Local Government: Municiapal Finance Management Act [No. 56 of 2003]


Government Gazette
REPUBLIC OF SOUTH AFRICA

Vol. 464 Cape Town 13 February 2004 No. 26019
THE PRESIDENCY No. 176 13 February 2004
It is hereby notified that the President has assented to the following Act, which is hereby published for general information:–
No. 56 of 2003: Local Government: Municipal Finance Management Act, 2003.


2 No. 26019 GOVERNMENT GAZETTE, 13 FEBRUARY 2004
Act No. 56,2003 LOCAL GOVERNMENT MUNICIPAL FINANCE MANAGEMENT ACT, 2003
(English text signed by the President.) (Assented to 9 February 2004.)
ACT To secure sound and sustainable management of the financial affairs of municipali- ties and other institutions in the local sphere of government; to establish treasury norms and standards for the local sphere of government; and to provide for matters connected therewith.
B E IT ENACTED by the Parliament of the Republic of South Africa, as follows:- ARRANGEMENT OF SECTIONS
CHAPTER 1
INTERPRETATION, OBJECT, APPLICATION AND AMENDMENT OF ACT
1. Definitions 2 . Object of Act 3. Institutions to which Act applies 4. Amendments o Act
CHAPTER 2
SUPERVISION OVER LOCAL GOVERNMENT FINANCE MANAGEMENT
5 . 6.
7. 8. 9.
10. 11. 12.
13. 14.
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General functions of National Treasury and provincial treasuries Delegations by National Treasury
CHAPTER 3
MUNICIPAL REVENUE
Part I : Municipal bank accounts
Opening of bank accounts Primary bank accounts Bank account details to be submitted to provincial treasuries and Auditor- General 20 Control of municipal bank accounts Withdrawals from municipal bank accounts Relief, charitable, trust or other funds
Part 2: Cash, investment and asset management
Cash management and investments Disposal of capital assets
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Act No. 56,2003 LOCAL GOVERNMENT MUNICIPAL FINANCE MANAGEMENT ACT, 2003
CHAPTER 4
MUNICIPAL BUDGETS
15. 16. 17. 18. 19. 20. 21. 22. 23. 24. 25. 26. 21. 28. 29. 30. 31. 32. 33.
34. 35. 36. 37. 38. 39. 40. 41. 42. 43. 44.
45. 46. 47. 48. 49. 50. 51.
52. 53. 54.
Appropriation of funds for expenditure Annual budgets Contents of annual budgets and supporting documents Funding of expenditure Capital projects Matters to be prescribed Budget preparation process Publication of annual budgets Consultations on tabled budgets Approval of annual budgets Failure to approve budget before start of budget year Consequences of failure to approve budget before start of budget year Non-compliance with provisions of this Chapter Municipal adjustments budgets Unforeseen and unavoidable expenditure Unspent funds Shifting of funds between multi-year appropriations Unauthorised, irregular or fruitless and wasteful expenditure Contracts having future budgetary implications
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CHAPTER 5
CO-OPERATIVE GOVERNMENT
Capacity building Promotion of co-operative government by national and provincial institutions 25 National and provincial allocations to municipalities Promotion of co-operative government by municipalities Stopping of funds to municipalities Stopping of equitable share allocations to municipalities Stopping of other alloca ions to municipa ities 30 Monitoring of prices and payments for bulk resources Price increases of bulk resources for provision of municipal services Applicability of tax and tariff capping on municipalities Disputes between organs of state
CHAPTER 6
DEBT
Short-term debt Long-term debt Conditions applying to both short-term and long-term debt Security Disclosure Municipal guarantees National and provincial guarantees
CHAPTER 7
RESPONSIBILITIES OF MAYORS
General responsibilities Budget processes and related matters Budgetary control and early identification of financial problems
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( n ) disclose a l l infortnation in that person's possession or within that person's Anowledge that may be material to the decision of that prospecti\,e lender or 35 investor: and
( 1 7 ) take reasonable cilre to ensure the accuracy of any information disclosed. 12) A lender or investor may rely on written representations of the municipality signed
b) the accounting officer. if the lender or investor did not know and had no reason to believe that those representations were fals or misleading. 40
Ylonicipal guarantees
50. A municipality may not issue any guarantee for any commitment or debt of any
In) The guarantee must be within limits specified in the municipality's approved budget: 15
(17) a municipality may guarantee the debt of a municipal entity under its sole control only if the guarantee is authorised by the council in the same manner and subject to the same conditions applicable to a municipality n terms of this Chapter if i t incurs debt;
( c ) a municipality may guarantee the debt of a municipal entity under its shared SO control or of any other person, but only with the approval of the National Treasury, and then only if-
o r p o f state or person. except on the following conditions:
Act NO. 56. 2003 LOCAL GOVERNMtNT MUNICIPAL FINANCE MANAGEMENT ACT. 200.3
( i ) the municipality creates, and maintains for the duration of the guurantec. a cash-backed reserve equal to its total potential financial exposure as 21 result of such guarantee; or
( i i ) the municipality purchases and maintains in effect for the duration of the guarantee. a policy of insurance issued by a registered insurer. m.hich 5 covers the full amount of the municipality's potential financial exposure as a result of such guarantee.
National and provincial guarantees
51. Neither the national nor a provincial government may guarantee the debt of a municipality or municipal entity except to the extent that Chapter 8 o f the Public I O Finance Management Act provides for such guarantees.
CHAPTER 7
RESPONSIBILITIES OF MAYORS
General responsibilities
52. The mayor of ;I municipality- I5 must provide general political guidance over the fiscal and financial affairs of the municipality: i n providing such general political guidance. may monitor and. to the extent pro\.ided in this Act. oversee the exercise of responsibilities assigned in terms of this Act to the accounting officer and the chief financial officer. but may not 20 interfere in the exercise of those responsibilities; must take all reasonable steps to ensure that the municipality performs its constitutional and statutory functions within the limits of the municipality's approved budget: must. within 30 days of the end of each quarter. submit a report to the council 25 on the implementation of the budget and the financial state of affair\ of the municipality; and must exercise the other powers and perform the other dutie5 a s s ipx l to the mayor in terms of this Act or delegated by the council t o the mayor.
Budget processes and related matters 3 0
53. ( I j The mayor of a municipality must- ( N ) pro\.ide general political guidance over the budget process and the priorities
that must guide the preparation of a budset; (17) co-ordinate the annual revision of the integrated development plan in terms of
section 34 of the Municipal Systems Act and the preparation of the annual 35 budpet. and determine how the integrated development plan is t o be taken into account or revised for the purposes of the budget; and
( c ) take all reasonable steps to ensure- that the municipality approves its annual budget before the start of the budget year; 1 0 that the municipality's service delivery and budget implementation plan is approved by the mayor within 28 days after the approval of the budget; and that the annual performance agreements as required in terms of section 57( 1)(6) of the Municipal Systems Act for the municipal manager and all 15 senior managers- ( r r a ) comply with this Act in order to promote sound financial manage-
(bh) are linked to the measurable performance objectives approved with ment;
the budget and to the service delivery and budget implementation 50 plan; and
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(cc) are concluded in accordance with section 57(2j of thc Municipal
(2) The mayor must promptly report to the municipal council and the MEC for finance in the province any delay in the tabling of an annual budget, the approval o f ' the senice delivery and budget implementation plan or the signing of the annual perf'ormance agreements.
Systems Act.
(3) The mayor must ensure- (0) that the revenue and expenditure projections for each month and the service
delivery targets and performance indicators for each quarter. as set out in the service delivery and budget implementation plan, are made public no later than 14 days after the approval of the service delivery and budget implementation plan: and
(h ) that the performance agreements of the municipal manager. senior managers and any other categories of officials as may be prescribed. are tnadc public no later than 14 days after the approval of the municipality's service delivery and budget implementation plan. Copies of such performance agreements must be submitted to the council and the MEC for local government i n the province.
