DRAFT OF 31 MARCH 2003

To secure sound and sustainable management of the financial affairs of municipalities and other institutions in the local sphere of government; to establish treasury norms and standards for the local sphere of government; and to provide for matters connected therewith.

BE IT ENACTED by the Parliament of the Republic of South Africa, as follows:—

1. Definitions

2. Object of Act
3. Local government institutions to which Act applies
4. Amendments to Act

5. General functions of National Treasury
6. Delegations by National Treasury

7. Opening of bank accounts
8. Primary bank accounts

9. Bank account details to be submitted to National Treasury and Auditor-General
10. Control of municipal bank accounts
11. Withdrawals from municipal bank accounts

12. Relief, charitable and trust funds

15. Appropriation of funds for expenditure
16. Annual budgets

17. Contents of annual budgets and supporting documents

18. Funding of expenditures

19. Capital projects

20. Matters to be prescribed
21. Budget preparation process

22. Publication of annual budget

23. Consultations on tabled budgets
24. Approval of annual budgets

25. Failure to approve budget before start of budget year
26. Consequences of failure to approve budget before start of budget year

27. Non-compliance with provisions of this Chapter
28. Municipal adjustments budgets

29. Unforeseen and unavoidable expenditure
30. Unauthorised, irregular expenditure and fruitless and wasteful expenditure

31. Contracts having budgetary implications

32. Capacity building

33. Promotion of co-operative government by national and provincial institutions

34. National and provincial allocations to municipalities

35. Promotion of co-operative government by municipalities

36. Stopping of funds to municipalities

37. Stopping of equitable share allocations to municipalities

38. Stopping of other allocations to municipalities

39. Monitoring of bulk services to, and payment for those services by, municipalities

40. Decisions to increase cost of bulk services or to cap increases in municipal revenue

41. Disputes between organs of state

42. Short-term debt

43. Long-term debt

44. Conditions applying to both short- and long-term debt may be incurred

45. Security

46. Disclosure

47. Municipal guarantees

48. National and provincial guarantees

49. General responsibilities of mayors

50. Budget processes and related matters

51. Budgetary control and early identification of financial problems

52. Report to provincial executive if conditions for provincial intervention exist

53. Exercise of rights and powers over municipal entities

54. Municipalities which do not have mayors

55. Municipalities with executive committees

56. Delegations of mayoral powers and duties

57. Municipal managers to be accounting officers

58. Fiduciary responsibilities of accounting officers

Financial management

59. General financial management functions

60. Asset and liability management

61. Revenue management

62. Expenditure management

63. Expenditure on staff benefits

64. Funds transferred to organisations and bodies outside government

65. Budget preparation

66. Budget implementation

67. Impending shortfalls, overspending and overdrafts

Reports and reportable matters

68. Monthly budget reports

69. Mid-year budget and performance assessment

70. Reports on proposed new municipal entities

71. Reports on failure to adopt or implement budget-related and other policies

72. General reporting obligation

73. Information to be placed on official websites of municipalities

74. Protection of accounting officer

Part 2: Financial administration

75. Top management of municipalities

76. Managers and other officials of municipalities

77. Delegations

78. Establishment

79. Role of chief financial officer

80. Delegations

81. Competency levels of professional financial officials

82. Application of Chapter

83. Supply chain management policy and system

84. Supply chain management policy and system to comply with prescribed framework

85. Approval of tenders not recommended

86. Implementation of system

87. Contract management

88. Councillors barred from serving on municipal tender committee

89. Interference

Part 1: Financial governance

90. Bank accounts

91. Bank account details

92. Budgets

93. Business plans

94. Disposal of capital assets by municipal entities

95. Financial year

96. Audit

Part 2: Accounting officers

97. Chief executive officer to be accounting officer

98. Fiduciary duties of accounting officers

99. General responsibilities of accounting officers

100. Asset management

101. Revenue collection management

102. Monthly reconciliation of revenue and accounts

103. Expenditure management

104. Budget implementation

105. Impending under collection, overspending, overdrafts and non-payment

106. Irregular and fruitless and wasteful expenditure

107. Interference by councillors

108. General reporting obligations

Part 4: Other officials of municipal entities

109. Duties of other officials

110. Delegation of powers and duties by accounting officers

111. Competency levels of professional financial officials

Part 5: General

112. Borrowing of money

113. Financial problems in municipal entities

114. Preparation of annual reports and financial statements

115. Preparation of financial statements

116. Disclosures on intergovernmental grants

117. Disclosure on remuneration of councillors, officials and members and officials of entities

118. Other compulsory disclosures in financial statements

119. Auditing of financial statements

120. Submission and tabling of annual report and financial statements

121. Compliance to be monitored

Part 2: General

122. Adoption of annual report and financial statements

123. Council meetings open to public and certain public officials

124. Issues raised by Auditor-General in audit reports

125. Submissions to provincial legislatures

126. Consequences of non-compliance with certain provisions

127. Annual report to Parliament

128. Investigations and special audits by Auditor-General

Part 2: Provincial interventions

Part 3: Debt relief and restructuring

145. Legal rights

146. Application for stay of legal proceedings

147. Application for extraordinary relief

148. Suspension of financial obligations

149. Termination of financial obligations and settlement of claims

150. Matters to be prescribed

Part 4: Municipal Financial Recovery Service

151. Establishment

152. Functions and powers

153. Appointment Head

154. Responsibilities of Head

155. Staff

156. Delegations

157. Liabilities and risks payable in foreign currencies

158. Forbidden financial activities

159. Internal audit unit

160. Audit committees

161. Councillors’ remuneration

162. Treasury regulations and guidelines

163. Consultative processes before promulgation of regulations

164. Departures from treasury regulations, instructions or conditions

CHAPTER 15

FINANCIAL MISCONDUCT

Part 1: Disciplinary proceedings

165. Financial misconduct by municipal officials

166. Financial misconduct by accounting officers and officials of municipal entities

Part 2: Criminal proceedings

167. Offences

168. Penalties

Part 3: General

169. Regulations on financial misconduct procedures and criminal proceedings

170. Liability of functionaries exercising powers and functions

171. Delays and exemptions

172. Transitional provisions

173. Repeal and amendment of legislation

174. Short title and commencement

Definitions

1. (1) In this Act, unless the context indicates otherwise—

"accounting officer" –

(a) in relation to a municipality, means the municipal official referred to in section 57; or

(b) in relation to a municipal entity, means the official of the entity referred to in section 97,

and includes a person acting as the accounting officer;

"allocation", in relation to a municipality, means–

(a) a municipality’s share of the local government’s equitable share referred to in section 214 (1) (a) of the Constitution;

(b) any allocation to a municipality in terms of section 214 (1) (c) of the Constitution;

(c) any allocation of a sum of money to a municipality in terms of a provincial budget; or

(d) any allocation of a sum of money to a municipality by an organ of state, including another municipality, otherwise than in compliance with a contractual obligation;

"annual Division of Revenue Act" means the Act of Parliament which must be enacted annually in terms of section 214 (1) of the Constitution;

"approved budget" means an annual or adjustments budget –

(a) approved by a municipal council; or

(b) approved by a provincial executive following an intervention in terms of section 139 of the Constitution;

"Auditor-General" means the person appointed as Auditor-General in terms of section 193 of the Constitution, and includes a person –

(a) acting as Auditor-General; or

(b) exercising a power or performing a duty of the Auditor-General in terms of a delegation by the Auditor-General;

"basic municipal service" means a municipal service that is necessary to ensure an acceptable and reasonable quality of life and, if not provided, would endanger public health or safety or the environment;

"board of directors"–

(a) in relation to a municipal entity, means the board of directors of the entity; or

(b) in relation to a multi-jurisdictional municipal service district, means the governing body of that municipal service district appointed in terms of an agreement referred to in section 89 of the Municipal Systems Act;

"budget-related policy" means a policy of a municipality affecting or affected by the annual budget of the municipality, including –

(a) the tariffs policy which the municipality must adopt in terms of sections 74 of the Municipal Systems Act;

(b) the rates policy which the municipality must adopt in terms of legislation regulating municipal property rates; or

(c) the credit control and debt collection policy which the municipality must adopt in terms of section 96 of the Municipal Systems Act;

"budget year" means the financial year for which an annual budget is or is to be approved in

terms of section 16 (1);

"business plan", in relation to a municipal entity, means a plan adopted by a municipal entity in terms of section 93;

"category", in relation to municipalities, means a category A, B or C municipality referred to in section 155(1) of the Constitution;

"chief financial officer" means a person designated in terms of section 78 (2) (a);

"councillor" means a member of a municipal council;

"creditor", in relation to a municipality, means a person to whom money is owing by the municipality;

"current year" means the financial year preceding the budget year;

"debt" means—

(a) a monetary liability or obligation created by a financing agreement, note, debenture, bond or overdraft, or by the issuance of municipal debt instruments; or

(b) a contingent liability such as that created by guaranteeing a monetary liability or obligation of another;

"delegation", in relation to a duty, includes an instruction or request to perform the duty;

"district municipality" means a municipality that has municipal executive and legislative authority in an area that includes more than one municipality, and which is described in section 155(1) of the Constitution as a category C municipality;

"financial recovery plan" means a plan prepared in terms of section 135;

"financial statements" means statements consisting of at least—

(a) a statement of financial position;

(b) a statement of financial performance;

(c) a cash-flow statement;

(d) any other statements that may be prescribed; and

(e) any notes to these statements;

"financial year" means a year ending on 30 June;

"financing agreement" includes any loan agreement, lease, instalment purchase contract or hire purchase arrangement under which a municipality undertakes to repay a long-term debt over a period of time;

"fruitless and wasteful expenditure" means expenditure that was made in vain and would have been avoided had reasonable care been exercised;

"Head", in relation to the Municipal Finance Recovery Service, means a person –

appointed in terms of section 153 as the Head of the Service; or

acting as the Head of the Service;

"irregular expenditure" means expenditure, other than unauthorised expenditure, incurred in contravention of, or that is not in accordance with, a requirement of this Act, the annual Division of Revenue Act or any other applicable legislation;

"investment", in relation to funds of a municipality, means –

(a) the placing on deposit of funds of a municipality with a financial institution; or

(b) the acquisition of assets with funds of a municipality not immediately required, with the primary aim of preserving those funds;

"lender", in relation to a municipality, means a person who provides debt finance to a municipality;

"local community" has the meaning assigned to it in section 1 of the Municipal Systems Act;

"local municipality" means a municipality that shares municipal executive and legislative authority in its area with a district municipality within whose area it falls, and which is described in section 155(1) of the Constitution as a category B municipality;

"long-term debt" means debt that is repayable over a period exceeding one year;

"mayor", in relation to –

(a) a municipality with an executive mayor, means the councillor elected as the executive mayor of the municipality in terms of section 55 of that Act; or

(b) a municipality with an executive committee, means the councillor elected as the mayor of the municipality in terms of section 48 of the Municipal Structures Act;

"MEC for local government" means the member of the Executive Council of a province who is responsible for local government in that province;

"Minister" means the Cabinet member responsible for finance;

"month" means one of the 12 months of a calendar year;

"multi-jurisdictional municipal service district" means a multi-jurisdictional municipal service district established in terms of section 87 of the Municipal Systems Act;

"municipal council" or "council" means the council of a municipality referred to in section 18 of the Municipal Structures Act;

"municipal debt instrument" means any note, bond, debenture or other evidence of indebtedness issued by a municipality, including dematerialised or electronic evidence of indebtedness intended to be used in trade;

"municipal entity" means—

(a) a private company referred to in section 94C (1) (a) of the Municipal Systems Act; or

(b) a service utility referred to in section 94H (1) of the Municipal Systems Act;

"Municipal Financial Recovery Service" means the Municipal Financial Recovery Service established by section 151;

"municipality"—

(a) when referred to as a corporate body, means a municipality as described in section 2 of the Municipal Systems Act; or

(b) when referred to as a geographic area, means a municipal area determined in terms of the Local Government: Municipal Demarcation Act, 1998 (Act No. 27 of 1998);

"municipal manager" means a person appointed in terms of section 82 (1) (a) or (b) of the Municipal Structures Act;

"municipal service" has the meaning assigned to it in section 1 of the Municipal Systems Act;

"Municipal Structures Act" "means the Local Government: Municipal Structures Act, 1998 (Act No. 117 of 1998);

"Municipal Systems Act" means the Local Government: Municipal Systems Act, 2000 (Act No. 32 of 2000);

"National Treasury" means the National Treasury established by section 5 of the Public Finance Management Act;

"official", in relation to a municipality or municipal entity, means –

(a) an employee of a municipality or municipal entity;

(b) a person seconded to a municipality or municipal entity to work as a member of the staff of the municipality or municipal entity; or

(c) a person contracted by a municipality or municipal entity to work as a member of the staff of the municipality or municipal entity otherwise than as an employee;

"organised local government" means an organisation recognised in terms of section 2(1) of the Organised Local Government Act (Act No. 52 of 1997), to represent local government nationally or provincially;

"overspending"—

(a) in relation to the budget of a municipality, means causing the operational or capital expenditure incurred by the municipality during a financial year to exceed the total amount appropriated in that year’s budget for its operational or capital expenditure, as the case may be;

(b) in relation to a vote, means causing expenditure under the vote to exceed the amount appropriated for that vote; or

(c) in relation to expenditure under section 26, means causing expenditure under that section to exceed the percentage allowed in that section;

"parent municipality" –

(a) in relation to a municipal entity which is a private company wholly owned by a single municipality, means the municipality which wholly owns the entity;

(b) in relation to a municipal entity which is a private company owned by more than one municipality or by one or more municipalities and one or more national or provincial organs of state, means each municipality which has an interest in the company;

(c) in relation to a municipal entity which is a service utility, means the municipality which established the entity; or

(d) in relation to the governing body of a multi-jurisdictional municipal service district, means each participating municipality;

"political office-bearer", in relation to a municipality, means –

(a) the speaker, executive mayor, deputy executive mayor, mayor, deputy mayor or a member of the executive or mayoral committee elected, designated or appointed in terms of the Municipal Structures Act; or

(b) a councillor referred to in section 54 (1) of this Act;

"political structure", in relation to a municipality, means—

(a) the council of the municipality; or

(b) any committee or other collective structure of a municipality elected, designated or appointed in terms of a specific provision of the Municipal Structures Act; or

"prescribe" means prescribe by regulation in terms of section 162;

"primary bank account" means a bank account referred to in section 8 (1);

"private company" means a company referred to in sections 19 and 20 of the Companies Act,1973 (Act No. 61 of 1973);

"provincial department" means a department listed in Schedule 2 of the Public Service Act, 1994, (Proclamation No. 103 of 1994), which falls within a provincial administration listed in Schedule 1 of that Act;

"provincial treasury" means a treasury established in terms of section 17 of the Public Finance Management Act;

"Public Finance Management Act" means the Public Finance Management Act, 1999 (Act No. 1 of 1999);

"quarter" means one of the four periods of three months in a financial year;

"security" means any mechanism intended to secure the interest of a lender or investor, and includes any of the mechanisms mentioned in section 45 (2);

"service delivery agreement" has the meaning assigned to it in section 1 of the Municipal Systems Act;

"service delivery and budget implementation plan" means a detailed plan approved by the mayor of a municipality for implementing the municipality’s budget, and which must include –

(a) projections for each month of –

(i) revenue to be collected, by source; and

(ii) operational and capital expenditure, by vote;

(b) service delivery targets and indicators for each quarter; and

(c) any other matters that may be prescribed;

"service utility" means a service utility referred to in section 94H (1) of the Municipal Systems Act;

"shared control", in relation to a municipal entity which is a private company not wholly owned

by a single municipality, means the rights and powers which a municipality holding

an interest in such entity has over such entity by virtue of such interest;

"short-term debt" means a debt that is repayable over a period not exceeding one year;

"sole control", in relation to a municipal entity, means the rights and powers a municipality has over a municipal entity which is –

(i) a private company wholly owned by the municipality; or

(ii) a service utility established by the municipality;

"standards of generally recognised accounting practice" means an accounting practice complying with standards applicable to municipalities or municipal entities and issued in terms of Chapter 11 of the Public Finance Management Act;

"this Act" includes regulations made in terms of section 162 or 169;

"unauthorised expenditure", in relation to a municipality, means an expenditure for which no provision is made in the budget of the municipality, and includes—

(a) overspending the budget;

(b) overspending a vote; or

expenditure unrelated to the department or functional area covered by the vote;

"vote" means—

(a) one of the main segments into which a budget of a municipality is divided for the appropriation of money for the different departments or functional areas of the municipality; and

(b) which specifies the total amount that is appropriated for the purposes of the department or functional area concerned.

(2) In this Act, a word or expression derived from a word or expression defined in subsection (1) has a corresponding meaning unless the context indicates that another meaning is intended.

Object of Act

2. The object of this Act is to secure sound and sustainable management of the financial affairs of the local government institutions to which this Act applies by establishing norms and standards for –

(c) budgetary and financial planning processes and the co-ordination those processes with those of the other spheres of government;

(e) the handling of financial problems in municipalities; and

(f) other financial matters.

Local government institutions to which Act applies

3. (1) This Act applies to—

(a) municipalities;

(b) municipal entities;

(c) the governing bodies of multi-jurisdictional municipal service districts as if those governing bodies were municipal entities under the shared control of the parent municipalities; and

(d) national and provincial organs of state to the extent of their financial dealings with municipalities.

(2) In the event of any inconsistency between a provision of this Act and any other legislation in force when this Act takes effect and which regulates any aspect of the financial affairs of municipalities or municipal entities, the provision of this Act prevails.

Amendments to Act

4. Draft national legislation directly or indirectly amending this Act, or providing for the

enactment of subordinate legislation that may conflict with this Act, may be introduced in

Parliament only after the Minister and the Financial and Fiscal Commission have been consulted

in writing on the contents of the draft legislation, and have responded in writing.

General functions of National Treasury

5. (1) The National Treasury must—

(a) fulfil its responsibilities in terms of Chapter 13 of the Constitution, the Public Finance Management Act and this Act;

(b) promote the object of this Act as stated in section 2 –

(i) within the framework of co-operative government set out in Chapter 3 of the Constitution; and

(ii) when coordinating intergovernmental financial and fiscal relations in terms of the Intergovernmental Fiscal Relations Act, 1997 (Act No. 97 of 1997), the annual Division of Revenue Act and the Public Finance Management Act; and

(c) enforce compliance with the measures established in terms of section 216 (1) of the Constitution, including those established in terms of this Act.

