Municipal Budget & Reporting Regulations

1. Municipal Budget & Reporting Regulations Presentation to the Select Committee on Finance, NCOP Chief Directorate: Local Government Budget AnalysisINTERGOVERNMENTAL RELATIONS 3 February 2009

2. Problem Statement 283 different municipal budgets despite efforts around Circular 28 Makes aggregation of budget and other information very difficult Quality of municipal information is compromised due to lack of uniform classifications for revenue and expenditure items Most municipal budgets do not contain narrative information Lack of consistency across the IDP, Budget, SDBIP, IYM and AFS Compromises monitoring and oversight Compromises government’s ability to formulate coherent policies To compensate national departments send supplementary requests for information Financial Information - 15 400 questions Non-financial Information - 2 300 questions Lack of an overarching picture of spending on infrastructure Municipal Councils probably make uniformed decisions in the absence of credible information and poor advice from officials

3. Underlying Principals Guided by the Constitution and the MFMA Promote transparency and accountability Strengthens the link between policy priorities, planning, budgeting, implementation and reporting; Forms the basis for the Medium Term Revenue and Expenditure Framework for municipalities (MTREF) Promote integrated planning of infrastructure, maintenance and operational expenditure Facilitates inter-local government comparability (to demonstrate the effective use of resources and to inform allocation decisions) Consistent budget and reporting formats that will support GFS

4. Accountability Cycle

5. Legal Framework

6. Constitutional requirements Section 215 (1) of the Constitution states that: national, provincial and municipal budgets and budgetary processes must promote transparency, accountability and effective financial management of the economy, debt and the public sector. Section 215 (2) of the Constitution states that: National legislation must prescribe - (a) the form of national, provincial and municipal budgets; (b) when national and provincial budgets must be tabled; and (c) 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. 6

7. Constitutional requirements Section 216(1) of the Constitution states 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 - Generally recognised accounting practice (GAMAP/GRAP – OAG) (b) Uniform expenditure classifications; and (Standard Chart of Accounts / General Leger) (c) Uniform treasury norms andstandards (MFMA, Regulations, Circulars and Guidelines) 7

8. Legislative requirements Section 17 of the MFMA: An annual budget must be in a schedule in the ‘prescribed format’ Sections 121, 122 and 125 of the MFMA: Relate to municipal annual reports, preparation of financial statements and compulsory disclosures in financial statements – each section includes a power for the Minister of Finance to prescribe the information required Section 168 of the MFMA: The Minister (of Finance), acting with the concurrence of the Cabinet member responsible for local government, may make regulations for, among other things - (a) any matter that may be prescribed 8

9. Background to reform

10. Early reform • Advance pilot testing of budget formats • Work began in 2000, and continued through to 2005 • Circular 28 released December 2005 • Gives further guidance on budget formats • Municipalities encouraged to apply to the 2006/07, 2007/08 and 2008/09 budgets • Municipalities only have to comply if adopted by Council • Circular 42 released March 2007 • Gives guidance on the funding of the budget • Sets out the Funding Compliance Test

11. Latest developments • Budget and Reporting Regulations drafted and consulted in 2007 • Technical reference group consultations • MFMTAP advisors, selected municipal and entity CFOs • Provincial Treasuries and Office of the Accountant General • DPLG, SALGA, SARB, Stats SA, ASB and AG • MFMA Joint Meetings (30 August 2007, 22 November 2007, 13 March 2008) • 3 workshops and several info sessions (27 written submissions received) • Formats tested using four municipalities 2007/08 budget information • Formats piloted live by eThekwini Metro for the 2008/09 Budget • Formats released on Treasury website on 28 June 2008 • Some feedback received • Minister approves the Municipal Budget and Reporting Regulations for consultation on 5 December 2008 • Minister for Provincial and Local Government gives concurrence for Regulations on 19 January 2009 • Regulations published for public comment on 23 January 2009 • MFMA Parliamentary process to comment on regulations • Period for public comments closes on 5 March 2009

12. Eastern Cape – 14 January 2009 Free State – 19 January 2009 Gauteng – 22 January 2009 KwaZulu-Natal – 29 January 2009 Limpopo - 20 January 2009 Mpumalanga - 22 January 2009 North West - 15 January 2009 Northern Cape – 05 February 2009 Western Cape - 23 January 2009 Munic Systems Vendors - 29 January 2009 Select Committee, NCOP – 03 February 2009 27 Munics Workshop – 06 February 2009 DPLG and Provincial Treasuries – ongoing Consultation Programme…so far

