DRAFT OF 1 NOVEMBER 2002
CHAPTER 10
FINANCIAL REPORTING AND AUDITING

Note: This Chapter impacts on section 46 of the Systems Act.
See proposed changes to that section in the Schedule at
the back of this Bill.

Part 1: Annual reports and financial statements of municipalities

Preparation of annual reports and financial statements

66. (1) The accounting officer of a municipality must for each financial year prepare an annual report and financial statements which fairly present the state of affairs of the municipality, its business, its financial results, its performance against predetermined objectives, including prescribed finance management performance indicators, and its financial position as at the end of the financial year.


(2) If the municipality has one or more municipal entities under its sole

ownership control, subsection (1) does not apply and the accounting officer must instead prepare a consolidated annual report and financial statements which fairly present the state of affairs of both the municipality and such entity or entities, their business, their financial results, their performances against predetermined objectives, including prescribed finance management performance indicators, and their financial positions as at the end of the financial year
.

(3) Annual financial statements referred to in subsections (1) and (2) must be

prepared in accordance with generally recognised accounting practice.

(4) The annual report and financial statements of a municipality must disclose

the information set out in section 67. If the municipality has one or more municipal entities under its sole ownership control, its consolidated annual report and financial statements must, in addition, disclose the information set out in section 71 in respect of each such entity.

Compulsory disclosures

67.
An annual report and financial statements referred to in section 66 (1) or (2) must disclose

(a) the prescribed particulars relating to transfers

(i) received by the municipality from
(aa) an organ of state in the national or provincial sphere of government;
(bb) another municipality; and
(cc) a municipal entity under its sole or joint ownership control, including dividends; or
(ii) made by the municipality to

(aa) another municipality;
(bb) a municipal entity under its sole or joint ownership control, including subsidies; and
(cc) any organisation or body outside government;
(b) whether the municipality has complied with the conditions of


(i) any grants made to the municipality in terms of section 214 (1) (c) of the Constitution; and
(ii) any grants made to the municipality other than in terms of section 214 of the Constitution;
(c) the reasons for any non-compliance with conditions referred to in paragraph (b);
(d) how any grants referred to in paragraph (b) were spent, per vote;
(e) 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;
(f) the prescribed particulars relating to any guarantees given by the municipality for debt incurred by a municipal entity or another municipality;
(g) in respect of each bank account held by the municipality during the relevant financial
year

(i) the name of the bank where the account is or was held, and the type and number of the account; and
(ii)
year opening and year end balances in each of these bank accounts;
(h) a list of
(i) all municipal entities under the sole or joint ownership control of the municipality as at the last day of the financial year; and
(ii) any other business undertakings in which the municipality obtained a financial interest during the financial year.
(i) particulars of all investments of the municipality as at the end of the financial year;
(j) the prescribed particulars of the municipality’s financial interests in any municipal entities and other undertakings mentioned in the list referred to in paragraph (h);

(k) particulars of
(i) any material losses through criminal conduct and any material unauthorised, irregular or fruitless and wasteful expenditures 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 unauthorised, irregular or fruitless and wasteful expenditures; and
(iii) any material losses recovered or written off;
(l) particulars of

(i) the salaries, allowances and benefits of political office-bearers and councillors of the municipality, whether financial or in kind, including a statement by the 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;
(ii) any arrears owed by individual councillors to the municipality, or a municipal entity under its ownership control, for rates or services and which at any time during the relevant financial year were outstanding for more than 90 days, including the names of those councillors
; and
(iii) the salaries, allowances and benefits of the municipal manager, every manager directly accountable to the municipal manager and such categories of other officials as may be prescribed;
(m) 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
(n) any other matters that may be prescribed
.
Auditing of annual financial statements
68. (1) An accounting officer

(a) who must prepare annual financial statements in terms of section 66 (1), must within two months after the end of a financial year, submit those statements to the Auditor-General for auditing; or
(b) who must prepare consolidated annual financial statements in terms of section 66 (2), must within three months after the end of a financial year, submit those statements to the Auditor-General for auditing.
(2) The Auditor-General must

