US 116344 Facilitator Guide 1

Facilitator Guide
Municipal legislative environment and policy
Unit Standard Title

Apply the IGRF Act to municipal financial Management
Unit Standard ID
116344
Facilitator Guide: Apply the IGRF Act to municipal financial management. LP 3,
Unit Standard ID 116344
Notice
This material has been developed by National Treasury as part of a broader skills
development initiative to support the implementation of the Municipal Minimum
Competency Regulations, Gazette 29967, June 2007. The material should be used as part
of the broader context of curricular content and was designed to achieve the recognised
municipal financial management qualifications
Only those service providers that appear on the National Treasury website list of “Service
Providers and Modules” are authorised to use this product, which must be used for the
express purpose of providing approved learning programme(s) towards municipal
competency regulations. Service providers will appear on this list only after formal
accreditation in full or in part have been reviewed and approved in respect of related
training by the National Treasury. Service Providers wishing to confirm if they have been
listed as preferred service providers for use by municipalities should visit the National
Treasury website at www.treasury.gov.za/legislation/mfma under “Training and Validation”
– which will be updated from time to time.
Service Providers are not permitted to substantially amend or change this material without
the express authorisation in writing of the National Treasury MFMA Implementation Unit.
Any requests to amend or alter this publication must be submitted to
mfma@treasury.gov.za, prior to the commencement of any training or activity that the
material may relate to.
Notwithstanding the above limitations, National Treasury encourages those Authorised

Service Providers using this product to further develop the material with the inclusion of
case studies and practical examples where appropriate, to enhance practical relevance for
learners where possible.
We remind you that this material has been provided as a resource to assist practitioners in
local government to become qualified municipal finance management professionals, it is
not intended to provide legal or other advice on which a municipality should rely on in
fulfilling their statutory or social responsibilities.
Other parties not referred to above, may use this material for training purposes only,
provided that such purposes will be not for profit only, and prior approval is granted by
National Treasury.
MFMA Implementation Unit

3rd Floor, 40 Church Square, Pretoria
September 2008
Copyright © National Treasury 2008
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Table of contents
1. A WORD OF WELCOME ................................................................................. 4

2. PROFILE OF FACILITATOR ............................................................................ 4
3. LEARNER’S GUIDE OR CROSS REFERENCE TO LEARNER’S GUIDE ....... 4
4. PRE-WORKSHOP AND TRAINING PREPARATION ....................................... 5
5. POSITIONING AND CONTEXTUALIZING ....................................................... 5
6. LEARNER EXPECTATIONS AND ORGANIZATION EXPECTATIONS ........... 6
7. LIST OF FREQUENTLY ASKED QUESTIONS (FAQ) BY LEARNERS ........... 6
8. CONTENT ........................................................................................................ 6
2
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1. A WORD OF WELCOME
1.1. We welcome you to the training programme on Municipal Legislative

Environment and Policy. We wish you a pleasant and successful training. Read
this Facilitator’s Guide immediately and carefully from beginning to end. It
contains important information and guidelines.
2. PROFILE OF FACILITATOR
2.1. The facilitator’s sound knowledge of local government law especially the MFMA
and the Constitution is a fundamental requirement for the prosecution of the
training of the MFMA training courses. Legal erudition and fair background of
teaching management and methods are essential intellectual resources, which
the facilitator must hold for the training purpose of the courses on the MFMA
implementation.
3. LEARNER’S GUIDE OR CROSS REFERENCE TO

LEARNER’S GUIDE
3.1. A Learner’s Guide is an important fulcrum intended to support and guide a

learner on matters relating to his or her learning activities and other relevant
information entailed in the training materials. This information relates to skills
programme, modes of assessments, learning programme, training and learning
strategies etc. Learners are urged to use the Learner’s Guide as a guiding
document for the purpose of effective prosecution of their learning studies and
activities. The Learner’s Guide covers a variety of unit standards titled:
Interpretation of the South African Legislation and Policy Affecting Municipal
Financial Management, Application of the Intergovernmental Fiscal Relations
Act, 1997 to Municipal Financial Management and the Selected Regulatory
Framework Governing the Public Sector Management and Administration.
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4. PRE-WORKSHOP AND TRAINING PREPARATION
4.1. The facilitator will provide learners with an introductory overview of the training
and the background of the legislative instruments which impact on municipal
finance management. This training preface will also be used to test the basic
knowledge of learners regarding the MFMA, the Constitution and principles of
co-operative government. Learners are expected to share and expound their
background information on financial management and related local government
laws particularly the MFMA.
5. POSITIONING AND CONTEXTUALIZING
5.1. A learner will receive a study guide on the Municipal Legislative Environment
and Policy (level 6). This study guide represents a gallant effort to situate the
study of the MFMA and other relevant local government laws in a clear
perspective. There is no dispute that the terrain of financial governance in the
municipalities poses serious challenges and impediments to service delivery.
5.2. This is partly because most of the municipalities are still struggling to position
themselves on the ground of sound financial management. This training
programme is an attempt to assist and support the municipal officials and
executives to build their capacity and co-ordinate the financial activities of the
municipalities accordingly. Municipalities are also required to co-ordinate their
financial matters within a broader gamut of co-operative government. It is for this
reason among many others, that the training programme is intended to provide a
basic framework that defines the relationship among the three spheres of
government.
5.3. The environment of the financial management of the municipalities is regulated

by a host of legislation, regulations, government policies and the Constitution.
Combination of these legislative instruments has a potential to create confusion
and misinterpretation. They set a scene of a complex legislative environment for
the municipal officials, municipal managers and other senior officials more
especially those who do not have formal legal schooling or background. This
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training programme will offer the municipal officials and political executives a
perfect opportunity to have a lucid, coherent and clear understanding of the legal
connections and networks of financial management. Therefore, the training
programme would profess a commitment to support municipal officials to be
efficient, effective and competent leaders of municipal financial management.
6. LEARNER EXPECTATIONS AND ORGANIZATION

