Municipal Budget

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Municipal Budget Reporting Regulations

• Presentation to the Select Committee on Finance,
  NCOP
• Chief Directorate Local Government Budget
  AnalysisINTERGOVERNMENTAL RELATIONS

3 February 2009
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Problem Statement

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

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Underlying Principals

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

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Accountability Cycle
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Legal Framework
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Constitutional requirements

• Section 215 (1) of the Constitution states that
• national, provincial and municipal budgets and
  budgetary processes must promote transparency,
  accountability and effective financial management
  of the economy, debt and the public sector.
• Section 215 (2) of the Constitution states that
• National legislation must prescribe -
• (a) the form of national, provincial and
  municipal budgets
• (b) when national and provincial budgets must be
  tabled and
• (c) that budgets in each sphere of government
  must show the sources of revenue and the way in
  which proposed expenditure will comply with
  national legislation.

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Constitutional requirements

• Section 216(1) of the Constitution states that
• national legislation must establish a national
  treasury and prescribe measures to ensure both
  transparency and expenditure control in each
  sphere of government, by introducing -
• Generally recognised accounting practice
• (GAMAP/GRAP OAG)
• (b) Uniform expenditure classifications and
• (Standard Chart of Accounts / General
  Leger)
• (c) Uniform treasury norms and standards
• (MFMA, Regulations, Circulars and Guidelines)

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Legislative requirements

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

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Background to reform
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Early reform

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

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Latest developments

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

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Consultation Programmeso far

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

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Scope of regulations
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Overview

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

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List of Schedules and Attachments

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

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Annual Budget Tables

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

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Adjustments Budget Tables

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

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In-year Reports

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

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Structure and content of regulations
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Structure of Regulations
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Ch 2 Budgets and budget related matters of
municipalities (1)

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

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Ch 3 Budgets Budget related matters of
municipal entities

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

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Ch 4 Non compliance with time provisions

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

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Ch 5 Framework for unforeseen unavoidable
expenditure

• Unforeseen and unavoidable expenditure by
  municipalities
• r.71 Authorisation of unforeseen and
  unavoidable expenditure
• r.72 Monetary limits on unforeseen and
  unavoidable expenditure
• Unforeseen and unavoidable expenditure by
  municipal entities
• r.73 Approval of unforeseen and unavoidable
  expenditure

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Ch 6 Unauthorized, irregular or fruitless and
wasteful expenditure

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

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Strengthening oversight of infrastructure

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

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Strengthening conditional grant control

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

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Supporting the Municipal Property Rates Act

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

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Technical aspects of document formats
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Overview

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

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Annual budget documentation Part 1

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

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Annual budget documentation Part 2

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

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Tables, charts and explanatory notes

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

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ImplementationStrategy
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Promulgation and Implementation

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

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Municipalities that must implement from 1 July
2009
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Thank You