(2) To the extent necessary to comply with subsection (1), the National Treasury may—

(a) monitor the budgets of municipalities to establish whether they—

(i) are consistent with the national government’s fiscal and macro-economic policy; and

(ii) comply with Chapter 4;

(b) promote good budget and fiscal management by municipalities, and for this purpose monitor the implementation of municipal budgets, including expenditure, revenue collection and borrowing;

(c) monitor and assess compliance by municipalities and municipal entities with—

(i) this Act; and

(ii) any applicable standards of generally recognised accounting practice and uniform expenditure and revenue classification systems;

(d) investigate any system of financial management and internal control in any municipality and recommend improvements;

(e) take appropriate steps if a municipality or municipal entity commits a breach of this Act, including the stopping of funds to a municipality in terms of section 216 (2) of the Constitution if the municipality, or a municipal entity under the sole or shared control of that municipality, commits a serious or persistent material breach of any measures referred to in that section; and

(f) take any other appropriate steps necessary to perform its functions effectively.

(3) The functions assigned to the National Treasury in terms of this Act are additional to those assigned to the National Treasury in terms of the Public Finance Management Act.

(4) The Minister, as the head of the National Treasury, takes all decisions of the Treasury in terms of this Act, except those decisions taken as a result of a delegation in terms of section 6.

Delegations by National Treasury

6. (1) The Minister may delegate any of the powers or duties assigned to the National Treasury in terms of this Act to—

(a) the Director-General of the National Treasury; or

(b) the MEC responsible for a provincial department, as the Minister and the Premier of the province may agree.

(2) The Minister may not delegate the National Treasury’s power –

(a) to stop funds to a municipality in terms of section 5 (2) (e); or

(b) to make regulations in terms of section 162 or 169.

(3) A delegation in terms of subsection (1)—

(a) must be in writing;

(b) is subject to any limitations or conditions which the Minister may impose;

(c) may, subject to such limitations or conditions, authorise –

(i) the Director-General of the National Treasury to sub-delegate a delegated power or duty to a staff member of the Treasury; and

(ii) the MEC responsible for the relevant provincial department to sub-delegate a delegated power or duty to a staff member of that department; and

(d) does not divest the National Treasury of the responsibility concerning the exercise of the delegated power or the performance of the delegated duty.

(3) The Minister may confirm, vary or revoke any decision taken in consequence of a delegation or sub-delegation in terms of this section, but no such variation or revocation of a decision may detract from any rights that may have accrued as a result of the decision.

Opening of bank accounts

7. (1) Every municipality must open and maintain at least one bank account in the name of the municipality, into which all money received by the municipality must be paid.

(2) Money received by a municipality must be paid into its bank account or accounts promptly and in accordance with this Chapter and any requirements that may be prescribed.

(3) A municipality 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 municipality.

(4) Money may be withdrawn from a municipal bank account only in terms of section 11 (1).

Primary bank accounts

8. (1) A municipality must have a primary bank account. If a municipality –

(a) has only one bank account, that account is its primary bank account; or

(b) has more than one bank account, it must designate one of those bank accounts as its primary bank account.

(2) The following moneys must be paid into a municipality’s primary bank account:

(a) all allocations to the municipality, including those made to the municipality for transmission to a municipal entity or other external mechanism;

(b) all income received by the municipality on its investments;

(c) all income received by the municipality in connection with its interest in any municipal entity, including dividends;

(d) all money collected by an external mechanism on behalf of the municipality; and

(e) any other moneys as may be prescribed.

(3) A municipality must take all reasonable steps to ensure that all moneys referred to

in subsection (2) are paid into its primary bank account.

(4) No organ of state in the national, provincial or local sphere of government may

transfer money referred to in subsection (2) to a municipality except through the municipality’s primary bank account. All allocations due by an organ of state to –

(a) a municipal entity under the sole control of a municipality, must be made through the municipality; or

(b) a municipal entity under the shared control of two or more municipalities, must be made through any of those municipalities, as may be agreed.

(5) The accounting officer of a municipality must submit to the National Treasury and the Auditor-General, in writing, the name of the bank where the primary bank account of the municipality is held, and the type and number of the account. If a municipality wants to change its primary bank account, it may do so only after the accounting officer has informed the National Treasury and the Auditor-General, in writing, at least 30 days before effecting the change.

Bank account details to be submitted to National Treasury and Auditor-General

9. The accounting officer of a municipality must submit to the National Treasury and the Auditor-General, in writing –

(a) within 90 days after the municipality 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 municipality holds a bank account, and the type and number of each account.

10. (1) The accounting officer of a municipality —

(a) must administer all the municipality’s bank accounts, including a bank account referred to in section 12;

(b) is accountable to the municipal council for the municipality’s bank accounts; and

(c) must enforce compliance with sections 7, 8 and 11.

(2) The accounting officer may delegate the duties referred to in subsection (1) (c) to the municipality’s chief financial officer only.

11. (1) Only the accounting officer or the chief financial officer of a municipality, or any other senior financial official of the municipality acting on the written authority of the accounting officer, may withdraw money or authorise the withdrawal of money from any of the municipality’s bank accounts, and may do so only—

(a) to defray expenditure appropriated in terms of an approved budget;

(b) to defray expenditure authorised in terms of section 26 (4);

(c) to defray unforeseeable and unavoidable expenditure authorised in terms of section 28 (1);

(d) in the case of a bank account opened in terms of section 12, to make payments from the account in accordance with subsection (4) of that section;

(e) to pay over to a person or organ of state money received by the municipality on

behalf of that person or organ of state, including –

(i) money collected by the municipality on behalf of that person or organ of state by agreement; or

(ii) any insurance or other payments received by the municipality for that person or organ of state;

(f) to refund money incorrectly paid into a bank account;

(g) to refund guarantees, sureties and security deposits;

(h) within a prescribed framework, for cash management and investment purposes in accordance with section 13; or

(i) for such other purposes as may be prescribed.

(2) Any authorisation in terms of subsection (1) to a senior financial official to withdraw money or to authorise the withdrawal of money from a bank account must be in accordance with a framework as may be prescribed. The accounting officer may not authorise any official other than the chief financial officer to withdraw money or to authorise the withdrawal of money from the municipality’s primary bank account if the municipality has a primary bank account which is separate from its other bank accounts.

(3) Money may be withdrawn from a bank account in terms of subsection (1) (b) to (i) without appropriation in terms of an approved budget.

(4) The accounting officer must within 30 days after the end of each quarter —

(a) table in the municipal council a consolidated report of all withdrawals made in terms of subsection (1) during that quarter; and

(b) submit a copy of the report to the provincial department of local government in the province and the Auditor-General.

12. (1) No political structure or office-bearer of a municipality may set up a relief, charitable or trust fund except in the name of the municipality.

(2) A municipality may in terms of section 7 open a separate bank account in the name of the municipality for the purpose of a relief, charitable or trust fund.

(3) Money received by the municipality for the purpose of such a fund must be paid into a bank account of the municipality, or if a separate bank account has been opened in terms of subsection (2), into that account.

(4) Money in a separate account opened in terms of subsection (2) may be withdrawn from the account without appropriation in terms of an approved budget, but only –

(a) by or on the written authority of the accounting officer acting in accordance with decisions of the municipal council; and

(b) for the purposes for which, and subject to any conditions on which, the fund was established or the money in the fund was donated.

Part 2: Cash, investment and asset management

Cash management and investments

13. (1) The National Treasury may prescribe a framework within which municipalities—

(a) must conduct their cash management and investments; and

(b) must invest money not immediately required.

(2) A municipality must establish an appropriate and effective cash management and investment policy in accordance with any framework that may be prescribed in terms of subsection (1).

(3) A bank where a municipality at the end of a financial year holds a bank account, or held a bank account at any time during a financial year, must—

(a) within 30 days after the end of that financial year notify the Auditor-General, in writing, of such bank account, including –

(i) the type and number of the account; and

(ii) the opening and closing balances of that bank account in that financial year; and

(b) disclose information regarding the account when so requested by the National Treasury or the Auditor-General.

(4) A bank, insurance company or other financial institution which at the end of a financial year holds, or at any time during a financial year held, an investment for a municipality must—

(a) within 30 days after the end of that financial year, notify the Auditor-General, in writing, of that investment, including the opening and closing balances of that investment in that financial year; and

(b) promptly disclose information regarding the investment when so requested by the National Treasury or the Auditor-General.

Disposal of capital assets

14. (1) A municipality may not transfer ownership as a result of a sale or other transaction or otherwise permanently dispose of a capital asset needed to provide the minimum level of basic municipal services.

(2) A municipality may transfer ownership or otherwise dispose of an asset other than one contemplated in subsection (1), but only after the council, in a meeting open to the public—

(a) has decided on reasonable grounds that the asset is not needed to provide the minimum level of basic municipal services; and

(b) has 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 the minimum level of basic municipal services, may not be reversed by the municipality after that asset has been sold, transferred or otherwise disposed of.

(4) A municipal council may delegate to the accounting officer of the municipality 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, competitive and consistent with the supply chain management

policy and system which the municipality must have and maintain in terms of section 83.

(6) This section does not apply to the transfer of a capital asset to another municipality or to a municipal entity or a national or provincial organ of state in circumstances and in respect of categories of assets approved by the National Treasury.

15. A municipality may, except where otherwise provided in this Act, incur expenditure

only –

(a) in terms of an approved budget; and

(b) within the limits of the amounts appropriated for the different votes in an approved budget.

Annual budgets

16. (1) The council of a municipality must for each financial year approve an annual budget for the municipality before the start of that financial year.

(2) In order for a municipality to comply with subsection (1), the mayor of the municipality must table the annual budget at a council meeting at least 90 days before the start of the budget year.

17. (1) An annual budget of a municipality must be a schedule in the prescribed format –

(a) setting out realistically anticipated revenue for the budget year from each revenue source;

(b) appropriating expenditure for the budget year under the different votes of the municipality;

(c) setting out indicative revenue per revenue source and projected expenditure by vote for the two financial years following the budget year;

(d) setting out –

(i) estimated revenue and expenditure by vote for the current year; and

(ii) actual revenue and expenditure by vote for the financial year preceding the current year; and

(e) a statement containing any other information required by section 215 (3) of the Constitution or as may be prescribed.

(2) An annual budget must be divided into a capital and an operating budget.

(3) When an annual budget is tabled in terms of section 16 (2), it must be

accompanied by the following documents:

(a) draft resolutions –

(i) approving the budget of the municipality;

(ii) levying any rates and other taxes, and setting any tariffs, as may be required for the budget year;

(iii) approving the budgets for the relevant financial year of each municipal entity under the sole or shared control of the municipality; and

(iv) any other matter that may be prescribed;

(b) measurable performance objectives for each vote in the budget, taking into account the municipality’s integrated development plan;

(c) a projection of cash flow for the budget year by revenue source and vote, broken down per month;

(d) any proposed amendments to the municipality’s integrated development plan following the annual review of the integrated development plan in terms of section 34 of the Municipal Systems Act;

(e) any proposed amendments to the budget-related policies of the municipality;

(f) particulars of the municipality’s investments;

(g) any prescribed budget information on municipal entities under the sole or shared control of the municipality;

(h) particulars of all proposed new municipal entities which the municipality intends to establish or in the establishment of which the municipality intends to take the initiative or to participate;

(i) particulars of any proposed service delivery agreements, including material amendments to existing service delivery agreements;

(j) particulars of any proposed allocations by the municipality to –

(i) other municipalities;

(ii) any municipal entities and other external mechanisms appointed by the municipality to assist it in the exercise of its functions or powers; and

(iii) any other organs of state;

(k) the cost to the municipality of the salaries, allowances and benefits of –

(i) political office-bearers and councillors of the municipality; and

(ii) the municipal manager, the chief financial officer, all managers of the municipality referred to in section 56 of the Municipal Systems Act and all other officials of the municipality at a remuneration package at least equal to that of such a manager;

(l) the cost to a municipal entity under the sole or shared control of the municipality of the salaries, allowances and benefits of –

(i) the members of its board of directors;

(ii) the chief executive officer and all other senior managers of the entity; and

(m) any other supporting documentation as may be prescribed.

18. (1) An annual budget may only be funded from –

(a) realistically anticipated revenues to be collected;

(b) accumulated funds from previous years’ surpluses not committed for other purposes; and

(c) borrowed funds, but only for the capital budget referred to in section 17 (2).

(2) Revenue projections in the budget must be realistic, taking into account –

(a) collection levels to date for the current year; and

(b) actual revenue collected in previous financial years.

19. (1) A municipality may spend money on a capital project only if –

(a) the project, including the total cost, has been approved by the council;

(b) money has been appropriated in the capital budget referred to in section 17 (2); and

(c) the sources of funding have been considered, are available and have not been committed for other purposes.

(2) Before approving a capital project , the council of a municipality must consider –

(a) the projected cost over all financial years until the project is operational; and

(b) the future operational costs and revenue on the project, including tax or tariff implications.

(3) A municipal council may in terms of subsection (1) (a) approve capital projects

20. The National Treasury –

(a) must prescribe the form of the annual budget; and

(b) may prescribe –

(i) the form of resolutions and supporting documentation relating to the annual budget;

(ii) the number of years preceding and following the budget year for which revenue and expenditure history or projections must be shown in the supporting documentation;

(iii) inflation projections to be used with regard to the budget;

(iv) uniform norms and standards aimed at ensuring that municipal budgets do not undermine national economic policy objectives, including measures limiting –

(aa) the rate of total revenue growth or the rate of revenue growth from particular sources; and

(bb) the rate of growth of operating expenditure within particular categories of expenditure; and

(v) uniform norms and standards aimed at promoting transparency and expenditure control;

(vi) uniform norms and standards concerning the setting of tariffs, financial risks and other matters where a municipality appoints an external mechanism for the performance of a municipal service; and

(vii) uniform norms and standards concerning the budgets of municipal entities.

Budget preparation process

21. (1) The mayor of a municipality must—

(a) co-ordinate the processes for preparing the annual budget and for reviewing the municipality’s integrated development plan and budget-related policies to ensure that the budget, the integrated development plan and the budget-related policies are mutually consistent and credible;

(b) at least ten months before the start of the budget year, table in the municipal council a time schedule outlining the key deadlines for –

(i) the preparation, tabling and approval of the budget;

(ii) the annual review of the integrated development plan in terms of section 34 of the Municipal Systems Act and the budget-related policies;

(iii) the tabling and adoption of any amendments to the integrated development plan and the budget-related policies; and

(iv) any consultative processes forming part of the processes referred to in subparagraphs (i), (ii) and (iii).

(2) When preparing the annual budget, the mayor of a municipality must —

(a) take into account the municipality’s integrated development plan;

(b) take all reasonable steps to ensure that the municipality revises the integrated development plan in terms of section 34 of the Municipal Systems Act, taking into account realistic revenue and expenditure projections for future years;

(c) consult –

(i) the relevant district municipality and all other local municipalities within the area of the district municipality, if the municipality is a local municipality;

(ii) all local municipalities within its area, if the municipality is a district municipality; and

(iii) the National Treasury and any other interested provincial and national organs of state, as may be prescribed; and

(d) provide on request any information relating to the budget –

(i) to the National Treasury; and

(ii) subject to limitations as may be prescribed to –

(aa) a prescribed national or provincial organ of state; or

(bb) another municipality affected by the budget.

22. Immediately after an annual budget is tabled in a municipal council, the accounting officer of the municipality must –

(a) in accordance with section 21A of the Municipal Systems Act –

(i) make public the annual budget and the documents referred to in section 17 (3); and

(ii) invite the local community to submit representations in connection with the budget;

(b) submit the annual budget –

(i) in both printed and electronic formats to the National Treasury; and

(ii) in either format to any prescribed national or provincial organs of state and to other municipalities affected by the budget.

23. (1) When the annual budget has been tabled, the municipal council must consider any views of –

(a) the local community; and

(b) the National Treasury and any provincial and national organs of state and municipalities which made submissions on the budget.

(2) After considering all budget submissions, the council must give the mayor an opportunity –

(a) to respond to the submissions; and

(b) if necessary, to revise the budget and table amendments for consideration by the council.

(3) The National Treasury may issue guidelines on the manner in which municipal councils should process their annual budgets, including guidelines on the formation of a committee of the council to consider the budget and to hold public hearings.

Approval of annual budgets

24. (1) The municipal council must consider an annual budget for approval at least 30 days before the start of the budget year.

(2) An annual budget –

(a) must be approved before the start of the budget year;

(b) is approved by the adoption by the council of the resolution referred to in section 17 (3) (a) (i); and

(c) must be approved together with the adoption of resolutions as may be necessary –

(i) levying any property rates for the budget year;

(ii) levying any other taxes for the budget year;

(iii) setting any tariffs for municipal services for the budget year;

(iv) approving measurable performance objectives for each vote in the budget;

(v) approving any changes to the integrated development plan; and

(vi) approving any changes to budget-related policies.

Failure to approve budget before start of budget year

25. (1) If a municipal council fails to approve an annual budget, including revenue raising measures necessary to give effect to the budget, the council must reconsider the budget and again vote on the budget, or on another version thereof, within seven days of the council meeting that failed to approve the budget.

(2) The process provided for in subsection (1) must be repeated until a budget,

including revenue raising measures necessary to give effect to the budget, is approved.

(3) If a municipality has not approved an annual budget, including revenue raising

measures necessary to give effect to the budget, by the first day of the budget year, the mayor must immediately comply with section 52.

Consequences of failure to approve budget before start of budget year

26. (1) If by the start of the budget year a municipal council has not approved an annual budget or any revenue raising measures necessary to give effect to the budget, the provincial executive must intervene in the municipality in terms of section 139 (4) of the Constitution by taking any appropriate steps to ensure that the budget or those revenue raising measures are approved, including dissolving the council and –

(a) appointing an administrator until a newly elected council has been declared elected; and

(b) approving a temporary budget or revenue raising measures to provide for the continued functioning of the municipality.

(2) Sections 34 (3) and (4) and 35 of the Municipal Structures Act apply when an MEC for local government dissolves a municipal council.

