Section 1

Historical background
Local government is where service delivery begins. Local government is about what
happens in our homes, in our streets and in our communities. If we cannot achieve
good government at this level, we will never be able to claim that South Africa has truly
transformed.
The damage that the apartheid system did to the daily lives of the majority of people in
South Africa is incalculable. Its effects were spatial and economic, fundamentally
altering and eroding the quality of life of millions of people, in the home, the family and
the workplace.
By 1990, when the reform in South Africa began, the crisis in local government as a
result of existing political doctrines had reached epic proportions. It was into this
environment that the Local Government Negotiating Forum was born. It framed the
Agreement on Finance and Services and negotiated the Local Government Transition
Act of 1993. This Act did not provide a blueprint for local government reform but
sketched the process of change and mapped out three phases of transition: a pre-
interim phase, which provided for the establishment of local forums to negotiate the
appointment of temporary councils; an interim phase set to begin with the holding of
democratic municipal elections until a new local government system had been designed
and legislated for; and a final phase, which would come into being when a new local
government system had been established.
The South African Constitution, which was enacted in 1996, established a three-sphere
system of government. Local government was established as a separate sphere and
given primary responsibilities for service delivery. This gave rise to the development and
publication of the White Paper on Local Government in 1998. The White Paper
established the basis for a new developmental local government system committed to
working with citizens, groups and communities in order to create sustainable human
settlements. The developmental role of municipalities requires them to structure and
manage their administrations and budgeting and planning processes in a way that
prioritises the basic needs of the communities they serve. It also requires that they
promote social and economic development and participate in national and provincial
development programmes.
The transformation of the local government system required substantial changes to the
institutional and legislative frameworks in existence prior to the 2000 local elections.
The most important of these changes were associated with creating developmental and
cooperative local government; changing political, institutional and administrative
systems; and creating a new framework for municipal finance to address the root
causes of financial problems. The changes were further designed to eradicate poverty
and address equity needs with strategies to enhance growth, job creation and
competitiveness. Long-term solutions were required to restore financial discipline,
eliminate outstanding debts, and generate the necessary cash flows.
The transformation process impacted on every aspect of the business of local
government, including the establishment of newly demarcated municipalities, amended
powers and functions, corporate governance, and new municipal structures and
financial and operational systems. Each phase of the transformation process was
supported by new local government legislation that replaced the previous fragmented
approach based on provincial circumstances.

Section 2
Applicable legislation
1. CONSTITUTION OF THE REPUBLIC OF SOUTH AFRICA, 1996 (ACT 108 OF
1996)
The South African Constitution constitutes the public sector in South Africa as national,
provincial and local spheres of government, which are distinctive, interdependent and
interrelated. To prevent conflict between spheres and promote the concepts of
interdependence and interrelationships, the principles of cooperative government and
intergovernmental relations are set out in Section 41 of the Constitution. Some of the
key principles, particularly those relating to financial management, are listed below:
Effective, transparent, accountable and coherent government must be provided for the
Republic as a whole.
No sphere of government may assume any power or function except those conferred on
it in terms of the Constitution.
Each sphere of government must respect the constitutional status, institutions, powers
and functions of the other spheres of government.
Each sphere must exercise 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.
Chapter 7 of the Constitution deals specifically with local government and, inter alia,
determines the status of municipalities, the objects of local government, the
development duties of municipalities, the categories of municipalities, and the powers
and duties of municipalities.
The local sphere of government consists of municipalities which are established for the
whole of the Republic of South Africa. The executive and legislative authority of a
municipality is vested in its municipal council, and a municipality has the right to govern,
on its own initiative, the local affairs of its community, subject to national and provincial
legislation as provided for in the Constitution.
The difference between legislative and executive authority should be clearly
understood. Legislative authorities are bodies of government that have the power to
make laws that are binding on society. Executive authority, on the other hand, is vested
in bodies of government that put the laws into effect.
A municipality’s executive authority is set out as follows in Section 156 of the
Constitution:
(1) “A municipality has executive authority in respect of, and has the right to administer
(a) the local government matters listed in Part B of Schedule 4 and Part B of Schedule
5; and
(b) any other matter assigned to it by national or provincial legislation.”
Legislative authority refers to the ability of a municipality to exercise powers and
functions in accordance with national and provincial legislation, and to make and
administer by-laws for the effective administration of the matters that it has the right to
administer (Section 156(2) of the Constitution).
Note that only parliament has original legislative capacity: thus provinces may only
enact legislation (ordinances) if and to the extent that they are enabled to do so by an
Act of Parliament, and a municipality may similarly enact legislation (by-laws) only if and
to the extent that it is enabled to do so by an Act of Parliament or a provincial ordinance.
In the case of any conflict of laws, Acts of Parliament take precedence over subordinate
legislation (provincial ordinances, municipal by-laws), and provincial ordinances will in
turn take precedence over by-laws (if the by-law is enacted in terms of an enabling
ordinance).

The manner in which such executive and legislative authority is exercised is set out in
Section 11(3) of the Local Government: Municipal Systems Act, 2000 (Act 32 of 2000)
(MSA) and includes the following:
The development and adoption of policies, plans, strategies and programmes
The preparation, approval and implementation of budgets
Imposing and recovering rates, taxes, levies, duties, service fees and surcharges on
fees, including the setting and implementation of tariffs, rates and tax, and debt
collection policies
Establishment and implementation of performance management systems
The development and implementation of by-laws
A municipality must strive, within its financial and administrative capacity, to achieve the
following objects of local government as set out in Section 152:
The provision of democratic and accountable government for local communities
The provision of services to communities in a sustainable manner
The promotion of social and economic development
The promotion of a safe and healthy environment
Ensuring the involvement of communities and community organisations in the matters of
local government
A new concept entrenched in the Constitution is a municipality’s mandate to fulfil its
developmental duties. Development is defined in the Municipal Systems Act as
“sustainable development, and includes integrated social, economic, environmental,
spatial, infrastructural, institutional, organisational and human resources upliftment of a
community” aimed at improving the quality of life of its members, specifically the poor
and other disadvantaged sections of the community, and ensuring that development
serves present and future generations. A municipality is therefore required to structure
and manage its administration and budgeting and planning processes to give priority to
the basic needs of the community and to promote the social and economic development
of the community.
The Constitution established three categories of municipalities, each of which is briefly
described below.
Category A municipalities or metropolitan municipalities. These are municipalities that
have exclusive municipal executive and legislative authority in their areas. Metropolitan
municipalities are characterised by high population density; intense movement of
people, goods and services; multiple business districts and industrial areas; and a
centre of economic activity with a complex and diverse economy.
Category B municipalities or local municipalities. These are municipalities that share
municipal executive and legislative authority in their areas with a Category C or district
municipality. Local municipalities are established in areas that do not meet the criteria
set out for metropolitan municipalities.
Category C municipalities or district municipalities. District municipalities are
municipalities that have municipal executive and legislative authority in an area that
includes more than one local municipality. All local municipalities fall within the area of a
district municipality.
As indicated earlier, the executive and legislative authority of a municipality is vested in
the municipal council. A municipal council consists of members elected in accordance
with Sections 157 and 158 of the Constitution as well as other relevant national
legislation. A municipal council has very specific responsibilities and Section 160 of the
Constitution sets out the internal procedures pertaining to these. The following specific
responsibilities associated with financial management are highlighted:
A municipal council makes decisions concerning the exercise of all the powers and the
performance of all the functions of the municipality.
The following functions may not be delegated by a municipal council:
– The passing of by-laws
– The approval of budgets
– The imposition of rates and other taxes, levies and duties
– The raising of loans
Notwithstanding the avowed constitutional autonomy of the local government sphere
and the executive and legislative authority assigned to a municipal council, the
Constitution makes provision for provincial supervision of local government. When a
municipality cannot or does not fulfil an executive obligation in terms of legislation, the
relevant provincial executive may intervene by taking any appropriate steps to ensure
fulfilment of that obligation. Such steps can include the issuing of a directive to the
municipal council or assuming responsibility for the relevant obligation to the extent
necessary in that municipality. The impact of such an intervention on the financial
management and accounting responsibilities of the municipality is further discussed in
dealing with the Local Government Municipal Finance Management Act, 2003 (Act 56 of
2003) (see heading 4 of this section). For details of the nature and extent of such
interventions, see Chapter 4 section 6.
POSTSCRIPT: POSSIBLE AMENDMENTS TO THE CONSTITUTION
In terms of the comprehensive Local Government Turnaround Strategy approved by the
cabinet on 2 December and published on 3 December 2009, a number of amendments
to the Constitution were mooted.

2. LOCAL GOVERNMENT: MUNICIPAL STRUCTURES ACT, 1998 (ACT 117 OF

1998)
As the name indicates, this Act is focused primarily on the establishment of
municipalities, the election of municipal councillors, and the composition, membership,
operation and structuring of municipal councils.
Important objects of this Act impacting on financial management are the provisions for
the establishment of municipalities in accordance with requirements relating to the
categories and types of municipality, and for the appropriate division of functions and
powers between such categories of municipalities. Specific attention is given to the
different types of municipality as well as to their powers and functions in sections 3 and
4 of this chapter.
3. LOCAL GOVERNMENT: MUNICIPAL SYSTEMS ACT, 2000 (ACT 32 OF 2000)
3.1 Fundamental concepts
This Act, as part of a suite of statutes, provides for the following fundamental concepts
that give effect to the new system of local government:
The engagement of communities in the affairs of municipalities, in particular planning,
service delivery and performance management
The establishment of an efficient, effective and transparent local government system
that conforms to constitutional principles
The establishment of municipalities that are financially and economically viable
Satisfying the need to create a more harmonious relationship between municipal
councils, municipal administrations and the local communities through the
acknowledgement of reciprocal rights and duties
The development of a strong system of local government capable of exercising the
powers and functions assigned to it
The Municipal Systems Act (MSA) sets down the core principles, mechanisms and
processes that are necessary to enable municipalities to move progressively towards
the social and economic upliftment of local communities and to ensure universal access
to essential services that are affordable to all. The Act also sets the framework for
establishing municipalities that are developmental in orientation.
The Act defines a municipality as an organ of state within the local sphere of
government, exercising legislative and executive authority within an area determined in
terms of the Local Government: Municipal Demarcation Act, 1998 (Act 27 of 1998),
consisting of the following equally important stakeholders in the municipality:
The political structures
The administration
The community
A municipality has a separate legal personality, which excludes liability on the part of its
community for the actions of the municipality.

3.2 Building local democracy

Whereas the role of political structures and the administration in the affairs of the
municipality is self-explanatory, further clarification as to the involvement of
communities is required. As depicted in the Constitution, building local democracy is a
central role of local government and municipalities should therefore develop strategies
and mechanisms to engage continuously with citizens, businesses and community
groups. The White Paper on Local Government identifies four levels of community
participation, which are outlined below.
Citizens as voters. In an effort to ensure maximum democratic accountability of the
elected political leadership for the policies they are empowered to promote, voter
participation should be enhanced through civic education programmes, ward level
activities, creative electoral campaigning, and comprehensive electoral systems.
Citizens as participants in the policy process. Municipalities should develop
mechanisms to ensure citizen participation in policy initiation and formulation,
monitoring and evaluation of decision making, and implementation. Approaches such as
budget forums, focus groups, structured stakeholder involvement, and support for
organisational development and associations can assist in achieving this objective.
Citizens as consumers and service users. In most instances, the main contact between
citizens and the municipality is through the use and consumption of municipal services.
It is here that a municipality needs to begin to build a relationship with communities.
Municipalities therefore need to be responsive to the needs of consumers and service
users through improved customer management and service provision. The Batho Pele
(“People First”) White Paper, issued by the Minister for Public Service and
Administration in 1998, provides a useful approach to building a culture and practice of
customer service. Batho Pele is based on the following eight key principles:
– Consultation
– Service standards
– Access
– Courtesy
– Information
– Openness and transparency
– Redress
– Value for money
Citizens as partners in resource mobilisation. Municipalities are expected to enhance
service delivery within the constraints of available resources, particularly financial
resources. In addition to becoming more efficient, municipalities should consider
mobilising resources, additional to those budgeted for, such as partnerships with
business and non-profit organisations, to enhance service delivery.
It is important to note that community participation is one of the cornerstones of
accountable financial management, as seen throughout the MSA and other important
pieces of municipal legislation.
4. LOCAL GOVERNMENT: MUNICIPAL FINANCE MANAGEMENT ACT, 2003 (ACT
56 OF 2003)
4.1 Background
The conceptual framework for municipal finance can be traced back to the White Paper
on Local Government issued in 1998. This framework supported the developmental role
of the local government sphere, and proposed a new system to address the root causes
of the financial problems in municipalities; to empower municipalities to fulfil their
constitutional mandate, and to balance programmes for poverty eradication and equity
with strategies to enhance growth, job creation and competitiveness. In order to meet
the objectives of the Constitution, the White Paper proposed a restructured system of
municipal finance that is in line with the following seven basic policy principles:

Revenue adequacy and certainty

Sustainability
Effective and efficient use of resources
Accountability, transparency and good governance
Equity and redistribution
Development and investment
Microeconomic management
The MFMA has transformed these basic policy principles into legislative requirements,
and modernises the way in which municipal finances are managed. It focuses on sound
outcomes as well as rules and procedures, and on long-term strategic planning rather
than one-year line-item budgets, and establishes municipal practices that are rooted in
a culture of performance and regular reporting. The Act introduces a performance-
based system focusing on outputs and measurable objectives, which will enable
municipalities to maximise their capacity for service delivery.

