Portfolio Committee on Provincial and Local

Government

MFMA Implementation

National Treasury

MFMA Implementation Unit26 February 2008

2

Background

• Development of the financial reforms commenced in 1998 to address fragmented approach

• Selected testing followed in municipalities during 2000 and legislated in 2003

• Package of support entailed financial and technical via FMG & MFMTAP

• All municipalities receive some form of support from national and provincial departments

3

Implementation

• MFMA took effect on 1 July 2004 – Phase-in approach – Capacity reviews guided phase-in– Certain sections delayed or exempted– Nominal compliance in first three years– Qualitative improvements visible and will

take between 3 to 8 years

4

Implementation

Municipal Capacity• Survey undertaken 03/04• Three capacity levels

• High 50 municipalities• Medium 106 municipalities• Low 128 municipalities

• Depending on capacity, key provisions have different dates of effect (sec.177 Gazette notice)

5

Implementation

• Establishment of the Internal Audit Unit – High capacity : 1 July 2005 – Medium capacity : 1 July 2006– Low capacity : 1 July 2007

• Reporting : 2004/05 f/year

• Budgets : 2005/06 budget

• Financial problems: 1 July 2005

• Competency levels: 1 July 2006

6

Implementation

Priorities at launch• Prepare

- MFMA implementation plan• Appointment of

- MM and CFO • Verify and address all cash management

matters• Establish primary bank account • Establish top mgt team• Implement delegations• Produce monthly reporting from 2004/05

7

Implementation

Priorities at launch • Identify

- all municipal entities

- establish status of PPP’s, long-term contracts, borrowing

• Submit all old outstanding AFS for audit • by 30 April 04

• 2003/04 AFS by 30 Sept 04

• Review role and responsibility of councillors and

officials

• Full compliance with DoRA

8

Background

• Phase-in of regulations– Investments : effect April 05– Public-Private Partnership : effect April 05– Supply Chain : effect 1 July 05

– (High: Oct 05, Med: Jan 06, Low: Jul 06)

– GRAP phase - in : effect July 06– (High: 07/08, Med: 07/08, Low: 08/09)

– Debt Disclosures : effect July 07– Minimum Competencies: effect July 07

– (5 years all officials Jan 2013)

– Asset Transfers : effect July 08

9

Implementation

Planning - 3 to 5 years

• Asset management• Budget process, content and formats• In-year reporting (section 71 and 72)• Service delivery and budget implementation plan• Measurable performance indicators (financial and non-financial)• Publication of information on municipal, national treasury websites• Establishment of budget and treasury office• Annual report guidelines • GRAP implementation - annual financial statements• Internal audits, audit outcome, risk management• Costing services• Competency based training in financial management• Financial recovery service• Credit Ratings

10

PROGRESS ON MFMA IMPLEMENTATION

11

Management arrangements and commitment to the MFMA reform programme - "Yes" responses

2004/05, 2005/06 & 2006/07

0

10

20

30

40

50

60

70

80

90

100

Capacity

Per

cent

age

"Y

es"

resp

onse

s

2004/2005 84 81 75 83

2005/2006 91 92 83 89

2006/2007 92 91 84 89

High % Meduim % Low % All %

12

Increase in vacancies for Municipal Managers and Chief Financial Officers at the time of Municipal Elections March 2006 (shown as

red line) per Quarter

0

5

10

15

20

25

Sep-05 Dec-05 Mar-06 Jun-06 Sep-06 Dec-06

Num

ber o

f Vac

anci

es

CFOs

Municipal Managers

2006 Elections

13

Failure to table report to council on roles and responsibilities of

Municipal Manager

66

73

62

64

66

68

70

72

74

2005/2006 2006/2007

Nu

mb

er

of

rep

ort

s n

ot

tab

led

14

Establishment of delegation systems and their effectiveness for high capacity municipalities

2004/05 to 2006/07

70

75

80

85

90

95

100

Financial Years

Perc

enta

ge "