EXPECTATIONS
6.1. Learners are expected to gain a sound knowledge, systematic, coherent and
understanding of the dynamics of the local government law especially the
Municipal Finance Management Act, 2003, the Municipal Systems Act, 2000, the
Municipal Property Rates Act, 2004, the annual Division of Revenue Act, the
1996 Constitution etc and the government policies and regulations impacting on
the municipalities. Equally so, the national government particularly the National
Treasury and the department of Provincial and Local Government and the
municipalities would expect the training programme on the MFMA
implementation to enhance and raise the level of awareness and capacity of the
municipal officials regarding the domain of the financial management.
7. LIST OF FREQUENTLY ASKED QUESTIONS (FAQ) BY

LEARNERS
7.1. National Treasury website under Portal, Training and Validation will provide most
answers to queries, www.treasury.gov.za/legislation/mfma .
8. CONTENT
8.1. RESOURCES FOR THE FACILITATOR
8.1.1. Each module of a training-learning programme is provided with a Study Guide

which serves as a resource of the facilitator. Other resources of the facilitator will
include training aids such as the overhead projector, flip charts, further reading
materials etc.
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8.2. DETAILED INSTRUCTION TO LEARNER
8.2.1. The policy rationale for the study and training materials of the MFMA
implementation is to provide learners with both practical and theoretical
foundations and issues relating to the legal implications and consequences on
the regime of municipal finance management, the nature of local government
laws and constitutional systems, the relationship between the three spheres of
government and mechanisms and processes for the procurement of sound
financial management in a municipality. This training programme involves
understanding and use of legal theories and findings in their application to local
government law. In an attempt to understand the overall objectives of the MFMA
in particular and other relevant public sector laws, learners are urged to attend
all the training sessions.
8.2.2. The training programme must be construed as activity, which requires learners
to study independently, to achieve the outcomes and to work according to target
dates, thus developing a learner autonomy. Learner’s Guide and time schedules
contain information on dates for contact meetings and training sessions, the
preparation of study activities, for contact sessions, submission dates for
assignments, practical or tutorial sessions examination dates etc. Learners are
advised to stick and adhere to time schedules for the purpose of the training
programme.
8.2.3. The essence of the MFMA training programme is basically to ensure that on
completion of this programme, a learner should be efficient, competent and
someone who understands and master a wide range of the MFMA and the other
legal dynamics of financial management. In order to achieve this noble objective,
it is imperative that a learner should at the outset appreciate and embrace the
spirit in which the training programme was crafted, to provide the learner with
competencies to interpret, analyse and understand financial management of the
municipality in order to achieve the strategic goal of a municipality. In the
premises, learners from the municipalities are required to be very diligent and
disciplined force for the programme to be successful.
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8.3. CHECKLIST FOR THE ACTIVITIES
8.3.1. The facilitator, National Treasury, LGSETA and other stakeholders, who have
vested interest in the programme, would closely monitor various training
activities. It is for this reason that checklist for each activity will always be
provided to the learners. Therefore, the training activities would cover among
many others, the checklist(s) for assignments, class-attendance, written tests or
examination etc. Some of the checklists(s) which are not contained in this
Facilitator’s Guide will be provided to learners (if the need arises) during the
course of the training session. The checklists outlined below are not exact in
terms of a number of the learners expected to submit assignments and write
examinations. They serve as the examples or models of the required checklists.
8.3.2. Checklist for Attendance of Training Sessions
Name of Facilitator:
Date of Training Session:
Venue:
LEARNER’S PARTICULARS
No Surname Initials Workstation of a Signature

Municipality
1.
2.
3.
4.
5.
6.
7.
8.
9.
10.
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8.3.3. Checklist for Submission of Assignments
Name of Learner:
Municipality:
Title of Assignment:
Date of Submission:
Validation of Assignment:
Current Sufficient Valid Authentic
The submitted document meets the requirements
Yes No
Remarks
Signature of Facilitator Date
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8.3.4. Checklist for Written Examination
Venue of Examination:
Seat number:
Date:
Names of
Invigilator(s) 1 2 3
No Surname Signature
1.
2.
3.
4.
5.
6.
7.
8.
9.
10.
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8.4. SUB-SECTION OF UNIT STANDARD
8.4.1. Unit Standard No. 116344
Unit Standard Title: Application of the Intergovernmental Fiscal Relations

Act to Municipal Finance Management
the Legislative Requirements for Co-operative Government at Local

