Learner Guide
Municipal Legislative Environment and Policy
Unit Standard Title
Discuss the selected legislative regulatory framework governing the
public sector management and administration environment
Unit Standard ID
119334
Learner Guide: Discuss the selected legislative regulatory framework governing the public sector
management and administration environment. LP 3,
Unit Standard ID 119334
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
mfma@treasury.gov.za, 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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Learner Guide: Discuss the selected legislative regulatory framework governing the public sector
management and administration environment. LP 3,
Unit Standard ID 119334
Table of Content
Module Outline ......................................................................................................... 4 1. 2. 3. 4. 5. 6. 7. 8. 9. 10. 11. 12. MODULE TITLE ................................................................................................. 4 UNIT STANDARD TITLE.................................................................................... 4 MODULE STRUCTURE ..................................................................................... 4 UNIT STANDARD OUTCOMES......................................................................... 4 UNIT STANDARD PURPOSE ............................................................................ 5 KNOWLEDGE ASSUMED TO BE IN PLACE .................................................... 5 UNIT STANDARD CONTENT ............................................................................ 6 UNIT STANDARD ASSESSMENT ..................................................................... 6 MODULE TRAINING METHODS AND STRATEGIES ....................................... 8 MODERATION ................................................................................................... 8 LEARNING TASKS AND ACTIVITIES ............................................................... 8 SUPPORT MATERIALS AND REFERENCES ................................................... 8 Unit One: South Africa’s Constitution and the Public Sector Financial Management
............................................................................................................................... 10 1. 2. 3. 4. 5. 6. 7. 8. AIM OF STUDY UNIT....................................................................................... 10 LEARNING OBJECTIVES ................................................................................ 10 KEY CONCEPTS ............................................................................................. 10 INTRODUCTION .............................................................................................. 11 KNOWLEDGE ASSUMED TO BE IN PLACE .................................................. 11 UNIT CONTENT ............................................................................................... 12 LEARNING TASKS AND ACTIVITIES ............................................................. 40 SUPPORT MATERIALS AND REFERENCES ................................................. 41 Unit Two: The Regulations Governing Division of Revenue ................................. 44 1. AIM OF STUDY UNIT....................................................................................... 44 2. LEARNING OBJECTIVES ................................................................................ 44 3. KEY CONCEPTS ............................................................................................. 44 4. INTRODUCTION .............................................................................................. 45 5. KNOWLEDGE ASSUMED ............................................................................... 45 6. UNIT CONTENT ............................................................................................... 46 7. LEARNING TASKS AND ACTIVITIES ............................................................. 61 8. SUPPORT MATERIALS AND REFERENCES ................................................. 62 Unit Three: South African Legal System within the Public Sector Financial
Management and Administration ........................................................................... 64 1. 2. 3. 4. 5. 6. 7. 8. AIM OF STUDY UNIT....................................................................................... 64 LEARNING OBJECTIVES ................................................................................ 64 KEY CONCEPTS ............................................................................................. 64 INTRODUCTION .............................................................................................. 65 KNOWLEDGE ASSUMED ............................................................................... 65 UNIT CONTENT ............................................................................................... 65 LEARNING TASKS AND ACTIVITIES ............................................................. 81 SUPPORT MATERIALS AND REFERENCES ................................................. 82 Unit Four: Legislative Regulations and Legal Principles as Applied to Contracts . 84 1. AIM OF STUDY UNIT....................................................................................... 84 2. LEARNING OBJECTIVES ................................................................................ 84 3. KEY CONCEPTS ............................................................................................. 85 4. INTRODUCTION .............................................................................................. 85 Copyright © National Treasury 2008
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Learner Guide: Discuss the selected legislative regulatory framework governing the public sector
management and administration environment. LP 3,
Unit Standard ID 119334
5. 6. 7. 8. KNOWLEDGE ASSUMED ............................................................................... 85 UNIT CONTENT ............................................................................................... 86 LEARNING TASKS AND ACTIVITIES ........................................................... 110 SUPPORT MATERIALS AND REFERENCES ............................................... 112 Unit Five: The Implementation of the Municipal Finance Management Act in a
Municipality .......................................................................................................... 114 1. 2. 3. 4. 5. 6. 7. 8. AIM OF STUDY UNIT..................................................................................... 114 LEARNING OBJECTIVES .............................................................................. 114 KEY CONCEPTS ........................................................................................... 114 INTRODUCTION ............................................................................................ 115 KNOWLEDGE ASSUMED ............................................................................. 115 UNIT CONTENT ............................................................................................. 116 LEARNING TASKS AND ACTIVITIES ........................................................... 134 SUPPORT MATERIALS AND REFERENCES ............................................... 135 Copyright © National Treasury 2008
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Learner Guide: Discuss the selected legislative regulatory framework governing the public sector
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Unit Standard ID 119334
Module Outline
1.
MODULE TITLE
1.1.
Public Sector Management and Administration
2.
UNIT STANDARD TITLE
2.1.
Discuss the Selected Legislative Regulatory Framework Governing the Public
Sector Management and Administration
3.
MODULE STRUCTURE
3.1.
Qualification:
National Diploma: Public Finance Management and
Administration
3.2.
Credits:
12
3.3.
NQF level:
5
3.4.
Type:
Core
3.5.
Duration:
3 days
4.
UNIT STANDARD OUTCOMES
4.1.
On completion of this unit standard, a learner should be able to identify, explain
and demonstrate the following in his or her own words:
4.1.1.
the South African Constitution in relation to public sector financial management
4.1.2.
the regulations governing division of revenue
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Learner Guide: Discuss the selected legislative regulatory framework governing the public sector
management and administration environment. LP 3,
Unit Standard ID 119334
4.1.3.
the South African legal system within the public sector financial management
and administration context
4.1.4.
the legislative regulations and legal principles to contracts
4.1.5.
the implementation of the Municipal Finance Management Act, 2003 in a
municipality
5.
UNIT STANDARD PURPOSE
5.1.
This unit standard is intended for people working within a public sector
environment (especially local government), specialising in public finance
management and administration, where the acquisition of proficiency will add
value to their performance levels. This unit standard will also add value to public
officials who are seeking to develop their career pathways towards becoming an
accomplished public finance management and administration specialists. It is for
this reason among many others that the study of this nature will enhance the
financial acumen and experience of the financial administrators and managers in
a public sector.
5.2.
To achieve this noble objective, this unit standard will introduce learners to the
principles of South African Constitution pertaining to public sector financial
management. In an attempt to strengthen and improve the competency levels
of the learners, this unit standard will also cover a wide range of regulations
governing division of revenue, legislative requirements and legal principles of
contracts and appropriate mechanisms and best project management principles
for the implementation of the Municipal Finance Management Act, 2003 in a
municipality.
6.
KNOWLEDGE ASSUMED TO BE IN PLACE
6.1.
Further Education and Training certificate or equivalent.
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management and administration environment. LP 3,
Unit Standard ID 119334
7.
UNIT STANDARD CONTENT
7.1.
Unit 1:
Demonstrate an understanding of and interpret the south african
constitution in relation to public sector financial management
7.2.
Unit 2: Identify and apply the regulations governing division of revenue
7.3.
Unit 3: Demonstrate knowledge of and apply the south african legal system
within the public sector financial management and administration context
7.4.
Unit 4: Apply the legislative regulations and legal principles of contracts
7.5.
Unit 5: Manage the implementation of the municipal finance management act,
2003 in a municipality
8.
UNIT STANDARD ASSESSMENT
8.1.
ASSESSMENT
MODES
FOR
THIS
MODULE
IS
STRUCTURED
AS
FOLLOWS:
8.1.1.
Formative assessment
8.1.1.1.
Research assignment = 20%
8.1.1.2.
Workplace project = 20%
8.1.1.3.
Oral presentation or case studies = 10%
8.1.2.
Examination or summative assessment analysis
8.1.2.1.
The examination will consists of a written paper based on this module.
Examination mark = 50%
8.1.2.2.
Fundamental knowledge (20%)
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management and administration environment. LP 3,
Unit Standard ID 119334
8.1.2.3.
Skills and competencies (30%)
8.1.2.4.
(Application, analysis, critical reflection, information retrieval, integration and
communication)
8.1.3.
Calculating the final module mark
8.1.3.1.
Formative (Participation) mark: 50% of final mark
8.1.3.2.
Examination mark: 50% of final mark
8.1.3.3.
Final 100%
8.2.
ASSESSMENT CRITERIA
8.2.1.
Learners will be assessed on:
8.2.1.1.
The ability to effectively communicate a coherent and critical understanding of
the selected topics in the learning units and the relevance of these topics for
MFMA implementation in assignments, oral communication, research projects
and the examination or summative assessment. In assessing submitted work,
the following will carry more weight: Originality, knowledge, insight, application,
analysis, ability, comprehension and acknowledgement of the sources.
8.3.
ASSESSMENT METHODS AND STRATEGIES
8.3.1.
Assessment for this module will be formative and summative. The formative
assessment represents a continuous assessment of learners throughout the
learning process of this module. The summative assessment at the end of this
module is intended to test whether a learner can meet the set standards.
Inevitably, the questions will be based on the module. This means that the
questions will represent the whole module and that a learner must have sufficient
knowledge of everything that appears in it. The questions will also be based on
the learning outcomes set in each study unit. The general knowledge of a learner
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Learner Guide: Discuss the selected legislative regulatory framework governing the public sector
management and administration environment. LP 3,
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regarding this module will be tested. This will be made possible by case studies
approach.
9.
MODULE TRAINING METHODS AND STRATEGIES
9.1.
Facilitation and presentation
9.2.
Debates and group discussion
9.3.
Research projects
10.
MODERATION
10.1.
Two moderators will be appointed. Each moderator will be provided with two
Concept Moderator’s Reports. These are reports on examination paper,
memorandum and answer books. The moderator must fill in these reports after
having moderated examination paper, memorandum and a selection of answer
books.
11.
LEARNING TASKS AND ACTIVITIES
11.1.
Each study unit contains a set of case studies and questions. Case studies are
often followed by questions to help learners in self-assessment relating to their
learning activities. These questions also help learners to relate the knowledge
they have gained to the MFMA implementation. It is in this context that learning
tasks and activities are essential components of continuous self-assessment.
12.
SUPPORT MATERIALS AND REFERENCES
12.1.
This study area refers to all sources and reading materials collated and used to
develop and craft this module. These sources include textbooks, articles in
journals and periodicals, legislation and government policies, regulations,
National Treasury circulars, theses, conference papers and internet sources, etc.
Since this module document is a study guide, as its name suggests, it is
understood that it is a source of fined-tuned guidelines. Therefore, learners are
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Learner Guide: Discuss the selected legislative regulatory framework governing the public sector
management and administration environment. LP 3,
Unit Standard ID 119334
urged and encouraged to read sources entailed in this module and other relevant
reading materials to enhance and deepen their knowledge base regarding study
units encapsulated in this module. Service excellence can only be accomplished
by well motivated, knowledgeable officials with initiative, integrity and willing to
walk the extra mile in doing their jobs and hopefully the joy will be a better
serviced community and a better South Africa.
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Learner Guide: Discuss the selected legislative regulatory framework governing the public sector
management and administration environment. LP 3,
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Unit One:
South Africa’s Constitution and the
Public Sector Financial Management
1.
AIM OF STUDY UNIT
1.1.
The aim of this study unit is to introduce learners to the principles of the 1996
Constitution and the public sector financial management
2.
LEARNING OBJECTIVES
2.1.
After studying this study unit, a learner should be able to define and explain the
following in his or her own words:
2.1.1.
elements of the Constitution that inform government relations in public sector
financial management
2.1.2.
regulatory mechanisms relating to public sector financial management
2.1.3.
regulations underlying intergovernmental relations and corporate governance
2.1.4.
the principles governing the intergovernmental relations
2.1.5.
the principles underlying corporate governance
3.
KEY CONCEPTS
3.1.
Public sector
3.2.
Intergovernmental relations
3.3.
Constitution
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Learner Guide: Discuss the selected legislative regulatory framework governing the public sector
management and administration environment. LP 3,
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3.4.
Financial management
3.5.
Corporate governance
3.6.
Government relations
3.7.
Public Sector Financial Management
4.
INTRODUCTION
4.1.
Constitutional law and the public sector financial management become more and
more important. The principles and elements of the Constitution that inform
government relations, infrastructural fiscal relations and corporate governance
are explored and articulated in this study unit. In addition, learners will be able to
demonstrate knowledge of the legislative measures and principles dealing with
the intergovernmental relations and be able to interpret and apply these
measures and principles in all factual situations. After completion of this learning
unit, a learner will be able to know where the legal sources (for example, the
1996 Constitution, legislation and policies) on intergovernmental relations and
co-operative government are applicable and where to find them.
5.
KNOWLEDGE ASSUMED TO BE IN PLACE
5.1.
Learners should command a basic knowledge of the 1996 Constitution of South
Africa and mechanisms of the intergovernmental relations to understand the
concepts and principles entailed in this learning unit. It is therefore assumed that
learners have a basic and well-rounded knowledge regarding
the general
principles of the intergovernmental relations and co-operative government. What
is required, however, is that their ability to communicate principles and
regulations underlying co-operative government and intergovernmental relations
is necessary to assist them to master this learning unit.
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Learner Guide: Discuss the selected legislative regulatory framework governing the public sector
management and administration environment. LP 3,
Unit Standard ID 119334
6.
UNIT CONTENT
6.1.
THE
ELEMENTS
GOVERNMENT
OF
THE
RELATIONS
1996
IN
A
CONSTITUTION
PUBLIC
THAT
SECTOR
INFORM
FINANCIAL
MANAGEMENT
6.1.1.
The 1996 Constitution clearly prescribes central themes or elements that inform
government relations in a public financial management. Chapter 3 especially
section 41 of the Constitution states that the three spheres of government
(national, provincial and local governments) are distinctive, interrelated and
interdependent. One should take into account the fact that unlike in the pre-1994
dispensation, reference is now made to the sphere of government and not tier of
government. Each of the three different types of government has its specific core
competencies of original authority. Distinctiveness means that each sphere of
government has its own unique area of operation. The word, interrelatedness
means that they should be a system of corporate governance and
intergovernmental relations among the three spheres of government. This
system of co-operative government ensures the decentralisation of service
delivery. The three spheres of government are interdependent, meaning that
they are required to co-operate and support each other.
6.1.2.
These elements are important in public financial management. The Republic of
South Africa reveals unitary characteristics and it is self-evident that the financial
affairs of municipalities are subject to control by the national and the provincial
authorities. However, the Constitution recognises the municipalities as distinctive
and autonomous sphere of government. Section 153 of the Constitution provides
that a municipality must:
6.1.2.1.
structure
and
manage
its
administration,
budgeting
and
planning
processes to give priority to the basic needs of the community and promote the
social and economic development of the community; and
6.1.2.2.
participate in national and provincial development programmes.
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Learner Guide: Discuss the selected legislative regulatory framework governing the public sector
management and administration environment. LP 3,
Unit Standard ID 119334
6.1.3.
The Constitution further gives each municipality a right to govern on its own
initiative, the local government affairs of its community subject to national and
provincial legislation and oversight. This Constitutional provision asserts the
autonomy of the municipalities in respect of their budgets and planning
processes. In other words, every municipality in South Africa is permitted by the
Constitution to manage its financial affairs. Suffices to say that a municipality
enjoys a certain degree of autonomy when exercising authority over a particular
financial function.
6.1.4.
The Constitution further states that the national or provincial government may
not compromise or impede a municipality’s ability or right to exercise its powers
or perform its functions. This means that municipalities are free to discharge their
Constitutional obligations. The degree of autonomy depends on a variety of
factors such as the nature of function and the regulatory framework. The
autonomy of municipalities is never unfettered and always bounded. A number of
principles guide the recognition and exercise of the autonomy of the
municipalities.
6.1.5.
These principles are articulated in the 1996 Constitution. Therefore, the
municipalities cannot claim to have powers or functions outside the framework of
the Constitution. For example, section 41 (1) of the Constitution stipulates that all
spheres of government and all organs of state within each sphere must not
assume any power or function except those conferred on them in terms of the
1996 Constitution. The Constitution itself defines the autonomy of each sphere.
No sphere can claim to have powers or functions outside the framework of the
Constitution.
6.1.6.
The Constitution further states that all spheres of government and all organs of
state within each sphere must respect the Constitutional status, institutions,
powers and functions of government in the other spheres and exercise their
powers and perform their functions in a manner that does not encroach on the
geographical, functional or institutional integrity of government in another sphere.
It is in this context that the Constitution asserts the autonomy of the three
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Learner Guide: Discuss the selected legislative regulatory framework governing the public sector
management and administration environment. LP 3,
Unit Standard ID 119334
spheres of government. Therefore, it is conclusive that municipalities are
Constitutionally autonomous.
6.1.7.
The interrelatedness of the three spheres of government is central in the context
of public financial management. The exercise of functions and powers of
municipalities is always supported and supervised by one or more spheres of
government. This enables oversight over development and service delivery and
ensures that checks and balances are in place to avoid abuse of power. Both
national and provincial governments have a Constitutional duty to monitor the
financial affairs of local government.
6.1.8.
The Constitution in section 155(6) provides that provincial government must
provide for the monitoring and support of municipalities in the province. This
means that the provincial government, for example, must take measures to
assist municipalities to ensure that they perform their functions adequately. The
provincial government may also intervene unilaterally in the financial affairs of a
municipality in order to remedy an unacceptable situation.
6.1.9.
For instance, if a municipality has budgetary problems and experiences a crisis
in financial affairs, the provincial government and national executive can
intervene. Regular interventions can only be applied to a failure to fulfil an
executive obligation in terms of the Constitution or legislation. For example, if a
municipality fails to provide clean and potable water to its residents. Another
example is a situation where a municipality fails to keep proper financial records,
thereby failing to fulfil its obligations in terms of the Municipal Finance
Management Act, 2003.
6.1.10.
Intergovernmental relations is not merely about exercising autonomous powers
or supervising the exercise thereof. Most of the challenges of integrated
governance are met through co-operation. The Constitution promotes cooperation between the three spheres of government. The most important
instruments for achieving co-operation between the national, provincial and
municipalities are: intergovernmental planning and budgeting, intergovernmental
forums, implementation of agreements and dispute resolution.
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Learner Guide: Discuss the selected legislative regulatory framework governing the public sector
management and administration environment. LP 3,
Unit Standard ID 119334
6.1.11.
For national government to implement its national priorities and to effectively
deal with its financial affairs requires all spheres of government to work in
partnership. This notion of interrelatedness is therefore not about making legally
binding decisions that affect another sphere. Instead, it is about co-operation
through joint planning, fostering friendly relations and avoiding conflict. In this
context, it means that municipalities must co-operate with the national
parliament, national institutions, provincial legislatures, executives, national
departments and most of all National Treasury. The system of intergovernmental
relations applies to these bodies.
6.1.12.
The Constitution also provides for a number of institutions, which monitor the
financial affairs of the municipalities. For example, Section 188 of the
Constitution provides for the Auditor-General who must audit and report on the
accounts, financial statements and financial management of:
6.1.12.1. all national and provincial state departments and administrations;
6.1.12.2. all municipalities; and
6.1.12.3. any other institutions or accounting entity.
6.1.13.
Section 216 of the Constitution provides that national legislation must establish a
National Treasury and prescribe measures to ensure both transparency and
expenditure control in each sphere of government by introducing:
6.1.13.1. generally recognised accounting practice;
6.1.13.2. uniform expenditure classifications; and
6.1.13.3. uniform treasury norms and standards
6.1.14.
The National Treasury as finance department of the national government must
enforce compliance with measures established with the concurrence of the
cabinet, stop the transfer of funds to an organ of state (including
the
municipalities) if it commits a serious material breach of measures established in
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Learner Guide: Discuss the selected legislative regulatory framework governing the public sector
management and administration environment. LP 3,
Unit Standard ID 119334
terms of the Constitution. For the municipalities, the above Constitutional
arrangement means that they must co-ordinate and work in partnership with the
National Treasury, Auditor-General, provincial treasuries and other bodies such
as the Budget Council, Local Government Forum to ensure sound financial
management and sustainable service delivery.
6.2.
REGULATORY MECHANISMS RELATING TO PUBLIC SECTOR FINANCIAL
MANAGEMENT
6.2.1.
Overview
6.2.1.1.
All spheres of government require finances to carry out their duties. In the public
sector, the demands usually exceed the financial resources to satisfy the needs
of the communities. For this reason, regulatory measures are required for the
purpose of ensuring effective governance of the financial resources of the public
sector. To capture a clear understanding of this discussion, the regulatory
mechanisms relating to public sector management is discussed hereunder:
6.2.2.
Constitutional provisions
6.2.2.1.
Section 214 (1) of the 1996 Constitution provides for an equitable division of
revenue raised nationally, among the three spheres of government. Since South
Africa is a unitary state, fiscal relations reflect the dominance of national
government as stipulated in the Constitution. The Constitution provides for
establishment of Financial and Fiscal Commission. The Commission is required
as part of its responsibilities to render advice and make recommendations to all
relevant authorities regarding their financial and fiscal requirements. These
advice and recommendations concern issues such as:
ˆ fiscal allocations to all governments;
ˆ national interest;
ˆ the fiscal capacity and efficiency of the provinces and municipalities; and
ˆ the needs and interests of national government.
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management and administration environment. LP 3,
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6.2.2.2.
Therefore, it could be concluded that the Commission is a key institution for
facilitating the fiscal side of intergovernmental relations among the three spheres
of government to enable local government in particular to deliver the required
services to the communities.
6.2.3.
Legislative framework
6.2.3.1.
Section 220 (3) of the 1996 Constitution states that the Financial and Fiscal
Commission has to function in terms of the Act of Parliament. As part of its
Constitutional mandate, parliament passed the Intergovernmental Fiscal
Relations Act, 1997. The object of this Act is to:
ˆ promote co-operation between national, provincial and local spheres of
government on fiscal, budgetary and financial matters; and
ˆ prescribe a process for the determination of an equitable sharing and
allocation of revenue raised nationally. This objective is taken further by the
annual Division of Revenue Act.
6.2.3.2.
The Act also outlines the process for revenue sharing among the spheres of
government and clarify the time frames with which the Financial and Fiscal
Commission has to submit its recommendations to both Houses of Parliament,
provincial legislatures and to the Minister of Finance. The Act is also crucial in
sense that it establishes both the Budget Council and the Budget Forum. The
Budget Council is a body in which the national government and provincial sphere
of government consult on:
ˆ any fiscal, budgetary or financial matters;
ˆ any proposed legislation or policy which has a financial implication for the
province;
ˆ any matter concerning the financial management;
ˆ the monitoring of the finances of any provinces; or
ˆ any other matter which the Minister has referred to the Council.
6.2.3.3.
The Local Government Budget Forum is a body in which the national
government, provincial governments and organised local government consult on
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management and administration environment. LP 3,
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any fiscal, budgetary or financial matter affecting the local sphere of government,
any proposed legislation or policy which has a financial implications for local
government, any matter concerning the financial management or monitoring of
the finance of local government and any matter which the Minister of Finance
has referred to the Budget Forum.
6.2.3.4.
The Intergovernmental Fiscal Relations Act, 1997 attempts to institutionalize the
functioning of these forums in respect of the financial management of public
sector. It could thus be concluded that the Intergovernmental Fiscal Relations
Act, 1997 provides a framework for control and management of financial
resources between the three spheres of government. Chapter 13 of the 1996
Constitution of the Republic of South Africa provides a framework for financial
supervision of local government by the National Treasury and provincial
treasuries. This supervisory role is actualised in the Municipal Finance
Management Act, 2003 for the following purposes, namely to:
ˆ secure sound and sustainable management of the financial affairs of
municipalities or other institutions in the local sphere of government; and
ˆ establish treasury norms and standards for the local sphere of government.
