Select Committee on Finance
National Treasury
TV Pillay

• The purpose of the FMG is to promote and support municipal financial management reforms and assist municipalities with the implementation of the MFMA
– 2001 : pilot programme targeted at selected municipalities –
• Cat A (Jhb/Tshwane), B (Msunduzi/Sol Plaatje),
• Cat C (OR Tambo, Amatole)
– 2003 : phased implementation of the MFMA
– 2004 : countrywide support for reforms
– 2005 : Grant extended to 194 municipalities
– 2006 and medium term to all municipalities
2

– MFM reform commenced in 1998
– Testing with pilot municipalities commenced in 2000
– MFMA took effect 1 July 2004, with some sections delayed or exempted for lower capacity municipalities
– Financial and technical assistance provided via
FMG & MFMTAP
– Prime responsibility for financial management rests with EACH municipality
3

Aims
– Catalyst for MFMA implementation
– Strengthening of municipal financial management capacity
– Broaden skills base for financial management
4

Conditions
– Appointment of an appropriately skilled municipal manager and CFO
– Appointment of at least two interns for purposes of building future financial management capacity
– Council Resolution committing council to reforms
– Submission of primary bank account details
– Development of an action plan for implementation
– Monthly reporting on performance
5

Focus of reforms
– Build awareness and undertake training on MFMA reforms
– Create and implement credible multi-year budgets
– Linking plans and Budgets
– Improve consultation with communities
– In-year reports to council and external parties
– Prepare quality and timely AFS and Annual Reports
– Improve processes, procedures and quality of financial information
– Prepare and present SDBIP’s
6

Distribution of Finance Management Grant per Category of Municipality 2000/01 to 2008/09
National Financial Years (R'000)
Medium-term estimates
Category 2001/02 2001/02 2002/03 2003/04 2004/05 2005/06 2006/07 2007/08 2008/09 Total
A
B
C
TOTAL
15 000
27 500
7 500
50 000
Municipalities 20
15 500
28 500
16 000
60 000
31
21 500
66 000
23 500
111 000
39
21 000
138 330
51 500
210 830
149
20 000
85 000
33 000
138 000
195
20 000
81 000
31 500
132 500
194
3 500
117500
24250
283
3 500
117500
24250
283
4500
117000
28500
145 250 145 250 150 000 1 142 830
283
123 000
782 630
237 200
-
Source: Division of Revenue Acts 2000 to 2006
7

Aim
– Support large municipalities with restructuring
Conditions
– Municipality develop own restructuring plans
– Contractual obligations on plans
– Adopt resolution committing to implementing plans
– Show progress in quarterly reports
8

Some indicators
– Institutional
• Staffing and skills levels
• Structured meetings and frequency
• Alternative service delivery mechanism
• Service centre
– Economic Development
• Innovative programmes
• Job creation activities
– Financial
• Credit ratings
• Debt ratios
• Revenue collection ratios
• Infrastructure spending levels
9

Municipalities
Allocations prior to 2004
R’m
Nelson Mandela
Cacadu 48
Buffalo City
Mangaung
Mathebeng
City of Jo'burg
City of Tshwane
Emfuleni eThekwini
Msunduzi uMhlathuze
Polokwane
Sol Plaatje
City of Cape Town
15
550
134
20
10
20
Total 797
Allocation
2005/06
R’m
50
35
10
25
65
35
65
65
350
Amounts withheld
2005/06
R’m
20
Allocation
2006/07
R’m
10
35
55
35
75
35
75
Allocation
2007/08
R’m
50
100
100
Total since inception
R’m
108
48
103
120
15
575
155
60
155
134
20
10
20
30 75 100 125
95 350 350 1,942
10

Municipal Capacity Categorisation per Province
Province
Eastern Cape
Free State
Gauteng
Kwazulu-Natal
Limpopo
Mpumalanga
Northern Cape
North West
Western Cape
Total
Medium Low
45 6 16 23
25
14
61
5
6
9
10
7
16
10
1
36
30
21
32
25
30
283
3
6
1
6
8
50
Source: Local Government Datab ase
8
6
18
8
18
107
11
19
9
13
11
4
126

1. Preparing an implementation plan
2. Allocate responsibilities to AO=MM
3. Establish senior management team
4. Bank account and cash controls
5. Meeting financial commitments
6. Budgets
7. Supply Chain Management policy
12

