A Guide for Councillors

Understanding the

Municipal Finance Management Act A Guide for Counci l lors

The Role of Councillors in Municipal Finance Management

Understanding the Municipal Finance Management Act

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Understanding the Municipal Finance Management Act

Introduction

An overview The Municipal Finance Management Act (MFMA) was passed to modernise municipal fi nancial management practices. The primary aim of the Act is to make municipal fi nance sustainable so that municipalities can deliver the best services possible to all their residents, customers, users and investors. The MFMA establishes a new legal framework for fi nancial management in municipalities by clarifying and separating the roles and responsibilities of the mayor, executive and non-executive councillors and of fi cials. The Act empowers the mayor (or executive committee) to provide political leadership by being responsible for policy and outcomes. It spells out a legal framework for the municipal manager and other senior managers responsible for implementation and outputs. Non-executive councillors are important in approving policy and play a monitoring role through the Council. The law enables managers to manage, but makes them more accountable by introducing regular and consistent reporting. The MFMA gives expression to the Constitutional provision which obliges all three spheres of government to be transparent about their budget and fi nancial affairs and communicate with their community about progress on service delivery.

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The Role of Councillors in Municipal Finance Management

The Role of Councillors in Municipal Finance Management

Introduction

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Understanding the Municipal Finance Management Act

Understanding the Municipal Finance Management Act

Introduction

Contents Foreword from the Minister of Finance................................................................ ii An overview........................................................................................................iii Introduction to this guide.................................................................................... 1 What is the role of councillors in municipal fi nancial management?....................................... 3 Meet our councillors ...................................................................................................................... 5 How the MFMA helps councillors ................................................................................................. 6 Part 1: What is the MFMA? .................................................................................. 8 Which is best for my community?................................................................................................ 9 1.1 Financial management in local government ...................................................................... 10 1.2 How the MFMA helps councillors ........................................................................................ 12 Working with other spheres of government ............................................................................ 12 Promoting development in communities ................................................................................ 14 Improving service delivery ...................................................................................................... 16 Overseeing municipal activities............................................................................................... 17 1.3 Starting implementation ....................................................................................................... 19 Getting access to reports ........................................................................................................ 19 Progress reports on implementation ....................................................................................... 20 Establishing a Steering Committee......................................................................................... 20 Part 2: Separation of powers in a municipality .................................................. 21 The key to good governance in local government relies on several factors ........................... 21 2.1 Separation of executive and administrative powers ....................................................... 22 Roles and responsibilities in a municipality............................................................................. 23 Councillors ..................................................................................................................... 23 The executive mayor, mayor or executive committee.................................................... 25 The municipal manager ............................................................................................... 25 The chief fi nancial of fi cer ............................................................................................... 26 Senior managers ........................................................................................................... 26 Municipal of fi cials........................................................................................................... 26 Tasks that are delegated................................................................................................ 26 Structures for fi nancial governance ........................................................................................ 27 Council structures .......................................................................................................... 27 The fi nancial governance framework ...................................................................................... 29 Delegation of responsibilities ......................................................................................... 29 2.2 Conclusion............................................................................................................................. 30 Part 3: Political and administrative accountability ............................................. 31 3.1 Planning and accountability ................................................................................................ 32 3.2 Political accountability ......................................................................................................... 33 Setting direction ..................................................................................................................... 33 Setting objectives and priorities ............................................................................................. 34 Establishing fi nance policy............................................................................................. 34

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The Role of Councillors in Municipal Finance Management

