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Tshisevhe Gwina Ratshimbilani Inc.
Illovo Edge Office Park, Building 1, 3rd Floor
Fricker Road CNR Harries
Illovo Sandton, 2196
P.O. Box 782352, Sandton 2146
t. +27 (0) 11 243 5027
f. +27 (0) 11 243 5028
e. info@tgrattorneys.co.za
website: www.tgrattorneys.co.za
SOE FOUNDING LEGISLATION: LOCAL GOVERNMENT: MUNICIPAL FINANCE MANAGEMENT ACT. NO.56
OF 2003 (AS AMENDED) (“THE ACT”)
SOE: MUNICIPAL OWNED ENTITIES OF CITY OF JOHANNESBURG
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ANALYSIS OF MUNICIPAL ENTITIES FOUNDING LEGISLATION PROVISIONS
MUNICIPAL OWNED ENTITIES – CITY OF JOHANNESBURG (“COJ”)
1. CORPORATE GOVERNANCE MATTERS: FORMATION AND DISSOLUTION
Establishment
/Disestablishment of
SOE
Principal objectives of
SOE
Role of Parliament
Role of Government
Capitalising / Funding
or Financing of the SOE
Restructuring /
Divestiture of SOE
Conflicts of Interest
Provisions
S.84 (2) – Provides for
the conditions under
which a municipality
may establish or
participate in a
municipal entity.
S.84 – to support
municipality in service
delivery.
S.134 - Cabinet
member responsible
for local government
must, annually report
to Parliament on, inter
alia, financial affairs of
municipalities and
municipal entities.
S.34 (1) –national and
provincial governments
must assist
municipalities in
building capacity for
efficiency, effective
and transparent
management; support
in identifying and
resolving financial
problems. Assist in
improving financial
management; Alert of
any detected emerging
and impending
financial problems in
the municipalities; and
assist in averting or
resolving financial
problems.
S.18 – provides for the
funding of expenditure,
and states that, an
annual budget may
only be funded from
realistically anticipated
revenues to be
collected and cashbacked accumulated
funds from previous
years surplus which is
not committed for
other purposes.
S.90 – Municipal entity
may not transfer
ownership or
otherwise dispose of a
capital asset needed to
provide the minimum
level of basic municipal
service.
S.94 – Accounting
Officers may not use
position or privileges or
confidential
information for
personal gain or for the
improper benefit of
others.
S.84 (1) - Provides
considerations to be
followed by
municipality before
establishment of any
municipal entities.
S.84 (3) – Establish
includes the acquisition
of an interest in a
private company that
would render the
private company a
municipal entity.
S.90 (2) – municipal
entity may dispose
asset only after council
of parent municipality
has in public meeting
decided that asset is
not needed for
minimum level service,
and fair market value,
economic and
community value have
been assessed.
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2. CORPORATE GOVERNANCE MATTERS: PROVISIONS ON DIRECTORS
Constitution of Board of
Directors
Provisions on Independent
Directors
Provisions of Executive Directors
Appointment and removal of
Directors
Appointment and removal of
CEO / MD
Regulated by Part 6 of Local
Government: Municipal Systems
Act, No.32 of 2000 (“MSA”),
s.93E – s.93J.
Regulated by Part 6 of Local
Government: Municipal Systems
Act, No.32 of 2000 (“MSA”),
s.93E – s.93J.
Regulated by Part 6 of Local
Government: Municipal Systems
Act, No.32 of 2000 (“MSA”),
s.93E – s.93J.
Regulated by Part 6 of Local
Government: Municipal Systems
Act, No.32 of 2000 (“MSA”),
s.93E – s.93J.
Regulated by Part 6 of Local
Government: Municipal Systems
Act, No.32 of 2000 (“MSA”),
s.93E – s.93J.
See summary of the MSA.
See summary of the MSA.
See summary of the MSA.
See summary of the MSA.
See summary of the MSA.
S.93 – CEO is the accounting
officer (“Accounting Officer”).