Government Level
the Constitutional Provisions Regulating Provincial Supervision of Local
Government
the Legislative Requirements of the Division of Revenue Process and
Intergovernmental Transfers to Local Government
the Conditions of Intergovernmental Transfers to Local Government
Legislation Governing Municipal Borrowing Powers
8.5. ALTERNATIVES TO EXERCISES AND ADDITIONAL EXERCISES
8.5.1. At least one opportunity for integrated assessment or group assessment and oral
presentation will be provided, where the main objective and key purpose is to
give learners alternative exercises. Learners will be given an authentic
assessment. For example, they will be given a work related project.
8.6. STANDARDISED TERMINOLOGY
8.6.1. This refers to a terminology agreed upon and frequently used in the study guide.
For example, the standardized terminology of the study guide referred to in this
Facilitator’s Guide include words such as formative assessment, summative
assessment, case studies, unit standard, study unit, learning unit etc.
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8.7. ASSESSMENT
8.7.1. Assessment Guidelines
8.7.1.1. Assessment is twofold in nature and amounts to formative or continuous

assessment and summative assessment or final examination. Assessment
instruments adhere to the requirements of the relevant NQF level.
8.7.1.2. Formative assessment
Formative or continuous assessment serves as a monitoring instrument to

enable learners to determine their progress in the learning process and to
enable facilitators to determine the effectiveness of training in order that
adjustments can be made in time to make training and learning process more
effective. During the course of training session, a learner would be
consistently and continuously assessed on the knowledge and skills
acquired. This assessment would be in the form of assignments, self-
assessment, exercises, practical work etc. All the assignments and
assessment evidence collated and collected will constitute a portfolio of
evidence. At the end of all the activities of formative assessment, a learner
will be legible for summative assessment.
8.7.1.3. Summative Assessment
A summative assessment will be conducted in the form of written

examination at the end of skills and training programme. This examination or
summative assessment consists of a three-hour paper worth 100 marks.
Learners need a minimum of 50% for the examination. A memorandum with
correct and/or examples of model answers is compiled for every formal
formative and every summative assessment activity undertaken by learners.
Both the marker and moderator would utilise the memoranda for formal
formative and summative assessment activities effectively as monitored by
means of moderation activities.
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8.8. RANGE OF QUESTIONS FOR KNOWLEDGE TESTS AND OTHER

ASSESSMENTS
8.8.1. The unit standard articulated in this Facilitator’s Guide covers a wide range of
the learning tasks and activities. These learning activities contain both case
studies and questions for practice and knowledge tests. Learners are advised to
refer to the study guide for the purpose of reading and answering these
questions and case studies. This Facilitator’s Guide also provide possible
answers and questions in item 8.14.
8.9. LEARNER SUPPORT AVAILABLE
8.9.1. The immediate leaner’s support material available is the study guide, Leaner’s
Guide and the Facilitator’s Guide developed and prepared by the National
Treasury. The role played by the facilitator in the training must also be construed
as an important activity of support.
8.10. FEEDBACK
8.10.1. Learners are expected to give a feedback in a form of writing the assignments,
tests, research projects and final examination. These modes of testing would
serve as a response of learners to the facilitator and their respective
municipalities, the National Treasury and other interested groups. The facilitator
is also expected to give learners a feedback in respect of their assignments and
other modes of assessment.
8.10.2. Internal Feedback Process
8.10.2.1. Learners are entitled to feedback on all assessments in a reasonable period

except the final assessment (examination) on a module. Feedback would cover
the learning activities of the learners and classroom participation. Learners
would be required to actively take part in the training scheme of things and
processes. In so doing, learners would give a feedback to their facilitator through
their comments, individual and group presentation and so forth.
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8.10.3. Feedback to LGSETA
8.10.3.1. Records of summative assessments (examination papers, memoranda, answers

to papers, mark sheets etc) will be given to the LGSETA.
8.11. COURSE DEVELOPMENT MATRIX TEMPLATE
Module Title Legislative Environment and Policy

Unit Standard Application of Intergovernmental Fiscal relations Act,
1997 to Municipal Financial Management
Purpose of Matrix To introduce practitioners within local government,
including senior officials in municipalities to the
dynamics of the intergovernmental fiscal relations.
8.12. PORTFOLIO OF EVIDENCE GUIDELINES
8.12.1. All the assessment reports, records of feedback from a facilitator and other
related information should be kept by a learner in a Portfolio Evidence. All these
records will serve as evidence to LGSETA. LGSETA requires portfolio
assessment for this unit standard. All evidence produced by the learner should
be compiled and kept by the learner in a Portfolio of Evidence.
8.13. MODERATOR’S REPORT
8.13.1. The moderator’s report covers the validity of the assessment instruments,
performance of the learners, standard of learner’s competencies and reliability of
the marking. The following moderator’s reports are essential instruments of
moderation activities.
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8.13.2. Concept Moderator’s Report
8.13.2.1. Examination Paper and Memorandum
This is the moderator’s report on the moderation paper and memorandum

before learners write the paper. The moderator must receive the study guide
that is used for the module and an assessment plan for the module. He or
she must also receive the examination paper and memorandum.
1. Qualification:
2. Unit Standard Title:
3. Examiner:
4. Moderator:
5. Duration of Examination Paper:
Please answer the following questions by adding (√) or (x) in the appropriate
block.
6. The questions in the examination paper assess the module outcomes

as mentioned in the study guide.
Yes
No
Remarks:
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7. The questions in the examination paper are appropriate for