(3) When approving a temporary budget for a municipality in terms of subsection (1) (b), the provincial executive is not bound by any provision relating to the budget process applicable to a municipality in terms of this Act or other legislation. Such a budget must after the intervention has ended be replaced by a budget approved by the newly elected council, provided the provisions of this Chapter relating to annual budgets are substantially complied with in line with any revised time lines approved by the MEC for local government in the province.

(4) Until a budget for the municipality is approved in terms of section 24 or subsection (1) (b) of this section, funds for the requirements of the municipality may, with the approval of the MEC for local government in the province, be withdrawn from the municipality’s bank accounts in accordance with subsection (5).

(5) Funds withdrawn from a municipality’s bank accounts in terms of

subsection (4) –

(a) may be used only to defray current and capital expenditure in connection with votes for which funds were appropriated in the last approved annual budget or adjustments budget; and

(b) may not –

(i) during any month, exceed eight per cent of the total amount appropriated in the last approved annual budget for current expenditure, which percentage must be scaled down proportionately if revenue flows are not at least at the same level as the previous financial year; and

(ii) exceed the amount actually available.

(6) The funds provided for in subsection (4) are not additional to funds

appropriated for the budget year, and any funds withdrawn in terms of subsection (5) must be regarded as forming part of the funds appropriated in a subsequently approved annual budget for the budget year.

27. (1) The mayor of a municipality must upon becoming aware of any impending non-compliance by the municipality of any provisions of this Act or any other legislation pertaining to the tabling or approval of an annual budget, or compulsory consultation processes, inform the MEC for local government in the province, in writing, of such impending non-compliance.

(2) If the impending non-compliance pertains to a time provision, except section 16 (1), the MEC for local government may, on application by the mayor and on good cause shown, extend any time limit or deadline contained in that provision, provided that no such extension may compromise compliance with section 16 (1). An MEC for local government

must –

(a) exercise the power contained in this subsection in accordance with a prescribed framework; and

(b) promptly notify the National Treasury of any extensions given in terms of this subsection, together with the name of the municipality and the reasons.

(3) The mayor of a municipality must upon becoming aware of any actual non-compliance by the municipality of a provision of this Chapter, inform the council, the MEC for local government and the National Treasury, in writing, of –

(a) such non-compliance; and

(b) any remedial or corrective measures the municipality intends to put in place to avoid a recurrence.

(4) Non-compliance by a municipality with a provision of this Chapter relating to the budget process or a provision in any legislation relating to the approval of a budget-related policy, does not affect the validity of an annual or adjustments budget.

(5) The provincial executive may intervene in terms of the appropriate provision of section 139 of the Constitution if a municipality cannot or does not comply with a provision of this Chapter, including a provision relating to process.

Municipal adjustments budgets

28. (1) A municipality may revise an approved annual budget through an adjustments budget.

(2) An adjustments budget —

(a) must promptly adjust the revenue and expenditure estimates downwards if there is material under-collection of revenue during the budget year;

(b) may appropriate additional revenues that have become available, over and above those anticipated in the annual budget, but only to revise or accelerate spending programmes already budgeted for;

(c) may, within a prescribed framework, authorise unforeseeable and unavoidable expenditure recommended by the mayor of the municipality;

(d) may authorise the utilisation of projected savings in one vote towards spending under another vote;

(e) may authorise the spending of funds that were unspent at the end of the financial year preceding the budget year, where the under-spending could not reasonably have been foreseen at the time the annual budget was approved by the council;

(f) may correct any errors in the annual budget; and

(g) may provide for any other expenditure within a prescribed framework.

(3) An adjustments budget must be in a prescribed form.

(4) Only the mayor may table an adjustments budget in the municipal council, but an adjustments budget in terms of subsection (2) (b) to (g) may only be tabled within any prescribed limitations as to timing or frequency.

(5) When an adjustments budget is tabled, it must be accompanied by –

(a) an explanation how the adjustments budget affects the annual budget;

(b) a motivation of any material changes to the annual budget;

(c) an explanation of the impact of any increased spending on the annual budget and the next annual budget; and

(d) any other supporting documentation that may be prescribed.

(6) Sections 22 (b) and 23 (3) apply in respect of an adjustments budget, and in such application a reference in those sections to an annual budget must be read as a reference to an adjustments budget.

29. (1) The mayor of a municipality may in emergency or other exceptional circumstances authorise unforeseeable and unavoidable expenditure for which no provision was made in an approved budget.

(2) Any such expenditure –

(a) must be in accordance with any framework that may be prescribed;

(b) may not exceed a prescribed percentage of the approved annual budget;

(c) must be reported by the mayor to the municipal council at its next meeting; and

(d) must be appropriated in an adjustments budget.

(3) If such adjustments budget is not passed within 60 days after the expenditure was incurred, the expenditure is unauthorised and section 30 applies.

30. (1) Without limiting liability in terms of the common law or other legislation—

(a) a political office-bearer of a municipality is liable for unauthorised expenditure if that office-bearer ignored the advice of the accounting officer of the municipality that the expenditure would lead to unauthorised expenditure and instructed the accounting officer to incur the expenditure;

(b) the accounting officer is liable for unauthorised expenditure deliberately or negligently incurred by the accounting officer, subject to subsection (3);

(c) any political office-bearer or official of a municipality who deliberately or negligently committed, made or authorised an irregular expenditure, is liable for that expenditure; or

(d) any political office-bearer or official of a municipality who deliberately or negligently made or authorised a fruitless and wasteful expenditure is liable for that expenditure.

(2) A municipality must recover unauthorised, irregular or fruitless and wasteful expenditure from the person liable for that expenditure unless the expenditure—

(a) in the case of unauthorised expenditure, is—

(i) authorised in an adjustments budget; or

(ii) certified by the municipal council as irrecoverable and written off by the council; and

(b) in the case of irregular or fruitless and wasteful expenditure, is after investigation by a council committee, certified by the council as irrecoverable and written off by the council.

(3) If the accounting officer becomes aware that the council, the mayor or the

executive committee of the municipality, as the case may be, has taken a decision which, if implemented, is likely to result in unauthorised, irregular or fruitless and wasteful expenditure, the accounting officer is not liable for any ensuing unauthorised, irregular or fruitless and wasteful expenditure provided that the accounting officer has informed the council, the mayor or the executive committee, in writing, that the expenditure is likely to be unauthorised, irregular or fruitless and wasteful expenditure.

(4) The accounting officer must promptly inform the speaker of the council, the MEC for local government in the province and the Auditor-General, in writing, of—

(a) any unauthorised, irregular or fruitless and wasteful expenditure incurred by the municipality;

(b) whether any person is responsible or under investigation for such unauthorised, irregular or fruitless and wasteful expenditure; and

(b) the steps that have been taken—

(i) to recover or rectify such expenditure; and

(ii) to prevent a recurrence of such expenditure.

(5) The writing off in terms of subsection (2) of any unauthorised, irregular or

fruitless and wasteful expenditure as irrecoverable, is no excuse in criminal or disciplinary proceedings against a person charged with the commission of an offence or a breach of this Act relating to such unauthorised, irregular or fruitless and wasteful expenditure.

(6) The accounting officer must report to the South African Police Service all

cases of alleged –

(a) irregular expenditure that constitute a criminal offence; and

(b) theft and fraud that occurred in the municipality.

(7) The council of a municipality must take all reasonable steps to ensure that

all cases referred to in subsection (6) are reported to the South African Police Service if –

(a) the charge is against the accounting officer; or

(b) the accounting officer fails to comply with that subsection.

(8) The National Treasury may regulate the application of this section by

regulation in terms of section 162.

31. (1) A municipality may enter into a contract which will impose financial

obligations on the municipality beyond a budget year, but if the contract will impose financial

obligations on the municipality beyond the end of the second financial year following the budget year it may do so only if –

(a) the municipal council –

(i) has decided that the municipality will secure a significant capital investment or will derive a significant economic or financial benefit from the contract;

(ii) has taken into account –

(aa) financial projections of the municipality’s financial obligations in terms of the proposed contract for each financial year that is covered by the contract;

(bb) the impact of those financial obligations on future tariffs and revenue; and

(cc) any written views and recommendations on the proposed contract by the responsible national department, if the contract involves the provision of water, sanitation, electricity or other service as may be prescribed;

(iii) has approved the contract in principle as part of its budgetary process; and

(b) after approval in principle of the proposed contract –

(i) the accounting officer, in accordance with section 21A of the Municipal Systems Act –

(aa) has made public an information statement setting out particulars of the proposed contract; and

(bb) has invited the local community to submit written comments or representations to the council in respect of the proposed contract; and

(ii) the municipal council –

(aa) has considered any views of the local community on the matter; and

(bb) has specifically approved all provisions in the contract relating to future tariffs, transfers, payments and financial risks for the municipality.

(2) A copy of the information statement referred to in subsection (1) (b) (i) (aa) must be submitted to the National Treasury.

(3) The process set out in subsection (1) and (2) does not apply to –

(a) contracts for long-term debt regulated in terms of section 43 (3);

(b) employment contracts; or

(c) contracts –

(i) for categories of goods as may be prescribed; or

(ii) in terms of which the financial obligation on the municipality is below a prescribed value.

(4) All contracts referred to in subsection (1) and all other contracts that impose a

financial obligation on a municipality must be made available in their entirety to the municipal council, and may not be withheld from public scrutiny except as provided for in terms of the Disclosure of Information Act, ……..

32. (1) The national and provincial governments must by agreement assist municipalities in building their capacity for efficient, effective and transparent financial management.

(2) The national and provincial governments must support the efforts of municipalities to identify and resolve their financial problems.

(3) When performing its monitoring function in terms of section 155 (6) of the Constitution, a provincial government –

(a) must share with a municipality the results of its monitoring to the extent that those results may assist the municipality in improving its financial management;

(b) upon detecting any emerging or impending financial problems in a municipality, must alert the municipality to those problems; and

(c) may assist the municipality to avert or resolve financial problems.

(4) Non-compliance with this section or any other provision of this Act by the national or a provincial government does not affect the responsibility of a municipality, its political structures, political office-bearers and officials to comply with this Act.

33. National and provincial departments and public entities must –

(a) in their fiscal and financial relations with the local sphere of government promote co-operative government in accordance with Chapter 3 of the Constitution;

(b) promptly meet their financial commitments towards municipalities;

(c) provide timely information and assistance to municipalities to enable municipalities –

(i) to plan properly, including in developing and revising their integrated development plans; and

(ii) to prepare their budgets in accordance with the processes set out in Chapter 4 of this Act; and

(d) comply with the Public Finance Management Act, the annual Division of Revenue Act and the Intergovernmental Fiscal Relations Act, 1997 (Act No. 97.of 1997), to the extent that those Acts regulate intergovernmental relations with the local sphere of government.

34. (1) In order to provide predictability and certainty about the sources and levels of intergovernmental funding for municipalities, the accounting officer of a national or provincial department and the accounting authority of a national or provincial public entity responsible for the transfer of any allocations to a municipality, must by no later than 20 January of each year notify the National Treasury or the relevant provincial treasury, as may be appropriate, of all proposed allocations, and the projected amounts of those allocations, to be transferred to municipalities during each of the next three financial years.

(2) The Minister or the MEC responsible for finance in a province must, to the extent

possible, when tabling the national annual budget in the National Assembly or the provincial annual budget in the provincial legislature, make public particulars of any allocations due to each municipality in terms of that budget, including the amount to be transferred to the municipality during each of the next three financial years.

35. (1) Municipalities must –

(a) in their fiscal and financial relations with the national and provincial spheres of government and other municipalities, promote co-operative government in accordance with Chapter 3 of the Constitution;

(b) provide budgetary and other financial information to relevant municipalities and national and provincial organs of state; and

(c) promptly meet all financial commitments towards other municipalities or national and provincial organs of state.

(2) In order to enable municipalities to include allocations from other municipalities

in their budgets and to plan effectively for the spending of such allocations, the accounting

officer of a municipality responsible for the transfer of any such allocation to another

municipality must, by no later than 120 days before the start of its budget year, notify the receiving municipality of the projected amount of any allocation proposed to be transferred to that municipality during each of the next three financial years.

36. (1) The National Treasury may stop –

(a) the transfer of funds due to a municipality as its share of the local government’s equitable share referred to in section 214 (1) (a) of the Constitution, but only if the municipality commits a serious or persistent breach of the measures established in terms of section 216 (1) of the Constitution; or

(b) the transfer of funds due to a municipality as an allocation referred to in section 214 (1) (c) of the Constitution, but only if the municipality or the municipal entity for which the funds are destined –

(i) commits a serious or persistent breach of the measures established in terms of section 216 (1) of the Constitution; or

(ii) breaches or fails to comply with any conditions subject to which the allocation is made.

(2) Before the National Treasury stops the transfer of funds to a municipality in terms of subsection (1) (a) or (b), it must –

(a) give the municipality an opportunity to submit written representations with regard to the proposed stopping of the funds;

(b) inform the MEC for local government in the province; and

(c) consult the Cabinet member responsible for the national department making the transfer.

(3) If the stopping of funds in terms of subsection (1) (a) or (b) may affect the

provision of basic municipal services in the municipality, the provincial executive –

(a) must monitor the continuation of those services; and

(b) may intervene in terms of section 139 of the Constitution if the municipality cannot or does not fulfill its obligations with regard to the provision of those services.

(4) When considering whether to stop the transfer of funds to a municipality in terms of subsection (1) (a) or (b) (i), the National Treasury must take into account all relevant facts, including –

(a) the municipality’s compliance with the requirements of this Act, in particular those relating to –

(i) the preparation of its annual financial statements;

(ii) the submission to the Auditor-General of its annual financial statements; and

(iii) the budget; and

(iv) the submission of information on the budget and implementation of the budget to the National Treasury and the national department responsible for local government; and

(b) the municipality’s co-operation with other municipalities on fiscal and financial matters, in the case of district and local municipalities.

37. (1) A decision by the National Treasury to stop the transfer to a municipality of funds referred to in section 36 (1) (a) –

(a) lapses after the expiry of 120 days, subject to approval of the decision in terms of paragraph (b) of this subsection and renewal of the decision in terms of subsection (2); and

(b) may be enforced immediately, but will lapse retrospectively unless Parliament approves it following a process substantially the same as that established in terms of section 75 of the Constitution, and prescribed by the joint rules and orders of Parliament. This process must be completed within 30 days of the decision by the National Treasury to stop the transfer of the funds.

(2) Parliament may renew a decision to stop the transfer of funds referred to in section 36 (1) (a) for no more than 120 days at a time, following the process established in terms of subsection (1) (b).

(3) Before Parliament approves or renews a decision to stop the transfer of funds to a municipality –

(a) the Auditor-General must report to Parliament, if requested to do so by Parliament; and

(b) the municipality must be given an opportunity to answer the allegations against it, and to state its case, before a committee.

38. If the transfer of funds to a municipality has been stopped in terms of section 36 (1) (b) for the rest of the relevant financial year, the accounting officer of the national or provincial department responsible for the transfer must reflect such stopping of funds, together with reasons, in the annual financial statements of the department.

39. (1) The National Treasury must monitor –

(a) the pricing structure for the provision of bulk services to municipalities by other organs of state; and

(b) payments made by municipalities for such services.

(2) Each organ of state providing bulk services to a municipality must within 15 days after the end of each month furnish the National Treasury, the national department responsible for local government and the provincial department responsible for local government in the relevant province with a written statement setting out, for each municipality in that province –

(a) the amount to be paid by the municipality for services for that month, and for the financial year up to the end of that month;

(b) the arrears owing and the age profile of such arrears; and

(c) any actions taken by that organ of state to recover arrears.

This clause was amended after consultation with DPLG

Decisions to increase cost of bulk services or to cap increases in municipal revenue

40. (1) A national or provincial organ of state may increase the cost for municipalities of water, electricity or other bulk service as may be prescribed only after the Minister and organised local government have been consulted.

(2) A power conferred by national or provincial legislation on a national or

provincial organ of state to determine the upper limit of a municipal tariff, rate or tax, or of revenue from any other source, may despite such legislation, not be exercised in a way that would impair a municipality’s ability to meet its contractual obligations if the contract –

(a) has been approved by the municipality in accordance with the process set forth in section 31 for long-term contracts or the process set forth in section 43(3) for long term debt; and

(b) in the case of a contract as to which the municipal council was required to take into account the views and recommendations of the responsible national department in terms of section 31, the contract was provided to that department, and to the cabinet member responsible for local government, at least 60 days before the council approved the contract.

(3) Unless approved otherwise by the Minister, a decision referred to in subsection (1) or (2) which is made known –

(a) on or before 28 February in any year, does not take effect for municipalities before 1 July in that year; or

(b) after 28 February in any year, does not take effect for municipalities before 1 July the next year.

41. (1) Whenever a dispute of a financial nature arises between organs of state, the parties concerned must as promptly as possible take all reasonable steps that may be necessary to resolve the matter out of court.

(2) If the Minister is not a party to the dispute, the parties –

(a) must report the matter to the Minister; and

(b) may request the Minister to mediate between the parties or to designate a person to mediate between them.

(3) If the Minister accedes to a request in terms of subsection (2), the Minister

may determine the mediation process.

(4) This section only applies if at least one of the organs of state referred to in subsection (1) is a municipality or municipal entity.

Short-term debt

42. (1) A municipality may incur short-term debt only in accordance with and subject to the provisions of this Act and only when necessary to bridge—

(a) shortfalls within a financial year during which the debt is incurred, in expectation of specific and realistic anticipated income to be received within that financial year; or

(b) capital needs within a financial year, to be repaid from specific funds to be received from enforceable allocations or long-term debt commitments.

(3) For the purpose of subsection (2) (a), a municipal council may –

(ii) the terms of the agreement, including the credit limit, may be changed only by a resolution of the council; and

(iii) if the council approves a credit facility that is limited to emergency use, the accounting officer must notify the council in writing as soon as practical of the amount, duration and cost of any debt incurred in terms of such a credit facility, as well as options for repaying such debt.

(4) A municipality—

(a) must pay off short-term debt within the financial year; and

(b) may not renew or refinance short-term debt, whether its own debt or that of any other entity, where such renewal or refinancing will have the effect of extending the short term debt into a new financial year.