6.2.3.5.
The supervisory role of National Treasury and provincial treasuries must take
place within the framework of co-operative government. The National Treasury
has a responsibility to promote the objectives of the Municipal Finance
Management Act, 2003 when co-ordinating public sector’s financial affairs in
terms of the Intergovernmental Fiscal Relations Act, 1997, the annual Division of
Revenue Act and the Public Finance Management Act, 1999. The objectives of
the Municipal Finance Management Act, 2003 especially section 5, which the
National Treasury is required to co-ordinate are based on:
ˆ promoting sound financial governance by clarifying the roles and
responsibilities of Council and officials;
ˆ ensuring a strategic approach to budgeting;
ˆ modernising financial management; and
ˆ promoting sustainable local government.
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6.2.3.6.
In terms of section 5 (4) of the Municipal Finance Management Act, 2003, the
provincial treasuries are required inter alia to monitor:
ˆ compliance with this Act by municipalities and municipal entities;
ˆ the preparation of budgets by the municipalities;
ˆ the monthly outcome of those budgets; and
ˆ the submission of reports by municipalities.
6.2.3.7.
Adherence to the principles of the National Treasury and provincial treasuries
will lay a basis for accelerated service delivery. The Municipal Finance
Management Act’s significant financial and fiscal norms include new budget
standards and formats, the establishment of audit committees and internal
controls,
improvement
of
procurement
and
supply
chain
management
processes, performance measurement and reporting mechanisms to resolve
financial problems and procedures to determine and manage misconduct.
Sections 121-134 of the Municipal Finance Management Act, 2003 deals with
financial reporting and auditing. In the case of the Tshwane municipality an
additional Mayoral Committee namely, Municipal Public Accounts Committee
(MPAC) was established to assist the Mayor, the accounting officer and the chief
financial officer with compliance requirements.
6.2.3.8.
The object of the Public Finance Management Act, 1999 is to:
ˆ regulate financial management in the national government and provincial
governments;
ˆ ensure that all revenue expenditure, assets and liabilities of these
governments are managed efficiently and effectively; and
ˆ provide for the responsibilities of persons entrusted with financial
management in these governments.
6.2.3.9.
The Public Finance Management Act, 1999 also seeks to promote good financial
management through a modernised system of financial management, autonomy,
monitoring and reporting and the elimination of wasteful expenditure and
corruption. In the public sector, the Public Finance Management Act, 1999 plays
an important role in regulating good corporate governance practices. However,
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this Act is not direct and specific to the activities of municipalities as in the case
of the Municipal Finance Management Act, 2003. The Act aims to secure
transparency,
accountability
and
sound
management
of
the
revenue,
expenditure, assets and liabilities of the public sector.
6.2.3.10. The annual Division of Revenue Act (often referred to as “DORA”) is required in
terms of section 214 of the Constitution and must be accompanied by a
memorandum which explains how government had taken into account factors
such as the national interest, the needs and interests of national government, the
fiscal capacity and efficiency of the provinces and municipalities etc. for
determining the division of revenue between the three spheres of government.
6.2.3.11. Explanatory memorandum to the division of revenue gives effect to section 10 of
the Intergovernmental Fiscal Relations Act, 1997 which requires that the Division
of Revenue Bill be accompanied by a memorandum that details how the annual
division of revenue takes into account the national interest, government’s
response to the annual recommendations of the Financial and Fiscal
Commission and any assumptions and formulae used for arriving at the
respective divisions among provinces.
6.2.3.12. The Borrowing Powers of Provincial Government Act, 1996 allows for borrowing
by provinces. The Budget Council agreed that specific infrastructure programme
or projects would not encumber any specific revenue stream for any funds
borrowed. The Act further prescribes that the total amount of funds each
province is allowed to borrow would be determined by its capacity to raise its
revenue as well as the amount of funding it receives in the form of national
infrastructure grants to provinces. Sections 45, 46 and 108 of the Municipal
Finance Management Act, 2003 prescribe a legal framework for borrowing by
municipalities. Section 47 in particular outlines the conditions under which a
municipality can incur debt. The following diagram illustrates and outlines the
role of different stakeholders on a plane of intergovernmental fiscal relations:
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Diagram: Intergovernmental Fiscal Relations
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6.2.4.
Specific Regulations for Public Sector Finance Management
6.2.4.1.
The Public Finance Management Act, 1999 gives rise to regulations, which
prescribe standards and norms for public sector finance management. For
example, Regulations on Standard of Generally Recognised Accounting Practice
(GRAP). The Accounting Standard Board is required in terms of the Public
Finance Management Act, 1999 to determine generally recognised accounting
practice as standards of Generally Recognised Accounting Practice (GRAP) for
department, public entities and municipalities. The objective of this standard is to
prescribe the basis for presentation of general purpose of financial statements.
The financial statements provide information about the public sector’s:
ˆ assets;
ˆ liabilities;
ˆ net assets;
ˆ revenue and expenses including gains and losses; and
ˆ cash flow.
6.2.4.2.
The public sector is required to comply with the regulations on GRAP.
Concerning the municipalities, the implementation of these standards is aligned
with the Municipal Finance Management Act, 2003. For example, sections 165
and 166 of the Municipal Finance Management Act, 2003 requires a municipality
to establish an internal audit unit and Audit Committee for purpose of inter alia
dealing with matters relating to accounting procedures, policies and practices.
The Municipal Supply Chain Management Regulations and Policies (SCMP)
adopted by the municipalities and municipal entities in terms of the Municipal
Finance Management Act, 2003 calls and directs all officials and role players in
the supply chain management system of the municipality to implement the
regulations in a way that is fair, equitable, transparent, competitive and costeffective. At the same time empowering the previously disadvantaged in a
manner that is fair and justifiable given the limited amount of resources. The
above regulations also call for the municipalities to implement the supply chain
management in a way that:
ˆ is consistent with the applicable legislation;
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ˆ does not undermine the objective for uniformity in supply chain management
system between organs of state in all spheres;
ˆ is consistent with national economic policy concerning the promotion of
investments and doing business with the public sector.
6.2.4.3.
This regulation applies when the municipality procures goods or services,
disposes of goods no longer needed and selects contractors to provide
assistance in the provision of municipal services. The municipalities must adopt,
apply and comply with all the terms of this regulation for the purpose of ensuring
good finance management with regard to supply chain management system.
These legislative provisions must also be interpreted and applied in conjunction
with the Preferential Procurement Policy Framework Act, 2000 and its
regulations. The Regulations for Municipal Competency Levels issued in terms
of the Municipal Finance Management Act, 2003 sets out minimum
competencies required for municipal officials. For example, this regulation
requires the chief financial officer to meet minimum competency areas, high
education qualification and work related experience. Generally speaking, the
skills required for the officials of the public sector include, inter alia:
ˆ strategic leadership and management;
ˆ strategic financial management;
ˆ operational financial management;
ˆ financial performance and reporting;
ˆ legislation, policy and implementation;
ˆ stakeholders relations; and
ˆ risk and change management etc.
6.2.4.4.
The higher education qualifications required in terms of this policy are at least
NQF level 7 or Certificate in Municipal Finance Management, NQF level 7 or
Chartered Accountant (CA) depending on municipal competency levels. This
means for a municipality as a public sector and sound finance management to
be procured, the municipal officials must develop certain competency levels. In
terms of section 107 of the Municipal Finance Management Act, 2003, the
accounting officer, senior managers, any chief financial officer and other financial
officers must meet the prescribed financial management competency levels.
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6.3.
REGULATIONS UNDERLYING INTERGOVERNMENTAL RELATIONS AND
CORPORATE GOVERNANCE
6.3.1.
Overview
6.3.1.1.
Intergovernmental relations are the set of multiple formal and informal
processes, channels, structures and institutional arrangements for bilateral and
multilateral interaction within and between spheres of government. In South
Africa, a system of intergovernmental relations is emerging to give expression in
the concept of co-operative government contained in sections 40 and 41 of
Chapter 3 of the Constitution.
6.3.1.2.
The intergovernmental relations are important means through which coordination and co-operation among the different spheres of government can be
developed and promoted. It further implies that each sphere of government has
its own original set of functions and responsibilities but must interact with the
other spheres to ensure effective and efficient implementation of policies and
programs. The regulations and laws governing inter-spheres relations are
essential for the following strategic purpose of intergovernmental relations
namely:
ˆ to promote and facilitate co-operative decision-making;
ˆ to co-ordinate and align priorities, budgets, policies and activities across
interrelated functions and sectors;
ˆ to ensure a smooth flow of information within government and communities
with a view to enhance the implementation of policy and programmes; and
ˆ to prevent and resolve intergovernmental conflicts and disputes.
ˆ The intergovernmental relations and corporate government are informed by
the 1996 Constitution, national legislation, government policies, regulations
and reports. These legislative instruments are discussed as follows:
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6.3.2.
1996 Constitution
6.3.2.1.
As already highlighted above, section 40(1) of the Constitution of the Republic of
South Africa in particular provides that a government is constituted as national,
provincial and local spheres of government which are distinctive, interdependent
and interrelated. This means that the three spheres of government have original
powers, which are derived from the Constitution and no sphere of government is
subordinate to the other sphere. The Constitution of the Republic of South Africa
deals with intergovernmental relations in a Chapter 3 titled “Co-operative
Government” and section 41 titled “Principles of Co-operative Government and
Intergovernmental Relations.”
6.3.2.2.
It is clear therefore that the two concepts are inseparable and that they are
closely associated. Therefore, one concept cannot survive to the exclusion of the
other concept and that co-operative government leads to intergovernmental
relations and that intergovernmental relations lead to co-operative government.
The municipalities have a Constitutional duty to promote the principles of
intergovernmental
relations
and
co-operative
government.
Co-operative
government is an important mechanism to provide effective, transparent and
coherent government in matters relating to good governance for a sound
financial management.
6.3.3.
National legislation
6.3.3.1.
Municipal Finance Management Act, 2003
ˆ The Municipal Finance Management Act, 2003 especially Chapter 5 deals
specifically with matters relating to co-operative government as follows:
ƒ
capacity-building: The Act requires the provincial and national
governments to assist municipalities in building their capacity for efficient,
effective and transparent financial management. National government
must support the municipalities, identify and resolve their financial
problems.
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ƒ
promotion of co-operative government: National and provincial
departments and public entities must in their fiscal and financial relations
with the local sphere of government promote co-operative government.
They must meet their financial commitments and provide timely
information and assistance to municipalities to enable them to plan
properly and to prepare their budget in accordance with the provisions of
this Act.
ƒ
promotion
of
co-operative
government
by
municipalities:
Municipalities must promote co-operative government in accordance with
Chapter 3 of the Constitution and the Intergovernmental Fiscal Relations
Act, 1997 which provide budgetary and other financial information to
relevant national, provincial and local governments and promptly meet all
financial commitments towards the municipalities and both national and
provincial governments.
6.3.3.2.
Municipal Systems Act, 2000
ˆ Section 3 of the Municipal Structures Act, 2000 outlines a legal framework of
co-operative government as follows:
ƒ
municipalities must exercise their executive and legislative authority
within the Constitutional system of co-operative government in terms of
section 41 of the Constitution;
ƒ
the national and provincial governments must exercise their authority in
manner that does not impede a municipality’s ability or right to exercise
its authority;
ƒ
organised local government must seek to:
ƒ
develop common approaches for local government;
ƒ
enhance co-operation, mutual assistance and sharing of resources
among municipalities;
ƒ
find solutions for problems relating to local government generally; and
ƒ
facilitate compliance with the principles of co-operative government and
intergovernmental relations etc.
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6.3.3.3.
Intergovernmental Relations Framework Act, 2005
ˆ The object of the Intergovernmental Relations Framework Act, 2005 is to:
ƒ
provide a framework for intergovernmental relations within the principles
of co-operative government set out in Chapter 3 of the Constitution;
ƒ
provide a framework for the national government, provincial governments
and local authorities; and
ƒ
facilitate co-ordination in the implementation of policy and legislation
including:
coherent
government,
effective
provision
of
services,
monitoring, implementation of policy and legislation and realisation of
national policies.
ˆ The Intergovernmental Relations Framework Act, 2005 also establishes a
general framework that is applicable to all spheres and all sectors of
government. This Act is therefore essential in providing a framework on
intergovernmental relations as required by the Constitution, which ensures,
inter alia that local government has access to intergovernmental dispute
resolution structures in order to resolve their disputes without hindrances to
service delivery. The following intergovernmental forums established in terms
of this Act especially sections 6-34 play important roles in shaping policy and
the allocation of resources:
ƒ
the
President’s
Co-ordinating
Council
which
consults
on
the
implementation of national policy and legislation, facilitates co-ordination
and alignment of priorities, objectives and strategies across the spheres
of government and reviews performance in the provision of services;
ƒ
Premier’s intergovernmental forums, which link provincial and local
governments; and
ƒ
Municipal intergovernmental forum, which serves as a consultative forum
for the district municipality and local municipality to discuss and consult
each other on matters of mutual interest.
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ˆ The success of the intergovernmental relations among the three spheres of
government as articulated in the Intergovernmental Relations Framework
Act, 2005 depends on co-ordination of policy, planning and implementation.
The intergovernmental relations system must be guided by principles of cooperative governance, accountability and transparency reinforced by a
culture of consultation and public participation as set out in the Constitution
and the Municipal Systems Act, 2000.
6.3.4.
Specific Regulations, Reports and Policy on Intergovernmental Relations
6.3.4.1.
White Paper on Local Government (1998)
ˆ The White Paper on Local Government (1998) outlines strategic purposes for
a system of intergovernmental relations as follows:
ƒ
to promote and facilitate co-operative decision-making;
ƒ
to
co-ordinate
and
align
priorities,
budgets,
policies,
activities,
interrelated functions and sectors;
ƒ
to allow a smooth flow of information within government and between
governments
and
communities
with
a
view
to
enhancing
the
implementation of policy and programmes; and
ƒ
to prevent and resolve conflicts and disputes.
ˆ The White Paper on Local Government (1998) also sets out the specific roles
and responsibilities of national and provincial governments with respect to
local government. According to the White Paper on Local Government (1998)
the national government roles and responsibilities include, inter alia:
ƒ
a strategic role for the economic and social development of the nation
and for all the spheres of government;
ƒ
providing a legislative framework for local government within the general
legal framework set out in the Constitution;
ƒ
local
government
finances
including
intergovernmental fiscal relations;
ƒ
monitoring and oversight; and
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managing
the
system
of
Learner Guide: Discuss the selected legislative regulatory framework governing the public sector
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ƒ
intervention, etc.
ˆ The White Paper on Local Government (1998) also states that the national
government’s role is to provide a framework for intergovernmental relations,
including the structures, procedures and mechanisms to provide and
facilitate
positive
intergovernmental
relations
and
the
resolution
of
intergovernmental disputes within and between the spheres of government
and also to manage the system of intergovernmental fiscal relations and
situating local government’s equitable share.
ˆ The White Paper on Local Government (1998) further lists the roles of
provincial government, which include, inter alia:
ƒ
a strategic role with respect to developing a vision and framework for
integrated economic, social and community development in the province
through the provincial growth and development;
ƒ
a development role: Provincial government should ensure that
municipality adopt an integrated developmental framework;
ƒ
an
intergovernmental
role:
Provincial
government
has
an
intergovernmental role to play with respect to local government through
forums and processes for the purpose of including local government in
decision making;
ƒ
regulatory
role:
The
Constitution
and
the
Municipal
Finance
Management Act, 2003 give national and provincial governments the
legislative and executive authority to see the effective performance by
municipalities of their functions in respect of matters listed in Schedules 4
and 5 of the Constitution; and
ƒ
a fiscal role: The provincial governments must play a role in monitoring
the financial affairs of municipalities through the provincial task teams of
project viability. Provinces have a critical role in building the financial
management capacity of municipalities and intervening when necessary
to ensure local financial viability.
ˆ With regards to its intergovernmental relations role, the provincial
government should establish forums and processes for the purpose of
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including local government in decision-making processes that affect it and
also
promote
horizontal
co-operation
and
co-ordination
between
municipalities in the province.
6.3.4.2.
Reports, Plans and Strategies
ˆ The King Report
ƒ
For the sake of cognisance, it is prudent to take note that this report was
crafted by Mervyn King. He would soon bring out the King III report. The
King Report (2002) applies inter alia to companies, banks and public
sector enterprises falling under the Public Finance Management Act,
1999 and the Local Government: Municipal Finance Management Act,
2003 including any state department acting in terms of the Constitution
and legislation. For the purpose of our discussion, the King Report, 2002
is relevant and applicable to all the three levels of government as the
spheres of public sector. The purpose of the King Report is to promote
the highest standards of corporate governance in South Africa. According
to the King Report, good governance is marked by seven characteristics:
ƒ
Æ
discipline;
Æ
transparency;
Æ
accountability;
Æ
fairness; and
Æ
social responsibility.
It suffices to state that corporate governance is essentially about
leadership:
Æ
leadership for efficiency;
Æ
leadership for probity;
Æ
leadership with responsibility; and
Æ
leadership which is transparent and which is accountable.
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ˆ The Planning Framework and the Intergovernmental System
ƒ
The present set of intergovernmental system rests on the process of
national departments that develop policy. The policy is implemented by
provincial and local governments. This arrangement provides an
opportunity for local and provincial governments to influence the process
of priority setting. For example, the President’s Co-ordinating Council,
where the President meets with the provincial Premier’s Forum also
provides an opportunity to ensure provincial inputs into Medium Term
Expenditure Framework. The guiding principles of the Planning
Framework are that policy priorities should be derived from the electorate
mandate and that they should inform budgeting in the Medium Term
Expenditure Framework. The key principles of the Planning Framework
revolve around:
Æ
facilitation of development;
Æ
alignment of implementation plans;
Æ
assessment capacity requirements to implement the plans; and
Æ
enhancement of service delivery by creating linkages between the
different priorities of the three spheres of government.
ˆ National Spatial Development Plan (NSDP)
ƒ
The National Spatial Development Plan (NSDP) provides the common
framework for the necessary policy coherence that promotes the
objectives of the developmental state. The interrelationship between
these two trajectories is central to achieve development outcomes
globally and universally articulated through the Millennium Development
goals and nationally articulated through the Programme of Action. These
structural and policy platforms are geared to drive the process of
alignment and intergovernmental harmonization in development planning.
Integrated, spatial planning led by the NSDP requires that provincial
growth and development strategies and the Integrated Development
Plans of municipalities be prioritised.
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ƒ
The aim is to interlock spheres of government to harmonise policy in
order to attain common and understanding national goals. The
intergovernmental relation manifests itself in the interaction amongst
politicians and officials within the spheres of government and organs of
state. Its impact should be felt in the realm of service delivery and
improved citizen satisfaction and quality of life.
ˆ Provincial Growth and Development Strategy (PGDS)
ƒ
In terms of the guidelines of Provincial Growth and Development Strategy
(PGDS), the provincial sphere has both the responsibility and the
challenge to act as a champion of national government strategy within
the local government sphere. Similarly, the provincial government should
also act as a champion of local government in ensuring that the
necessary resources it requires for delivery are harnessed and aligned.
ƒ
The PGDS provides provincial government with an opportunity to define
a new role for itself that goes beyond that of administration and
monitoring. The provincial governments should lead in the application of
the National Spatial Development Plan (NSDP) principles and guidelines
for infrastructure investment and development spending and in the
allocation of resources within the province to achieve sustainable
development outcomes. A PGDS should provide the vital link in the
overall development programme of the developmental state. The PGDS
lays the foundation for accelerated economic growth and sustainable
development as envisaged in the global sustainable development
commitments.
ˆ Integrated Development Plan as a Planning Tool of Government
ƒ
The Integrated Development Planning Framework is prescribed by the
national legislation, particularly the Local Government: Municipal
Systems Act, 2000 and the Development Facilitation Act, 1995 which add
to the many frameworks regulating co-operative governance. In terms of
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section 27 of the Municipal Systems Act, 2000 district municipality must
adopt a framework for integrated development plan in the area as a
whole. This framework binds both the district municipality and local
municipality in the area of the district municipality. The following
programmes are informed by the systematic nature of the Integrated
Development Plans (IDPs):
ƒ
Æ
National Crime Prevention Strategy;
Æ
Population Development Strategy; and
Æ
Integrated Rural Sustainable Development Strategy.
The IDP is a process through which a municipality prepares a framework
for integrated development planning for a five year period. Integrated
development planning is one of the key tools for local government to
cope with its new developmental role. The Municipal Systems Act, 2000
especially section 27 prescribes that a framework of the IDP must at least
identify the plans and planning requirements binding on a municipality,
identify matters that requires alignment in the IDP, determine procedures
for consultation between district municipality and local municipality. The
IDP process is meant among many others to arrive at decisions on issues
such as municipal budgets, land management, promotion of local
economic development and institutional transformation in a consultative,
systematic, and strategic manner.
6.4.
THE PRINCIPLES GOVERNING THE INTERGOVERNMENTAL RELATIONS
6.4.1.
As part of its Constitutional mandate, the Financial and Fiscal Commission
published a Framework Document which among many other things, outlines the
principles for intergovernmental relations in South Africa in 1995. The
Commission
also
introduced
the
norms
applicable
to
a
system
of
intergovernmental relations. These principles for intergovernmental relations are:
the effective use of resources, transparency, accountability, nation building and
fiscal autonomy, development, equity, macro-economic management, loan
financing, transition and resolving competing norms. These principles are
important
in
determining
the
success
or
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failure
of
the
system
of
Learner Guide: Discuss the selected legislative regulatory framework governing the public sector
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intergovernmental relations. It is essential that a description of each of them is
given as stated by the Financial and Fiscal Commission as follows:
6.4.2.
The first principle is effective resource use. This principle states that economic
resources are scarce commodity and their allocation must be done in the best
possible way in order to acquire maximum benefit for the community. The
principle of accountability and autonomy is an obligation on the government to
justify its expenditure and explain why the revenue necessary to sustain
expenditure is raised in the way it is. Each sphere of government has
Constitutional obligations and responsibilities. Therefore, each sphere is
Constitutionally required to account to its legislature or Council and the public.
The power of the national government to intervene in provincial and local
government matters and the provincial governments to intervene in local
government matters depends on whether the relevant sphere fails to carry out an
executive obligation.
6.4.3.
The principle of nation-building means that given the history of segregation in
South Africa, fiscal resources should be handled in a way that enhances unity
and nation building. Fiscal autonomy refers to the degree to which other spheres
of government can take their own decisions and determine their own priorities
consistent with the expenditure, taxation and borrowing powers that are aligned
to them.
6.4.4.
The standard principles of transparency and good governance mean that in
order for the provincial and local spheres of government to be financially
sustainable, it is important that revenue they receive from national government
be certain and not subject to arbitrary decision. Accountability of political
representatives to electorate and transparent reporting mechanisms within and
between spheres of government is central to the intergovernmental system.
Political executives are responsible for policies and outcomes. The public sector
executives as accounting officers are responsible for implementation and
outputs.
6.4.5.
The principle of equity and redistribution is a norm which is characterised by the
spirit of fairness, justice and impartiality. The first element of intergovernmental
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fiscal relations aims to ensure fiscal fairness in the provision of public services to
all households. The second element requires that beyond the equal provision of
basic services, households should receive equal provision of basic human
services and they should also receive equal or similar public services for equal
contributions of tax or fiscal effort. The three spheres, all have important roles to
play in redistribution. However, the fact that inequalities exist across the country,
the redistribution of resources is primarily a national function. In instances where
provinces and municipalities undertake redistribution, they must do so in line with
their fiscal capacity. They must not undermine their economic activity and
financial viability.