Budgetary control and early identification of financial problems
54. ( 1 j On receipt of a statement or report submitted by the accounting oflicer ot the municipality in terms of section 7 1 or 72. the mayor must-
( a ) consider the statement or report; ( h ) check whether the municipality's approved budget is implenwwd i n
accordance with the service delivery and budget implementation plan: ( c ) consider and, if necessary, make any re\,isions to the service deli\wy and
budget implementation plan, provided that revisions to the service deli\ery targets and performance indicators in the plan may only be made with the approval of the council following approval of an adjustments budget:
( i ) that the budget is implemented in accordance with the service delivery
( i i ) that spending of funds and revenue collection proceed i n ;Iccord;tncc'
( e ) identify any financial problems facing the municipality. including an>'
(J') in the case of a section 72 report. submit the report t o the council b> 3 I
([I) issue any appropriate instructions to the accounting officer t o ensure-
and budget implementation plan; and
with the budget:
emerging or impending financial problems: and
January of each year. ( 7 ) If the municipality faces any serious financial problems. the mayor must-
((/) promptly respond to and initiate any remedial or corrective steps proposed by the accounting ofiicer to deal with such problemh, which ma!. include- ( i ) steps to reduce spending when revenue is anticipated to be less than
( i i ) the tabling of an adjustments budget: or (iii) steps in terms of Chapter 13; and
problems.
projected in the municipality's approved budget;
( h ) alert the council and the MEC for local go\rernment i n the pro\,ince to those
(3) The mayor must ensure that any revisions of the service delivery and budget implementation plan are made public promptly.
Report to provincial executive if conditions for provincial intervention exist
55. If a municipality has not approved an annual budget by the first day of the budget year or if the municipality encounters a serious financial problem referred t o in section 136. the mayor of the municipalit!/-
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(8) bid documentation, advertising of and invitations for contracts: ( h ) procedures and mechanisms for-
contract is below a prescribed amount;
participate;
(i) the opening, registering and recording of bids in the presence 01'
(ii) the evaluation of bids to ensure best value for money; (iii) negotiating the final terms of contracts; and (iv) the approval of bids;
(i) screening processes and security clearances for prospective contractors 011 tenders or other bids above a prescribedvalue; 20
( j ) compulsory disclosure of any conflicts of interests prospecti\.e contractor\ may have in specific tenders and the exclusion of such prospecti\,e contractor\ from those tenders or bids;
( k ) participation in the supply chain management system of persons who are not officials of the municipality or municipal entity, subject to section I 17: 25
(I) the barring of persons from participating in tendering or other bidding processes, including persons- (i) who were convicted for fraud or corruption during the past five years:
( i i ) who wilfully neglected, reneged on or failed to comply w i t h ;I
( i i i ) whose tax matters are not cleared by South African Revenue Service:
interested persons; IS
government contract during the past five years: or 30
(m) measures for- (i) combating fraud, corruption, favouritism and unfair and irregular
(ii) promoting ethics of officials and other role players involved in municipal 35 practices in municipal supply chain management: and
supply chain management; (n) the invalidation of recommendations or decisions that were unlawfull~~ 01.
improperly made, taken or influenced, including recommendations or decisions that were made, taken or in any way influenced by- ( i ) councillors in contravention of item 5 or 6 of the Code of Conduct fw 40
Councillors set out in Schedule 1 to the Municipal Systems Act; or (ii) municipal officials in contravention of item 4 or 5 of the Code of Conduct
for Municipal Staff Members set out in Schedule 2 to that Act: (0) the procurement of goods and services by municipalities or municipal entitiez
( p ) contract management and dispute settling procedures: and (9) the delegation of municipal supply chain management powers and duties.
(2) The regulatory framework for municipal supply chain management must be fair.
through c ntracts procured by other organs of state; 45
including to officials.
equitable, transparent, competitive and cost-effective. SO
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Act No. 56,2003 LOCAL GOVERNMENT: MUNIClPAL FINANCE MANAGEMENT ACT, 2003
Unsolicited bids
113. ( 1 ) A municipality or municipal entity is not obliged to consider an unsolicited bid received outside its normal bidding process.
(2) If a municipality or municipal entity decides to consider an unsolicited bid received outside a normal bidding process, it may do so only in accordance with a 5 prescribed framework.
(3) The framework must strictly regulate and limit the power of municipalities and municipal entities to approve unsolicited bids received outside their normal tendering or other bidding processes.
Approval of tenders not recommended I0
114. ( 1 ) If a tender 'other than the one recommended in the normal course of implementing the supply chain management policy of a municipality or municipal entity is approved, the accounting officer of the municipality or municipal entity must, in writing. notify the Auditor-General, the relevant provincial treasury and the National Treasury and, in the case of a municipal entity, also the parent municipality, of the 15 reasons for deviating from such recommendation.
an irregularity. ( 2 ) Subsection (1) does not apply if a different tender was approved in order to rectify
Implementation of system
115. (1) The accounting officer of a municipality or municipal entity must- 20 (a) implement he supply chain management policy of the municipality or
municipal entity; and (6) take all reasonable steps to ensure that proper mechanisms and separation 01
duties in the supply chain management system are in place to minimise the likelihood of fraud, corruption, favouritism and unfair and irregular practices. 25
(2) No person may impede the accounting officer in fulfilling this responsibility.
Contracts and contract management
116. ( 1 ) A contract or agreement procured through the supply chain management system of a municipality or municipal entity must-
(a) be in writing; 30 f b ) stipulate the terms and conditions of the contract or agreement, which must
include provisions providing for- ( i ) the termination of the contract or agreement in the case of non- or under-
(ii) dispute resolution mechanisms to settle disputes between the parties; 35 ( i i i ) a periodic review of the contract or agreement once every three years in
the case of a contract or agreement for longer than three years; and (iv) any other matters that may be prescribed.
performance;
(2) The accounting officer of a municipality or municipal entity must- ( a ) take .all reasonable steps to ensure that a contract or agreement procured 40
through the supply chain management policy of the municipality or municipal entity is properly enforced;
(b) monitor on a monthly basis the performance of the contractor under the contract or agreement;
(c ) establish capacity in the administration of the municipality or municipal 45 entity- (i) to assist the accounting officer in carrying out the duties set out in
(ii) to oversee the day-to-day management of the contract or agreement; and paragraphs (a) and (b); and
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MUNICIPAL FlNANCE MANAGEMENT ACT. 2003
(dl regularly report to the council of the municipality or the board of directorb of the entity, as may be appropriate, on the management of the contract or agreement and the performance of the contractor.
(3) A contract or agreement procured through the supply chain management policy o f
(a) the reasons for the proposed amendment have been tabled in the council of the municipality or, in the case of a municipal entity, in the council of its parent municipality; and
(b) the local community- (i) has been given reasonable notice of the intention to amend the contract or
(i i) has been invited to submit representations to the municipality o r
the municipality or municipal entity may be amended by the parties, but only after---
agreement; and
municipal entity.
Councillors barred from serving on municipal tender committees
117. No councillor of any municipality may be a member of a municipal bid committee or any other committee valuating or approving tenders, quotations. contracts or other bids, nor attend any such meeting as an observer.
interference
118. No person may- fa) interfere with the supply chain management system of a municipality or
(h) amend or tamper with any tenders, quotations, contracts or bids after their municipal entity; or
submission.
Competency levels of officials involved in municipal supply chain management
119. ( I ) The accounting officer and all other officials of a municipality or municipal entity involved in the implementation of the supply chain management policy of the municipality or municipal entity must meet the prescribed competency levels.
(2) A municipality and a municipal entity must for the purposes of subsection ( 1 :I provide resources or opportunities for the training of officials referred to i n thal subsection to meet the prescribed competency levels.
(3) The National Treasuq or a provincial treasury may assist municipalities and municipal entities in the training of officials referred to in subsection (1).
Part 2: Public-private partnerships
Conditions and process for public-private partnerships
120. (1) A municipality may enter into a public-private partnership agreement. but only if the municipality can demonstrate that the agreement will-
(a) provide value for money to the municipality; (6) be affordable for the municipality; and (c) transfer appropriate technical, operational and financial risk to the private
(2) A public-private partnership agreement must comply with any prescribed
(3) If the public-private partnership involves the provision of a municipal service,
(4) Before a public-private partnership is concluded, the municipality must conduct a
(a) explains the strategic and operational benefits of the public-private partner-
(b) describes in specific terms-
Party.
regulatory framework for public-private partnerships.