Summative assessment if the assessment plan for the module is kept
in mind.
Yes
No
Remarks:
8. The questions in the examination paper assess knowledge and skills

at the appropriate level.
Yes
No
Remarks:
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9. An appropriate variation of question types is used in the examination

paper to accommodate the diversity in the learning style of learners.
Yes
No
Remarks:
10. The awarding of points or marks is suitable and clearly visible on the
paper and the totals are correct.
Yes
No
Remarks:
11. The awarded time for answering the exam is suitable.
Yes
No
Remarks:
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12. The language use for the exam paper is suitable (e.g. the correctness
of spelling and grammar, clarity of questions).
Yes
No
Remarks:
13. The general impression one gets of the appearance (page layout and
quality of printing) is suitable.
Yes
No
Remarks:
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14. The memorandum is complete (proposed answers/assessment criteria

for all questions and clear indication of how points are awarded).
Yes
No
Remarks:
15. The memorandum is suitable/fair. (As many as possible suggested

answers are provided and the marker have clear instructions to apply
discretion where applicable).
Yes
No
Remarks:
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16. Are there any remarks you would like to make about the exam paper
and/ or memorandum?
Remarks:
Initials and surname of Signature of Moderator Date

Moderator
8.13.3. Moderation of Answer Books
8.13.3.1. This part of the report has to be filled in by the moderator after having moderated
answer books completed by learners.
1. The marks are added correctly and further calculations are done
correctly,
Yes
No
Remarks:
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2. The marker uses the memorandum appropriately (discretion is used

when applicable) and the marking is fairly and consistently performed.
Yes
No
Remarks:
3. The distribution of marks for the paper is appropriate.
Yes
No
Remarks:
4. Please indicate how many books and/ or questions you have

moderated.
Yes
No
Remarks:
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5. Do you have any other remarks about the marketing?
Remarks:
Initials and surname of Signature of Moderator Date

Moderator
8.14. POSSIBLE SOLUTIONS AND ANSWERS
Module Title Legislative Environment and Policy

Unit Standard Application of Intergovernmental Fiscal relations Act,
1997 to Municipal Financial Management
Qualification Certificate: Municipal Financial Management
8.14.1. Unit One: Legislative Requirements for Co-operative Government at Local

Level
8.14.1.1. Case Study 1: Promotion of the Municipal Policy to be consistent with the Macro-
Economic Objectives of the National Government
Economists usually distinguish five micro-economic objectives, which a

municipality can use to judge and shape its policy to promote the
performance of the economy namely: economic growth, full employment,
price stability, balance of payments (or external stability) and equitable
distribution of income and wealth.
The municipal manager of XYZ local municipality must ensure that his
municipality embark on a sound financial management for the economic
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growth. The methods of expenditure and the use of resources by XYZ

municipality must reflect the spirit of the objectives of the micro-economic
goals. XYZ local municipality must strive towards the creation of jobs through
their resources. Prudent and efficient use of funds, for example by XYZ local
municipality can contribute meaningfully towards the job creation and
economic growth.
The XYZ municipality must treat local residents equally and equitably within
the ambit of the law. A highly unequal distribution of wealth or income tends
to generate social and political conflicts. In extreme cases, it may increase
the level of crime. The XYZ local municipality must adopt a strategy of
equitable or socially acceptable distribution of wealth to avoid the unintended
results of social ills and crime. Inflation makes it so difficult to plan for the
future. For example, it will be difficult for the XYZ local municipality to decide
how much money should be put aside to provide for road infrastructure in an
inflationary environment.
Therefore, the municipal manager must strictly adhere to the national
government and Reserve Bank principles and plans that control the inflation
because the inflation may strain the XYZ local municipality’s social structure
and resources. The national government must ensure that the balance of
payments and exchange rates are stable. Therefore, the XYZ local
municipality must also be aware of this objective when structuring its budget
and expenditures.
The XYZ local municipality must consider the future implications of the
municipal legislation and relations in establishing their revenue instruments
and policies, budgeting, accounting and financial reporting system. For
example, the XYZ local municipality must ensure that rates and tariff
increase are thoroughly substantiated in the municipal budget documentation
for consultation with the community. Therefore, the XYZ local municipality is
obliged to structure and manage its administration, budgeting and planning
process in such a way as to give priority to the basic needs of its community
and the macro-economic objectives. In order to achieve these goals, the XYZ
local municipality is obliged to participate in national and provincial
development programmes.
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8.14.1.2. Questions for Practice
Question 1: Municipal Finance Management and External Auditing
Unqualified audit opinion: In compliance with the 1996 Constitution, the

Auditor-General Act, 1997 the Municipal Finance Management Act, 2003,
the Auditor-General audits against financial management standards to
which municipalities have to adhere to. If they do so successfully, they
receive an “unqualified audit opinion”, the highest accounting recognition
a municipality can receive;
In case of the qualified audit report, the effect is not so material and
pervasive and/or fundamental as to require disclaimer opinion;
Disclaimer: Disclaimer is an audit opinion, which says a municipality has
insufficient controls and problems with documentation and reconciling
accounts. Disclaimer audit opinion is actually when the effect of financial
management is so material and pervasive and/or fundamental that the
auditor is unable to express an opinion.
Question 2: Co-ordination between National, Provincial and Local