6.4.6.
The principle of development refers to the multi-dimensional process that
improves the quality of life of all. This may be referred to, for example,
improvements in the levels of nutrition, housing, education, the use of electricity,
the availability of water and refuse removal services. The principle of
administration means that the ease and efficiency with which the fiscal system
can be administered is crucial for the evaluation of the system. For example, the
devolution of all taxes of provincial and local government would clearly enhance
their fiscal autonomy. The principle of macro-economic management suggests
that certain goals have certain macro-economic dimensions, such as the sound
management of the economy and therefore such functions are better performed
centrally by the national government.
6.4.7.
The principle of responsibility over budgets means that each sphere of
government has the right to determine its own budget. They also have
responsibility to comply with the requirements of their budgets. National
government, through National Treasury will not bail out provinces and
municipalities that mismanage their funds nor provide guarantees for loans. In so
doing, the National Treasury reduces moral hazards. These financial moral
hazards refer to the possibility that provincial or local government may pursue
undesirable policies because they expect national government to support them if
their policies fail or have negative effects. The principle of revenue sharing
means that the fiscal system must take into account the fiscal capacity and
functions assigned to each sphere. Provinces and municipalities are funded
through:
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6.4.7.1.
revenue collected;
6.4.7.2.
equitable share allocation; and
6.4.7.3.
conditional and unconditional grants.
6.4.8.
The grant system must be simple and comprehensive and not compensate subnational governments, which fail to collect revenue due.
6.4.9.
The principle of vertical division determines allocations to each sphere, which
inevitably involves trade-offs through a comprehensive budget allocation
process. This process is driven by political priorities, which cover all aspects of
governance and service delivery. Separate and ad hoc requests for funds
fragment budget allocation and undermine the political process of prioritisation.
6.4.10.
The norm of intergovernmental relations requires the three spheres of
government to broaden access to services. The Constitution and current
government policy prioritise service delivery to all South Africans. The
responsible spheres are obliged to broaden access to:
6.4.10.1. services at affordable costs to consumers;
6.4.10.2. design appropriate levels of services to meet consumer needs;
6.4.10.3. explore innovative and efficient mode of delivery; and
6.4.10.4. leverage public and private resources.
6.4.11.
The principle of loan financing suggests that the system of intergovernmental
grants should not impede province’s reasonableness to other sources of
finances. For example, a province may wish to acquire additional funds from the
capital market to implement long-term intra-structural projects. In view of the
above,
it
could
be
concluded
that
application
of
the
principles
of
intergovernmental fiscal relations is critical to the equitable sharing of the
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nationally raised revenue among the three spheres of government and thereby
contribute to the effectiveness of the intergovernmental fiscal relations in
facilitating the delivery of services.
6.5.
THE PRINCIPLES UNDERLYING CORPORATE GOVERNANCE IN THE
CONTEXT OF THE PUBLIC SECTOR
6.5.1.
As pointed out earlier, the Constitution makes it clear that all spheres of
government and all organs of state are guided by the concept of co-operative
government and the principles of Chapter 3 of the Constitution. This means that
the principles of co-operate governance apply to:
6.5.1.1.
the national parliament, departments and institutions of the national government;
6.5.1.2.
the provincial legislatures and departments of provincial governments; and
6.5.1.3.
the Municipal Councils, departments and organs falling in the local sphere of
government. These organs also include municipal entities.
6.5.1.4.
Section 41 of the Constitution articulates the following principles, which are
central to the concept of co-operative government that all spheres of government
and all organs of state within each sphere must:
ˆ preserve the peace, national unity and the individuality of the Republic;
ˆ secure the well being of the people of the Republic;
ˆ provide effective, transparent, accountable and coherent government for the
Republic as a whole;
ˆ be loyal to the Constitution, Republic and its people;
ˆ respect the Constitutional status, institutions, powers and functions of the
other spheres;
ˆ not assume any power or function except those conferred on it in terms of
the Constitution;
ˆ execute its powers and perform its functions in a manner that does not
encroach on the geographical, functional or institutional integrity of
government in another sphere;
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ˆ co-operate with the other spheres of government in mutual trust and good
faith and avoid legal proceedings against the others. An organ of state
involved in an intergovernmental dispute must make every reasonable effort
to settle dispute by means of mechanisms and procedures provided for that
purpose; and
ˆ exhaust all other remedies before it approaches a court to resolve the
dispute.
6.5.1.5.
These principles require the three spheres of government to co-operate and coordinate their activities in good faith and mutual trust, to inform each other of new
policy measures, to assist each other and avoid legal proceedings against each
other. The South Africa’s corporative government is designed so that certain
functions are executed (performed by one sphere) while others are concurrent
(shared between different spheres). As stated above, the Constitution divides the
functions among the three spheres of government and clearly distinguishes
between executive and concurrent responsibilities. Schedule 4 of the
Constitution contains the functional areas of concurrent national and provincial
legislative competence. Part B thereof relates specifically to the exclusive
powers of local government. Schedule 5 reflects the core exclusive competence
of the provincial legislature. In addition, section 156(4) provides that national and
provincial government must assign to a municipality by way of an agreement and
subject to certain conditions, the administration of a matter listed in Part A of
Schedule 4 or Part A of Schedule 5 which necessarily relates to local
government, if:
ˆ that matter would most effectively be administered locally; and
ˆ the municipality has the capacity to administer it.
6.5.1.6.
The Intergovernmental Relations Framework Act, 2005 contains provisions that
support the principles of co-operative government. The Act introduces
mechanisms for inter-sphere planning and co-operation. For the municipalities,
the principles of co-operative governance have far-reaching implications on the
arena of intergovernmental relations. Co-operative government means a greater
level of co-operation across and within the different spheres of government,
based on systems of mutual support, information sharing and co-ordination of
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activities each aiming to add value to the other’s responsibilities with a view of
improving outcomes for all. The Intergovernmental Fiscal Relations Act, 1997
also promotes co-operation between the national, provincial and local spheres of
government on fiscal, budgetary and financial matters.
6.5.1.7.
The notion of co-operate governance is also embraced in Chapter 5 of the
Municipal Finance Management Act, 2003 especially section 35 which urges the
national and provincial governments to promote co-operative government and
promptly meet their financial commitments towards municipalities. Section 37 of
the Act under discussion states that the municipalities must in their fiscal and
financial relations with the national and provincial governments and other
municipalities promote co-operative government in terms of the Constitution and
the Intergovernmental Fiscal Relations Act, 1997. Section 3 of the Municipal
Systems Act, 2000 also advocates that the municipalities must exercise their
authority within the Constitutional system of co-operative government envisaged
in section 41 of the Constitution.
6.5.1.8.
For the municipal governance, the notion of co-operate governance means that
local governance or municipalities are now local sphere of government in their
own right and are no longer a mere function of either the national or provincial
government. However, the municipalities are required to interact and co-operate
with other spheres of government. They must also meet all financial
commitments towards other municipalities or national and provincial organs of
state. The pilot trainees confirmed and maintained this view by reiterating that
the philosophy of corporate governance limits the autonomy of the municipalities.
All spheres of government are obliged to observe the principles of co-operative
government as put forward by the Constitution and legislation. In essence, cooperative government assumes and touches on the integrity of each sphere of
government. The various components (spheres) of government must function
together as coherent unit.
6.5.1.9.
Although the Constitution articulates in the above principles, that each sphere
must acknowledge the role and status of each of the other spheres of
government, South Africa remains “one sovereign democratic state”. Therefore,
it is obvious that the policies, legislation and activities of the three spheres of
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government should be co-ordinated to ensure that the founding provisions of the
Constitution are adhered to. It is in the spirit of the Constitution that the policies
and actions of one sphere are not in conflict with, but rather in support of those
of the other spheres. It is in this context that the Constitution and national
legislation recognise and acknowledge the concept of co-operative government.
7.
LEARNING TASKS AND ACTIVITIES
7.1.
CASE STUDIES AND QUESTIONS FOR PRACTICE
7.1.1.
Case Study 1
7.1.1.1.
The ABC local municipality has established the “Intergovernmental Relations
Advice Unit.” (IRAU) As a consequence of this new establishment, the ABC
appointed you as the Head of this unit. On your appointment, you discovered
that the Mayor, councillors and the entire administration component have a dim
picture of how the ABC local municipality should co-ordinate its fiscal and
governance activities with both the national and provincial spheres of
government. The ABC local municipality had no idea of its Constitutional and
statutory obligations regarding intergovernmental relations and co-operative
government.
7.1.1.2.
As the Head of the IRAU, how will you explain to the Mayor and councillors the
autonomous status (distinctiveness) of the ABC local municipality and its
activities, which are interdependent and interrelated to the other spheres of
government? In your view, what should be the role of the ABC local municipality
in addressing the issues of intergovernmental relations?
7.1.2.
Case Study 2
7.1.2.1.
The Council of BP district municipality resolved in its meeting that autonomy of
its municipality is compromised by allowing the national and provincial intrusion
or intervention on the domain of the BP district municipality. The Council further
argued that what the 1996 Constitution seeks to achieve is a structure of the BP
district municipality that reveals a concern for autonomy and integrity. The
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Council further intimated that the Constitutional autonomous status of the BP
municipality permits it to embark on the non-interventionist relationship with other
levels of government.
ˆ Is the case of the BP district municipality valid?
ˆ What autonomy or distinctiveness means for the BP district municipality in
the light of the Constitution and the relevant national legislation?
7.1.3.
Questions for Practice
7.1.3.1.
Question 1
ˆ The principles of intergovernmental relations and co-operative government
have a multi-faceted purposes aimed at promoting co-ordination of activities
among the three spheres of government. These principles are clearly
articulated in the 1996 Constitution and the subsequent legislation such as
the Intergovernmental Relations Framework Act, 2005, the Municipal
Finance Management Act, 2003, Intergovernmental Fiscal Relations
Act,1997 and the annual Division of Revenue Act.
ˆ In the light of the above, critically discuss the principles of intergovernmental
relations and co-operative government. In your answer, discuss the
implications of these principles on the municipalities with regard to service
delivery and finance management.
8.
SUPPORT MATERIALS AND REFERENCES
8.1.
BOOKS
8.1.1.
English K and Stapleton A The Human Rights Handbook: A Practical Guide to
Monitoring Human Rights (Juta Publishers 1997)
8.2.
GOVERNMENT PLANS AND STRATEGIES
8.2.1.
Integrated Development Planning Framework 2005
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8.2.2.
National Spatial Development Plan 2004
8.2.3.
Provincial Growth and Development Strategies 1995
8.2.4.
Trends in Development Planning Report 1995
8.3.
GOVERNMENT POLICY
8.3.1.
White Paper on Local Government 1998
8.4.
GOVERNMENT REGULATIONS
8.4.1.
Guidelines for Municipal Competency Levels: Chief Financial Officers 2007
8.4.2.
Guidelines for Municipal Competency Levels: Other Senior Managers 2007
8.4.3.
Prescribed standards of Generally Recognised Accounting Practice (GRAP)
2005
8.4.4.
Supply Chain Management: A Guide for Accounting Officers of Municipalities
and Municipal Entities 2005
8.5.
LEGISLATION
8.5.1.
Borrowing Powers of Provincial Government Act 48 of 1996
8.5.2.
Constitution of the Republic of South Africa Act 108 of 1996
8.5.3.
Development Facilitation Act 67 of 1995
8.5.4.
Division of Revenue Act (enacted annually)
8.5.5.
Intergovernmental Fiscal Relations Act 97 of 1997
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8.5.6.
Intergovernmental Relations Framework Act 13 of 2005
8.5.7.
Local Government: Municipal Finance Management Act 56 of 2003
8.5.8.
Local Government: Municipal Structures Act 117 of 1998
8.5.9.
Public Finance Management Act 1 of 1999
8.6.
INTERNET SOURCE (“WORLD WIDE WEB”)
8.6.1.
Occasional Paper: IDASA Budget Information Services
8.6.2.
http //www.idasa.org.za/bis/ [Access Date: 16 February 2008]
8.7.
PERIODICALS
8.7.1.
Department of Provincial and Local Government “Intergovernmental Cooperation and Agreements: An Introduction” INCA Capacity Building Fund 2007
8.7.2.
Department of Provincial and Local Government “Practitioner’s Guide to
Intergovernmental Relations in South Africa” 2007
8.7.3.
Financial and Fiscal Commission’s Framework Document for Tshwane “Building
sustainable communities” Cities Networks Pretoria 2007
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Unit Two: The Regulations Governing Division of
Revenue
1.
AIM OF STUDY UNIT
1.1.
The aim of this study unit is to enable learners to identify and interpret the
regulations governing division of revenue.
2.
LEARNING OBJECTIVES
2.1.
After studying this unit, a learner should be able to identify and apply the
following in his or her own words:
2.1.1.
regulations governing division of revenue
2.1.2.
legislative instruments used to manage finance in local government
2.1.3.
guidelines to resolve financial related disputes among three spheres of
government
3.
KEY CONCEPTS
3.1.
Division of revenue
3.2.
Capacity-building grant
3.3.
Legislative instruments
3.4.
Infrastructure grant
3.5.
Equitable share
3.6.
Intergovernmental dispute
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3.7.
Spheres of government
4.
INTRODUCTION
4.1.
This study unit is principally concerned with introducing learners to the study of
regulations governing division of revenue. The 1996 Constitution and the annual
Division of Revenue Act deal specifically with an equitable division of revenue
raised nationally among the national, provincial and local governments. This
learning unit intends to make learners aware of the legislative instruments used
to manage finance in the local government. This study unit also undertakes a
precise look at the guidelines necessary to resolve financially related and
intergovernmental disputes among different spheres of government. Learners
will also be fully aware of the regulations governing division of revenue.
5.
KNOWLEDGE ASSUMED
5.1.
Learners’ practical work experience and basic understanding of the annual
division of revenue legislation, regulations and other legislative instruments used
to manage finance among the different spheres of government is essential for a
coherent understanding of the terminologies and concepts embedded in this
study unit. It is assumed that learners’ understanding of the intergovernmental
transfers and allocations will add value and enhance their ability to gain a
comprehensive and systematic knowledge of the framework of the division of
revenue.
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6.
UNIT CONTENT
6.1.
REGULATIONS GOVERNING DIVISION OF REVENUE AMONG DIFFERENT
SPHERES OF GOVERNMENT
6.1.1.
Overview
6.1.1.1.
Section 216 of the Constitution provides for government to transfer funds to
municipalities in terms of the annual Division of Revenue Act. The purpose of
this Constitutional arrangement is inter alia to assist municipalities in exercising
their Constitutional and statutory powers and functions. The transfers and grants
from national government are supplemented with transfers from provincial
government. Both national and provincial governments must gazette these
allocations as part of the budget implementation process. The principles of the
division of revenue also requires transfers between district and local
municipalities to be made transparent and reflected in the budgets of both
transferring and receiving municipalities.
6.1.1.2.
For the purpose of this discussion, a special attention will be given to the
transfers of equitable share, infrastructure grant, capacity building grant and
additional allocations as articulated in the annual Division of Revenue Act. These
allocations or grants are briefly discussed as follows:
ˆ The Local Government Equitable Share (LGES) is an allocation, which is
nationally generated and distributed among the three spheres of government.
This means that the local government as one of the spheres of government
is entitled to receive equitable share from the national government. The
Equitable Share is an unconditional grant;
ˆ Infrastructure grant: This type of a grant is conditional and it is allocated for
municipal infrastructure and development. Hence, it has earned itself a name
of the Municipal Infrastructure Grant (MIG); and
ˆ Capacity building grant: This type of a grant is earmarked for capacity
building and training of the municipal officials to enhance the performance
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levels of the municipalities in ensuring that municipalities deliver in terms of
their Constitutional and statutory mandate.
6.1.1.3.
The Intergovernmental Fiscal Relations Act, 1997 especially section 8 regulates
and directs the process of revenue sharing among the spheres of government,
the division of the provincial share among the provincial and any allocation of
money to the provincial governments, local government or municipalities.
Section 10 of this Act further requires the Minister of Finance to introduce the
Division of Revenue Bill when he or she presents the annual Budget in the
parliament. The Division of Revenue Bill must specify the share of each sphere
of government, provincial share and any other allocations to the provinces, local
government or municipalities.
6.1.1.4.
The Municipal Finance Management Act, 2003 also introduces control
mechanism on the regime of intergovernmental transfers and other allocations.
Section 123 of the Municipal Finance Management Act, 2003 calls for a
municipality to disclose in its annual financial statements information on:
ˆ any allocation received from an organ of state in the national or provincial
government; or
ˆ a municipal entity or another municipality;
ˆ allocation made to a municipality entity or another municipality; or
ˆ any other organ of state;
ˆ how the allocation were spent, per vote excluding the equitable share;
ˆ whether the municipality has complied with the conditions of any allocations
made in terms of section 214 of the Constitution;
ˆ the reasons for any non-compliance with the conditions of allocations; and
ˆ whether funds destined in terms of the annual Division of Revenue Act were
delayed or withheld.
6.1.2.
Specific Regulations on Division of Revenue
6.1.2.1.
Other regulations, which govern the division of revenue, included the Special
Government Gazette in Terms of the Division of Revenue Act, 2001 Relating to
the Social Grant Arrears and the Additional and Adjusted Transfer to Local
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Government in Terms of the Division of Revenue Act, 2001. The Government
Gazette on Social Grants Arrears, 2001 dealt with the approval of the allocations
of Social Grant Arrears to fund arrears with respect to social security grants. The
Social Grant Arrears was a conditional grant. The Additional and Adjusted
Transfer to Local Government provided information on additional allocations and
adjustments to existing allocations to municipalities in the 2001/2 national
financial year. The Additional and Adjusted Transfer to Local Government
effected the following programmes:
ˆ implementation of water service projects;
ˆ water supply and water borne sewerage disposal schemes;
ˆ local government restructuring grants; and
ˆ Integrated Rural Development Programme (IRDP) management and
Implementation grant.
6.1.2.2.
The Additional and Adjusted Transfer to Local Government called for the
municipalities to effect adjustments to their projects of grant income from these
programmes accordingly, through the passing of a municipal adjustment budget.
It is evident that the national government went extra miles to issue regulations in
terms of the Division of Revenue Act to regulate the administration of
intergovernmental transfers. A plethora of circulars has also been issued in this
regard. All these regulations represent a gallant effort to ensure that both the
provincial and municipalities comply with the conditions and requirements to be
met for allocations transferred - all in the best interest of good governance of
funds and resources for the betterment of service delivery.
6.1.3.
National Treasury Circular: MFMA Circular No 45
6.1.3.1.
In terms of the MFMA Circular No 45, additional allocations of R14.4 billion to the
local government baseline were proposed over the 2008/9 Medium Term
Strategic Framework for:
ˆ the provision of basic services;
ˆ the rollout of infrastructure for economic development;
ˆ allocations to host cities for the 2010 FIFA World Cup; and
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ˆ capacity building initiatives.
6.1.3.2.
Municipalities are expected to comply fully with the requirements and legal
obligations stipulated in the Division of Revenue Act, 2008 and all other
legislation of division of revenue on the administration and management of
government allocations. Both the transferring and receiving authorities are
required not to deviate significantly from previous requirements specified in the
previous Division of Revenue Acts enacted prior to the 2008 division of revenue.
6.1.3.3.
Compliance with the conditions of the annual Division of Revenue Act is the
primary responsibility of the municipal manager as the “receiving officer”. The
municipal manager must account to the Major, Executive Committee and Council
on how the municipality is complying with the annual Division of Revenue Act as
it applies to various conditional grants. This compliance includes inter alia:
ˆ the tabling of quarterly reports in Council on whether or not the municipality is
complying with the annual Division of Revenue Act;
ˆ reporting on delays in transfers and
ˆ reporting on withholding of funds.
6.1.3.4.
In case of non-compliance or a need for an extension of time, the municipal
manager must apply to the National Treasury and provide a detailed statement
of motivation for non-compliance or extension of time so required. Failure on a
municipality to comply with the annual Division of Revenue Act will be
communicated directly to the Mayor, while withholding of funds will be reported
directly to the Council. Suffice to mention that both the Division of Revenue Act
(2008) and the MFMA Circular No 45 placed strict legal obligations on the
municipal manager and a municipality to comply with conditions of local
government allocations and grants.
6.1.3.5.
In accordance with the MFMA Circular No 45, the legal provisions to be strictly
enforced in respect of the local government allocations as from 2008 are:
ˆ the inclusion of all grants in 2008/9 budget of the municipality;
ˆ the preparation of three-year capital and operating budgets for 2008/9;
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ˆ the submission of Council-approved 2008/9 budgets to the National Treasury
by 20 June 2008;
ˆ the submission of Annual Financial Statements for 2007/8 to the National
Treasury and relevant Provincial Treasuries;
ˆ all funds received from national and provincial governments must be
deposited in the municipal primary bank account; and
ˆ reporting requirements for conditional grants must be satisfied including
monthly reports to the transferring officer.
6.2.
LEGISLATIVE INSTRUMENTS USED TO MANAGE FINANCE IN THE LOCAL
GOVERNMENT
6.2.1.
Overview
6.2.1.1.
Although there are many pieces of legislation relating to local government, the
most important legislative instruments relevant to this discussion are the
following:
ˆ 1996 Constitution
ˆ Municipal Finance Management Act, 2003
ˆ Municipal Systems Act , 2000
ˆ Municipal Structures Act, 1998
ˆ Municipal Property Rates Act, 2004
ˆ Intergovernmental Fiscal Relations Act, 1997
ˆ Division of Revenue Act (enacted annually)
ˆ Intergovernmental Relations Framework Act, 2000
6.2.2.
1996 Constitution
6.2.2.1.
Chapter 13 of the Constitution provides extensively for the financing and
financial affairs of the three spheres of government. This means that Chapter 13
also applies to the municipalities and impacts directly on the landscape of the
financial affairs of the local government. The municipalities are obliged to comply
with the provisions of Chapter 13 of the Constitution while discharging their
financial duties. For instance, section 215 (1) of the Constitution requires
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municipal
budget
and
budgetary
processes
to
promote
transparency,
accountability and effective financial management of the economy.
6.2.2.2.
The Constitution compels the parliament to pass national legislation to prescribe
the form of national, provincial and municipal budgets and that budgets in each
sphere of government must show the sources of revenue and the way in which
proposed expenditure will comply with national legislation. It is for this reason,
among many others, that parliament passed both the Municipal Finance
Management Act, 2003 and the Public Finance Management Act, 1999 to serve
as the instruments for the management of finance in national, provincial and
local governments.
6.2.3.
Municipal Finance Management Act, 2003
6.2.3.1.
The Municipal Finance Management Act, 2003 directs the local government to:
ˆ regulate financial management in municipalities;
ˆ require that all revenue, expenditure, assets and liabilities of municipalities
and municipal entities are managed economically, efficiently and effectively;
ˆ to determine the responsibility of officials and councillors entrusted with the
local sphere of financial management; and
ˆ to provide for other financial matters concerning municipality.
6.2.3.2.
The Municipal Finance Management Act, 2003 aims to improve the management
of financial affairs within the municipality. This cornerstone piece of legislation
describes in detail the processes relating to municipal budgets, spending and
accountability. It also describes financial misconduct by municipal officials and
the directors of municipal entities. For example, accounting officer or councillor
of a municipality commits an act of financial misconduct if he or she deliberately
or negligently contravenes the provisions of the Municipal Finance Management
Act, 2003 and further:
ˆ fails to comply with a duty imposed by the provisions of the Act;
ˆ makes, instructs or permits another official to make unauthorised, an
irregular, a fruitless or wasteful expenditure; and
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ˆ provides incorrect information in any document.