4.2 Underlying principles

The basis for the key reforms envisaged in the Act can be found in the five underlying
principles discussed below. The intention is that these principles will encourage a
stronger, better managed and more accountable local government sphere – one that is
better placed to meet the emerging demands and new challenges of its communities in
a more consistent and sustainable manner.
PRINCIPLE 1: PROMOTING SOUND FINANCIAL GOVERNANCE BY CLARIFYING
ROLES
One of the most important objectives underpinning the MFMA is that of developing
sound financial governance within every municipality. This means developing a
comprehensive system of clarifying and separating the responsibilities of mayors,
councillors and officials. The framework of the Act is therefore built around the
responsibilities of accountability and oversight within a culture of transparency and
regular reporting. The separation of responsibilities between executive councillors, non-
executive councillors and officials is important for good governance, and is in line with
modern practices of effective public management. Executive councillors are made
responsible for policy and outcomes, whereas the municipal manager is responsible for
implementation and outputs.

PRINCIPLE 2: STRATEGIC APPROACH TO BUDGETING

Without a strategic approach to budgeting, the reforms with regard to long-term
planning contained in the MSA cannot be properly implemented. By adopting a three-
year budget cycle linked to longer-term integrated development plans, municipalities are
able to plan for capital development and service delivery in their communities in an
affordable and sustainable manner. The MFMA addresses these issues by adopting a
new approach to budget preparation, implementation and monitoring, as well as to the
approval of property rates and service charges as part of the budget. The three-year
time frame was introduced to promote a performance management culture through a
continuous cycle of forecasting, implementation and review. These reforms, together
with the introduction of the service delivery and budget implementation plan (SDBIP),
are intended to ensure that an accountable and performance-driven service delivery
culture is introduced and maintained. See in particular section 6 of Chapter 1 and the
whole of Chapter 2 for further details.
PRINCIPLE 3: MODERNISATION OF FINANCIAL MANAGEMENT
The approach of setting local government national norms and standards, as opposed to
nationally prescribed rules and procedures, is in line with the corporate governance
approach recommended by the King Committee Report on Corporate Governance (King
II) released in 2002. It recognises that best practices can only be implemented through
an ethical and performance-based approach and not purely by a rule-based culture.
Standards, inter alia, help to facilitate reformed accounting practices, improved
disclosure and reporting, best practice management techniques, measurable outcomes,
and the prudent management of the assets and liabilities of a municipality.
The reforms adopted to modernise financial management in the local sphere of
government are aimed at building the institutional structure of the organisation by
placing emphasis on the following three key objectives:
To encourage a disciplined approach to financial management and service delivery
To assign resources in line with strategic priorities, linking plans and budgets to long-
term goals, and providing a process that allows resources to be reallocated according to
revised policy objectives
To encourage operational efficiency by assigning duties and responsibilities while
demanding accountability

PRINCIPLE 4: COOPERATIVE GOVERNMENT

In addition to the Constitution and the Acts of Parliament discussed above, other pieces
of legislation such as, inter alia, the annual Division of Revenue Acts, the Housing Act,
the Electricity Act and the Water Services Act, have an impact on the implementation of
the MFMA. The chapter on cooperative government in the MFMA therefore seeks to
promote cooperative approaches to fiscal and financial management within sectors, as
well as to forge links with other spheres of government and organs of state. It fosters a
greater level of cooperation across the different spheres of government, based on
systems of mutual support, information sharing, and communication and coordination of
activities. Its aim is to add value to the constitutional responsibilities of the other spheres
with a view to improving outcomes for all.
For example, a district municipality has a role in the overall planning and coordination of
all Category B municipalities within its area of jurisdiction, by receiving all integrated
development plans with three-year budgets and annual performance reports for
consolidation and forwarding to the relevant province. The province can, in turn,
coordinate such plans with provincial and national infrastructure and service delivery
plans. Other examples are the establishment of a time frame for national departments to
advise municipalities of any tax and tariff capping policies, and the requirement to
consult with municipalities about price-setting policies adopted by national and
provincial departments that supply services, such as electricity and water in bulk, to
municipalities.
PRINCIPLE 5: PROMOTING SUSTAINABILITY
The purpose of the MFMA is to establish the basis for financial management that is
essential to improve and sustain service delivery. Municipal councils are required to
adopt credible budgets with realistic revenue and expenditure estimates,
accommodating all operational and maintenance costs expected by the municipality.
Capital projects must be evaluated and considered for inclusion in the budget only after
due consideration of their projected operational cost implications. Municipalities are
required to put in place robust systems of internal control in an effort to improve the
efficiency and efficacy of their administrative processes. The Act requires regular and
accurate financial reporting to the council, community and other spheres of government.
This will enable the timely identification of real or potential financial problems, which will
allow the council to seek appropriate solutions.
The issues of strengthening accountability, oversight, transparency, communication and
empowerment remain central to the legislation. Councillors therefore now have a
greater responsibility of financial oversight and are required to exercise greater
diligence in the financial affairs of the municipality, through regular reporting to
communities on issues such as service delivery and financial performance.

4.3 Object of the Act (Section 2)

“The object of this Act is to secure sound and sustainable management of the fiscal and
financial affairs of municipalities and municipal entities by establishing norms and
standards and other requirements for –
(a) ensuring transparency, accountability and appropriate lines of responsibility in the
fiscal and financial affairs of municipalities and municipal entities;
(b) the management of their revenues, expenditure, assets and liabilities and the
handling of their financial dealings;
(c) budgetary and financial planning processes and the co-ordination of those
processes with the processes of organs of state in other spheres of government;
(d) borrowing;
(e) the handling of financial problems in municipalities;
(f) supply chain management; and
(g) other financial matters.”

5. LOCAL GOVERNMENT: MUNICIPAL PROPERTY RATES ACT, 2004 (ACT 6 OF

2004)
5.1 Background
Before the implementation of this Act, municipalities had a long history of rating property
in terms of old provincial ordinances, which differed significantly from one another,
particularly with regard to property valuations and the basis of rating. The Constitution,
however, entitles municipalities to impose rates on property within their areas of
jurisdiction subject to regulation in terms of national legislation. The Municipal Property
Rates Act therefore replaced the diverse systems formerly in use and introduced a new
uniform system of property rates. This Act enables municipalities to exercise their
powers to impose rates within a statutory framework that not only enhances certainty,
uniformity and simplicity, but also takes into account historical imbalances and the rates
burden of the poor.
Income derived from property rates is a critical source of revenue for municipalities. It
should provide municipalities with the stable, impartial, elastic and certain source of
revenue necessary to fulfil their developmental responsibilities. It should also enable
them to achieve their constitutional objectives of addressing service delivery priorities,
promoting economic and social development, and providing democratic and
accountable government to communities.

5.2 Underlying principles

PRINCIPLE 1: STANDARDISING THE PROPERTY RATES SYSTEM
The Act provides a uniform framework for the levying of property rates by municipalities
in South Africa. By implication this means that all municipalities authorised to levy
property rates are required to value properties according to the same method,
determine a rate expressed as a cent amount in the rand, and levy property rates on all
property owners within their areas of jurisdiction. Although the Act includes mandatory
prohibitions on rating specific properties, it recognises differing local circumstances by
providing for exemptions, rebates and reductions subject to specific conditions.
Standardisation eliminates uncertainty and provides an impartial framework within which
municipalities must adopt their rates policies.

PRINCIPLE 2: STRATEGIC APPROACH TO PROPERTY RATES

In an effort to achieve the objective of providing services to communities in a
sustainable manner, municipalities must adopt a longer-term strategic approach to the
levying of property rates by adopting a rates policy in terms of Section 2 of the Act. A
rates policy must, inter alia, allow the municipality to promote local, social and economic
development but, at the same time, include appropriate measures to alleviate the rates
burden on the poor.

PRINCIPLE 3: ABILITY TO PAY

The principle of alleviating the burden of the poor is a responsibility of all spheres of
government. The local sphere of government should therefore be sensitive to the plight
of the poor and at the same time complement initiatives at a national and provincial
level. This principle is firmly entrenched in the Act, and provision is made for the
mandatory exclusion of the first R15 000 of the value of residential property from the
rates net. In addition Section 3(3)(f) of the Act states that municipalities should “take into
account the effects of rates on the poor and include appropriate measures to alleviate
the rates burden on them”. Municipalities are therefore encouraged, through their rates
policy, to grant exemptions, rebates and reductions to indigent owners, and implement
measures to prevent the sale in execution of property owing to the owner’s inability to
settle rates liabilities.

6. PUBLIC AUDIT ACT, 2004 (ACT 25 OF 2004)

6.1 Background
The Constitution established the Office of the Auditor General as an independent state
institution responsible for the external audit of all national and provincial departments
and municipalities, as well as any other institutions or accounting entities as required by
legislation. It requires the Auditor General to be impartial, and to exercise his or her
powers and perform his or her functions without fear, favour or prejudice. It prohibits any
person or organ of state from interfering with the functioning of the Auditor General and
requires the Auditor General to submit audit reports to any legislature that has a direct
interest in the audit.
6.2 Objects of the Act
Section 2 of the Act sets out the following objects of the Act:

To give effect to the provisions of the Constitution

To provide for the auditing of institutions and accounting entities in the public sector
To provide for an oversight mechanism, firstly to assist and protect the Auditor General
in order to ensure the independence, impartiality, dignity and effectiveness of the
Auditor General; and secondly to advise the National Assembly
6.3 Status and functions of the Auditor General
The Act describes the status of the Auditor General in Section 3 as the supreme audit
institution of the Republic. He or she has full legal capacity, is independent, and is
subject only to the Constitution. He or she is accountable to the National Assembly,
must be impartial and must exercise the powers and functions of his or her office
without fear, favour or prejudice.
The constitutional functions of the Auditor General, set out in Section 4 of the Act, are
as follows:
The Auditor General must audit and report on the accounts, financial statements and
financial management of all national and provincial state departments and
administrations, constitutional institutions, the administration of parliament and of each
provincial legislature, municipalities, municipal entities and any other institution or
accounting entity required to be audited by the Auditor General by other national or
provincial legislation.
The Auditor General must audit and report on the consolidated financial statements of
national government and all provincial governments as required by Sections 8 and 19 of
the Public Finance Management Act, respectively; and of a parent municipality of all
municipal entities under its sole or effective control, as required by Section 122(2) of the
MFMA.
In addition, the Auditor General may audit and report on the accounts, financial
statements and financial management of any public entity listed in the Public Finance
Management Act, and any other institution which is funded from a national or provincial
revenue fund or is authorised in terms of any legislation to receive money for a public
purpose.

Other functions of the Auditor General include the following:

Providing the following, at a fee:
Audit-related services to an auditee referred to in paragraphs (1) and (3) above,
provided that no services may be provided in respect of any matter that may have to be
audited by the Auditor General and no services may be provided that will result in the
formulation of policy; the Act also requires full and proper disclosure of such services to
the National Assembly
Advice and support to a legislature or any of its committees outside the scope of the
Auditor General’s normal audit and reporting functions
Comments in a report on any responses by an auditee to reported findings
The Auditor General may also carry out an appropriate investigation or special audit of
any institution referred to in items (1) and (3) above if he or she considers it to be in the
public interest, or upon the receipt of a complaint or request.
The Auditor General may cooperate with persons, institutions and associations,
nationally and internationally.
He or she may appoint advisory and other structures outside the administration of the
Auditor General to provide specialised advice to the Auditor General.
He or she may do any other thing necessary to fulfil the role of the Auditor General
effectively.
The Auditor General may, in the public interest, report on any matter within the functions
of the Auditor General and submit such a report to the relevant legislature and to any
other organ of state with a direct interest in the matter.

6.4 Audit of municipalities

6.4.1 Duties of the Auditor General
As indicated earlier, the Auditor General is, inter alia, responsible for auditing and
reporting on the accounts, financial statements and financial management of all
municipalities and municipal entities. In terms of Section 12 of the Act, the Auditor
General may, however, authorise one or more persons to perform or to assist in the
performance of such an audit. Such a person must either be a member of the staff of
the Auditor General or a private practitioner who is registered as an accountant and
auditor in terms of the Public Accountants and Auditors Act, 1991 (Act 80 of 1991) or
have the necessary qualifications, experience and competence determined by the
Auditor General.
In addition, the Auditor General must issue a code of conduct for authorised auditors
prescribing the standards of professional conduct, any disciplinary steps for misconduct,
as well as any other relevant matters; must determine the manner in which an audit
must be performed, and the manner in which any powers conferred on authorised
auditors may be exercised; and must prescribe limitations on the exercise of any of
these powers.
It is the duty of the Auditor General to prepare a report in respect of each audit of a
municipality or municipal entity performed. Such report must be submitted to the auditee
within three months of its receipt by the Auditor General and must reflect, at least, an
opinion or conclusion on the following:
Whether the annual financial statements fairly present, in all material respects, the
financial position at a specific date, as well as the results of its operations and cash flow
for the period ended on that date, in accordance with the applicable financial framework
and legislation
The municipality’s or municipal entity’s compliance with applicable legislation relating to
financial matters, financial management and other related matters
The reported information relating to the performance of the municipality or municipal
entity, measured against predetermined objectives
The Auditor General may, in addition, report on whether the municipality’s resources
were procured economically and utilised efficiently and effectively.
6.4.2 Standards for audit (Section 13)
The Auditor General must determine the standards, nature and scope to be applied in
performing an audit and the procedures for handling complaints. In setting standards,
the Auditor General must take into account all relevant factors, including local and
international best auditing practices as well as the capacity of the Auditor General and
the auditing profession to comply with such standards. He or she may make different
determinations on the standards, nature and scope of audits for different categories of
audits, based on recognised best practice, or may issue specific directives on these
matters in any specific case.

