CHAPTER 9
GOVERNANCE OF MUNICIPAL ENTITIES
Part 1: General

Establishment of municipal entities
46. (1) A municipality may establish a municipal entity only for—
(a) the provision of a municipal service in the municipality or in an area of which the municipality forms part; or
(b) such other purpose as may be prescribed.

(2) A municipal entity may be established as provided for in, and in accordance with the Municipal Systems Act, read with this Act.]

(3) A municipality may not assign regulatory powers to a municipal entity.

(4) For the purposes of subsection (1) "establish" includes the acquisition of an
ownership control interest in an existing company or other entity.]

List of municipal entities
47. (1) Each municipality must annually, within one month after the end of each financial year, submit to the National Treasury and the Auditor-General a list of—
(a) all municipal entities under the sole or joint ownership control of the municipality as at the last day of the financial year; and
(b) any other undertakings in which the municipality obtained a financial interest during the financial year.

(2) A list in terms of subsection (1) must be in the prescribed format and must contain the prescribed particulars.

[Application of Act to multi-jurisdictional municipal service districts
48. This Act, to the extent that it could be applied, applies to the governing body of a multi-jurisdictional municipal service district established in terms of Part 4 of Chapter 8of the Municipal Systems Act as if that governing body were a municipal entity.]

[Financial duties of]Exercise by municipalities of ownership control powers
49. The controlling municipality [or municipalities exercising ownership control over] of a municipal entity –
(a) must exercise [those] its ownership control powers to ensure that the municipal entity complies with this Act, the Municipal Systems Act and [the financial policies of the municipality or municipalities] any agreement referred to in section 45D (1) or (3) between the municipality and the entity;
(b) may not interfere in the management and operational activities of the entity except for the purpose of complying with paragraph (a);
(c) must protect the integrity of the entity and its accounting authority and, if the entity has a governing body, also of the body; and

(d) must allow the accounting authority and, if the entity has a governing body, also of the body, to exercise their responsibilities.

Monitoring performance of municipal entities
49A. The controlling municipality of a municipal entity must establish and maintain a system for monitoring the performance of the entity.

Service delivery agreements with municipal entities
50. (1) The service delivery agreement between a municipality and a municipal entity must, in addition to the matters mentioned in section 81 of the Municipal Systems Act, contain such other matters as may be prescribed.

(2) When a municipality enters into a service delivery agreement with a municipal entity, a copy of the agreement must—
(a) be submitted to the National Treasury and the relevant provincial treasury; and
(b) be available for public scrutiny]

Disposal of capital assets by municipal entities
51. (1) A municipal entity may not transfer ownership [with or without consideration,] as a result of a sale or other transaction or otherwise permanently dispose of a capital asset needed to provide [a] the minimum [essential] level of basic municipal services.

(2) A municipal entity may transfer ownership or otherwise dispose of, a capital asset other than an asset contemplated in subsection (1) only after the council of [a] the controlling municipality [exercising sole or joint ownership control over the municipal entity], in a meeting open to the public, has—
(a) on reasonable grounds decided that the asset is not needed to provide [a] the minimum [essential] level of basic municipal services; and
(b) considered the fair market value of the asset and the economic and community value to be received in exchange for the asset.

(3) A decision by a municipal council that a specific capital asset is not needed to provide [a] the minimum [essential] level of basic municipal services may not be reversed by the municipality after that asset has been sold, transferred or otherwise disposed of.

(4) The council of the controlling municipality may delegate to the accounting
authority of the municipal entity its power to make the determinations referred to in subsection (2) (a) and (b) in respect of movable assets below a value determined by the council.

(5) Any transfer of ownership of an asset in terms of subsection (2) or (4) must be fair, equitable, transparent and competitive and consistent with the procurement and asset disposal policy which the municipality must adopt in terms of section 105A. The public must be given at least 30 days’ prior notice of any sale of an asset.

(6) This section does not apply to the transfer of a capital asset to a municipality or another municipal entity or to a national or provincial organ of state.