6.2.3.3.
Similar conditions apply to senior managers in respect of financial misconduct.
Let us say the municipal manager as the accounting officer of Makhanda district
municipality, authorises the purchase of an ambulance while his municipality is in
possession of sufficient ambulances, which are under-utilised. Such expenditure
is wasteful because the Makhanda Municipality is not in dire need of extra
ambulance(s). The accounting officer under these circumstances is guilty of
financial misconduct. The Municipal Finance Management Act is a piece of
legislation which intends to introduce effective financial management systems
and most importantly to ensure financial accountability.
6.2.4.
Municipal Systems Act, 2000
6.2.4.1.
The core values of the Municipal Systems Act, 2000 relate to:
ˆ the legal nature, rights and duties of municipalities;
ˆ community participation;
ˆ Integrated Development Plan (IDP);
ˆ performance management; and
ˆ service delivery.
6.2.4.2.
The Act identifies the Integrated Development Plan (IDP) as the guiding
document of any municipality. Let us say Maropeng local municipality functions
without an Integrated Development Plan. What are the consequences of this
arrangement of Maropeng local municipality in the context of its statutory
mandate? It means that Maropeng local municipality does not have a plan that
describes its approach to its mandate. Obviously Maropeng local municipality will
function without strategies and plans to achieve its objectives.
6.2.4.3.
The Municipal Systems Act, 2000 is an important tool that provides extensively
for municipal functions and powers including the preparation, approval,
implementation of budgets, debt collection and customer care management. The
Act furthermore provides that the community, residents and rates payers of a
municipality have the right to regular disclosure of the state of affairs of the
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municipality, including its finances. The municipalities are legally bound to
disclose the state of their financial affairs to the local communities on regular
basis. However, communities, residents and ratepayers also have duty to
promptly pay service fees, surcharges on fees, rates on property and other
taxes, levies and duties imposed by a municipality.
6.2.5.
Municipal Structures Act, 1998
6.2.5.1.
In general, the Municipal Structures Act, 1998 provides that a municipality has
the functions and powers assigned to it by the Constitution. Such powers must
be divided between district municipality and local municipalities within the area of
district municipality. For instance, Chapter 5 of the Municipal Structures Act,
1998 outlines the functions and powers of a municipality assigned to it in terms
of sections of 156 and 229 of the Constitution. For example, section 299 of the
Constitution provides for municipal fiscal powers and functions. These powers
authorise a municipality to impose rates on property and surcharges on fees for
services. Section 83 of the Act under discussion further requires the district
municipality to inter alia:
ˆ promote bulk infrastructural development and services;
ˆ promote equal distribution of resources between the local municipalities;
ˆ ensure integrated development planning; and
ˆ build capacity of local municipalities.
6.2.5.2.
For the purpose of financial management, the Act obligates a district municipality
to achieve the integrated, sustainable and equitable social and economic
developments of its area as a whole. All these developments require funds and
efficient management for the purpose of sustainable service delivery. The Act
directly or indirectly involves the municipalities in the management of the
financial resources. The Municipal Structures Act, 1998 introduces the Municipal
Council in relation to financial management because it sets out the framework of
the functions and powers of the municipalities in concerning development and
service delivery. The municipalities are among many others, responsible for local
economic development and service delivery. These functions impact on the
financial management of the local government. Section 19 of the Municipal
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Structures Act, 1998 requires a Municipal Council to strive within its capacity to
achieve the objectives set out in section 152 of the Constitution. The Council
must meet annually to review:
ˆ the objectives set out in section 152 of the Constitution;
ˆ the needs of the community;
ˆ its priorities to meet those needs and process of involving the community;
ˆ its organisational and delivery mechanism; and
ˆ its overall performance.
6.2.5.3.
The Act also provides for the establishment of metropolitan sub-councils. A
metropolitan municipality, which decides to establish a metropolitan sub-council,
must inter alia provides an equitable financial framework in terms of which the
sub-councils must function. The Municipal Structure Act, 1998 further introduces
executive Mayor with specific functions. For instance, he or she must inter alia
identify the needs of a municipality, review performance of a municipality,
recommends strategies, plans and programmes to Municipal Council.
6.2.6.
Municipal Property Rates Act, 2004
6.2.6.1.
Municipalities have two sources of income. The first source is what they receive
from the national budget. The rest is what they raise themselves. The Municipal
Property Rates Act, 2004 has far-reaching effects on the revenue raised by the
municipality. The Act inter alia authorises all categories of municipality to levy a
rate on property in its area. A municipality is obliged to adopt a policy in
accordance with the Act on the levying of rates on rateable property in the
municipality. As is the case with all other financial matters, a municipality must
provide for community participation.
6.2.6.2.
In accordance with Constitutional guidelines, a municipality’s rates may not
impede:
ˆ national economic policies;
ˆ economic activities across its boundaries; or
ˆ the national mobility of goods, services, capital or labour.
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6.2.6.3.
A general valuation of all properties in a municipality must be conducted to the
extent that a municipality intends to levy a rate on such properties. The following
valuation criteria are provided for in the Act namely, the value of any licence or
privilege relating to a property, the value of immovable property and the value of
the use of property. Furthermore, the MEC for local government in a province is
required to monitor whether municipalities in the province comply with the
provisions of the Act and may take appropriate steps in cases of noncompliance.
6.2.6.4.
The Minister responsible for local government is obliged to report and issue a
public report on the effectiveness, consistency, uniformity and application of
municipal valuations for rates purposes. Of great importance here is whether the
sources of the municipality’s funds are the national budget or whether they are
raised from within the municipalities itself. The duty of local Council is to use the
funds raised from rates, taxes etc, in an accountable and equitable way.
Municipal revenue sources are as important as proper financial management
and control.
6.2.7.
Intergovernmental Fiscal Relations Act, 1997
6.2.7.1.
Another piece of legislation, which is important for management of financial
affairs of municipalities, is the Intergovernmental Fiscal Relations Act, 1997. This
law
establishes
a
framework
for
the
national
government,
provincial
governments and local government to:
ˆ promote and facilitate coherent intergovernmental relations;
ˆ co-ordinate implementation of policy and legislation;
ˆ provide for effective delivery of services; and
ˆ provide for the general realisation of national priorities and monitoring of
implementation of policy and legislation.
6.2.7.2.
The Intergovernmental Fiscal Relations Act, 1997 especially section 2 further
aims to promote co-operative budget preparation and established the Budget
Council through which the Minister of Finance and the nine provincial MECs for
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Finance must co-ordinate budgetary and financial activities. Section 5 of the
Intergovernmental Fiscal Relations Act, 1997 also establishes the Local
Government Budget Forum. The forum enables the national and provincial
governments and organised local government to consult on:
ˆ any fiscal, budgetary or financial matter affecting the local sphere of
government;
ˆ any proposed legislation or policy which has a financial implication for local
government;
ˆ any matter concerning the financial management; and
ˆ the monitoring of finances of local government.
6.2.7.3.
One of the fundamental implications of this Act on the municipalities is that it
encourages the municipalities to co-ordinate and co-operate with other spheres
of government on fiscal and financial matters. Municipalities are not “islands”.
Therefore, they cannot be expected to conduct their financial business in
isolation. The Act creates a plane for intergovernmental fiscal relations between
national, provincial and local governments.
6.2.8.
Division of Revenue Act (enacted annually)
6.2.8.1.
The management of a municipality’s income, budgets and expenditure in certain
cases involve national government. The annual Division of Revenue Act is one
of the most important pieces of legislation for local government, as it provides
national allocations for each municipality over the next three years. The Financial
and Fiscal Commission make recommendations of the fiscal transfers. The
annual Division of Revenue Act describes how national and
provincial
governments can exercise oversight and possibly intervene in municipal
budgets. In terms of this Act, municipalities receive different allocations from
national government. For example, equitable share, infrastructure and capacity
building grants are allocated annually to the municipalities.
6.2.8.2.
For financial affairs of the municipalities, the annual Division of Revenue Act
requires the municipalities to use grants efficiently and responsibly for their
purposes. For example, the equitable share of municipalities is to assist poor
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households to access basic services. A municipality has legal duty to comply
with this condition. Let us say Makhanda Local Municipality uses its equitable
share for capacity building or infrastructure purposes.
6.2.8.3.
Clearly, this arrangement is in conflict with the provisions of this Act. Transfers
for capacity building are used for training and mentoring of municipal officials
while infrastructure grants on the other hand are used by municipalities to build
roads, houses, sporting facilities and infrastructure for water and sanitation.
Therefore, municipalities are required to use these grants accordingly in line with
the provisions of the annual Division of Revenue Act.
6.2.9.
2.4.2.9 Intergovernmental Relations Framework Act, 2005
6.2.9.1.
This Act provides a legal framework for intergovernmental relations among the
three spheres of government. The Act also acknowledges the fact that cooperation and co-ordination of the activities of the three spheres of government
is of primary importance.
6.3.
GUIDELINES TO RESOLVE FINANCIAL RELATED DISPUTES AMONG THE
DIFFERENT SPHERES OF GOVERNMENT
6.3.1.
The relationship between the three spheres of government is complex. As a
result, disputes in the intergovernmental relations are inevitable. The powers of
the three spheres and their policies and administrative decisions inevitably
impact on intergovernmental relations. The daily practice of delivering and
paying for services creates a fertile ground for disagreements. This is entirely
normal in a system of concurrent powers. The selling of services by one sphere
to another or one authority to another, for example shared municipal services
can also lead to disagreement.
6.3.2.
The legal framework of the resolution of intergovernmental disputes can be
found in Chapter 3 of the Constitution and the Intergovernmental Relations
Framework Act, 2005. The Constitution calls on all spheres of government to
inter alia:
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6.3.2.1.
co-operate with one another in mutual trust and good faith;
6.3.2.2.
avoid legal proceedings against one another; and
6.3.2.3.
try and resolve their disputes amicably.
6.3.3.
Section 41 (3) and (4) further provides that an organ of state involved in an
intergovernmental dispute must make every reasonable effort to settle the
dispute by means of mechanisms and procedures provided for that purpose and
must exhaust all remedies before it approaches a court to resolve the dispute. If
a court is not satisfied that the requirements of sub-section 3 have been met, it
may refer the dispute back to the organs of state involved.
6.3.4.
Section 40 of the Intergovernmental Relations Framework Act, 2005 sets out the
legislative guidelines, which persuade all organs of the state to avoid disputes
and to settle such disputes without resorting to judicial proceedings. Organs of
state involved in a dispute are required by section 41 of this Act to initiate direct
negotiations in good faith. Section 42 of the Intergovernmental Relations
Framework Act, 2005 further requires the parties to a dispute to convene a
meeting after the declaration of formal intergovernmental disputes to determine
the nature of the dispute. Parties must agree in a meeting on an appropriate
mechanism and procedure to settle the dispute and to designate a person to act
as a facilitator.
6.3.5.
Section 43 of the Act under discussion, insists that a person designated as
facilitator must assist the parties to settle the dispute in any manner necessary
and submit to the Minister or the MEC for local government in the relevant
province an initial report about the nature of the dispute and procedures to be
used to settle the dispute. A party to a formal intergovernmental dispute may
request assistance in the settlement of the dispute from the Minister or the MEC
for Local Government in the relevant province. No government or organ of state
may institute judicial proceedings in order to settle intergovernmental dispute
unless the dispute has been declared a formal intergovernmental dispute and all
efforts to settle it were unsuccessful.
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6.3.6.
All negotiations, discussions and reports are privileged and may not be used in
any judicial proceedings as evidence. The Intergovernmental Dispute Prevention
and Settlement: Guidelines for Effective Conflict Management gives effect to the
principles and provisions of Chapter 3 of the Constitution. These guidelines give
effect to the Constitutional requirement that all organs of state must, in
complying with their duty to co-operate with one another in mutual trust and good
faith, avoid legal proceedings against one another. The guidelines provide
mechanisms and procedures for preventing and facilitating the settlement of
intergovernmental
disputes
Intergovernmental
Relations
required
Framework
by
the
Act,
Constitution
2005.
and
Appropriate
the
conflict
management is achieved by:
6.3.6.1.
preventing disputes from emerging in the first place. Prevention is better than
resolution in the case of most disputes because it is most costly; and
6.3.6.2.
intervening early when they do emerge and where early intervention does not
succeed, dealing with them effectively and containing them while they are being
dealt with.
6.3.7.
The following steps sum up the guidelines of dispute resolution where the organs
of state are involved in an intergovernmental dispute:
6.3.7.1.
the parties must determine if indeed there is an intergovernmental dispute. In
other words, the dispute must be an intergovernmental one;
6.3.7.2.
the parties must in good faith make every reasonable effort to settle a dispute,
including the initiation of direct negotiations with other party or negotiations
through an intermediary;
6.3.7.3.
before declaring a formal intergovernmental dispute, an organ of state must have
made every reasonable effort to settle the dispute through negotiations. The
declaration of dispute is the end point of the informal dispute settlement stage
and is an acknowledgement that the parties cannot through their own endeavour
settle the dispute within a reasonable time and that they require outside
assistance to do so;
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6.3.7.4.
the parties to a formal intergovernmental dispute must promptly after receipt of
the notification of dispute convene a meeting between themselves, in case of a
failure to convene a meeting depending on the nature of dispute;
6.3.7.5.
a person designated as a facilitator must assist the parties to settle dispute in
any manner necessary;
6.3.7.6.
parties may approach the Minister or an MEC for local government and request
assistance in the settlement of dispute; and
6.3.7.7.
as highlighted above, section 45 of the Intergovernmental Relations Framework
Act, 2005 instructs that no government or organ of state may institute judicial
proceedings unless the dispute has been declared a formal intergovernmental
dispute and all efforts to settle the dispute have been attempted without
resolution of the dispute. Documents prepared for a dispute resolution process
and communication cannot be referred to in subsequent legal proceedings. All
negotiations, discussions and reports are privileged and may not be used in
judicial proceedings as evidence by or against any of the parties to an
intergovernmental dispute.
6.3.8.
The Intergovernmental Relations Framework Act, 2005 was only passed in 2005.
Prior to the enactment of this Act, there was no framework for the resolution of
the intergovernmental disputes as required by section 41 (3) of the Constitution.
The intergovernmental disputes that have arisen before the passing of the
Intergovernmental Relations Framework Act, 2005 have been resolved through
the courts of law. For example, the Western Cape and KwaZulu-Natal provinces
challenged the validity of certain sections of the Municipal Structures Act, 1998.
The Constitutional Court adjudicated this matter. The Constitutional Court
declared some sections of the Municipal Structures Act 117 of 1998
unConstitutional.
6.3.9.
However, it is contested that since the case in issue involved matters of
Constitutional nature, the provisions of the Intergovernmental Relations
Framework Act, 2005 would not have helped. But of great importance in this
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management and administration environment. LP 3,
Unit Standard ID 119334
discussion is the fact that this case illustrates a dispute between the organs of
state. Another dispute between the organs of state was heard by the
Constitutional Court in a matter brought by the Executive Council of the Western
Cape against the national government. The Executive Council of the Western
Cape challenged the validity of amendments to the Local Government:
Transition Act, 1993 made by the President of the Republic of South Africa
through the issuing of proclamations. The Constitutional Court declared the
proclamations invalid.
7.
LEARNING TASKS AND ACTIVITIES
7.1.
CASE STUDIES AND QUESTIONS FOR PRACTICE
7.1.1.
Case Study 1
7.1.1.1.
Assuming that you are a municipal manager of the ATZ local municipality. During
your office of tenure, the ATZ municipality becomes involved in an
intergovernmental dispute with the provincial department of agriculture over the
payment of electricity services rendered to it by your municipality. Both your
municipality and the relevant authorities of the Department of Agriculture
exhausted all the remedies and mechanisms to resolve the dispute but with no
success. A designated facilitator also failed to resolve a dispute. You and the
authorities of the Department of Agriculture approached the MEC and the
Minister for assistance but still a dispute was not resolved. At the end of all, you
had no option but to take this matter to the competent court of law. During the
court proceedings, you tendered all documents regarding dispute resolutions to
court as evidence. The Department of Agriculture argued that evidence in
question is not to be tendered in court.
7.1.1.2.
As the Mayor of the ATZ local municipality, do you think that the municipal
manager was legally procedural to tender evidence of intergovernmental dispute
resolution to court? In your view, what appropriate steps or measures the ATZ
municipality is required to take and how the municipal manager should have
dealt with the issue of evidence under these circumstances.
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8.
SUPPORT MATERIALS AND REFERENCES
8.1.
BOOKS
8.1.1.
Cloete JJM South African Municipal Government and Administration: The New
Dispensation (Dotsquare Publishing (Pty) Ltd 2005)
8.1.2.
Govender S at al Local Government: Fiscal Management and Accountability
Handbook (Open Society Foundation for South Africa: South Africa 2005)
8.2.
CASE LAW
8.2.1.
Constitutional Court Case CCT 27/95
8.3.
GOVERNMENT CIRCULAR
8.3.1.
MFMA Circular No 45: Municipal Finance Management Act 56 of 2003
8.4.
GOVERNMENT GAZETTE
8.4.1.
Government Gazette No 23272 (2002): Special Gazette in Terms of the Division
of Revenue Act 2001 Relating to the Social Grant Arrears
8.4.2.
Government Gazette No 23272: Additional and Adjusted Transfer to Local
Government in Terms of the Division of Revenue Act No 1 of 2001
8.4.3.
Government Gazette No 29422 Intergovernmental Dispute Prevention and
Settlement: Guidelines for Effective Conflict Management 2006
8.5.
LEGISLATION
8.5.1.
Constitution of the Republic of South Africa Act 108 of 1996
8.5.2.
Intergovernmental Fiscal Relations Act 97 of 1997
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8.5.3.
Intergovernmental Relations Framework Act 13 of 2005
8.5.4.
Local Government: Municipal Financial Management Act 56 of 2003
8.5.5.
Local Government: Municipal Property Rates Act 6 of 2004
8.5.6.
Local Government: Municipal Structures Act 117 of 1998
8.5.7.
Local Government: Municipal Systems Act 32 of 2000
8.5.8.
Local Government: Transition Act of 209 of 1993
8.6.
PERIODICALS
8.6.1.
National Treasury “Provincial Budgets and Expenditure Review 2002/032008/09” October 2006
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Unit Three: South African Legal System within the
Public
Sector
Financial
Management
and
Administration
1.
AIM OF STUDY UNIT
1.1.
The aim of this study unit is to enable learners to demonstrate a systematic
understanding of South African legal system within the public sector financial
management and administration.
2.
LEARNING OBJECTIVES
2.1.
After studying this unit, a learner should be able to identify, describe and explain
the following in his or her own words:
2.1.1.
the sources of the South African law
2.1.2.
the South African legal system with reference to particular structures and
systems
2.1.3.
South African legal system in the context of public sector legislation
3.
KEY CONCEPTS
3.1.
Public sector legislation
3.2.
Legal system
3.3.
Organisation
3.4.
Sources of law
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4.
INTRODUCTION
4.1.
This study unit introduces learners to the sources of South Africa legal system.
This study unit will also demonstrate how some of these sources influence the
administration and financial management of the public sector. The South African
legal system (particularly the Constitution and legislation) as sources of law
regulate the relationship between the three spheres of government and the
systems of government. The study of this unit will also provide learners with the
knowledge required to interpret and describe the relevant legislation, which
regulate structures and systems of government. Learners will be able to
satisfactorily examine and fully understand the South African legal system in the
context of the public sector legislation.
5.
KNOWLEDGE ASSUMED
5.1.
Learners’ basic understanding of the principles of the Constitution and the
sources of the South African law is of paramount importance to assist learners to
grasp concepts raised in this study unit. It is assumed that the general
knowledge of learners concerning municipal legislation, regulations and
Constitution will assist learners to gain an in-depth knowledge of this learning
unit.
6.
UNIT CONTENT
6.1.
3.4.1 THE SOURCES OF SOUTH AFRICAN LAW
6.1.1.
The most important sources of the South African legal system are:
6.1.1.1.
legislation;
6.1.1.2.
1996 Constitution;
6.1.1.3.
precedents (Court decisions);
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6.1.1.4.
common law;
6.1.1.5.
custom;
6.1.1.6.
indigenous law or customary law; and
6.1.1.7.
works and writings of modern authors.
6.1.2.
Legislation
6.1.2.1.
The main distinction is made between original and sub-ordinate legislation.
Examples of original legislation are those passed by parliament and the nine
provincial legislatures. Original legislation is the most important and influential
source of local government law. The new local government dispensation was not
only created in terms of legislation but it also functions and operates according to
various pieces of legislation. Subordinate legislation is dependent on original
legislation and derives its authority therefrom. Examples of subordinate
legislation are: regulations, proclamations and by-laws passed by the
municipalities. Regulations may be issued in terms of the original legislation
such as the Municipal Finance Management Act, 2003.
6.1.3.
Precedents (court decisions)
6.1.3.1.
The court interprets all the different sources of South African law. Therefore,
court decisions form an integral part of the South African legal system. In settling
disputes, the court has to ascertain law, apply it to the case and then give
judgements.
6.1.4.
Common law:
6.1.4.1.
When a matter is not specifically governed by legislation, common law usually
applies. This source of South African law is based on the Roman-Dutch law as
influenced by English Common law. Examples of the South African common law
include inter alia law of contract, law of property, administrative law etc.
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6.1.5.
Custom
6.1.5.1.
Custom is unwritten law. It is fixed practices done over a long period of time, that
is acceptable to all and that is reasonable, certain and clear. Custom plays an
important role in indigenous law.
6.1.6.
Works of Modern Writers
6.1.6.1.
Books and articles written by academics and lawyers are useful sources to find
the law. The easiest way to find the law is to consult a textbook on the matter.
6.1.7.
1996 Constitution
6.1.7.1.
The Constitution of the Republic of South Africa is the highest authority of
legislation. All other legislation such as parliamentary, provincial legislation and
by-laws of local authorities must be consistent with the Constitution.
6.1.8.
Indigenous law or Customary law
6.1.8.1.
Indigenous law or customary law is generally of little importance to this
discussion. However, knowledge of indigenous law becomes more relevant in
rural municipalities where traditional leaders participate in the proceedings of
Municipal Councils. For example, section 81 of the Municipal Structures Act,
1998 provides that traditional authorities that traditionally observe a system of
customary law may participate through their leaders in the proceedings of the
Council. Furthermore, the Constitution recognises the institutions of customary
law. The 1996 Constitution especially Chapter 12 and the national legislation
such as the Municipal Structures Act, 1998 are the sources of the South African
indigenous law or customary law.
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6.2.
THE
SOUTH
AFRICAN
LEGAL
SYSTEM
WITH
REFERENCE
TO
PARTICULAR STRUCTURES AND SYSTEMS
6.2.1.
Systems of government
6.2.1.1.
The following systems of government are important for our discourse and are
discussed hereunder:
6.2.1.2.
National Government
ˆ The South African law, in particular the 1996 Constitution situates the
structures of the government at the centre of the three spheres namely,
national, provincial and local levels within a broader spectrum of corporate
governance. The powers of the structures of government namely: lawmakers
(legislative authorities), governments (executive authorities) and the courts
(judicial authorities) are separate from one another as defined in the
Constitution. Parliament is the creature of Chapter 4 of the 1996 Constitution.
This body is the legislative authority of South Africa and has the power to
make laws for the country in accordance with the Constitution. It consists of
the National Assembly and the National Council of Provinces (NCOP).
Parliamentary sittings are open to public. Any Bill passed by the National
Assembly must be referred to the NCOP for consideration.