Governments on Fiscal and Financial Matters and Budgeting Issues
Constitution: The Constitution as the supreme law of the country lays a

strong basis, which governs the relationship between the three spheres
of government namely, national, provincial and local governments.
Section 214 lays down rules under which revenue raised nationally must
be distributed among the three spheres of government. Chapter 3 of the
Constitution makes arrangement on how the three spheres of
government must operate and how they should relate to each other.
For example, section 41 of the Constitution states inter alia that all
spheres of government and all organs of government within each sphere
must inter alia co-operate with one another in mutual trust and good faith
by fostering friendly relations, informing one another, avoiding legal
proceedings against one another etc. Specific provisions are included in
the Constitution to assist the co-ordination of the three spheres of
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government. In this regard, section 100 of the Constitution provides for

national government intervention in provincial administration if a province
cannot fulfil an executive obligation in terms of the Constitution or
legislation. On the other hand, section 139 of the Constitution provides for
provincial government intervention in local government in the same way
that national government could intervene in provincial government.
Intergovernmental Fiscal Relations Act, 1997: The Intergovernmental
Fiscal Relations Act, 1997 defines the parameters of the relationship
among the three spheres of government on fiscal and financial matters.
The Act promotes co-operation between the national, provincial and local
spheres of government on: fiscal and financial matters, budgeting issues,
determination of an equitable sharing and allocation and
recommendations of the Financial and Fiscal Commission on equitable
division of revenue.
The Intergovernmental Fiscal Relations Act, 1997 further promotes co-
operative budget preparation and established both the Budget Council
and Local Government Budgeting Forum. The Minister of Finance and
the nine provincial members of the executive Councils for finance must
co-ordinate budgeting and financial matters through the Budget Council.
Budget forum enables the three spheres of government and organised
local government to consult on: any fiscal, budgetary or financial matters
of the municipalities, financial management and monitoring of finances.
Municipal Finance Management Act, 2003: The Municipal Finance
Management Act, 2003 inter alia defines the scope of the relationship
among the three spheres of government. This Act fosters a greater level
of co-operation across and within the different spheres of government
based on: a system of mutual support, information sharing and
communication and co-ordination of activities. The Municipal Finance
Management Act, 2003 requires national and provincial spheres of
government to meet financial commitments of municipalities.
On the other hand, municipalities must provide other municipalities,
provincial and national governments with certain performance, budget
and financial information. For example, the Act requires Mayor to report
to the national and provincial governments at any time when
municipalities do not comply with the provisions of the Act and the
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Constitution. The Act also prescribes the process of intervention by the

province and the National Treasury into the financial affairs of the
municipalities.
8.14.2. Unit Two: Constitutional Provisions Regulating Provincial Supervision of

Local Government
8.14.2.1. Case Study 1: Provincial Intervention
Section 139 of the Constitution:
The MEC for local government will rely on section 139 of the Constitution
to intervene in the affairs of the Y municipality. The Constitution provides
that relevant provincial executive can intervene when a municipality
cannot or does not fulfil an executive obligation. The MEC for local
government can also rely on the Municipal Structures Act, 2000 and the
Municipal Finance Management Act, 2003 to intervene in the affairs of
the Y municipality in question. Municipal Structures Act, 2000 imposes a
duty on the province to monitor local governments (municipalities). On
the other hand, the Municipal Finance Management Act, 2003 provides a
framework for provincial intervention. Both the Constitution and the
Municipal Finance Management Act, 2003 prescribes steps, which the
MEC can take, in particular: the issuing of a directive, the assumption of
responsibility and the dissolution of a municipality.
Involvement of Cabinet and National Council of Provinces: If the
provincial MEC intervenes in the affairs of the Y municipality, he or she
must inform the cabinet through the Minister responsible for local
government. The Minister must approve the intervention within 28 days
after the intervention began. The intervention will end automatically if the
Minister has not approved the intervention. The MEC of X province will
also be required to notify the National Council of Provinces (NCOP) and
request its approval. It is in this spirit that the NCOP has an oversight role
over the municipalities. The NCOP must approve the intervention within
180 days after the intervention began. The intervention will end
26
automatically if the NCOP has not approved the intervention or has

disapproved it.
8.14.2.2. Case Study 2: Dissolution of a Municipality
In the circumstances of the Thandabantu local municipality, the MEC for local
government erred in all respects by his failure to inform the NCOP and the
Minister responsible for local government. Therefore, he or she did not follow
the proper procedure prescribed by the 1996 Constitution and the Municipal
Finance Management Act, 2003. The Constitution requires the MEC to
submit notice of the dissolution of the Thandabantu local municipality to the
cabinet minister responsible for local government, the relevant provincial
legislature and the NCOP. The dissolution must take effect 14 days from the
date of receipt of the notice by the Council unless set aside by that cabinet
member or the NCOP before the expiry of those 14 days.
Question 1: Legislative Requirements Governing National Treasury
The regime of the National Treasury is governed inter alia by the 1996
Constitution, the Public Finance Management Act, 1999, the Municipal
Finance Management Act, 2003 and the annual Division of Revenue Act.
Constitution: The National Treasury is a creature of the Constitution. The
Constitution, especially section 216 compels a National Treasury to
prescribe measures to ensure both transparency and expenditure control
in each sphere of government by introducing generally recognised
accounting practice, uniform expenditure classifications and uniform
treasury norms and standards. The National Treasury must be
established by legislation to prescribe the above measures. This
legislation is the Public Finance Management Act, 1999. The National
Treasury is constitutionally obliged to enforce compliance with the
measures established. The Treasury may also with the concurrence of
the cabinet, stop the transfer of funds to an organ of state or a
27
municipality if it commits a serious or persistent material breach of