Part 2: Governing boards or bodies of municipal entities
Application of Part
52. This Part applies to all municipal entities which in terms of the legislation under which the entity was established are required to have a governing [board or] body.

Members of governing boards or bodies
53. (1) The municipality or municipalities exercising ownership control of a municipal entity must ensure that the governing [board or] body of the entity has the [appropriate range of skills and expertise] requisite range of expertise to effectively manage and guide the activities of the entity.

[(2) A person appointed or nominated for appointment by a municipal council as a member of a governing board or body must have requisite skills and expertise in the services to be rendered as such a member.]

(3) [A] No councillor or official of [a] the controlling municipality [exercising sole or joint ownership control over] of a municipal entity may serve as a member of the governing [board or] body of that entity, provided that the accounting officer of the controlling municipality may be a member of the governing body of an entity that relies for its operational activities on subsidies from the municipality. [but only in exceptional circumstances and if such councillor or official—
(a) complies with subsection (2);
(b) is not an employee of the municipal entity in question nor of any subsidiary of that entity, in the case of a municipal entity which is a company; and
(c) is not the municipal manager of that municipality.]


[(4) The number of councillors and the number of officials on a governing board or body may not exceed a prescribed limit.]

Selection process
54.
(1) A person is appointed to the governing [board or] body of a municipal entity in accordance with the legislation in terms of which the entity was established, as modified by the provisions of this Act.

(2) Whenever it is necessary for a municipality to select a person for nomination or appointment as a member of a governing [board or] body, the [municipal manager] accounting officer of the municipality must—
(a) through advertisements in the media circulating in the area of the municipality and, if expedient, requests to business and professional organisations and direct approaches to recognised experts, invite applications for such nomination or appointment;
(b) compile a list of the names of applicants, setting out the prescribed particulars of each individual applicant; and
(c) submit the list to the municipal council together with a recommendation on the matter, taking into account the provisions of section 53.

(3) Any application made pursuant to an advertisement, requests or direct approaches in terms of subsection (2)(a) must be supported by—
(a) the personal details of the applicant;
(b) particulars of the applicant’s qualifications and experience; and
(c) such other information as may be prescribed.

(4) The municipal council must make its selection from the list submitted in terms of subsection (2)(c).

(5) If the municipal council is unable to select a suitable person from the list, the council may select any person of its choice, taking into account the provisions of section 53.

(6) The person selected in terms of this section must either –
(a) be appointed to the governing body of the entity, if the municipality can make a direct appointment; or
(b) the municipality’s nomination for appointment, if the appointment must be made by a shareholders meeting or other mechanism.


Compensation for serving on governing boards or bodies
56.
(1) The municipal manager of a municipality exercising sole or joint ownership control over a municipal entity must disclose by way of a notice in a newspaper circulating in the municipality, particulars of the compensation package payable to persons as members of the governing board or body of the entity.

(2) An official of a municipality may not receive compensation for serving on the governing board or body of a municipal entity under the sole or joint ownership control of that municipality.

[(3) Subsection (2) does not prevent the payment of allowances to councillors or officials to reimburse them for their reasonable expenses relating to their work as members of a governing board or body.]

Meetings of governing boards and bodies
57. Meetings of the governing [board or] body of a municipal entity must be open to [the public, including the media] the accounting officer of the controlling municipality, including officials designated by the accounting officer. [but a board or body may exclude the public, including the media, from a meeting, if it is reasonable to do so having regard to the nature of the business being transacted]

Part 3: Accounting authorities
Accounting authorities
58. (1) Every municipal entity must have an accounting authority, which must –
(a) be accountable for the purposes of this Act; and
(b) take all reasonable steps to ensure that the municipal entity and officials in the service of the entity comply with this Act.

(2) If the municipal entity—
(a) has a chief executive officer, that person is the accounting officer [for] of that entity; or
(b) does not have a chief executive officer, the governing [board or] body of the entity is the accounting authority [for] of that entity.