6.4.3 General audit powers

When performing an audit, the Auditor General has, in terms of Section 15, at all
reasonable times, full and unrestricted access to the following:
Any document, book or written or electronic record or information of the auditee
The assets of or under the control of the auditee
Any staff member or representative of the auditee
The Auditor General or an authorised auditor may, also in terms of Section 15, for the
purpose of the audit, exercise the following additional general audit powers:
Enter any property, premises or vehicle of or under the control of the auditee
Direct a person to produce or to deliver at a specific place and time, and in a specified
format, any document, book or written or electronic record or information or asset
Inspect and question any person about such document, book or written or electronic
record or information or any such asset
Copy or make extracts from any document, book or written or electronic record or
information
Direct a person to disclose any information that may be relevant for the audit, including
any confidential, secret or classified information
Direct a person to disclose and/or record information or to give answers to questions
under oath or affirmation
The Auditor General must take precautionary steps to guard against the disclosure of
secret or classified information obtained. No authorised auditor or person assisting an
authorised auditor, or a member of the staff of the Auditor General, may, without the
permission of the Auditor General, disclose information obtained in the course of an
audit otherwise than in an audit report.

6.4.4 Duties of a municipality or municipal entity (auditee)

The duties of the auditee are as follows:
The auditee must submit financial statements containing all the required information to
the Auditor General in the format and within the time frame determined by the MFMA.
The auditee must render all reasonable assistance to and accede to all reasonable
requests of the Auditor General, including the provision of office accommodation,
logistical support and access to office equipment.
The authorised auditor must be given notice of every meeting of the audit committee,
and may participate in and attend any meeting at the expense of the auditee.

6.5 Audit fees

The Auditor General determines the basis for the calculation of audit fees to be
recovered from auditees, after consulting the oversight mechanism and the National
Treasury, and may charge interest on any audit account not paid within 30 days of the
date of such account. If an auditee defaults on the payment of audit fees, the Auditor
General must promptly notify the National Treasury and the relevant Provincial
Treasury, when applicable. If the audit fees exceed 1% of the total current and capital
expenditure of a municipality for the relevant financial year, and the National Treasury is
of the view that the auditee has financial difficulty in settling the cost, the excess must
be defrayed from the National Treasury’s own vote.

6.6 Administration of the Office of the Auditor General

The Auditor General has an administration consisting of the Deputy Auditor General and
other staff members, and is in overall control of and accountable for the administration.
The Deputy Auditor General must be a person with appropriate qualifications and
experience, is the accounting officer and head of the administration, and must perform
the functions of the Office in accordance with the directions of the Auditor General. He
or she must establish an audit committee and appoint the members of such a
committee in consultation with the Auditor General. In addition, he or she must, for each
financial year, prepare an annual financial report and financial statements (including
cash flow information) which fairly present the state of affairs of the Office of the Auditor
General, including its business, financial results, performance against predetermined
objectives and financial position as at the end of the financial year.

7. INTERGOVERNMENTAL FISCAL RELATIONS ACT, 1997 (ACT 97 OF 1997)

The principal objectives of this Act are to promote cooperation between the national,
provincial and local spheres of government with regard to fiscal, budgetary and financial
matters, and to prescribe a process for the determination of an equitable sharing and
allocation of revenue raised nationally. The concept of equitable revenue sharing is
entrenched in Section 214 of the Constitution.

The Act provides, firstly, for the establishment of a Budget Council, comprising the
Minister of Finance as chairperson and the MEC for Finance in each province. The
Budget Council is a body in which the national and provincial governments consult on a
variety of matters – fiscal, budgetary, financial, legislative, policy-related – affecting the
provincial sphere of government. Secondly, the Act provides for a Local Government
Budget Forum (LGBF) comprising the minister as chairperson, the nine MECs as
above, five representatives nominated by the South African Local Government
Association (SALGA) (see section 2.11.1 below) nationally, and one representative
nominated for each provincial branch of SALGA. This forum is a body in which the
national and provincial spheres of government and organised local government consult
on the same range of matters dealt with in the Budget Council, but in relation to how
they affect the local sphere of government. The chairperson of the Finance and Fiscal
Commission (FFC) (see section 2.11.4 below) or a delegation of the FFC may also
attend meetings of the Budget Council and LGBF. The Budget Council meets at least
twice in every financial year (that is, the state’s financial year) and the LGBF at least
once.

The third part of the Act deals with the equitable share, and provides that at least ten
months before the start of each financial year (or a later date, if so agreed by the
minister) the FFC must submit for tabling to both Houses of Parliament and to every
provincial legislature, and also to the minister, recommendations for that (coming)
financial year on an equitable division among the three spheres of government, of
revenues raised nationally and on any other allocations to provinces and municipalities
from the national government’s equitable share, together with the conditions to be
attached to such allocations.

In making its recommendations, the FFC must consider the matters listed in Section
214(2) of the Constitution, being mainly

the national interest

any provision that must be made in respect of the national debt
the needs and interests of the national government, determined by (unspecified)
objective criteria
the need to ensure that the provinces and municipalities are able to provide basic
services and perform the functions allocated to them
the fiscal capacity and efficiency of the provinces and municipalities
the developmental and other needs of provinces, local government and municipalities
obligations of the provinces and municipalities in terms of national legislation
the desirability of stable and predictable revenue sharing allocations
the need for flexibility in responding to emergencies or other temporary needs.
After receiving these recommendations, the minister must consult with the Budget
Council and LGBF with regard to these recommendations, and must again consult with
the FFC before proceeding to the introduction of the Annual Division of Revenue Bill
(see below).
Finally, the Act provides for the annual introduction in the National Assembly, at the time
the annual budget is introduced, of a Division of Revenue Bill in respect of the financial
year to which that budget relates. This Bill specifies the equitable share of each sphere
of government of revenues raised nationally, as well as the further allocations to be
made from the national government’s equitable share (with the relevant conditions to be
attached to such allocations). The Bill must indicate how the matters referred to in
Section 214(2) of the Constitution are taken account of, and to what extent the
aforementioned recommendations of the FFC have been adhered to. Finally, the Bill
must indicate the assumptions and formulae used in determining the various equitable
shares.

8. INTERGOVERNMENTAL RELATIONS FRAMEWORK ACT, 2005 (ACT 13 OF 2005)

The principal objective of this Act is to establish a framework for the three spheres of
government (in accordance with Section 41(2) of the Constitution) to promote and
facilitate intergovernmental relations, and to provide for mechanisms and procedures to
facilitate the settlement of intergovernmental disputes.

The ancillary objective is to provide the foregoing framework, within the principle of
cooperative government, for the three spheres of government and all organs of state
within those spheres, in order to facilitate coordination in the implementation of policy
and legislation. The objective is thus to ensure, inter alia, the following:

Coherent government
Effective service provision
Monitoring implementation of policy and legislation
Realisation of national priorities (Section 4)
The Act establishes a President’s Coordinating Council (Section 6), which is a
consultative forum (Section 7) convened by the President (Section 8), with the following
principal functions:

To raise matters of national interest with provincial governments and organised local
government and hear their views on these matters
To consult with provincial governments and organised local government on the
implementation of national policy and legislation in provinces and municipalities; on the
coordination and alignment of priorities, objectives and strategies across all three
spheres of government; and on any other matters of strategic importance
To discuss performance in the provision of services in order to detect failures and
initiate preventive or corrective action if needed
To consider reports from intergovernmental forums on matters affecting the national
interest and reports dealing with provincial and municipal performance (Section 7)
Section 9 provides for the establishment of an intergovernmental forum by any cabinet
member to promote and facilitate intergovernmental relations in that cabinet member’s
area(s) of responsibility. Where a Minmec was previously established, such Minmec
now becomes the relevant forum (Minmecs are standing intergovernmental bodies
comprising a minister and the provincial MECs responsible for the functional areas
similar to those of the minister). Sections 10, 11 and 12 deal with the composition, role
and reporting obligations of these forums.

9. MUNICIPAL FISCAL POWERS AND FUNCTIONS ACT, 2007 (ACT 12 OF 2007)

The objects of the Act are the following:

The promotion of predictability, certainty and transparency in respect of municipal fiscal

powers and functions
Ensuring that municipal fiscal powers and functions are exercised in a manner that will
not materially and unreasonably prejudice national economic policies, economic
activities across municipal boundaries, and the national mobility of goods, services,
capital and labour
Effectively overseeing the exercise of municipal fiscal powers and functions
Providing for an appropriate division of fiscal powers and functions where two
municipalities have the same fiscal powers and functions with regard to the same area
in accordance with Section 229(3) of the Constitution, by
– regulating the exercise by municipalities of their power to impose municipal
surcharges on fees for services under Section 229(1)(a) of the Constitution

– authorising the municipal taxes that municipalities may impose under Section 229(1)
(b) of the Constitution

– regulating the exercise by municipalities of their power to impose such municipal

taxes as may be authorised.

The Act applies to municipal surcharges and municipal taxes, which are respectively
defined as follows:
A municipal surcharge means a charge in excess of the municipal base tariff that a
municipality may impose for a municipal service provided by or on behalf of such
municipality
A municipal tax means a tax, levy or duty that a municipality may impose in terms of
Section 229(1)(b) of the Constitution, but excludes property rates levied in terms of the
Municipal Property Rates Act, 2004 and municipal base tariffs regulated under the
Municipal Finance Management Act, 2003 and other applicable legislation
Circular No. 1 issued in terms of the Act further explains what is meant by a municipal
tax. Generally a tax, which will include levies and duties, may be defined as a
government impost that is unrelated to specific benefits enjoyed by the taxpayer. The
revenue from taxes is taken into the general revenues of the municipality and used for
general purposes. The taxpayer receives no specific service in return for payments
made, but receives a range of general services such as municipal roads, street lighting,
sports and recreational facilities, traffic lights and the like. A tax is thus obviously
different from a user charge, as the latter is imposed in accordance with a direct benefit
received by a user or consumer of a particular municipal service.

A municipal surcharge is explained as being a surcharge on a municipal service levy

that is additional to the fee or tariff charged for the provision of the municipal service in
question. A surcharge can therefore be viewed as an indirect tax, as it is a payment in
addition to the normal user charge. Surcharges generated from trading services, such
as water and electricity reticulation, are usually used by municipalities to fund or
subsidise other essential municipal activities where limited or no charges are levied (in
other words, to augment the municipality’s income from property rates). It should be
noted that even though the circular admits that surcharges are indirect (or concealed)
taxes, they are not classified as municipal taxes for the purposes of the Act.

Circular No. 2 issued in terms of the Act provides a list of revenue sources which are
not to be considered municipal taxes, and these include administration fees, entrance
and admission fees, traffic fines, licences and permits, and penalties imposed for
whatever reason.

In terms of this Circular No. 2, a verification of municipal taxes that existed prior to the
introduction of the Act was undertaken during 2009, the intention being that the Minister
of Finance would advise municipalities early in 2010 which of these municipal taxes
could be continued and which were not approved. Municipalities could only include in
their budgets for 2010/11 those taxes which had been approved, and could no longer
impose any disapproved taxes. It is not known what the results of this verification
process were, but it does appear that many municipalities submitted nil returns in regard
to the imposition of taxes or levies other than municipal property rates.

To return to the Act itself: Chapter 2 deals with municipal taxes, and Section 4 sets out
the procedure for the authorisation of a municipal tax. This Section provides that the
minister may, of his or her own accord, or on application in terms of Section 5 by a
municipality, group of municipalities or organised local government, authorise a
municipal tax. However, prior to doing so the minister must go through a consulting
process, which must include the minister responsible for local government, all
municipalities affected by such a tax, organised local government (presumably if it is not
part of the original application) and the Finance and Fiscal Commission. The minister
authorises the tax by prescribing Regulations as contemplated in Section 6 of the Act.

Section 5 sets out what the application for authorisation of a municipal tax must contain,
for example:

The reasons for the imposition of the proposed municipal tax

The purposes for which revenues derived from the collection of the tax will be utilised
An identification of the tax base, the desired tax rate, the persons liable for the payment
of the tax, and any tax relief measures or exemptions
The identification of the tax-collecting authority, the methods and likely costs of
enforcing compliance with the tax, and procedures for taxpayer assistance
Particulars of the amount of revenues expected to be collected on an annual basis over
the three municipal financial years following the introduction of the tax, the economic
impact on individuals and businesses, and the impact on economic development
Particulars of all consultations conducted, and so forth
Section 6 indicates the Regulations which must be formulated by the minister in regard
to the imposition and administration of an authorised municipal tax, and Section 7
provides that the municipality authorised to impose the relevant tax is the collecting
agent for such tax unless the minister, in terms of Section 6, designates another person
or entity for that purpose.