S. 107 – the Accounting Officer,
senior managers and any chief
financial officials must meet the
prescribed financial management
competency levels.
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3. CORPORATE GOVERNANCE MATTERS: PROVISIONS ON DIRECTORS CONTINUED
Duties of Directors
Directors Powers
Validity of Directors
Actions
Liability of Directors
Delegation of Powers
Offences and Penalties
S.94 - Accounting Officer’s
fiduciary duties.
Regulated by Part 6 of Local
Government: Municipal
Systems Act, No.32 of 2000
(“MSA”), s.93E – s.93J.
Regulated by Part 6 of Local
Government: Municipal
Systems Act, No.32 of 2000
(“MSA”), s.93E – s.93J.
S.106 – Accounting officer
may:
S.173 (2) – Accounting
officer of a municipal entity
is guilty of an offence if
they:
See summary of the MSA.
See summary of the MSA.
S.176 – Municipalities,
municipal entities and/or
any of their office bearers,
directors and/or officials
are NOT liable in respect of
any loss or damage
resulting from the
exercising, in good faith, of
any power or performance,
in good faith, of any
function in terms of the
Act.
- Duty of utmost care to
protect assets and records,
- fidelity, honest, integrity
and best interest of entity,
- disclose all material facts
to parent Municipality or
board of directors.
- Seek to prevent prejudice
to financial interests of
entity.
May not act in any way
inconsistent with above
duties.
- Unlimited civil liability (at
common law or other
legislation) against any
director, official and/or
office bearer for loss or
damage suffered by any
municipality or municipal
entity as a result of
deliberate or negligent
unlawful actions in
performance of functions.
- delegate to an official
entity any of the powers or
duties assigned or
delegated to the
accounting officer in terms
of the Act, or any powers
or duties reasonably
necessary to assist the
Accounting Officer in
complying with a duty
which requires the
Accounting Officer to take
reasonable or appropriate
steps to ensure the
achievement of the aims of
a specific provision of the
Act.
- Must regularly review
delegations and if
necessary, amend or
revoke the delegation.
(a) deliberately or in a gross
negligent manner (i)
contravene or fail to
comply with certain
fiduciary duties and
financial management
provisions in Chapter 10,
Part 3 of the Act, (ii) fail to
take reasonable steps to
prevent irregular or
fruitless and wasteful
expenditure; or fail to take
reasonable steps to
prevent corrupt practices in
the management of assets
or receipt of money or in
the implementation of the
entity’s supply chain
management policy;
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S.106 (2) – all such
delegations must be in
writing, subject to any
limitations and conditions
the Accounting Officer may
impose, may be to a
specific individual or holder
of a particular office of the
municipal entity, and all
such delegation DO NOT
divest the Accounting
Officer of the responsibility
concerning the exercise of
the delegated power or
performance of the
delegated duty.
S.173 (2) (b) – deliberately
mislead or withhold
information form the
auditor general on any
bank accounts of the entity
or on receipts or expenses
by the entity; or
Accounting Officer may
confirm, vary or revoke any
decision taken by an official
in consequence of a
delegation in terms of the
Act. No such variation or
revocation may detract
from any rights accrued as
a result of the decision.
S.173 (2) (c) – deliberately
provide false or misleading
information in any
document which in terms
of the Act must be
submitted to the auditor
general, National Treasury
or any State organ or made
public.
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S.173 (3) – senior managers
and other officials who
exercise financial
management
responsibilities and are
acting on delegated
authority are guilty of an
offence if they deliberately
or gross negligently
contravene or fail to
comply with conditions of
such delegation.
S.173 (5) – officials or
directors are guilty of an
offence if deliberately or
gross negligently impede
Accounting Officer from
complying with the Act;
give material incorrect,
untrue or misleading
information; make
withdrawals in
contravention of s.11; fail
to comply with s.49;
contravene s.115 (2), 118
or 126 (5); or provide false
or misleading information
to the auditor general,
National Treasury or any
State organ or public.
S.174 – Penalty on
conviction, prison up to 5
years or appropriate fine.
