Select Committee on Appropriations28 January 2014

TV Pillay: Office of the Accountant-General

INTRODUCTION

• National Treasury administers the financial management regulatory framework and renders assistance;

• Municipal Finance Management Act – Budgeting, Accounting, Reporting, Supply Chain and Internal audits, etc;

• Assistance rendered as follows:

– MFMA Implementation through coordination, research, help desk, training, regulations, guides and circulars;

– Municipal Finance Recovery Services – support through development of financial recovery plans;

– Technical Assistance – Support to improve financial management through placement of technical experts;

– Conditional Grant – Administer, monitor and report on FMG;

– Conditional Grant – Administer, monitor and report on ISDG

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MFMA IMPLEMENTATION

• Coordination Structure (Nat./Prov. Treasuries, DCoGs, SALGA, AG) • MFMA Regulations

– Investment– Public Private Partnerships– Supply Chain Management– Asset Transfer and Disposal– Borrowing– Minimum Competencies– Budget Process and Management

• MFMA Circulars - 71 issued – Unauthorised, Irregular, Fruitless and Wasteful Expenditure – Budgeting and Cost Containment Measures – Uniform Financial Ratios and Norms– System of Delegations – FMCMM

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FINANCIAL RECOVERY PLANS AND OTHER MEASURES

• Section 216 of the Constitution provide for National Treasury to stop transfer of funds to municipalities if they commit serious or persistent material breach;

• Chapter 13 of MFMA enables assistance in developing a Financial Recovery Plan for municipalities. FRP may not be needed in all instances;

• Procedure for stopping funds is also contained in section 38 of the MFMA;

• NT previously intervened by communicating and delaying transfer to the following municipalities - Nala (FS), Bela Bela (LP), Swellendam (WC), Kannaland (WC), Renosterberg, Joe Morolong, !Kai! Garib, Kgatelopele and Mier (NC))

• The intervention were due to persist failure to prepare AFS and submission to AG for audit;

• Action plans have been put in place to assist the above-mentioned municipalities to address this matter.

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MFRS – SUPPORT TO MUNICIPALITIES

• Issued a Guide to support provinces to improve coordination and follow practical steps consistent with the legal framework;

• Municipal Finance Recovery Services in NT offered direct support to Provinces and Municipalities upon request for assistance in development of financial recovery plan and technical assistance on financial management via MFIP;

• Direct development support provided to the following: • Madibeng (NW) since August 2010, implementation in progress• Mahikeng (NW) since Dec 2010, implementation in progress• Msunduzi (KZN) since Nov 2011, implementation advanced stage• Naledi (FS) since Dec 2012, implementation in progress• Bushbuckridge (MP) since July 2013, implementation in progress

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INTERVENTIONS AND RELATED CHALLENGES

• Interventions are not always supported by structured plans, conditions, relevant support, monitoring and follow through;

• Interventions are often ended earlier than appropriate as objectives may not have been achieved;

• Conditions for lifting interventions were not in place, resulting in repeated interventions;

• Before interventions terminated not all reasons for the intervention resolved;

• Terms of reference with concise deliverables and timelines for

Administrators;• Improved coordination efforts by provincial departments and at national

can strengthen outcomes;• Improved monitoring and reporting can assist the Executive and

Legislatures to gauge progress and take corrective measures.

TECHNICAL ADVISOR SUPPORT

• MFMA Support Plans, confirmed with provinces, agreed with MM and Council

• Institutional reforms promotes accountability and oversight, focusing on structure and processes

• Technical reforms promotes transfer of skills and knowledge to municipal officials and focuses on systems, procedures and actions

• Municipal steering committee, Mayor or Clr for Finance, MM and CFO monitors progress

• Council makes it own executive decisions on reform progress, fully aware of the status of implementation

• Allows decisions to be made in-house, rather than by an external party, so that individual organizational issues are taken into account on all matters

• Monthly and weekly updates provided

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TECHNICAL ADVISOR SUPPORT

PRIORITY EMPHASIS ON BUILDING OF CAPACITY OF OFFICIALS• No programme designed to build the capacity of institutions will succeed without firstly, the necessary officials being appointed

within an organization and secondly, necessary procedures and programmes designed to enhance the skills of those officials;• The Programme emphasizes the need for both, for full capacitation of the BTO and internal audit unit and compliance with

FMG conditions, competency training and development of councillors and staff; • Details of progress to date;