Chapter 8 of the Municipal Systems Act must also be complied with.
feasibility study that-
ship for the municipality in terms of its objectives;
(i) the nature of the private party’s role in the public-private partnership; (ii) the extent to which this role, both legally and by nature, can be performed
by a private party; and
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Act No. 56,2003 LOCAL GOVERNMENT MUNICIPAL FINANCE MANAGEMENT ACT. 200.1
(iii) how the proposed agreement will- ( a ) provide value for money to the municipality; (hh) be affordable for the municipality; (cc) transfer appropriate technical, operational and financial rtsks t o the
(dd) impact on the municipality’s revenue flows and its current and private party; and 5
future budgets; (c) takes into account all relevant information: and (d) explains the capacity of the municipality to effectively monitor, manage and
(5) The national government may assist municipalities in carrying out and assessing
(6) When a feasibility study has been completed. the accounting ofticer of the
enforce the agreement. I O
feasibility studies referred to in subsection (4).
municipality must- la) submit the report on the feasibility study together with all other relekant IS
documents to the council for a decision. in principle. on ujhether the municipality should continue with the proposed public-private partnership:
( 6 ) at !east 60 days prior to the meeting of the council at which the matter is t o be considered, in accordance with section 21A of the Municipal Systems Act--- ( i ) make public particulars of the proposed public-private partnership. 70
including the report on the feasibility study: and ( i i ) invite the local community and other interested persons to submit to tht.
municipality comments or representations in respect of the proposed public-private partnership; and
(c) solicit the views and recommendations of- 25 ( i ) the National Treasury;
( i i ) the national department responsible for local government: (iii) if the public-private partnership involves the provision of water.
sanitation. electricity or any other service as may be prescribed. the responsible national departme t; and 30
(iv) any other national or provincial organ of state as may be precribed. (7) Part I of this Chapter applies to the procurement of public-private partnership
agreements. Section 33 also applies if the agreement will have multi-year budgerary implications for the municipality within the meaning of that section.
CHAPTER 12
FINANCIAL REPORTING AND AUDITING
Preparation and adoption of annual reports
121. ( 1 1 Every municipality and every municipal entity must for each financial year prepare an annual report in accordance with this Chapter. The council of a municipality must within nine months after the end of a financial year deal with the annual report of 30 the municipality and of any municipal entity under the municipality’s sole or shared control i n accordance with section 129.
( 2 ) The purpose of an annual report is- (a) to provide a record of the activities of the municipality or municipal entity
( h ) to provide a report on performance against the budget of the municipality or
(c) to promote accountability to the local community for the decisions made
during the financial year to which t e report relates; 45
municipal entity for that financial year; and
throughout the year by the municipality or municipal entity. (3) The annual report of a municipality mus include- SO
(a ) the annual financial statements of the municipality, and in addition, if section 122(2) applies, consolidated annual financial statements, as submitted to the Auditor-General for audit in terms of section 126( 1 ) ;
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Act No. 56,2003 LOCAL GOVERNMENT MUNICIPAL FINANCE MANAGEMENT ACT. 2003
the Auditor-General’s audit report in terms of section l26(3) on those financial statements; the annual performance report of the municipality prepared by the municipal- ity in terms of section 46 of the Municipal Systems Act: the Auditor-General’s audit report in terms of section 45(b) of the Municipal 5 Systems Act; an assessment by the municipality’s accounting officer of any arrears on municipal taxes and service charges: an assessment by the municipality’s accounting officer of the municipality‘s performance against the measurable performance objectives referred to i n 1 0 section 17(3)(b) for revenue collection from each revenue source and for each vote in the municipality’s approved budget for the relevant financial year: particulars of any corrective action taken or to be taken in response to issues raised in the audit reports referred to in paragraphs (bi and (d): any explanations that may be necessary to clarify issues in connection with thc I5 financial statements: any information as determined by the municipality; any recommendations of the municipality’s audit committee: and any other information as may be prescribed.
(4) The annual report of a municipal entity must include- 20 the annual financial statements of the entity. as submitted to the Auditor-. General for audit in terms of section 126(2j; the Auditor-General’s audit report in terms of section 126(3) on those financial statements: an assessment by the entity’s accounting officer of any arrears on municipai 2.5 taxes and service charges; an assessment by the entity’s accounting officer of the entity’s performance against any measurable performance objectives set in terms the service delivery agreement or other agreement between the entity and its parent municipality; io particulars of any corrective action taken or to be taken in response to issues raised in the audit report referred to in paragraph (b); any information as determined by the entity or its parent municipality; any recommendations of the audit committee of the entity or of its parent municipality; and 35 any other information as may be prescribed.
Preparation of financial statements
122. ( 1 ) Every municipality and every municipal entity must for each financial year prepare annual financial statements which-
(a ) fairly presents the state of affairs of the municipality or entity. its performance 40 against its budget, its management of revenue, expenditure. assets and liabilities, its business activities, its financial results, and its financial position as at the end of the financial year; and
(b) disclose the information required in terms of sections 123. 124 and 125.
control within the meaning of the Municipal Systems Act of a municipal entity which is a private company, must in addition to complying with subsection ( I ) . prepare consolidated annual financial statements incorporating the annual financial statements of the municipality and of such entity. Such consolidated annual financial statements must comply with any requirements as may be pr scr bed. SO
(3) Both annual financial statements and consolidated annual financial statements must be prepared in accordance with generally recognised accounting practice prescribed in terms of section 91(1 j(b) of the Public Finance Management Act.
(2) A municipality which has sole control of a municipal entity, or which has effective -IS
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Disclosures on intergovernmental and other allocations
123. (1) The annual financial statements of a municipality must disclose information on-
( a ) any allocations received by the municipality from- (i) an organ of state in the national or provincial sphere of government; or 5
iii) a municipal entity or another municipality;
(i) a municipal entity or another municipality; or (ii) any other organ of state;
(c ) how any allocations referred to in paragraph ( a ) were spent, per vote, I O excluding allocations received by the municipality as its portion of the equitable share or where prescribed otherwise because of the nature of the allocation;
(i) any allocations made to the municipality in terms of section 2l4( 1 )ic) of 15
(ii) any allocations made to the municipality other than by national organs of
( e ) the reasons for any non-compliance with conditions referred to in paragraph (d); and 20
(f, whether funds destined for the municipality in terms of the annual Division of Revenue Act were delayed or withheld, and the reasons advanced to the municipality for such delay or withholding.
(2) The annual financial statements of a municipal entity must disclose information on- 25
( a ) any allocations received by the entity from any municipality or other organ of
f b ) any allocations made by the entity to a municipality or other organ of state:
( c ) any other inf rmation as may be prescribed. 30
(b) any allocations made by the municipality to-
(d) whether the municipality has complied with the conditions of-
the Constitution; and
state;
state;
and
Disclosures concerning councillors, directors and officials
124. ( I ) The notes to the annual financial statements of a municipality must include
( a ) the salaries, allowances and benefits of political office-bearers and councillors of the municipality, whether financial or in kind, including a statement by the 35 accounting officer whether or not those salaries, allowances and benefits are within the upper limits of the framework envisaged in section 219 of the Constitution;
(b) any arrears owed by individual councillors to the municipality, or a municipal entity under its sole or shared control, for rates or services and which at any 40 time during the relevant financial year were outstanding for more than 90 days, including the names of those councillors; and
(c) the salaries, allowances and benefits of the municipal manager, the chief financial officer, every senior manager and such categories of other officials as may be prescribed. 45
(2) The notes to the annual financial statements of a municipal entity must include
particulars of-
particulars of the salaries, allowances and benefits of- ( a ) the members of the board of directors of the entity; and (b) the chief executive officer of the entity, every senior manager and such
categories of other officials as may be prescribed. 50
Other compulsory disclosures
125. (1) The notes to the financial statements of a municipality must include- ( a ) a list of all municipal entities under the sole or shared control of the
municipality during the financial year and as at the last day of the financial year. 55
(b) the total amount of contributions to organised local government for the financial year, and the amount of any contributions outstanding as at the end of the financial year; and
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(c ) the total amounts paid in audit fees, taxes, levies, duties and pension and medical aid contributions, and whether any amounts were outstanding as at the end of the financial year.