measures established in terms of the Constitution.
Municipal Finance Management Act, 2003: This Act involves the National
Treasury in the financial affairs of the municipalities. This Act requires the
National Treasury to inter alia ensure that the directives prescribed by the
Constitution and the Municipal Finance Management Act, 2003 are taken
into account by the municipalities. The National Treasury enforces
compliance with the measures of accounting practice, expenditure
classifications and treasury norms and standards, monitor the budgets of
municipalities etc.
Public Finance Management Act, 1999: This Act establishes the National
Treasury and sets out its functions and powers. In terms of the Public
Finance Management Act, 1999, the National Treasury must inter alia:
promote the national government’s fiscal policy framework, promote the
co-ordination of macro-economic policy, co-ordinate intergovernmental
financial and fiscal relations, manage the budget preparation process,
prescribe uniform treasury norms and standards etc.
Annual Division of Revenue Act: This annual piece of legislation provides
for the allocation of funds among the three spheres of government as
required by the Constitution. The Act allows the National Treasury after
consultation with the national accounting officer responsible for local
government to delay or withhold the transfer of equitable share. The
National Treasury can only do so on a ground of serious material breach
of uniform treasury norms and standards which require the municipalities
to inter alia submit to the National Treasury its budget for the financial
year. The municipal budget must include information on basic services as
well as free basic services, information on the implementation of budget
and actual revenue collected etc.
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8.14.3. Unit Three: Legislative Requirements of the Division of Revenue Process

and Intergovernmental Transfer to Local Government
8.14.3.1. Case Study 1: Allocation of Funds
Equitable share: The equitable share grant under discussion should be

utilised by a municipal manager to supplement a municipality’s revenue to
deliver services to poor households. Therefore, a municipality must use part
of equitable share grant to finance its indigent policies. This grant has the
Basic Services component (BS) which is intended to enable a municipality to
provide basic and free services such as water and electricity to the poor. For
example, the grant supports among many other things, poor households
earning less than R800-00 per month. However, this threshold or limit may
differ from one municipality to another. The development component would
further play a pivotal role in development needs of a municipality.
Infrastructure Grant: The municipal manager of the receiving municipality in
question must use the infrastructure grant to enable municipal infrastructure
to address backlogs in infrastructural projects required for the provision of
basic services. A municipality must use this type of a grant to build roads,
houses, sporting facilities and infrastructure for water and sanitation.
Capacity-building grant: The municipal manager of a receiving municipality
under discussion is required to use this allocation for development and
improvement of municipal systems and the capacity of a municipality to
perform functions assigned to it. The Mayor when using capacity-building
grant must take into account the requirements for implementing the Municipal
Systems Act, 2000 and the Municipal Finance Management Act, 2003
including integrated planning, performance management, financial
management, budgeting considerations and the need for development of
capacity of a municipality in measurable ways. It is therefore prudent that the
municipal manager in question use the capacity-building grant to pay for
training and mentoring of municipal officials and also use it to build capacity
areas such as planning and financial management.
29
8.14.3.2. Case Study 2: The Process of Intergovernmental Transfers
Mr Didima has a valid point. The division of revenue is a process of

intergovernmental transfers. This process entails steps, which must be
followed by the Minister of Finance before the annual Division of Revenue
Act is passed together with a budget. The Intergovernmental Fiscal Relations
Act, 1997, regulates the process that determines how national government
arrives at a division of national revenue among the three spheres of
government. This Act requires that at least ten months before the start of a
financial year, the Financial and Fiscal Commission makes recommendations
to the Minister of Finance in respect of the division of revenue raised
nationally among national, provincial and local spheres, the determination of
each province’s equitable share and any other allocations to local
government or municipalities.
Before introducing the Division of Revenue Bill in Parliament, the Minister of
Finance consults the Budget Council, the Budget Forum and the Financial
and Fiscal Commission. The Minister must also consult with the provincial
and local governments. The Budget Council also plays a pivotal role in the
process of transferring local government grants. Both the national and
provincial governments must consult on any fiscal, budgetary and any
financial matter affecting the division of revenue.
The Budget Forum also plays an important role in the process of revenue
sharing. When the Minister of Finance introduces the annual budget, he or
she must introduce in the National Assembly the Division of Revenue Bill for
the financial year to which the budget relates. The Division of Revenue Bill
must specify the share of each sphere of government of the revenue raised
nationally for the relevant financial year, each province’s revenue, any other
allocations to provinces and local government or municipalities and any other
conditions on which those allocations must be made.
30
8.14.4. Unit Four: Conditions of Intergovernmental Transfer to Local Government
8.14.4.1. Case Study 1: Conditions of Intergovernmental Grants
Certainly, the announcement of the Mayor is in conflict with the conditions of