(a) audit those financial statements; and
(b) submit an audit report on those statements to the accounting officer within three months of receipt of the statements.
(3) If the Auditor-General is unable to complete an audit within three months
of receiving financial statements from an accounting officer, the Auditor-General must
promptly submit a report outlining the reasons for the delay to the municipality and
Parliament.
(4) 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.
Tabling of annual report and financial statements and audit report in municipal councils
69.
(1) The accounting officer of a municipality must, within one month after the municipality has received the Auditor-General’s audit report

(a) table in the municipal council for discussion and, as necessary, adoption in accordance with section 76
(i) the annual report and financial statements;
(ii) the audit report on those statements; and
(iii) particulars of any corrective action taken or to be taken in response to issues raised in the audit report; and
(b) submit to the National Treasury, the MEC responsible for local government in the province and any other organ of state as may be prescribed
(i) the annual report and financial statements and the audit report; and
(ii) particulars of any corrective action referred to in paragraph (a) (iii).
(2) The Auditor- General may submit the financial statements and the audit report directly to the municipal council, the National Treasury, the MEC responsible for local government in the province or any prescribed organ of state if the accounting officer of the municipality fails to comply with subsection (1).
(3) The annual report and financial statements, the audit report and particulars of any corrective action taken or to be taken in response to issues raised in the audit report, including any recommendations by the municipality’s audit committee, must be made public when tabled in the municipal council
.

Part 2: Annual reports and financial statements of municipal entities
Preparation of annual reports and financial statements
70. (1) The accounting authority of a municipal entity must for each financial
year prepare an annual report and financial statements which fairly present the state of affairs of the entity, its business, its financial results, its performance against predetermined objectives, including any prescribed financial management indicators, and its financial position as at the end of the financial year.
(2) Annual financial statements must be prepared in accordance with
generally recognised accounting practice unless the Minister has in terms of the Public Finance Management Act prescribed another accounting standard set by the Accounting Standards Board for the relevant municipal entity.
(3) The annual report and financial statements of a municipal entity must
disclose the information set out in section 71.
Compulsory disclosures

71.
The annual report and financial statements referred to in section 70 must disclose

(a) particulars of any financial assistance received by the municipal entity from its controlling municipality or from any other organ of state in any sphere of government;
(b) particulars of any contingent liabilities for the controlling municipality of the municipal entity;
(c) particulars of any financial stake which the municipal entity may have in any other undertakings
;
(d) particulars of all investments of the municipal entity as at the end of the financial year;
(e) in respect of each bank account held by the municipal entity during the relevant financial year

(i) the name of the bank where the account is or was held, and the type and number of the account; and
(ii) year opening and year end balances in each of these bank accounts;
(f) particulars of

(i) any material losses through criminal conduct and any material irregular or fruitless or wasteful expenditures 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 irregular or fruitless or wasteful expenditures; and
(iii) any material losses recovered or written off;
(g) particulars of the salaries, allowances and benefits of

(i) the members of the governing body of the municipal entity; and
(ii) the chief executive officer of the entity, every manager directly accountable to the chief executive officer and such categories of other officials as may be prescribed; and
(h) any other matters that may be prescribed.
Auditing of financial statements
72.
(1) The accounting authority of a municipal entity must, within two months after the end of a financial year or such earlier date as may be agreed between the entity and its controlling municipality, submit the annual financial statements prepared in terms of section 70 to

(a) the Auditor-General for auditing; and
(b) its controlling municipality
.
(2) The Auditor-General must
(a) audit those financial statements; and
(b) within three months of receipt of the financial statements, submit an audit report on those statements to the municipal entity and the entity’s controlling municipality.
(3) If the Auditor-General is unable to complete an audit within three months
of receiving financial statements from a municipal entity, the Auditor-General must promptly submit a report outlining the reasons for the delay to the controlling municipality and Parliament.
(4) Once the Auditor- General has submitted an audit report to the municipal
entity and the entity’s controlling municipality, no person other than the Auditor- General may alter the audit report or the financial statements to which the audit report relates.