ˆ In terms of section 91 of the Constitution, the Cabinet consists of the
president as its head, the Deputy President and Ministers. The President
assigns their powers and functions and may dismiss them. Ministers are
heads of their departments. Both ministers and their deputies are responsible
for policy formulation and implementation. With regards to courts and
administration of justice, Chapter 8 of the Constitution deals with the judicial
authority of the country.
ˆ The judicial authority of the Republic is vested in the courts. The courts are
independent, subject only to the Constitution and must apply law without
fear, favour or prejudice. No courts may interfere with the functions of the
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other courts. Organs of state, through legislative and other measures must
assist and protect the courts to ensure the independence, impartiality,
dignity, accountability and effectiveness of the courts.
6.2.1.3.
Provincial Government
ˆ Chapter 6 of the Constitution recognises nine provinces of the Republic of
South Africa. In accordance with the Constitution, each of the nine provinces
has its own legislature. It consists of 30 to 80 members. The members are
elected in terms of proportional representation. The Executive Council of a
province consists of a Premier and a number of members. For example,
Members of Executive Council (MECs) for agriculture, local government, etc.
The provincial legislature elects the Premier (a head of the provincial
executive council). Decisions are taken by consensus as happens in the
national cabinet. Besides being able to make provincial laws, a provincial
legislature may adopt a Constitution for its province if two thirds of its
members agree. However, a provincial Constitution must correspond with the
national Constitution as confirmed by the Constitutional Court. The following
diagram depicts the organisational structures of the provincial sphere of
government:
Diagram: Provincial sphere of government
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ˆ In terms of the Constitution, provinces may have legislative and executive
powers over, among many other things, agriculture, casinos, racing,
gambling and wagering, cultural affairs, education at all levels, excluding
university and technicon education, environment, health services and
housing, etc. These powers can be exercised to the extent that provinces
have the administrative capacity to assume effective responsibilities. Issues
of national, provincial and local importance are discussed in the Premiers’
Forum. The Premiers’ Forum is, inter alia responsible to improve cooperation between national and provincial spheres of governments to
strengthen local government, ensure that there are co-ordinated programmes
of implementation and the necessary structures to address issues such as
rural development, urban renewal, safety and security to improve cooperation on fiscal issues, etc.
6.2.1.4.
Local Government
ˆ Chapter 7, especially section 155 of the Constitution recognises the local
sphere of government, which consists of municipalities. The Constitution
provides for three categories of municipalities namely, metropolitan
municipalities, district municipalities and local areas or municipalities. The
Municipal Structures Act, 1998 confirms the Constitution thereby establishing
these categories of municipalities. This Act also outlines the functions and
powers of each municipality. On the other hand, the Municipal Finance
Management Act, 2003 provides for a legal framework which reforms and
modernises the financial status and management of these categories of
municipalities.
ˆ The governing body of a municipality is a municipal Council. This body has
legislative authority. It makes by-laws and oversee the financial affairs of the
municipality. The Municipal Council through the Municipal Executive
Committee administers the affairs of a municipality to ensure effective and
efficient provisioning of services such as health services, water, electricity,
housing etc. The following diagram depicts the organizational structure of a
municipality:
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Diagram: Local sphere of government
ˆ The Constitution has enhanced the status of local government as a whole
and municipalities in particular and has given them a new dynamic role as
instruments of delivery. The Constitutional functions of a municipality include
inter alia a duty to provide democratic and accountable government for local
communities, to ensure the provision of services to communities in a
sustainable manner, to promote a safe and healthy environment and to
promote social and economic development.
ˆ The local government is further to provide democratic and accountable
government for local communities so as to promote social and economic
development. The relationship between the local government and other
spheres of government is outlined in Chapter 3 of the Constitution. This
Constitutional relationship between the local government and other spheres
of government has been discussed in full in Unit One of this module.
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6.2.2.
Structures of government
6.2.2.1.
There are various structures of government, which play a critical role in
intergovernmental affairs of the state. For example, the Parliament has since
passed the Intergovernmental Relations Framework Act, 2005 to promote and
facilitate intergovernmental relations. This Act especially sections 6, 16 and 24
establishes structures and institutions such as the President’s Co-ordinating
Council, the Premiers Forum and the Intergovernmental Municipal Forums to
facilitate intergovernmental relations and strengthen co-operate governance.
There is also the South African Local Government Association (SALGA), which
has a mandate to transform local government in South Africa and to represent
the interests of organised local government. It is also important to note that some
of these structures have been discussed in Unit One of this module.
6.3.
THE SOUTH AFRICAN LEGAL SYSTEM IN THE CONTEXT OF PUBLIC
SECTOR LEGISLATION
6.3.1.
Overview
6.3.1.1.
There are two important broad concepts, which are used in this discourse
namely: “South African legal system” and “public sector” The words “South
African legal system” refers to a variety of legal sources, which directly or
indirectly influence the administration of the public sector. The words “public
sector” refers broadly to public administration of the three spheres of government
and organs of the state. Therefore, the South African legal system will be
discussed generally to refer to public sector with particular emphasis on the local
government.
6.3.1.2.
The South African legal system influences the public sector in many ways. There
are various components and sources of South African law which impact on the
functioning of the public sector. These include the Constitution, legislation,
common law and case law. This means that not only the local government laws
regulate public sector such as the local government or municipalities but other
sources of South African law are critical in this regard. In principle, there are four
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main sources of South African legal system which impact directly on public
sector. They are:
ˆ 1996 Constitution;
ˆ legislation and common law; and
ˆ legal precedents or case law.
6.3.1.3.
Public sector is confronted with almost all aspects of the South African law. A
consolidated legal framework for democratic, accountable and developmental
public sector is anchored among many other things, on national legislation and
policies. Since the advent of democracy in 1994, a far-reaching package of
legislation and policies has been introduced to ensure that public sector is more
accountable, financially sustainable and is capable of delivering services to all
citizens of South Africa.
6.3.2.
1996 Constitution
6.3.2.1.
The Constitution is the highest and most important law (supreme legislation) of
the land. No other law or government action can supersede the provisions of the
Constitution. The importance of the Constitution and its Bill of Rights as the
source of South African legal system is of particular relevance to the public
sector. The South African legal system in general and more particularly the
provisions of the Constitution relating to public sector form not only the basis on
which all municipalities must function but also set the scene within which
municipalities and other government bodies are to fulfil and perform their new
Constitutional role and obligations.
6.3.2.2.
The nine principles governing public administration provided in section 195 of the
Constitution insist that public services should be promoted and that public
servants should commit themselves to provide services of standard that meets
the needs of the customers. These principles are that:
ˆ a high standard of professional ethics must be promoted and maintained;
ˆ efficient, economic and effective use of resources must be promoted;
ˆ public administration must be development-oriented;
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ˆ services must be provided impartially, fairly, equitably and without bias;
ˆ people’s needs must be responded to and public must be encouraged to
participate in policy-making;
ˆ public administration must be accountable;
ˆ good human-resource management and career development practices to
maximise human potential must be cultivated; and
ˆ public administration must be broadly representative of the South African
people.
6.3.2.3.
The Constitution mandates the parliament to enact national legislation to ensure
the promotion of the values and principles governing public administration. The
basic values and principles should guide the actions of politicians and public
officials.
6.3.3.
Legislation and common law
6.3.3.1.
Legislation is without a doubt the most important and influential source of public
sector law. For example, the new local government dispensation is not only
created in terms of the Constitution but it also functions and operates according
to various pieces of legislation. This legislation excluding local government law
include, inter alia the Promotion of Access to Information Act, 2000, the
Promotion of Administrative Justice Act, 2000, the Promotion of Equality and
Prevention of Unfair Discrimination Act, 1999 and a host of government policies
such as the Batho Pele White Paper and the White Paper on Local Government.
Other common law issues relevant to public sector include, inter alia the law of
contract, the law of property, criminal law, administrative law and labour law.
Municipalities are often involved in contractual, labour, Constitutional and
administrative matters.
6.3.3.2.
All these components of the South African law shape and influence public
administration. For example, public sector is often involved within the ambit of
criminal law. Public sector personnel can be held criminally liable for their
activities within public domain. So, it is possible for municipal official, mostly the
municipal manager to be held liable for non-compliance with certain legislative
requirements. The above legislation is discussed hereunder:
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6.3.3.3.
Promotion of Administrative Justice Act, 2000
ˆ The Promotion of Administrative Justice Act, 2000 is based on the 1996
Constitution, which expressed vision of safeguarding and protecting
individuals against any abuse of power by organs of state. This Act confirms
the people’s right to consultation and redress if his or her rights are adversely
affected by an administrative action. The objects of the Promotion of
Administrative Justice Act, 2000 include, inter alia providing an efficient
administration and good governance, creating a culture of accountability,
openness and transparency in the public administration or in the exercise of
a public power or the performance of a public function.
ˆ The fundamentals of ensuring good governance at local government level
are enshrined in the Promotion of Administrative Justice Act, 2000. This Act
proposes a system of administrative justice that is fair and just. For the
municipalities, the Act gives communities the right to request participation in
developmental local government, for example through the IDPs. Public
officials perform public functions, as a result this Act directs them to ensure
that their administrative functions are discharged with due regard to
representative and participatory democracy, accountability, transparency and
public involvement.
ˆ It is apparent from the Promotion of Administrative Justice Act, 2000 that
transparency is an important element of any administration, including the
administration of the municipalities. Discussions, which are shrouded in
secrecy lead to suspicion and distrust on the part of the public. This Act
attempts to assist in establishing a culture of openness in public sector.
6.3.3.4.
Promotion of Access to Information Act, 2000
ˆ The Act recognises the inherent right of all persons to have access to
information and requires those who withhold information to justify their
actions. Through the promotion of freedom of information, ordinary citizens
will be involved in public debate on issues, which affect them. With regards to
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the local government, these issues should be tabled on the agenda for
budgeting consideration through the IDP. Planning and resources must be
channelled towards dialogue with affected communities.
ˆ It is in this context that this Act gives effect to citizen’s Constitutional right of
access to information held by the state and any information that is held by
another person and which is required for the exercise or protection of any
rights, in order to:
ƒ
foster a culture of transparency and accountability in public services by
giving effect to the right of access to information; and
ƒ
promote a society in which the people of South Africa have effective
access to information to enable them to exercise and protect their rights.
ˆ For the public sector such as the municipalities, this Act attempts to foster
the culture of accountability in municipal officials to promote a society in
which the people of South Africa could have effective access to information
that enables them to exercise and protect all their rights. Municipal officials
must display maximum responsiveness to ensure checks and balances
against the abuse of power.
6.3.3.5.
Promotion of Equality and Prevention of Unfair Discrimination Act, 2000
ˆ The 1996 Constitution places a duty on both the state and private persons
not to discriminate unfairly. The principle of equality is core value of the
Promotion of Equality and Prevention of Unfair Discrimination Act, 2000
(herein referred to as the “Equality Legislation”). The Act prohibits the public
officials to unfairly discriminate against any person on the grounds of race,
gender, status, etc. The provision of services by the public officials must be
guided by the principle of equality and fairness. This piece of legislation
endeavours to facilitate and create a democratic society guided by the
principles of equality, fairness, equity, social progress, justice, human dignity
and freedom. These principles must be inculcated in public administration as
required by the Constitution. The Equality legislation aims at restructuring our
society and public institutions.
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6.3.4.
Government Policy
6.3.4.1.
Batho Pele Principle
ˆ A guiding principle of the public sector in South Africa is that of the Batho
Pele. The Batho Pele means “the People First”. This principle is provided for
by the policy on transformation of public service. The sacrosanct principles of
Batho Pele are embodied in a policy document on Transforming of Public
Service Delivery. This policy like the Constitution of South Africa provides for
principles governing the country. The Batho Pele principle provides that
“citizens should be regarded as customers” and public sector must work hard
on customer satisfaction and improve service delivery. This implies:
ƒ
listening and taking into account the customer’s views;
ƒ
treating them with consideration and respect;
ƒ
treating them fairly. This means that public officials should not
discriminate among people on the grounds of race, religion, culture or
gender when delivering services. The Bill of Rights as part of the
Constitution guarantees equality by stating, inter alia that: Everyone is
equal before the law and has the right to equal protection and protection
of the law. For municipalities and other organs of public sector, these
Constitutional and the Batho Pele principles emphasise equality in
government services;
ƒ
responsiveness to the needs of the citizens rather than the needs of
public institutions;
ƒ
responsibility for decisions and program implementation affecting the
needs of the people; and
ƒ
change in the management and administration of public institutions. This
change also refers to the change of mindset of officials when serving the
people. It is for this reason among many others, that the Batho Pele
demands positive attitudes from the public officials.
ˆ The Batho Pele principles demand that people’s needs must be promptly
responded to and good human relations with the people must be cultivated.
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The Batho Pele principles are critical and premised on the African values
such as Ubuntu and the spirit of collectivism. The principle of Ubuntu
requires public officials to treat the people or customers with care, respect
and passion. The public officials should know the communities they serve
better. In this regard, the actions and behaviours of communities are
influenced by their values. Therefore, public officials should acknowledge
and be conversant with the current community values because the
satisfaction of communities in service will be guided by the values of those
communities concerned.
ˆ The Batho Pele principles note that the development of service-orientated
culture
requires
the
active
participation
of
the
wider
community.
Municipalities and public sector in general need constant feedback from the
community and service-users if they are to improve their operations. The
most powerful mandate for efficient, accountable and democratic public
administration is clearly emphasised and articulated in the eight principles of
the Batho Pele. These principles are summarised as follows:
ƒ
Consultation: Citizens should be consulted about the level of the public
services they receive and wherever possible should be given a choice
about the services that are offered;
ƒ
Service standards: Citizens should be told what level and quality of
public service they will receive so that they are aware of what to expect;
ƒ
Access: All citizens should have access to the services to which they are
entitled;
ƒ
Courtesy: Citizens should be treated with courtesy and consideration;
ƒ
Information: Citizens should be given full and accurate information about
the public services they are entitled to receive;
ƒ
Openness and transparency: Citizens should be told how national,
provincial and local departments are run, how much they cost and who is
in charge;
ƒ
Redress: If the promised standard service is not delivered, citizens
should be offered an apology, a full explanation and a speedy and
effective remedy; and
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ƒ
Value for money: Public services should be provided economically and
efficiently in order to give citizens the best possible value for money.
ˆ One of the pillars of the Public Service Management Framework is integrated
planning and central to this process is the need to develop a Service Delivery
Improvement Plan (SDIP). This plan focuses on strategies to bring the Batho
Pele principles to life and to make successful, efficient and effective service
delivery a reality. Each department within the public service should have
SDIP, which includes a Service Delivery Charter.
ˆ The responsibility for developing and implementing a Service Deliver Charter
vests with the institutions responsible for services to the public. A Service
Deliver Charter is an important tool to reinforce the department’s or the
component’s commitment to service delivery improvement for all end-users,
help the department rise to the challenges of treating citizens as customers
and meeting their demands equitably and fairly and immeasurably enhance
communications with customers.
6.3.5.
Regulations and Code of Conduct
6.3.5.1.
Public Service Regulations, 1997
ˆ The Public Service Regulations 1997 promote key principles:
ƒ
effective and efficient service delivery;
ƒ
responsibility that is based upon proper consultation with the public;
ƒ
clear and measurable service standards;
ƒ
equal access to public services,
ƒ
courtesy;
ƒ
openness, transparency and resources; and
ƒ
mechanisms for redress in case of failure to deliver promised service
standards and providing the public with the best possible value for
money.
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ˆ The public officials must comply and embrace the values and norms of these
Public Service Regulations. These regulations and principles are important
guidelines necessary to improve public services delivery programmes.
6.3.5.2.
Code of Conduct for Public Servants
ˆ The Code serves as a guideline to public employees as to what is expected
of them from an ethical point of view both in conduct and in their relationship
with others. For example, relationship with the legislative and the executive,
relationship with the public and employees etc. Generally speaking, the Code
of Conduct for Public Servants requires employees to:
ƒ
strive to achieve the objectives of public sector in the public interest;
ƒ
be punctual in the execution of his or her duties;
ƒ
executes his or her duties in a professional and competent manner;
ƒ
be honest and accountable in dealing with public funds;
ƒ
promote efficient, effective and transparent administration;
ƒ
report to the appropriate authorities, fraud, corruption, nepotism, maladministration and any act which constitutes an offence or which is
prejudicial to the public interest; and
ƒ
honour the confidentiality of matters, documents and discussions etc.
ˆ This Code of Conduct is an important tool, which indicate the spirit in which
employees should perform their duties, what should be done to avoid conflict
of interest and what is expected of them in terms of their personal conduct in
public and private life. Compliance with the Code can be expected to
enhance professionalism and help to ensure confidence in the public sector
including the municipalities.
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7.
LEARNING TASKS AND ACTIVITIES
7.1.
CASE STUDIES AND QUESTIONS FOR PRACTICE
7.1.1.
Case Study 1
7.1.1.1.
On the 15 January 2005, Mr. Jackson Ndimande, a prominent civil engineer in
the municipal area of Ndima local municipality filed an application for a site in the
municipal office. Mr. Jackson desperately needs the site for the construction of
an engineering workshop building necessary to carry out his engineering
activities. Twelve months down the line, Mr. Jackson is still waiting. He
frequented the municipal office requesting the outcome of his application. He
had since been ignored by the Ndima municipal officials. He reported his
frustrations and otiose delays to the municipal manager and ward councillor
without any success.
7.1.1.2.
You are the Mayor of the Ndima local municipality, Mr. Jackson approached you
and requested your intervention in this matter. What basic values and
Constitutional principles do you think should guide the actions of the municipal
officials regarding the application of Mr. Jackson Ndimande? How will you use
the Batho Pele principles to guide your colleagues in promoting a high standard
of professional ethics?
7.1.2.
Questions for practice
7.1.2.1.
Question 1
ˆ In a democracy, public sector should spent money in an accountable way.
Regarding this huge task of financial management in public sector, regulatory
mechanisms were put in place to ensure a sound financial management.
This regulatory framework includes legislation and policies intended to
improve financial management of a public sector. Attention is given to
improving internal controls, to develop tools and procedures to facilitate the
compilation of annual financial statements and budgets.
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ˆ In view of the above, critically discuss the following:
ˆ How can public sector in general and a municipality in particular improve and
promote public administration for the procurement of service delivery within
the framework of regulatory mechanisms set out by the legislation and
government policies?
8.
SUPPORT MATERIALS AND REFERENCES
8.1.
BOOKS
8.1.1.
Bekink B Principles of South African Local Government Law (Butterworths:
Durban 2006)
8.2.
GOVERNMENT POLICY
8.2.1.
White Paper on Transforming Public Service Delivery 1995
8.3.
GOVERNMENT REGULATIONS
8.3.1.
Public Service Regulations 1997
8.3.2.
Document on Code of Conduct for Public Servants issued in terms of Public
Finance Management Act 1 of 1999
8.4.
LEGISLATION
8.4.1.
Constitution of the Republic of South Africa Act 108 of 1996
8.4.2.
Promotion of Access to Information Act 2 of 2000
8.4.3.
Promotion of Administrative Justice Act 3 of 2000
8.4.4.
Promotion of Equality and Prevention of Unfair Discrimination Act 4 of 2000
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Unit Four:
Legislative Regulations and Legal
Principles as Applied to Contracts
1.
AIM OF STUDY UNIT
1.1.
The aim of this study unit is to enable learners to demonstrate a sound
understanding of legislative regulations and legal principles as applied to
contracts
2.
LEARNING OBJECTIVES
2.1.
After studying this unit, a learner should be able to identify, explain and interpret
the following in his or her own words:
2.1.1.
essential elements required for the establishment of a valid contract
2.1.2.
legal documents required to support contracts
2.1.3.
terms and conditions for different levels of performance to discharge contractual
obligations
2.1.4.
forms of breach of contract and related remedies
2.1.5.
general employment contract with reference to South Africa law of employment
2.1.6.
cases that require experts in the development of documents and contracts that
fall outside own level of authority
2.1.7.
delictual liability in contrast with contracts
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3.
KEY CONCEPTS
3.1.
Contractual obligations
3.2.
Performance
3.3.
Employment contract
3.4.
Legal document
3.5.
Remedies
3.6.
Delictual liability
4.
INTRODUCTION
4.1.
The purpose of this study unit is to give an introduction to the legal principles of
contract and to find a workable discussion to specifically deal with essential
elements required for the establishment of a valid contract, different levels of
performance to discharge contract obligations, legal documents supporting
contracts, experts in the development of contracts, forms of breach of contract
and related remedies, general employment contract and delictual liability
in
contrast of contracts. Learners will acquire basic knowledge regarding the legal
consequences of different contracts.
5.
KNOWLEDGE ASSUMED
5.1.
General understanding of the basic principles of contract is essential for the
mastery of this study unit. Some work experience on development of contracts is
also recognised for the execution of this study. It is assumed that learners have
basic knowledge of law of contract especially the law relating to purchase and
sale as well as law of contract of employment. What is most important, however,
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is that learners have a knowledge of different types of contracts especially
contract of sale of land, credit agreements, contract of surety etc.
6.
UNIT CONTENT
6.1.
ESSENTIAL
ELEMENTS
FOR
THE
ESTABLISHMENT
OF
A
VALID
CONTRACT
6.1.1.
Overview
6.1.1.1.
Local government contracts have many special features that distinguish them
from ordinary private law contracts. They differ from ordinary contracts with
regard to the policies they aim to achieve, the importance from a public interest
point of view, their needs for flexibility and control and the large amounts of
money involved. In view of this complex background, the local government
officials who enter into contracts for and on behalf of the municipalities must
acquaint themselves with the essentialia of contract. The following are the
essentialia or essential elements for the establishment of valid contract, namely:
ˆ consensus;
ˆ contractual capacity
ˆ lawfulness or legality;
ˆ formalities; and
ˆ certainty and possibility of performance.
6.1.2.
Consensus
6.1.2.1.
The basis of a contract is consensus. By consensus, it means the actual meeting
of minds of the contracting parties or at least the reasonable belief by one of the
contracting parties that there is consensus. In principle, it is therefore quite
acceptable to say that a contract comes into existence if the parties are agreed
on creating between themselves an obligation or several obligations as well as
on all its particulars such as its content and subsidiary features.
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6.1.2.2.
If for example, Marula local municipality intends to buy a car from Pretoria
Toyota, a contract will arise if both the contracting parties of Marula local
municipality and Pretoria Toyota agree on the object (car) which Pretoria Toyota
must deliver and the price which Marula local municipality must pay in return. In
other words, for the contract to arise both parties, that is the Marula municipality
and Pretoria Toyota must agree on the consequences they wish to create. The
contracting parties must intend to bind themselves and be aware of their
agreement.
6.1.2.3.
For example, where Pretoria Toyota is not aware of the intention of Marula local
municipality to buy one of its cars, it cannot be said that there is a contract
between Marula municipality and Pretoria Toyota. For the purpose of the law,
consensus exists only if the parties who agree are aware of their agreement.
6.1.3.
Contractual Capacity
6.1.3.1.
The second requirement for the conclusion of a valid contract is contractual
capacity. All persons in our law have legal capacity, which means that they are
carriers of rights and duties, yet not all persons have the ability to obtain rights
and duties by concluding contracts. Contractual capacity requires the ability to
create an intention and the ability to act and understand the consequences of the
formal intention. Our law distinguishes between natural persons and legal
persons.
6.1.3.2.
Natural persons are people while legal persons are created through a legal
process such as companies, close corporations and statutory entities. The
municipalities and municipal entities are legal persons. Municipalities as legal
persons are immaterial things. Therefore, although they are entitled to enter into
contracts, they can never act on their own. They carry out their actual actions
through agents or representatives. The municipal representatives require the
necessary authority to act on behalf of a municipality. The legislation determines
the extent of the contractual capacity of these representatives.