The Role of Councillors in Municipal Finance Management

Introduction

3. 3 Administrative accountability ............................................................................................. 35 Overseeing staff ...................................................................................................................... 35 The organisational structure .......................................................................................... 35 Setting the number of staff ............................................................................................ 36 Appointing senior managers .......................................................................................... 37 Appointing other of fi cials................................................................................................ 37 Human resource management ...................................................................................... 38 Overseeing assets, liabilities, revenue and expenditure......................................................... 39 3.4 Fighting corruption ............................................................................................................... 41 Codes of conduct for councillors and of fi cials......................................................................... 41 3.5 Conclusion............................................................................................................................. 42 Part 4: Municipal planning and budgeting ......................................................... 43 4.1 The role of councillors in budgeting .................................................................................. 44 The role of the mayor .............................................................................................................. 44 The role of councillors............................................................................................................. 45 4.2 Linking budgets to municipal plans.................................................................................... 46 Multi-year budgeting ............................................................................................................... 48 Previous year’s budget .................................................................................................. 49 Current year’s budget .................................................................................................... 49 The forthcoming medium-term budget ........................................................................... 51 The budget cycle..................................................................................................................... 51 Implications for councillors for each step in the process................................................ 52 4.3 Voting on the budget ............................................................................................................. 54 4.4 Conclusion.............................................................................................................................. 55 Part 5: Delivering services ................................................................................ 57 5.1 Service delivery and budget implementation plan (SDBIP) .............................................. 57 Why have an SDBIP? ............................................................................................................. 59 5.2 Mechanisms for providing services ..................................................................................... 61 Internal service delivery ........................................................................................................ 61 External service delivery ......................................................................................................... 61 5.3 Supply chain management................................................................................................... 63 5.4 Conclusion............................................................................................................................. 65 Part 6: Using reports and resolving financial problems ..................................... 67 6.1 Using fi nancial statements................................................................................................... 67 Financial statements ............................................................................................................... 68 The Auditor-General’s report................................................................................................... 70 The annual report.................................................................................................................... 70 The oversight report ................................................................................................................ 70 6.2 Resolving fi nancial issues ................................................................................................... 71 What kinds of problems are considered serious? ................................................................... 71 Financial problems in a municipal entity ................................................................................. 73 6.3 Conclusion.............................................................................................................................. 73 Useful resources and references ............................................................................................ 74

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Understanding the Municipal Finance Management Act

Introduction

Introduction to this guide This Guide builds on the knowledge of councillors to ensure that they are aware of their rights and obligations under the legislation to help manage the affairs of their municipality. It is a summarised and illustrated version of an earlier National Treasury publication called “A Guide to Municipal Finance Management for Councillors”, often referred to as the “Pocket Guide for Councillors”. It is used to explain the Municipal Finance Management Act, which was also produced in a pocket-sized version, referred to as the “Pocket MFMA”. The Guide is written as a practical and user-friendly document to help councillors better understand the Municipal Finance Management Act (MFMA). It explains a councillor’s role in the budget process, in fi nancial management, in using certain fi nancial reports and in the process of purchasing goods and services for the municipality. It also provides information on the relationship between a councillor, the municipal manager and of fi cials of the municipality in terms of municipal fi nancial management.

The Pocket Guide for Councillors and The Pocket MFMA

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The Role of Councillors in Municipal Finance Management

The Role of Councillors in Municipal Finance Management

Introduction

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The Guide is in six parts, as follows: Part 1 – What is the MFMA: This provides an overview of what the legislation intends to do and how it helps councillors Part 2 – Separation of powers in a municipality: This explains the new fi nancial governance framework by clarifying and separating the roles and responsibilities of the mayor, executive and non-executive councillors and of fi cials Part 3 – Political and administrative accountability: This provides details of what things councillors should and shouldn’t do under the MFMA Part 4 – Municipal planning and budgeting: This explains the budget process and its linkages toother strategic plans suchas the integrated development plan (IDP) Part 5 – Delivering services: What must be done to implement the budget using the service delivery and budget implementation plan (SDBIP) Part 6 – Using reports and resolving fi nancial problems: What reports must be made available to councillors, what to look for in these reports and how to resolve fi nancial problems

The nature of governance Financial governance is marked by many important things, not least of which is a higher expectation by the public of fair delivery of services, more effective community consultation and greater levels of transparency and accountability in all dealings. People rightly demand high levels of professionalism, integrity and leadership from their elected councillors and seek adequate safeguards that their municipality is working ef fi ciently and effectively and in the interest of the people it serves. This is explained in more detail in the next chapter.

HAVE YOU RECEIVED YOUR POCKET GUIDES?

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Understanding the Municipal Finance Management Act

Understanding the Municipal Finance Management Act

Introduction

What is the role of councillors in Municipal Financial Management?

Three important aspects of the mandate of all councillors are to: act as a representative of the community that they serve provide a leadership role in council act as custodians or guardians of the municipality’s fi nances. This requires all councillors to: • • •

participate in determining the strategic direction of the municipality

make decisions on policy

pass by-laws

pass the municipal budget

approve the setting of rates and other taxes

approve loans where necessary

ensure that they represent to council the needs of their ward

ensure that they comply with all aspects of the MFMA to safeguard the municipality’s resources.

Councillors must be in a position to analyse the needs of their community and gauge the strategic impact of decisions taken by the council to support the community in different ways.