( 2 ) The notes to the annual financial statements of a municipality or municipal entity must disclose the following information: 5
( a ) In respect of each bank account held by the municipality or entity during the relevant financial year- (i) the name of the bank where the account is or was held, and the type of
(ii) year opening and year end balances in each of these bank accounts: 10 (b) a summary of all investments of the municipality or entity as at the end of the
financial year; (c) particulars of any contingent liabilities of the municipality or entity as at the
end of the financial year; (d) particulars of- 15
(i) any material losses and any material irregular or fruitless and wasteful expenditures, including in the case of a municipality. any material unauthorised expenditure, that occurred during the financial year. and whether these are recoverable;
(ii) any criminal or disciplinary steps taken as a result of such losses or such 20 unauthorised, irregular or fruitless and wasteful expenditures: and
(iii) any material losses recovered or written off (e ) particulars of non-compliance with this Act; and u) any other matters that may be prescribed.
account; and
Submission and auditing of annual financial statements 25
126. (1) The accounting officer of a municipality- ( a ) must prepare the annual financial statements of the municipality and, within
two months after the end of the financial year to which those statements relate. submit the statements to the Auditor-General for auditing: and
(b) must in addition, in the case of a municipality referred to in section 122( 2). 30 prepare consolidated annual financial statements in terms of that section and. within three months after the end of the financial year to which those statements relate, submit the statements to the Auditor-General for auditing.
( 2 ) The accounting officer of a municipal entity must prepare the annual financial statements of the entity and, within two months after the end of the financial year to 35 which those statements relate, submit the statements to-
(a) the parent municipality of the entity; and (b) the Auditor-General, for auditing.
( a ) audit those financial statements; and 30 (b) submit an audit report on those statements to the accounting officer of the
municipality or entity within three months of receipt of the statements. (4) If the Auditor-General is unable to complete an audit within three months of
receiving the financial statements from an accounting officer, the Auditor-General must promptly submit a report outlining the reasons for the delay to the relevant municipality 45 or municipal entity and to the relevant provincial legislature and Parliament.
(5) Once the Auditor-General has submitted an audit report to the accounting officer, no person other than the Auditor-General may alter the audit report or the financial statements to which the audit report relates.
(3) The Auditor-General must-
Submission and tabling of annual reports 50
127. (1) The accounting officer of a municipal entity must, within six months after the end of a financial year, or on such earlier date as may be agreed between the entity and its parent municipality, submit the entity's annual report for that financial year to the municipal manager of the entity's parent municipality.
Act No. 56,2003 LOCAL GOVERNMENT: MUNICIPAL FINANCE MANAGEMENT ACT. 200.1
(2) The mayor of a municipality must, within seven months after the end oi'a financ~ul year, table in the municipal council the annual report of the municipality and of an! municipal entity under the municipality's sole or shared control.
(3) If the mayor, for whatever reason, is unable to table in the council thc annual report of the municipality, or the annual report of any municipal entity under the 5 municipality's sole or shared control, within seven months after the end of the tinancinl year to which the report relates, the mayor must-
(a ) promptly submit to the council a written explanation referred t o in section 133( I)(a) setting out the reasons for the delay, together with any components of the annual report listed in section 121(3) or (4) that are ready; and I O
(b) submit to the council the outstanding annual report or the outstanding components of the annual report as soon as may be possible.
(4) The Auditor-General may submit the financial statements and audit report- (a ) of a municipality directly to the municipal council, the National Treasury. the
relevant provincial treasury, the MEC responsible for local government i n the IS province and any prescribed organ of state, if the mayor fails to complq nith subsection (2) or (3); or
( 6 ) of a municipal entity directly to the parent municipality, the National Treasury. the relevant provincial treasury, the MEC responsible for local ~ovcrnment i n the province and any prescribed organ of state. if the accounting officer o f the 20 entity fails to comply with subsection ( 1 ).
( 5 ) Immediately after an annual report is tabled in the council in terms of subsection ( 2 ) , the accounting officer of the municipality must-
(0) in accordance with section 21A of the Municipal Systems Act- ( i ) make public the annual report; and 25
(ii) invite the local community to submit representations in connection nith
(h) submit he annual report to the Auditor-General, the relevant provincial treasury and the provincial department responsible for local government i n the province. .3 0
(6) Subsection ( 5 ) , with the necessary modifications as the context may require. is also applicable if only components of the annual report are tabled in terms of subsection
the annual report; and
(3).
Compliance to be monitored
128. The accounting officer of a parent mu icipality must- 35 (a) monitor whether the accounting officer of any municipal entity under the sole
or shared control of the municipality has complied with sections I2 1 I ) and 126(2);
(b) establish the reasons for any non-compliance: and ( e ) promptly report any non-compliance, together with the reasons for such 40
non-compliance, to the council of the parent municipality. the relevant provincial treasury and the Auditor-General.
Oversight reports on annual reports
129. ( 1 ) The council of a municipality must consider the annual report of the municipality and of any municipal entity under the municipality's sole or shared control. -IS and by no later than two months from the date on which the annual report was tabled in the council in terms of section 127, adopt an oversight report containing the council's comments on the annual report, which must include a statement whether the council-
(a) has approved the annual report with or without reservations; ( 6 ) has rejected the annual report; or 50 (c ) has referred the annual report back for revision of those components that can
be revised. (2) The accounting officer must-
(a) attend council and council committee meetings where the annual report is discussed, for the purpose of responding to questions concerning the report; 55 and
Act No. 56,2003 LOCAL GOVERNMENT MUNICIPAL FINANCE MANAGEMENT ACT. 2003
(6) submit copies of the minutes of those meetings to the Auditor-General. thc relevant provincial treasury and the provincial department responsible t o r local government in the province.
(3) The accounting officer must in accordance with section 21A of the Municipal Systems Act make public an oversight report referred to in subsection ( I ) within s e \ m 5 days of its adoption.
(4) The National Treasury may issue guidelines on- (a) the manner in which municipal councils should consider annual reports and
conduct public hearings; and (b) the functioning and composition of any public accounts or oversight 1 0
committees established by the council to assist it to consider an annual report. (5) No guidelines issued in terms of subsection (4) are binding on a municipal council
(6) This section, with the necessary modifications as the context may require, is also unless adopted by the cguncil.
applicable if only components of the annual report were tabled in terms of section IS 127( 3).
Council meetings open to public and certain public officials
130. (1) The meetings of a municipal council at which an annual report is to be discussed or at which decisions concerning an annual report are to be taken. must be open to the public and any organs of state, and a reasonable time must be allowed- 20
( a ) for the discussion of any written submissions received from the local
(b) for members of the local community or any organs of state to address the community or organs of state on the annual report: and
council. ( 2 ) Representatives of the Auditor-General are entitled to attend, and to speak at. an) 3
council meeting referred to in subsection (1). (3) This section, with the necessary modifications as the context may require. is also
applicable if only components of the annual report were tabled i n terms o f sectton 127(3).
Issues raised by Auditor-General in audit reports 30
131. (1 ) A municipality must address any issues raised by the Auditor-General i n a t 1 audit report. The mayor of a municipality must ensure compliance by the municipalit!, with this subsection.
( 2 ) The MEC for local government in the province must- ( a ) assess all annual financial statements of municipalities in the province. the 35
audit reports on such statements and any responses of municipalities to such audit reports, and determine whether municipalities have adequately ad- dressed any issues raised by the Auditor-General in audit reports: and
(b) report to the provincial egislature any omission by a municipality to adequately address those issues within 60 days. 40
Submissions to provincial legislatures
132. (1) The following documents must be submitted to the provincial legislature: ( a ) The annual report of each municipality and each municipal entity i n the
province, or if only components of an annual report were tabled in terms of section 127(3), those components; and 45
(b) all oversight reports on those annual reports adopted in terms of section 129( 1).
( 2 ) The accounting officer of a municipality must submit the documents referred to in subsection (l)(a) and (b) to the provincial legislature within seven days after the municipal council has adopted the relevant oversight report in terms of section 139( I ) . SO
(3) The MEC for local government in a province must monitor whether municipalities in the province comply with subsection ( 2 ) .
(4) A provincial legislature may deal with the documents referred to it in terms of subsection (1 ) in accordance with its constitutional powers.
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( 5 ) The National Treasury may issue guidelines on the manner in which provincial legislatures should consider the annual reports of municipalities. No guidelines issued in terms of this subsection are binding on a provincial legislature unless adopted by the legislature.