(5) (a) No lender may willfully extend credit to a municipality for the purpose of renewing or refinancing short-term debt that must be paid off in terms of subsection (4) (a).

(b) If a lender willfully extends credit to a municipality in contravention of

paragraph (a), the municipality is not bound to repay the loan or interest on the loan.

(6) Subsection (5) (b) does not apply if the lender—

(a) relied in good faith on written representations of the municipality as to the purpose of the borrowing; and

(b) did not know and had no reason to believe that the borrowing was for the purpose of renewing or refinancing short-term debt.

Long-term debt

43. (1) A municipality may incur long-term debt only in accordance with and subject to the provisions of this Act and only for the purpose of—

(a) capital expenditure on property, plant or equipment to be used for the purpose of achieving the objects of local government as set out in section 152 of the Constitution, including costs referred to in subsection (4); or

(b) re-financing existing long-term debt subject to subsection (5).

(2) A municipality may incur long-term debt only if –

(3) A municipality may incur long-term debt only if the accounting officer of the municipality –

(a) has in accordance with section 21A of the Municipal Systems Act –

(i) at least 14 days prior to the meeting of the council at which approval for the debt is to be considered, made public an information statement setting out particulars of the proposed debt, including the amount of the proposed debt, the purposes for which the debt is to be incurred and particulars of any security to be provided; and

(ii) invited the public to submit written comments or representations to the council in respect of the proposed debt; and

(c) has submitted a copy of the information statement to the municipal council at least 14 days prior to the meeting of the council, together with particulars of –

(i) the essential repayment terms, including the anticipated debt repayment schedule; and

(ii) the anticipated total cost in connection with such debt over the repayment

period.

(4) Capital expenditure contemplated in subsection (1) (a) may include—

(a) financing costs, including—

(i) capitalised interest for a reasonable initial period;

(ii) costs associated with security arrangements in accordance with section 45;

(iii) discounts and fees in connection with the financing;

(iv) fees for legal, financial advisory, trustee, credit rating and other services directly connected to the financing; and

(v) costs connected to the sale or placement of debt, and costs for printing and publication directly connected to the financing;

(b) costs of professional services directly related to the capital expenditure; and

(c) such other costs as may be prescribed.

(5) A municipality may borrow money for the purpose of re-financing existing long-term debt, provided that –

(a) the existing long-term debt was lawfully incurred;

(b) the re-financing does not extend the term of the debt beyond the useful life of the property, plant or equipment for which the money was originally borrowed;

(c) the net present value of projected future payments (including principal and interest payments) after re-financing is less than the net present value of projected future payments before re-financing; and

(d) the discount rate used in projecting net present value referred to in paragraph (c), and any assumptions in connection with the calculations, must be reasonable, and in accordance with criteria set out in a framework that may be prescribed.

(6) A municipality’s long-term debt must be consistent with its capital budget referred to in section 17 (2).

Conditions applying to both short and long-term debt

44. A municipality may incur debt only if –

(a) the debt is denominated in Rand and is not indexed to, or affected by, fluctuations in the value the Rand against any foreign currency; and

(b) section 45 (3) has been complied with, where security is to be provided in terms of section 45.

Security

45. (1) A municipality may, by resolution of its council, provide security for –

(a) any of its debt obligations;

(b) any debt obligations of a municipal entity under its sole control; or

(c) contractual obligations of the municipality undertaken in connection with capital expenditure by other persons on property, plant or equipment to be used by the municipality or such other person for the purpose of achieving the objects of local government in terms of section 152 of the Constitution.

(2) A municipality may in terms of subsection (1) provide any appropriate security, including by –

(a) giving a lien on, or pledging, mortgaging, ceding or otherwise hypothecating an asset or right, or giving any other form of collateral;

(b) undertaking to effect payment directly from money or sources that may become available and to authorise the lender or investor direct access to such sources to ensure payment of the secured debt or the performance of the secured obligations, but this form of security may not affect compliance with section 8 (2);

(c) undertaking to deposit funds with the lender, investor or third party as security;

(d) agreeing to specific payment mechanisms or procedures to ensure exclusive or dedicated payment to lenders or investors, including revenue intercepts, payments into dedicated accounts or other payment mechanisms or procedures;

(e) ceding as security any category of revenue or rights to future revenue;

(f) undertaking to have disputes resolved through mediation, arbitration or other dispute-resolution mechanisms;

(g) undertaking to retain revenues or specific charges, fees, tariffs or funds at a particular level or at a level sufficient to meet its financial obligations;

(h) undertaking to make provision in its budgets for the payment of its financial obligations, including capital and interest;

(i) agreeing to restrictions on debt that the municipality may incur in future until the secured debt is settled or the secured obligations are met; and

(j) agreeing to such other arrangements as the municipality may consider necessary and prudent.

(3) A council resolution authorising the provision of security in terms of subsection (2) (a)—

(a) must determine whether the asset or right with respect to which the security is provided, is necessary for providing the minimum level of basic municipal services; and

(b) if so, must indicate the manner in which the availability of the asset or right for the provision of that minimum level of basic municipal services will be protected.

(4) If the resolution has determined that the asset or right is necessary for providing the minimum level of basic municipal services, neither the party to whom the municipal security is provided, nor any successor or assignee of such party, may, in the event of a default by the municipality, deal with the asset or right in a manner that would preclude or impede the continuation of that minimum level of basic municipal services.

(5) A determination in terms of subsection (3) that an asset or right is not necessary for providing the minimum level of basic municipal services is binding on the municipality until the secured debt has been paid in full or the secured obligations have been performed in full, as the case may be.

Disclosure

46. (1) Any person involved in the borrowing of money by a municipality must, when interacting with a prospective lender or when preparing documentation for consideration by a prospective investor—

(a) disclose all information in that person’s possession or within that person’s knowledge that may be material to the decision of that prospective lender or investor; and

(b) take reasonable care to ensure the accuracy of any information disclosed.

(2) A lender or investor may rely on written representations of the municipality signed by the accounting officer, if the lender or investor did not know and had no reason to believe that those representations were false or misleading.

Municipal guarantees

47. A municipality may not issue any guarantee for any commitment or debt of any

organ of state or person, except on the following conditions:

a municipality may guarantee the debt of a municipal entity under its sole control if –

the council has approved a business plan for the entity which reflects the debt; and

the guarantee is authorised by the council in the same manner and subject to the same conditions applicable in terms of this Chapter to borrowing by the municipality itself;

a municipality may guarantee the debt of any other person only with the approval of the National Treasury, and then only if –

the municipality creates, and maintains for the duration of the guarantee, a liquid and otherwise uncommitted reserve equal to its total potential financial exposure as a result of such guarantee; or

the municipality purchases and maintains in effect for the duration of the guarantee, a policy of insurance issued by a registered insurer, which covers the full amount of the municipality’s potential financial exposure as a result of such guarantee.

National and provincial guarantees

48. Neither the national nor a provincial government may guarantee the debt of a municipality or municipal entity except in accordance with the Public Finance Management Act.

General responsibilities of mayors

49. (1) The mayor of a municipality—

(a) must provide general political guidance over the financial affairs of the municipality;

(b) in providing such general political guidance, may monitor and, to the extent provided in this Act, oversee the exercise of responsibilities assigned in terms of this Act to the accounting officer and the chief financial officer, but may not interfere in the exercise of those responsibilities;

(c) must take all reasonable steps to ensure that the municipality performs its constitutional and statutory functions within the limits of the approved budget;

(d) must within 30 days of the end of each quarter submit a report to the council on the implementation of the budget and the financial state of affairs of the municipality; and

(e) must exercise the other powers and perform the other duties assigned to the mayor in terms of this Act or by the council.

50. (1) The mayor of a municipality must –

(a) provide general political guidance over the budget process and the priorities that must guide the preparation of a budget;

(b) co-ordinate the annual revision of the integrated development plan in terms of section 34 of the Systems Act and the preparation of the annual budget, and determine how the integrated development plan is to be taken into account or revised for the purposes of the budget; and

(c) take all reasonable steps to ensure –

(i) that the municipality approves its annual budget before the start of the budget year;

(ii) that the municipality’s service delivery and budget implementation plan is approved within 28 days after the approval of the budget; and

that the annual performance agreements as required in terms of section 57 (1) (b) of the Municipal Systems Act for the municipal manager and all managers directly responsible to the municipal manager –

(aa) comply with this Act in order to promote sound financial management;

(bb) are linked to the measurable performance objectives approved with the budget and to the service delivery and budget implementation plan; and

(cc) are concluded in accordance with section 57 (2) of the Municipal Systems Act.

(2) The mayor must report any delay in the signing of the annual performance

agreements to the municipal council and the MEC for local government in the province.

(3) The performance contract of the municipal manager and those of any other categories of officials as may be prescribed must be made public no later than …….days after the approval of the municipality’s service delivery and budget implementation plan. Copies of such performance contracts must be submitted to the council and the MEC for local government in the province.

Budgetary control and early identification of financial problems

51. (1) On receipt of a report submitted by the accounting officer of the municipality in terms of section 68 or 69, the mayor must –

(a) consider the report;

(b) check whether the budget is implemented in accordance with the service delivery and budget implementation plan;

(c) issue any appropriate instructions to the accounting officer to ensure –

(i) that the budget is implemented in accordance with the service delivery and budget implementation plan; and

(ii) that spending of funds and revenue collection proceed in accordance with the budget;

(d) identify any financial problems facing the municipality, including any emerging or impending financial problems; and

(e) in the case of the section 69 report, promptly submit the report to the council.

(2) If the municipality faces any serious financial problems the mayor must –

(a) promptly respond to and initiate any remedial or corrective steps proposed by the accounting officer to deal with such problems, which may include –

(i) steps to reduce spending when revenue is anticipated to be less than projected in the budget;

(ii) the tabling of an adjustments budget; or

(iii) steps in terms of Chapter 13; and

(b) alert the council and the MEC for local government in the province to those problems.

52. If a municipality has not approved an annual budget by the first day of the budget year or if the municipality encounters a serious financial problem referred to in section 130, the mayor of the municipality –

(a) must immediately report the matter to the MEC for local government in the province; and

(b) may recommend to the MEC an appropriate provincial intervention in terms of section 139 of the Constitution.

53. (1) The mayor of a municipality which has sole or shared control over a municipal entity must guide the municipality in exercising its rights and powers over the municipal entity in a way –

(a) that would ensure that the municipal entity complies with this Act and at all times remains accountable to the municipality; and

(b) that would not impede the entity from performing its operational responsibilities.

(2) In guiding the municipality in the exercise of its rights and powers over a

municipal entity in accordance with subsection (1), the mayor may monitor the operational

functions of the entity, but may not interfere in the performance of those functions.

Municipalities which do not have mayors

54. (1) The council of a municipality which does not have a mayor, must designate a councillor to exercise the powers and duties assigned by this Act to a mayor.

(2) A reference in this Act to the mayor of a municipality must, in the case of

a municipality which does not have a mayor, be construed as a reference to a councillor designated by the council of the municipality in terms of subsection (1).

Municipalities with executive committees

55. The powers and functions assigned by this Act to a mayor must, in the case of a municipality which has an executive committee referred to in section 43 of the Municipal Structures Act, be exercised by the mayor in consultation with the executive committee.

Delegations of mayoral powers and duties

56. (1) The powers and duties assigned in terms of this Act to the mayor of a

municipality, may –

(a) in the case of a municipality which has an executive mayor referred to in section 55 of the Municipal Structures Act, be delegated by the executive mayor in terms of section 60 (1) of that Act to another member of the municipality’s mayoral committee;

(b) in the case of a municipality which has an executive committee referred to in section 43 of that Act, be delegated by the council of the municipality to another member of the executive committee; or

(c) in the case of a municipality which has designated a councillor in terms of section 54 (1) of this Act, be delegated by the council to any other councillor.

(2) A delegation in terms of subsection (1)—

(a) must be in writing;

(b) is subject to any limitations or conditions that the executive mayor or council, as the case may be, may impose; and

(c) does not divest the mayor of the responsibility concerning the exercise of the delegated power or the performance of the delegated duty.

(3) The mayor may confirm, vary or revoke any decision taken in consequence of a delegation in terms of this section, 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 1: Accounting officers

57. The municipal manager of a municipality is the accounting officer of the municipality for the purposes of this Act, and, as accounting officer, must –

(a) exercise the functions and powers assigned to an accounting officer in terms of this Act; and

(b) provide guidance and advice on compliance with this Act to –

(i) the political structures, political office-bearers and officials of the municipality; and

(ii) any municipal entity under the sole or shared control of the municipality.

58. (1) The accounting officer of a municipality must—

(a) act with fidelity, honesty, integrity and in the best interests of the municipality in managing its financial affairs;

(b) disclose to the municipal council and the mayor all material facts which are available to the accounting officer or reasonably discoverable, and which in any way might influence the decisions or actions of the council or the mayor; and

(c) seek, within the sphere of influence of the accounting officer, to prevent any prejudice to the financial interests of the municipality.

(2) An accounting officer may not—

(a) act in a way that is inconsistent with the duties assigned to an accounting officer in terms of this Act; or

(b) use the position or privileges of, or confidential information obtained as, accounting officer for personal gain or to improperly benefit another person.

59. (1) The accounting officer of a municipality—

(a) is responsible for the effective, efficient, economical and transparent use of the resources of the municipality;

(b) must keep full and proper records of the financial affairs of the municipality in accordance with any prescribed norms and standards;

(c) must ensure that the municipality has and maintains—

(i) effective, efficient and transparent systems of financial and risk management and internal control;

(ii) a system of internal audit operating in accordance with any prescribed norms and standards;

(d) must take all reasonable steps to prevent unauthorised, irregular and fruitless and wasteful expenditure and losses resulting from criminal conduct; and

(e) must take effective and appropriate disciplinary steps against any official of the municipality 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 municipality; or

(iii) makes or permits an unauthorised, irregular or fruitless and wasteful expenditure.

(2) The accounting officer of a municipality must take all reasonable steps to ensure that the municipality has and implements –

(a) a tariff policy referred to in section 74 of the Municipal Systems Act;

(b) a rates policy as may required in terms of any applicable national legislation;

(c) a credit control and debt collection policy referred to in section 96 (b) of the Municipal Systems Act; and

(d) a supply chain management policy and system referred to in section 83;

(3) The accounting officer is responsible for all bank accounts of the municipality, including any bank account opened for any relief, charitable or trust fund set up by the municipality in terms of section 12, and must account for such bank account.

Asset and liability management

60. (1) The accounting officer of a municipality is responsible for the management of—

(a) the assets of the municipality, including the safeguarding and the maintenance of those assets; and

(b) the liabilities of the municipality.

(2) The accounting officer must for the purposes of subsection (1) –

(a) ensure that the municipality maintains a management, accounting and information system that accounts for the assets and liabilities of the municipality;

(b) cause the municipality’s assets and liabilities to be valued in accordance with standards of generally recognised accounting practice; and

(c) establish and maintain a system of internal control of assets and liabilities, including an asset and liabilities register, as may be prescribed.

Revenue management

61. (1) The accounting officer of a municipality is responsible for the management of the revenue of the municipality.

(2) The accounting officer must for the purposes of subsection (1) –

(a) ensure that the municipality has proper revenue collection systems consistent with section 95 of the Municipal Systems Act and the municipality’s credit control and debt collection policy;

(b) on a monthly basis calculate revenue due to the municipality;

(c) ensure that accounts for property rates, charges and other taxes, and for municipal services provided on credit are prepared on a monthly basis, or less often as may be prescribed where monthly accounts are uneconomical;

(d) ensure that all money received is promptly deposited in accordance with this Act into the municipality’s primary and other bank accounts;

(e) establish and maintain a management, accounting and information system which –

(i) recognises revenue when it is earned;

(ii) accounts for debtors; and

(iii) accounts for receipts of revenue;

(f) establish and maintain a system of internal control in respect of debtors and revenue as may be prescribed;

(g) charge interest on arrears, except where the council has granted exemptions in accordance with its budget-related policies or within a prescribed framework; and

(h) ensure that all revenue received by the municipality, including revenue received by any collecting agent on its behalf, is reconciled at least on a weekly basis.

(3) The accounting officer must immediately inform the National Treasury of any payments for municipal services or rates and taxes due to the municipality by any organ of state which are regularly and consistently in arrears for periods of more than 30 days.

(4) The accounting officer must ensure –

(a) that any funds collected by the municipality on behalf of another organ of state is transferred to that organ of state at least on a weekly basis; and

(b) that such funds are not used for other purposes than as agreed with the organ of state.

62. (1) The accounting officer of a municipality is responsible for the management of the expenditure of the municipality.

(2) The accounting officer must for the purpose of subsection (1) –

(a) ensure that the municipality has and maintains a proper system of expenditure control, including procedures for the approval, authorisation, withdrawal and payment of funds;

(b) ensure that the municipality has and maintains a management, accounting and information system which –

(i) recognises expenditure when it is incurred;

(ii) accounts for creditors of the municipality; and

(iii) accounts for payments made by the municipality;

(c) ensure that the municipality has and maintains a system of internal control in respect of creditors and payments;

(d) ensure that payments are made –

(i) directly to the person to whom it is due unless agreed otherwise or for good reason; and

(ii) either electronically or by way of non-transferable cheques, provided that cash payments and payments by way of cash cheques may be made for exceptional reasons only, and only up to a prescribed limit;

(e) pay all money owing within 30 days of receiving the relevant invoice, unless where prescribed otherwise;

(f) comply with tax, levy, duty, pension and other commitments of the municipality as required by legislation;

(g) manage available working capital effectively and economically in terms of the prescribed cash management and investment framework;

(h) implement the municipality’s supply chain management policy and system referred to in section 166 in a way that is fair, equitable, transparent, competitive and cost-effective; and

(i) ensure that all financial accounts of the municipality are closed at the end of each month and reconciled with its records.

63. The accounting officer of a municipality must –

(a) in a format and at intervals as may be prescribed, report to the council on all expenditure incurred by the municipality on staff salaries, wages, allowances and benefits, and in a manner that discloses such expenditure per type of expenditure, namely –

(i) salaries and wages;

(ii) contributions for pensions and medical aid;

(iii) travel, motor car, accommodation, subsistence and other allowances;

(iv) housing benefits and allowances;

(v) overtime payments;

(vi) loans and advances; and

(vii) any other type of benefit or allowance related to staff; and

(b) disclose such expenditure in the municipality’s annual report in a prescribed format.