Yes"

resp

onse

s

Delegations 82 92 97

Effectiveness 89 93 94

Trend 86 92 96

2004/2005 2005/2006 2006/2007

15

Management arrangements and commitment to the reform programme -

"Yes" responses 2004/05, 2005/06 & 2006/07

0

10

20

30

40

50

60

70

80

90

100

Capacity

Pe

rce

nta

ge

"Y

es"

resp

on

ses

2004/2005 84 81 75 83

2005/2006 91 92 83 89

2006/2007 92 91 84 89

High % Meduim % Low % All %

16

Where Technical Advisors have assisted municipalities with the implementation of the MFMA it has resulted in a more rapid

implementation than the national average

Implementation success for municipalities w ith Technical Advisors as at 31 December 2005,

versus national average

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

Implementation P lan Developed Formal Delegation Finalised

23 munic ipalities with Technical Advisors National Average

17

BUDGETING

18

Percentage of municipalities that tabled and approved budgets on time

2005/2006

2005/20062006/2007

2006/2007

2007/2008

2007/2008

0 10 20 30 40 50 60 70 80 90 100

Tabled on time (on/before 1 April)

Approved on time(before 1 July)

Percent

19

Percentage of municipalities with credible budgets (capital expenditure)

0

20

40

60

80

100

ALL High Capacity Medium Capacity Low Capacity

Per

cent

2005/2006 2006/2007 2007/2008

20

Percentage of municipalities with credible budgets (operating expenditure)

0

20

40

60

80

100

ALL High Capacity Medium Capacity Low Capacity

Perc

ent

2005/2006 2006/2007 2007/2008

21

Percentage of municipalities credible budgets (operating revenue)

0

20

40

60

80

100

ALL High Capacity Medium Capacity Low Capacity

Per

cent

2005/2006 2006/2007 2007/2008

22

Percentage of municipalities complying with key budget reforms (18 non-delegated municipalities)

0

20

40

60

80

100

Multi Year BudgetApproved

IDP & BudgetLinked

Revenue by SourceApproved

Expenditure byVote Approved

Per

cent

2005/2006 2006/2007 2007/2008

23

In Year and Annual Reporting

24

136

103

45

201

59

23

162

35

86

0

50

100

150

200

250

300

2004/05 2005/06 2006/07

Submission of AFS to Auditor-General2004/05, 2005/06 and 2006/07

Non Submission

Submitted late

Submitted on time

25

Municipalities LP,KZN,GT,NW,NC,MP,WCAudits opinions for 2004/05 to 2005/06 for seven

provinces expressed as an average

0

5

10

15

20

25

30

pe

rce

nt

2004/05 9 27 21 27 19

2005/06 7 24 22 23 27

Adverse opinion

Disclaimer of opinion

Qualified UnqualifiedAudit report outstanding

26

Section 71 reporting from 2004/05 to 2006/07 (per capacity)

0

20

40

60

80

100

120

2004/05 82 63 55 63

2005/06 98 92 77 86

2006/07 96 91 84 89

High Meduim Low ALL

27

Tabling of Annual Report for 2005/06 and all entities by 31 Jan 2006

0

20

40

60

80

100

Yes 38 49 30 39

No 62 51 70 61

High Meduim Low ALL

28

Other Reforms

29

Internal Audit Units

No % No % No % No % No % No %Totals 82 40 42 21 4 2 17 8 51 25 8 4

Co-sourced

(in house plus

external)

100% outsourced to external providers

Other sharing

arrangementIn house

Shared at district

municipal level

Shared with

municipal entity

30

Municipalities with Audit Committees - 2006/07

Percent %

82

64

50

0 20 40 60 80 100

High

Medium

Low

percent

31

Municipalities with Websites 2006/07

84

61

50

0 20 40 60 80 100

High

Medium

Low

percent

32

Municipalities displaying all information on website s75

48

26

15

0 20 40 60 80 100

High

Medium

Low

percent

33

Municipal Entities by function Feb 2007

Transport Buses & Roads, 3

Sport & Recreation, 2

Sew erage, 5

Solid Waste, 4

Health, 1

Public Safety, 3

Other Community, 3

Manufacturing, 1

Markets, 3Other, 3 Tourism, 5

Water, 6

Housing, 13Development and

Planning, 21

Finance & Administration, 6

Museums and Art Galleries, 2

Community Halls & Facilities, 6

Environmental Protection, 1

Electricity Services, 5Other Social, 2

34

Supply Chain Management Implementation

0102030405060708090

100

Adoption of SCMpolicy by the

Council

Delegation ofSCM roles and

responsibilities (in writing)