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The Role of Councillors in Municipal Finance Management

The Role of Councillors in Municipal Finance Management

Introduction

The Constitution requires that municipalities are democratic and accountable and that they encourage community involvement in their actions. The council must ensure that the municipality is fi nancially sustainable and provides services in an equitable manner. It must plan for development and future requirements, provide infrastructure and manage, develop and improve resources that are available to the council. Put simply, council must ensure that expenditure matches revenue at all times. A councillor must be aware of the developmental and service priorities of the municipality and the condition of the fi nances of the municipality so that they can adequately address the needs of the community.

Councillors are required to:

examine options to improve the fi nancial sustainability of the municipality examine the fi nancial and technical viability of projects and initiatives

• • • •

look at ways to fund services, especially free basic services maintain ef fi cient and effective value for money operations.

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Understanding the Municipal Finance Management Act

Understanding the Municipal Finance Management Act

Introduction

Meet our councillors Thandi, Johan, Nolisa and Si fi so are ward councillors at a medium-sized local municipality called Iketseseng.

HULLO, I ‛ M JOHAN I AM A NEW COUNCILLOR. I AM DETERMINED TO UNDERSTAND THE LEGISLATION I NEED TO KNOW SO THAT I CAN CARRY OUT MY RESPONSIBILITIES AS A COUNCILLOR.

DUMELANG, I ‛ M NOLISA. I WANT A GOVERNMENT THAT REMAINS FAIR AND HONEST. IT MUST SERVE THE PEOPLE AND SUPPORT THE CONSTITUTION.

HI GUYS! I ‛ M SIFISO. I WANT TO MAKE SURE THAT THE MUNICIPALITY IS SEEN TO BE SERVING THE NEEDS OF THE PEOPLE. THE PEOPLE NEED GOOD, AFFORDABLE SERVICE DELIVERY!

HI, I AM THANDI. I AM PROUD TO SERVE MY COMMUNITY. I BELIEVE THAT PEOPLE NEED TO HAVE A SAY IN MATTERS THAT AFFECT THEIR DAILY LIVES.

Good Governance: Good governance is when the government manages its resources ( fi nances, buildings, equipment) well and carries out policies in a way that meets the needs of the people it serves and provides good value for money to its citizens.

The Municipal Financial Management Act 2003 (MFMA) is one of the pieces of legislation that can help local government promote good governance in municipal councils.

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The Role of Councillors in Municipal Finance Management

The Role of Councillors in Municipal Finance Management

Introduction

How the MFMA helps councillors Councillors are democratically elected. They have the right and responsibility to govern in a way that meets the needs of the communities that elected them. The municipality’s duty is to use the taxpayers’ money responsibly and to ensure that community needs are met in a cost-effective way. The law gives councillors the power to provide leadership and give direction to the municipality. They ensure that the municipality serves the citizens of that area properly.

THIS LAW HELPS MAKE SURE THAT THE MUNICIPALITY USES TAXPAYERS ‛ MONEY RESPONSIBLY.

WE CAN USE IT TO CHECK THAT MONEY IS USED TO MEET THE NEEDS OF THE COMMUNITY.

ALL MUNICIPALITIES HAVE TO COMPLY WITH THE MFMA. COUNCILLORS CAN USE THIS LAW TO HOLD MUNICIPAL OFFICIALS ACCOUNTABLE.

IT CAN REALLY HELP US TO ENSURE THAT SERVICE DELIVERY IS IMPROVED.

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Understanding the Municipal Finance Management Act

Introduction

Councillors can get a copy of the MFMA from their mayor or municipal manager. It is also available on the National Treasury website at www.treasury.gov.za/mfma/

Councillors make policy decisions for the area that they serve. These policies guide the administration in spending and managing the fi nances of the municipality. Councillors have a duty to make sure that the policies are implemented correctly. This Guide helps councillors use the MFMA to manage the fi nances of their municipalities properly.

Accountability: Being accountable is being responsible for what you do and being prepared to explain to others why you made certain choices. Transparency: Is about explaining actions even before being asked. If a process is transparent it is clear to everyone how and why decisions are made. This involves clear communication.

i

Councillors should use the MFMA to promote accountability and transparency in their municipality. Of fi cials are accountable to the Executive Council; the Executive Council to the Council and councillors collectively and individually are accountable to the electorate/ community.

THE MFMA IS NOT ONLY FOR MUNICIPAL MANAGERS AND FINANCE OFFICERS. IT ALSO APPLIES TO COUNCILLORS. I GUESS THAT IS US!

