10. reporting other matters as prescribed, including staff expenditure; and

7.6.2.11. monitoring entities to ensure that their reporting obligations are met.

7.6.3. Budget evaluation:

7.6.3.1. providing an assessment of municipal performance for inclusion in the annual

report;




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7.6.3.2. preparing the annual financial statements for audit, verifying salaries and

benefits paid; and

7.6.3.3. making public the annual report and the council’s oversight report.

ACTIVITY / READ:

Read Chapter 8, Part 1 of the MFMA

8. ROLES OF SENIOR MANAGERS AND OTHER OFFICIALS

8.1. TOP MANAGEMENT OF MUNICIPALITIES

8.1.1. The top management of municipalities must assist the municipal manager in

managing and coordinating the financial administration of the municipality. The

top management consists of:

8.1.1.1. municipal manager;

8.1.1.2. chief financial officer;

8.1.1.3. all the senior managers who are responsible for managing the respective votes

of the municipality and to whom powers and duties for this purpose have been

delegated in terms of section 79 of the MFMA; and

8.1.1.4. any other senior official designated by the municipal manager.

ACTIVITY / READ:

Read section 77 of the MFMA




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8.2. ROLE OF SENIOR MANAGERS AND OTHER OFFICIALS

8.2.1. Subject to the directions of the municipal manager each senior manager and

each official exercising financial management responsibilities must take all

reasonable steps to ensure that:

8.2.1.1. the municipal system of financial management and internal control is carried out

diligently;

8.2.1.2. the financial and other resources of the municipality are utilised effectively,

efficiently, economically and transparently;

8.2.1.3. any unauthorised, irregular or fruitless and wasteful expenditure and any other

losses are prevented;

8.2.1.4. all revenue due is collected;

8.2.1.5. assets and liabilities are managed effectively and assets are safeguarded and

maintained to the extent necessary;

8.2.1.6. all information required by the municipal manager to comply with the MFMA is

timeously submitted; and

8.2.1.7. delegations by the municipal manager are complied with.

ACTIVITY / READ:


8.2.2. The role of the chief finance officer will be considered in more detail later in the

context of the Budget and Treasury Office. For now let’s consider broadly the




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role that senior managers and other officials play in the budget and reporting

cycle.

8.2.3. Budget preparation process

8.2.3.1. During budget preparation process the strategic planning staff will work with the

mayor, council and the senior management team to review the IDP and to

establish priorities. Heads of departments and financial officials will assist in this

process by providing valuable information such as estimates and cost benefit

analysis advice.

8.2.3.2. The mayor coordinates the budget process. The municipal manager will pass on

the municipal budget policy statement and the indicative allocations to the

department heads and ask them to construct their departmental SDBIPs based

on this information. Refer to diagram 3e (Departmental SDBIPs).

8.2.4. Budget implementation process

8.2.4.1. During the budget implementation process the officials of the Budget and

Treasury Office will undertake day to day administration, reporting and maintain

internal controls over the budget implementation. Senior managers and other

officials will implement their budgets and monitor implementation.

8.2.5. Budget evaluation process

8.2.5.1. During the budget evaluation process senior managers and other officials will

assist with finalising their accounts and provide information on variations to the

Budget and Treasury Office. The Budget and Treasury office will prepare the

annual financial statements for audit, work with the external audit team, and

guide the council, mayor and senior managers to review actual performance.

The municipal manager and the officials within his or her department will prepare

the annual report and the council, with support from strategic and corporate

officials, will assist in the preparation of an oversight report.




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9. DELEGATIONS BY THE MUNICIPAL MANAGER

9.1. Section 79 of the MFMA states that the accounting officer of the municipality:

9.1.1. must develop an appropriate system of delegation that will maximise

administrative and operational efficiency and provide adequate checks and

balances in the municipality’s financial administration;

9.1.2. may in accordance with the system, delegate to a member of the municipality top

management or any other official of the municipality:

9.1.2.1. any of the powers or duties assigned to an accounting officer in terms of this Act

9.1.2.2. any power or duties reasonably necessary to assist the accounting officer in

complying with a duty which requires the accounting officer to take reasonable or

appropriate steps to ensure the achievement of the aims of a specific provision

of this Act;

9.1.3. must regularly review delegations and amend or withdraw as necessary; and

9.1.4. may not delegate to any political structure or political office bearer of the

municipality.