the Infrastructure Grant. The relevant grant for the training of the municipal
administrative staff, the councillors and the municipal manager of the Mahao
district municipality is the capacity-building grant. This grant must be used to
pay for training and mentoring of the Mahao district municipality. It must also
be used to build capacity in areas such as planning and financial
management.
It is therefore proposed that the Mahao district municipality used its
infrastructure grant for the purpose of development of municipal
infrastructure to address backlogs in municipal infrastructure required for the
provision of basic services. The Mahao district municipality must use the
infrastructure grant to build inter alia roads, houses, sporting facilities and
infrastructure for water and sanitation.
Equitable Share: The Mahao district municipality must use its equitable share
to provide basic and free services to the poor. This allocation supports poor
households earning less than R800-00 per month (more or less depending
on the threshold of a particular municipality). Generally speaking, allocation
of equitable share is by its nature an unconditional grant. However, there are
certain legislative and constitutional conditions, which are attached to the
allocation of equitable share.
For example, in terms of section 216 of the Constitution, the National
Treasury may stop transfer of equitable funds to an organ of state if the
organ of state (including a municipal entity) commits a serious or persistent
material breach of measures of generally recognised accounting practice,
expenditure classifications and uniform treasury norms and standards. In
terms of the Municipal Finance Management Act, 2003 the National Treasury
may also stop the transfer of funds if the municipality fails to comply with any
conditions subject to which the allocation is made.
Beside the conditions introduced on the landscape of equitable share by the
legislation, other conditions derive from the municipal budget window. For
31
example, funding or budget window portions of equitable share that are each
intended for different funding purposes and each use a different set of
allocation criteria or formulae. The Mahao district municipality is required to
report to national and provincial authorities as well as its residents on how it
used the Budget Window funds and passed the benefits to the poor.
8.14.4.2. Case Study 2: The Arena of I-Grant and S-Grant
The Mayor of the Ntuli municipality is expected to propose the use of I-grant
and S-grant to the Council as follows;
S-Grant: Firstly, the Council of Ntuli municipality must appreciate the fact that
the S-grant is pro-poor type of a grant. It intends to provide poor households
with free basic services such as water and electricity.
I-Grant: The I-grant is an attempt to facilitate the establishment of effective
and democratic local government. It is often referred to as a restructuring
grant. Both the S-grant and the I-grant are supposed to influence the Ntuli
district municipality to provide additional public services to poor households
and facilitate the creation of the infrastructure needed to set up democratic
government at the local sphere. The Ntuli district municipality must use both
the I-grant and the S-grant to alleviate households hunger and the ravages of
poverty.
8.14.5. Unit Five: Legislation Governing Municipal Borrowing Powers
8.14.5.1. Case Study 1: Practices under which a Municipality may Incur Debt
Both the municipal manager, Mr Direko and the Mayor did not comply with
the requirements of the Municipal Finance Management Act, 2003 regarding
the acquisition of a loan of R2 million. The Act clearly prescribes and defines
the basic “rules of game” namely, that a municipality must observe and
adhere to these rules when it is involved in borrowing business. In terms of
the Municipal Finance Management Act, 2003 before a municipality may
incur a debt (either short-term or long-term debt) it is required to obtain a
prior resolution and approval of the Council signed by the Mayor and the
accounting officer.
32
In the circumstances of the Moeng local municipality, the procedure followed

by both the municipal manager and the Mayor was flawed and irregular
because they did not obtain a prior approval of the Moeng Council signed by
the Mayor and the accounting officer.
Question 1: Municipal Borrowing
The Constitution contains specific provisions, which regulate the

borrowing powers of the municipalities. The Municipal Finance
Management Act, 2003 also provides a borrowing framework for the
municipalities. This Act creates an environment for financially healthy
municipalities to enter into long-term capital markets. It aims to restore
access to capital markets by clarifying the legislative framework and the
rights of borrowers and lenders. For example, section 49 of the Municipal
Finance Management Act, 2003 requires any person involved in the
borrowing of money by a municipality when interacting with a prospective
lender to disclose all information in that person’s possession or within that
person’s knowledge, which is material to the decision of the prospective
lender or investor.
Such a person must also take a reasonable care to ensure accuracy of
any information disclosed. A lender may reasonably rely on written
representations of the municipality signed by the accounting officer if the
lender or investor did not know that they were false. The Policy
Framework on Municipal Borrowing and Financial Emergencies also
provides a clear framework for municipalities. Without a clear borrowing
framework for municipalities that will encourage private sector lending,
national government will be pressured to bear the full cost of funding
basic municipal infrastructure.
33
8.15. RELEVANT RESOURCE MATERIALS
8.15.1. Articles in Journal
8.15.1.1. De Villiers B “Local-Provincial Intergovernmental Relations: A Comparative

Analysis” 1997 SAPL/PR
8.15.2. Books
8.15.2.1. Case EK and Fair RC Principles of Economics (New York Times Dodgers: USA
1990)
8.15.2.2. Dornbush R and Fischers S Macro-Economics (Johannesburg 1998)
8.15.2.3. Gildenhuys JSH Introduction to Local Government Finance: A South African

Perspective (Van Schaik Publishers: Pretoria 2007)
8.15.2.4. Govender S et al Local Government Fiscal Management and Accountability

Handbook (Open Society for South Africa: South Africa 2004)
8.15.3. Government Circulars
8.15.3.1. MFMA: Circular No 28: Municipal Finance Management Act 56 of 2003
8.15.3.2. MFMA: Circular No 45: Municipal Finance Management Act 56 of 2003
8.15.4. Government Policy
8.15.4.1. Accelerated and Shared Growth Initiative of South Africa 2006
8.15.4.2. Growth, Employment and Redistribution: A Policy Framework 1996
8.15.4.3. National Treasury PPP Manual 2004
34
8.15.4.4. Policy Framework for the Introduction of the Municipal Infrastructure Grant (MIG)
2004
8.15.4.5. Reconstruction and Development Programme: A Policy Framework 1994
8.15.4.6. White Paper on Local Government 1998
8.15.5. Government Regulations
8.15.5.1. National Treasury A Guide to Municipal Finance Management for Councillors