This uide helps councillors to manage the fi nances of their municipalities in away that bene fi ts the communities they serve. G

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The Role of Councillors in Municipal Finance Management

Part 1

What is the MFMA?

THE MFMA IS A LAW THAT GUIDES COUNCILLORS AND OFFICIALS IN MUNICIPAL FINANCIAL MANAGEMENT.

IT PROVIDES US WITH THE TOOLS THAT WE CAN USE TO MONITOR THE COUNCIL ‛ S PROGRESS. WE CAN CHECK THAT THE MONEY BUDGETED MATCHES THE COUNCIL ‛ S PRIORITIES FOR THE COMMUNITY.

WE CAN ALSO USE IT TO MAKE CHOICES ABOUT HOW TO DELIVER SERVICES IN THE BEST WAY.

The Municipal Finance Management Act, 2003 (MFMA) was passed to strengthen and modernise municipal fi nancial management. It requires all councillors to play an active role in managing municipal fi nances. The MFMA deals with the fi nancial arrangements in a municipality and must be understood in the broader context of local government activities and service delivery generally.

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Part 1 Understanding the Municipal Finance Management Act

Which is best for my community?

A gravel road will cost R50 000 for 1km A tar road will cost R1 million for 1km

Cheaper to construct

Cheaper to maintain

Can get 20 times the length of a tar road for the same money

Is safer for users

More expensive to construct

More expensive to maintain

Will get much less length of road for the community

Can be less safe for users

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The Role of Councillors in Municipal Finance Management

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Part 1

There are other factors, the impact of which must be considered: the volume and type of traf fi c using the road

• • • •

proximity of the road to facilities such as businesses, shops and schools the landscape and climate of the area local economic development.

1.1 Financial management in local government In local government, fi nancial management has four basic purposes:

i

1

Safeguarding : Municipalities need to ensure that there are proper controls to protect the revenue , assets and capital of the municipality against improper use, loss or theft. Budgeting: Municipalities must plan how they will use the funds available to them and how important projects and services will be paid for. Monitoring: Municipalities need to monitor that the services delivered are in line with what the municipality budgeted for and that they address the needs of the community. Accountability: Municipalities should report to the public on how public funds are used. Whether it is money paid by local people for services or rates, or money from national government, it is all public money and the public has a right to know how it is being used. The fi nancial records of a municipality must re fl ect all of these transactions in a manner that enables the council and the community to understand what is being done in the municipality at all times.

Revenue:

The money that the municipality gets in for services and rates, and from the treasury, is called revenue.

2

Capital: The material wealth of the municipality used, or able to be used, in carrying out council’s operations is called capital. In other words, it is the remaining assets of a municipality after taking away all liabilities. Assets: The municipality may own property, equip- ment, money and other items of value. These are called assets.

3

4

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Understanding the Municipal Finance Management Act

Part 1 Understanding the Municipal Finance Management Act

SO THE MFMA GUIDES COUNCILLORS AND OFFICIALS BUT IT ALSO PLACES ON THEM THE DUTY TO MAKE SURE THAT THE COUNCIL MEETS THE COMMUNITY ‛ S NEEDS.

IT ALSO MAKES IT EASIER FOR COMMUNITIES TO PARTICIPATE IN LOCAL GOVERNMENT.

The MFMA guides the municipal manager and chief fi nancial of fi cer in managing the fi nances of the municipality. Councillors use the tools provided for in the MFMA so that they can be satis fi ed that the activities of the municipality are well-managed.

The MFMA is closely linked to the Municipal Systems Act (MSA). They both deal with: planning and budgeting processes that are integrated as one process credit control procedures performance management systems the procurement of goods and services the annual service delivery and budget implementation plan (SDBIP) with measurable performance objectives • • • • •

the annual report municipal entities consultation with the community the roles and responsibilities of councillors and of fi cials.

• • • •

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Part 1

IT MAKES IT EASIER FOR ME TO BE ACCOUNTABLE TO THE COMMUNITY AS I HAVE INFORMATION AT MY FINGERTIPS.

THE MFMA REQUIRES THAT COUNCILS WORK TOGETHER WITH OTHER SPHERES OF GOVERNMENT.

WE CAN KEEP TRACK OF SERVICE DELIVERY AND PICK UP ANY PROBLEMS AS SOON AS THEY ARISE.

AS COUNCILLORS WE HAVE THE DUTY TO MAKE SURE THAT THE MUNICIPALITY IS FINANCIALLY SOUND.