(3) The National Treasury may—
(a) in exceptional circumstances, approve or instruct that another official or the governing body of the entity, or the municipal manager of the controlling municipality, must be the accounting authority [for] of that entity; or
(b) at any time withdraw an approval or instruction in terms of paragraph (a).

(4) A municipal entity must inform the Auditor-General promptly and in writing of any approval or instruction in terms of subsection (3)(a) and any withdrawal of an approval or instruction in terms of subsection (3)(b).

(5) To the extent that the accounting authority of a municipal entity is in terms of this Act accountable to [a] the controlling municipality [exercising sole or joint ownership control over] of the entity, the accounting authority must discharge that responsibility through the [municipal manager] accounting officer of the municipality.

(6) If the governing body of a municipal entity is not the accounting authority, the governing body must exercise oversight of the discharge by the accounting authority of the accounting authority’s responsibilities in terms of this Act.

Fiduciary duties of [governing boards or bodies] accounting authorities
59.
(1) The [governing board or body] accounting authority of a municipal entity must—
(a) exercise utmost care to ensure reasonable protection of the assets and records of the municipal entity;
(b) act with fidelity, honesty, integrity and in the best interests of the municipal entity in managing the financial affairs of the entity;
(c) on request, disclose to the controlling municipality [or municipalities exercising ownership control over that] of the municipal entity, all material facts, including those reasonably discoverable, which in any way may influence the decisions or actions of the [affected] controlling municipality [or municipalities]; and
(d) seek, within the sphere of influence of that [governing board or body] accounting authority, to prevent any prejudice to the financial interests of the [relevant] controlling municipality [or municipalities] or the municipal entity.

(2) The accounting authority, or if the accounting authority is a governing body, [A] a member of the [governing board or body of a municipal entity] accounting authority, may not –
(a) act in a way that is inconsistent with the responsibilities assigned to an accounting authority in terms of this Act; or
(b) use the position or privileges of, or confidential information obtained as accounting authority or as a member of [the board or body] the accounting authority, for personal gain or to improperly benefit another person.

(3) A member of [the governing board or body] an accounting authority of a municipal entity must—
(a) disclose to [that board or body] the accounting authority any direct or indirect personal or private business interest that that member or any spouse, partner or close family member may have in any matter before the [board or body] accounting authority; and
(b) withdraw from the proceedings of the [board or body] accounting authority when that matter is considered, unless the [board or body] accounting authority decides that the member’s direct or indirect interest in the matter is trivial or irrelevant.

Financial management
General financial management functions
60.
(1) An accounting authority

(a) is responsible for the effective, efficient, economical and transparent use of the resources of the municipal entity;
(b) must keep full and proper records of the financial affairs of the municipal entity in accordance with any prescribed norms and standards;
(c) must ensure that the municipal entity has and maintains

(i) effective, efficient and transparent systems of financial and risk management and internal control;
(ii) a system of internal audit under the control and direction of an audit committee complying with and operating in accordance with section 107 and any prescribed norms and standards;
(d) must take all reasonable steps to prevent –
(i) irregular and fruitless and wasteful expenditure;
(ii) losses resulting from criminal conduct; and

(iii) expenditure not complying with the operational policies of the entity;
(e) must take effective and appropriate disciplinary steps against any employee of the municipal entity who

(i) contravenes or fails to comply with a provision of this Act;
(ii) commits an act which undermines the financial management and internal control system of the municipal entity; or
(iii) makes or permits an irregular or fruitless and wasteful expenditure.

Asset management
61. An accounting authority –
(a) must ensure that a municipal entity has and implements proper asset management systems; and
(b) is responsible for the management, including the safeguarding, of all assets of the entity
.

Revenue collection management
62. (1) An accounting authority must
(a) ensure that the municipal entity has and implements proper revenue collection systems to give effect to its budget; and
(b) must take effective and appropriate steps to collect all revenue due to the entity.

(2) An accounting authority must ensure

(a) that any funds collected by the municipal entity on behalf of a municipality is transferred to that municipality strictly in accordance with the agreement between the entity and the relevant municipality; and
(b) that such funds are not used for the purposes of the municipal entity.