Consequences of non-compliance with certain provisions
133. (1) If the accounting officer of a municipality or municipal entity fails to submit financial statements to the Auditor-General in accordance with section 126( 1 ) or (2), or if the mayor fails to table the annual report of the municipality or a municipal entity in the council in accordance with section 127(2)-
(a ) the mayor must promptly table in the council a written explanation setting out the reasons for the failure;
(b) the Auditor-General, in the case of any failure to submit financial statements for auditing, must promptly- (i) inform the speaker of the council, the National Treasury and the MEC for
local government and the MEC for finance in the province of such failure; and
(ii) issue a special report on the failure to the relevant provincial legislature; and
(c ) the municipal council- (i) must request the speaker or any other councillor to investigate the
reasons for the failure and report to the council; (ii) must take appropriate steps to ensure that the financial statements are
submitted to the Auditor-General or that the annual report, including the financial statements and the audit report on those statements, is tabled in the council, as the case may be; and
(iii) may order that disciplinary steps be taken against the accounting officer or other person responsible for the failure;
(d) the provincial executive may intervene in the municipality in terms of section
(e) the National Treasury may take appropriate steps against the municipality in
cf) the provincial treasury may take appropriate steps against the municipality in
(2) The Auditor-General must submit to Parliament and the provincial legislatures- (a ) by no later than 3 1 October of each year, the names of any municipalities or
municipal entities which have failed to submit their financial statements to he Auditor-General in terms of section 126; and
(b) at quarterly intervals thereafter, the names of any municipalities or municipal entities whose financial statements are still outstanding at the end of each interval.
139 of the Constitution;
terms of section 5(2) (e) ; and
terms of section S(4)(d).
Annual report to Parliament
134. The Cabinet member responsible for local government must, a part of the report referred to in section 38 of the Municipal Systems Act, annually report to Parliament on actions taken by MECs for local government to address issues raised by the Auditor-General in audit reports on financial statements of municipalities and municipal entities.
CHAPTER 13
RESOLUTION OF FINANCIAL PROBLEMS
Part 1: Zdentijcation of jinancial problems
Primary responsibility for resolution of financial problems
5
10
15
20
2s
30
35
40
45
50
135. (1) The primary responsibility to avoid, identify and resolve financial problems
(2) A municipality must meet its financial commitments. in a municipality rests with the municipality itself.
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( 3 ) If a municipality encounters a serious financial problem or anticipates problems in meeting its financial commitments, it must immediately-
(a) seek solutions for the problem; (b) notify the MEC for local government and the MEC for finance in the province;
(c) notify organised local government. and 5
Part 2: Provincial interventions
Types of provincial interventions
136. (1 1 If the MEC for local government in a province becomes aware that there is a serious financial problem in a municipality, the MEC must promptly- 10
( a ) consult the mayor of the municipality to determine the facts; (b) assess the seriousness of the situation and the municipality’s response to the
(c) determine whether the situation justifies or requires an intervention in terms of
( 2 ) If the financial problem has been caused by or resulted in a failure by the municipality to comply with an executive obligation in terms of legislation or the Constitution, and the conditions for an intervention in terms of section 139( 1) of the Constitution are met, the provincial executive must promptly decide whether or not to intervene in the municipality. If the provincial executive decides to intervene, section 20 137 applies.
(3) If the municipality has failed to approve a budget or any revenue-raising measures necessary to give effect to the budget, as a result of which the conditions for an intervention in terms of section 139(4) of the Constitution are met, the provincial executive must intervene in the municipality in accordance with section 26. 25
(4) If the municipality, as a result of a crisis in its financial affairs, is in serious or persistent material breach of its obligations to provide basic services or to meet its financial commitments, or admits that it is unable to meet its obligations or financial commitments, as a result of which the conditions for an intervention in terms o f section 139(5) of the Constitution are met, the provincial executive must intervene in the 30 municipality in accordance with section 139.
situation; and
section 139 of the Constitution. 15
Discretionary provincial interventions
137. (1) If the conditions for a provincial intervention in a municipality in terms of section 139(1) of the Constitution are met and the provincial executive decides in terms of section 136(2) of this Act to intervene in the municipality, the provincial executive 35 may take any appropriate steps referred to in section 139(1) of the Constitution. including--
( a ) assessing the seriousness of the financial problem in the municipality: (b) seeking solutions to resolve the financial problem in a way that would be
sustainable and would build the municipality’s capacity to manage its own 30 financial affairs;
(c ) determining whether the financial problem, singly or in combination with other problems, is sufficiently serious or sustained that the municipality would benefit from a financial recovery plan and, if so, requesting any suitably qualified person- 45 (i) to prepare an appropriate financial recovery plan for the municipality;
(ii) to recommend appropriate changes to the municipality’s budget and revenue-raising measures that will give effect to the recovery plan; and
(iii) to submit the recovery plan and any recommendations referred to in subparagraphs (i) and (ii) to the MEC for local government in the 50 province within a period determined by the MEC; and
(d) consulting the mayor of the municipality to btain the municipality’s
1 3 1 N o . 26019 GOVERNMENT GAZETTE. 13 FEBI. unt i l the municipality can meet those obligations; or
claims in accordance 1% i th a distribution scheme referred to in section 155. 15
(b) to suspend the municipality's financial obligations to creditors. or any portion
( c ) to terminate the municipality's financial obligations to creditors. and to settle
(2) The Court may makc an order in terms of subsection (1) only if- ( a ) the provincial esecuti\.e has intervened in terms of section 139 and a financial
recovery plan to restore the municipality to financial health has been approved for the municipalit!.:
(h ) the financial recovery plan is likely to fail without the protection of' such an 30 order;
(c ) section 154 has been complied with, in the case of an application for an order referred to in subxction ( 1 ) ( b ) ; and
(d) section 155(1) has been complied with. in the case of an application for an order referred to i n subsection (l)(c). 35
(3) Notice of an application i n terms of subsection (1) must be given t c t (a) all creditors to \vhom the municipality owes an amount in excess of a
prescribed amount. o r if no amount is prescribed, in excess of RIOO 000, in so far as those creditors can reasonably be contacted;
(h) the MEC for finance and the MEC for local government in the province; 40 (c) the Minister; (d ) the Cabinet member responsible for local government; and (e) organised labour.
Suspension of financial obligations
154. Before issuing an order i n terms of section 153(l)(b) for the suspension of a 45 municipality's financial obligations to creditors. the court must be satisfied that-
(a ) the municipality c;~nnot currently meet its financial obligations to creditors; and
(6) all assets not reasonably necessary to sustain effective administration or to provide the minimum Ie\.el of basic municipal services have been or are to be 50 liquidated in accord~ulce \vith the approved financial recovery plan for the benefit of meeting creditors' claims.
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Termination of financial obligations and settlement of claims
155. (1) Before issuing an order for the termination of a municipality’s financial obligations to creditors in terms of section 153( l)(c), the court must be satisfied that-
(a) the municipality cannot meet its financial obligations to its creditors and is not likely to be abl t do so in the foreseeable future; 5
(b) all assets not reasonably necessary to sustain effective administration or to provide the minimum level of basic municipal services have been liquidated in accordance with the approved financial recovery plan for the benefit of meeting creditors’ claims; and
(c) all employees have been discharged except those affordable in terms of I O reasonably projected revenues as set out in the approved financial recovery plan.
(2) If the court issues an order referred to subsection ( I ) , the MEC for finance in the province must appoint a trustee to prepare a distribution scheme for the proportional settlement of all legitimate claims against the municipality as at the date of the order. 15 Those claims must be settled against the amount realised from the liquidation of assets referred to in subsection (l)(b).
(3) A distribution scheme must- (a ) determine the amount available for distribution; (b) list all creditors with claims which qualify for the purposes of the distribution 30
scheme, indicating which of those are secured and the manner in which they are secured; and
(c ) provide for the distribution of the amount available amongst creditors in the following order of preference: (i)
(ii)
(iii)
First preference must be given to the rights of secured creditors as to the 25 assets with which they are secured in terms of section 48, provided the security in question was given in good faith and at least six months before the mandatory provincial intervention in terms of section 139 began; thereafter the preferences provided for in the Insolvency Act, 1936 (Act 30 No. 24 of 1936), read with the necessary changes as the context may require, must be applied; and thereafter non-preferent claims must be settled in proportion to the amount of the different claims.
(4) A distribution scheme may not be implemented unless approved by the court. 35
Matters to be prescribed
156. The Minister, acting with the concurrence of the Cabinet member responsible for
(a ) provide for an equitable process for the recognition of claims against a municipality for the purposes of sharing in a distribution scheme, provided 30 that rejection of any claim does not prevent a creditor from proving the claim in a court; and
local government, must by regulation in terms of section 168-
(b) provide for public access to a distribution scheme.