1.2 How the MFMA helps councillors Working with other spheres of government

The MFMA promotes co-operation between the different spheres of government . This helps all the spheres to work together to meet the needs of the community. The national and provincial spheres support municipalities and also monitor their spending. Because the spheres are interrelated, it is important that they work together to achieve mutual objectives.

Spheres of government: There are three spheres of government: national, provincial and local government.

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Understanding the Municipal Finance Management Act

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The Role of Councillors in Municipal Finance Management

Part 1

Promoting development in communities Municipal councils must promote development in their areas. Councillors should use the MFMA to make sure that municipal expenditure matches the development priorities in their municipality. The MFMA requires that the municipal budget matches the integrated development plan (IDP). Communities are involved in drawing up the IDP for their area. The MFMA requires that the municipal manager reports on progress to the council regularly. Councillors should use this information to account to their communities. Communities should monitor service delivery in their wards by using the reports that are required by the MFMA. The council may wish to set up special brie fi ng meetings to discuss these reports, which should be made available using information on progress of works and services budgeted for. These meetings should include senior of fi cials who are able to further explain any variations from the original plans. Such information should be made available on a ward basis so as to allow all ward councillors to comment on progress of works and services relevant to their area. • • •

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Part 1 Understanding the Municipal Finance Management Act

MUNICIPAL MANAGER, I SEE THAT WE HAVE NOT SPENT THE MONEY THAT WAS ALLOCATED FOR INSTALLING THE MAIN SEWERAGE PIPE IN SECTION C OF MY WARD. CAN YOU PLEASE EXPLAIN THE DELAY TO US? THE COMMUNITY NEEDS A REPORT- BACK AT OUR NEXT WARD MEETING.

Council meeting: attended by executive committee, ward councillors and the general public, supported by senior of fi cials.

THANK YOU, COUNCILLOR, THERE HAS BEEN A DELAY IN RECRUITING PEOPLE AND SIGNING THEIR CONTRACTS, DUE TO A PROCESSING BACKLOG IN OUR PERSONNEL DEPARTMENT, BUT THE BACKLOG IS CLEARED AND WE EXPECT TO START NEXT WEEK.

COUNCIL MEETING

Ward meeting: attended by ward councillors and ward constituents, supported by senior of fi cials.

WARD MEETING

WELCOME TO THE FEEDBACK MEETING FOR WARD 4, OF IKETSESENG. THESE ARE THE PRIORITIES THAT WE IDENTIFIED IN OUR PREVIOUS PLANNING MEETING. LET ‛ S COMPARE THE BUDGET WITH THE ACTUAL EXPENDITURE FOR EACH OF THE PRIORITIES WE IDENTIFIED.

WE SAID THAT WE NEED TO GET PROPER SEWERAGE IN SECTION C OF THIS WARD. I UNDERSTAND THAT WE FIRST HAVE TO PUT IN THE MAIN PIPES. THE PIPES HAVE BEEN SITTING NEXT TO THE ROAD FOR OVER A MONTH. I AM WORRIED THAT THE PIPES WILL GET BROKEN.

I AM SO GLAD I HAVE AN ANSWER TO THIS…

THANK YOU FOR YOUR QUESTION. WE ARE HAPPY TO INFORM YOU THAT WE NOW EXPECT TO START WORKS NEXT WEEK FOLLOWING DELAYS RESULTING FROM...

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The Role of Councillors in Municipal Finance Management

The Role of Councillors in Municipal Finance Management

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Improving service delivery Municipalities must provide services and facilities to all ratepayers, residents and visitors to their area. These services will include:

public services or facilities like electricity, water and sanitation services, waste and refuse removal, that are paid for directly by households or provided at a basic level to poor households community services or facilities, that are paid for out of rates and user charges cultural or recreational services or facilities, that are paid for by rates and user charges infrastructure needed to support household services such as sewerage, or that will attract business and investment in the area, for example, street lights. These can be paid for by rates and grants from national government.

•

Infrastructure: Infrastructure is needed for the functioning of the community and the provision of services to the people and businesses. It includes roads, water pipes and power lines.

•

•

•

The MFMA requires that the municipal administration reports on service delivery to council. Council raises any issues with the municipal manager.

WE MAKE THE DECISIONS IN COUNCIL AND THEN FOLLOW UP ON PROGRESS.

AS COUNCILLORS, WE SHOULD NOT INTERFERE DIRECTLY WITH MUNICIPAL STAFF.