Chapter 3 of the Act deals with municipal surcharges, and Section 8 provides that the
minister may prescribe compulsory national norms and standards for the imposition of
municipal surcharges, which may include, among others, maximum municipal
surcharges that may be imposed by municipalities.

These norms and standards may

in respect of maximum municipal surcharges, express the maximum municipal

surcharge that may be imposed as a ratio, a percentage of the municipal base tariff or a
rand value, and may provide bands or ranges within which municipal surcharges may
be imposed
differentiate between different kinds of municipalities, which may be defined in relation
to the capacity of a municipality, the category, type or budgetary size of a municipality,
types of municipal service, levels of municipal services, categories of users, debtors and
consumers, consumption levels, and geographical areas
determine the basis upon and the intervals at which municipal surcharges may be
increased
determine matters that must be assessed and considered by a municipality in imposing
municipal surcharges.
Section 9 of the Act refers to the obligations of municipalities in respect of municipal
surcharges, stating in essence that municipalities must comply with the norms and
standards contemplated in Section 8, and must annually, as part of the budget
preparation process, review any municipal surcharges.

10. ELECTRICITY-RELATED LEGISLATION

10.1 Electricity Regulation Act, 2006 (Act 4 of 2006)
An Electricity Control Board, regulating both the generation and distribution of electricity
in South Africa, was established in terms of the Electricity Act, 1958 (Act 40 of 1958).
This Act also established the Electricity Supply Commission, or Eskom as it became
officially known in terms of the Eskom Act, 1987.

The Electricity Act, 1987 (Act 41 of 1987), as amended, first created the institution of a
National Electricity Regulator (NER), which in fact superseded the aforementioned
Electricity Control Board, and which had far-reaching powers as far as electricity
generation and distribution were concerned, including the issuing of distribution (and
generation) licences to municipalities, determining prices and conditions of supply for
licences, and settling disputes between licensees and consumers. Members of the NER
had to be knowledgeable about electricity tariffs, cost accounting, legal aspects of
electricity supply and/or electricity supply systems.

In 2004 the National Energy Regulator Act (Act 40 of 2004) was passed, in terms of
which the National Energy Regulator of South Africa (NERSA) was created. As its name
implies, NERSA’s powers and functions extended beyond electricity-related matters,
and included a variety of regulatory activities relating to petroleum and gas. As far as
electricity was concerned, NERSA in essence assumed the responsibilities of the
former NER.

However, in 2006 the Electricity Regulation Act (Act 4 of 2006) was introduced to deal
specifically with NERSA’s role with regard to electricity. The Act is of great importance
for municipalities engaged in (particularly) the distribution of electricity, and repeals
virtually the entire Electricity Act, 1987 in accordance with which NERSA’s regulation of
electricity activities was previously undertaken.

The objects of the new Act are set out in Section 2, and from a municipal perspective
the following are probably the most important (if one can decipher their true meaning):

To achieve the efficient, effective, sustainable and orderly development and operation of
electricity supply infrastructure in the Republic
To ensure that the interests and needs of present and future electricity consumers and
end users are safeguarded and met, having regard to the governance, efficiency,
effectiveness and long-term sustainability of the electricity supply industry within the
broader context of economic energy regulation in the Republic
To facilitate universal access to electricity
To facilitate investment in the electricity supply industry
To facilitate a fair balance between the interests of consumers and end-users,
licensees, investors in the electricity supply industry and the public
To promote competitiveness and customer and end-user choice
The Regulator, that is NERSA, has the following important powers and duties:
It must consider applications for licences and may issue licences for, inter alia, the
operation of generation facilities, transmission power systems and distribution power
systems
It must set and approve tariffs
It must issue rules to implement the national government’s electricity policy framework
It must establish monitoring and information systems
It may mediate disputes between generators, transmitters, distributors, the dispatcher,
traders, customers or end-users
It may undertake investigations into the activities of licensees

Section 14 specifies the conditions which the Regulator may attach to any licence,
including the following:
Tariffs charged by the licensee and the methodology to be used by the licensee in
arriving at such tariffs
The format and contents of agreements entered into by licensees (with Eskom,
consumers)
The quality of the electricity supply and service
The setting, approving and meeting of performance improvement targets
The termination of electricity supply to customers and end-users under certain
circumstances and the duty to reconnect without undue discrimination, subject to such
conditions as the Regulator may specify
The classes of customers and end-users to whom electricity may or must be supplied

Section 15 follows on with regard to the setting or approval of electricity tariffs and
specifies that the licence conditions in this regard
must enable an efficient licensee to recover the full cost of its licensed activities,
allowing for a reasonable margin of return commensurate with the risk of the licensed
activity
must avoid undue discrimination between customer categories
may permit the cross-subsidisation of tariffs between certain classes of customers.
Section 21 deals with the powers and duties of licensees, and specifies, inter alia, that a
licensee may not discriminate between customers or classes of customers regarding
access, tariffs, prices and conditions of service, except for objectively justifiable and
identifiable differences approved by the Regulator in writing. Section 21(5) deals with
the termination of supply, and has caused considerable recent controversy. This
subsection reads as follows:

A licensee may not reduce or terminate the supply of electricity to a customer unless:
(a) The customer is insolvent.
(b) The customer has failed to honour, or refuses to enter into, an agreement for the
supply of electricity.
(c) The customer has contravened the payment conditions of the licensee.

Municipalities have used this subsection as justification for terminating electricity

supplies when residents fall in arrears with property rates and/or other service charges,
and consumers in turn use it to justify their allegations that such municipalities are
acting in contravention of their licensing conditions. Presumably everything turns on the
content of the agreement referred to in Section 21(5)(b) and/or the nature of the
payment conditions mentioned in (5)(c). The Regulator itself has not really helped to
clarify the issue. However, see Chapter 3 section 1 for a discussion on an important
court case in this regard.

10.2 A brief note on the attempted restructuring of the electricity industry

Historically, South Africa has employed a dual electricity reticulation mechanism, with
both Eskom and local government (187 municipalities) distributing electricity to
customers. In several cases, this dual distribution arrangement is found within a single
municipal area, with Eskom most commonly supplying the mainly black townships and
the municipality itself providing the reticulation to commercial and industrial consumers,
and to the formerly white residential areas. This arrangement has continued to prevail
up to the present day.

This fragmentation of the electricity supply industry led to the belief as far back as the
early 1990s that a comprehensive restructuring was required to obviate financial crises
caused by inefficiencies, disparities in tariffs, unequal treatment of customers and the
inability to introduce beneficial economies of scale. In the national government’s Energy
White Paper of 1998 and the Blueprint on Electricity Industry Reform of 2001,
restructuring was strongly advocated in order to
provide low-cost electricity to all consumers, with equitable tariffs for each customer
segment
provide a reliable and high-quality supply and service to all customers
operate in a financially sound and efficient manner, thereby providing a reliable and
sustainable future for both consumers and employees (in the electricity sector).

11. OTHER LEGISLATION AFFECTING THE FINANCIAL ADMINISTRATION OF

MUNICIPALITIES
11.2 Housing Act, 1997 (Act 107 of 1997)
Part 4 of this Act deals with local government’s functions with regard to housing.

Section 9(1) provides that every municipality must, as part of its process of integrated
development planning, take all reasonable and necessary steps within the framework of
national and provincial housing legislation and policy to do the following:

Ensure that the inhabitants of its area of jurisdiction have access to adequate housing
on a progressive basis; that conditions not conducive to the health and safety of the
inhabitants are prevented or removed; and that services in respect of water, sanitation,
electricity, roads, stormwater drainage and transport are provided in a manner which is
economical and efficient
Set housing delivery goals in respect of its area of jurisdiction
Identify and designate land for housing development
Create and maintain a public environment conducive to housing development, which is
financially and socially viable
Promote the resolution of conflicts arising from the housing development process
Initiate, plan, coordinate, facilitate, promote and enable appropriate housing
development in its area of jurisdiction
Provide bulk engineering services and revenue generating services in so far as such
services are not provided by specialist utility suppliers
Plan and manage land use and development
11.9. Public Administration Management Act, 2014 (Act 11 of 2014)
The draft legislation that has led to the enactment of this stature has been in circulation
since 2013, and has elicited considerable criticism, particularly from opponents of the
perceived centralisation of the public service. However, the philosophy that informs this
Act (or at least aspects of the Act) has been variously articulated since the 1990s, which
of course does not make it less controversial.

The Act deals with a number of distinct matters, each of which is briefly discussed
below. Unfortunately, as seems inevitable in most statutes nowadays, the Act further
expands the State bureaucracy by establishing a number of additional governmental
structures, the need for which is arguable.

The Act applies to the “public administration”, which is defined as the “public service”
(being in essence all national departments and provincial departments) and
municipalities.

The objects of the Act are to

promote and give effect to the values and principles espoused in Section 195(1) of the
Constitution
provide for the transfer and secondment of employees
promote a high standard of professional ethics in the public administration
promote the use of information and communication technologies in the public
administration
promote efficient service delivery in the public administration
facilitate the eradication and prevention of unethical practices in the public
administration
provide for the setting of minimum norms and standards to give effect to the values and
principles of Section 195(1) of the Constitution.
Section 5
Governance in the financial administration of municipalities: compliance with
statutory requirements
1. THE KING REPORTS
The first report on corporate governance, compiled by a multidisciplinary committee
chaired by Mr Mervyn King SC, was published in 1994. The direct consequence of the
committee’s findings and recommendations was the institutionalisation of corporate
governance in South Africa. The initial report was subsequently revised in 2002 and is
known as King II. A new report on governance in South Africa, known as King III, was
issued in 2009, effective 1 March 2009.

1.1 The King Report 2002 on Corporate Governance for South Africa
Although the 2002 King Report (known as King II) applied to listed companies, financial
institutions and public sector enterprises, all private and public organisations were
encouraged to give consideration to its application.

Any organisation is defined by its purpose. For a public service organisation, such as a
municipality, its purpose is likely to be the provision of the highest level of service to the
broadest constituency at the most economical rate.

Governance represents the means by which direction and control are applied to
stewardship of the entity’s assets – tangible and intangible, financial and non-financial –
in the pursuit of the delivery of the primary objective of sustainable value creation.

The report identified the following seven primary characteristics of good governance:

Discipline. Commitment by the organisation’s senior management to standards of

correct and proper behaviour
Transparency. The ease with which an outsider can meaningfully analyse the
organisation’s actions and performance
Independence. The extent to which conflicts of interest are avoided
Accountability. Addressing communities’ rights to receive information relating to the
stewardship of the organisation’s assets and its performance
Responsibility. Acceptance of all consequences of the organisation’s behaviour and
actions, including a commitment to improvement where required
Fairness. Acknowledgment of, respect for and balance between the rights and interests
of the organisation’s various stakeholders
Social responsibility. The organisation’s demonstrable commitment to ethical standards
and its appreciation of the social, environmental and economic impact of its activities on
the community in which it operates
Many of these qualities are captured in the principal statutes governing the
administration of municipalities. We have already dealt with statutory duties imposed
upon and powers vested in municipal councils in terms of the Constitution, as well as
with the broad legal framework within which municipalities operate, and will now
concentrate in greater detail on the substantial body of legislative requirements
contained in the Municipal Systems Act (MSA), the Municipal Finance Management Act
(MFMA), the Municipal Property Rates Act (MPRA), other statutes, and the Regulations
promulgated under some of these Acts.

1.2 King III

The third King Report, commonly known as King III, was issued in 2009, specifically to
complement the Companies Act, 2008. Much of King III is, accordingly, concerned with
corporate practices, including annual reviews of financial controls, IT governance, risk-
based internal audits and integrated reporting. The new report does not supersede King
II, but aims to extend the basic principles of corporate governance.

The fundamentals of King III may be summarised as follows:

The report applies to all entities regardless of the manner and form of incorporation or
establishment and whether in the public, private or non-profit sectors
It refers and applies to the functional responsibility of those charged with governance in
any entity, even if different terminology is used
It adopts an “apply or explain” approach
All entities should apply both the principles in the code and the best practice
recommendations in the report
The link between good governance and the law is recognised
The starting point of any analysis is that directors and management must discharge
their legal duties, that is the duty of care and the duty to manage with skill and diligence,
as well as their fiduciary duties
Each principle is of equal importance and all together form a holistic approach to
governance
The philosophy of King III revolves around leadership, sustainability and corporate
citizenship:

Good governance is essentially about effective leadership. Leadership is characterised

by ethical values and based on moral duties that find expression in the concept of
Ubuntu. The concept of Ubuntu is captured in the expression “uMuntu ngumuntu
ngabantu” – I am because you are, you are because we are
Sustainability is seemingly thus far the primary moral and economic imperative of the
21st century. Nature, society and business are interconnected in complex ways that
should be understood by decision makers. The report seeks to emphasise the inclusive
approach to governance, incorporating the practice of integrated reporting as a core
aspect of corporate governance
Corporate citizenship flows from the fact that an entity is a person and should operate in
a sustainable manner. The Constitution imposes responsibilities upon individuals and
juristic persons for the realisation of the most fundamental rights
Integrated reporting entails devoting sections of the annual report of the entity to its
economic, social and environmental performance. Although integrated reporting may be
relatively new to the corporate world, one would certainly expect a municipality’s annual
report to comment on how municipal activities and performance have affected the social
and economic fabric of the community and the safeguarding of the region’s natural
environment.