64. (1) Before transferring funds of the municipality to an organisation or body outside any sphere of government otherwise than in compliance with a commercial or other business transaction, the accounting officer must be satisfied that the organisation or body –

(a) has the capacity and has agreed –

(i) to comply with any agreement with the municipality;

(ii) for the period of the contract to comply with all reporting, financial management and auditing requirements as may be stipulated in the agreement;

(iii) to report at least monthly to the accounting officer on actual expenditure against such transfer; and

(iv) to submit its audited financial statements at the end of its financial year to the accounting officer;

(b) implements effective, efficient and transparent financial management and internal control systems to guard against fraud, theft and financial mismanagement; and

(c) has in respect of previous similar transfers complied with all requirements of this section.

(2) If there has been a failure by an organisation or body to comply with the

requirements of subsection (1) in respect of a previous similar transfer, the municipality may

despite subsection (1) (c) make a further transfer to that organisation or body provided that –

(a) subsection (1) (a) and (b) are complied with; and

(b) the relevant provincial treasury has approved the transfer.

(3) The accounting officer must through contractual and other appropriate mechanisms enforce compliance with subsection (1).

(4) Subsection (1) (a) does not apply to an organisation or body serving the poor or used by government as an agency to serve the poor, provided that –

(a) the transfer does not exceed a prescribed limit; and

(b) the accounting officer –

(i) takes reasonable precautions to ensure that beneficiaries receive the benefit of those funds; and

(ii) certifies to the Auditor-General that compliance by that organisation or body with subsection (1) (a) is uneconomical or unreasonable.

65. The accounting officer of a municipality must –

(a) assist the mayor in performing the budgetary functions assigned to the mayor in terms of Chapter 4; and

(b) provide the mayor with the administrative support, resources and information necessary for the performance of those functions.

66. (1) The accounting officer of a municipality is responsible for implementing the municipality’s budget, including taking effective and appropriate steps to ensure that –

(a) the spending of funds is in accordance with the budget and is reduced as necessary when revenue is anticipated to be less than projected in the budget or in the service delivery and budget implementation plan; and

(b) revenue and expenditure are properly monitored.

(2) When necessary, the accounting officer must prepare an adjustments budget and

submit it to the mayor for consideration and tabling in the municipal council.

(3) The accounting officer must no later than 14 days after the approval of a

budget submit to the mayor –

(a) the draft service delivery and budget implementation plan; and

(b) drafts of the annual performance agreements as are required in terms of section 57 (1) (b) of the Municipal Systems Act for the municipal manager and all managers directly responsible to the municipal manager.

67. (1) The accounting officer of a municipality must report in writing to the municipal council –

(a) any impending—

(i) shortfalls in budgeted revenue; and

(ii) overspending of the municipality’s budget; and

(b) any steps taken to rectify such shortfalls or overspending.

(2) If a municipality’s bank account, or if the municipality has more than one bank account, the consolidated balance in those bank accounts, shows a net overdrawn position for a period exceeding a prescribed period, the accounting officer of the municipality must notify the National Treasury in the prescribed format of –

(a) the amount by which the account or accounts are overdrawn;

(b) the reasons for the overdrawn account or accounts; and

(c) the steps taken or to be taken to correct the matter.

(3) Amounts reserved or pledged for any purpose or encumbered in any other way, may not be taken into account when determining the net overdrawn position referred to in subsection (2).

Reports and reportable matters

Monthly budget reports

68. (1) The accounting officer of a municipality must by no later than ten working days

after the end of each month submit to the mayor of the municipality, the National Treasury and

the MEC for local government in the province a report in the prescribed format on the state of the municipality’s budget during that month and during the financial year up to the end of that month reflecting –

(a) actual revenue, per revenue source;

(b) actual borrowings;

(c) actual expenditure, per vote;

(d) actual capital expenditure, per vote;

(e) the amount of any allocations received;

(f) actual expenditure on those allocations, excluding expenditure on –

(i) its share of the local government equitable share; and

(ii) allocations which the annual Division of Revenue Act exempts from this section; and

(g) when necessary, an explanation of –

(i) any material variances from the municipality’s projected revenue by source, and from the municipality’s expenditure projections per vote;

(ii) any material variances from the service delivery and budget implementation plan and

(iii) any remedial or corrective steps taken or to be taken to ensure that projected revenue and expenditure remain within the approved budget or as last revised.

(2) The report must include a projection of revenue and expenditure for the rest of the

financial year, and any revisions from initial projections.

(3) The amounts reflected in the report must in each case be compared with the

corresponding amounts budgeted for in the annual budget as revised by any adjustments budget.

(4) The report to the National Treasury must be in the format of a signed written document and in electronic format.

(5) The accounting officer of a municipality which has received an allocation referred

to in subsection (1) (e) during a relevant month must, by no later than ten working days after the end of that month, submit that part of the report reflecting the particulars referred to in subsection (1) (e) and (f) to the national or provincial organ of state or municipality which transferred the allocation.

69. (1) The accounting officer of a municipality must before 31 January of each year –

(a) assess the financial performance of the municipality during the first half of the financial year, taking into account –

(i) the monthly budget reports referred to in section 68 for the first half of the year;

(ii) its service delivery performance during the first half of the year, and the targets set in the service delivery and budget implementation plan; and

(iii) the past year’s annual report, and progress on resolving problems identified; and

(b) submit a report on such assessment to the mayor of the municipality and the National Treasury.

(2) The report referred to in subsection (1) must be made public.

(3) The accounting officer may, as part of the review, make recommendations for an adjustments budget, and recommend revised projections for revenue and expenditure.

(4) The review in terms of subsection (1) may replace any process for the review of the second quarterly report referred to in section ……...

70. The accounting officer of a municipality must notify the National Treasury, in writing, of any new municipal entity which the municipality intends to establish, or in the establishment of which it intends to take the initiative or to participate, at least 60 days before the municipality takes any step towards establishing, or initiating or participating in the establishment of, the entity.

71. The accounting officer must inform the MEC for local government in the province and the National Treasury, in writing, of –

(a) any failure by the council of the municipality to adopt or implement a budget-related policy or a supply chain management policy and system referred to in section 83; or

(b) any non-compliance by a political structure or office-bearer of the municipality with any such policy.

72. The accounting officer of a municipality must submit to the National Treasury, the MEC for local government in the province or the Auditor-General such information, returns, documents, explanations and motivations as may be prescribed or as the National Treasury, that MEC or the Auditor-General may require

Information to be placed on official websites of municipalities

73. The accounting officer of a municipality must place on the municipality’s official website referred to in section 21A of the Municipal Systems Act the following documents of the municipality:

(a) the annual and adjustments budgets and all budget-related documents;

(b) all budget-related policies;

(c) the annual report, financial statements and audit report;

(d) all performance agreements required in terms of section 57 (1) (b) of the

Municipal Systems Act;

(e) all service delivery agreements;

(f) all long-term borrowing contracts;

(g) all supply chain management contracts above a prescribed value;

(h) an information statement containing a list of assets over a prescribed value that have been disposed of in terms of section 14 (2) or (4) during the previous quarter;

(i) contracts to which subsection (1) of section 31 apply, subject to subsection (4) of that section; and

(j) any other documents that must be placed on the website in terms of this Act or as may be prescribed.

(2) A document referred to in subsection (1) must be placed on the municipality’s official website not later than five days after its tabling in the council or on the date on which it must be made public, whichever is earlier.

Protection of accounting officer

74. Any action taken by a political structure or office-bearer of a municipality against the accounting officer of the municipality solely because of that accounting officer’s compliance with a provision of this Act, is an unfair labour practice for the purposes of the Labour Relations Act, 1995 (Act No. 66 of 1995).

Top management of municipalities

75. (1) The top management of a municipality’s administration consists of –

(a) the accounting officer;

(b) the chief financial officer;

(c) all managers referred to in section 56 of the Municipal Systems Act who are responsible for managing the respective votes and to whom powers and duties for this purpose have been delegated in terms of section 77 of this Act; and

(d) any other senior officials designated by the accounting officer.

(2) The top management must assist the accounting officer in managing and co-ordinating the financial administration of the municipality.

Managers and other officials of municipalities

76. A manager referred to in section 56 of the Municipal Systems Act or other official of a municipality—

(a) must ensure that the system of financial management and internal control established for the municipality is carried out within the area of responsibility of that manager or official;

(b) must ensure the effective, efficient, economical and transparent use of financial and other resources within the area of responsibility of that manager or official;

(c) must take effective and appropriate steps to prevent, within the area of responsibility of that manager or official, any unauthorised, irregular or fruitless or wasteful expenditure and any under-collection of revenue due;

(d) must comply with the provisions of this Act to the extent applicable to that manager or official, including any delegations in terms of section 77;

(e) is responsible for the management, including the safeguarding, of the assets and the management of the liabilities within the area of responsibility of that manager or official; and

(f) must perform these functions subject to the directions of the accounting officer of the municipality.

77. (1) The accounting officer of a municipality –

(a) must for the proper application of this Act in the municipality’s administration develop an appropriate system of delegation that will both maximise administrative and operational efficiency and provide adequate checks and balances in the municipality’s financial administration;

(b) may, in accordance with that system, delegate any of the powers or duties assigned to an accounting officer in terms of this Act –

(i) to a member of the municipality’s top management referred to in section 75; and

(ii) to any other official of the municipality;

(c) must regularly review delegations in terms of paragraph (b) and, if necessary, amend or withdraw any of those delegations.

(2) A delegation in terms of subsection (1)—

(a) must be in writing;

(b) is subject to such limitations and conditions as the accounting officer may impose in a specific case;

(c) may either be to a specific individual or to the holder of a specific post in the municipality;

(d) may, in the case of a delegation to a member of the municipality’s top management in terms of subsection (1) (b) (i), authorise that member to sub-delegate the delegated power or duty to an official or the holder of a specific post in that member’s area of responsibility; and

(e) does not divest the accounting officer of the responsibility concerning the exercise of the delegated power or the performance of the delegated duty.

(3) The accounting officer may confirm, vary or revoke any decision taken in consequence of a delegation or sub-delegation in terms of this section, but no such variation or revocation of a decision may detract from any rights that may have accrued as a result of the decision.

CHAPTER 9

MUNICIPAL BUDGET AND TREASURY OFFICES

Establishment

78. (1) Every municipality must have a budget and treasury office.

(2) A budget and treasury office consists of—

(a) a chief financial officer designated by the accounting officer of the municipality;

(b) staff allocated by the accounting officer to the chief financial officer; and

(c) any other persons contracted by the municipality for the work of the office.

79. (1) The chief financial officer of a municipality—

(a) is administratively in charge of the budget and treasury office;

(b) must advise the accounting officer on the exercise of powers and duties assigned to the accounting officer in terms of this Chapter;

(c) must advise other senior officials in the exercise of powers and duties delegated to them in terms of section 77; and

(d) must perform such budgeting, accounting, analysis, financial reporting, cash management, debt management, financial management, review and other functions as may be delegated to the chief financial officer by the accounting officer.

(2) The chief financial officer of a municipality is accountable to the accounting officer for the performance of the functions referred to in subsection (1).

80. (1) The chief financial officer of a municipality may sub-delegate any of the functions referred to in section 79 (1) (b), (c) and (d)—

(a) to an official in the budget and treasury office;

(b) to the holder of a specific post in that office; or

(c) with the concurrence of the accounting officer, to—

(i) any other official of the municipality; or

(ii) any person contracted by the municipality for the work of the office.

(2) If the chief financial officer sub-delegates any functions in terms of subsection (1) to a person who is not an official of the municipality, the chief financial officer must be satisfied that effective systems and procedures are in place to ensure control and accountability.

(3) A sub-delegation in terms of subsection (1)—

(a) must be in writing;

(b) is subject to such limitations or conditions as the chief financial officer may impose; and

(c) does not divest that chief financial officer of the responsibility concerning the delegated function.

(4) The chief financial officer may confirm, vary or revoke any decision taken in consequence of a sub-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.

Competency levels of professional financial officials

81. (1) All professional financial officials of a municipality, including the chief financial officer and all senior and professional staff of a budget and treasury office, must meet the prescribed competency levels.

(2) A municipality must for the purposes of subsection (1) –

(a) regularly test or provide for the regular testing of professional financial officials referred to in that subsection in accordance with the prescribed minimum standards; and

(b) provide annual training courses for such professional financial officials or allow such officials to attend such courses at the municipality’s expense.

(3) Consistent failure by an official to meet the prescribed competency levels is a ground for dismissal or transfer.

(4) The National Treasury or a provincial treasury may assist municipalities in the

training of professional financial officials referred to in subsection (1).

82. (1) This Chapter applies to –

(a) the procurement by a municipality of contracts for –

(i) the provision of goods and services to the municipality; or

(ii) the disposal of goods no longer needed;

(b) the selection of contractors to provide assistance in the provision of municipal services otherwise than in circumstances where Chapter 8 of the Municipal Systems Act applies; and

(c) the selection of external service providers referred to in section 80 (1) (b) of the Municipal Systems Act in circumstances contemplated in section 83 of that Act.

(2) This Chapter does not apply if a municipality contracts with another

municipality, a municipal entity or a national or provincial organ of state for –

(a) the provision of goods and services to the municipality; or

(b) the provision of a municipal service or assistance in the provision of municipal service.

Supply chain management policy and system

83. Every municipality must have and maintain a supply chain management policy

and system for the procurement of contracts and the execution of selection processes to which

this Chapter applies.

84. (1) A municipality’s a supply chain management policy and system must be

fair, equitable, transparent, competitive and cost effective and comply with a prescribed framework setting norms and standards for municipal chain management, including for the following:

(a) the range of chain management processes that municipalities may use, including tenders, auctions and other types of competitive bidding;

(b) when a municipality may or must use a particular type of process;

(c) procedures for less formal processes where the value of the contract is below a prescribed amount;

(d) open and transparent pre-qualification processes for tenders; and

(e) competitive bidding processes in which only pre-qualified persons may participate;

(f) procedures to open, register and record bids in public;

(g) procedures for the evaluation of bids to ensure best value for money;

(h) procedures for negotiating the final terms of agreements;

(i) screening processes for contractors or tenders above a prescribed value, which may not be less than R10 million;

(j) the barring persons from participating in chain management processes, including

persons –

(i) convicted for corruption during the past fives years;

(ii) who wilfully neglected or reneged on contracts during the past fives years; or

(iii) whose tax matters are not cleared by South African Revenue Service;

(k) measures for combating corruption, and for promoting ethics of officials and other role players involved in municipal chain management;

(l) the invalidation of recommendations or decisions that were made, taken or in any way influenced by –

(i) councillors in contravention of item 5 or 6 of the Code of Conduct for Councillors set out in Schedule 1 to the Municipal Systems Act; or

(ii) municipal officials in contravention of item 4 or 5 of the Code of Conduct for Municipal Staff Members set out in Schedule 2 to that Act;

(m) dispute settling procedures; and

(n) the acquisition of goods and services by municipalities through contracts procured by other organs of state.

(2) Norms and standards set for municipal chain management must be fair, equitable,

transparent, competitive and cost effective.

85. If a municipality, for a reason other than to rectify an irregularity, approves a

tender different from those recommended by a tender committee or in the course of the

municipality’s chain management system –

(a) such approval becomes effective only if ratified by the MEC for local government in the province; and

(b) the accounting officer of the municipality must notify the Auditor-General, in writing, of the reasons for such approval.

86. (1) The accounting officer of a municipality must –

(a) implement the municipality’s supply chain management policy and system; and

(b) ensure that proper mechanisms and separation of duties in the municipality’s administration are in place to minimise the likelihood of corruption, favouratism and unfair and irregular practices.

(2) No person may impede the accounting officer in fulfilling this responsibility.

87. The accounting officer of a municipality must –

(a) ensure that a contract procured through the municipality’s chain management system is

properly enforced;

(b) monitor on a monthly basis the performance of the contractor under the contract;

(c) establish capacity in the municipality’s administration –

(i) to assist the accounting officer in carrying out the duties set out in

paragraphs (a) and (b); and

(ii) to oversee the day-to-day management of the contract; and

(d) regularly report to the municipal council on the management of the contract and the

performance of the contractor.

Councillors barred from serving on municipal tender committees

88. No councillor of any municipality may be a member of a municipal tender

committee or any committee evaluating or approving bids, nor attend any such meeting as an observer.

89. No person, official or councillor may –

(a) interfere with a municipality’s chain management system or

(b) amend any tender or bid submitted after its submission.

90. (1) A municipal entity must open and maintain at least one bank account in the name of the entity, into which all money received by the entity must be paid.

(2) 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);

(c) otherwise than in the name of the entity; and

(d) without the approval of its board of directors.

Bank account details

91. (1) The accounting officer of a municipal entity must submit to the entity ‘s parent 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 municipal entity’s parent municipality, or if there are more than one parent municipalities, any one of the accounting officers of those municipalities as may be agreed between them, must upon receipt of the information referred to in subsection (1), submit that information to the Auditor-General and to the National Treasury in writing.

Budgets

92. (1) The board of directors of a municipal entity must annually submit a draft budget for the entity to its parent municipality not later than 150 days before the start of its financial year.

(2) A draft budget must be accompanied by –

(a) the financial statements for the previous financial year; and

(b) a mid-year performance review assessing the financial performance of the municipal entity during the first half of the current financial year.

(3) If the parent municipality makes any recommendations on the draft budget of a

municipal entity, the board of directors of the entity must consider those recommendations and, if

necessary, submit a revised budget to the parent municipality not later than 100 days before the

start of the financial year.

(4) The budget of a municipal entity must be tabled in the council of its parent municipality when the annual budget of the municipality for the relevant year is tabled.

(5) The board of directors of a municipal entity must approve the budget of the municipal entity not later than 30 days before the start of the financial year.

(6) The budget of a municipal entity must be balanced, consistent with any service delivery agreement or other agreement with its parent municipality, and within any limits determined by that municipality, including any limits set on tariffs, revenue, expenditure and borrowing.

(7) The budget of a municipal entity must comply with the requirements of section 17 to the extent that such requirements can reasonably be applied to the entity.

(8) Any projected income to the municipal entity from its parent municipality must be provided for in the annual budget of the parent municipality, and to the extent not so provided, the entity’s budget must be adjusted.