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It is important for councillors to always be aware of community needs and look for ways they can improve services: think ahead, what services would you like for your community in a few years time? visit your ward regularly listen to community problems and needs be aware of developments in other municipalities – they may have good ideas. • • • •

Overseeing municipal activities

IF THE MUNICIPALITY DOES NOT MANAGE ITS FINANCES WELL, IT WILL NOT DELIVER ON ITS PROMISES. WE ALSO NEED TO BE SURE THAT WE STICK TO THE POLICIES WE MADE AS A COUNCIL.

WE GET FINANCIAL REPORTS EVERY MONTH. WE ALSO GET REPORTS ON SERVICE DELIVERY AND BUDGET IMPLEMENTATION. WE SHOULD LOOK AT THEM TO SEE IF THE SPENDING IS ACCORDING TO WHAT IS BUDGETED AND TO LOOK AT HOW MUCH MONEY IS COMING IN. WE SHOULD ALSO MAKE SURE THAT THE WORK BEING DONE IS IN LINE WITH THE IDP.

THIS IS IMPORTANT, BUT HOW DO WE DO IT?

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The Role of Councillors in Municipal Finance Management

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The council must ensure that themunicipality meets its fi nancial commitments and that it avoids fi nancial problems. Some fi nancial problems may be over-spending, under- spending or unplanned spending, or poor revenue forecasting, billing or collection. Budget reports must show whether: the council has a continuous bank overdraft creditor payments are made within 30 days outstanding electricity, rates and water accounts are being collected expenditure is in line with plans. • • • •

IF WE THINK THERE IS A FINANCIAL PROBLEM WE MUST DEAL WITH IT. COUNCIL CAN ASK THE MUNICIPAL MANAGER TO PRESENT A PLAN OF HOW THE COUNCIL CAN DEAL WITH THE PROBLEM. WE CAN ‛ T AFFORD TO LOSE OUT ON THAT MONEY!

I HEARD THAT HOMES IN SIGNAL HILL ARE NOT PAYING RATES AND THEY DON ‛ T EVEN GET ACCOUNTS… WE WILL NEVER BE ABLE TO GET IN THE MONEY WE NEED…

WHAT KIND OF PLANS DOES HE PRESENT? WHAT CAN WE DO?

IT IS NOT A GOOD THING, BUT STILL IT ‛ S BETTER THAN THE MUNICIPALITY RUNNING INTO FINANCIAL DIFFICULTIES.

USUALLY HE MUST EXPLAIN HOW WE PLAN TO GET IN THE MONEY. IF WE CAN ‛ T GET IT IN, WE MAY HAVE TO CUT THE BUDGET.

A CONTRACTOR IN MY WARD DID A JOB FOR US NINE MONTHS AGO, HE HAS NOT BEEN PAID YET. I AM SO EMBARRASSED, HE KEEPS ASKING ME TO DO SOMETHING.

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1.3 Starting implementation

WE NEED TO KNOW WHICH IN-YEAR PERFORMANCE REPORTS TO EXPECT, AND SET DEADLINES FOR THEM TO BE TABLED.

OKAY, LET ‛ S FIND OUT HOW FAR OUR MUNICIPALITY IS IN COMPLYING WITH THE MFMA. WHERE DO WE START?

THE MFMA GIVES US THE RIGHT TO ASK FOR THESE REPORTS.

Getting access to reports Councillors have the right to expect access to all information about the municipality. A number of reports must be prepared which councillors should be aware of. These include: in-year performance reports of the municipality reports on budget implementation reports on senior of fi cial’s salary packages annual performance agreements for the municipal manager and all senior managers reports from internal audit and the audit committee annual fi nancial statements of the municipality the Auditor-General’s report for the municipality the annual report for the municipality and any municipal entity under the municipality’s control. If you have any questions about implementation, ask your municipal manager. • • • • • • • •

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Progress reports on implementation In addition, all municipalities should have established an MFMA Implementation Steering Committee to drive the implementation of the Act. This committee oversees a formal implementation plan which highlights all the tasks to be done to ensure compliance with the legislation. Councillors can enquire about progress from this committee.

Establishing a Steering Committee The municipal manager should initiate the establishment of the steering committee. The following issues should be considered: terms of reference of the committee composition of the committee meeting times and regularity of meetings

• • • • • •

procedural matters formal delegations organisational relationships.

