1. ITEM 8 MUNICIPAL BUDGET 2009/10 ASSESSMENTS 19 AUGUST 2009

2. 2 CONTENT OUTLINE Background to LG MTEC 3 process LG MTEC 3 Methodology Key Findings of the 2009/10 draft budgets: –Responsiveness –Credibility –Governance Strategic Support/ Focus areas for the next 3-years

3. 3 Background to LGMTEC 3 The Local Government Medium Term Expenditure Committee (LGMTEC 3) process is founded upon the legislative mandate of the MFMA Act S22 and 23, which requires: The Accounting Officer (Municipal Manager) to submit the draft budget to, amongst others, the Provincial Treasury immediately after tabling the draft budget in Council and compels the Provincial Treasury to provide views and comments on the draft municipal budget and any budget-related policies and documentation. LG MTEC 3 Engagement process allows for joint discussions between provincial and local government on risks, policy priorities, key issues and challenges, that need to be considered when making budgetary decisions. The LGMTEC 3 assessment forms the basis of the engagement discussions, and covers three broad focus areas, namely, responsiveness, credibility and governance.

4. 4 LG MTEC 3 Methodology The LG MTEC 3 Assessment Framework Criteria: Responsiveness: to economic growth objectives and the socio economic needs of the community, as identified and prioritised in the IDP and LED plans. Credibility: ability to execute and deliver on this budget i.e. ability to spend; the adequacy of the revenue streams and the capacity to fund and deliver on its budget. Governance: whether appropriate corporate (and to an extent political) capacity and stability exist to ensure the long-term sustainability of service delivery.

5. 5 Responsiveness Challenges The Assessment highlighted the following key areas for improvement: –Inadequate or lack of data management to inform budgetary planning Municipal capacity to carry out data management Limited resources to fund data management Limitations in official data (StatsSA) –Inadequate or lack of performance reporting Inadequate compliance with respect to performance reporting to non- financial indicators Inadequate alignment between IDP, Budget, SDBIP and in-year and end- year performance reports No observable linkage between financial reporting and non-financial output indicators.

6. 6 Responsiveness Challenges (cont.) –Limited ability to provide budgets per capita spend Limitations in disaggregating the budget per capita spend with respect to vulnerable groups such as people living in informal settlements and indigents. –Limited ability to budget spatially i.e. ward spending Limitations in prioritising spatial budgets i.e. hampering understanding of the dispersion of service delivery across municipal wards Hence, also limits the ability to measure service delivery progress across municipal wards, i.e. improvements in access to services, service standards and frequency/reliability of service. –The degree of Public Participation Processes and its inclusion in the IDP. –Lack of a scientific model to inform and assess budget prioritisation. –Compliance to budget Circulars

7. 7 Observed Municipal Responsiveness Key observable areas of responsiveness included: Adverse Economic Climate: –Increase in free basic services, indigent policy: Qualifying income threshold value in some instances increased from twice old age social grant to three times old age social grant Concession/rebates for poor households Threshold in qualifying for support is lowered while access to water and electricity is expanded Property rates rebate on the valuation of property increased Infrastructure investment limited to affordability –Have prioritised infrastructure investment according to availability of funds and priority ranking as per the IDP. –Limited due to constraints caused by inadequate planning (Limited Capacity)

8. 8 Credibility Challenges The Assessment highlighted the following key areas for improvement: –Compliance to Budget Formats: MFMA Circular 28; 42 & 48 –Consistent under spending of capital budget Annual Financial Statements In-Year Reporting Overly optimistic on planning the capital budget –Unspent Conditional Grants

9. 9 Credibility Challenges (cont.) Funding of budget: –Increased pressure on sustainability of the Capital Replacement Reserve –Long term financial modelling (Borrowing) –Tariff Charges - Prevailing socio-economic conditions, input costs, financially sustainable, affordable –Concerns around AFS ratios which include: water and electricity losses; enforcing the credit control policy; deteriorating borrowing; inadequate spending on repairs –Debtors Growth in outstanding debtors Payment rate: Provision for bad debts increasing Increased use of prepaid meters to manage debtors Note a relaxation of credit control policy

10. 10 Governance Challenges (cont.) The Assessment highlighted the following key areas for improvement: –Human Capital Development Critical skills e.g. Engineering incl. artisans Retention Strategies Performance Management –Supply Chain Management Challenges around the institutionalisation of SCM to facilitate procurement of goods and services Segregation of duties Contract Management Emergency Procurement Lack of integration of the electronic systems to support SCM

11. 11 Governance Challenges (cont.) Service Deliver often impacted by: –Filling of Section 57 posts remains a challenge in some municipalities. –Impact of political instability –Limited understanding and accountability in role of mayor and politicians SCM –Variation wrt structure, capacity, segregation of function –This Impacts on: Degree of compliance Effective management of processes Frequency of appeal against bid outcomes –Retrospective analysis not being utilised Identify the Gap in policy and implementation process Absence of monitoring SCM performance and the incorporation of internal control and risk mitigating procedure

12. 12 Strategic Support 1.Budget Management Monitor compliance to timelines and processes Monitoring the implementation of the SDBIP and performance reporting against the SDBIP. Promoting data management by compiling, in consultation with municipalities, the socio-economic profiles for Eden and Cape Winelands municipalities in 2009. 2.Political Accountability Premier and the leader of the opposition, with the support of the Ministers for Local Government, Finance and Economic Development and Tourism, meet on a political level to craft joint solutions to ensure continued service delivery, despite political changes at local government level.

13. 13 Strategic Support (cont) 3.Corporate Governance Encourage good governance within the municipality by: oFunctional Internal Audit units; oFunctional Audit Committees; oRisk Management implementation support oDevelopment of fraud prevention strategies and implementation plans oTraining of Councillors in Code of Conduct oDevelopment of Performance Mangement Systems that reflect the IDP, SDBIP and Performance Agreements 4.Local Government Accounting Encourage good accounting practices by: oGeneral Recognised Accounting Practice (GRAP) training oPreparation of Audit Files in August 2009 oAnnual Financial Statements quality checking oAssist in rollout of Local Government Accounting Certificate

14. 14 Strategic Support (cont) 5.Local Government Finance Revenue enhancement initiatives oLooking at the tariff structure; osustainability and affordability; and osocio-economic base oCompliance with the Municipal Property rates Act 6.Financial Asset Management Cash management in municipalities by providing support, guidance and advice to improve financial management. Advise and assist municipalities in identifying the most appropriate long term borrowing options available.

15. 15 Strategic Support (cont) 7.Supply Chain Management and Disposal of Assets The implementation and refinement of a Supply Chain Management process which includes: oRetrospective analysis and Cataloguing of municipalities oreporting mechanism that addresses key areas on SCM oMunicipal SCM policy assessments oManaging the SCM forums oSCM intervention training 8.Infrastructure Development Pilot the implementation of IDIP in 3 municipalities

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17. 17 Thank You Dankie Enkosi