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4. PROCEDURAL AND MANAGEMENT MATTERS
Quorum for Board Meetings
Conduct at Board Meetings
Annual General Meeting (AGM) Provisions
No provisions.
Regulated by Part 6 of Local Government: Municipal
Systems Act, No.32 of 2000 (“MSA”), s.93E – s.93J.
No provisions.
See summary of the MSA.
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5. AUDIT AND REPORTING MATTERS
Report Submission Requirement
Responsible Reporting Officer
To whom SOE Reports
(Parliament or Government)
Frequency of Reports
(Annual/Semi-Annual)
Reporting Standards /
Benchmarks
S.122 – Every municipal entity
must for each financial year
prepare annual financial
statements (“AFS”), which must
fairly represent state of affairs of
the municipal entity and provide
information as required in terms
of such section and the Act.
S.104 - Accounting Officer, except
where otherwise provided in the
Act.
S.127 - Accounting officer must,
within 6 months of end of
financial year or earlier, submit
Audited Report to the Municipal
manager of the parent
municipality.
Annual reports for AFS.
S.122 (3) AFS and consolidated
annual financial statements must
be prepared in accordance with
generally recognised accounting
practice in terms of s.91 (1) (b) of
the Public Finance Management
Act.
S.121 (1) – Every municipal entity
must for each financial year
prepare an annual report (“AR”),
to provide record of activities and
performance of the municipal
entity.
S.126 (2) - Accounting Officer
must prepare AFS and submit
them within 2 months after end
of financial year for such
statements to, parent
municipality, and the Auditor
General who must audit them
and submit audit report to the
Accounting Officer within 3
months of receipt.
S.104 – Accounting Officer.
Mayor of municipality submits
Annual Report to Municipal
Council.
Auditor General may submit the
AFS to other government
departments such as National
Treasury, provincial treasury etc.
S.126 (5) - Only the AuditorGeneral may alter the audit
report or financial statements of
the report once such statements
are submitted to the AuditorGeneral.
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6. AUDIT AND REPORTING MATTERS
Auditing Requirements
Business Plans / Statement of Objectives
/ Budgets
Liquidity and Solvency Management
Provisions
Performance Review
S.92 - Audited by Auditor-General.
S.100 – Accounting Officer is responsible
for implementing the entity’s budget and
all matters in connection therewith.
No provisions.
Reviewed in terms of S.121 and s.129,
against its budget, by the Parent
municipality’s Municipal Council and then
the Auditor General, relevant provincial
treasury and the provincial department
responsible for local government in the
province.
S.102 – Board of directors have a duty to,
on discovery of any irregular expenditure
or fruitless and wasteful expenditure,
promptly report, in writing, to the mayor
and municipal manager of the parent
municipality.
S.87 – Board of directors of a municipal
entity must for each financial year submit
a proposed budget for entity to its parent
municipality not later than 150 days
before start of financial year.
S.102 (2) – Board of directors must also
promptly report to the South African
Police Service any irregular expenditure
that may constitute a criminal offence; and
other losses suffered by the municipal
entity which resulted from suspected
criminal conduct.
S.87 (3) – lists various criteria for the
budget.
S.88 – Accounting officer must by 20
January each year assess performance of
the entity for 1st half of year and submit a
report on such assessment to board of
directors and parent municipality.
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7. MISCELLANEOUS MATTERS
S.103 – Interference by councillors in financial affairs of municipal entity; or in responsibilities of the board of directors must be promptly reported by the Accounting Officer to the
speaker of the council of the parent municipality.
S.128 – provides for the monitoring of compliance. Municipality’s accounting officer has a duty to monitor compliance by the Accounting Officer of any municipal entity under the
Municipality’s sole or shared control. Must establish reasons for any non-compliance and report on it to the council of the Municipality, the relevant provincial treasury and the
Auditor General.
S.3 (2) – in the event of any inconsistency between a provision of this Act and any other legislation in force, which regulates the fiscal and financial affairs of the municipalities or
municipal entities, the provisions of this Act prevails.