Part 4: Municipal Financial Recovery Service
Establishment 35
157. (1) A Municipal Financial Recovery Service is hereby established as an
( 2 ) The Municipal Financial Recovery Service forms part of, and functions within, institution within the public service.
the National Treasury.
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Functions and powers
158. The Municival Financial Recoverv Service- must perform the duties and may exercise the powers assigned to the Service in terms of this Act; may, on request by the MEC for finance in a province, prepare a financial 5 recovery plan for a municipality or, with the approval of the Director-General of the National Treasury, instruct any suitably qualified person to prepare the plan in accordance with the directions of the Service; may, on request by the MEC for finance in the province. monitor the implementation of any financial recovery plans that it has prepared. and may 10 recommend such amendments and revisions as are appropriate; may on request by any municipality that is experiencing financial problems. and in co-ordination with any other provincial or national efforts, assist the municipality to identify the causes of, and potential solutions for. these financial problems: 1.5 may, with the approval of the Director-General of the National Treasury. obtain the services of any financial expert to perform any specific work for the Service; and may collect information on municipal financial problems and on best practices in resolving such problems. 70
Appointment of Head
159. (1) The Minister must appoint a person as the Head of the Service. subject to
( 2 ) Aperson appointed as the Head of the Service holds office in the National Treasury subsection ( 2 ) and legislation governing the public service.
on terms and conditions set out in a written employment contract. which must include 35 terms and conditions setting performance standards.
Responsibilities of Head
160. (1) The Head of the Service- (a) is responsible for the performance by the Service of its functions and the
exercise of its powers; and 3 0 (b) takes all decisions of the Service in the performance of its functions and the
exercise of its powers, except hose decisions of the Service taken in consequence of a delegation in terms of section 162.
(2) The Head of the Service performs the functions of ofice subject to the directions of the Director-General of the Nati nal Treasury. 35
Staff
161. The staff of the Municipal Financial Recovery Service consists of- (a) the Head of the Service; (6) persons in the service of, or contracted by, the National Treasury and
designated by the Director-General of the National Treasury for the work of -10 the Service; and
(e ) persons seconded from an organ of state or organisation to the Service by agreement between the Director-General and that organ of state or organisation.
Delegations 45
162. (1) The Head of the Service may delegate, in writing, any of the powers or duties
(2j A delegation in terms of subsection (1)- of the Service to a member of the staff of the Service.
(a) must be in writing; ( 6 ) is subject to the limitations or conditions which the Head of the Service may 50
impose: and
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(c) does not divest the Head of the Service of the responsibility concerning the
(3) The Head of the Service may confirm, vary or revoke any decision taken in consequence of a delegation in terms of subsection (l), provided that no such variation or revocation of a decision may detract from any rights that may have accrued as a result of the decision.
exercise of the delegated power or the performance of the delegated duty.
CHAPTER 14
GENERAL TREASURY MATTERS
Liabilities and risks payable in foreign currencies
163. (1) No municipality or municipal entity may incur a liability or risk payable in
(2) Subsection ( I ) does not apply- a foreign currency.
( a ) to debt regulated in terms of section 47; or (b) to the procurement of goods or services denominated in a foreign currency but
the Rand value of which is determined at the time of procurement, or where this is not possible and risk is low, at the time of payment
Forbidden activities
164. (1) No municipality or municipal entity may- (a) conduct any commercial activities-
(i) otherwise than in the exercise of the powers and functions assigned to it in terms of the Constitution or national or provincial legislation: or
(ii) outside the borders of the Republic; (b) provide a municipal service in an area outside its jurisdiction except with the
approval of the council of the municipality having jurisdiction in that area: or (c) make loans to-
(i) councillors or officials of the municipality; (ii) directors or officials of the entity; or
(iii) members of the public. (2) If a municipality or municipal entity on the date on which this section takes effect
is engaged in any activity prohibited by subsection (l)(a) or (b) and which is otherwise lawful, the municipality or entity must take all reasonable steps to rectify its position and to comply with that subsection as soon as may be reasonable in the circumstances.
Internal audit unit
165. (1) Each municipality and each municipal entity must have an internal audit unit,
( 2 ) The internal audit unit of a municipality or municipal entity must- subject to subsection (3).
( a ) prepare a risk-based audit plan and an internal audit program for each
(b) advise the accounting officer and report o the audit committee on the financial year;
implementation of the internal audit plan and matters relating to- internal audit;
5
10
15
20
25
30
35
40
internal controls; accounting procedures and practices; risk and risk management; performance management; 45 loss control; and compliance with this Act, the annual Division of Revenue Act and any other applicable legislation; and
Act No. 56,2003 LOCAL GOVERNMENT: MUNICIPAL FINANCE MANAGEMENT ACT, 2003
( c ) perform such other duties as may be assigned to it by the accounting officer. (3) The internal audit function referred to in subsection ( 2 ) may be outsourced it' the
municipality or municipal entity requires assistance to develop its internal capacity and the council of the municipality or the board of directors of the entity has determined that this is feasible or cost-effective. 5
Audit committees
166. (1) Each municipality and each municipal entity must have an audit committee.
(2) An audit committee is an independent advisory body which must- subject to subsection (6).
advise the municipal council, the political ofice-bearers. the accounting 1 0 officer and the management staff of the municipality, or the board of directors. the accounting officer and the management staff of the municipal entity. on matters relating to- (i) internal financial control and internal audits;
(ii) risk management; 15 (iii) accounting policies; (iv) the adequacy, reliability and accuracy of financial reporting and
(v) performance management; (vi) effective governance; '0
information;
(vii) compliance with this Act, the annual Division of Revenue Act and any
(viii) performance evaluation; and other applicable legislation:
(ix) any other issues referred to it by the municipality or municipal entity: ( 1 7 ) review the annual financial statements to provide the council of the 25
municipality or, in the case of a municipal entity. the council of the parent municipality and the board of directors of the entity, with an authoritative and credible view of the financial position of the municipality or municipal entity. its efficiency and effectiveness and its overall level of compliance with this Act, the annual Division of Revenue Act and any other applicable legislation: 30
(c) respond to the council on any issues raised by the Auditor-General in the audit report;
(dl carry out such investigations into the financial affairs of the municipality or municipal entity as the council of the municipality, or in the case of a municipal entity, the council of the parent municipality or the board ot' 35 directors of the entity, may request: and
(3) In performing its functions, an audit committee- ( e ) perform such other functions as may be prescribed.
(a) has access to the financial records and other relevant information of the
( 6 ) must liaise with- municipality or municipal entity; and 40
(i) the internal audit unit of the municipality; and (ii) the person designated by the Auditor-General to audit the financial
statements of the municipality or municipal entity. (4) An audit committee must- 45
(a) consist of at least three persons with appropriate experience. of whom the majority may not be in the employ of the municipality or municipal entity, as the case may be; and
(b) meet as often as is required to perform its functions, but at least four times a year. 50
(5) The members of an audit committee must be appointed by the council of the municipality or, in the case of a municipal entity, by the council of the parent municipality. One of the members who is not in the employ of the municipality or municipal entity, must be appointed as the chairperson of the committee. No councillor may be a member of an audit committee. 55
(6) A single audit committee may be established for-
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Act No. 56,2003 LOCAL GOVERNMENT MUNICIPAL FINANCE MANAGEMENT ACT. 2003
(a) a district municipality and the local municipalities within that district
(b) a municipality and municipal entities under its sole control. municipality; and
Councillors' remuneration
167. (1) A municipality may remunerate its political office-bearers and members of its 5 political structures, but only-
(a) within the framework of the Public Office-Bearers Act, 1998 (Act No. 20 of 1998), setting the upper limits of the salaries, allowances and benefits for those political office-bearers and members; and
(b) in accordance with section 219(4) of the Constitution. 10 (2) Any remuneration paid or given in cash or in kind to a person as a political
office-bearer or as a member of a political structure of a municipality otherwise than in accordance with subsection (l), including any bonus, bursary, loan, advance or other benefit, is an irregular expenditure, and the municipality-
(a) must, and has the right o, recover that remuneration from the political IS
(b) may not write off any expenditure incurred by the municipality in paying or
(3) The MEC for local government in a province must report to the provincial
office-bearer or member; and
giving that remuneration.
legislature- 20 (a) any transgressions of subsection (1); and (b) any non-compliance with sections 17(3)(k)(i) and (ii) and 124( 1 ) (n) .