The ethics of corporate governance require all deliberations, decisions and actions of a
municipal council and its senior management to be based on the following four ethical
values underpinning good corporate governance:

Responsibility: the council should assume responsibility for the assets and actions of
the municipality and be willing to take corrective actions to keep the municipality on a
strategic path that is ethical and sustainable
Accountability: the council should be able to justify its decisions and actions to all
stakeholders
Fairness: the council should ensure that it gives fair consideration to the legitimate
interests and expectations of all stakeholders
Transparency: the council should disclose information in a manner that enables
stakeholders to make an informed analysis of the municipality’s performance and
sustainability
As a steward of the municipality, every senior manager should discharge the following
five moral duties:

Conscience: he or she must act with intellectual honesty and independence of mind in
the best interest of the municipality and all its stakeholders. Conflicts of interest should
be avoided
Inclusivity: inclusivity of stakeholders is essential for achieving sustainability, and the
legitimate interests and expectations of stakeholders must be taken into account in
decision making and strategy
Competence: he or she must have the knowledge and skills required to govern the
municipality effectively. Such competence should also be continually developed
Commitment: he or she must be diligent in performing his or her duties and devote
sufficient time to municipal affairs. Ensuring performance and compliance requires
dedication and appropriate effort
Courage: he or she must have the courage to take the risks associated with directing
and controlling a successful, sustainable enterprise as well as the courage to act with
integrity in all council decisions and activities
King III identifies 75 governance principles for South Africa. The principles are grouped
into nine chapters, which focus among other matters on the audit committee, the
governance of risk, legislative compliance, internal audit and the duties and
responsibilities of the council and executive management.
Good governance is the product of intelligent action and courage, and will flourish only
in an environment of transparency, accountability and professionalism: one in which
members of top management enjoy one another’s respect, that of the municipality’s
political office bearers and structures and, very importantly, that of the community they
serve.
2. STATUTORY ROLES, RESPONSIBILITIES AND DUTIES OF OFFICIALS AND
STRUCTURES
2.2 The municipal manager
Previously, a municipal council had to appoint a municipal manager in terms of Section
82 of the Municipal Structures Act. However, in terms of the Municipal Systems
Amendment Act, 2011, this Section of the Municipal Structures Act is repealed, and
henceforth municipal councils must appoint a municipal manager as head of the
administration of the municipality in terms of Section 54A(1)(a) of the amended MSA.

In terms of the MSA and the definitions set out in Section 1 of the MFMA, the municipal
manager is also the accounting officer of the municipality.

Section 57(6)(a) of the MSA provides that the municipal manager is appointed for a
fixed term of employment up to a maximum of five years, but not exceeding a period
ending one year after the election of the next council of the municipality.

In terms of Section 54A(1)(b), the council must appoint an acting municipal manager in
the circumstances and for the period as may be prescribed by the Regulations.

Moreover, any person appointed as a municipal manager or acting municipal manager

must at least have the skills, expertise, competencies and qualifications as may be
prescribed by the Regulations (Section 54A(2)).

These Regulations were only promulgated on 17 January 2014 under the title
“Regulations on the Appointment and Conditions of Employment of Senior Managers”.
These Regulations could arguably be viewed as micro-management taken to extreme
lengths, even to the extent that the application forms on which prospective applicants
must apply for senior managers’ posts are prescribed in Annexure C.

Regulation 9 states unequivocally that a person appointed as a senior manager must

have the competencies set out in Annexure A, and comply with the minimum
requirements for higher education qualifications, work experience and knowledge as set
out in Annexure B. In addition, the appointee must be a South African citizen or
permanent resident (Regulation 8(1)(a)).
Annexure A distinguishes between “core” and “leading” competencies, the former being
competencies “that cut across all levels of work in a municipality and enhance
contextualised leadership that guarantees service delivery impact” (whatever that may
all mean) and the latter being required to “develop clear institutional strategy, initiate,
drive and implement programmes to achieve long-term sustainable and measurable
service-delivery performance results”.

Section 2.2 of Annexure A further states that in appointing senior managers there must
also be a focus on the following key factors:
Critical leading competencies that drive the strategic intent and direction of local
government
Core competencies that senior managers are expected to possess and that drive the
execution of the leading competencies
The principles of Batho Pele

The compulsory framework structure looks like this:

LEADING COMPETENCIES
Strategic direction and leadership (comprising four driving competencies)
People management (four driving competencies)
Programme and project management (three driving competencies)
Financial management (the three driving competencies are budget planning and
execution, financial strategy and delivery, financial reporting and monitoring)
Change leadership (three driving competencies)
Governance leadership (three driving competencies)
CORE COMPETENCIES
Moral competence
Planning and organising
Analysis and innovation
Knowledge and information management
Communication
Results and quality focus
Note that Section 2.5 of Annexure A points out that “there is no hierarchical connotation
to the structure”, which one takes to mean that all competencies are of equal
importance.
Annexure B Section 2 states that the municipal manager (in addition to possessing all
the foregoing competencies) must be in possession of a Bachelor’s degree in Public
Administration/Political Science/Social Services/Law or something equivalent. In
addition, he or she must have at least five years’ relevant experience at senior
management level and “have proven successful institutional transformation within the
public or private sector” (whatever that could possibly mean). He or she must also be
knowledgeable about good governance, audit and risk management, budgeting and
financial management, and have advanced knowledge and understanding of relevant
policy and legislation, institutional governance systems and performance management,
council operations and delegation of powers.
But these are not the only requirements a prospective municipal manager must meet.

The MFMA also prescribes minimum competency levels with which the municipal
manager as accounting officer must comply. These are contained in the Municipal
Regulations on Minimum Competency Levels, 2007: an accounting officer must have at
least an NQF Level 6 qualification or the Certificate in Municipal Financial Management,
a minimum of five years’ experience at senior management level, and the competencies
as set out in the foregoing Regulations. In addition, Regulation 2(1) of the Regulations
on Minimum Competency Levels provides that the accounting officer must generally
have the skills, experience and capacity to fulfil the responsibilities and exercise the
powers and functions assigned to this official in terms of the MFMA. Regulation 2(3)
further requires an accounting officer to note that specific financial management
responsibilities, functions and powers are entrusted to this office by the MFMA and that
failure to comply with these duties may constitute financial misconduct. See also
Chapter 3, section 6.

Whereas in the private sector there has always been a clear distinction between the
respective roles, responsibilities and duties of the chief executive officer of a company
as its accountable officer, and the chief financial officer (CFO) as the accounting officer
– that is, the person responsible for managing the financial systems of the company and
for preparing its financial reports, including the annual financial statements – this
distinction disappeared in the public sector as far back as the first version of the Auditor
General Act in the 1980s. This statute made the town clerk of a municipality its
accounting officer, implying thereby that the holder of this office was accountable for the
entire administration of the municipality, including its financial activities. Although the
Institute of Municipal Finance Officers (IMFO) lobbied strongly against this merger of the
functions of accountable and accounting officer into one post, their representations were
disregarded, and the concept of the municipal manager/town clerk as accounting officer
(meaning both accountable and accounting officer) has been perpetuated in all
subsequent legislation, including the MFMA.
It is interesting to note, by way of mild digression, that in the original drafts of the MFMA
no reference was even made to a chief financial officer, but this situation was partially
corrected in the final version of the Act – although, as will be seen below, the statutory
position of the CFO is not that of an official invested with any direct powers of note.
In terms of Section 56A of the MSA, a municipal manager may not hold political office in
a political party, whether in a permanent, temporary or acting capacity. “Political office”
is defined as chairperson or deputy chairperson, secretary or deputy secretary, or
treasurer of a political party, either nationally or provincially, or (where applicable)
regionally or in any area where the party operates, or any position however designated
which is equivalent to any of the foregoing positions. This prohibition is introduced by
the Municipal Systems Amendment Act, 2011, and was part of the Local Government
Turnaround Strategy.
2.2.1 Municipal Systems Act
In terms of the MSA the municipal manager/accounting officer has, inter alia, the
following powers and responsibilities with regard to the financial administration of the
municipality.

2.2.1.1 Municipal administration: values and principles

The municipal manager must ensure that the municipality’s administration is governed
by the democratic values and principles embodied in Section 195(1) of the Constitution.
To this end he or she must ensure that the administration of the municipality is
responsive to the needs of the local community; facilitates a culture of public service
and accountability among its staff; takes measures to prevent corruption; establishes
clear relationships and facilitates cooperation and communication between it and the
local community; gives members of the local community full and accurate information
about the level and standard of municipal services that they are entitled to receive; and
informs the local community of how the municipality is managed, of the costs involved
and the persons in charge (Section 6(1) and (2)).

2.2.1.2 Publication of by-laws and general information

The municipal manager must publish promptly in the provincial gazette and, when
feasible, also in a local newspaper or in any practical medium, all by-laws passed by the
council of the municipality, and bring the contents of these by-laws to the attention of
the local community (Section 13).

He or she must also ensure that a copy of every notice that must be published in the
provincial gazette or the media is displayed at the municipal offices, and that when the
local community is invited to submit written comments or representations on any matter
before the council, the invitation clearly states that any person who cannot write will be
assisted during office hours by an official of the municipality (who must be named in the
invitation) to transcribe such person’s comments or representations. An official of the
municipality must be available to give reasonable assistance to persons who cannot
read or write in the completion of any form required by the municipality; and if the form
relates to the payment of money to the municipality or to the provision of any service, to
include in such assistance an explanation of the relevant terms and conditions (Section
21(3), (4) and (5)).

The municipal manager must ensure that all documents that must be made public by
the municipality are conveyed to the local community by displaying the documents at
the municipality’s head and satellite offices and libraries, on the municipality’s official
website, and by notification to the local community of the place, including the website
address, where detailed particulars concerning such documents may be obtained. If
appropriate, the local community must be invited to submit written comments or
representations to the municipality in respect of such documents (Section 21A).

2.2.1.3 Website
The municipal manager must establish an official website for the municipality, if it is
affordable, and place on it all information required to be made public in terms of the
MSA and the MFMA, and, if the municipality has decided that it is not affordable to
establish its own official website, provide for the display of the required information on
an organised local government website sponsored or facilitated by the National
Treasury (Section 21B).

2.2.1.4 Integrated development plan (IDP)

The municipal manager must give notice to the public, within 14 days of the adoption of
the municipality’s IDP by the council, of the adoption of such plan, and must ensure that
copies of or extracts from the plan are available for public inspection at specified places,
and publicise a summary of the plan (Section 25(4)).
He or she must submit a copy of the IDP, and of any subsequent amendment to the
plan, to the MEC for Local Government in the province within 10 days of the adoption or
amendment of the plan, and to submit with the copy a summary of the process followed
by the municipality in compiling its plan, a statement that the process as prescribed by
the MSA has been complied with, together with any explanations that may be necessary
to amplify such statement, and in the case of a district and local municipality, a copy of
the framework adopted for its IDP (Section 32(1)).

He or she must also ensure that the municipality gives effect to its IDP and conducts its
affairs in a manner consistent with such plan (Section 36).

The further requirements in regard to the IDP are discussed under heading 6 of this
section.

2.2.1.5 Performance management

The municipal manager must establish mechanisms to monitor and review the
municipality’s performance management system (Section 40). The further requirements
relating to performance management are discussed in section 6 of Chapter 3 of this
book.

2.2.1.6 Municipal administration: establishment and organisation

The municipal manager must establish and organise a municipal administration, within
the administrative and financial capacity of the municipality, which will enable it, inter
alia, to

be responsive to the needs of the local community

facilitate a culture of public service and accountability among the municipality’s officials
be performance orientated and focused on the objects of local government and its
developmental duties
ensure that the municipality’s political structures, political office bearers and managers
and other officials align their roles and responsibilities with the priorities and objectives
set out in the municipality’s IDP
hold the municipal manager accountable for the overall performance of the
administration
maximise efficiency of communication and decision making within the administration
delegate responsibility to the most effective level within the administration
involve officials in management decisions, as far as is practicable
provide an equitable, fair, open and nondiscriminatory working environment (Section
51).
As head of administration, the municipal manager is subject to the policy directions of
the council, and is responsible and accountable for, inter alia, the following:

The formation and development of an economical, effective, efficient and accountable

administration, which is equipped to carry out the task of implementing the
municipality’s IDP, which operates in accordance with the municipality’s performance
management system, and which is responsive to the need of the local community to
participate in municipal affairs
The management of the municipality’s administration in accordance with all applicable
legislation
The implementation of the municipality’s IDP and the monitoring of progress with its
implementation
The management of the provision of services to the local community in a sustainable
and equitable manner
The appointment of staff other than managers directly accountable to the municipal
manager (as referred to in Section 56(a)), but subject to the requirements of the
Employment Equity Act No. 55 of 1998
The management, effective utilisation and training of staff
The maintenance of discipline among staff
The promotion of sound labour relations and compliance by the municipality with all
applicable labour legislation
Advising the political structures and political office bearers of the municipality
Executing the decisions of the political structures and political office bearers
Administering and implementing the municipality’s by-laws and other legislation
Exercising any powers and performing any duties delegated by the council or
subdelegated by other delegating authorities of the municipality
Implementing national and provincial legislation applicable to the municipality
Performing any other function assigned by the council or prescribed by the Regulations
(Section 55(1))
2.2.1.7 Responsibility for financial administration
As accounting officer of the municipality, the municipal manager must accept
responsibility and accountability for all income and expenditure of the municipality, all
assets and the discharge of all liabilities of the municipality, and proper and diligent
compliance with the MFMA (Section 55(2)).