6.1.3.3.
For example, section 116 of the Municipal Finance Management Act, 2003
requires the accounting officer to take all reasonable steps to ensure that a
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contract or agreement procured through the supply chain management policy of
the municipality is properly enforced. In this instance, the municipal manager as
accounting officer has authority or capacity to enter into contracts procured
through the supply chain management policy. Certain categories of officials or
municipal representatives have authority or capacity to enter into contracts for
and on behalf of a municipality. This means that certain categories of municipal
officials have no contractual capacity and therefore, cannot enter into contracts
on behalf of a municipality.
6.1.4.
Lawfulness or legality
6.1.4.1.
A further requirement for a valid contract is that it must be lawful. In principle, an
agreement (contract) must be legal. A contract is lawful when it has been
concluded in accordance with statute or common law. A contract violates the
common law if it is against public policy or morals. In other words, if it is contra
bones mores. Legislation often prohibits these kinds of contracts because they
are in conflict with public policy. Typical instances of illegality occur where the
conclusion of an agreement or the agreed performance of the contract for which
the agreement is concluded is contrary to the law and public policy. A statute
may express in clear terms that certain agreements will be illegal if they do not
comply with the statutory requirements.
6.1.4.2.
For example, the Municipal Finance Management Act, 2003 expresses in clear
terms the lawfulness of contracts having future budgetary implications. In terms
of this Act, a municipality may not enter into a contract, which will impose
financial obligations on the municipality beyond a financial year. However, if the
contract imposes financial obligation on a municipality beyond the three years, it
may do so only if, inter alia the Council has approved the contract, the municipal
manager has made the draft contract public and has invited the community and
other interested persons to submit to municipality comments or representations.
The
municipal
manager
is
also
required
to
solicit
the
views
and
recommendations of National Treasury and the relevant provincial treasury, the
national department responsible for local government.
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6.1.4.3.
In this regard, agreements of the municipality are illegal if they are in conflict, for
instance, with the relevant provisions of the Municipal Finance Management Act,
2003 and other statutes or common law. For example, if WZY local municipality
enters into a contract which will impose financial obligations on the municipality
beyond a financial year and its municipal manager does not make a draft
contract public or fail to solicit the views and recommendations of the National
Treasury, such a contract will be illegal in terms of the Act under discussion.
6.1.5.
Formalities
6.1.5.1.
The general rule is that no formalities are prescribed for the validity of a contract.
Legislation has, however, created exceptions to the general rule. The formalities
imposed by the law for some contracts are the following:
ˆ a contract must be in writing;
ˆ a contract must be notarilly executed; and
ˆ a contract must be registered.
6.1.5.2.
For example, section 116 of the Municipal Finance Management Act, 2003
provides that a contract or agreement entered or procured through the supply
chain management system of municipality or municipal entity must be in writing.
In other words, the Municipal Finance Management Act, 2003 has created
formalities for contract of supply chain management. Let us say WYZ local
municipality enters into a contract of procurement through its supply chain
management unit without complying with the provisions of the Municipal Finance
Management Act, 2003 such a contract will be void.
6.1.5.3.
The Act further requires that the contract or agreement procured through the
supply chain management system of a municipality must stipulate the terms and
conditions of the contract include provisions for the termination of the contract in
case of under performance, dispute resolution mechanism to settle disputes
between the parties and a periodic review of the contract. Section 116 (2) of the
Municipal Finance Management Act, 2003 requires accounting officer to take all
reasonable steps to ensure that contract is properly enforced and monitored. As
a general rule, when writing is required for a contract to be valid, all the forms of
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contract must be in a written document. All the parties must sign a written
document. Any amendments or additions must also be in writing. The following
diagram gives a picture of the essential elements of a valid contract:
Diagram: Requirements for a valid contract
6.1.6.
Performance must be certain and possible
6.1.6.1.
One of the essential elements for the establishment of a valid contract is that the
performance agreed upon must be objectively possible when the agreement is
concluded. An agreement will therefore not be a contract and will not create
obligations if performance is initially objectively impossible. If performance is
objectively impossible when the agreement is concluded, no obligation arises in
respect of that performance. Performance must therefore be certain or
reasonably ascertainable. Secondly, the performance itself must be possible.
6.1.6.2.
As a general rule, it can be stated that when the performance is impossible, the
contract will be void. For example, ABR district municipality entered into a
contract with Pretoria Equipment Co. to buy equipments and plants for the
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municipality. The total amount of the equipments and plants is R1.5 million. It
later transpired that the ABR district municipality did not budget for such
equipments. However, the municipal manager of ABR district municipality
insisted on buying the equipments.
6.1.6.3.
It is impossible for the ABR district municipality to discharge one of its
contractual obligations of effecting payment of R1.5 million. Therefore, the
contract between ABR district municipality and Pretoria Equipments Co. is void
because one of the parties cannot perform.
6.2.
LEGAL DOCUMENTS REQUIRED TO SUPPORT CONTRACTS
6.2.1.
There are various legal documents required to support contracts depending on
the nature and scope of a particular contract. In most cases, legislation specifies
and prescribes the required legal documents. However, contracting parties may
agree about the formalities of their contract and documents necessary for the
conclusion of their contract. As a point of departure, it is important to identify
different types of contracts in order to establish legal documents required to
support contracts. For the purpose of this discussion, the following different
types of contracts are important for our consideration:
6.2.2.
Contract of sale of land
6.2.2.1.
The officials of the municipalities are always involved in the acquisition and
purchase of land on regular basis. Therefore, their understanding of legal
documents required for contract of sale is important. Various formalities for the
conclusion of a binding contract of sale of land have been prescribed by statute.
The Alienation of Land Act, 1981 is the most important legislation in this regard.
The Act requires that alienation of land must be contained in a title deed or deed
of alienation. Title deed is any deed registered in a deeds office, which proves
that a certain person (juristic or natural person) is the owner of a certain piece of
land. For example, if XYZ local municipality owns property, it will have a “Title
deed” to prove it.
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6.2.2.2.
The title deed is usually in the form of either a deed of transfer or a certificate of
title. The term deed of transfer is the document, which serves as the vehicle by
which property is transferred from one person to another once registered, the
deed of transfer is the title deed of the new owner. In practice, it works for
example, in this way: Deed of Transfer No. T1230/00. Title deed must be signed
by the contracting parties or by their agents acting on their written authority,
which purports to deal with the alienation of land as follows:
ˆ the general principle is that such land must be described in the deed of
alienation in such a manner that it is capable of objective identification;
ˆ the identity of the parties must appear on the deed of alienation, it must be
clear who the alienator of the land is and who the alienee is;
ˆ the essentialia of the contract in question, whether it be a contract of sale;
ˆ the other material terms on which the parties have agreed;
ˆ the signature of every party to the contract or that of his agent;
ˆ prescription of the land which appears in the title deed includes:
ˆ a reference to the physical location of the property, for example its street
address;
ˆ a reference to the popular name of the entity, for example “the
ˆ farm Manzini, Rustenburg”;
ˆ a reference to an objectively determinable relationship between the land and
a particular person, for example X’s farm;
ˆ a reference to a plan or diagram on which the boundaries of the land are
marked; and
ˆ a description, which refers to existing beacons.
6.2.2.3.
In terms of section 2(1) of the Alienation of Land Act, 1981, all the material terms
of sale of land must be contained in a deed of alienation. The terms of sale of
land must be in writing. This means that all material terms must be contained in
the document.
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6.2.3.
Credit Agreement
6.2.3.1.
Municipalities are involved in various contractual relationships on a regular basis.
As a sphere of government and a legal entity, a municipality is legally
empowered to enter and conclude contracts such as credit agreements. The
National Credit Act, 2005, regulates credit agreements. The Act clearly stipulates
documents, which must support credit agreement. If the consumer is a natural
person, his or her identity number is required. In the case of a person who is not
a South African citizen and who does not have an identity number his or her
passport number is construed as a supporting document. Salary advice or
payslip is also an important document in this regard. A copy of the physical
address of the consumer is also an essential requirement.
Some of these
required documents are not necessarily relevant and applicable in a case where
a municipality enters into a credit agreement.
6.2.3.2.
However, in case of a juristic person, for example a municipal entity, its
registration number is required. Credit agreement may also apply to the state or
an organ of state. If the agreement is a credit facility, the credit limit under that
facility and the information about the expiry date of the agreement will be
required. Credit bureau information also forms an integral part of the supporting
documents for credit agreements. This information includes, inter alia, a person
credit history, a person’s financial history, a person’s education, employment,
career, professional or business history, a person identity, including the person’s
home, date of birth, identity number, marital status, current address etc. Again,
some of the required credit bureau information and documents cited above, are
to some an extent irrelevant for the municipalities but worth noting for this
discussion.
6.2.3.3.
Any credit agreement must be in writing and signed by or on behalf of every
party thereto. The parties to the contract may prescribe other documents they
wish to attach to their credit agreement. However, the National Credit Act, 2005
bar the credit provider from including unlawful provisions of credit agreement.
For example, the credit provider is not allowed to retain or keep in his
possession the identity document, credit or credit card, bank account or
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automatic teller machine, access card, a personal identification code or a
number to be used to access an account.
6.2.3.4.
In addition to legislative requirements on municipal debts, the Municipal
Regulation Debt Disclosure requires a municipality entering into discussions with
a prospective lender with a view to incurring short-term or long-term debt to
make available to the prospective lender, other creditor or underwriter certified
copies of:
ˆ its audited financial statements for preceding three financial years;
ˆ its approved annual budget;
ˆ the municipality’s development plan or multi-year business plan in case of a
municipal entity; and
ˆ its repayment schedule pertaining to its existing short-term and long-term
debt.
6.2.4.
Contracts of Suretyship
6.2.4.1.
The contract of suretyship is an important document where a person (surety)
undertakes to pay in the event a debtor fails to pay. This document contains an
original undertaking made on condition of non-payment by the debtor. In terms of
the General Law Amendment Act, 1956, a contract of surety is only valid if it is in
writing and signed by or on behalf of the surety. The document, which outlines
the security of the surety is required as the supporting document.
6.2.4.2.
For example, in terms of the Supply Chain Management: A Guide For
Accounting Officials of Municipalities and Municipal Entities, 2005 bid securities
are normally required from the bidders in the construction and engineering
disciplines as well as from the auctioneers. The accounting officer may decide
whether bidders should supply bid security at the bidding phase. Bid security
should not be set so high as to discourage bidders. All the necessary bid security
documents are required and served as the essential instruments in the bidding
process.
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6.2.5.
Contract of the movable property
6.2.5.1.
Generally, the law requires certain documents to accompany the contract of
movable property. For example, registration certificate of a motor vehicle.
6.2.6.
Contract of employment
6.2.6.1.
Employment contract reduced to writing, is an important document as it sets the
boundaries to the legal relationship between an employer and the employee.
The contract of employment should contain clauses covering inter alia: the
names, ID numbers and addresses of the parties, the place of work, a job
description of the employee, the date on which employment begins, probationary
period, the employee’s ordinary hours of work and overtime, medical and
pension benefits and retirement age.
6.3.
TERMS AND CONDITIONS FOR DIFFERENT LEVELS OF PERFORMANCE
TO DISCHARGE CONTRACT OBLIGATION
6.3.1.
Contractual obligation envisages performance. Therefore, contract is ended
naturally when the required performance is duly made. In other words, when the
contractual obligation is performed or fulfilled. Performance is a juristic act,
requiring the participation of both the creditor and the performer. Apart from
performance due in terms of the obligation, the parties must intend to extinguish
the obligation by the performance. Terms and conditions of performance are
discussed hereunder:
6.3.2.
The required performance is important to discharge contractual obligation.
Performance requires that whatever is due under the obligation should be
performed specifically. The debtor does not enjoy an election to pay damages in
lieu of performance. The creditor may refuse to accept an offer of performance
which differs from the performance stipulated in the contract. It is important to
note that the legal rights of any creditor or person having a claim against a
municipality are not limited by the Municipal Finance Management Act, 2003.
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Should the creditor agree to accept performance other than that which was due,
a conditional fulfilment of the obligation is effected.
6.3.3.
Monetary obligations must be discharged by payment of the appropriate sum of
money that is banknotes or coins recognised as legal tender. According to trade
usages, when payment by cheque is handed to the creditor, payment takes
place subject to the conditions that the cheque will not be dishonoured. The
contract remains in force until such time as the bank has effected payment upon
the cheque. Should the cheque be dishonoured, the contract remains in force
and the creditor can act thereon against the debtor.
6.3.4.
If the bank does effect payment upon the cheque, payment is deemed to have
taken place when the cheque was handed over. Fulfilment or performance is
therefore retrospective and the contract is terminated on that date. When the
debtor has fulfilled his indebtedness, he or she is entitled to a receipt and may
request it. He or she may even withhold payment if the creditor refuses to issue
a receipt to him or her.
6.3.5.
The time for performance if not provided for in the contract is governed by the
general principles of the law of obligations.
Where no time is stipulated for
performance, a debt is due immediately but the debtor is afforded a reasonable
time to perform. The creditor is entitled to reject performance offered at a place
other than the place stipulated in the contract.
Trade usages, the place of
contracting, the nature of the performance involved and whether or not a time
has been fixed for performance may all be relevant factors for determining the
place for performance.
6.3.6.
The intention of the parties is of decisive importance in determining the legal
consequence of performance. In most cases, performance involved a concurrent
intention to extinguish the obligation.
This is particularly apparent where
payment is allocated or appropriated. Where a debtor owes the creditor more
than one debt and the debtor does not pay the total indebtedness, but only a part
thereof, the debtor must indicate which of the debts is being settled.
creditor accepts this, that debt is settled.
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6.3.7.
Performance is ordinarily made by the debtor. However, an obligation may also
be extinguished through performance by a third party. To discharge the
obligation, it is further necessary that the third party should perform not merely
for the benefit of the debtor but with the specific intention of discharging his or
her obligations. In general, performance must be made to the creditor or to
someone entitled to receive it on his behalf (such as an agent) or someone
indicated by the creditor as recipient of the performance. Although the debtor is
not bound to pay to a designated person if he or she has not contracted to that
effect, performance to such a person will extinguish the debt.
6.4.
FORMS OF BREACH OF CONTRACT AND RELATED REMEDIES
6.4.1.
Overview
6.4.1.1.
Breach of contract is described as mal-performance. Mal-performance consists a
breach of a promise to perform timeously and properly as undertaken in a
contract to deliver. The conduct which amounts to breach of contract is wrongful
.The simple reason why conduct which amounts to breach of contract is
wrongful, is that, the conduct is unacceptable as being contrary to the norms
which protect the contractual interests of one contracting party against certain
conduct of the other contracting party.
6.4.1.2.
In effect, these norms require that a contracting party must comply with his
contractual duties-whether in the form of a specific duty to perform or general
duty not directly related to the other party’s personal rights such as a duty to cooperate in order to enable the other contracting party to perform. Breach of
specific duty to perform will be wrongful for infringing personal right; breach of a
duty of a more general nature will be wrongful for breaching the norm even
though it may not amount to infringement of personal right. There are five forms
of breach of contract, namely:
ˆ Mora debitoris;
ˆ Mora creditoris;
ˆ Repudiation;
ˆ Rendering performance impossible; and
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ˆ Positive mal-performance.
6.4.2.
Mora Debitoris
6.4.2.1.
Mora debitoris means the failure of the debtor to perform on time. This is not
refusal to perform by the debtor. Mora debitoris is simply late performance. For
example, TBR local municipality must pay the purchase price on or before 1 May
2008. If the TBR local municipality does not pay by 1 May, it is in mora.
6.4.3.
Mora Creditoris
6.4.3.1.
This is defined as the failure of the creditor to accept proper performance when
tendered by the debtor. What happens is that the creditor hampers the debtor’s
performance by not accepting it. Here, performance is possible but the creditor
fails to accept it. For example, A and B agree that A will deliver the thing sold to
B at a particular time and place. A is at the correct place at the appointed time
but B does not arrive to accept delivery.
6.4.4.
Repudiation
6.4.4.1.
Repudiation may be described as the notice whether express or tacit, given by
the debtor that he or she will not comply or continue to comply with his
obligations. This is denial of obligation.
6.4.5.
Rendering performance impossible
6.4.5.1.
Rendering performance impossible means that one of the parties by his or her
act or omission has caused performance to become impossible. For example,
TRB metropolitan municipality leases its office to B but before the date of
occupation, the TRB metropolitan municipality leases the office to C.
Performance is now impossible but the impossibility was caused by the TRB
metropolitan municipality and therefore the TRB metropolitan municipality is in
breach of contract.
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6.4.6.
Positive mal-performance
6.4.6.1.
There are two forms of positive mal-performance namely: the debtor performs
but his performance is inappropriate, incomplete or defective. For example, the
seller, Africa Wood Company delivers eight chairs to Neil local municipality
instead of ten chairs. Another example may be that Kagiso Construction
Company, a building contractor uses materials of inferior quality to build the RDP
houses for Neil local municipality. An instance of positive mal-performance
occurs when the debtor does something, which he or she may not do in terms of
the contract. For example, where a lease contract prohibits the sub-lease of the
house and the lessee sub-leases it.
6.4.7.
Related Remedies
6.4.7.1.
Representatives of a municipality who enter into a contract on behalf of their
municipality must be aware of the remedies and forms of breach of contract.
Since municipality may enter into agreements or contracts procured through
supply chain management system, their officials must be conversant with the
legal consequences of breach of contract. The remedies available to the
aggrieved party in cases of breach of contract are the following:
ˆ specific performance;
ˆ cancellation;
ˆ damages;
ˆ penalty clause;
ˆ interdict; and
ˆ exceptio non adimpleti contractus
6.4.7.2.
Specific Performance
ˆ Specific performance is claimed if an aggrieved party seeks fulfilment of the
contract. If specific performance is impossible, damages can be claimed. The
aggrieved party is trying to achieve the result envisaged at the conclusion of
the contract. He or she is thus requiring the other party to perform as
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stipulated in the contract. Obviously, specific performance cannot be claimed
in all cases. Think of a situation, where performance has been rendered
impossible, the actual performance can no longer be delivered.
6.4.7.3.
Cancellation
ˆ Cancellation is available only when a material term of contract has been
breached. For example, where the other party has accepted repudiation,
where mal-performance is too defective that it may be rejected, where time is
of the essence and performance is late and where the contract contains a
clause, which reserves the right to cancel. But generally, cancellation is not
available in all instances of breach of contract. It can only occur in the
circumstances cited above.
6.4.7.4.
Damages
ˆ Damages signify an amount of money to compensate the aggrieved party for
financial loss suffered and profits not made as a result of the breach of
contract. The aggrieved party is required to take reasonable steps to limit his
or her loss. Damages are calculated in terms of positive interest.
6.4.7.5.
Penalty Clause
ˆ A penalty clause is a clause in a contract in terms of which a pre-determined
amount of money becomes payable in the event of breach of contract. The
aggrieved party may claim either the penalty amount or damages but not
both.
6.4.7.6.
Interdict
ˆ An interdict is a court order either instructing someone from acting in a
certain way or compelling him or her to act in a prescribed way. An interdict
will be granted only in a very urgent cases or where all other remedies have
been exhausted.
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6.4.7.7.
Exceptio non adimpleti contractus
ˆ The exceptio non adimpleti contractus is a defence which can be raised
against the claimant where he or she is claiming performance without himself
or herself having performed or tendered performance.
6.5.
GENERAL EMPLOYMENT CONTRACT WITH REFERENCE TO THE SOUTH
AFRICAN LAW OF EMPLOYMENT
6.5.1.
4.4.5.1 Overview
6.5.1.1.
A contract of employment is an agreement between two parties in terms of which
the employee agrees to perform certain duties for the employer under the control
of the employer for a specified period in exchange for some form of
remuneration. Before an employer for example, a municipality appoints an
employee, the employer must advertise the position and compile a short list of
the applicants to be called for an interview. After an interview panel has decided
upon the best candidate, the employer usually makes an offer of employment to
the successful candidate. This offer stipulates terms and conditions of
employment.
6.5.1.2.
Contract of employment is only valid if the employer and employee have reached
consensus, they have the contractual capacity to conclude contract, the contract
is both judicially and physically possible and after formalities such as reducing it
to writing have been met. This requirement is extremely essential for the contract
of employment entered into by the municipalities. Although contract of
employment may be executed orally, a municipality must reduce contract of
employment to writing.
6.5.1.3.
The contract of employment is a contract and it must comply with the basic
requirements for a contract. The general rule is that no formalities are required
for the conclusion of contract of service. The contract may be concluded
expressly by means of a verbal or written agreement. However, in terms of the
Basic Conditions of Employment Act, 1998 certain particulars must be provided
to the employee in writing. For the municipalities, this legislative arrangement
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implies that their employment contract must be in writing. Employees are often
appointed by means of letters of appointment. This document may either contain
the terms of the agreement in full or make provision for only the most important
terms.
6.5.1.4.
The most essential element of the employment contract is consensus. This
means that the parties must reach a consensus on the work to be done and the
remuneration to be paid. Factors, which tend to indicate the existence of an
employment contract include the fact that the person alleging to be an employee:
ˆ is obliged to render services personally and may not delegate this obligation;
ˆ has to keep fixed hours and is paid a regular wage or salary;
ˆ is entitled to benefits such as pension fund or medical aid scheme; and
ˆ is subject to a degree of control by the employer.
6.5.1.5.
In view of the above, it is important to emphasise that all the employees of a
municipality are subject to a degree of control by a municipality (employer). The
staff members must render duties of a municipality personally. For example, if
the municipal manager of Kikui district municipality enters into an agreement with
his friend or relatives to render services for and on his behalf, such an
arrangement will not amount to a contract of employment. In other words, the
municipal manager has breached one of the fundamental terms of employment
contract, namely, that the employee must render the services personally.
6.5.1.6.
Again, let us say Damayi district municipality appoints Mr. Dickson as its
municipal manager and one morning upon his arrival at work, he is instructed by
the Mayor to perform tasks of an ordinary storeman but with the retention of his
previous salary scale. Mr Dickson is entitled to resile from the contract and to
claim damages from the Damayi district municipality. The South African labour
laws offer much protection to an employee. Conditions of employment such as
working hours, leave and wages are not prescribed by common law.
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6.5.2.
Legislative Framework
6.5.2.1.
There is also a considerable number of legislation that influences the contractual
freedom of parties wishing to conclude a contract of employment. These pieces
of legislation are discussed hereunder:
6.5.2.2.
The Employment Equity Act, 1998 limits every employer’s (municipality’s)
unbridled discretion in relation to who may be appointed and who may not be
appointed. The Employment Equity Act, 1998 addresses the legacy of
discrimination in relation to race, gender and disability. The Act is intended to
ensure that workplaces are free of discrimination and that employees take active
steps to promote employment equity. Chapter 3 of the Act requires employees to
take certain affirmative action measures to achieve employment equity. These
are set out in an Employment Equity Plan. For the municipalities, the Equity Plan
means that the municipal workforce must be more representative and ensuring
fair and equitable employment practices for all employees. The local government
should create an organizational culture that is non-discriminatory.
6.5.2.3.
The Basic Conditions of Employment Act, 1997 protects employees against
unreasonable conditions of employment. This Act stipulates inter alia a minimum
age before a person may be employed, a minimum on different forms of paid
leave and specified notice in relation to the termination of contract of
employment. The Basic Conditions of Employment Act, 1998 provides for the
conditions of employment while other legislation concentrates on the social and
physical welfare of the employee. These include the Compensation for
Occupational Injuries and Diseases Act, 1993, the Unemployment Insurance Act,
2001 and the Occupational Health and Safety Act 1993. On the other hand, the
Skills Development Act, 1999 provides for training and capacity-building of the
employees. The Skills Development Act, 1999 also requires employers to plan
and implement learning programmes enabling employees to acquire skills and
qualifications that will enhance their performance whilst also optimising the
organisation’s functioning.