8. Entities, PPPs, long term contracts and borrowing reforms
9. Past financial statements
10. Present financial statements and annual report
11. Tender committees, boards, forbidden loans
12. Compliance with Division of Revenue Act
13

• Commenced in 2004 - unemployed graduates in Public Finance, Economics,
Accounting and Auditing from disadvantaged communities
• Programme supported by municipalities, with international and local mentors guided by NT
• 490 interns currently employed in municipalities
• Over 60 appointed permanently in municipalities, state and private institutions
14

Table 7.4 Recruitment and Movement of Interns 2004 to 2005 by Province
EC FS GP KZN LIM MP NW NC WC TOTAL
Interns 31 October 2004 43 26 25 49 25 24 24 22 49 287
New recruitment 2005
Subtotal
Interns leaving 2005
44
87
2
Interns 31 October 2005
Source: Local Government Database
85
34
60
5
55
16 45
41
9
94
4
32 90
33
58
3
55
26
50
11
39
21 23
45
4
45
3
41 42
30 272
79
24
559
65
55 494
15

• All 6 Cat “A”, 40 cat “B”, and 15 Cat “C” municipalities now produce multi-year budgets
• Most high capacity municipalities are producing in-year reports on financial and non financial performance
• All municipalities have developed implementation plans
• New loan arrangements undertaken by large municipalities
• Internal processes drastically improved
• All municipalities have community consultation meetings on budget preparation
16

• 2002/03 – hands-on technical assistance provided to
33 municipalities via international advisors
• 2004 - roving advisors appointed in 5 provinces (FS,
Limp, NW, Mpum, EC)
• 2004 - workshops on phase-in of MFMA undertaken countrywide with over 2500 attendees
• 2005 - SAQA accredited qualification approved :
NQF level 5 and 6
• 2005 – work plan part support for PC
• 2005 - technical sessions on budget reforms, in-year reporting, supply chain management undertaken with over 2100 attendees
17

• 2006 and beyond
– new councillor training programme commenced with guides and booklets issued to all (copies in pack)
– MFMIP workshops for mentorship and service providers on workplace programmes and development of training material
– Conference with 1200 delegates (trainers and officials): Comprehensive approach to MFM
Capacity Building
– Further capacitation of Provincial Treasury staff
– Provincial legislature improved oversight over
MFMA implementation
– Multimedia self testing training programme
18

Table 7.2 Credit Ratings of Metropolitan Municipalities
Metro
Ethekwini(Durban)
Ekurhuleni(East Rand)
Long-term zaAA zaAA-
Short-term zaA1+ zaA1+
Cape Town zaA+ zaA1
Tshwane(Pretoria)
Johannesburg
Nelson Mandela(Port Elizabeth) zaA+ zaA zaA zaA1 zaA1 zaA1
George zaA-
Sources: Global Credit Rating Co report October 2005 - Ethekwini.
CA-Ratings reports January and March 2006 - others.
zaA2
Ratings are based on SA national scales. The highest rating is zaAAA. Ratings scale down from zaAAA to zaA-. Within each of the levels a "+" or "-" sign indicates relative strength. An A indicates the relative strong and capacity to repay liabilities. Example: eThekwini has the best long-term rating.
19

• Progress in implementation for 2005/06
Budgets
Survey of 35 municipalities with NT Advisors
– 23 tabled on time (1 April 2005)
– 11 tabled one week late
– 1 outstanding
– 35 to approve before 30 June 2005
20

100
80
%
60
47
40
96
Budgets Tabled and Adopted on Time - 2005/06
100
97
92
100 100 100
79
41
58 57
20
16
20
44
97
70
0
Ea st ern
C ap e
Fre e
St at e
G au te ng
Kw az ul u-N at al
Li m po po
M pu m al an ga
N ort h
W es t
N ort he rn
C ap e
W es te rn
C ap e
Tabled On Time Adopted On Time
21
100

• Refer pack for detailed information on selected 22 municipalities
• Progress in 2006/07 budgets
– Spread across the country (Cat A, B and C)
– Tabling within timelines –February (9), March (12), April (1)
– Multi year format (22)
– IDP/Budget alignment - capital (20) and operations (17)
– Service Delivery & Budget Implementation plan (10)
– Tabled budget on website (5)
• Other reforms
– Internal audit unit established (22)
– Audit committees established (22)
– Supply Chain Management Policy adopted (22)
22