2.2.1.8 Appointment of officials and conclusion of performance agreements

The municipal manager must ensure that a person to be appointed as a manager
directly accountable to the municipal manager (which will include the chief financial
officer) is appointed to that position only in terms of a written employment contract with
the municipality, and subject to the conclusion with the municipal manager of a separate
performance agreement, which must be concluded within 60 days after the person has
been appointed and thereafter annually within one month after the beginning of each
financial year (Section 57(1) and (2)).

He or she must also ensure that the above-mentioned performance agreement includes
performance objectives and targets to be met within specified time frames; standards
and procedures for evaluating performance and the intervals for such evaluation; and
the consequences of substandard performance. The municipal manager must ensure
further that the performance objectives and targets as set out above are practical,
measurable and based on the key performance indicators contained in the
municipality’s IDP (Section 57(4) and (5)).

In terms of Section 57A, which is introduced by the 2011 amendment to the Act, the
municipal manager may not employ any municipal official who was dismissed for
misconduct by another municipality until a prescribed period has elapsed, unless the
misconduct is of a kind that the minister has exempted from this prohibition. The
municipal manager may also not employ any municipal official who is the subject of
disciplinary inquiry at his or her previous municipality until this inquiry has been
concluded.

2.2.1.9 Delegations
In terms of the amended Section 60(2), the council may delegate only to the municipal
manager the authority to make investments on behalf of the municipality, within the
policy framework determined by the Minister of Finance (and presumably within the
parameters of the council’s own investment policy). Note that before the Act was
amended, this delegation was to the chief financial officer, and not the municipal
manager. The amendment was necessary to correct the anomalous nature of a
delegation to an official not directly accountable to the council.

Where the municipal manager is the delegating authority, he or she must ensure that
every official to whom a power or duty has been delegated reports to the municipal
manager, at such intervals as he or she requires, on any decisions taken in terms of
such delegated power or duty since the previous report, and where the municipal
manager has himself or herself been delegated or sub-delegated a power or duty, to
report accordingly to the delegating authority concerned (Section 63).

He or she must submit to the council, whenever it becomes necessary to review a

municipality’s delegations, a report on the existing delegations made in terms of Section
59 of the MSA by the council and other delegating authorities of the municipality, and
any recommendations on changes to the existing delegations that the municipal
manager considers necessary, and, if the municipality has an executive committee or
executive mayor, to ensure further that such report and recommendations to the council
are submitted in the first instance through the executive committee or executive mayor,
as the case may be (Section 65(1) and (2)).

2.2.1.10 Staff establishment and development of human resources

Within the policy framework determined by the council and subject to any applicable
legislation, the municipal manager must develop a staff establishment for the
municipality, for the approval of the council, provide a job description for each post on
the staff establishment, attach to each post the remuneration and other conditions of
service determined in accordance with any applicable labour legislation, and establish a
process or mechanism to regularly evaluate the staff establishment and, when
necessary, to review the staff establishment and the remuneration and conditions of
service (Section 66(1)).
2.2.2 Municipal Finance Management Act
In terms of the MFMA the municipal manager/accounting officer (referred to below as
simply the municipal manager) is invested with the following powers and charged with
the following duties and responsibilities.

2.2.2.1 Bank accounts

The municipal manager is responsible for the administration of the municipality’s bank
account(s) (Sections 8, 9, 10, 11 and 12).

The municipal manager’s duties and responsibilities in this regard are discussed in
section 5 of Chapter 3 of this book.

2.2.2.2 Transfer of assets

The municipal manager must ensure that the municipality does not transfer ownership
as a result of a sale or other transaction or otherwise permanently dispose of any capital
asset needed to provide the minimum level of basic municipal services, and that if
ownership of a capital asset, other than one needed to provide the minimum level of
basic municipal services, is to be transferred or such asset is to be otherwise disposed
of, this is done only after the council, in a meeting open to the public, has decided on
reasonable grounds that the asset is not needed to provide the minimum level of basic
municipal services, and has considered the fair market value of the asset and the
economic and community value to be received in exchange for such asset (Section
14(1) and (2)).
If the council has delegated to the accounting officer the power to make the foregoing
determinations in respect of movable capital assets below such value as is determined
by the council, he or she must decide whether the asset in question is not needed to
provide the minimum level of basic municipal services, and to consider the fair market
value of the asset and the economic and community value to be received in exchange
for such asset (Section 14(4)).
The municipal manager must ensure that any transfer of ownership of a capital asset is
fair, equitable, transparent, competitive and consistent with the municipality’s supply
chain management policy (Section 14(5)).

2.3.2 Municipal Finance Management Act

In terms of the MFMA, the chief financial officer is charged with the following duties and
responsibilities and invested with the following powers:

2.3.2.1 Bank account

The chief financial officer may withdraw money or authorise the withdrawal of money
from any of the municipality’s bank accounts, in accordance with the requirements of
Section 11(1) (Section 11(1), (2) and (3)).
2.3.2.2 Borrowing
If the chief financial officer is involved in the borrowing of money by the municipality,
when interacting with a prospective lender or when preparing documentation for
consideration by a prospective investor, he or she must disclose all information in his or
her possession or within his or her knowledge that may be material to the decision of
the prospective lender or investor, and must take reasonable care to ensure the
accuracy of any information so disclosed (Section 49(1)).
2.3.2.3 Member of management team
As a member of the top management of the municipality’s administration, as specifically
identified in Section 77(1)(b), the chief financial officer must assist the accounting officer
in managing and coordinating the financial administration of the municipality (Section
77(1) and (2)).

As a senior member of the municipality exercising financial management

responsibilities, the chief financial officer must take all reasonable steps within his or her
respective area of responsibility to ensure that:
the system of financial management and internal control established for the municipality
is diligently implemented
the financial and other resources of the municipality are utilised effectively, efficiently,
economically and transparently
any unauthorised, irregular or fruitless and wasteful expenses and any other losses are
prevented
all revenues due to the municipality are collected
the assets and liabilities of the municipality are managed effectively and the assets are
safeguarded and maintained to the extent necessary
all information required by the accounting officer for compliance with the provisions of
the MFMA is timeously submitted to the accounting officer
the provisions of the MFMA, to the extent applicable to the chief financial officer,
including any delegations in terms of Section 79, are complied with (Section 78(1)).

2.3.3 Municipal Supply Chain Management Regulations

In terms of the Municipal Supply Chain Management Regulations promulgated under
the MFMA, certain duties and responsibilities and powers (within the discretion of the
accounting officer/municipal manager) are assigned or may be assigned to the chief
financial officer. These matters are dealt with in section 7 of Chapter 3 of this book.
2.3.4 Municipal Regulations on Minimum Competency Levels
In terms of these Regulations, the CFO must generally have the skills, experience and
capacity to fulfil the responsibilities and exercise the powers and functions assigned to
this post, and specifically must have at least an NQF Level 6 qualification in accounting,
finance or economics or the Certificate in Municipal Financial Management (in cases
where the annual budget of the municipality totals less than R500 million) or at least an
NQF Level 7 qualification in accounting, finance or economics or be a chartered
accountant (in cases where the total budget amounts to R500 million or more). In terms
of work-related experience, the CFO must have at least five years of middle
management experience (for budgets under R500 million) or at least seven years at
senior and middle management levels, of which at least two years must be at senior
management level for budgets equal to or exceeding R500 million.

2.4 Other officials of the municipality

2.4.1 Municipal Systems Act
Note that in terms of the amended Section 56 of the MSA, the council, after consulting
with the municipal manager, appoints all managers and acting managers directly
accountable to the municipal manager, and such appointees must have the skills and
expertise to perform the duties associated with their posts, and must meet any criteria
prescribed by Regulation in regard to the skills, expertise, competencies and
qualifications they must have. If the appointee does not meet these requirements, the
appointment and any contract entered into with the municipality are null and void.

The requirements are now set out in the 2014 MSA Regulations on Appointment and
Conditions of Employment of Senior Managers, and are discussed in section 5.2.2 of
this chapter.

These Regulations also prescribe the specific educational qualifications that senior
managers in each of the following disciplines must possess:

Development and town planning

Public works and basic services
Technical services
Community services
Corporate support services
Without going into any details, there does appear to be some inconsistency as regards
the knowledge and work-related experience required of the various senior managers.
Thus, for example, a good knowledge of the SCM Regulations is required for
development and town planning, corporate support services and other senior managers,
but not for public works and basic services, technical services or community services,
and a good knowledge of labour legislation is only required of corporate support
services.

In terms of the MSA, certain duties and responsibilities are assigned to other officials in
the municipality, and provision is made for certain powers to be delegated to such
officials, usually within the discretion of the municipal manager/accounting officer. The
duties and responsibilities are the following:

If a delegating authority has delegated or sub-delegated any power or duty to a staff

member of the municipality, such staff member must report to the delegating authority at
such intervals as the delegating authority may require, on decisions taken in terms of
that delegated or sub-delegated power or duty since the last report was submitted
(Section 63)
If authorised to do so in terms of Section 22(8) (b) of the National Prosecuting Authority
Act No. 32 of 1998, officials may conduct prosecutions, institute criminal proceedings
and conduct the prosecution in respect of any contravention of or failure to comply with
a provision of a by-law or regulation of the municipality, other legislation administered by
the municipality, and such other legislation as the National Director of Public
Prosecutions may determine in terms of Section 22(8)(b) of the National Prosecuting
Authority Act, 1998 (Section 112)
Officials must adhere to the code of conduct for municipal staff members as set out in
Schedule 2 to the MSA

2.4.2 Municipal Finance Management Act

In terms of the MFMA, other officials of a municipality are also charged with certain
duties and responsibilities, and invested with certain powers, usually again subject to
the discretion of the accounting officer/municipal manager as delegating authority.
These duties, responsibilities and powers are as follows.

2.4.2.1 Bank account

If so empowered by the written authority of the accounting officer, these officials may
withdraw money or authorise the withdrawal of money from any of the municipality’s
bank accounts, except its primary bank account, in accordance with the requirements of
Section 11(1) (Section 11(1) read with Section 11(2)).

2.4.2.2 Borrowing
The relevant requirements are discussed under heading 2.3.2.2 above.

2.4.2.3 Member of management team

The relevant requirements are discussed under heading 2.3.2.3 above.

2.4.3 Municipal Regulations on Minimum Competency Levels

Regulation 6 provides that a senior manager must generally have the skills, experience
and capacity to fulfil the responsibilities and exercise the powers and functions attached
to his or her post, and provides further that failure to comply with any financial
management duties entrusted to him or her may constitute financial misconduct.

2.4.4 Municipal Supply Chain Management Regulations

In terms of the Municipal Supply Chain Management Regulations promulgated under
the MFMA, officials of the municipality are also assigned certain responsibilities and
invested with certain powers, again at the discretion of the accounting officer/municipal
manager. These matters are discussed in section 7 of Chapter 3.

2.4.5 Municipal Budget and Reporting Regulations

In terms of Regulation 4, the mayor must establish a budget steering committee on
which the following must serve, in addition to the municipal manager and the chief
financial officer:
The senior managers in charge of the three largest budget votes
The budgeting manager
The planning manager
Technical experts on infrastructure
2.5.2 Municipal Systems Act, 2000
In terms of the MSA, municipal councils and political representatives are variously
charged with a wide range of duties and responsibilities, and invested with certain
important powers and rights.

2.5.2.1 Rights of council

The rights of a council are as follows:

To govern on its own initiative the local government affairs of the local community
To exercise the municipality’s executive and legislative authority, and to do so without
improper interference
To finance the affairs of the municipality by charging fees for services and by imposing
surcharges on fees, rates on property and, to the extent authorised by national
legislation, other taxes, levies and duties (Section 4(1))
2.5.2.2 Duties of council
The council also has, within the municipality’s financial and administrative capacity and
having regard to practical considerations, inter alia, the following duties:

To exercise the municipality’s executive and legislative authority and use the resources
of the municipality in the best interests of the local community
To strive to ensure that municipal services are provided to the local community in a
financially and environmentally sustainable manner
To consult the local community about the level, quality, range and impact of municipal
services provided by the municipality, either directly or through another service provider,
and about the available options for service delivery
To give members of the local community equitable access to the municipal services to
which they are entitled
To promote and undertake development in the municipality

3. GOVERNANCE IN THE FINANCIAL ADMINISTRATION OF MUNICIPALITIES: THE

ROLE AND PURPOSE OF FINANCIAL POLICIES AND THE SYSTEM OF
DELEGATIONS
3.1 Financial policies
3.1.1 Preferential procurement policy
In terms of Section 2(1) of the Preferential Procurement Policy Framework Act, 2000
(Act 5 of 2000) (PPPFA), every organ of state, which will of course include a
municipality, must determine its preferential procurement policy and implement it within
the framework of a preference points system, as set out in the PPPFA.