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6.5.2.4.
The Labour Relations Act, 1995 was enacted to give effect to section 27 of
Interim Constitution. In terms of this Act, every employee has the right not to be
unfairly dismissed. Section 187(e) prohibits dismissal based on any arbitrary
ground, including but not limited to race, gender, sex, family responsibility etc.
The Labour Relations Act, 1995 also prohibits unfair labour practice. This
practice includes the employer‘s unfair conduct relating to promotion, demotion,
probation, training, the granting of benefits and so forth. The Labour Relations
Act, 1995 further promotes collective bargaining between employers and trade
unions. It is evident from the above that the Labour Relations Act, 1995 also
regulates the important aspect of unfair dismissal law and makes provision for
the institution of dispute resolution bodies such as the Commission for
Conciliation, Mediation and Arbitration and the Labour Courts.
6.5.2.5.
Misconduct of the employee as incapacity of the employee and the employer‘s
operational requirements are the only recognised grounds for dismissal and the
employee must be granted an opportunity to be heard before he is dismissed.
This statutory requirement confirms the common law rules of natural law justice,
which encompasses the maxims of audi alteram partem (to hear the other side)
and nemo iudex in sua causa (the rule against bias).
6.5.2.6.
For the municipalities, the Labour Relations Act, 1995 means compliance with
the provisions of this statute. The contract of employment creates various
obligations for both the employees and employer. If one of the parties (including
a municipality) does not comply with his or her obligation, he or she is
committing breach of contract and the other party has certain remedies at his or
her disposal such as damages or cancellation.
6.5.2.7.
A plethora of the South African legislation, which impact on an employment
contract, has implications for a municipality as the employer. A municipality is
required to comply with the provisions of the labour laws. Worker participation is
ensured by the establishment of workplace forums. Management must consult
the forums on a variety of policy issues and management and the forums must
firstly decide on issues pertaining to disciplinary codes and affirmative action
programmes.
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6.6.
CASES
THAT
REQUIRE
EXPERTS
IN
THE
DEVELOPMENT
OF
DOCUMENTS AND CONTRACTS THAT FALL OUTSIDE OWN LEVEL OF
AUTHORITY
6.6.1.
Overview
6.6.1.1.
In principle, the development of documents of contract requires experts to
ensure that the formalities are complied with. Therefore, different experts play a
pivotal role in the development of contracts. In other words, the nature and
scope of contract will determine the type of expert required for a development of
a particular contract. For the purpose of this discussion, the following types of
contracts are important to determine and indicate a type of expert required for a
particular contract.
6.6.2.
Contract of Sale
6.6.2.1.
A municipality may enter into a contract of sale of immovable property (for
example, purchase or sale of land) and movable property (for example, purchase
or auction of motor vehicles). Normally one will find the following experts and
actors involved in the process of transferring immovable property through a
contract of sale:
ˆ Conveyancer: The conveyancer most common duty is to effect transfer of
immovable property from one person to another. He or she is required to
effect transfer as quickly and efficiently as possible and in accordance with
all laws, rules and regulations in force. The conveyancer must also make
sure that all practical and financial arrangements for example, collecting the
purchase price, have been made. Another mandate regularly given to a
conveyancer, especially if he or she has a major financial institution as a
client is to register bonds over properties.
Developers who develop
properties instruct conveyancer to open Sectional Title registers and to
transfer individual units. The opening of township registers, subdivision of
land, transfer of land and most other transactions relating to immovable
property are also entrusted to conveyancers;
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ˆ Estate Agent: Once a decision has been made to purchase a property, a
buyer usually looks for the seller’s salesperson. The seller’s salesperson is
an estate agent who is responsible to obtain the best possible price.
Although the estate agent has certain moral and ethical responsibilities
towards the buyer, these must not conflict with his or her primary role to look
after the interest of a seller (client). He or she serves as “middle-person”
between the seller and a prospective buyer thereby arranging the necessary
documents pertaining to the sale of property.
ˆ Quantity surveyor: Quantity surveyor is a person who measures and prices
building work;
ˆ Public valuer: This expert is a professional who assesses a value of property;
ˆ Notary: Notary is a professional legally empowered to witness signatures and
certify a document’s validity and to take depositions. It is for this reason
among many others, that law insists that the document cannot be registered
in the Deeds Office unless it is executed before a notary;
ˆ Financial institutions (banks): The experts of the financial institution such as
consultants provide financial loans for the purchase of a property. These
experts are individuals who assist clients in respect of the loan documents
required to conclude loan agreement, give a professional advice regarding
the conditions of a loan and other related matters;
ˆ South African Revenue Service (SARS): The professionals of SARS provide
inter alia a legal framework and mechanisms for the purpose of payment of
land or property tax;
ˆ Judges of the High Court:
They become involved where property is in
execution;
ˆ Master of the High Court: The Master becomes involved, for example, in
case of transfer or where minor is involved; and
ˆ Town planner: This expert is responsible for town planning. Town planning
includes strategic planning done by the provincial and local governments at
the macro and micro levels and land-use management that may be exercised
on an erf both with and without municipal permission in accordance with town
planning schemes.
6.6.2.2.
For the contract of sale of movable property, for example motor vehicle, the
following experts play a crucial role in the development of such a contract:
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ˆ Purchase expert: This expert usually explains the financial implications and
nitty-gritties of sale and hire purchase to customers;
ˆ Sales representative: The sale representative’s responsibilities include inter
alia the promotion of sale of the motor vehicles and arrangement of loans for
the prospective purchasers; and
ˆ Insurance broker: The most common duty of this expert is to arrange
insurance cover on a movable property.
6.6.3.
Contract of Employment
6.6.3.1.
The following experts are important actors in the development of contract of
employment namely:
ˆ Human resource manager: This professional keeps and files records of each
employee. He or she is responsible for recruitment, selection and
appointment of the employees, works on salaries and leave days of the
employees etc;
ˆ Labour consultant: This professional gives an advice to employees on labour
matters and deals with internal hearing of the employees;
ˆ Labour Attorney: This legal expert gives advice to the employees on legal
matters pertaining to the employment, contracts and the conditions of
employment. He or she also appears in all forums relating to labour matters;
and
ˆ Labour Advocate: This legal expert gives advice and appears in Labour
Court and Labour Court of Appeal. In general, he or she has a right to
appear in all forums.
6.6.4.
Contract of Lease
6.6.4.1.
This type of a contract may involve the lease of both movable and immovable
property.
One would normally find the following actors and experts in the
development of contract of lease. For the movable:
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ˆ Consultant: This expert gives advice and information to the prospective
tenants about the property to be hired. This information may relate to the
conditions of lease, a regular payment for the use of leased property etc.
ˆ Marketing manager: This professional promotes sale of the hired property.
ˆ Credit bureau: This institution provides information pertaining to the financial
status of the prospective tenants in question.
6.6.4.2.
For immovable:
ˆ Notary: This legal professional certifies all documents relating to a lease
contract in case of a long lease of ten years and more;
ˆ Estate Agent: An estate agent is responsible for arranging lease agreements
for and on behalf of the prospective tenants;
ˆ Attorney: He or she prepares lease documents;
ˆ Insurance broker: The insurance broker develops insurance or cover
documents of immovable property; and
ˆ Financial institutions: For example, the banks which usually provide loans to
the clients.
6.7.
DELICTUAL LIABILITY IN CONTRAST WITH CONTRACTS
6.7.1.
The essential characteristic of the South African law of delict is that it is founded
on general principles of liability. Like a crime and a breach of contract, a delict is
a form of unlawful conduct. In general terms, a delict can be defined as a civil
wrong. Delict and breach of contract are both forms of unlawful conduct which
are governed by the rules of private law. When one of the contracting parties
decides to breach the terms of contract without a good cause, the aggrieved
party is entitled to a claim of damages.
6.7.2.
The remedy of damages available in law is the remedy of patrimonial (monetary)
damages. General or direct damages may always be claimed. However, special
damages or consequential losses may only be claimed where the parties either
expressly or presumably agreed that such damages might be claimed. A duty
rests upon the prejudiced party to prevent, limit or mitigate the damages or loss
suffered.
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6.7.3.
As already elaborated above, damages signify an amount of money to
compensate the aggrieved party for financial loss suffered or profit not made as
a result of the breach of contract. The applicable test is whether the innocent
party has suffered a loss or whether he or she is entitled to be placed in the
position, he or she would have been if performance had taken place properly
and timeously. This means that the contracting party who is prejudiced by the
breach of contract must be placed in the position in which he or she would have
been had the contract been properly executed. One has to compare the position
in which the party is and the position he or she would have been in had breach
not occurred. The aggrieved party can claim damages only if he has actually
suffered a loss.
6.7.4.
For the municipalities, delictual liability has far-reaching implications for the
municipalities who enter into a number of contracts to ensure service delivery to
the communities. Similarly, where a municipality has suffered a financial loss due
to a conduct of the other contracting party, a municipality is entitled to damages
in order to be compensated for financial losses suffered as a result of the guilty
party’s breach of contract. Let us say the Ramane local municipality enters into a
contract of sale with Zanziba Meat Market for the supply of meat and fresh milk
to its poor households.
6.7.5.
The Ramane local municipality paid R80 000. 00 for the supply of meat and
fresh milk to 500 indigent households. The Zanziba Meat Market delivers a
rotten meat, which could not be used or consumed by the members of the
earmarked indigent households. As a result, the Ramane municipality suffered
financial loss. In the present circumstances, the Ramane local municipality is
entitled to claim damages. The participants of the pilot training on MFMA
implementation believe that municipalities can avoid delictual litigation through
contractual management. Therefore, there is a need for specific contract
management office in each municipality.
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7.
LEARNING TASKS AND ACTIVITIES
7.1.
CASE STUDIES AND QUESTIONS FOR PRACTICE
7.1.1.
Case study 1
7.1.1.1.
The Council of Dithakong local municipality has just finalised its Integrated
Development Plan (IDP). The Dithakong Municipal Council drafted its IDP and
involved the community in the discussion and processes of the development of
its IDP. However, the Council omitted to conduct a “Needs-Analysis” project or
feasibility study to identify the socio-economic needs of the local community.
The Dithakong Council guided by its IDP resolved to construct 30kms local road
that connects the local hospital with the rural villages of Dithakong. The Council
further requested its municipal manager, Mr Dickson Obama to enter into a
contract with Africa Road Construction Company, for purpose of constructing the
30kms road. The parties agreed to complete the road within 24 months. After
the conclusion of a contract, Africa Road Construction Company constructed
only 20 kms within 24 months.
7.1.1.2.
Assuming that you are a municipal manager of Dithakong local municipality, how
would you advise the Council about the services rendered by Africa Road
Construction Company in respect of a breach of contract? In your view, what
form of breach occurred (if any)? If so, identify the possible remedies available
to the Dithakong municipality and advice the Municipal Council and Executive
Committee accordingly.
7.1.2.
Case study 2
7.1.2.1.
The Marula local municipality is in the process of installing street lighting in the
industrial area of its city of Marula. This requires digging trenches in which to lay
electrical cables. During excavation, their employees cut through a water pipe
which supplies water to three factories. One of the factories is owned by Bricks
for Africa (Pty Ltd) which makes clay bricks. As a result of the damages to the
water pipe (which damages occurred some 600 meters from the edge of their
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property), they are unable to manufacture bricks for a period of 48 hours. They
suffered loss of profit in the amount of R50, 000. Bricks for Africa (Pty Ltd) sued
the Marula local municipality a sum of R 50,000 for the loss of profit, which they
incurred.
7.1.2.2.
In your view, is there any contract between the Marula local municipality and
Bricks for Africa (Pty) Ltd? Substantiate your argument in this regard. In your
discussion, explain whether or not Bricks for Africa (Pty) Ltd will be successful in
their claim?
7.1.3.
Case Study 3
7.1.3.1.
Andrew is working at XYZ local municipality as a representative, selling
electricity vouchers. His remuneration consists of commission of 12% of the
selling price of every item sold. He does not have to go to the office every day
and he arranges his appointments to suit him. He has to submit a monthly report
on all sales at the end of each month. On Saturday morning, Andrew on his way
to the XYZ local municipality office caused an accident in which Mr. Nel’s car
was damaged and he was seriously injured.
7.1.3.2.
Is Andrew an employee of XYZ municipality in terms of the employment
contract?
7.1.3.3.
Would your answer differ if Andrew worked for a basic salary plus commission?
7.1.3.4.
Assume that Andrew is an employee. Can the XYZ local municipality dismiss
him without considering a rule of the audi alteram partem for causing an accident
in which a certain Mr. Nel’s car is damaged?
7.1.4.
Case Study 4
7.1.4.1.
Mr. Booysen Thorn was employed by the DPJ local municipality as manager
finance with effect from 20 February 2008 on a five year term contract. A
contract of employment setting out the terms and conditions of his employment
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was duly written but was never signed by Mr. Booysen Thorn and DPJ local
municipality.
7.1.4.2.
In your view, do you think the contract of employment between Mr. Booysen
Thorn and DPJ local municipality was valid? What are the legal implications (if
any) of unsigned document on the validity of contract of employment?
8.
SUPPORT MATERIALS AND REFERENCES
8.1.
ARTICLES IN JOURNAL
8.1.1.
Bolton P “Government Contracts and the Fettering of Discretion: A Question of
Validity” SAPL/PR 2004
8.2.
BOOKS
8.2.1.
Christie RH The Law of Contract in South Africa (Butterworths: Durban 1996)
8.2.2.
Fouche M A Legal Principles of Contract and Commercial Law (Butterworths:
Durban 2004)
8.2.3.
Fouche M A Legal Principles of Contract and Negotiable Instruments
(Butterworths: Durban 1999)
8.2.4.
Hermans et al Project Management: A Multi-Disciplinary Approach (Van Schaik
Publishers: Pretoria 2003)
8.2.5.
Van der Merwe S et al Contract: General Principles (Juta Publishers: Cape
Town1998)
8.3.
GOVERNMENT CIRCULARS
8.3.1.
MFMA Circular No. 41: Municipal Finance Management Act 56 of 2003.
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8.4.
GOVERNMENT REGULATIONS
8.4.1.
Municipal Regulations Debt Disclosure 2007
8.5.
LEGISLATION
8.5.1.
Alienation of Land Act 68 of 1981
8.5.2.
Basic Conditions of Employment Act 97 of 1998
8.5.3.
Employment Equity Act 55 of 1998
8.5.4.
General Law Amendment Act 50 of 1956
8.5.5.
Labour Relations Act 66 of 1995
8.5.6.
National Credit Act 34 of 2005
8.5.7.
Occupational Health and Safety Act 85 of 1993
8.5.8.
Occupational Injuries and Diseases Act 130 of 1993
8.5.9.
Skills Development Act 97 of 1995
8.5.10.
Unemployment Insurance Act 63 of 2001
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Unit Five:
The Implementation of the Municipal
Finance Management Act in a Municipality
1.
AIM OF STUDY UNIT
1.1.
The aim of this study unit is to enable learners to demonstrate a comprehensive
understanding of the implementation of the Municipal Finance Management Act,
2003 in a municipality.
2.
LEARNING OBJECTIVES
2.1.
After studying this unit, a learner should be able to identify and demonstrate an
understanding of the following in his or her own words:
2.1.1.
the Municipal Finance Management Act, 2003 within the broader social
economic, political and legal milieu of local government
2.1.2.
functions and responsibilities of role players in the implementation of the
Municipal Finance Management Act, 2003
2.1.3.
financial management process to ensure sound and sustainable management of
municipality’s development objectives
2.1.4.
best project management principles for the implementation of the MFMA
3.
KEY CONCEPTS
3.1.
Local government
3.2.
Project management
3.3.
Development objectives
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3.4.
Sustainable management
3.5.
Financial governance
3.6.
Implementation
4.
INTRODUCTION
4.1.
The implementation of the Municipal Finance Management Act, 2003 is the main
priority of the national government, particularly the departments of National
Treasury and the Department of Provincial and Local Government. The National
Treasury strongly believes that successful implementation of this Act will create
a fertile ground for a sound financial management of the municipalities. It is for
this reason, among many others, that this study unit will provide the municipal
managers, executive managers and other municipal senior officials with a sound
understanding of the broader social, economic, political and legal implications of
the Municipal Finance Management Act, 2003. The purpose of this study unit is
also to give a succinct exposition of the role players in the implementation of the
Municipal Finance Management Act, 2003 in local government so that they can
know and appreciate the best project management principles relevant to
implement the Municipal Finance Management Act, 2003.
5.
KNOWLEDGE ASSUMED
5.1.
Basic understanding of the Municipal Finance Management Act, 2003 offers
learners a perfect opportunity to grasp the concepts and terminologies raised in
this study unit. It is assumed that an informed, coherent and knowledge of the
Municipal Finance Management Act, 2003 gained through work experience and
other learning methods relating to its broader social, economic, political and legal
implications will serve as a strong base for the mastery of this study unit.
Learners will be able to grasp concepts and rules of municipal financial
governance and implementation of the Municipal Finance Management Act,
2003 in all forms of reasoning, writing and overall communication.
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6.
UNIT CONTENT
6.1.
UNDERSTANDING THE MUNICIPAL FINANCE MANAGEMENT ACT, 2003
WITHIN THE BROADER SOCIAL, ECONOMIC, POLITICAL AND LEGAL
MILIEU OF LOCAL GOVERNMENT
6.1.1.
Overview
6.1.1.1.
The Municipal Finance Management Act, 2003 has a considerable number of
social, economic, political and legal implications for local government. These
implications are discussed hereunder:
6.1.2.
Political Implications
6.1.2.1.
The Municipal Finance Management Act, 2003 has changed, improved and finetuned the roles of appointed and elected officials. The Act has put in place a
sound financial governance framework by clarifying and separating the roles and
responsibilities of the Council, the Mayor and officials. Mayors are the political
heads of municipalities while municipal managers are the administrative heads
and accounting officers of Councils. Speakers of Councils are in charge of the
conduct of all councillors in the Council, including the conduct of the political
head of Council, the Mayor. The Municipal Finance Management Act, 2003
requires councillors to operate at a political and at policy level while appointed
officials are required to implement the policies at an administrative level.
6.1.2.2.
In the past, elected councillors used to be part of not only political processes but
also administrative processes even though they were not appointed but elected.
For instance, councillors used to be part of the audit committee. They are now
barred from actively participating from such committees as per Chapter 14 of the
Municipal Finance Management Act, 2003. The Act also bar the councillors from
being involved in the procurement processes of the municipalities.
6.1.2.3.
Councillors are no longer actively involved in the activities of the procurement or
tender committee but merely play an oversight role as prescribed by Chapter 11
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especially section 117 of the Municipal Finance Management Act, 2003. The Act
provides for the oversight function and political leadership of the councillors in
the financial management and service delivery of their municipality. This means
that they will consult with the community. The Act mandates the councillors to:
ˆ set priorities;
ˆ give direction;
ˆ determine policies and approve budget for development of community and
delivery of services; and
ˆ monitor the outcome of policy and budget implementation.
6.1.2.4.
The Municipal Finance Management Act, 2003 requires the Mayor to report to
national and provincial government at any time when the municipality does not
comply with the Act. However, the legal framework of the Municipal Finance
Management Act, 2003 gives councillors and Council the right to govern the
affairs of the Council. Municipal Council may make and administer by-laws for
the effective performance of the municipality. This means that the Act permits
the councillors to provide political leadership of a municipality and not
administrative leadership.
6.1.3.
Social and Economic Implications
6.1.3.1.
It must be appreciated that the Municipal Finance Management Act, 2003 is
squarely premised on the ethos and values of the Constitution. The Constitution
sets out the objects of local government. In this regard, the Constitution states
that local government must ensure the provision of services to promote social
and economic development. These objects of local government are actualised
and given “oxygen” in the Municipal Finance Management Act, 2003.
6.1.3.2.
A municipality must strive within its financial and administrative capacity to
achieve its social and economic objectives. The Act promotes sound financial
management of the municipalities. For example, the Act requires the accounting
officer of a municipality responsible for managing the financial administration to
take reasonable steps to ensure that the resources of the municipality are used
effectively, efficiently and economically, that unauthorised, irregular or fruitless
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and wasteful expenditure and other losses are prevented so as to provide
services to the people.
6.1.3.3.
The Municipal Finance Management Act, 2003 especially sections 77, 80 and 84
requires a municipality to structure and manage its administration, budgeting and
planning processes to give priority to the basic needs of the community and to
promote social and economic development of the country. In terms of the
Municipal Finance Management Act, 2003, the accounting officer of a
municipality must manage the revenue of a municipality in an effective,
economical and efficient manner to optimise the use of resources to meet the
needs of its respective community.
6.1.3.4.
In essence, the Act confirms the Constitutional commitment of a municipality to
ensure the sustainable provisions of services (water, electricity, housing, etc.) to
the community, to promote social and economic upliftment and development. A
municipality can improve the living standards of its local people, if it adheres to
the principles of sound and sustainable management of its financial affairs as
pronounced by the Municipal Finance Management Act, 2003.
6.1.3.5.
The Municipal Finance Management Act, 2003 insists that the municipalities
should take reasonable measures within their means to ensure a progressive
realisation of the socio-economic rights contained in sections 24 (environmental
rights), 25 (property rights), 26 (right to have adequate housing), 27 (right to
have access to health care services). The Act attempts to lay legal framework,
which enhance the capacity of the municipalities to be able to deliver these
services accordingly.
6.1.3.6.
It is for this reason among others, that the Municipal Finance Management Act,
2003 promotes prudent use of financial resources by the municipalities. Without
efficient and effective use of resources and funds, the municipalities cannot be
able to meet their Constitutional obligations. Hence, the Municipal Finance
Management Act, 2003 lays a strong foundation for sound management of the
municipal resources and revenue so that the socio-economic rights referred to
above, can be progressively realised.
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6.1.4.
Legal Implications
6.1.4.1.
In order to understand the legal implications of the Municipal Finance
Management Act, 2003 on municipal arena, it is important to recognise the fact
that a municipality has a separate legal personality. This confirmation of the legal
personality of a municipality allows municipality to sue or be sued by other
natural or legal persons. The legal personality of a municipality excludes liability
on the part of its community for its actions. However, it is important to note that
although liability on the part of the local community is excluded, such exclusion
has not been given to either the political structures or administration component
of a municipality. The Municipal Finance Management Act, 2003 extends the
liability to the:
ˆ municipal managers;
ˆ councillors;
ˆ municipal officials;
ˆ mayors; and
ˆ directors of municipal entities.
6.1.4.2.
The Act provides for significant responsibilities in terms of the political and
administrative structures of a municipality. The Municipal Finance Management
Act, 2003 does not exclude the liability on the part of its officials and political
office bearers. Confirmation of this provision is again in compliance with the
Constitutional foundation of a government based on the values of accountability,
responsiveness and openness. The extent of the liability of the municipal officials
and political office bearers is clearly captured in sections 171-176 of the
Municipal Finance Management Act, 2003. These sections deal, inter alia with:
ˆ financial misconduct by municipal officials;
ˆ financial misconduct by officials of municipal entities;
ˆ offences of the accounting officer;
ˆ penalties and imprisonment;
ˆ regulations on financial misconduct procedures and criminal proceedings;
and
ˆ liabilities of the functionaries.
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6.1.4.3.