• 86% appointed a MM (46 appointed after MFIP commencement), • 71% appointed a CFO (39 appointed after MFIP commencement),• Advisors have undertaken reviews of BTOs in 90% and of IA in 84% of municipalities, • BTO capacitation – 23% of municipalities have made all appointments,• IA capacitation – 38% have made all appointments,• BTO staff duties aligned to MFMA reforms in 43% of municipalities,• IA outsourcing – 34% outsourced or utilizing shared services, • 81% appointed full complement of interns and 86% had appointed a mentor, • 83% have reviewed delegations

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TECHNICAL ADVISOR SUPPORT

TRAINING AND DEVELOPMENT INITIATIVES – MUNICIPAL OFFICIALS

• Over 4534 training and development interventions provided across ten areas in financial management incl, budgeting, cash management and banking, financial reporting, assets and liabilities, revenue and expenditure, supply chain processes and procedures;

• Over 3730 officials have registered for the formal Minimum Competency programmes nationally, at various service providers;

• Most popular training areas for informal training were on budgeting (16%), revenue (16%), accounting / reporting (14%), supply chain (14%);

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TECHNICAL ADVISOR SUPPORT

• 8 provincial treasuries and 76 municipalitiesMUNICIPALITIES

Eastern Cape (11) Alfred Nzo, Baviaans, Elundini, Emalahleni, Ikwezi, Joe Gqabi, Kou-kamma, Maletswai, Nkonkobe, Sakhisizwe, Sundays River Valley

Free State (15) Kopanong, Letsemeng, Maluti-a-Phofung, Masilonyana, Metsimaholo, Mohokare, Moqhaka, Nala, Naledi, Ngwathe, Nketoana, Phumelela, Setsoto, Tokologo, Tswelopele

KwaZulu-Natal (12) Imbabazane, Jozini, Mkhambathini, Mpofana, Msunduzi, Nquthu, Okhahlamba, Ugu, Umgungundlovu, uThungulu, Vulamehlo, Zululand

Limpopo (5) Ba Phalaborwa, Bela-Bela, Elias Motsoaledi, Polokwane, Sekhukhune

Mpumalanga (11) Albert Luthuli, Bushbuckridge, Dr JS Moroko, Emalahleni, Mkhondo, Msukaligwa, Nkomazi, Pixley Ka Isaka Seme, Thaba Chweu,

Thembisile Hani, Umjindi

North West (10) Mahikeng, Matlosana, Moretele, Tswaing, Ramotshere Moiloa, Dr Ruth Mompati, Naledi, Moses Kotane,, Ventersdorp, Kgetleng Riv.

Northern Cape (6) Kamiesberg, Kgatelopele, Renosterberg, Siyancuma, Thembelihle, Umsobomvu

Western Cape (6) Central Karoo, Laingsburg, Oudtshoorn, Overberg, Prince Albert, Saldanha Bay

PROVINCIAL TREASURIES Eastern Cape, Free State, Gauteng, KwaZulu Natal, Limpopo, Mpumalanga, North West, Northern Cape

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FMG - CONDITIONS

• Financial Management Grant conditions laid out in DoRA framework and addresses all aspects of financial management disciplines as per the MFMA;

• Objectives of the Grant are as follows:

• Improve capacity in FM in municipalities• Improve and sustain skills development including appointment of 5 graduate

interns per municipality• Appropriately skilled financial officers consistent with competency regulations• Improvement with budget practices• Improvement in management of revenue, assets and liabilities• Improvement in SCM practices• Timely submission of AFS and improved audit outcomes• Improvement in Governance and Oversight

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“R000” 2011/12 2012/13As at 30 December

2013/14Total Funding Available 384 641 402 753 424 798

Transfers to date 384 641 402 753 424 798

Expenditure 362 935 387 354 206 178Expenditure as of total funds 94% 96% 49%

FMG- Expenditure

• 2013 MTEF allocations :R424.7 million for 2013/14; R449.1 million for 2014/15 and R469.8 million for 2015/16. To date all funds have been transferred.

• Actual expenditure to date amounts to R206.1 million or 49% of the total funding available for the 2013/14 financial year.

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FMG - 2013/14 Support Plans

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FMG - FINANCIAL MANAGEMENT INTERNS

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Interns – previous 3 years

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FMG – Chief Finance Officer - Dec 2013

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FMG - BUDGETS

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FMG - INTERNAL AUDIT UNITS & AUDIT COMMITTES

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FMG - SUBMISSION OF AFS FOR AUDIT

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FMG - AUDIT ACTION PLANS

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FMG – AUDIT FINDINGS

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ProvinceTotal Number of

municipalities

2013/14 Allocations

(R' 000)