(10) An approved budget must be made public.

Business plans

93. (1) Each municipal entity must adopt a multi-year business plan for the entity that—

(a) is consistent with the approved budget of the entity;

(b) sets key financial and non-financial performance objectives and measurement criteria;

(c) is consistent with the budget and integrated development plan of its parent municipality;

(d) is consistent with any service delivery agreement or other agreement with its parent municipality;

(e) reflects actual and potential liabilities and commitments, including particulars of any proposed borrowing of money during the period to which the plan relates;

(f) contains such other information as may be prescribed; and

(g) complies with the other provisions of this Act.

(2) A municipal entity must submit its business plan to the council of its parent

municipality for approval.

(3) An approved business plan must be made public.

Disposal of capital assets by municipal entities

94. (1) A municipal entity may not transfer ownership of or otherwise dispose of a capital asset needed to provide the minimum 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), but only after the council of its parent municipality, in a meeting open to the public—

(a) has decided on reasonable grounds that the asset is not needed to provide the minimum level of basic municipal services; and

(b) has 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 the minimum level of basic municipal services may not be reversed by the municipality after that asset has been sold, transferred or otherwise disposed of.

(4) A municipal council may delegate to the accounting officer of a municipal entity its power to make the determinations referred to in subsection (2) (a) and (b) in respect of movable assets of the entity 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 supply chain management

policy and system which the municipality must have and maintain in terms of section 83.

(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.

95. The financial year of a municipal entity must be the same as that of municipalities.

96. The Auditor-General must audit and report on the accounts, financial statements and financial management of each municipal entity.

Chief executive officer to be accounting officer

97. The chief executive officer of a municipal entity appointed in terms of section 94R of the Municipal Systems Act is the accounting officer of the entity.

98. (1) The accounting officer of a municipal entity must—

(a) exercise utmost care to ensure reasonable protection of the assets and records of the entity;

(b) act with fidelity, honesty, integrity and in the best interests of the entity in managing the financial affairs of the entity;

(c) on request, disclose to the entity’s parent municipality, all material facts, including those reasonably discoverable, which in any way may influence the decisions or actions of the parent municipality; and

(d) seek, within the sphere of influence of that accounting authority, to prevent any prejudice to the financial interests of the parent municipality or the municipal entity.

(2) The accounting officer may not –

(a) act in a way that is inconsistent with the responsibilities assigned to an accounting officer in terms of this Act; or

(b) use the position or privileges of, or confidential information obtained as accounting officer, for personal gain or to improperly benefit another person.

99. (1) An accounting officer of a municipal entity—

(a) is responsible for the effective, efficient, economical and transparent use of the resources of the entity;

(b) must keep full and proper records of the financial affairs of the entity;

(c) must ensure that the 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 160 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 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 entity; or

(iii) makes or permits an irregular or fruitless and wasteful expenditure.

Asset management

100. An accounting officer of a municipal entity –

(a) must ensure that the entity has and implements proper asset management systems; and

(b) is responsible for the management, including the safeguarding, of all assets of the entity.

101. An accounting officer of a municipal entity must –

(a) ensure that the entity has and implements proper revenue collection systems to give effect to its budget;

(b) must take effective and appropriate steps to collect all revenue due to the entity; and

(c) must ensure that any funds collected by the entity on behalf of a municipality –

(i) are transferred to that municipality strictly in accordance with the agreement between the entity the municipality; and

(ii) are not used for the purposes of the entity.

102. The accounting officer of a municipal entity must take all reasonable steps to ensure

that –

(a) all revenue received by the 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 entity are reconciled each month.

103. An accounting officer of a municipal entity must –

(a) ensure that the entity has and implements proper systems of expenditure control;

(b) settle all contractual obligations and pay all money owing, within an 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 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 chain management system that is fair, equitable, transparent, competitive and cost-effective.

104. The accounting officer of a municipal entity is responsible for implementing the 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.

Impending under collection, shortfalls, overspending, overdrafts, and non-payment

105. The board of directors of a municipal entity must report, in writing, to the council of the entity’s parent municipality any financial problems of the entity, including –

(a) any impending or actual —

(i) under collection of revenue due;

(ii) shortfalls in budgeted revenue;

(iii) overspending of the entity’s budget;

(iv) delay in the entity’s payments to any creditors; or

(v) overdraft in any bank account of the entity for a period exceeding 21 days; and

(b) any steps taken to rectify such financial problems.

106. (1) On discovery of any irregular expenditure or any fruitless or wasteful expenditure,

the board of directors of a municipal entity must promptly report, in writing, to the mayor and municipal manager of the entity’s parent municipality 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) The board of directors of a municipal entity 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.

107. The board of directors of a municipal entity must promptly report to the speaker of the council of the entity’s parent municipality any interference by a councillor in –

(a) the financial affairs of the municipal entity; or

(b) the responsibilities of the board of directors.

108. (1) The board of directors of a municipal entity –

(a) is responsible for the submission by the entity of all reports, returns, notices and other information to the entity’s parent municipality, as may be required by this Act; and

(b) must submit to the accounting officer of the entity’s parent municipality, the National Treasury, the relevant provincial treasury or the Auditor-General such information, returns, documents, explanations and motivations as may be prescribed or as the parent municipality, the relevant treasury or the Auditor-General may require.

(2) If the board of directors is unable to comply with any of the responsibilities in terms of this Act, it must promptly report the inability, together with reasons, to the council of the entity’s parent municipality.

Duties of other officials

109. (1) An official of 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 110; 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 officer of the municipal entity.

Delegation of powers and duties by accounting officers

110. (1) The accounting officer of a municipal entity may delegate any of the powers or duties assigned or delegated to the accounting officer 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 officer 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 officer of the responsibility concerning the exercise of the delegated power or the performance of the delegated duty.

(3) An accounting officer 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.

Competency levels of professional financial officials

111. All professional financial officials of a municipal entity must meet the prescribed competency levels.

Borrowing of money

112. (1) A municipal entity may borrow money, but only in accordance with—

(a) the entity’s approved business plan; and

(b) the provisions of Chapter 6 to the extent that those provisions can be applied to a municipal entity.

(2) In applying Chapter 6 to a municipal entity, reference in that Chapter to a municipality, a municipal council or an accounting officer, must be read as referring to a municipal entity, the board of directors of a municipal entity or the accounting officer of a municipal entity, respectively.

Financial problems in municipal entities

113. If a municipal entity experiences serious or persistent financial problems, and the board of directors of the entity fails to act effectively, the parent municipality must either –

(a) take appropriate steps in terms of its rights and powers over that entity, including its rights and powers in terms of any relevant service delivery or other agreement;

(b) impose a financial recovery plan, which must meet the criteria set out in section 136 for a municipal financial recovery plan; or

(c) liquidate and disestablish the entity.

Part 1: Annual reports and financial statements

Tabling and content of annual reports

114. (1) Every municipality and municipal entity must for each financial year table and adopt an annual report within nine months after the end of that financial year. Where a municipal entity is owned by more than one municipality, the annual report must be tabled and adopted by the council of each owning municipality.

The purposes of the annual report are –

(a) to provide a report on performance against the approved budget and votes of the municipality or municipal entity;

(b) to provide a record of the activities and performance of the municipality or municipal entity; and

(c) to promote accountability to the local community for the decisions made throughout the year by the municipality or municipal entity.

(3) The annual report of the municipality or municipal entity must contain –

(a) the financial statements of the municipality or municipal entity in accordance with section 115, and as submitted to the Auditor-General for audit;

(b) in the case of a municipality with a controlling share in any municipal entity or other entity, consolidated financial statements incorporating the annual financial statements of the municipality and all such municipal entities and other entities;

(c) the audit report of the Auditor-General for each financial statement;

(d) an assessment of performance of the municipality or municipal entity for that financial year against the measurable performance objectives in accordance with section 17 (3) (b) for each vote on its approved budget;

(e) in the case of a municipality, the annual report must also contain the annual performance report of the municipality in accordance with section 46 of the Municipal Systems Act, and the audit of its performance in accordance with section 45 of that Act;

(f) in the case of a municipal entity, an assessment of its performance against that of the service delivery agreement in terms of section 76 (b) of the Municipal Systems Act and section …… of this Act;

(g) particulars of any corrective action taken or to be taken in response to issues raised in the audit reports;

(h) any information as determined by the municipality or municipal entity; and

(i) any other information as may be prescribed.

For purposes of this section, any other institutions which are separate juristic

bodies or corporate bodies, but which are not municipal entities but are under the sole or shared ownership of one or more municipalities, including multi-jurisdictional municipal service districts, pension or medical aid funds, must comply with this Chapter as if it is a municipal entity.

Preparation of financial statements

115. (1) The annual financial statements of a municipality or a municipal entity must fairly present the state of affairs of the municipality or the entity, its performance against its approved budget and votes, its management of revenue, expenditure, assets and liabilities, its business activities, its financial results, and its financial position as at the end of the financial year.

(2) Both annual financial statements and consolidated annual financial statements must be prepared in accordance with generally recognized accounting practice as prescribed by the Minister in terms of section 91(1) (b) of the Public Finance Management Act, taking into account the recommendations of the Accounting Standards Board.

(3) The annual financial statements of a municipality or municipal entity must disclose the information required in sections 116, 117 and 118.

(4) The financial statements of a municipality must also include consolidated annual financial statements as prescribed by the Accounting Standards Board. The annual report must also include information on consolidation as may be prescribed.

116. (1) The annual financial statements of a municipality must disclose information on—

(a) all allocations received by the municipality from –

(i) an organ of state in the national or provincial sphere of government;

(ii) a municipal entity or another municipality;

(b) all allocations made by the municipality to –

(i) a municipal entity or another municipality;

(ii) any other organ of state;

(c) how any allocations referred to in paragraph (a) were spent, per vote, unless

prescribed otherwise because of the nature of the grant;

(d) whether the municipality has complied with the conditions of –

(i) any allocations made to the municipality in terms of section 214 (1) (c) of the Constitution; and

(ii) any allocations made to the municipality other than in terms of section 214 of the Constitution;

(e) the reasons for any non-compliance with conditions referred to in paragraph (d); and

(f) 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.

(2) The annual financial statements of a municipal entity must disclose information on—

(a) all allocations received by the municipality entity from any municipality or other organ of state;

(b) all allocations made by the municipal entity to a municipality or other organ of state; and

(c) any other information as prescribed.

117. (1) The notes to the annual financial statements of a municipality must include particulars of –

(a) 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;

(b) any arrears owed by individual councillors to the municipality, or a municipal entity under its sole or shared 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

(c) the salaries, allowances and benefits of the municipal manager, every manager directly accountable to the municipal manager referred to in section 56 of the Municipal Systems Act and such categories of other officials as may be prescribed.

(2) The notes to the annual financial statements of a municipal entity must also

include particulars of the salaries, allowances and benefits of –

(a) the members of the board of directors of the municipal entity; and

(b) 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.

Other compulsory disclosures in financial statements

118. (1) The notes to the financial statements of a municipality must include—

(a) a list of all municipal entities under the sole or shared control of the municipality, as at the last day of the financial year;

(b) any other business undertakings in which the municipality obtained a financial interest during the financial year; and

(c) 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;

(d) the total amounts paid for any audit fees, tax, levy, duty, pension and medical aid contributions, and whether any amounts are outstanding as at the end of the financial year.

(2) The notes to the annual financial statements of a municipality or municipal

entity must disclose the following information:

(a) in respect of each bank account held by the municipality or 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;

(b) a summary of all investments of the municipality or municipal entity as at the end of the

financial year, including particulars of any financial stake in any other undertakings;

(c) the details required in terms of any contingent liabilities for the municipality or municipal entity;

(d) 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; and

(e) any other matters that may be prescribed.

Auditing of annual financial statements

119. (1) The accounting officer of a municipality or municipal entity –

(a) must prepare the annual financial statements for the municipality or municipal entity and must, within two months after the end of a financial year, submit those statements to the Auditor-General for auditing; or

(b) must, in the case of a municipality with a share in any municipal entity, prepare consolidated annual financial statements in terms of section 115, and 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, provincial

legislature 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.

120. (1) The accounting officer of a municipal entity must, within six months of the end of

the financial year, or such earlier date as may be agreed between the entity and its parent

municipality, provide to the municipal manager of the entity’s parent

municipality, the annual report.

(2) The mayor of a municipality must, within seven months of the end of the financial

year, submit for tabling in the municipal council for discussion and, as necessary,

adoption in accordance with section 122, the annual report of the municipality and for all

municipal entities in which it has a share.

(3) If the mayor is unable to submit the annual report within seven months of the end of the financial year for whatever reason, the mayor must –

(a) submit the annual report of the municipality and municipal entity within one month after receiving the audit reports of the municipality and all municipal entities in which it owns a share, from the Auditor-General, if the delay is due to audit delays in terms of section 119 (3);

(b) submit the annual report of any municipal entity within seven days after the accounting officer has received the annual report of the municipal entity; and

(c) submit to the council the financial statements with the audit report and any other prescribed information within seven months of the end of the financial year if the delay is due to any other reason, including delays in the submission of audit of the annual performance report or in the audit of a municipal entity.

(4) The Auditor- General may submit the financial statements and the audit report directly to the municipal council or parent municipality, the National Treasury, the MEC responsible for local government in the province or any prescribed organ of state if the mayor fails comply with subsection (2) or (3).

(5) The annual report, including the financial statements and the audit reports and any recommendations by the municipality’s audit committee, must be made public when tabled in the municipal council.

121. The accounting officer of the parent municipality must –

(a) monitor whether the accounting officer of the municipal entity has complied with sections 114 (1) and 119 (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 parent municipality, the MEC for local government and the Auditor-General.

122. (1) The council of a municipality must consider for adoption an annual report and financial statements of the municipality and any municipal entity not later than two months from the date on which the annual report and financial statements were tabled in the council in terms of section 114 or 119.

(2) The accounting officer must—

(a) notify the local community in accordance with section 21 of the Municipal Systems Act when tabling the annual report to notify the public of public hearings by the council or a council committee on the annual report –

(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 seven days of the adoption of the annual report and financial statements the accounting officer must make public make copies of the resolution and any oversight report adopted by the council when adopting the annual report.

(4) The National Treasury may issue guidelines on –

(a) the manner in which municipal councils should consider the annual report and conduct public hearings;

(b) the functioning and composition of any public accounts or oversight committees established by the council to assist it to consider the annual report.

(5) A municipal council may adopt the guidelines issued in terms of section (4).

Council meetings open to public and certain public officials

123. (1) The meetings of a municipal council at which documents referred to in section 114 or 118 are to be discussed or at which decisions concerning those documents are to be taken, must be open to the public and any organs of state, and a reasonable time must be allowed –

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

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

Issues raised by Auditor-General in audit reports

124. (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 in the province must—

(a) assess all financial statements, audit reports and the response of the municipality to the audit report and determine whether the affected municipality has adequately 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

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

(a) the annual report of each municipality and municipal entity;

(b) the resolution adopting the annual report in terms of section 122 (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;

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

(d) 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) to the provincial legislature within seven days

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

terms of section 122 (1).

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

(1) (c) and (d) 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.

(6) The National Treasury may issue guidelines on the manner in which provincial legislatures should consider the annual report of municipalities.

126. (1) If the accounting officer fails to submit financial statements to the Auditor-General in accordance with section 119 (1), or the mayor fails to table the annual report and financial statements and audit report of a municipality in the council in accordance with section 120 —

(a) the mayor 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 speaker 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 39.

(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 119; 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

127. 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 terms of section 124 in audit reports on financial statements.

Investigations and special audits by Auditor-General

128. (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 parent 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 parent municipality.

Part 1: Identification of financial problems

129. (1) The primary responsibility to avoid, identify and resolve financial problems in a

municipality rests with the municipality itself.

A municipality must meet its financial commitments.

(3) If a municipality encounters a serious financial problem or anticipates problems in meeting its financial commitments it must immediately –

(a) seek solutions for the problem;

(b) notify the MEC for local government in the province; and

(c) notify organised local government.

130. (1) If the MEC for local government in a province becomes aware that there is a serious financial problem in a municipality, the MEC must promptly –

(a) consult the mayor of the municipality to determine the facts;

(b) assess the seriousness of the situation and the municipality’s response to the situation; and

(c) determine whether the situation justifies or requires an intervention in terms of section 139 of the Constitution.

(2) If the financial problem has been caused by or resulted in a failure by the municipality to comply with an executive obligation in terms of legislation or the Constitution and the conditions for an intervention in terms of section 139 (1) of the Constitution are met, the provincial executive must promptly decide whether or not to intervene in the municipality. If the provincial executive decides to intervene, section 131 applies.

(3) If the municipality has failed to approve a budget or any revenue raising measures necessary to give effect to the budget, as a result of which the conditions for an intervention in terms of section 139 (4) of the Constitution are met, the provincial executive must intervene in the municipality in accordance with section 26.

(4) If the municipality, as a result of a crisis in its financial affairs, is in serious or persistent material breach of its obligations to provide basic services or to meet its financial commitments, or admits that it is unable to meet its obligations or financial commitments, as a result of which the conditions for an intervention in terms of section 139 (5) of the Constitution are met, the provincial executive must intervene in the municipality in accordance with section 133.

131. (1) If the conditions for a provincial intervention in a municipality in terms of section 139 (1) of the Constitution are met and the provincial executive decides in terms of section 130 (2) of this Act to intervene in the municipality, the provincial executive may take any appropriate steps referred to in section 139 (1) of the Constitution, including –

(a) assessing the seriousness of the financial problem in the municipality;

(b) seeking solutions to resolve the financial problem in a way that would be

sustainable and would build the municipality’s capacity to manage its own financial affairs;

(c) determining whether the financial problem, singly or in combination with other problems, is sufficiently serious or sustained that the municipality would benefit from a financial recovery plan and, if so, requesting any suitably qualified person –

(i) to prepare an appropriate financial recovery plan for the municipality;

(ii) to recommend appropriate changes to the municipality’s budget and revenue raising measures that will give effect to the recovery plan; and

(iii) to submit the recovery plan and any recommendations referred to in subparagraphs (i) and (ii) to the MEC for local government in the province within a period determined by the MEC; and

(d) consulting the mayor of the municipality to obtain the municipality’s co-operation in resolving the financial problem, and if applicable, implementing the recovery plan.