Additional information tohelpcouncillorsandof fi cials implement the MFMA can be viewed at the National Treasury website: www.treasury.gov.za/mfma

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Understanding the Municipal Finance Management Act

Part 2

Separation of powers in a municipality The key to good governance in local government relies on several factors: separation between legislative and executive powers (the council) and administrative functions (the administration) clear distinctionbetweenpolicy-making (thecouncil) andpolicy implementation (the administration) appropriate delegations of authority and responsibility for ef fi cient and effective public administration adequate and cost-effective systems of internal control and reporting clear, unambiguous accountability systems codes of conduct for both councillors and of fi cials. • • • • • •

Of fi cials are accountable ultimately to council

The people hold their councillors accountable

HOW DO WE MAKE SURE THAT THE LAWS AND POLICIES THAT ARE MADE BY COUNCIL SERVE THE NEEDS OF THE COMMUNITY.

AND HOW DO WE MAKE SURE THAT THE COUNCIL APPOINTS THE MANAGEMENT AND STAFF THAT ARE ABLE TO ADMINISTER THE MUNICIPALITY EFFECTIVELY?

JUST LOOK CAREFULLY AT THE MFMA! LET US SEE HOW IT DEALS WITH THESE ISSUES.

Council must appoint of fi cials who have the appropriate technical skills and quali fi cations to complete tasks that are delegated to them.

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The Role of Councillors in Municipal Finance Management

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Councillors cannot be both a referee and a player. In other words, they may not implement as well as oversee implementation: council is accountable to the community the mayor is accountable to council the municipal manager is accountable to the mayor and council. • • • 2.1 Separation of executive and administrative powers The separation of powers is one way of facilitating good governance. This is called “checks and balances”. Councillors oversee the performance of of fi cials, but do not actually get involved in implementing. Of fi cials may provide advice on by-laws, policies, budgets and so on, but can’t actually approve them themselves. Both parties must uphold the law and codes of conduct.

The MFMA ensures that there is a clear division of powers between the elected of fi cials and the administrative staff.

Executive committee

We have legislative power. We have the authority to draw up policies and pass by- laws in our council. The council is made up of: councillors in a formal sitting the mayor the executive committee. • • •

Mayor

Administrative staff

Wehaveadministrative responsibilities. We are required to implement the policies and by-laws passed by Council. Staff include: the municipal manager senior managers other municipal of fi cials. • • •

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Understanding the Municipal Finance Management Act

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Roles and responsibilities in a municipality Councillors should be mindful that their role is to make decisions related to policy or strategy and not to become involved in the day-to-day running of the municipality. Councillor’s responsibilities also extend to ensuring effective performance by of fi cials. Councillors oversee the work of the municipality. This means that they should not get involved in operating procedures and tasks as it would weaken the accountability of of fi cials. For instance, councillors may not be involved in procurement - buying of goods or services by a municipality. They can only supervise the process to ensure it is being done properly, fairly and in accordance with policy.

The MFMA strengthens the separation of powers and clearly de fi nes the roles and responsibilities of all the role players in a municipal council.

I REALLY THOUGHT THAT I WAS ELECTED BECAUSE I AM NOT AFRAID TO ROLL UP MY SLEEVES AND GET THE WORK DONE. THAT IS WHAT I WAS ELECTED FOR!

WHY IS THERE STILL NO WATER IN SECTION C OF MY WARD? FIX IT NOW!

Councillors should not intervene directly with the work of of fi cials. They work through the mayor and the municipal manager.

IF I FIX IT I WON ‛ T BE FOLLOWING THE PRIORITY TASKS ASSIGNED TO MY DEPARTMENT – WHICH WILL MEAN THAT OTHER BUDGETED PRIORITIES WILL NOT BE COMPLETED.

YOU CAN STILL GET THINGS DONE BY MAKING WELL-ADVISED DECISIONS AND SUPPORTING THE WORK OF THE STAFF WHEN THEY PERFORM WELL.

Councillors The MFMA gives councillors clear responsibilities for setting policies and overseeing municipal fi nancial management. Councillors are also more accountable to their communities for their municipality’s performance.

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The Role of Councillors in Municipal Finance Management

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Councillors meet with the municipal manager in all matters involving service delivery and municipal employees. This generally happens through standing committees or sub-committees of council which meet as required.

Under the MFMA, councillors’ policy making and oversight functions include: setting the strategic direction for municipal activities setting policy to guide the municipality setting strategic objectives and priorities monitoring the implementation of policies and priorities This is done by stating what outcomes and outputs are to be achieved. • • • •

WE MUST BE CLEAR TO STAFF ON OUR EXPECTATIONS ABOUT SERVICE DELIVERY. ELECTED COUNCILLORS LIKE ME PROVIDE THIS DIRECTION.