9.2. The delegation:

9.2.1. must be in writing;

9.2.2. is subject to such limitations and conditions as the accounting officer may

impose in a specific case;

9.2.3. may either be to a specific individual or to the holder of a specific post in the

municipality;




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9.2.4. may authorise a member of the top management to sub-delegate the delegated

power or duty to an official or the holder of a specific post in that member’s area

of responsibility; and

9.2.5. does not divest the accounting officer of the responsibility concerning the

exercise of the delegated power or the performance of the delegated duty.

9.3. The municipal manager may confirm, vary or revoke any decision taken in

consequence of a delegation or sub-delegation in terms of the above. No such

variation or revocation may detract from rights that may have accrued as a result

of the decision.

ACTIVITY / READ:


9.4. DELEGATIONS AND ACCOUNTABILITY

9.4.1. Where an accounting officer delegates or sub-delegates any of the accounting

officer responsibilities to other officials, and where they are properly qualified and

have the necessary experience to play this role, those officials may be held

accountable for any transgressions in exercising these accounting officer

responsibilities. However, this does not exclude the municipal manager from

being held ultimately accountable for the exercise of the delegated power or

performance of the delegated duty.

9.5. DELEGATIONS TO BE IN WRITING

9.5.1. In all instances, delegations must be in writing and may be subject to change or

amendment. The municipal manager delegating the task should always ensure

that appropriate systems are in place to guarantee that proper control and

accountability remain with him or herself. Delegations should be limited and any

delegation to junior officials should be avoided.




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9.6. ENSURING THE SYSTEM OF DELEGATIONS IS OPERATING EFFECTIVELY AND EFFICIENTLY

9.6.1. Further to a regular review of the system by the municipal manager, the annual

performance agreements and the Service Delivery and Budget Implementation

Plan (SDBIP) can be used to track appropriate operation of the system of

delegations. Monthly budget statements, quarterly reports and mid-year budget

and performance assessments provide valuable information on the

implementation of the budget and service delivery. The municipal manager

should use this information to look for problems in the delegation system.

9.7. SCHEDULE OF DELEGATIONS

9.7.1. The municipal manager should keep a schedule of delegations which lists each

power, duty or function being delegated and:

9.7.1.1. a reference to the legislative or regulatory power for the delegation;

9.7.1.2. the position making the delegation and or sub-delegation; and

9.7.1.3. the specific individual or posts that the delegation or sub-delegation is being

made to.


Obtain a copy of the schedule of delegations for your municipality, in terms of the

MFMS. Provide comment on the appropriateness of the schedule and whether it

complies with the MFMA. What recommendations would you make to the

municipal manager to address any shortfalls, if any?




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10. ROLE OF THE CHIEF FINANCIAL OFFICER

10.1. The chief financial officer (CFO) is a senior manager in terms of section 56 of the

Municipal Systems Act and section 77 of the MFMA and is administratively in

charge of the municipal Budget and Treasury Office. The MFMA requires each

municipality to have a CFO, who is appointed by the municipal manager.

Diagram 4c below illustrates the role of the CFO.

Diagram 4c: Role of the Chief Financial Officer

10.2. The roles of the CFO in terms of section 81 of the MFMA are:

10.2.1. be administratively in charge of the Budget and Treasury Office;

10.2.2. must advise the municipal manager on the exercise of power and duties

assigned to the accounting officer in terms of the Act;

10.2.3. must assist the municipal manager in the administration of the municipality’s

bank accounts and the preparation and implementation of the municipality’s

budget;




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10.2.4. must advise senior managers and other officials in the exercise of powers and

duties assigned to them in terms of section 78 or delegated to them in terms of

section 79; and

10.2.5. must perform such budgeting, accounting, analysis, financial reporting, cash

management, debt management, supply chain management, financial

management, review and other duties as may in terms of section 79 be

delegated by the accounting officer to the CFO in terms of section 79.

10.3. The CFO is accountable to the municipal manager for the performance of these

duties above.

10.4. In terms of the budget and reporting cycle, the CFO would in most cases, be

responsible to the municipal manager for administering the budget preparation,

implementation and evaluation of the budget. The CFO and officials in the

Budget and Treasury Office provide support to enable the municipal manager to

discharge his/ her responsibilities.

11. BUDGET AND TREASURY OFFICE

11.1. As already discussed, the CFO is an integral member of the top management

team of a municipality and heads the Budget and Treasury Office. Section 80 of

the MFMA required every municipality to have a Burget and Treasury Office.