13. Scope of regulations

14. Overview Consists of 6 chapters and 7 schedules Ch 1 – Interpretation, object and application of these regulations Ch 2 – Budget and budget related matters of municipalities Covering the requirements, process, content and structure of budgets and reports of municipalities Ch 3 - Budget and budget related matters of municipalities entities Covering the requirements, process, content and structure of budgets and reports of municipal entities Ch 4 – Non compliance with time provisions for budgets and reports Ch 5 – Framework for unforeseen and unavoidable expenditure Ch 6 – Unauthorised, irregular or fruitless and wasteful expenditure

15. List of Schedules and Attachments Schedule A Annual Budget and Supporting Documentation of Municipalities (plus First and Second Attachments) Schedule B Adjustments Budget and Supporting Documentation of Municipalities (plus First and Second Attachments) Schedule C In-year Reports of Municipalities (plus First and Second Attachments) Schedule D Annual Budget and Supporting Documentation of Municipal Entities (plus Attachment) Schedule E Adjustments Budget and Supporting Documentation of Municipal Entities (plus Attachment) Schedule F In-year Reports of Municipal Entities (plus Attachment) Schedule G Extensions and Non-compliance with Time Provisions

16. Annual Budget Tables Table A1 Budget Summary Table A2 Budgeted Financial Performance (revenue and expenditure by standard classification) Table A3 Budgeted Financial Performance (revenue and expenditure by municipal vote) Table A4 Budgeted Financial Performance (revenue and expenditure) Table A5 Budgeted Capital Expenditure by vote, standard classification and funding Table A6 Budgeted Financial Position Table A7 Budgeted Cash Flows Table A8 Cash backed reserves/accumulated surplus reconciliation Table A9 Asset Management Table A10 Basic service delivery measurement

17. Adjustments Budget Tables Table B1 Adjustments Budget Summary Table B2 Adjustments Budget Financial Performance (revenue and expenditure by municipal vote) Table B3 Adjustments Budget Financial Performance (standard classification) Table B4 Adjustments Budget Financial Performance (revenue and expenditure) Table B5 Adjustments Capital Expenditure Budget by vote and funding Table B6 Adjustments Budget Financial Position Table B7 Adjustments Budget Cash Flows Table B8 Cash backed reserves/accumulated surplus reconciliation Table B9 Asset Management Table B10 Basic service delivery measurement

18. In-year Reports Table C1 s71 Monthly Budget Statement Summary Table C2 Monthly Budget Statement - Financial Performance (revenue and expenditure by municipal vote) Table C3 Monthly Budget Statement - Financial Performance (standard classification) Table C4 Monthly Budget Statement - Financial Performance (revenue and expenditure) Table C5 Monthly Budget Statement - Capital Expenditure (municipal vote, standard classification and funding) Table C6 Monthly Budget Statement - Financial Position Table C7 Monthly Budget Statement - Cash Flow

19. Structure and content of regulations

20. Structure of Regulations

21. Ch 2 – Budgets and budget related matters of municipalities (1) General provisions r.4 – Budget steering committee Budget related policies of municipalities r.8 (1) – Funding and reserves policy Annual budgets of municipalities – Schedule A r.9 – Format of annual budgets r.10 – Funding of expenditure r.12 – Funds created in terms of section 12 of the Act r.13 – Approval of capital projects Adjustments budgets of municipalities – Schedule B r.21 – Format of adjustments budgets r.23 – Timeframes for tabling of adjustments budgets In-year reports of municipalities – Schedule C r.28 – Formats of monthly budget statements r.31 – Quarterly report on implementation of the budget r.33 – Format of mid-year budget and performance assessment

22. Ch 3 – Budgets & Budget related matters of municipal entities General provisions Funding and reserves policies of municipal entities r.38 – Funding and reserves policies Annual budgets of municipal entities – Schedule D r.39 – Format of annual budget r.40 – Funding of expenditure r.42 – Submission of information on capital projects Adjustments budgets of municipal entities – Schedule E r.42 – Formats of adjustments budgets r.49 – Framework for adjustments budgets In-year reports of municipal entities – Schedule F r.54 – Formats of monthly budget statements r.56 – Format of mid-year budget and performance assessment

23. Ch 4 – Non compliance with time provisions Processes and formats for: application or notification, consideration and responses Impending non-compliance by municipalities with time lines and deadlines concerning annual budgets r.61 – Framework for consideration of applications Actual non-compliance by municipalities with time provisions concerning annual budgets and adjustments budgets r.64 – Framework for consideration of notifications Non-compliance by municipalities with time provisions concerning in-year reports r.66 – Framework for consideration of notifications Non-compliance by municipal entities with time provisions r.67 – Monitoring compliance with time provisions 23