2006
8.15.5.2. Policy Framework on Municipal Borrowing and Financial Emergencies 2000
8.15.5.3. Treasury Regulations for Departments, Constitutional Institutions and Public

Entities issued in terms of the Public Finance Management Act, 1999
8.15.6. Internet Sources (“World Wide Web”)
8.15.6.1. Anon “Municipal Finance” file://F;equitable share.htm [Access Date: 20 February

2008]
8.15.7. Legislation
8.15.7.1. Auditor-General Act 12 of 1997
8.15.7.2. Constitution of the Republic of South Africa Act 108 of 1996
8.15.7.3. Division of Revenue Act (enacted annually)
8.15.7.4. Intergovernmental Fiscal Relations Act 97 of 1997
8.15.7.5. Intergovernmental Relations Framework Act 13 of 2005
8.15.7.6. Local Government: Municipal Finance Management Act 56 of 2003
35
8.15.7.7. Local Government: Municipal Property Rates Act 6 of 2004
8.15.7.8. Local Government: Municipal Systems Act 117 of 1998
8.15.7.9. Local Government: Municipal Systems Act 32 of 2000
8.15.8. Periodicals
8.15.8.1. Department of Provincial and Local Government Intergovernmental Co-operation

and Agreements-An Introduction 2007
8.15.8.2. Department of Provincial and Local Government Practitioner’s Guide

Intergovernmental Relations in South Africa 2006
36

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Municipal legislative environment and policy

Unit Standard Title

Notwithstanding the above limitations, National Treasury encourages those Authorised

MFMA Implementation Unit

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1. A WORD OF WELCOME ................................................................................. 4

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Copyright © National Treasury 2008

1.1. We welcome you to the training programme on Municipal Legislative

3. LEARNER’S GUIDE OR CROSS REFERENCE TO

3.1. A Learner’s Guide is an important fulcrum intended to support and guide a

Copyright © National Treasury 2008

4. PRE-WORKSHOP AND TRAINING PREPARATION

5. POSITIONING AND CONTEXTUALIZING

5.3. The environment of the financial management of the municipalities is regulated

Copyright © National Treasury 2008

6. LEARNER EXPECTATIONS AND ORGANIZATION

7. LIST OF FREQUENTLY ASKED QUESTIONS (FAQ) BY

8.1. RESOURCES FOR THE FACILITATOR

8.1.1. Each module of a training-learning programme is provided with a Study Guide

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8.2. DETAILED INSTRUCTION TO LEARNER

Copyright © National Treasury 2008

8.3. CHECKLIST FOR THE ACTIVITIES

8.3.2. Checklist for Attendance of Training Sessions

No Surname Initials Workstation of a Signature

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8.3.3. Checklist for Submission of Assignments

Current Sufficient Valid Authentic

The submitted document meets the requirements

Signature of Facilitator Date

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8.3.4. Checklist for Written Examination

Copyright © National Treasury 2008

8.4. SUB-SECTION OF UNIT STANDARD

8.4.1. Unit Standard No. 116344

Unit Standard Title: Application of the Intergovernmental Fiscal Relations

 the Legislative Requirements for Co-operative Government at Local

8.5. ALTERNATIVES TO EXERCISES AND ADDITIONAL EXERCISES

8.6. STANDARDISED TERMINOLOGY

Copyright © National Treasury 2008

8.7.1. Assessment Guidelines

8.7.1.1. Assessment is twofold in nature and amounts to formative or continuous

8.7.1.2. Formative assessment

 Formative or continuous assessment serves as a monitoring instrument to

8.7.1.3. Summative Assessment

 A summative assessment will be conducted in the form of written

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8.8. RANGE OF QUESTIONS FOR KNOWLEDGE TESTS AND OTHER

8.9. LEARNER SUPPORT AVAILABLE

8.10.2. Internal Feedback Process

8.10.2.1. Learners are entitled to feedback on all assessments in a reasonable period

Copyright © National Treasury 2008

8.10.3. Feedback to LGSETA

8.10.3.1. Records of summative assessments (examination papers, memoranda, answers

8.11. COURSE DEVELOPMENT MATRIX TEMPLATE

Module Title Legislative Environment and Policy

8.12. PORTFOLIO OF EVIDENCE GUIDELINES

8.13. MODERATOR’S REPORT

Copyright © National Treasury 2008

8.13.2. Concept Moderator’s Report

8.13.2.1. Examination Paper and Memorandum

the Legislative Requirements for Co-operative Government at Local

Formative or continuous assessment serves as a monitoring instrument to

A summative assessment will be conducted in the form of written

This is the moderator’s report on the moderation paper and memorandum

Economists usually distinguish five micro-economic objectives, which a

Question 1: Municipal Finance Management and External Auditing

Unqualified audit opinion: In compliance with the 1996 Constitution, the

Question 2: Co-ordination between National, Provincial and Local

Constitution: The Constitution as the supreme law of the country lays a

Section 139 of the Constitution:

Question 1: Legislative Requirements Governing National Treasury

Equitable share: The equitable share grant under discussion should be

Mr Didima has a valid point. The division of revenue is a process of

Certainly, the announcement of the Mayor is in conflict with the conditions of

In the circumstances of the Moeng local municipality, the procedure followed

Question 1: Municipal Borrowing

The Constitution contains specific provisions, which regulate the