Total spent as at 31 December 2013

(R' 000)% of funds

spent

Eastern Cape 45 70 100 34 840 50%

Free State 24 36 850 19 716 54%

Gauteng 12 19 350 7 715 40%

Kwa Zulu Natal 61 95 100 47 549 50%

Limpopo 30 45 800 23 936 52%

Mpumalanga 21 31 900 13 839 43%

Northern Cape 32 50 000 25 953 52%

North West 23 36 098 15 048 42%

Western Cape 30 39 600 17 582 44%

FMG- SPENDING AS AT 31 DECEMBER 2013

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FMG - 4 YEAR SPENDING TREND

Infrastructure Support Development Grant (ISDG)

• The ISDG was introduced in 2011/12 financial year with an objective to increase the pool of built environment professionals within Local Government (i.e. engineering, town planning, architecture, quantity survey and geographic information systems).

• The ISDG is a direct conditional grant to municipalities, a Schedule 5B grant in terms of the annual Division of Revenue Act (DoRA) (Act No 2 of 2013).

• The ISDG programme was communicated to municipalities and water boards. Interested municipalities were invited to submit 3 year business plans to the National Treasury. National Treasury received proposals and after the review process, selection was made.

• The critical factor in the business plans was for the hosts (municipalities and public entities) to demonstrate ability and capacity to implement the programme as per conditions of the framework in ensuring that recruited graduates could be trained as per the requirements of the relevant statutory bodies/councils supported by mentors.

ISDG - Expenditure

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"R 000" 2011/12 2012/13As at 30 September

2013/14

Total Funding available 39 000 109 943 126 763DoRA allocation 39 000 75 460 98 500Transferred to date 39 000 75 460 40 100Expenditure 4 594 67 658 18 278Expenditure as % of total funds 12% 62% 14%

• 2013 MTEF allocations: R98.5 million for 2013/14; R104.4 million for 2014/15 and; R129.2 million for 2015/16. To date an amount of R40.1 million has been transferred. The remaining R58.4 million will be transferred during January/February 2014 to participating municipalities.

• Actual expenditure to date amounts to R18.3 million which is 14% of the total funding available for the 2013/14 financial year.

ISDG - Municipalities & number of graduates

Number of Graduates

Provinces Municipality Name Start date 2012/13 2013/14Buffalo City 2012/13 21 20Nelson Mandela Bay 2012/13 31 44Lunkhanji 2012/13 8 8King Sabata Dalindyebo 2012/13 0 19Aflred Nzo 2012/13 0 24

Gauteng Westonaria 2011/12 12 12Ethekwini 2011/12 22 32Ethekwini (Umngeni Water) 2011/12 44 44Umhlahuze 2012/13 25 23Ugu District 2012/13 0 0

Limpopo Polokwane (Lepelle Northren Water) 2011/12 16 17Gert Sibande 2013/14 0 0Govan Mbeki (Rand Water) 2011/12 120 117Sol Plaatjie 2012/13 20 11John Taolo Gaetsewe 2012/13 0 5

North West Ditsobotla 2012/13 23 23George 2011/12 13 14City of Cape Town 2013/14 0 0

355 413Total Number of Graduates

Eastern Cape

Kwazulu Natal

Mpumalanga

Northern Cape

Western Cape

ISDG - Graduates in various Professions

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ISDG - Training Duration and Absorption

• The training duration of graduates is determined by the relevant professional Statutory bodies/councils;

• Example, Engineers require a minimum of 3 years working experience in order to qualify and be registered as a professional with Engineering Council of South Africa.

• The first batch of graduates are expected to complete the programme in 2015.

• upon successful completion of the programme, graduates can be absorbed in municipalities;

• where a municipality cannot absorb graduates, they will be released to seek employment in other municipalities.

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ISDG – 2014/15 initiatives

• ISDG Guidelines have been developed and will be implemented in 2014/15 financial year;

• Initiate the ISDG Steering Committee to provide strategic support and direction;

• Focus on the impact of capacity for service delivery and infrastructure delivery;

• Appointing a service provider for the quality assurance of the Statutory Council training and support;

• Service Level Agreements between partnering entities and municipalities;

• Road shows and invitation to municipalities;

• Municipality must developed absorption strategy (in partnership with Water Boards and other partnering entities);

• One-on-one sessions with the graduates trainees in municipalities;

• Further roadshows to municipalities on the ISDG.

Conclusion

• Combination of technical assistance, conditional grants and training are having a positive impact on institutional development and capacity building interventions;

• Challenges of absorption and appointment of skilled officials still remain;

• Movement of trained officials from smaller to larger municipalities continue;

• Commitment by some municipalities to fully implement the reforms, need attention;

• Reliance on service providers and sustainability of support to be addressed;

• Long term approach needed to implement all financial management reforms.

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