Development of aSCM procedure

manual

Bid Committeemembership

Training of SCMpractioners

"YE

S"

res

po

ns

es

pe

rce

nt

High Capacity Medium Capacity Low Capacity

35

Cash Management

Does the Municipal Manager administer all bank? accounts - 2004/05 to 2006/07

Yes

Yes Yes

YesYes

Yes

Yes

YesYes

0%

20%

40%

60%

80%

100%

Per

cen

tag

e

No Data 17 10 6 34 23 15 58 30 19

No 2 0 1 1 1 0 3 4 2

Yes 31 40 43 72 83 92 66 93 105

2004/05 2005/06 2006/07 2004/05 2005/06 2006/07 2004/05 2005/06 2006/07

High Medium Low

36

Expenditure Controls

Expenditure controls comply with the MFMA 2004/05, 2005/06, 2006/07

Negative

Negative

Negative

Negative

Negative Negative

Negative

Negative

Negative

No D

ata

No D

ata

No D

ata

No D

ata

No D

ata

0%

20%

40%

60%

80%

100%

No Data 34.0% 20.0% 12.0% 31.8% 9.3% 14.0% 45.7% 33.9% 15.1%

Negative 8.0% 11.5% 8.0% 7.0% 14.7% 7.2% 6.5% 7.7% 10.3%

Positive 58.0% 68.5% 80.0% 61.2% 75.9% 78.7% 47.8% 58.5% 74.6%

2004/05 2005/06 2006/07 2004/05 2005/06 2006/07 2004/05 2005/06 2006/07

High Medium Low

37

Municipality Long-term Short-term

Amathole District Municipality zaBBB zaA2

Breede Valley Municipality zaBBB- zaA3

Buffalo City zaA- zaA2

City of Cape Town zaA+ zaA1

City of JohannesburgZAR 1 bln bond maturing 2010 (COJ01)ZAR 700 mln bond maturing 2013 (COJ03)ZAR 1,2 bln bond maturing 2018 (COJ04)

zaA+zaA+zaA+zaA+

zaA1

City of Matlosana zaBBB zaA2

City of Tshwane zaA+ zaA1

City of Windhoek zaBBB zaA2

Ekurhukeni Metro zaAA- zaA1+

Emnambithi / Ladysmith Municipality zaBB+ zaB

George Municipality zaA- zaA2

Greater Tzaneen Municipality zaBBB- zaA3

Lephalale Municipality zaBB+ zaB

Makana Municipality zaBB- zaB

Mbombela Municipality zaA- zaA2

Mogalakwena Municipality zaBBB- zaA3

Nelson Mandela Metro zaA zaA1

Polokwane Municipality zaBBB+ zaA2

Potchefstroom Municipality zaA- zaA2

uMngeni Municipality zaBB- zaB

West Coast District Municipality zaBBB+ zaA2

West Coast District Municipality zaBB+ zaB

Westonaria Municipality zaBB zaB

Municipal Financial Recovery Service

(MFRS)

39

MFRS

Established in NT to perform following functions:• Assist to identify causes of financial problems and

provide potential solutions• Assist in preparation of financial recovery plans,

undertake research and provide guidance• Review, monitor and support quality

implementation of recovery plans for sustainable outcomes

• Assist in co-ordinated actions to limit wastage of resources

40

MFRS

Research finalised on:• Interventions in municipalities from 2004/05 to 2006/07• Legislative basis of intervention• Corrective actions including support rendered to resolve financial

problems Preparing technical material to assist and guide further

interventions Initial outcomes of research:

inappropriate follow through on implementation of plans, need to improve co-ordination with officials (national and two

provincial depts) to avoid duplication Province to inform NT of all interventions (formal or informal) which is

as a result of financial problems Province to forward NT assessment report on the financial problems

in the municipality prior the development of recovery plans

41

Financial Management Skills Training programme

42

Training and development

• Introduced in 2003 and funded by FMG;• Develop knowledge and skills of graduate interns in

strategic management, budgeting and finance management;