Bank account details to be submitted to controlling municipalities and Auditor-General
62A. (1) The accounting authority of a municipal entity must submit to its controlling municipality, in writing

(a) within 90 days after the entity has opened a new bank account, the name of the bank where the account has been opened, and the type and number of the account; and
(b) annually before the start of a financial year, the name of each bank where the entity holds a bank account, and the type and number of each account.

(2) The accounting officer of the controlling municipality, or if there are more than one controlling municipality, any one of the accounting officers as may be agreed between them, must upon receipt of the information referred to in subsection (1), submit that information to the Auditor-General in writing.

(3) The Auditor-General must keep a list of all bank accounts of each municipal entity, and make such list available to the National Treasury on request.

Expenditure management
63. An accounting authority must

(a) ensure that the municipal entity has and implements proper systems of expenditure control;
(b) settle all contractual obligations and pay all money owing, within the agreed period, or if there is no agreed period, within 30 days of it becoming due;
(c) take all reasonable steps to comply with tax, levy, duty, pension, audit and other commitments of the municipal entity as required by legislation;
(d) manage available working capital effectively and economically in terms of the cash management and investment framework; and
(e) has and implements a procurement and assets disposal system that is fair, equitable, transparent, competitive, cost-effective and consistent with the Preferential Procurement Policy Act, 2001 (Act No. 5 of 2001.

Monthly reconciliation of revenue and accounts
64. An accounting authority must take all reasonable steps to ensure that

(a) all revenue received by the municipal entity, including revenue received by any collecting agency on its behalf, is reconciled on a monthly or more regular basis; and
(b) all accounts of the municipal entity for that month are reconciled.

Budgetary duties
Preparation of budget and business plan
65.
An accounting authority must prepare a budget and business plan annually and, if the municipal entity has a governing body, submit the budget and business plan to the governing body
.

Submission of budget and business plan
65A.
An accounting authority must at least eight months before the start of a financial year, or such later date as the National Treasury may allow, submit to the municipality exercising sole or joint ownership control over the municipal entity
(a) the draft budget and business plan of that entity for the next financial year; and
(b) a projection of revenue and expenditure for the two financial years following the financial year to which the budget and business plan relates.

Budget implementation
65B. The accounting authority is responsible for implementing the municipal entity’s budget, including taking effective and appropriate steps to ensure that

(a) the spending of funds is in accordance with the budget;
(b) revenue and expenditure are properly monitored; and

(c) spending is reduced as necessary when revenue is anticipated to be less than projected in the budget.

Reports and reportable matters
Impending under collection, shortfalls, overspending and overdrafts
65C. An accounting authority must report in writing to the council of a municipality exercising sole or joint ownership control over the municipal entity

(a) any impending

(i) under collection of revenue due;
(ii) shortfalls in budgeted revenue; and
(iii) overspending of the municipal entity’s budget;
(b) any steps taken to rectify such under collection, shortfalls or overspending; and
(c) if a bank account of the municipal entity is overdrawn for a period exceeding 21 days.

Irregular and fruitless and wasteful expenditure
65D. (1) On discovery of any irregular or fruitless or wasteful expenditure,
an accounting authority must promptly report, in writing, to the council of a municipality
exercising sole or joint ownership control over the municipal entity, and the Auditor-General

(a) particulars of the expenditure; and
(b) any steps that have been taken

(i) to recover the expenditure; and
(ii) to prevent a recurrence of the expenditure.

(2) An accounting authority must promptly report to the South African Police Service any

(a) irregular expenditure that may constitute a criminal offence; and
(b) other losses suffered by the municipal entity which resulted from suspected criminal conduct.

Interference by councillors
65E. An accounting authority must promptly report to the speaker of a municipal council any interference by a councillor in

(a) the financial affairs of the municipal entity; or
(b) the responsibilities of the accounting authority.