Diagram 4d below shows how the Budget and Treasury Office reports to the

CFO and provides support to all senior managers.




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Diagram 4d: Structure of the Budget and Treasury Office

ACTIVITY / READ:

Read sections 80 to 83 of the MFMA which provides some guidance on the

composition, delegations and competency levels relating to the Budget and

Treasury Office.

11.2. The Budget and Treasury Office has many more powers than traditional

municipal treasury departments, as its responsibilities go beyond traditional

accounting or treasury functions like operating bank accounts, cash

management, collecting revenue or overseeing revenue collection, authorising or

making payments and preparing financial statements. In addition, the role

involves playing a more strategic advisory role to the accounting officer and

other senior officials, one that is forward-looking and takes the lead in the

budgeting and planning processes. It is also expected to take on both a

management (rather than administrative) role and an oversight role. The Budget




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and Treasury Office will have a critical function in producing monthly

management information for the municipal manager and mayor.

ENTITIES and the Budget and Treasury Office

A municipal entity is not required to establish a Budget and Treasury Office.

11.3. COMPETENCY LEVELS OF SENIOR MANAGERS AND FINANCE OFFICIALS

11.3.1. The CFO plays a central role in implementing the financial requirements of the

MFMA and will require the assistance of appropriately skilled finance staff.

Section 83 of the MFMA requires all senior managers, including the CFO and

municipal manager, and all financial officials to meet minimum prescribed

financial management competency levels. The Municipal Regulations on

Minimum Competency Levels specify the minimum levels of competency for

specified positions within a municipality, including the CFO and finance officials.

This should be enforced as part of employment contracts and form part of

performance agreements.

11.3.2. The CFO therefore in addition to technical finance management skills, has to be

a professional with strong management and leadership skills, providing strategic

leadership for the budget and planning process.

ENTITIES and competency levels in financial management:

The Chief Executive Officer of a municipal entity is responsible for all financial

management requirements of the MFMA. Entities are not required to appoint a

CFO, however, in cases where a CFO is appointed by an entity the CFO must

meet the minimum competency requirements that apply to a CFO in the

Municipal Regulations on Minimum Competency Levels.




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11.3.3. Not all officials in the Budget and Treasury Office will have financial skills and,

conversely, not all financial staff will be situated in the Budget and Treasury

Office. In many large municipalities, most major departments (e.g. water and

sanitation) will need to have financial officials in those departments, outside the

Budget and Treasury Office, but supported by the Budget and Treasury Office.

11.4. MOBILITY OF FINANCE OFFICIALS BETWEEN SPHERES OF

GOVERNMENT

11.4.1. A further important objective of the MFMA is to facilitate and promote the mobility

of finance officials between all three spheres of government. The underlying

approach of both the MFMA and the PFMA (Public Finance Management Act) is

similar, and it is hoped that finance or treasury officials will generally have the

expertise to implement both pieces of legislation.

11.4.2. Diagram 4e below illustrates how finance officials working in the three spheres

will develop competencies that overlap and are portable across the spheres. We

know that the while the three spheres are autonomous they are interlinked as

they must interact with each other. Given this we can see how financial

professionals in each sphere would require similar skills and knowledge to

successfully carry out their duties. The interlinking of the spheres demonstrates

the interaction between the three spheres of government and the interlinking of

the rectangles demonstrates the commonalities of underlying reform principles in

the legislation that governs the three spheres.




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Diagram 4e: Mobility of public sector finance officials

12. ROLES AND RESPONSIBILITIES OF OTHER LEVELS OF GOVERNMENT

The MFMA fosters a greater level of co-operation across (and within) the

different spheres of government, based on systems of mutual support,

information sharing and communication and coordination of activities – each

aiming to add value to the others’ constitutional responsibilities with a view to

improving outcomes for all.

12.1. Municipalities and other organs of state must promote co-operative government;

and municipalities must meet their financial commitments and provide other

municipalities and provincial and national government with budget and financial

information as required. They must inform neighbouring municipalities and

provincial or national organs of state about any material financial and budget

matters that may impact on them directly or indirectly (e.g. on their planning

processes for related services).




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12.2. The district municipality can play a role in the overall planning and co-ordination

across municipalities within the district. It can do this by facilitating a strategic

planning process for municipal budgets by coordinating consultation between the

municipalities and between provincial and national departments when reviewing

the IDPs and determining future priorities.

