PROVINCIAL SUPPORT MUNICIPAL FINANCE PRESENTATION TO THE SALGA LIMPOPO FINANCE WEEK 7-8 February 2013 General Manager:

1. PROVINCIAL SUPPORTMUNICIPAL FINANCEPRESENTATION TO THE SALGA LIMPOPO FINANCE WEEK7-8 February 2013General Manager: Municipal FinanceMrs Joey Krishnan

2. CONTENT • Mandate • Stakeholders • Principles and Approach • Support Initiatives • Institutional Arrangements and Municipal Engagements • Audit Outcomes and Financial Results • Challenges • Recommendations

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

4. MANDATE • Municipal Finance Management Act, 2003 • Supervision over local government finance management – Chapter 2 • Monitor and assess • Budget preparation and implementation, including expenditure; revenue collection and borrowing • Compliance • Capacity Building – Chapter 5 • By agreement assist in building capacity • Support efforts by municipalities to identify and resolve financial problems • Monitor and share results • Inter-governmental relations in fiscal and financial relations • Intervention – Chapter 13 • Discretionary • Mandatory • Various executive obligations of the MECs for Finance and Local Government • In-year monitoring and reporting to the Provincial Legislature • Budget intervention – section 26 read with section 55 • Unauthorised, irregular, fruitless and wasteful expenditure – section 32(4) • Councillor’s Remuneration – section 167 • Annual Reporting – section 131

5. MANDATE • Municipal Systems Act, 2000 • Co-operative government – section 3 • Principles of co-operative government – section 141 of the Constitution • Must within the constitutional system of co-operative government, exercise executive and legislative authority in a manner that does not impede a municipality’s ability or right to exercise its legislative and executive authority • Develop common approaches • Enhance co-operation, mutual assistance and sharing of resources among municipalities • Find solutions for problems relating to Local Government generally • Facilitate compliance with the principles of co-operative government and intergovernmental relations • Various executive obligations of the MECs for Local Government • IDPs • Appointment of section 57 managers • Municipal Performance Management • Monitoring – section 105 • Investigation – section 106 • Councillor discipline

6. MANDATE • Municipal Structures Act, 1998 • Powers and functions • Full time councillors • Participation by Traditional Leaders in municipal councils • Municipal Property Rates Act, 2004 • Establishment of Valuation Appeal Boards • Provincial monitoring and intervention – section 81 • Intergovernmental Relations Framework Act, • Disaster Management Act • Various other legislation pertaining to Local Government

7. STAKEHOLDERS • Municipalities • Locals and Districts • Metros • Mec for Local Government • Mec for Finance • Organised Local Government – SALGA • National and Provincial Sector Departments • Community • Legislature • Professional Bodies

8. PRINCIPLES AND APPROACH • Principles • Primary responsibility to avoid, identify and resolve financial problems in a municipality rests with the municipality itself – MFMA section 135 • Accountability is critical • Department is accountable to the Provincial Executive, Legislature, National Minister and Legislature • Municipal officials and councils are accountable within the municipality, to the MEC for Local Government and to the community • Respect for mandates • Approach • COGTA to perform its monitoring, capacity building, support and intervention role • Support does not entail doing the work of officials employed in municipalities • COGTA to promote a single window of co-ordination • Continuous engagement and dialogue • Good working relations amongst provincial and municipal officials • Politics managed

9. SUPPORT INITIATIVES • Operation Clean Audit • Preparation of Annual Financial Statements • Audit response plans and eliminating audit queries • Reconciliations • Clearing of Suspense accounts • Grants • Fixed asset registers/loan registers/investment registers • Cashflow analysis and projections • Internal controls • Annual reports • Oversight reports • Training of MPACs • 865 Councillors and officials trained in 61 municipalities in collaboration with Provincial Treasury, SALGA KZN, Auditor-General and the Provincial Legislature APAC members

10. SUPPORT INITIATIVES • Operation Clean Audit • Programmatic support • Simplified Revenue Plans • Expenditure Management • Unauthorised, irregular, fruitless and wasteful expenditure • Economic Viability assessment • Legislative Compliance • Proactive Anti-corruption programmes • Investigations • Ad hoc municipal assessments

11. SUPPORT INITIATIVES • Other Support Activities and Programmes • Filling of CFO posts in particular as well as other section 57 managers • Interview questionnaires • Technical assessments • Advisor at interviews • Interim deployments including payment where necessary • MPRA • SCM • Condonations and extensions of GVs • Data Management • Valuation Appeal Boards • Standard Operations Manual • Compliance Monitoring

12. INSTITUTIONAL ARRANGEMENTS AND MUNICIPAL ENGAGEMENTS • Audit Committees • AG Engagements • District Area Finance Forums • Provincial CFO Forums • MPACs • EXCO and Council meetings • MEC engagement with non-compliant and poor performing municipalities • MUNIMEC • Mediation • Community facilitation on financial matters

13. AUDIT OUTCOMES

14. AUDIT OUTCOMES

15. MATTERS OF EMPHASIS

16. AUDIT OUTCOMES – MAIN ISSUES • Ethical discipline resulting in irregular expenditure • Financial discipline with monthly and daily reconciliation activities not performed • Lack of dedicated resources and interpretation of GRAP • Governance structures not in place including the following: • MM and CFO (not same persons) • Availability of key officials during the audit • Inadequate oversight on financials and predetermined objectives • Lack of supporting documents (proper filing of information) • Low capacity municipalities – full GRAP compliance • Adoption of GRAP 17 – fixed assets • Misinterpretation and application of standards • Lack of understanding of requirements for previously determined objectives • Consultants did not achieve objectives and lack of monitoring • Lack of adequately skilled resources on financial and performance information

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

18. CHALLENGES – 2011/2012 • The following factors either independently or in combination led to challenges in municipalities and the overall regression in the province; • Local Government elections – 80% of councilors totally new, impacting on the reduced ability of councils to exercise effective oversight on financial and predetermined objectives. • Section 57 management contracts expiring or terminated leading to administrative instability, impacting on availability of officials during the audit. Lack of commitment by officials whose contracts were extended on a month to month basis. Statistics that are significant: • 19 municipalities had acting, consulting or month to month CFOs and vacancies • Five municipalities did not have audit committees • Two municipalities internal audit units were not functional or in place • Political instability in mainly coalition led municipalities as well as a few others created governance instability, poor decision making and indecisiveness impacting on the filling of key positions of section 56 managers including MMs and CFOs. • The lack of dedicated staff to deal with predetermined objectives and performance management and limited knowledge and skills in this area.

19. RECOMMENDATIONS • Political Leadership • Administrative Leadership • The right skills in the right place • Effective municipal oversight • Effective provincial monitoring • Sharing of results of provincial monitoring and continuous engagement with municipalities • Institutionalising provincial support and being relevant to municipal needs • Accountability and the right Attitude • Collaborative and holistic approach • Respect for statutory obligations • Good Relations and trust amongst provincial and municipal officials • Complementing and supplementing municipal gaps • Reducing dependency on consultants and effective management of service providers

20. General Manager: Municipal Finance 6th Floor Southern Life Plaza 271 Church Street Pietermaritzburg, 3200 Tel: +27(0) 33 355 6562 Fax: +27(0) 33 355 6292 E-mail: joey.krishnan@kzncogtal.gov.za hodenquiries@kzncogta.gov.za Website: www.kzncogta.gov.za