24. Ch 5 – Framework for unforeseen & unavoidable expenditure Unforeseen and unavoidable expenditure by municipalities r.71 – Authorisation of unforeseen and unavoidable expenditure r.72 – Monetary limits on unforeseen and unavoidable expenditure Unforeseen and unavoidable expenditure by municipal entities r.73 – Approval of unforeseen and unavoidable expenditure

25. Ch 6 – Unauthorized, irregular or fruitless and wasteful expenditure Unauthorized, irregular or fruitless and wasteful expenditure by municipalities r.74 – Issues to be considered by council committee Irregular or fruitless and wasteful expenditure by municipal entities r.75 – Recovery of irregular or fruitless and wasteful expenditure r.76 – Board may not delegate authority to certify expenditure as irrecoverable

26. Strengthening oversight of infrastructure Direct oversight of asset management Table A9 - Council has to approve asset management explicitly as part of budget Table B9 - Council has to approve changes in the funding of capital projects Table C5 – Municipality has to report on spending on all capital projects Supporting information on asset management to give a holistic picture: SA6 Reconciliation of IDP strategic objectives and budget (capital expenditure) SA34 Capital expenditure by asset class SA35 Future financial implications of the capital budget SA36 Detailed capital budget SA37 Projects delayed from previous financial year/s

27. Strengthening conditional grant control SA18 Transfers and grant receipts Ensures all transfer ‘receipts’ are disclosed SA 19 Expenditure on transfers and grants programme Monitor timing of expenditure on individual grants Encourages better ‘on time’ spending SA 20 Reconciliation of transfers, grant receipts and unspent funds Unspent grants reconciled between balances carried forward, amounts received and expenditure as shown in the Budgeted Financial Position

28. Supporting the Municipal Property Rates Act SA11 Property rates summary Transparent reflection of tax increases, their impact on revenue, valuation trends and the treatment of ‘reductions’, rebates and exemptions SA12-A13 Property rates by category Both the current year and the budget year data is required to ensure that the budget clearly illustrates trends and changes. SA14 Household bills a comparison of various municipal bills, indicating the cost implication on households of proposed rates and tariff changes

29. Technical aspects of document formats

30. Overview • The format and content of documentation as described in the regulations and schedules must be the same for • Tabling to council • Submission to National Treasury and provincial treasuries • Making public at municipal offices and on the municipal website • Distribution to other stakeholders • Council may distribute additional information in other summary formats for enhanced consultation including summaries in alternate languages • The annual budget documentation tabled to council for consultation purposes must be in the same format as the final approved budget. And must be funded according to the requirements of the regulations

31. Annual budget documentation – Part 1 • Schedule A can be viewed as two parts • Part 1 covers • Mayor’s report • Resolutions • Executive summary • Annual budget tables (top level formats) • Part 1 provides an overall summary of the affect of the budget • The mayor’s report introduces the documentation to council and is politically orientated • The executive summary covers the entire budget and summarises the content of part 2 • The annual budget tables contain the amounts to be approved by resolution

32. Annual budget documentation – Part 2 • Part 2 provides more detail and covers • Overview of annual budget process • Overview of alignment of annual budget with Integrated Development Plan • Measurable performance objectives and indicators • Overview of budget related policies • Overview of budget Assumptions • Overview of budget funding • Expenditure on allocations and grant programmes • Allocations and grants made by the municipality • Councillor and board member allowances and employee benefits • Monthly targets for revenue, expenditure and cash flow • Annual budgets and SDBIPs – internal departments • Annual budgets and SDAs – entities and external mechanisms • Contracts having future budgetary implications • Capital expenditure details • Legislation compliance status • Other supporting documentation • Annual budgets of municipal entities attached • Municipal manager’s quality certification

33. Tables, charts and explanatory notes Key tables must be represented by charts for ease of understanding of trends, anomalies and components Each table and chart must be accompanied by an explanation of the trends and anomalies depicted Formats for tables will be issued for strict compliance Formats for charts will be issued as guidance However, charts must demonstrate component breakdown, total trend and trend of components

34. ImplementationStrategy

35. Gazetted for Public Comment on 23 January 2009 Public consultation processes and the Parliamentary scrutiny process will run concurrently Public comment period ends on 5 March 2009 Following the conclusion of both these processes, a final version of the Regulations and formats will be prepared and submitted to the Minister for final approval before promulgation towards the end of March 2009 Target dates for implementation 1 July 2009 (2009 Budget) for the 27 non-delegated municipalities (six metros and 21 secondary cities); and 1 July 2010 (2010 Budget) for all other municipalities. Advanced implementation by all municipalities is encouraged Extensive support provided through training Message already communicated to all municipalities on 27 June 2008 Promulgation and Implementation

36. Municipalities that must implement from 1 July 2009

37. Thank You