The MEC must submit any assessment in terms of subsection (1) (a), any

determination in terms of subsection (1) (c) and a copy of any request in terms of subsection (1) (c) to the municipality and the Cabinet member responsible for local government.

This section does not apply to a provincial intervention which is unrelated to a

financial problem in a municipality.

132. When determining for the purposes of section 131, the seriousness of a financial problem, all relevant facts must be considered, and the following factors, singly or in combination, may indicate a serious financial problem –

the municipality has failed to make payments as and when due;

the municipality has defaulted on financial obligations for financial reasons;

(c) the actual current expenditure of the municipality has exceeded the sum of its actual current revenue plus available surpluses for at least the two consecutive financial years;

(d) the municipality had an operating deficit in excess of five per cent of revenue in the most recent financial year for which financial information is available;

(e) the municipality is more than 60 days late in submitting its annual financial statements to the Auditor-General in accordance with section 116;

(f) the Auditor-General has withheld an opinion or issued a disclaimer due to inadequacies in the financial statements or records of the municipality, or has issued an opinion which identifies a serious financial problem in the municipality;

(g) any of the above conditions exists in a municipal entity under the municipality’s sole control, or in a municipal entity for whose debts the municipality may be responsible, and the municipality has failed to intervene effectively; or

(h) any other material condition exists which indicates that the municipality, or a municipal entity under the municipality’s sole control, is likely to be unable for financial reasons to meet its obligations.

Mandatory provincial interventions

133. (1) If a municipality, as a result of a crisis in its financial affairs, is in serious or persistent material breach of its obligations to provide basic services or to meet its financial commitments, or admits that it is unable to meet its obligations or financial commitments, the provincial executive must promptly –

(a) request the Municipal Financial Recovery Service –

(i) to determine the reasons for the crisis in its financial affairs;

(ii) to assess the municipality’s financial state;

(iii) to prepare an appropriate recovery plan for the municipality;

(iv) to recommend appropriate changes to the municipality’s budget and revenue raising measures that will give effect to the recovery plan; and

(v) to submit to the MEC for local government in the province –

(aa) the determination and assessment referred to in subparagraphs (i) and (ii) as a matter of urgency; and

(bb) the recovery plan and recommendations referred to in subparagraphs (iii) and (iv) within a period, not to exceed 90 days, determined by the MEC; and

(b) consult the mayor of the municipality to obtain the municipality’s co-operation in implementing the recovery plan, including the approval of a budget and legislative measures giving effect to the recovery plan.

(2) The MEC for local government in the province must submit a copy of any request

in terms of subsection (1) (a) and any determination and assessment received in terms of subsection (1) (a) (v) (aa) to –

(a) the municipality;

(b) the Cabinet member responsible for local government; and

(c) the Minister.

(3) An intervention referred to in subsection (1) supersedes any discretionary provincial intervention referred to in section 131, provided that any financial recovery plan prepared for the discretionary intervention must continue until replaced by a recovery plan for the mandatory intervention.

134. (1) When determining whether the conditions for a mandatory intervention referred to in section 133 are met, all relevant facts must be considered.

OPTION 1:

(2) The following factors, singly or in combination, may indicate that the municipality is in serious material breach of its obligations to meet its financial commitments:

OPTION 2:

(2) The existence of any of the following circumstances indicates that the municipality is in serious material breach of its obligations to meet its financial commitments:

(a) the municipality has failed to make any payment to a lender or investor as and when due;

(b) the municipality has failed to meet a contractual obligation which provides security in terms of section 45;

(c) the municipality has failed to make any other payment as and when due, which individually or in the aggregate is over an amount as may be prescribed or, if none is

prescribed, over two per cent of the municipality’s budgeted operating expenditure; or

(d) the municipality’s failure to meet its financial commitments has impacted, or is likely to impact, on the availability or price of credit to other municipalities.

(3) Any recurring or continuous failure by a municipality to meet its financial commitments which substantially impairs the municipality’s ability to procure goods, services or credit on usual commercial terms, may indicate that the municipality is in persistent material breach of its obligations to meet its financial commitments.

(4) Subsections (2) and (3) do not apply to –

(a) disputed obligations as to which there are pending legal actions between the municipality and the creditor, provided that such actions are not instituted to avoid an intervention; or

(b) obligations explicitly waived by the creditor.

Preparation of financial recovery plans

135. (1) Any suitably qualified person may, on request by the provincial executive, prepare a financial recovery plan for a discretionary provincial intervention referred to in section 131.

(2) Only the Municipal Financial Recovery Service may prepare a financial recovery plan for a mandatory provincial intervention referred to in section 133.

(3) When preparing a financial recovery plan, the person referred to in subsection (1) or the Municipal Financial Recovery Service must –

(a) consult –

(i) the relevant municipality;

(ii) the municipality’s principal suppliers and creditors, to the extent they can reasonably be contacted;

(iii) the MEC for local government in the province; and

(iv) organised labour.

(b) take into account –

any financial recovery plan that has previously been prepared for the municipality; and

any financial recovery plan, or proposals for a financial recovery plan, that may be advanced by the municipality or any creditor of the municipality;

(c) at least 14 days before finalising the plan –

(i) submit the plan for comment to –

(aa) the municipality;

the MEC for local government in the province;

organised local government in the province;

organised labour; and

(ee) any supplier or creditor of the municipality, on request; and

(ii) publish a notice in a newspaper of general circulation in the municipality –

(aa) stating the place, including any website address, where copies of the plan will be available to the public free of charge or at a reasonable price; and

(bb) inviting the local community to submit written comments in respect of the plan.

(4) The person charged with preparing the financial recovery plan or the Municipal Financial Recovery Service must –

(a) consider any comments received pursuant to subsection (3) (c);

(b) finalise the financial recovery plan; and

(c) submit the final plan to the MEC for local government in the province for approval in terms of section 137.

136. (1) A financial recovery plan must be aimed at securing the municipality’s ability to meets its obligations to provide basic services or its financial commitments.

(2) For the purpose of subsection (1) a financial recovery plan –

(a) must –

(i) be designed to place the municipality in a sound and sustainable financial condition as soon as possible;

(ii) identify the financial problems of the municipality;

(iii) state the principal strategic objectives of the plan, and ways and means for achieving those objectives;

(iv) set out a specific strategy for addressing the municipality’s financial problems, including a strategy for reducing unnecessary expenditure and increasing the collection of revenue, as may be necessary;

(v) identify the human and financial resources needed to assist in resolving financial problems, and where those resources are proposed to come from;

(vi) describe the anticipated time frame for financial recovery, and milestones to be achieved; and

(vii) identify what actions are necessary for the implementation of the plan, distinguishing between actions to be taken by the municipality and actions to be taken by other parties; and

(b) may –

(i) provide for the liquidation of specific assets, excluding those needed for the provision of the minimum level of basic municipal services;

(ii) provide for debt restructuring or debt relief in accordance with Part 3 of this Chapter;

(iii) provide for special measures to prevent unauthorised, irregular or fruitless and wasteful expenditures and losses through criminal conduct;

(iv) include spending limits and revenue targets;

(v) provide budget parameters which bind the municipality for a specified period or until stated conditions have been met;

(vi) identify specific tax rates, tariffs and revenue collection measures that are necessary for financial recovery; and

(vii) identify any other actual and potential revenue sources.

137. (1) On receipt of a financial recovery plan pursuant to a discretionary intervention referred to in section 131, the MEC for local government in the province may approve the recovery plan with or without amendments, as the MEC considers appropriate.

(2) On receipt of a financial recovery plan pursuant to a mandatory intervention referred to in section 133, the MEC for local government must verify that the process set out in section 135 has been followed and that the criteria contained in section 136 are met, and –

(a) if so, approve the recovery plan; or

(b) if not, direct what defects must be rectified.

(3) The MEC must submit an approved recovery plan to –

(a) the municipality;

(b) the Minister and the Cabinet member responsible for local government;

(c) the Auditor-General; and

(d) organised local government in the province.

138. (1) The MEC for local government in the province may at any time, but subject to section 135 (1) and (2), request any suitably qualified person or the Municipal Financial Recovery Service to prepare an amended financial recovery plan in accordance with the directions of the MEC.

(2) Section 135, read with such changes as the context may require, apply to the amendment of a financial recovery plan in terms of this section.

(3) No amendment of a recovery plan may impede the implementation of any court order made or agreement reached in terms of the plan before the amendment.

139. (1) If the financial recovery plan was prepared in a discretionary provincial intervention referred to in section 131, the municipality must –

(a) implement the approved recovery plan; and

(b) report monthly to the MEC for local government in the province on the implementation of the plan, in such manner as the plan may determine.

(2) The financial recovery plan binds the municipality in the exercise of its executive authority, but only to the extent to resolve the financial problems of the municipality.

(3) If the municipality cannot or does not implement the approved recovery plan, the provincial executive may in terms of section 139 (1) or (4) of the Constitution take further appropriate steps to ensure implementation of the plan.

(4) Sections 34 (3) and (4) and 35 of the Municipal Structures Act apply if an MEC for local government dissolves a municipal council in terms of subsection (3).

140. (1) If the recovery plan was prepared in a mandatory provincial intervention referred to in section 133 –

(a) the municipality must implement the approved recovery plan;

(b) all revenue, expenditure and budget decisions must be taken within the framework of, and subject to the limitations of, the recovery plan; and

(c) the municipality must report monthly to the MEC for local government in the province on the implementation of the plan in such manner as the plan may determine.

(2) The financial recovery plan binds the municipality in the exercise of both its

legislative and executive authority, including the approval of a budget and legislative measures giving effect to the budget, but only to the extent necessary to achieve the objectives of the recovery plan.

(3) The provincial executive must in terms of section 139 (5) (b) of the Constitution either –

(a) dissolve the council of the municipality, if the municipality cannot or does not approve legislative measures, including a budget or any revenue raising measures, necessary to give effect to the recovery plan within the timeframes specified in the plan and –

(i) appoint an administrator until a newly elected council has been declared elected; and

(ii) approve a temporary budget and revenue raising measures, and other measures to give effect to the recovery plan and to provide for the continued functioning of the municipality; or

(b) assume responsibility for the implementation of the recovery plan to the extent that the municipality cannot or does not take executive measures to give effect to the recovery plan.

(4) Sections 34 (3) and (4) and 35 of the Municipal Structures Act apply when an MEC for local government dissolves a municipal council in terms of section 139 (5) (b) (i) of the Constitution.

141. (1) The MEC for local government in a province must at least every three months –

(a) review any discretionary provincial intervention referred to in section 131 or

any mandatory provincial intervention referred to in section 133, including –

(i) progress with resolving the municipality’s financial problems and its financial recovery; and

(ii) the effectiveness of any financial recovery plan; and

(b) submit progress reports to –

(i) the municipality;

(ii) the Minister;

(iii) the Cabinet member responsible for local government;

(iv) the provincial legislature; and

(v) organised local government in the province.

(2) The MEC may request the person who prepared the recovery plan, or the

Municipal Financial Recovery Service, to assist the MEC in complying with subsection (1).

Termination of provincial interventions

142. (1) A discretionary intervention referred to in section 131 must end –

(a) if it is terminated in terms of section 139 (2) (b) of the Constitution; or

(b) when –

(i) the municipality is able and willing to fulfil the executive obligation in terms of legislation or the Constitution that gave rise to the intervention; and

(ii) the financial problem that has been caused by or has caused the failure by the municipality to comply with that obligation is resolved.

(2) A mandatory intervention referred to in section 133 must end when –

(a) the crisis in the municipality’s financial affairs has been resolved; and

(b) the municipality’s ability to meet its obligations to provide basic services or its financial

commitments is secured.

(3) When a provincial intervention ends, the MEC for local government in a

province must notify –

(a) the municipality;

(b) the Minister, in the case of a mandatory intervention;

(c) the Cabinet member responsible for local government;

(d) any creditors having pending litigation against the municipality;

(e) the provincial legislature; and

(f) organised local government in the province.

143. If a provincial executive intervenes in a municipality in terms of section 139

of the Constitution, the provincial executive and its representatives have access to such information, records and documents of the municipality or of any municipal entity under the sole or shared control of the municipality as may be necessary for the intervention, including for identifying or resolving the financial problem of the municipality.

144. (1) If the conditions for a provincial intervention in a municipality in terms of section 139 (4) or (5) of the Constitution are met and the provincial executive cannot or does not or does not adequately exercise the powers or perform the functions referred to in that section, the national executive must –

consult the provincial executive; and

act or intervene in terms of that section in the stead of the provincial executive.

(2) If the national executive intervenes in a municipality in terms of subsection (1) –

(a) the national executive assumes for the purposes of the intervention the functions and powers of a provincial executive in terms of this Chapter;

(b) the Minister assumes for the purposes of the intervention the functions and powers of a an MEC for local government in terms of this Chapter; and

(c) a reference in this Chapter –

(i) to a provincial executive must be read as a reference to the national executive;

(ii) to an MEC for local government must be read as a reference to the Minister; and

(iii) to a provincial intervention must be read as a reference to a national intervention.

145. Except as expressly provided for in this Part, nothing in this Chapter limits or affects –

(a) the rights of any creditor or other person having a claim against a municipality;

(b) any person’s access to ordinary legal process in accordance with the common law and relevant legislation; or

(c) the rights of a municipality or municipal entity, or of the parties to a contract with a municipality or municipal entity, to alternative dispute resolution mechanisms, notice procedures and other remedies, processes or procedures.

146. (1) If a municipality is unable to meet its financial commitments it may apply to the High Court for an order to stay, for a period not exceeding 90 days, all legal proceedings, including the execution of legal process, by persons claiming money from the municipality or a municipal entity under the sole control of the municipality.

Notice of an application in terms of subsection (1) must be given to –

the MEC for local government in the province;

the Minister;

(c) the Cabinet member responsible for local government;

(d) organised local government; and

(e) to the extent that they can reasonably be contacted, all persons to whom the municipality or the municipal entity owes an amount in excess of a prescribed amount, or if no amount is prescribed, in excess of R100 000.

(3) An application in terms of subsection (1) may for the purposes of section 139 (5) of the Constitution be regarded as an admission by the municipality that it is unable to meet its financial commitments.

147. (1) A municipality may apply to the High Court for an order –

(a) to stay, for a period not exceeding 90 days at a time, all legal proceedings, including the execution of legal process, by persons claiming money from the municipality;

(b) to suspend the municipality’s financial obligations to creditors, or any portion of those obligations, until the municipality can meet those obligations; or

(c) to terminate the municipality’s financial obligations to creditors, and to settle claims in accordance with a distribution scheme referred to in section 149.

(2) The Court may make an order in terms of subsection (1) only if –

(a) the provincial executive has intervened in terms of section 133 and a financial recovery plan to restore the municipality to financial health has been approved for the municipality;

(b) the financial recovery plan is likely to fail without the protection of such an order;

(c) section 148 has been complied with, in the case of an application for an order referred to in subsection (1) (b); and

(d) section 149 has been complied with, in the case of an application for an order referred to in subsection (1) (c).

(3) Notice of an application in terms of subsection (1) must be given to –

(a) to the extent that they can reasonably be contacted, all creditors to whom the municipality owes an amount in excess of a prescribed amount, or if no amount is prescribed, in excess of R100 000;

(b) the municipality;

(c) the MEC for local government in the province;

(d) the Minister;

(e) the Cabinet member responsible for local government; and

(f) organised labour.

148. Before issuing an order in terms of section 147 (1) (b) for the suspension of a municipality’s financial obligations to creditors, the court must be satisfied that –

(a) the municipality cannot currently meet its financial obligations to creditors; and

(b) all assets not reasonably necessary to sustain effective administration or to provide the minimum level of basic municipal services have been or are to be liquidated in terms of the approved financial recovery plan for the benefit of meeting creditors’ claims.

149. (1) Before issuing an order for the termination of a municipality’s financial obligations to creditors in terms of section 147 (1) (c), the court must be satisfied that –

(a) the municipality cannot meet its financial obligations to its creditors and is not likely to be able to do so in the foreseeable future;

(b) all assets not reasonably necessary to sustain effective administration or to provide the minimum level of basic municipal services have been liquidated in terms of the approved financial recovery plan for the benefit of meeting creditors’ claims; and

(c) all employees have been discharged except those affordable in terms of reasonably projected revenues as set out in the approved financial recovery plan.

(2) If the court issues an order referred to subsection (1) the MEC for local government in the province must appoint a trustee to prepare a distribution scheme for the proportional settlement of all legitimate claims against the municipality as at the date of the order. Those claims must be settled against the amount realised from the liquidation of assets referred to in subsection (1) (b).

(3) A distribution scheme must –

(a) determine the amount available for distribution;

(b) list all creditors with claims which qualify for the purposes of a distribution scheme, indicating which of those are secured and the manner in which they are secured; and

(c) provide for the distribution of the amount available amongst creditors in the following order of preference:

(i) first preference must be given to the rights of secured creditors as to the assets with which they are secured in terms of section 55, provided the security in question was given in good faith and at least six months before the mandatory provincial intervention in terms of section 133 began;

(ii) thereafter the preferences provided for in the Insolvency Act, 1936 (Act No. 24 of 1936), read with the necessary changes as the context may require, must be applied; and

(iii) thereafter non-preferent claims must be settled in proportion to the amount of the different claims.

(4) A distribution scheme may not be implemented unless approved by the court.

150. The National Treasury must by regulation in terms of section 162–

(a) provide for an equitable process for the recognition of claims against a municipality for the purposes of sharing in a distribution scheme, provided that rejection of any claim does not prevent a creditor from proving the claim in a court; and

(b) provide for public access to a distribution scheme.

Part 4: Municipal Financial Recovery Service

151. (1) A Municipal Financial Recovery Service is hereby established as an

institution within the public service.

(2) The Municipal Financial Recovery Service forms part of, and functions within, the National Treasury.

152. The Municipal Financial Recovery Service –

(a) must perform the duties and may exercise the powers assigned to the Service in terms of this Act;

(b) may, on request by an MEC for local government, prepare a financial recovery plan for a municipality or instruct any suitably qualified person to prepare the plan in accordance with the directions of the Service;

(c) may, at the request of the MEC for local government in the province, monitor the implementation of any financial recovery plans that it has prepared, and may recommend such amendments and revisions as are appropriate;

(d) may on request by any municipality that is experiencing financial problems, and in co-ordination with any other provincial or national efforts, assist the municipality to identify the causes of, and potential solutions for, these financial problems;

(e) may, with the approval of the Director-General of the National Treasury, obtain the services of any financial expert to perform any specific work for the Service; and

(f) may collect information on municipal financial problems and on best practices in resolving such problems.