WE SET UP INDICATORS THAT WE USE TO MEASURE THE PERFORMANCE OF MUNICIPAL OFFICIALS. WE MAKE SURE THAT THE MUNICIPAL FINANCES ARE HEALTHY.

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Understanding the Municipal Finance Management Act

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The executive mayor, mayor or executive committee The mayor is the political head of the municipal council. S/he provides political guidance in the fi nancial affairs of council. This includes:

consultation setting policy ensuring the co-ordination of the budget process ensuring that policy complies with national legislation approving the performance contract for the municipal manager and monitoring performance.

• • •

•

•

The municipal manager The municipal manager is accountable to the mayor and council for implementing policies. The municipal manager is responsible for the overall fi nancial management of the municipality. The municipal manager is accountable to: the executive mayor or council for implementing policies, decisions and processes that have been agreed on the council for the overall administration of the municipality. • •

The municipal manager:

ensures that the necessary fi nancial systems are in place performs fi nancial management responsibilities which include:

•

•

being entrusted with the fi nancial oversight of the municipality performing general fi nancial management functions preparing and implementing the budget reporting on expected shortfalls, overspending and overdrafts.

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The Role of Councillors in Municipal Finance Management

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The chief fi nancial of fi cer will assist the municipal manager with many of these tasks. Councillors meet with the municipal manager on all matters involving service delivery and municipal employees. This generally happens through standing committees or sub-committees of council which meet as required. The chief fi nancial of fi cer

The chief fi nancial of fi cer is administratively in charge of the budget and treasury of fi ce and must provide advice and assist the municipal manager with various fi nancial tasks. The chief fi nancial of fi cer must provide advice to other of fi cials on fi nancial issues and must perform duties relating to budgeting, accounting, reporting and fi nancial management.

Senior managers Senior managers are given the authority to run their operations through formal delegations. They must have the skills and expertise to do the required duties. They need clear statements of policy and strategy from council. They report directly to the municipal manager and are sometimes referred to as section 56 managers (Municipal SystemsAct). Their conditions of service and pay are set out in a performance contract determined by council. Municipal of fi cials Municipal of fi cials are responsible for carrying out the tasks assigned by their managers. The staff as a whole must operate within council policy but individual staff must answer to their heads of department (or HoDs). Tasks that are delegated Any delegated task, responsibility or authority must be properly documented and must be done in accordance with legislation.

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Understanding the Municipal Finance Management Act

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Structures for fi nancial governance

Council structures Councillors work with of fi cials through the executive mayor or committee and through the oversight committee. The following structures are put in place to manage the fi nances of the municipality: Council Oversight committee. • •

THESE ARE THE ROLES PLAYED BY ELECTED COUNCILLORS.

Council Council, which consists of elected councillors, is responsible for overseeing the

fi nancial affairs of council. Oversight committee

This committee, made up of councillors, provides oversight and supports council in fi nancial management. This function is to ensure that the executive and the administration are held accountable for performance.

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THESE ARE THE ROLES PLAYED BY INDEPENDENT PEOPLE WHO HAVE THE NECESSARY SKILLS AND EXPERIENCE AND RELEVANT OFFICIALS. COUNCILLORS MAY NOT BE ON THIS COMMITTEE.

Audit committee This is an independent advisory committee. Councillors may not be on this committee and it must comprise at least three persons with relevant skills and experience, but the majority may not be municipal staff. The audit committee is important to help councillors in the oversight function by advising on matters such as accounting practice, risk management, governance and fi nancial accounting and reporting- it has to be independent because it must be in a position to identify and challenge failures in fi nancial governance without fearing negative consequences from council.

THESE ARE THE ROLES PLAYED BY INDEPENDENT PEOPLE WHO HAVE THE NECESSARY SKILLS AND EXPERIENCE. COUNCILLORS OR OFFICIALS MAY NOT BE INVOLVED IN THE EXTERNAL AUDIT OTHER THAN TO ASSIST THE AUDITOR-GENERAL.

External audit by the Auditor-General The Auditor-General reviews the annual fi nancial statements and annual report. The audit by the Auditor- General tells councillors and the public if the fi nancial statements and annual report are a fair re fl ection of the fi nancial state of the municipality. The report is based on a review of the processes and policies that the council has put in place. The Auditor-General ‛ s investigations will reveal the state of the municipality ‛ s fi nances and strength of its fi nancial systems.

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Understanding the Municipal Finance Management Act