Treasury regulations and guidelines
168. (1) The Minister, acting with the concurrence of the Cabinet member responsible for local government, may make regulations or guidelines applicable to municipalities 25 and municipal entities, regarding-
any matter that may be prescribed in terms of this Act; financial management and internal control; a framework for regulating the exercise of municipal fiscal and tariff-fixing powers; 30 a framework regulating the financial commitments of municipalities and municipal entities in terms of public-private partnership agreements; the establishment by municipalities of, and control over- (i) municipal entities; and
(ii) business units contemplated in section 76(u)(ii) of the Municipal 35
the safe-guarding of the financial affairs of municipalities and of municipal entities when assets, liabilities or staff are transferred from or to a municipality or a municipal entity; the alienation, letting or disposal of assets by municipalities or municipal 30 entities; internal audit units and their functioning; the. information to be disclosed when municipalities or municipal entities issue or incur debt and the manner in which such information must be disclosed, including by way of a prospectus orther document; 4s the circumstances under which further or specific disclosures are required after money has been borrowed by a municipality or municipal entity; the circumstances under which documentation or information pertaining to municipal debt must be lodged or registered; the establishment of a registry for the registration of documentation and SO information pertaining to municipal borrowing; the settlement of claims against a municipality following an order of court in terms of section 153; the information that must be placed on the websites of municipalities; a fr mework regulating vestments by municipal entities; and 55 any other matter that may facilitate the enforcement and administration of this Act.
Systems Act;
(2) A regulation or guideline in terms of this section may-
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(a) differentiate between different-- (i) kinds of municipalities, which may, for the purposes of this section, be
defined either in relation to categories, types or budgetary size of municipalities or in any other manner;
(ii) categories of municipal entities; 5 (iii) categories of accounting officers; or (iv) categories of officials; or
(b) be limited in its application to a particular- (i) kind of municipality, which may, for the purposes of this section, be
defined either in relation to a category, type or budgetary size of 10 municipality or in any other manner;
(ii) category of municipal entities; (iii) category of accounting officers; or (iv) category of officials.
(3) No guidelines issued in terms of subsection (1) are binding on- (a) a municipality unless adopted by its council; or (b) a municipal entity unless adopted by the council of the entity’s parent
municipality.
15
Consultative processes before promulgation of regulations
169. ( 1 ) Before regulations in terms of section 168 are promulgated, the Minister 20 must-
(a) consult organised local government on the substance of those regulations; and (b) publish the draft regulations in the Govenvnenr Gazette for public comment.
(2) Regulations made in terms of section 168 must be submitted to Parliament for parliamentary scrutiny at least 30 days before their promulgation. 25
Departures from treasury regulations or conditions
170. (1) The National Treasury may on good grounds approve a departure from a
( 2 ) Non-compliance with a regulation made in terms of section 168, or with a treasury regulation or from any condition imposed in terms of this Act.
condition imposed by the National Treasury in terms of this Act, may on good grounds 30 shown be condoned by the Treasury.
CHAPTER 15
FINANCIAL MISCONDUCT
Part 1: Disciplinary proceedings
Financial misconduct by municipal officials 35
171. ( 1 ) The accounting officer of a municipality commits an act of financial misconduct if that accounting officer deliberately or negligently-
(a) contravenes a provision of this Act; (b) fails to comply with a duty imposed by a provision of this Act on the
(c) makes or permits, or instructs another official of the municipality to make, an
(d) provides incorrect or misleading information in any document which in terms
accounting officer of a municipality; 40
unauthorised, irregular or fruitless and wasteful expenditure; or
of a requirement of this Act must be- (i) submitted to the mayor or the council of the municipality, or to the 45
(ii) made public. Auditor-General, the National Treasury or other organ of state; or
( 2 ) The chief financial officer of a municipality commits an act of financial misconduct if that officer deliberately or negligently-
(a) fails to cany out a duty delegated to that officer in terms of section 79 or 50 81( l>(e) ;
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(6) contravenes or fails to comply with a condition of any delegation of a power
(e ) makes or permits, or instructs another official of the municipality to make. an
(d) provides incorrect or misleading information to the accounting officer for the 5
or duty in terms of section 79 or 81( l)(e);
unauthorised, irregular or fruitless and wasteful expenditure; or
purposes of a document referred to in subsection ( l ) ( d ) . ( 3 ) A senior manager or other official of a municipality exercising financial
management responsibilities and to whom a power or duty was delegated in terms of section 79, commits an act of financial misconduct if that senior manager or official deliberately or negligently- 10
(a) fails to carry out the delegated duty; (b) contravenes or fails to comply with a condition of the delegated power or
(e ) makes an unauthorised, irregular or fruitless and wasteful expenditure: or (d) provides incorrect or misleading information to the accounting officer for the 15
duty;
purposes of a document referred to in subsection (l)(d). (4) A municipality must-
( a ) investigate allegations of financial misconduct against the accounting officer, the chief financial officer, a senior manager or other official of the municipality unless those allegations are frivolous, vexatious, speculative or obviously 20 unfounded: and
(6) if the investigation warrants such a step, institute disciplinary proceedings against the accounting officer, chief financial officer or that senior manager or other official in accordance with systems and procedures referred to in section 67 of the Municipal Systems Act, read with Schedule 2 of that Act. 25
Financial misconduct by officials of municipal entities
172. (1 ) The accounting officer of a municipal entity commits an act of financial misconduct if that accounting officer deliberately or negligently-
(u ) contravenes a provision of this Act; f b ) fails to comply with a duty imposed by a provision of this Act on the 30
accounting officer of a municipal entity; (c) makes or permits, or instructs another official of the municipal entity to make.
an irregular or fruitless and wasteful expenditure; or (d) provides incorrect or misleading information in any document which in terms
of this Act must be- 35 ( i ) submitted to the entity's board of directors or parent municipality or to
(ii) made public. the Auditor-General; or
( 2 ) A senior manager or other official of a municipal entity exercising financial management responsibilities and to whom a power or duty was delegated i n terms of 30 section 106. commits an act of financial misconduct if that senior manager or official deliberately or negligently-
(a) fails to carry out the delegated duty; (b) contravenes or fails to comply with a condition of the delegated power or
(c ) makes an irregular or fruitless and wasteful expenditure; or Id) provides incorrect or misleading information to the accounting officer for the
purposes of a document referred to in subsection (l)(dJ.
duty; 35
(3) A municipal entity must- (a) investigate allegations of financial misconduct against the accounting officer, 50
a senior manager or other official of the entity unless those allegations are frivolous, vexatious, speculative or obviously unfounded; and
(b) if the investigation warrants such a step, institute disciplinary proceedings against the accounting officer, senior manager or fficial in terms of Schedule 3 of the Municipal Systems Act. 55
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Part 2: Criminal proceedings
Offences
173. (1) The accounting officer of a municipality is guilty of an offence if that accounting officer-
(a) deliberately or in a grossly negligent way- (i) contravenes or fails to comply with a provision of section 61(?)(bj.
62(1), 63(2)(a) or (c), &@)(a) or (d) or 65(2)(a), fb), (c) . (dl . (fj or f i ) ; (ii) fails to take reasonable steps to implement the municipality’s supply
chain management policy referred to in section 11 1; (iii) fails to take all reasonable steps to prevent unauthorised. irregular or
fruitless and wasteful expenditure; or (iv) fails to take all reasonable steps to prevent corruptive practices-
(ua) in the management of the municipality’s assets or receipt of money:
(bb) in the implementation of the municipality’s supply chain manage-
f h ) deliberately misleads or withholds information from the Auditor-General on any bank accounts of the municipality or on money received or spent by the municipality; or
( c ) deliberately provides false or misleading information in any document which in terms of a requirement of this Act must be - (aa) submitted to the Auditor-General, the National Treasury or any other
fbb) made public.
or
ment policy;
organ of state; or
( 2 ) The accounting officer of a municipal entity is guilty of an offence if that accounting officer-
(a) deliberately or in a grossly negligent way- (i) contravenes or fails to comply with a provision of section 94(2)(hi.