Submission of annual report and financial statements and audit report to

controlling municipality
73.
(1) The accounting authority of a municipal entity must, within one month after receiving the Auditor-General’s audit report in terms of section 72 (2), submit to the entity’s controlling municipality, the annual report and financial statements and the Auditor-General’s audit report on those statements
.
(2) The Auditor- General may submit the financial statements and the audit report directly to the controlling municipality of the municipal entity if the accounting authority of the entity fails to comply with subsection (1).
Compliance to be monitored
74.
The accounting officer of the controlling municipality must

(a) monitor whether the accounting authority of the municipal entity has complied with section 72 (1) and 73 (1);
(b) establish the reasons for any non-compliance; and
(c) promptly report any non-compliance, together with the reasons for such non-compliance, to the council of the controlling municipality, the MEC for local government and the Auditor- General.

Tabling of annual report and financial statements and audit report in municipal council

75.
(1) The accounting officer of a municipality which has a municipal entity under its ownership control must


(a) table in the municipal council for discussion and, as necessary, adoption in accordance with section 76

(i) the annual report and financial statements of the municipal entity;

(ii) the audit report on those statements; and

(iii) particulars of any corrective action taken or to be taken in response to issues raised in the audit report; and

(b) submit to the National Treasury, the MEC responsible for local government in the province and any other organ of state as may be prescribed

(i) the annual report and financial statements and the audit report; and

(ii) particulars of any corrective action referred to in paragraph (a) (iii).

(2) The documents referred to in subsection (1) must


(a) in the case of a municipal entity under the sole ownership control of the municipality, be tabled in the council when the consolidated annual report and financial statements referred to in section 69 (1) are tabled; or

(b) in the case of a municipal entity under the joint ownership control of the municipality, be tabled in the council within one month after the municipality has received the Auditor-General’s audit report.

(3) The Auditor-General may submit the financial statements and the audit report directly to the council of the controlling municipality or the MEC responsible for local government in the province if the accounting officer of the municipality fails to comply with subsection (1).

(4) The annual report and financial statements, the audit report and particulars of any corrective action taken or to be taken in response to issues raised in the audit report, including any recommendations by the municipal entity’s audit committee, must be made public when tabled in the municipal council
.

Part 3: General

Adoption of annual report and financial statements

76.
(1) The council of a municipality must consider and adopt an annual report and financial statements not later than two months from the date on which the report and statements were tabled in the council in terms of section 69 or 75. A municipal council may adopt an annual report and financial statements subject to such qualifications and explanations as it may consider necessary. Such qualifications and explanations may be contained in a separate oversight report issued by the council.

(2) The accounting officer must

(a) give notice of any council meeting at which documents referred to in section 69 or 75 are to be tabled or discussed or at which decisions concerning those documents are to be taken, and of any public hearings by the council or a council committee on those documents


(i) to the local community, by notice in the media; and

(ii) to the Auditor-General and the provincial department responsible for local government matters in the province, in writing; and

(b) attend such meetings for the purpose of responding to questions concerning those documents; and

(c) submit copies of the minutes of those meetings to the Auditor-General and the relevant provincial department responsible for local government matters
.

(3) Within 14 days of the adoption of the annual report and financial statements the accounting officer must make copies of the report and statements accessible to the local community, interested organisations and the media, free of charge or at a reasonable price.

(4) The National Treasury may issue guidelines on


(a) the manner in which municipal councils should consider the documents referred to in section 69 or 75 and conduct public hearings; and

(b) oversight reports.


Council meetings open to public and certain public officials

77. (1) The meetings of a municipal council at which documents referred to in section 69 or 75 are to be discussed or at which decisions concerning those documents are to be taken, must be open to the public and a reasonable time must be allowed


(a) for the discussion of any written submissions received from the local community on those documents; and

(b) for members of the local community to address the council.