3.1.2 Municipal Systems Act, 2000

In terms of the MSA, a municipality exercises its legislative or executive authority by
developing and adopting policies, plans, strategies and programmes, including setting
targets for delivery; by imposing and recovering rates, taxes, levies, duties, service fees
and surcharges on fees, including setting and implementing tariffs, rates and taxes and
debt collection policies; and by monitoring the impact and effectiveness of any services,
policies, programmes and plans (Section 11(3)(a), (i) and (j)).

3.1.3 Tariff policy

A municipal council must adopt and implement a tariff policy on the levying of fees for
municipal services provided by the municipality itself or by way of service delivery
agreements, and which complies with the provisions of the MSA, the MFMA and any
other applicable legislation.

The further requirements of a tariff policy are discussed in section 1 of Chapter 3.

3.1.4 Credit control and debt collection policy

A municipality must collect all monies due and payable to it, subject to the provisions of
the MSA and any other applicable legislation, and for this purpose must adopt, maintain
and implement a credit control and debt collection policy which is consistent with its
rates and tariff policies and complies with the provisions of the MSA (Section 96).

The further requirements of this policy are dealt with in section 1 of Chapter 3 of this
book.
3.1.5 Cash management and investment policy
In terms of Section 13(2) of the MFMA a municipality must establish an appropriate and
effective cash management and investment policy in accordance with any framework
prescribed in terms of the MFMA.
Chapter 3
Section 12
Financial misconduct
1. GENERAL
The ethical behaviour of municipal officials and councillors is governed by the codes of
conduct issued respectively in Schedules 2 and 1 to the MSA.

These codes deal, inter alia, with

compulsory disclosure of interests

prohibitions on using position, privileges, confidential information and municipal assets
for personal gain or for the improper benefit of another person or party
prohibitions on requesting, soliciting and/or accepting rewards, gifts and favours.
Breaches of these codes may lead to disciplinary action, which may include dismissal of
the official or removal from office of the councillor concerned.

There are also important codes of ethics established in terms of the Municipal Supply
Chain Management Regulations 2005 and the Municipal Investment Regulations 2005,
both issued in terms of the MFMA (see section 5 of Chapter 1, and sections 5 and 7 of
Chapter 3 of this book).

In addition, the MFMA deals fairly extensively with financial misconduct (see below).

Although these various ethical rules and provisions are to be welcomed by any right-
thinking person, there is of course no guarantee that in practice financial misconduct will
be prevented by these legislative prescriptions. Proper (ethically sound) governance will
depend on either the council and its office bearers or the municipal manager and his or
her management team or preferably both parties abiding by the letter and spirit of the
various legislative requirements and codes of ethics. If only one party shows the
required commitment to ethical principles, the stage will inevitably be set for potentially
internecine conflict, which in turn must impact negatively on the effectiveness of the
municipality’s administration and on service delivery to its residents. Worse still, if both
parties are insufficiently committed to observing a proper standard of conduct, the
opportunities for corrupt and fraudulent practices become rife.
The absolute prevention of fraud and financial misconduct is possible only in a Utopian
society. However, much can be done to prevent or at least curtail such misconduct
through effective risk management, as explained at length in section 10 of this chapter.
Unfortunately, though, even sound risk management is to a large extent dependent on
the integrity of the municipality’s policy makers and senior management.
In the final event, the only absolute means of curtailing (not preventing) financial
misconduct or at least minimising the results of such misconduct is through the active
involvement of external audit mechanisms. The vital role of an independent audit
committee in ensuring ethical governance is discussed in section 10 of this chapter and
also in section 5 of Chapter 1. Of equal – or even greater – importance is the role which
the Auditor General can play in the (early) detection of financial misconduct. In 2002 the
Office of the Auditor General issued a comprehensive compliance checklist for the audit
of municipalities (as a guide to both municipalities and external auditors) and this
checklist, which has subsequently been updated to include later legislation, focuses on
matters affecting both financial management and general governance. Regrettably,
however, because of its voluminous contents, this checklist is not compulsory in the
audit of municipalities, and has not (as far as is known) actually ever been used to
conduct any audits.
In the long run, one dares to suggest, it may well be in the best interests of local
government if the internal auditors check compliance with the basics of financial
administration (whether journal entries are signed, postings are correct and all the other
rules of good financial housekeeping are adhered to) and the Auditor General focuses
on auditing compliance with the various requirements of sound and ethical governance.
Financial misconduct is specifically dealt with in Chapter 15 of the MFMA.

2. FINANCIAL MISCONDUCT BY MUNICIPAL OFFICIALS

Section 171 of the MFMA deals with financial misconduct by municipal officials, and
provides that the accounting officer of the municipality commits an act of financial
misconduct if he or she deliberately or negligently

contravenes a provision of the MFMA

fails to comply with a duty imposed by a provision of the MFMA on the accounting
officer of the municipality
makes or permits or instructs another official of the municipality to make an
unauthorised, irregular or fruitless and wasteful expenditure
provides incorrect or misleading information in any document, which in terms of a
requirement of the MFMA, must be submitted to the mayor of the council or to the
Auditor General, the National Treasury or another organ of state, and/or which must be
made public (Section171(1)).
The chief financial officer of the municipality commits an act of financial misconduct if he
or she deliberately or negligently
fails to carry out a duty delegated to him or her in terms of the MFMA
contravenes or fails to comply with the condition of any such delegation
makes or permits or instructs another official of the municipality to make an
unauthorised, irregular or fruitless and wasteful expenditure
provides incorrect or misleading information to the accounting officer for the purposes of
compiling a document as referred to in Section 171(1) (Section 171(2)).
A senior manager or other official of a municipality exercising financial management
responsibilities, and to whom a power or duty has been delegated in terms of the
MFMA, commits an act of financial misconduct if he or she deliberately or negligently
fails to carry out the delegated duty
contravenes or fails to comply with the condition of the delegation
makes an unauthorised, irregular or fruitless and wasteful expenditure
provides incorrect or misleading information to the accounting officer for the purposes of
compiling a document as envisaged in Section 171(1) (Section 171(3)).

Section 173 deals with criminal proceedings and offences, and Section 173(1)(a)(i)
provides that the accounting officer of a municipality is guilty of an offence if that
accounting officer deliberately or in a grossly negligent way does one or more or all of
the following:

Uses his or her position or privileges or confidential information obtained as accounting

officer for personal gain or for the improper benefit of another person (Section 61(2)(b))
Fails to take all reasonable steps to ensure that
– the resources of the municipality are used effectively, efficiently and economically

– full and proper records of the financial affairs of the municipality are kept in
accordance with any prescribed norms and standards
– the municipality has and maintains effective, efficient and transparent systems of
financial and risk management and internal control, and of internal audit operating in
accordance with any prescribed norms and standards

– unauthorised, irregular or fruitless and wasteful expenses and other losses are
prevented

– disciplinary or, when appropriate, criminal proceedings are instituted against any
official of the municipality who has allegedly committed an act of financial misconduct or
an offence in terms of Chapter 15 of the MFMA, and

– the municipality has and implements a tariff policy, a rates policy, a credit control and
debt collection policy and a supply chain management policy (Section 62(1))

Fails to take all reasonable steps to ensure that the municipality has and maintains a
management, accounting and information system, which accounts for all the
municipality’s assets and liabilities (Section 63(2)(a))
Fails to take all reasonable steps to ensure that the municipality has and maintains a
system of internal control of assets and liabilities, including a fixed assets register and a
liabilities register, as may be prescribed (Section 63(2)(c))
Fails to take all reasonable steps to ensure that the municipality has an effective
revenue collection system, consistent with the requirements of the MSA and the
municipality’s credit control and debt collection policy (Section 64(2)(a))
Fails to take all reasonable steps to ensure that all monies received by the municipality
are promptly deposited into its primary or other bank accounts (Section 64(2)(d))
Fails to take all reasonable steps to ensure that
– the municipality has and maintains an effective system of expenditure control,
including procedures for the approval, authorisation, withdrawal and payment of funds

– the municipality has and maintains a management, accounting and information

system which recognises expenses as they are incurred, accounts for creditors, and
accounts for payments
– the municipality has and maintains a system of internal control in respect of creditors
and payments

– payments made by the municipality are made directly to the person to whom they are
due unless agreed otherwise for reasons as may be prescribed, and are made either
electronically or by way of non-transferable cheques, but provided that cash payments
and payments by way of cash cheques may be made for exceptional reasons only, and
only up to a prescribed limit

– the municipality complies with its tax, levy, duty, pension, medical aid, audit fee and
other statutory commitments, and

– the municipality’s supply chain management policy is implemented in a manner that is

fair, equitable, transparent, competitive and cost effective (Section 65(2)(a) to (d), (f)
and (i)).

The accounting officer is also guilty of an offence if he or she, deliberately or in a

grossly negligent way

fails to take reasonable steps to implement the municipality’s supply chain management
policy
fails to take all reasonable steps to prevent unauthorised, irregular or fruitless and
wasteful expenditure
fails to take all reasonable steps to prevent corrupt practices in the management of the
municipality’s assets or receipt of its monies and in the implementation of the
municipality’s supply chain management policy,
and if he or she deliberately

misleads or withholds information from the Auditor General on any bank accounts of the
municipality or on any monies received or spent by the municipality
provides false or misleading information in any document, which in terms of a
requirement of the MFMA must be submitted to the Auditor General, the National
Treasury or any other organ of state, and/or must be made public (Section 173(1)(a)(ii)
to (iv), (b) and (c)).
The accounting officer of a municipal entity is guilty of an offence, inter alia, if he or she
deliberately misleads or withholds information from the Auditor General or the entity’s
parent municipality on any bank accounts of the municipal entity or on any monies
received or spent by the entity, and deliberately provides false or misleading information
in any document, which in terms of a requirement of the MFMA must be submitted to
the entity’s parent municipality, the Auditor General, the National Treasury or any other
organ of state, and/or must be made public (Section173(2)).

A senior manager or other official of the municipality exercising financial management

responsibilities and to whom a power or duty has been delegated in terms of the MFMA
is guilty of an offence if he or she deliberately or in a grossly negligent way contravenes
or fails to comply with the condition of such delegation (Section 173(3)).

3. FINANCIAL MISCONDUCT BY MUNICIPAL COUNCILLORS

A councillor of the municipality is guilty of an offence if he or she:
deliberately influences or attempts to influence the accounting officer, the chief financial
officer, a senior manager or any other official of the municipality to contravene a
provision of the MFMA or to refrain from complying with a requirement of the MFMA
interferes in the financial management responsibilities or functions assigned in terms of
the MFMA to the accounting officer or delegated to the chief financial officer in terms of
interferes in the financial management responsibilities or functions assigned in terms of
the MFMA to the accounting officer of a municipal entity under the sole or shared
control of the municipality
interferes in the management or operational activities of a municipal entity under the
sole or shared control of the municipality (Section 173(4)).
4. FINANCIAL MISCONDUCT IN GENERAL
A councillor, an official or any other person is guilty of an offence if he or she
deliberately or in a grossly negligent way

impedes the accounting officer from complying with a provision of the MFMA
gives incorrect, untrue or misleading information material to an investment decision
relating to borrowing by a municipality or municipal entity
makes a withdrawal in contravention of Section 11 of the MFMA (which deals with
withdrawals from bank accounts)
fails to comply with Section 49 of the MFMA (which deals with disclosures in regard to
the borrowing of monies)
impedes the accounting officer in implementing the municipality’s supply chain
management policy
interferes in the supply chain management system, and/or amends or tampers with any
tenders, quotations, contracts or bids
alters the audit report or the annual financial statements to which the audit report relates
after the Auditor General has submitted the report to the accounting officer
provides false or misleading information for the purposes of any document, which must
in terms of a requirement of the MFMA be submitted to the council, the mayor or
accounting officer of the municipality or to the Auditor General or the National Treasury,
and/or which must be made public (Section 173(5)).
5. PENALTIES AND REGULATIONS
Section 174 of the MFMA deals with penalties, and provides that a person is liable on
conviction of an offence in terms of Section 173 to imprisonment for a period not
exceeding five years or to an appropriate fine determined in terms of applicable
legislation.

Section 175 provides for Regulations on financial misconduct procedures and criminal
proceedings. These Regulations, issued in 2014, are dealt with under heading 7 below.

6. UNAUTHORISED, IRREGULAR, FRUITLESS AND WASTEFUL EXPENDITURE

Readers will have noticed that there are numerous references above in regard to
unauthorised, irregular, fruitless and wasteful expenditure within the context of financial
misconduct. To clarify the procedures to be followed when dealing with these classes of
expenses, the National Treasury issued MFMA Circular No. 68 in May 2013. The
circular reminds the reader that in terms of Section 4(2)(a) of the Municipal Systems Act
the council of a municipality has a duty to use the resources of the municipality in the
best interest of the local community, and that this duty is extended to individual
councillors by the code of conduct for councillors, which states, among other matters,
that a councillor must perform the functions of office in good faith, honestly and in a
transparent manner, and at all times act in the best interest of the community and in
such a way that the credibility and integrity of the municipality are not compromised.
The circular then points out that the Auditor General is to an increasing extent
highlighting the upward trend in unauthorised, irregular, fruitless and wasteful
expenditure in municipalities, and in this regard the National Treasury has noted that
there appears to be a sense of uncertainty in some municipalities about how irregular
expenditure should be treated and who has the legislative power to deal with such
expenses.