9% 11, 96(2), 97fa) or 99(2)(n), ( e ) or (e ) : (ii) fails to take all reasonable steps to prevent irregular or fruitless and
wasteful expenditure; or (iii) fails to take all reasonable steps to prevent corruptive practices in the
management of the entity’s assets, receipt of money or supply chain management system;
( 6 ) deliberately misleads or withholds information from the Auditor-General or the entity’s parent municipality on any bank accounts of the municipal entity or on money received or spent by the entity; or
(e ) deliberately provides false or misleading information in any document which in terms of a requirement of this Act must be- (aa) submitted to the entity’s parent municipality, the Auditor-General, the
(bb) made public. National Treasury or any other organ of state; or
( 3 ) A senior manager or other official of a municipality or municipal entity exercising financial management responsibilities and to whom a power or duty was delegated in terms of section 79 or 106, is guilty of an offence if that senior manager or official deliberately or in a grossly negligent way contravenes or fails to comply with a condition of the delegation.
(4) A councillor of a municipality is guilty of an offence if that councillor- (a) deliberately influences or attempts to influence the accounting officer. the
chief financial officer, a senior manager or any other official of the municipality to contravene a provision of this Act or to refrain from complying with a requirement of this Act;
(b) interferes in the financial management responsibilities or functions assigned in terms of this Act to the accounting officer of the municipality or delegated to the chief financial officer of the municipality in terms of this Act;
(c) interferes in the financial management responsibilities or functions assigned in terms of this Act to the accounting officer of a municipal entity under the sole or shared control of the municipality; or
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(d) interferes in the management or operational activities of a municipal entity
( 5 ) A councillor, an official of a municipality or municipal entity, a member of the board of directors of a municipal entity or any other person is guilty of an offence i f that person deliberately o in a grossly negligent way- 5
(a) impedes an accounting officer from complying with a provision of this Act; (6) gives incorrect, untrue or misleading information material to an investment
(c) makes a withdrawal in contravention of section 11; (d) fails to comply with section 49; I O ( e ) contravenes a provision of section 115(2), 118 or 126(5); or (f) provides false or misleading information for the purposes of any document
which must in terms of a requirement of this Act be- (i) submitted to the council, mayor or accounting officer of a municipality or
(ii) made public.
under the sole or shared control of the municipality.
decision relating to borrowing by a municipality or municipal entity:
to the Auditor-General or the National Treasury; or 15
Penalties
174. A person is liable on conviction of an offence in terms of section 173 to imprisonment for a period not exceeding five years or to an appropriate fine determined in terms of applicable legislation.
Part 3: General
Regulations on financial misconduct procedures and criminal proceedings
175. (1) The Minister, acting with the concurrence of the Cabinet member responsible for local government, may make regulations prescribing-
( a ) the manner, form and circumstances in which allegations and disciplinary and 25 criminal charges of financial misconduct must be reported to the National Treasury, the MEC for local government in the province and the Auditor- General, including- (i) particulars of the alleged financial misconduct: and
(ii) steps taken in connection with such financial misconduct; 3 0 (b) matters relating to internal investigations by municipalities and municipal
entities of allegations of financial misconduct; (c) the circumstances in which the National Treasury or the MEC for local
government in the province may direct that disciplinary steps be taken or criminal charges be laid against a person for financial misconduct; 35
(d) criteria for the composition and functioning of a disciplinary board which hears a charge of financial misconduct;
( e ) the circumstances in which the findings of a disciplinary board and any sanctions imposed by the board must be reported to the National Treasury. the MEC for local government in the province and the Auditor-General; and 30
(f) any other matters to the extent necessary to enforce the provisions of this Act.
(a) differentiate between different- (2) A regulation in terms of subsection (1) may-
(i) kinds of municipalities, which may, for the purposes of this section, be defined either in relation to categories, types or budgetary size of 45 municipalities or in any other manner;
(ii) categories of municipal entities; (iii) categories of accounting officers; or (iv) categories of other officials; or
(b) be limited in its applicatio to a particular- 50
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(i) kind of municipality, which may, for the purposes of this section, be defined either in relation to a category, type or budgetary size of municipality or in any other manner;
(ii) category of municipal entities; (iii) category of accounting officers; or (iv) category of other officials.
5
CHAPTER 16
MISCELLANEOUS
Liability of functionaries exercising powers and functions in terms of this Act
176. (1) No municipality or any of its political structures, political office-bearers or 10 officials, no municipal entity or its board of directors or any of its directors or officials, and no other organ of state or person exercising a power or performing a function in terms of this Act, is liable in respect of any loss or damage resulting from the exercise of that power or the performance of that function in good faith.
municipality may recover from a political office-bearer or official of the municipality, and a municipal entity may recover from a director or official of the entity, any loss or damage suffered by it because of the deliberate or negligent unlawful actions of that political office-bearer or official when performing a function of office.
(2) Without limiting liability in terms of the common law or other legislation, a 15
Delays and exemptions 20
177. (1) The Minister may by notice in the Guzerre- (a) delay the implementation of a provision of this Act for a transitional period not
(b) where practicalities impede the strict application of a specific provision of this exceeding five years from the date when this section takes effect; or
Act, exempt any municipality or municipal entity from, or in respect of, such 25 provision for a period and on conditions determined in the notice.
(2) A delay or exemption in terms of subsection (1) may- fa) apply t o -
(i) municipalities generally; or (ii) municipal entities generally; or 30
(i) municipality; (ii) ,kind of municipality, which may, for the purposes of this section, be
defined either in relation to a category, type or budgetary size of municipality or in any other m ner; 35
(6) be limited in its application to a particular-
(iii) municipal entity; or (iv) category of municipal entities.
(3) To facilitate the restructuring of the electricity industry as authorised by the Cabinet member responsible for such restructuring, the Minister, acting with the concurrence of the Cabinet member esponsible for local government and after 40 consultation with organised local government, may, by notice in the Gazette, exempt any municipality or municipal entity from any specific provision of this Act for a period of not more than four years and on conditions determined in the notice, provided that such exemption may not be understood as obligating any municipality to transfer any staff, assets or liabilities. 45
Transitional provisions
178. (1) Anything done in terms of a provision repealed by section 179( l), which can be done in terms of a provision of this Act, must be regarded as having been done in terms of this Act.
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(2) All municipalities must within three months of the date on which this section takes
( a ) all corporate entities in which the municipality or a municipal entity under its effect, submit to the National Treasury a list of-
sole or shared control has an interest, specifying- (i) the name and address of the corporate entity; 5
(ii) the purpose, extent and other particulars of the interest; (iii) if such corporate entity is a municipal entity, whether the entity is under
the sole or shared control of the municipality; and (iv) such other information as may be required by the National Treasury;
(b) all public-private partnerships to which the municipality is a party, with a I O value of more than one million Rands in total or per annum, specifying- (i) the name and physical address of the private party participating in the
(ii) the purpose and other particulars of the public-private partnership; and (iii) such other information as may be required by the National Treasury; and I5
(c) all other types of contracts of the municipality for a period beyond 1 January 2007 and with a value of more than one million Rands in total or per annum.
public-private partnership;
Repeal and amendment of legislation
179. (1) The legislation referred to in the second column of the Schedule is hereby amended or repealed to the extent indicated in the third column of the Schedule. 20
(2) Despite the repeal of section 10G of the Local Government Transition Act, 1993 (Act No. 209 of 1993), by subsection (1) of this section, the provisions contained in subsections (6), (6A) and (7) of section 10G remain in force until the legislation envisaged in section 229(2)(b) of the Constitution is enacted.
effect on a date determined by the Minister by notice in the Gazette. ( 3 ) The repeal of the Municipal Accountants Act, 1988 (Act No. 21 of 1988). takes 25
Short title and commencement
180. (1) This Act is called the Local Government: Municipal Finance Management Act, 2003, and takes effect on a date determined by the Minister by notice in the Gazette.
(2) Different dates may in terms of subsection (1) be determined for different 30 provisions of the Act.
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SCHEDULE
REPEAL AND AMENDMENT OF LEGISLATION (Section 179)
No. and year of Act Short title of Act
Act No. 91 of 1983 Promotion of Local Govern- ment Affairs Act, 1983
Act No. 21 of 1988 Municipal Accountants Act, ~ ~~~
1988
Act No. 209 of 1993 Local Government Transition Act, 1993
Extent of repeal or arnend- ment
The repeal of sec[ion I7(D).
The repeal of section 1 OG.