(2) Representatives of the Auditor-General and any interested national or provincial department, are entitled to attend, and to speak at, any council meeting referred to in subsection (1).

Issues raised by Auditor-General in audit reports

78. (1) A municipality must address any issues raised by the Auditor-General in an audit report. The speaker of the municipality must ensure compliance by the municipality with this subsection.

(2) The MEC for local government must


(a) assess all financial statements, oversight and audit reports and determine whether the affected municipality has addressed any issues raised by the Auditor-General in an audit report; and

(b) report to the provincial legislature any omission by a municipality to adequately address those issues within 60 days
.

Submissions to provincial legislatures

79. (1) The following documents must be submitted to the provincial legislature:

(a) the annual report and financial statements of each municipality;

(b) the annual report and financial statements of each municipal entity except if included in the consolidated annual report and financial statements of the controlling municipality;

(c) the Auditor-General’s audit report on those financial statements
;

(d) the adoption resolution in terms of section 76 (1) and any oversight report issued by the council, including any qualifications or explanations subject to which an annual report and financial statements have been adopted;

(e) a report by the Auditor-General on any responses by the relevant municipality or municipal entity to any issues raised in an audit report; and

(f) an assessment by the Auditor-General whether those responses satisfactorily address the relevant issues.

(2) The accounting officer of a municipality must submit the documents

referred to in subsection (1) (a), (b) and (d) to the provincial legislature within 30 days

after the municipal council has adopted the annual report and financial statements in

terms of section 76 (1).

(3) The Auditor-General must submit the documents referred to in subsection

(1) (c), (e) and (f) to the provincial legislature without delay.

(4) The MEC responsible for local government in a province must monitor

whether municipalities in the province comply with subsection (2).

(5) A provincial legislature may deal with the documents referred to it in terms of subsection (1) in accordance with its constitutional powers.



Consequences of non-compliance with certain provisions

80.
(1) If the accounting officer of a municipality fails to submit financial statements to the Auditor-General in accordance with section 69 (1), or fails to table the annual report and financial statements, or the audit report on those statements, in the council in accordance with section 70 (1)

(a) the accounting officer 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 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 mayor or any other councillor to investigate the reasons for the failure and report to the council; and

(ii) must take any appropriate steps to ensure that the financial statements are submitted to the Auditor-General or that the annual report and financial statements, and the audit report on those statements, are tabled in the council, as the case may be; and

(iii) may take disciplinary steps against the accounting officer or other person responsible for the failure;

(d) the MEC for local government may intervene in the municipality in terms of section 139 of the Constitution; and

(e) the National Treasury may take appropriate steps against the municipality in terms of section 5 (2) (h).

(2) The Auditor-General must submit to Parliament and the provincial

legislatures


(a) by no later than 31 October of each year, the names of any municipalities or municipal entities which have failed to submit their financial statements to the Auditor-General in terms of section 69 (1) or 73 (1); 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.

Annual report to Parliament

81. The Cabinet member responsible for local government must 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.

Investigations and special audits by Auditor-General

82. (1) The Auditor-General may carry out an appropriate investigation or special audit of any municipality or municipal entity if the Auditor-General considers it to be in the public interest or upon the receipt of a credible complaint.

(2) The Auditor-General may appoint a person to carry out an investigation or special audit in terms of section (1) on behalf of the Auditor-General.

(3) If the Auditor-General issues a special report on an investigation or special audit in terms of subsection (1)

(a) the report must promptly be tabled in the council of the relevant municipality or, in the case of a municipal entity, the council of the controlling municipality; and

(b) the Auditor-General must submit a copy of the report to


(i) the National Treasury; and

(iii) the relevant provincial legislature.

(4) The Auditor-General may claim the reasonable cost of performing the duties and exercising the powers in terms of this section from the municipality or municipal entity in question or, in the case of non-payment by the municipal entity, from the controlling municipality.