The Municipal Finance Management Act, 2003 creates a legal framework for
financial misconduct by municipal officials namely, the accounting officer, chief
financial officer, senior managers and councillors. The municipal officials commit
an act of financial misconduct if they deliberately or negligently contravene the
provisions of the Municipal Finance Management Act, 2003 for example, if they:
ˆ fail to comply with a duty imposed by the provisions of the Act;
ˆ instructs or permits another official to make an unauthorised, an irregular, a
fruitless or wasteful expenditure; and
ˆ provide incorrect information in any document.
6.1.4.4.
It is possible in terms of this Act for a municipal official, mostly the municipal
manager to be held liable for non-compliance with the legislative requirements.
The importance of criminal law framework sets out by the Municipal Finance
Management Act, 2003 excludes liability on the part of the municipal officials,
political office bearers and directors of municipal entities who perform their
functions and powers for and on behalf of a municipality in good faith.
6.1.4.5.
The accounting officer is guilty of a criminal offence, if he or she deliberately
contravenes the above conditions set out by the Act. Similar conditions apply to
senior managers and councillors. A municipality, its political structures, political
office bearers, officials, a municipal entity or its board of directors are not liable in
respect of any loss or damage resulting from the exercise of that power or
performance of the function if it had been undertaken in good faith.
6.2.
FUNCTIONS AND RESPONSIBILITIES OF ROLE PLAYERS IN THE
IMPLEMENTATION OF THE ACT AND MUNICIPAL FINANCE GOVERNANCE
6.2.1.
Overview
6.2.1.1.
Different role players play a critical role in a financial governance of a
municipality in respect of the implementation of the Municipal Finance
Management Act, 2003. Municipalities take decisions to manage its financial
affairs in relation to the collection, distribution, allocation, control and monitoring
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of the resources. It is imperative to note that the success of the implementation
of the Municipal Finance Management Act, 2003 depends entirely on the role of
all the below-mentioned role players.
6.2.1.2.
Similarly, failure to implement it is incumbent upon the commitment of these role
players. This means that the Act can only be effectively implemented if and only
if the role players are determined to discharge their duties as required by the
provisions of this Act. Inevitably, the smooth running of the financial governance
structures and implementation of the Municipal Finance Management Act, 2003
depends largely on the role played by the following elected and appointed
members in relation to a municipality’s financial affairs:
ˆ municipal council;
ˆ executive mayor;
ˆ municipal manager;
ˆ chief financial officer;
ˆ other officials of municipality;
ˆ councillors and ward committees; and
ˆ local community.
6.2.2.
Municipal Council
6.2.2.1.
In order for the Municipal Finance Management Act, 2003 to be implemented
properly, Municipal Council must take ownership of the implementation process.
This legislation aims to significantly reform municipal finance management to
ensure the improved and sustainable delivery of municipal services through a
sustainable management of the fiscal and financial affairs of the municipalities.
This important function of the Municipal Council is echoed in section 2 of the
Municipal Finance Management Act, 2003. The Council has the overall
responsibility for the approval of policy, budgets and budget related plans for the
provision of basic services. It is in this context, that the Council plays a critical
role in the implementation of the Act when it executes its functions effectively in
line with the provisions of the Act.
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6.2.3.
The Mayor
6.2.3.1.
The Mayor is responsible for the management of policy, budgets and outcomes.
He or she has oversight role over the municipal manager. This means that the
mayor must oversee the work of the municipal manager. The mayor is the
principal guide as to the spending, sharing and fiscal policies as well as the
municipality’s development objectives. The Mayor must study all reports and if
he or she has any suspicions or concerns over financial accountability,
transparency or other issues, he or she must take the following steps:
ˆ respond to the problem promptly;
ˆ initiate any remedial steps;
ˆ reduce spending; and
ˆ alert Council and the relevant MEC to the problem.
6.2.3.2.
In preparing the municipality’s budget in terms of section 53 of the Municipal
Finance Management Act, 2003 the Mayor must inter alia:
ˆ provide political guidance;
ˆ provide leadership and control over a municipal entity;
ˆ co-ordinate the process for preparing the annual budget, the Integrated
Development Plan that accompanies it; and
ˆ consult with any other relevant stakeholders. This could include consultation
with other municipalities, the provincial and national treasuries and
government departments that have responsibility to provide basic services
such as water, electricity and sanitation.
6.2.4.
Municipal Manager
6.2.4.1.
The municipal manager is responsible for forming and developing an
economical, effective, efficient and accountable administration. The Municipal
Finance Management Act, 2003 especially sections 94-100 sets out the
municipal manager’s role in the budget process. He or she must also act as the
accounting officer to:
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ˆ assist the Mayor by providing administrative support, resources and the
information necessary to prepare a budget;
ˆ implement the budget once it has been approved. This include monitoring the
revenue and expenditure;
ˆ report to the Council about any shortfalls or any overspending or overdrafts;
ˆ provide the Mayor with monthly budget statements not later than 10 days
after the end of each month; and
ˆ conduct half-yearly assessment of the municipality’s finances and make
recommendations for adjustments to the budget if necessary.
6.2.5.
Chief Financial Officer
6.2.5.1.
In terms of the Municipal Finance Management Act, 2003 especially section 77,
the top management of a municipality’s administration consists of the accounting
officer, the chief financial officer and all senior managers. Section 80 of this Act
provides that every municipality must have a budget and treasury office. A
budget and treasury office consists of a chief financial officer. The Municipal
Finance Management Act, 2003 especially section 81 stipulates the role of the
chief financial officer as the official who:
ˆ is administratively in charge of budget and treasury office;
ˆ must advise the accounting officer on the exercise of his or her powers and
duties;
ˆ must assist the accounting officer in the administration of the municipality’s
bank accounts;
ˆ must assist the accounting officer in the preparation and implementation of
budget;
ˆ must advise senior managers and other senior officials; and
ˆ must perform such budgeting, accounting, analysis, financial reporting, cash
management, debt management, review and other duties which may be
delegated to him or her by the accounting officer.
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6.2.6.
Other Officials of Municipality
6.2.6.1.
The officials must see to the effective administration of the budget. The
Municipal Finance Management Act, 2003 especially section 105 states that any
official who exercises financial management responsibilities must take all
reasonable steps within that official’s area of responsibility to ensure that:
ˆ this responsibility is carried out diligently, effectively, economically and
transparently;
ˆ internal control is carried out diligently;
ˆ assets and liabilities are managed effectively; and
ˆ that losses are prevented.
6.2.7.
Councillors and ward committees
6.2.7.1.
Section 53 of the Municipal Systems Act, 2000 deals generally with the roles of
councillors and ward committees.
Where communities experience problems
relating to the financial management of a municipality, this should be raised in
the ward committees of which the local councillor is the chairperson. Ward
committees can influence the fiscal and financial management of the
municipalities by:
ˆ engaging the Council in budgetary process;
ˆ attending Council meetings where budget issues are to be discussed;
ˆ disseminating information to community members about how the municipality
plans to spend its budget;
ˆ monitoring corruption in Council; and
ˆ safeguarding the assets of the municipality.
6.2.8.
Local Community
6.2.8.1.
The role played by the community in the implementation of the Municipal
Finance Management Act, 2003 is of paramount importance. The Act is
specifically aimed at communities being able to have influence over the budget
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process. Ideally, communities should make their recommendations as specific as
possible, if they want to influence the spending priorities of their municipality. For
example, if a community feels that putting up streetlights is more of a priority
than building a community hall, it needs to make specific recommendations.
6.2.8.2.
Individual residents, community organizations such as ward committees or other
associations are empowered through legislation to monitor and influence the
financial management of municipalities. This pertains not only how money is
spent but also what money is spent on and how money is collected from local
communities.
It is evident that active participation of the community in the
financial affairs of the municipality will facilitate the implementation of the
Municipal Finance Management Act, 2003.
6.3.
THE FINANCIAL MANAGEMENT PROCESSES TO ENSURE SOUND AND
SUSTAINABLE
MANAGEMENT
OF
MUNICIPALITY’S
DEVELOPMENT
OBJECTIVES
6.3.1.1.
There are a considerable number of processes and mechanisms for the
maintenance of sound financial management in the municipalities. In order to
establish a sound and sustainable financial management and a system of
municipal finance, the following principles must be adhered to:
6.3.1.2.
Revenue adequacy and certainty is an important principle for a sound financial
management. The municipality must have access to adequate sources of
revenue either own resources or intergovernmental transfers to enable them to
carry out the functions that have been assigned to them. The municipalities
should be encouraged to fully exploit these sources of revenue to meet their
development objectives. The municipalities should have reasonable certainty of
revenue to allow for realistic planning and development.
6.3.1.3.
Effective and efficient resource use can also sustain development of a
municipality. Economic resources are scarce and should be used in best
possible way to reap the maximum benefit for local communities. It is important
that local residents provide the necessary checks and balances. They can do
this by participating in the budgeting process to ensure that resources are being
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put to their best use. Efficiencies in public spending and resource allocation will
ultimately increase the access of the poor to basic services.
6.3.1.4.
Accountability, transparency and good governance are ingredients of sound
financial management. The municipalities should be held responsible and
accountable to local taxpayers for the use of public funds. Municipal officials and
elected representatives should be required to justify their expenditure decisions
and explain why and how the revenue necessary to sustain that expenditure is
raised.
The fiscal system should be designed to encourage accountability.
Municipal budgeting and financial affairs should be open to public scrutiny and
communities should have a greater voice in ratifying decisions about how
revenue is raised and spent.
6.3.1.5.
Accounting and financial reporting procedures should minimise opportunities for
corruption and malpractice. The efficient delivery of municipality’s services
through the effective utilisation of limited resources could be monitored through
public participation process, a municipality should explain its needs to the public,
focusing on how it spends and raises funds. The emphasis would be an
accountability, transparency and good governance.
6.3.1.6.
Budget strategic focus is essential for developmental local government.
Municipal Council must ensure that the budget reflects the strategic outcomes
embodied in the Integrated Development Plan (IDP) and related strategic
policies.
Council should adopt the budget at a high-level vote enabling the
accounting officer to oversee the implementation and management of the budget
in accordance with appropriate policies and internal controls and through regular
reports on financial and outcome performance. Financial sustainability is key to
sound financial management of municipalities. The system of financial
sustainability requires that municipalities ensure that their budgets are balanced.
6.3.1.7.
This involves and ensures that services are provided at levels, which are
affordable and that municipalities are able to recover the costs of service
delivery. No bailout will be provided to a municipality that overspends its budget
and/or fails to put in place proper financial control. However, there is a need for
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subsidization to ensure that poor households, who are unable to pay even a
proportion of service costs have access to basic services.
6.3.1.8.
Clear and focused integrated development plan is a key to good financial
governance. As highlighted above, South African democratic processes
necessitate public involvement in local government financial management
decisions. As a result, participation in financial decision-making is characterised
by the participation of a variety of interest groups. The MFMA Circular No. 28
demands that the full IDP as referenced by the budget documentation must be
publicly made available on the website, in the Council offices etc. Budget must
give readers good understanding of what is contained in the IDP and how that
guides allocation in the budget. The system most suited in the Integrated
Development Plan requires the following:
ˆ IDP must ensure compliance with the requirements of sectoral planning,
principles and strategies thereby providing a basis for departmental,
operational, planning and budgeting;
ˆ the budgeting process for local government must achieve development
without encouraging more expenditure; and
ˆ budgeting allocations through IDP must clearly spell out what amount will be
required, for what purpose and when.
6.3.1.9.
Furthermore, in terms of the Local Government: Municipal Planning and
Performance Management Regulations, 2001 a municipality’s Integrated
Development Plan must at least identify:
ˆ institutional framework which includes organogram;
ˆ strategies and programmes for the implementation of the IDP and internal
transformation needs;
ˆ any investment initiatives;
ˆ any development initiatives namely, infrastructure, physical, social, economic
and institutional development;
ˆ all known projects, plans and programmes to be implemented;
ˆ the key performance indicators; and
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ˆ a financial plan which includes inter alia budget projection, financial strategy
etc.
6.3.1.10. Strategies for supply chain management are essential for proper financial
management. Municipal officials and other role players involved in Supply Chain
Management should ensure that they perform their duties efficiently, effectively
and with integrity. In terms of section 119 of the Municipal Finance Management
Act, 2003 the accounting officer and all other officials involved in the
implementation of supply chain management policy of the municipality or
municipal entity must meet the prescribed competency levels. Therefore, a
municipality must train these officials to improve and enhance performance in
the supply chain management.
6.3.1.11. Officials should ensure that municipality’s financial resources are administered
responsibly. For example, the MFMA Circular No. 22 of the Municipal Finance
Management Act 2003 requires the municipal Council or board of directors of
the municipal entity to establish a code of ethical standards for officials and other
role players in the supply chain management system.
6.3.1.12. The Code of Conduct for Supply Chain Management Practitioners and Other
Role Players is also intended to promote mutual trust and respect and an
environment where business can be conducted with integrity and in a fair and
reasonable manner. The key principles of supply chain management are inter
alia:
ˆ Avoidance of conflict of interest: Officials must declare to the accounting
officer details of any private or business interest which that person or any
close family member, partner or associate may have in any proposed
procurement;
ˆ Accountability: Municipal officials involved in Supply Chain Management
must assist the accounting officer in combating fraud, corruption, favouritism,
unfair and an irregular process in the Supply Chain Management System;
ˆ Openness: Practitioners must be as open as possible about all the decisions
and actions that they take; and
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ˆ Confidentiality: No information regarding any bid, contract, bidders and
contract may be revealed if such an action will infringe on the relevant
bidder’s or contractor’s personal rights.
6.4.
BEST PROJECT MANAGEMENT PRINCIPLES TO IMPLEMENT THE MFMA
6.4.1.
Overview
6.4.1.1.
There are various best project management principles. The application of these
principles depends on the nature, scope and specific objectives of a particular
project. For obvious reason, project management principles cannot be applied in
general terms. For example, project management principles applicable to a
housing project may not necessarily be appropriate in the implementation of the
MFMA project. This means that the project management principles for the
implementation of the MFMA will obviously be applied selectively to suit and
meet the objectives to be achieved. Key considerations involved in the
implementation of the MFMA raise a number of issues and questions:
ˆ what will the MFMA project cost? This question relates to a budget.
ˆ what time is required for the implementation of the MFMA?
ˆ what performance capability will it provide to the municipalities?
ˆ how will the implementation of the MFMA’s results fit into the execution of
municipalities’ financial strategies?
6.4.1.2.
The implementation of the MFMA is thus driven by cost, time schedule,
performance and a municipality’s responsibilities. There is no single principle,
which can lead to the successful implementation of the MFMA. Combination of
these principles is crucial. The capacity and size of South Africa’s municipalities
varied. Therefore, the specific application of principles will vary from one
municipality to another while the general application of the project management
principles may be more or less the same.
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6.4.2.
Selected Project Management Principles for the Implementation of the
MFMA
6.4.2.1.
The implementation of the MFMA does not just happen. It is set up because
there is a need for a sound municipal finance management. It is the
implementation of MFMA that establishes the systems of good financial
governance. Therefore, for a successful implementation of the MFMA, a
municipality must consider the following important, initial phases and principles:
6.4.2.2.
Clarifying the need for the project of the MFMA implementation: A municipality’s
objective is to solve problems such as unacceptable financial mismanagement,
financial irregularities and poor financial accounting and practices. It is very
important that a municipality should define and clarify the need for the MFMA
implementation. A municipality must take into account the capacity and
performance needs of the municipal officials. Therefore, capacity building of a
municipality through the MFMA implementation must take into cognisance the
capacity requirements for implementing the Municipal Finance Management Act,
2003 including integrated planning, performance management, financial
management, budgeting considerations and the need for development of
capacity of municipal officials in measurable ways.
6.4.2.3.
Feasibility study: This study often forms part of the early phases of the MFMA
implementation project. A municipality must identify officials who must participate
in the MFMA learning programme. In terms of the MFMA Circular No. 39 of the
Municipal Finance Management Act, 2003 the learning programme was
developed to assist the municipal officials in raising their awareness and a
broader knowledge of the MFMA. In accordance with the MFMA Circular No. 1
of the Municipal Finance Management Act, 2003 municipalities must ensure that
the National Treasury has approved training courses attended.
6.4.2.4.
National Treasury in association with SALGA and the LGSETA have finalised
unit standards and prescribed minimum norms and standards for training. In
view of the above, it is emphasised that before the municipal officials are
identified to attend learning programme, workshops or seminars dealing with the
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MFMA implementation and a detailed study should be made. Municipal officials
must be identified in order of preference and needs. Inevitably, the municipal
manager, chief financial officer, the Mayor, heads of departments and other
finance managers must be considered as the key and important officials to
attend any courses of the MFMA implementation. In other words, these officials
must be given a first priority since their understanding of the MFMA is of
paramount importance. For example, it will be ludicrous and unnecessary to
send a truck driver for a course on the MFMA implementation and encourage a
municipal manager to enrol for a course on truck driving.
6.4.3.
Scope and initiation management
6.4.3.1.
A municipality must define the scope of the implementation of the MFMA. In
other words, the deliverables must be divided into smaller and more manageable
components. The implementation of the MFMA must be seen in the light of the
desire to build a new “house”. The preferred option is to design and develop in a
detail
planning
schedules
of
the
implementation
of the
MFMA.
The
implementation must be driven by a baseline plan of the “house”.
6.4.4.
Time Management
6.4.4.1.
This phase must include processes required to ensure timely completion of the
implementation of the MFMA. It consists of schedule development. This means
analysing activity sequences, activity duration and resource requirements to
create the time schedule. Time is one of the basic principles of the
implementation or project life cycle of the MFMA and the key determinants of
success or failure of the implementation. The questions to be addressed include
inter alia:
ˆ
ˆ what is the shortest time in which the phases of the implementation of the
MFMA can be completed?
ˆ in what sequence will the activities be executed?
ˆ how long will each phase package takes?
ˆ which of a municipality’s activities are critical?
ˆ can specific milestone dates be met?
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6.4.5.
Cost Management
6.4.5.1.
A municipality must ensure that the implementation of the MFMA is completed
within the approved budget. Cost management consists of:
ˆ Resource planning: Costs are not just rands. Costs are all the resources
required to carry out the implementation phase. A municipality must
determine what resources are critical for the MFMA implementation (for
example, municipal officials, materials) and what quantities of each should be
used to perform the activities of implementation? As pointed out earlier, a
municipality must identify a specific category of municipal officials which must
attend training courses for the MFMA implementation.
ˆ Cost estimation: A municipality must develop an estimate of the costs of the
resources needed to complete the activities of the implementation of the
MFMA.
ˆ Cost budgeting: A municipality must allocate the overall cost estimate to the
individual work items.
ˆ Cost control: A municipality must effectively and efficiently manage the costs
or budget allocated for the MFMA implementation.
ˆ Cost constraints: The implementation phase of the MFMA may have some
cost constraints. For example, a municipality may receive a R100 000 grant
to mount the implementation of the MFMA without other funds available. A
municipality must balance the costs constraints and juggle those constraints.
6.4.5.2.
The questions to be addressed in cost management include inter alia:
ˆ how much will each phase of implementation cost?
ˆ are the costs within any given cost constraints?
ˆ can a municipality afford to do a project now or at a later stage?
ˆ what funding is required and by when?
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6.4.6.
Quality Management
6.4.6.1.
The quality management include the processes required to ensure that the
implementation of the MFMA will satisfy the needs for which it was undertaken. It
includes:
ˆ Quality planning: A municipality must identify which quality standards are
relevant to the implementation of the MFMA and determine how to satisfy
them.
ˆ Quality control:
A municipality is expected to monitor specific results to
determine if they comply with relevant quality standards and identify ways to
eliminate cause of unsatisfactory performance. It is vital that a close eye is
kept on the progress of the implementation of the MFMA. A municipality must
readjust the project to ensure that it is as close to the schedule, cost and
specification parameters as possible. This includes the municipal officials
and all other events such as workshops, training, course attendance and
issues that require money or some attention in the implementation of the
MFMA.
6.4.7.
Communication Management
6.4.7.1.
The starting point of this stage is to ensure that information needed for the
implementation of the MFMA is distributed and made available to all
stakeholders namely, municipal officials, councillors, political heads of a
municipality and residents. This can be achieved by determining the information
and communication needs of the stakeholders: who needs what information,
when will they need it and how will it be given to them?
6.4.8.
Delivery Process
6.4.8.1.
This stage involves the closing process. This means a formal acceptance of the
implementation phase and bringing it to an orderly end. Here, the understanding
is that all the stakeholders involved have a systematic knowledge and
understanding of the MFMA and most importantly they apply it to reform the
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municipal finance to drive a sound financial management and businesses of the
municipality. However, it must be emphasised that since the implementation of
the MFMA involves various learning activities, it cannot be safely concluded that
the implementation can reach finality.
6.4.8.2.
Both learning and experience are the on-going activities. Municipal officials,
political heads and councillors are expected to carry the implementation of the
MFMA throughout the processes of municipal finance management. In other
words, the implementation of MFMA does not have an end per se. In terms of
the MFMA Circular No. 1 of the Municipal Finance Management Act, 2003
municipalities will be supported and guided during the phases and processes of
the implementation by the National Treasury. It is in this spirit that municipalities
must work in tandem with the National Treasury and relevant provincial treasury.
7.
LEARNING TASKS AND ACTIVITIES
7.1.
CASE STUDIES AND QUESTIONS FOR PRACTICE
7.1.1.
Case Study 1
7.1.1.1.
The Mayor of Nkosinathi district municipality announced in the Municipal
Executive Committee’s meeting on the 15 February 2008 that the National
Treasury issued a Circular: MFMA Circular No: 00022 2008 that all the
municipalities across the country must embark on the Implementation
Programme of the MFMA. The Mayor further emphasised that in implementing
the MFMA the attention should be given to improve inter alia internal control,
strategic leadership and management and to develop tools and procedures to
facilitate the compilation of annual financial statements. Following the
implementation, the Nkosinathi district municipality hoped that all the backlogs of
annual financial statements up to the 2007/8 financial year will be dealt with
accordingly. As a municipal manager of the Nkosinathi district municipality, you
are excited about the new trend of the MFMA implementation project and you
are confident that proper implementation of the MFMA will yield positive results
for the financial management of the Nkosinathi municipality.
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7.1.1.2.
What best possible project management principles will you apply for the
implementation of the MFMA in the Nkosinathi district municipality?
7.1.1.3.
To what extent will implementation of the MFMA improve financial management
in the Nkosinathi municipality in respect of municipal reporting, auditing and
preparation of budgets and internal controls?
7.1.1.4.
What legal, political and economic changes, do you think the MFMA will
introduce in the financial regime of the Nkosinathi municipality?
8.
SUPPORT MATERIALS AND REFERENCES
8.1.
BOOKS
8.1.1.
Bekink B Principles of South African Local Government Law (Butterworths:
Durban 2006)
8.1.2.
Govender S Local Government Fiscal Management and Accountability
Handbook (Open Society Foundation for South Africa: South Africa 2005)
8.2.
GOVERNMENT CIRCULARS AND REGULATIONS
8.2.1.
Local
Government:
Municipal
Planning
and
Performance
Management
Regulations 2001
8.2.2.
MFMA Circular No. 22: Municipal Finance Management Act 56 2003
8.2.3.
MFMA Circular No. 41: Municipal Finance Management Act 56 of 2003.
8.2.4.
Code of Conduct for Supply Chain Management Practitioners and Other Role
Players 2003
8.3.
LEGISLATION
8.3.1.
Constitution of the Republic of South Africa Act 108 of 1996
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8.3.2.
Local Government: Municipal Finance Management Act 56 of 2003
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