12.3. National and provincial treasuries will assist and support a municipality’s

compliance with the MFMA, notwithstanding the municipality’s own

responsibilities in this regard, and will help to build a municipality’s capacity and

help identify and resolve its financial problems where necessary. National and

provincial governments are required to publish three-year local government grant

allocations per municipality, with their budgets, to allow municipalities to devise

strategic plans for their activities.

12.4. The Act also establishes a timeframe for national departments to advise

municipalities of any tax and tariff capping policies and provides for national or

provincial departments that supply bulk resources to municipalities, like

electricity and water, to consult those municipalities about their price-setting

policies.

12.5. The Act also requires the mayor to report to national and provincial government

any instance in which the municipality does not comply with the Act. It describes

the consultative process required by municipalities on various financial matters

and lays out the process for provincial interventions to resolve financial

problems.

12.6. CO-OPERATIVE GOVERNMENT

12.6.1. A summary of the framework for co-operative government is provided in diagram

4f below:




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Diagram 4f: Co-operative government

NATIONAL GOVERNMENT Assists and supports municipalities with compliance where appropriate, assists

in building capacity by providing financial or technical assistance, issues guides,

manuals and regulations and provides three-year grant allocation details

PROVINCIAL GOVERNMENT Plays a co-ordinating role in implementation of the MFMA, assists and supports

municipalities where appropriate, intervenes when financial problems become

evident in municipalities

LOCAL GOVERNMENT Provides the other spheres of government with appropriate financial and service-

delivery information, liaises with other municipalities and districts on strategic

budget issues, provides provincial and national government with budget and

financial information

ENTITIES across spheres of government

The financial management of all entities is regulated by the MFMA, unless the

majority share in an entity is held by a national or provincial organ of state, in

which case the Public Finance Management Act (PFMA) applies.




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13. ASSIGNMENTS


Explain the roles and responsibilities of the following during the municipal budget

and reporting cycle (preparation, implementation, evaluation)

non-executive councillors (7 marks);

the executive (10 marks);

the municipal manager (13 marks);

the chief finance officer (3 marks); and

other senior managers (3 marks).


In terms of a schedule of delegations with regard to financial management

responsibilities, what information should be on the schedule?


Explain why and how the municipal manager delegates responsibilities. In your

answer provide all of the legislative requirements including, for example, who the

municipal manager can delegate to and what can be delegated.




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Explain the role of the budget and treasury office, its composition including the

head official and competency requirements for professional finance officials.


14.1. In terms of the regulatory framework for budget preparation, identify the roles

and responsibilities of municipal political executives, accounting officers and

senior managers in the budget preparation [SO1AC1]

14.2. In terms of the regulatory framework for the municipal budget cycle, identify the

roles and responsibilities of municipal political executives, accounting officers

and senior managers in the budget preparation [SO1AC2]

14.3. ** Include roles and responsibilities of Mayor, municipal manager, council, CFO,

senior managers [SO1ACR1]

14.4. Explain and apply the legislative conditions of municipal delegations including

restrictions and conditions for delegations and role players [SO4AC1]

14.5. Interpret the legislation in terms of the governing of a municipal treasury and

budget office [SO3AC1]

14.6. Evaluate whether a budget and treasury office complies with the relevant

legislation [SO3AC2]




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Municipal finance management calendar


1.1. Plan a municipal budget calendar in accordance with the legislation [SO2]

2. KEY CONCEPTS

2.1. The learner will understand the chronological sequence of events to deliver a

municipal budget, reports and related financial management processes.





must:







3.2.5. have substantially progressed work on the major assignment. Time in this

workshop could be dedicated to discussing the major assignment which is due to

be handed in one week later.




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4. INTRODUCTION

4.1. The previous chapter considered the three processes in the budget and

reporting cycle setting out the reasons for each and their timing in the cycle.

4.1.1. Budget preparation process.

4.1.2. Budget implementation process.

4.1.3. Budget evaluation process.

4.2. This chapter will provide the MFMA Finance Management Calendar published by

the National Treasury. Learners are required to read through the calendar and

take note of how the principles discussed in the previous chapters are put into

practice. The calendar may be useful to the learner as a reference when

completing the major assignment in Chapter 3.

4.3. The calendar that follows is a comprehensive chronological list of finance

management actions throughout the year. It has been colour coded according to

the following topics:




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5. MUNICIPAL BUDGET AND REPORTING CALENDAR




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Learner guide US 116364 - 1 - SPL Short Courses

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