• MFMIP guidelines issued assist in criteria for selection, mentorship, progress reports and personal development plans;

• Use of provincial and municipal advisors to fast-track skills transfer;

• Two SAQA unit standard based programmes registered;– ND: Public Finance Management and Administration (NQF

Lvl 5) June 2005 and Cert. in Municipal Finance Management (NQF Lvl 6) Sept 2007

43

Training and development

• Development of training material - April/May 2008;– Currently programme offered by Wits, Afrec, Samdi– LGSETA accredited service providers to decentralise roll-out

• Validation of material content by National Treasury encouraged to accredited service providers to ensure quality and value for money training for municipalities;

• Support rendered to all municipalities to attend training and skills development;

• Competency Regulations require reports on progress tabled in council, during January and July annually.

44

Internships in Municipalities

474593835355284395082Interns as at 30 April 2007

3010010010Unemployed

22312331324No Trace

12102103401Employed by private sector

54653446899Employed by Municipalities

3000100200Employed by government

-94-10-7-7-9-8-10-17-12-14Total movement due to retention or resignation

568694542446094566296Subtotal

76145336524511New recruitments

492554039415489325785Interns as at 31 October 2005

TotalWCNCNWMPLPKZNGPFSEC

474593835355284395082Interns as at 30 April 2007

3010010010Unemployed

22312331324No Trace

12102103401Employed by private sector

54653446899Employed by Municipalities

3000100200Employed by government

-94-10-7-7-9-8-10-17-12-14Total movement due to retention or resignation

568694542446094566296Subtotal

76145336524511New recruitments

492554039415489325785Interns as at 31 October 2005

TotalWCNCNWMPLPKZNGPFSEC

45

Internships

Municipal participation in the internship programme - 31/10/2005 to 30/06/2007

01020

3040506070

8090

100

ALL HIGH MEDIUM LOW

perc

ent

% Municipalities with atleast 2 interns % Municipalities with atleast 1 intern

46

MFMA LearnersCompleted modules 1 to 6

1 2 3 4 5 6National 119 39 38 36 33 33 33Provincial 352 103 103 102 98 94 96Municipal 4885 1042 1025 1004 984 915 959Non-govenrmental 51 10 10 9 9 9 9Other 148 10 10 10 10 9 10Total 5555 1204 1186 1161 1134 1060 1107Percentage 18% 17% 17% 17% 15% 16%

complusory modules

Completed Module NumberTotal Registered

Sector

47

Programme of Reforms

• Budget Regulations, Guides and new formats • Standard Chart of Accounts for municipalities• Asset Management Guides • Asset Transfer Guides• Training and Material development for officials • Financial Management Wall Calendar• Annual Report Guides• Cash Management & Investment Guides• Tariff, Revenue, Costing Guides• Credit Rating support• Technical support to Provincial Treasuries • MFRS Practical Guide to Interventions• Quarterly MFMA co-ordination meeting with NT/ PT/SALGA/DPLG

and implementation of MOU in provinces• Publication of section 71 reports on Websites• Implement new FMG grant framework• Councillor training co-ordinated by SALGA and Issue guide for Prov

Legislatures• Improvement on quality of information on database (financial and

non-financial) in-year, annual reports and municipal websites

48

49

ConclusionChallenges

• Implement the spirit of the MFMA and utilise grants to address objectives in DORA frameworks

• Set key priority, ownership and implement timeously• Improve on employment practices, selection and

appointment of suitable candidates• Continues learning, skills development and retention• Weaknesses in internal processes, execution of

delegations, change mind-set and behavour patterns• Introduce and improve on rewards but link these to

performance • Implement mechanisms to deal with failure to comply

with the law, introduction of appropriate disciplinary measures, including withholding of funds

50

Conclusion

• MFMA Implementation Unit established in National Treasury to assist municipalities in financial reforms

Website: www.treasury.gov.zaEmail : mfma@treasury.gov.zaTelephone : 012 315 5850Fax : 012 315 5230