153. (1) The Minister must appoint a person as the Head of the Municipal Financial Recovery Service, subject to subsection (2) and legislation governing the public service.

(2) A person appointed as the Head of the Recovery Service holds office in the

National Treasury on terms and conditions set out in a written employment contract which must

include terms and conditions setting performance standards.

154. (1) The Head of the Municipal Financial Recovery Service –

(a) is responsible for the performance by the Service of its functions and the

exercise of its powers; and

(b) takes all decisions of the Service in the performance of its functions and the exercise of its powers, except those decisions of the Service taken in consequence of a delegation in terms of section 156.

(2) The Head of the Service performs the functions of office subject

to the directions of the Director-General of the National Treasury.

155. The staff of the Municipal Financial Recovery Service consists of –

(a) the Head of the Service;

persons in the service of, or contracted by, the National Treasury and designated by the

Director-General for the work of the Service; and

(c) persons seconded to the Service by agreement between the Director-General and that organ of state or organisation.

156. (1) The Head of the Municipal Financial Recovery Service may delegate, in writing, any of the powers or duties of the Service to a member of the staff of the Service.

(2) A delegation in terms of subsection (1) –

(a) must be in writing;

(b) is subject to the limitations or conditions which the Head of the Service

may impose; and

(c) does not divest the Head of the Service of the responsibility concerning the

exercise of the delegated power or the performance of the delegated duty.

(3) The Head of the Service may confirm, vary or revoke any decision taken in consequence of a delegation in terms of subsection (1), provided that no such variation or revocation of a decision may detract from any rights that may have accrued as a result of the decision.

157. (1) No municipality or municipal entity may incur a liability or risk payable in a foreign currency.

(2) Subsection (1) does not apply to the procurement of goods or services ordinarily denominated in a foreign currency if one of the following conditions is met -

the Rand value is fixed at the time of procurement; or

forward cover is arranged by the municipality with a responsible financial institution to protect against currency risk.

158. (1) No municipality or municipal entity may –

(a) conduct commercial activities which are not directly related to the performance of a municipal function;

(b) provide a municipal service within the boundaries of another municipality without the approval of the council of such other municipality;

(c) conduct any commercial activities outside the borders of the Republic; or

(d) make loans to –

(i) councillors or officials of the municipality;

(ii) directors or officials of the entity; or

(iii) members of the public.

Internal audit unit

159. (1) A municipality must establish an internal audit unit.

(2) An internal audit unit must –

(a) prepare an internal audit program for each financial year;

(b) advise the accounting officer on matters relating to –

(i) internal audit;

(ii) internal controls;

(iii) accounting procedures and practices;

(iv) risk and risk management;

(v) performance management;

(vi) loss control; and

(vii) compliance with this Act, the annual Division of Revenue Act and any other applicable legislation; and

(c) perform such other duties as may be assigned to it by the accounting officer.

(3) The internal audit function may be outsourced, but only if a municipality requires

assistance to develop its internal capacity and the municipal council has determined that this is feasible.

Audit committees

160. (1) A municipality and a municipal entity must have an audit committee.

(2) An audit committee is an independent advisory body. which must –

(a) advise the political structures, the political office-bearers, the accounting officer and the management staff of the municipality, or the board of directors, the accounting officer and the management staff of the municipal entity, on matters relating to –

(i) internal financial control and internal audits;

(ii) risk management;

(iii) accounting policies;

(iv) the adequacy, reliability and accuracy of financial reporting and information;

(v) performance management;

(vi) effective governance;

(vii) compliance with this Act, the annual Division of Revenue Act and any other applicable legislation;

(viii) performance evaluation; and

(ix) any other issues referred to it by the municipality or municipal entity;

(b) review the annual financial statements to provide the council of the municipality or, in the case of a municipal entity, the council of the parent municipality, with an authoritative and credible view of the financial position of the municipality or municipal entity, its efficiency and effectiveness and its overall level of compliance with this Act, the annual Division of Revenue Act and any other applicable legislation;

(c) respond to the council on any issues raised by the Auditor-General in the audit report;

(d) carry out such investigations into the financial affairs of the municipality or municipal entity as the council may request; and

(e) perform such other functions as may be prescribed.

(3) In performing its functions, an audit committee –

(a) has access to the financial records and other relevant information of the municipality or municipal entity; and

(b) must liaise with –

(i) the internal audit unit of the municipality or municipal entity; and

(ii) the person designated by the Auditor-General to audit the financial statements of the municipality or municipal entity.

(4) An audit committee must—

(a) consist of at least three persons with appropriate experience of whom the majority may not be in the employ of the municipality or municipal entity, as the case may be; and

(b) meet as often as is required to perform its functions, but at least twice a year.

(5) The members of an audit committee must be appointed by the council of

the municipality or, in the case of a municipal entity, by the council of the parent

municipality. One of the members who is not in the employ of the municipality or municipal

entity must be appointed as the chairperson of the committee.

(6) A single audit committee may be established for—

(a) a district municipality and the local municipalities within that district municipality; and

(b) a municipality and municipal entities under its sole control.

Councillors’ remuneration

161. (1) A municipality may remunerate its political office-bearers and members of its political structures, but only –

(2) Any remuneration paid or given in cash or in kind to a person as a political office-bearer or as a member of a political structure of a municipality otherwise than in accordance with subsection (1), including any bonus, bursary, loan, advance or other benefit, is an irregular expenditure, and the municipality –

(a) must, and has the right to, recover that remuneration from the political office-bearer or member; and

(b) may not write-off any expenditure incurred by the municipality in paying or giving that remuneration.

(3) The MEC for local government in a province must report to the provincial legislature –

(a) any transgressions of subsection (1); and

(b) any non-compliance with sections 17 (3) (k) (i) and 115 (l).

Treasury regulations and guidelines

162. (1) The National Treasury may make regulations or guidelines applicable to municipalities and municipal entities, regarding—

(a) any matter that may be prescribed in terms of this Act;

(b) financial management and internal control;

(c) a framework for regulating the exercise of municipal fiscal and tariff fixing

powers;

(d) a framework for public private partnership agreements;

(e) the establishment by a municipality of, and control over –

(i) municipal entities; and

(ii) business units contemplated in section 76 (a) (ii) of the Municipal Systems Act;

(f) the safe-guarding of the financial affairs of municipalities and of municipal entities when assets, liabilities or staff are transferred from or to a municipality or a municipal entity;

(g) the alienation, letting or disposal of assets by a municipality or municipal entity;

(h) internal audit units and their functioning;

(i) the information to be disclosed when a municipality or municipal entity issues or incurs debt and the manner in which such information must be disclosed, including by way of a prospectus or other document;

(j) the circumstances under which further or specific disclosures are required after money has been borrowed by a municipality or municipal entity;

(k) the circumstances under which documentation or information pertaining to municipal debt must be lodged or registered;

(l) the establishment of a registry for the registration of documentation and information pertaining to municipal borrowing;

(m) the settlement of claims against a municipality following an order of court in terms of section 147;

(n) the information that must be placed on a municipality’s official website; and

(o) any other matter that may facilitate the enforcement and administration of this Act.

(3) A regulation or guideline in terms of this section may—

(a) differentiate between different—

(i) kinds of municipalities, which may, for the purposes of this section, be defined either in relation to categories, types or budgetary size of municipalities or in any other manner;

(ii) categories of municipal entities;

(iii) categories of accounting officers;

(iv) categories of accounting authorities; or

(v) categories of officials; or

(b) be limited in its application to a particular—

(i) kind of municipality, which may, for the purposes of this section, be defined either in relation to a category, type or budgetary size of municipality or in any other manner;

(ii) category of municipal entities;

(iii) category of accounting officers;

(iv) category of accounting authorities; or

(v) category of officials.

163. (1) Before regulations in terms of section 162 are promulgated, the National Treasury must –

(a) consult organised local government on the substance of those regulations; and

(b) publish the draft regulations in the Government Gazette for public comment.

(2) Regulations made in terms of section 162 must be submitted to Parliament for

parliamentary scrutiny at least 30 days before their promulgation.

Departures from treasury regulations or conditions

164. (1) The National Treasury may on good grounds approve a departure from a treasury regulation or from any condition imposed in terms of this Act.

(2) Non-compliance with a regulation made in terms of section 162, or with a condition imposed by the National Treasury in terms of this Act, may on good grounds shown be condoned by the Treasury.

Financial misconduct by municipal officials

165. (1) The accounting officer of a municipality commits an act of financial misconduct if that accounting officer deliberately or negligently—

(a) contravenes or fails to comply with a provision of section 9, 10 (1) (c), 11 (1), (2) or (4), 22, 30 (4) or (6), 42 (3) (b) (iii), 58 (1) or (2), 59, 67, 68, 70, 71, 72, 77 (1) (a) or

119 (1);

(b) makes or permits, or instructs another official of the municipality to make, an unauthorised, irregular or fruitless and wasteful expenditure; or

provides incorrect or misleading information in any document which in terms of this Act must –

(i) be submitted to the mayor, the council or the Auditor-General; or

(ii) be made public.

(2) The chief financial officer of a municipality commits an act of financial misconduct if that officer deliberately or negligently—

(a) fails to comply with a provision of section 79 (1);

(b) fails to carry out a duty delegated to that officer in terms of section 77 or 79 (1) (d);

(c) contravenes or fails to comply with a condition of any delegation of a power or duty in terms of section 77 or 79 (1) (d); or

(d) makes or permits, or instructs another official of the municipality to make, an unauthorised, irregular or fruitless and wasteful expenditure.

(3) Any other official of a municipality commits an act of financial misconduct if that official deliberately or negligently –

(a) fails to carry out a duty delegated to that official in terms of section 77;

(b) contravenes or fails to comply with a condition of any delegation of a power or duty in terms of section 77; or

(c) makes an unauthorised, irregular or fruitless and wasteful expenditure.

(4) A municipality must –

(a) investigate allegations of financial misconduct against the accounting officer, the chief financial officer or other official of the municipality unless those allegations are frivolous, vexatious, speculative or obviously unfounded; and

(b) if the investigation warrants such a step, institute disciplinary proceedings against the accounting officer, chief financial officer or official in terms of Schedule 2 of the Municipal Systems Act.

Financial misconduct by accounting officers and officials of municipal entities

166. (1) The accounting officer of a municipal entity commits an act of financial misconduct if that accounting officer deliberately or negligently—

(a) contravenes or fails to comply with a provision of section……..;

(b) makes or permits, or instructs another official of the municipal entity to make, an irregular or fruitless and wasteful expenditure; or

(c) provides incorrect or misleading information in any document which in terms of this Act must be –

(i) submitted to the board of directors, the parent municipality or the Auditor-General; or

(ii) made public.

(2) An official of a municipal entity commits an act of financial misconduct if that official deliberately or negligently –

(a) fails to carry out a duty delegated to that official in terms of section 110;

(b) contravenes or fails to comply with a condition of any delegation of a power or duty in terms of section 110; or

(c) makes an irregular or fruitless and wasteful expenditure.

(3) A municipal entity must –

(a) investigate allegations of financial misconduct against the accounting officer or other official of the municipal entity unless those allegations are frivolous, vexatious, speculative or obviously unfounded; and

(b) if the investigation warrants such a step, institute disciplinary proceedings against the accounting officer or official in terms of Schedule 3 of the Municipal Systems Act.

Offences

167. (1) The accounting officer of a municipality is guilty of an offence if that accounting officer –

(i) contravenes or fails to comply with a provision of section 59 (1) or (2), 60 (2), 61 (2) (a), or (d) or 62 (2);

(ii) fails to take steps to prevent unauthorised, irregular or fruitless and wasteful expenditure; or

(b) deliberately misleads or withholds information from the Auditor-General on any bank accounts of the municipality or on money received or spent by the municipality; or

(i) the monthly reports referred to in section 68;

(ii) municipality’s financial statements submitted to the Auditor-General in terms of section 119; or

(ii) fails to take steps to prevent irregular or fruitless and wasteful expenditure; or

(b) deliberately misleads or withholds information from the Auditor-General or the parent municipality on any bank accounts of the municipal entity or on money received or spent by the entity; or

(i) municipal entity’s financial statements submitted to the Auditor-General in terms of section 119; or

(4) An official of a municipality or municipal entity to whom a power or duty was delegated in terms of section 77 or 110, is guilty of an offence if that official deliberately or in a grossly negligent way contravenes or fails to comply with a condition of the delegation.

(5) A councillor of a municipality is guilty of an offence if that councillor—

(a) deliberately influences or attempts to influence the accounting officer, the chief financial officer or any other official of the municipality to contravene a provision of this Act or to refrain from complying with a requirement of this Act;

(b) interferes in the financial management responsibilities and functions assigned in terms of this Act to the accounting officer or chief financial officer of the municipality;

(c) interferes in the financial management responsibilities and functions assigned in terms of this Act to the accounting officer of a municipal entity under the sole or shared control of the municipality; or

(d) interferes in the management or operational activities of a municipal entity under the sole or shared control of the municipality.

(6) A person, councillor or official is guilty of an offence if that person—

(a) gives incorrect, untrue or misleading information material to an investment decision relating to borrowing by a municipality or municipal entity;

(b) makes a withdrawal in contravention of section 11;

(c) fails to comply with section 46; or

(d) contravenes a provision of section 89, 116 (4) or 120 (4).

Penalties

168. A person is liable on conviction of an offence in terms of section 1767 to imprisonment for a period not exceeding five years or to an appropriate fine determined in terms of applicable legislation.

Regulations on financial misconduct procedures and criminal proceedings

169. (1) The Minister may make regulations prescribing—

(a) the manner, form and circumstances in which allegations and disciplinary and criminal charges of financial misconduct must be reported to the National Treasury, the MEC for local government in the province and the Auditor-General, including—

(i) particulars of the alleged financial misconduct and criminal charges; and

(ii) the steps taken in connection with such financial misconduct and criminal charges;

(b) matters relating to the investigation of allegations of financial misconduct and criminal charges;

(c) the circumstances in which the National Treasury or the MEC for local government in the province may direct that disciplinary steps be taken or criminal charges be laid against a person for financial misconduct;

(d) the criteria for the composition of a disciplinary board which hears a charge of financial misconduct;

(e) the circumstances in which the findings of a disciplinary board and any sanctions imposed by the board must be reported to the National Treasury, the MEC for local government in the province and the Auditor-General; and

(f) any other matters to the extent necessary to facilitate the object of this Act.

(2) A regulation in terms of subsection (1) may—

(a) differentiate between different—

(i) kinds of municipalities, which may, for the purposes of this section, be defined either in relation to categories, types or budgetary size of municipalities or in any other manner;

(ii) categories of municipal entities;

(iii) categories of accounting officers;

(iv) categories of accounting authorities; or

(v) categories of officials; or

(b) be limited in its application to a particular—

(i) kind of municipality, which may, for the purposes of this section, be defined either in relation to a category, type or budgetary size of municipality or in any other manner;

(ii) category of municipal entities;

(iii) category of accounting officers;

(iv) category of accounting authorities; or

(v) category of officials.

Liability of functionaries exercising powers and functions in terms of this Act

170. (1) No municipality, political structure or political office-bearer of a municipality, municipal entity, other organ of state or official of a municipality, municipal entity or other organ of state, or other person exercising a power or performing a function in terms of this Act, is liable in respect of any loss or damage resulting from the exercise of that power or the performance of that function in good faith.

(2) Without limiting liability in terms of the common law or other legislation, a municipality may recover from a political office-bearer or official of the municipality, and a municipal entity may recover from an official of the entity, any loss or damage suffered by it because of the deliberate or negligent unlawful actions of that political office-bearer or official when performing a function of office.

171. (1) The Minister may by notice in the Gazette –

(a) delay the implementation of a provision of this Act for a transitional period not exceeding five years from the date when this section takes effect; or

(b) where practicalities prevent the strict application of a specific provision of this Act, exempt any municipality or municipal entity from or in respect of such provision for a period and on conditions determined in the notice.

(2) A delay or exemption in terms of subsection (1) may—

(a) apply to—

(i) municipalities generally; or

(ii) municipal entities generally; or

(b) be limited in its application to a particular—

(i) municipality;

(ii) kind of municipality, which may, for the purposes of this section, be defined either in relation to a category, type or budgetary size of municipality or in any other manner;

(iii) municipal entity; or

(iv) category of municipal entities.

(3) To facilitate the restructuring of the electricity industry as authorised by the Cabinet member responsible for such restructuring, the Minister, by notice in the Gazette, may exempt any municipality or municipal entity from any specific provision of this Act for a period of not more than four years and on conditions determined in the notice, provided that such exemption may not obligate any municipality to transfer any assets or responsibilities, or accept any such transfer, without the concurrence of the municipal council.

172. (1) Anything done in terms of a provision repealed by section 173 (1), which can be done in terms of a provision of this Act, must be regarded as having been done in terms of this Act.

(2) All municipalities must within three months of the date on which this section takes effect, submit to the National Treasury a list of all municipal entities under their sole or shared control, specifying—

(a) the name and address of the municipal entity;

(b) the purpose, extent and other particulars of the interest;

(c) whether the municipal entity is under the sole or shared control of the municipality; and

(d) such other information as may be required by the National Treasury.

Repeal and amendment of legislation

173. (1) The legislation referred to in the second column of the Schedule is hereby amended or repealed to the extent indicated in the third column of the Schedule.

(2) Despite the repeal of section 10G of the Local Government Transition Act, 1993 (Act No. 209 of 1993), by subsection (1) of this section, the provisions contained in subsections (6), (6A) and (7) of section 10G remain in force until the legislation envisaged in section 229 (2) (b) of the Constitution is enacted.

174. (1) This Act is called the Local Government: Municipal Finance Management Act, 2003, and takes effect on 1 July 2003, except those provisions determined by the Minister by notice in the Gazette which will take effect on a later date determined in the notice.

(2) Different dates may in terms of subsection (1) be determined for different provisions of the Act.