In order to ensure that there is a common understanding of the process to be followed

in dealing with all the categories of expenditure referred to in the heading of the circular,
a flow chart is attached, which sets out a step-by-step process for dealing with irregular
expenses. The circular is futher supported by a register to assist municipalities in
recording, keeping track of and managing the categories of expenditure mentioned
above in a more transparent manner. This register is envisaged as a central source of
information concerning these types of expense for councils and relevant external
stakeholders, and must clearly record the details of each transaction, the type of
expenditure concerned, the person liable for the expenditure and what measures were
or are to be taken by the municipality to address the matter.

The circular then reminds the reader that each council has a duty to introduce and
adopt policies and processes to do the following:
Prevent unauthorised, irregular, fruitless and wasteful expenditure
Identify and investigate such type of expenditure
Respond appropriately in accordance with the law
Address instances of such expenditure conclusively
Unauthorised expenditure

Section 1 of the MFMA states that unauthorised expenditure means any expenditure
incurred by a municipality otherwise than in accordance with Section 15 or 11(3), and
includes:
overspending of the total amount appropriated in the municipality’s approved budget
overspending of the total amount appropriated for a vote in the approved budget
expenditure from a vote unrelated to the department or functional area covered by a
vote
expenditure of money appropriated for a specific purpose other than for that specific
purpose
spending of an allocation referred to in (b), (c) or (d) of the definition of “allocation” other
than in accordance with any conditions of the allocation
a grant by the municipality other than in accordance with this Act.

The circular then provides examples of expenditures that are not unauthorised:
Any overcollection on the revenue side of the budget as this is not an expenditure (sic)
Any expenditure incurred in respect of any of the transactions mentioned in Section
11(1) (a) to (j) of the MFMA (the reference here is to authorised withdrawals from
municipal bank accounts)
Any expenditure incurred in the reallocation of funds and the use of such funds in
accordance with an approved virement policy
Any overspending of an amount allocated by standard classification on the main budget
(Table A2 of the Municipal Budget and Reporting Regulations) as long as it does not
result in overspending of a vote on the main budget
Overspending of an amount allocated by standard classification on the main budget
Table A5, which deals with budgeted capital expenditure by vote, as long as it does not
result in overspending of a vote on the main budget

The circular then notes that municipalities have been raising concerns about
expenditure on non-cash items being classified as unauthorised expenditure if the total
amount of the budget is exceeded. Such expenditure would normally relate to debt
impairment, depreciation, asset impairment, transfers and grants as appropriated in the
budgeted statement of financial performance: revenue and expenditure in Table A4 of
the Municipal Budget and Reporting Regulations. The circular points out that any
underprovision during the budget compilation process in respect of the budget for the
foregoing types of non-cash item would represent a material misstatement of the
surplus or deficit position of the municipality. This could be the result of poor budgeting
or poor financial management, or unknown events that give rise to the asset or debt
impairment after the adoption of the budget, and in either case when an over-
expenditure, actual or impending, becomes evident, the accounting officer must take the
necessary steps to have such over-expenditure approved by the council in terms of an
appropriate adjustments budget.

The process to be followed when dealing with unauthorised expenditure is then

explained. The circular suggests that, in considering the authorising of unauthorised
expenditure, the council must consider the following:
Has the matter been referred to council for determination and decision?
Have the nature, extent, grounds and value of the unauthorised expenditure been
submitted to council?
Has the incident been referred to a council committee for investigation and
recommendations?
Has it been established whether the accounting officer or official or public office bearer
who made, permitted, or authorised the unauthorised expenditure acted deliberately or
in a negligent or grossly negligent manner?
Has the accounting officer informed the council, the mayor or the executive committee
that a particular decision could or would result in an unauthorised expenditure?
Are there good grounds shown as to why the unauthorised expenditure should be
authorised? For example the mayor, accounting officer or official was acting in the best
interests of the municipality and the local community by making and permitting such
unauthorised expenditure; or the mayor, accounting officer or official was acting in good
faith when making and permitting the expenditure; and the municipality has not suffered
any material harm or loss as a result of the action.

Where unauthorised expenditure has not been authorised by the council in an

adjustments budget, such expenditure must be recovered from the liable official or
political office bearer. Once it has been established who is liable for the expenditure, the
accounting officer must, in writing, request that the liable official or political office bearer
pay the amount within 30 days or in reasonable instalments. If the person fails to
comply with the request, the matter must be handed to the municipality’s legal division
for the recovery of the debt through the normal debt collection process (note that
although the wording of the circular is peremptory in this regard, this particular
procedure is not legally prescribed anywhere).

Irregular expenditure
Irregular expenditure is defined in Section 1 of the MFMA as being
expenditure incurred in contravention of, or  that is not in accordance with, a
requirement of this Act, and which has not been condoned in terms of Section 170
expenditure incurred in contravention of, or that is not in accordance with, a requirement
of the Municipal Systems Act, and which has not been condoned in terms of that Act
expenditure incurred by a municipality in contravention of, or that is not in accordance
with, a requirement of the Public Office Bearers Act, 1998
expenditure incurred in contravention of, or that is not in accordance with, a requirement
of the supply chain management policy or any of the by-laws giving effect to such
policy, and which has not been condoned in terms of such policy or by-law.

Once it has been established who is liable for the irregular expenditure, the accounting
officer must request in writing that the liable person pay the amount within 30 days or in
reasonable instalments, and if the person fails to comply with such request, the matter
must be recovered through the normal debt collection process of the municipality
(again, though the wording of this circular is peremptory, this is not as such legislated
anywhere).

Fruitless and wasteful expenditure

Where fruitless and wasteful expenditure has been incurred, the processes to be
followed are essentially the following:
Disciplinary charges against the officials and/or political office bearers concerned
Criminal charges against such persons
Recovery of the expenditure of the liable persons
It is important to note that fruitless and wasteful expenditure can arise in any
circumstances, and does not necessarily arise from any non-compliance with legislation
or policy.

Register of unauthorised, irregular, fruitless and wasteful expenditure

The circular reminds municipalities that all instances of such expenditures must be
reported to the mayor, the MEC for Local Government, the Auditor General and the
council, and must be disclosed in the annual report. The circular then recommends the
introduction of a register to record such types of expenditure in order to ensure that
financial management is improved and that better audit outcomes are achieved.
The circular states that as part of complying with Section 62(1)(d) of the MFMA, the
accounting officer (who may delegate the task to the CFO) must set up and maintain a
register of unauthorised, irregular, fruitless and wasteful expenditure. (It is interesting to
note, though, that this particular Section states that the accounting officer must prevent
such expenditures, not record them in a register.) Annexure A to the circular sets out
the minimum information that should appear in such a register, but adds that
municipalities are free to include more detail should they deem it necessary. The aim of
the register is not only to record all such expenditures, but to track progress in dealing
with the consequences flowing from the expenditure until all the matters that gave rise
to the expenditure are properly resolved in accordance with the prescribed legal
framework. Municipalities are required to implement this register from 1 July 2013
(again the wording is peremptory, although this register is not prescribed in any
legislation).

7. MUNICIPAL REGULATIONS ON FINANCIAL MISCONDUCT PROCEDURES AND

CRIMINAL PROCEEDINGS
These Regulations were introduced in May 2014, and came into effect from 1 July of the
same year.

Regulation 3 deals with the reporting of allegations of financial misconduct and provides
that:
(1) Any person must report an allegation of financial misconduct against
the accounting officer, senior manager or the CFO – to the council of the municipality,
the Provincial Treasury and the National Treasury
an official of the municipality other than its accounting officer – to the accounting officer
the accounting officer of a municipal entity – to the chairperson of the board of directors,
the mayor and the accounting officer of the entity’s parent municipality
an official of a municipal entity other than its accounting officer – to its accounting
officer.
(2) The mayor, the accounting officer or chairperson of the board of directors, as the
case may be, must table such allegation before the council or board of directors not
later than seven days after it has been received or at the next sitting of the council or
board.
(3) The person to whom such allegation has been reported must ensure that the report
is treated confidentially.
(4) This Regulation must not be read as preventing a person from laying a criminal
charge with the SAPS against any councillor, member of the board of directors or official
in relation to any conduct that may constitute an offence in terms of the MFMA.

(5) An official against whom the allegation has been made must be given an opportunity
to make written representations to the municipality or entity as to why he or she should
not be suspended within seven days of being notified of the allegation.
Regulation 11 deals with allegations of financial offences not amounting to breaches of
the code of conduct for councillors. The designated official must on receipt of a report of
an alleged financial offence by a councillor authorise an investigation of the facts and
circumstances of such alleged offence, and give that councillor an opportunity to make
a written submission within five days with regard to such offence. As soon as the
designated official has complied with the foregoing requirements, he or she must submit
a report to the council on the outcome of such investigation. The designated official
must ensure that the public has access to this report. Moreover, the designated official
must within five days of submitting the report to the council also submit the report on the
outcome of the investigation to the MEC for Finance, the MEC for Local Government,
the Minister of Finance, and the Minister of Cooperative Governance and Traditional
Affairs.

Regulation 12 covers allegations of financial offences not amounting to breaches of the

code of conduct for members of the boards of directors of municipal entities, and
contains much the same provisions as those reflected in Regulation 11.

Regulation 14 deals with the preparation of an information document on alleged

financial misconduct or financial offences, and stipulates that the municipality or
municipal entity must prepare an information document on any alleged financial
misconduct or financial offence stating the following:

The name and position of the person against whom the allegation is made
A summary of the facts and circumstances of the alleged financial misconduct or
financial offence, including its monetary value
Any disciplinary steps taken or to be taken against the person concerned, and if no
disciplinary steps are to be taken, the reasons for such decision
In the case of a financial offence, the case number issued by the SAPS
Any steps taken or to be taken to recover any unauthorised, irregular or fruitless and
wasteful expenditure incurred as a result of the alleged financial misconduct or financial
offence
The municipality or municipal entity must within five days of finalising this information
document submit it, together with any investigation report compiled in terms of
Regulation 5 and 6, to
the mayor of the municipality
the accounting officer of the parent municipality
the chairperson of the board of directors
the MEC for Local Government
the Department of Cooperative Governance and Traditional Affairs
the Provincial Treasury
the National Treasury
the Auditor General.

Chapter 5
Section 1
Introduction
1. STEWARDSHIP AND ACCOUNTABILITY
Councillors and officials of a municipality form an integral part of a public institution that
provides services to its communities. As such they have the responsibility of
stewardship and accountability. Stewardship refers to the holding of someone else’s
assets by a steward. This includes matters regarding the acquisition, financing,
maintenance and utilisation of such assets. Accountability, on the other hand, refers to
the responsibility for a person’s actions to someone else. It includes actions by
management, decisions taken and the extent to which local choice has been satisfied.

In order to demonstrate stewardship and be accountable, municipalities need to

produce financial statements and other relevant information. In this respect municipal
accounting provides a visual representation of what has happened in a municipality as a
result of its economic activities.

The community, legislative and oversight bodies, investors and creditors need this type
of information to assess the authority’s financial results and position, while managers
need it to evaluate past operations and to plan for future activities.

2. MANAGEMENT CONTROL AND ACCOUNTABILITY

To be able to provide such information, municipal accounting systems need a
conceptual foundation underlying general accounting practices. An accounting system
based on sound accounting concepts, principles and practices therefore has to provide
information for management control and accountability purposes. Management control
refers to the information necessary for the efficient, effective and economic
management of a municipality’s operations and of resources entrusted to it, while
accountability refers to information necessary to enable managers to report on the
extent to which a municipality has succeeded in efficiently and effectively meeting its
operating objectives.
Accounting is a service function and must evolve to meet the information demands in a
given environment. In the municipal environment decisions concerning resource
acquisition and allocation, managerial direction and control of resource utilisation and
custodianship for resources, have traditionally been framed in terms of social and
political objectives rather than profitability. Legal and administrative constraints have
been used as society’s methods of directing its municipalities in achieving those
objectives.
Thus municipal accounting and reporting have correspondingly evolved with a
distinctive emphasis on control of and accountability for expendable resources.

3. USERS OF MUNICIPAL INFORMATION

Managers should always be looking for reliable information, which can help them obtain
the necessary knowledge for meaningful decision making. On the other hand, the public
also has the right to be informed. Users of municipal information include the electorate,
ratepayers, consumers, pressure groups, auditors, other spheres of government,
investors and researchers. To be able to provide these users with meaningful, reliable
and applicable information, especially with regard to finances, accounting systems must
be based on generally recognised accounting practice. Where residents and ratepayers
form part of the users of financial information, they could well claim “no taxation without
proper information”.

In an environment that becomes increasingly uncertain and insecure, resource

providers are demanding more and more information from municipalities regarding their
strategic outlook, financial position, operating results and cash management, and their
ability to meet their obligations.

As indicated before, accountability is an important objective of financial reporting. It is

implicit in the objectives of financial reporting and aims, firstly, to assist users in fulfilling
a municipality’s duty to be publicly accountable and to enable users to assess that
accountability; secondly, to assist users in evaluating the operating results of a
municipality; and lastly, to assist users in assessing the level of services that can be
provided by the municipality and its ability to meet its obligations as they become due.
It is clear that there is an urgent need for financial information that can be
comprehended by different types of users. In addition, there is a need for financial
statements and reports that are standardised, concise and explanatory, and are based
on sound accounting standards consisting of well-defined accounting concepts,
principles and practices.