General reporting obligations
65F.
(1) An accounting authority

(a) is responsible for the submission by the municipal entity of all reports, returns, notices and other information to a municipality or municipalities exercising sole or joint ownership control over the entity, as may be required by this Act; and

(b) must submit to the accounting officer of a municipality exercising sole or joint ownership control over the municipal entity, the National Treasury, or the Auditor-General such information, returns, documents, explanations and motivations as may be prescribed or as the municipality, the relevant treasury or the Auditor-General may require.

(2) If an accounting authority is unable to comply with any of the responsibilities in terms of this Act, the accounting authority must promptly report the inability, together with reasons, to the council of a municipality exercising sole or joint ownership control over the municipal entity.

Part 4: Other officials of municipal entities
Duties of other officials
65G.
(1) An official in a municipal entity—
(a) must ensure that the system of financial management and internal control established for that entity is carried out within the area of responsibility of that official;
(b) is responsible for the effective, efficient, economical and transparent use of financial and other resources within that official’s area of responsibility;
(c) must take effective and appropriate steps to prevent, within that official’s area of responsibility, any irregular expenditure and any under collection of revenue due;
(d) must comply with the provisions of this Act to the extent applicable to that official, including any delegations in terms of section 65H; and
(e) is responsible for the management, including the safeguarding, of the assets and the management of the liabilities within that official’s area of responsibility.
(2) When complying with subsection (1), an official is bound by the system of financial management and internal control established by the accounting authority of the municipal entity.

Delegation of powers and duties by accounting authority
65H. (1) The accounting authority of a municipal entity may delegate any of the powers or duties assigned or delegated to the accounting authority in terms of this Act, to an official of that entity.

(2) A delegation in terms of subsection (1)—
(a) must be in writing;
(b) is subject to any limitations and conditions the accounting authority may impose;
(c) may be either to a specific individual or to the holder of a specific post in the municipal entity; and
(d) does not divest the accounting authority of the responsibility concerning the exercise of the delegated power or the performance of the delegated duty.

(3) An accounting authority may confirm, vary or revoke any decision taken by an official in consequence of a delegation in terms of subsection (1), but no such variation or revocation of a decision may detract from any rights that may have accrued as a result of the decision.

Part 5: Bank accounts, budgets, business plans, expenditure and borrowing
Bank accounts
65I.
A municipal entity may not open a bank account
(a) abroad;
(b) with an institution not registered as a bank in terms of the Banks Act, 1990 (Act No. 94 of 1990); or
(c) otherwise than in the name of the municipal entity.

Business plans
65J. (1) Each municipal entity must adopt a multi-year plan for the entity that—
(a) includes its budget and such other information as may be prescribed;
(b) is consistent with the budget or budgets of the municipality or municipalities exercising sole or joint ownership control over the entity;
(c) is consistent with the service delivery agreement between the municipality and the entity;
(d) sets key financial and non-financial performance objectives and measurement criteria;
(e) reflects actual and potential liabilities and commitments, including particulars of any proposed borrowing of money during the period to which the plan relates; and
(f) complies with the other provisions of this Act.

(2) A municipal entity must submit its business plan to the municipality or municipalities exercising ownership control over it, for approval.

Expenditure of municipal entities
65K.
(1) Expenditure of a municipal entity must be in accordance with [the] its approved budget and approved business plan [approved by the council of a municipality exercising sole or joint ownership control over the entity].

(2) The accounting authority of a municipal entity must submit the business plan and budget of the entity to the relevant municipality or municipalities for approval at least six months before the start of the financial year to which that budget relates.

Borrowing of money
65L. (1) A municipal entity may borrow money but only in accordance with—
(a) a business plan and budget approved by the council of a municipality exercising sole or joint ownership control over it; and
(b) the provisions of Chapter 5 to the extent that those provisions can be applied to a municipal entity.

(2) In applying Chapter 5 to a municipal entity, reference in that Chapter to a municipality, a municipal council or [a municipal manager] an accounting officer, must be read as referring to a municipal entity, the governing [board or] body of a municipal entity or the accounting authority of a municipal entity, respectively.