– Implementation guidelines and manuals
– Pocket version of MFMA alignment with MSA
– Technical circulars, emails, F A Q
– Training seminars and workshops (budgets, internal audit, mentors, GRAP, DVD set)
– Validation Board to review materials established
– PPP desk established
– Website and MFMA help-line established
– Regular meetings with provincial officials instituted
23

24

Audited Financial Statements submitted to Auditor-General
2001/02, 2002/03, 2003/04
Western Cape
North West
Northern Cape
Mpumalanga
Limpopo
Kwazulu-Natal
Gauteng
Free State
Eastern Cape
Eastern Cape Free State Gauteng Kwazulu-Natal Limpopo Mpumalanga Northern Cape North West Western Cape no data 2
01/02, 2
01/02, 02/03 5
01/02, 02/03, 03/04 36
0
0
0
25
0
3
0
12
0
4
1
56
1
3
2
26
2
3
1
14
0
1
0
30
0
2
0
23
25
0
1
0
29

2004/2005 Annual Financial Statements Submitted to Auditor-General
Submitted by 31/12/2005 Outstanding at 31/12/2005
Western Cape
Northern Cape
North West
Mpumalanga
Limpopo
KwaZulu-Natal
Gauteng
Free State
Eastern Cape
0% 10% 20% 30% 40% 50% 60% 70% 80% 90%
26
100%

MFMA Urgent Priorities Score
Complying Fully With The Division Of Revenue Act
Complying With Provisions For Tender Committees, Boards Of Municipal Entities And In Relation To Forbidden Activities
Completing 2003/04 Financial Statements And Tabling Annual Report
Completing Past Financial Statements And Advising National Treasury - (For 2002/03 Financial Year And Before)
Implementing Reforms In Relation To Municipal Entities, Public-Private Partnerships, Long-Term Contracts And Municipal
Borrowings
Revising Policies For Supply Chain Mangement
Reporting Revenue And Expenditure
Meeting Of Financial Commitments
Implementing Appropriate Controls Over Municipal Bank Accounts And Cash Management
Establishing A Top (Senior) Management Team
Allocating Appropriate Responsibilities Under The Mfma To The Accounting Officer
Low [60/127 Respondents]
Medium [66/107 Respondents]
High [37/50 Respondents]
Preparing An Implementation Plan
0 10 20 30 40 50 60 70 80
27
90 100

Figure 7.1
MFMA Implementation Plans received as at 30 April 2006
100 100
100 100 100
100
98
96
94
92
90
88
86
84
82
E as te rn
C ap e
98
F re e
S ta te
G au te ng
K w aZ ul u-
N at al
89
Li m po po
M pu m al an ga
N o rt h
W es t
N o rt he rn
C a pe
W es te n
C ap e
28
100

• Municipalities were requested to submit their original primary bank account details to the National Treasury
• Initial request till 100% submission = 4 ½ months
• 34 submissions with errors, including noncompliant account names, etc
29

Original Primary Bank Account Details Submitted to NT as at 13 April 2006
Western Cape
Northern Cape
North West
Mpumalanga
Limpopo
KwaZulu-Natal
Gauteng
Free State
Eastern Cape
0% 20%
Compliant
40% 60%
Non-compliant
80%
Errors
30
100%

– Investments (1 April 2005)
– Public Private Partnerships (1 April 2005)
– Supply Chain Management (1 July 2005)
– Budgets (schedule, format, resolution)
– Prescribed limits and frameworks in progress
– Competency levels
– General matters
31

– Disposal of assets
– Entities guide and regulations
– Councillor guide and training with SALGA
– Cash Management
– Borrowing guide and regulations
– Internal Audit guide
– New format Grap Statements
– Asset Management guide
– Establishment of MFRS
32

– PT to progressively assume MFMA delegation
– PT finalising support structures and strategies
– National MFMA Working Group established
• Regular meetings (SALGA, dplg, PT, PLG)
– Address resource and staff requirements
– Multi year allocations in Provincial budgets for all programmes to municipalities
– Alignment of Provincial and Municipal plans
– Further support and co-operative governance with other departments
33

34