DRAFT of 30 May 2003
CHAPTER 12 - FINANCIAL REPORTING AND AUDITING

Preparation and adoption of annual reports
114. (1) Every municipality and every municipal entity must for each financial year prepare an annual report in accordance with this Chapter. The council of a municipality must within nine months after the end of that financial year adopt the annual report of the municipality and of any municipal entity under the municipality’s sole or shared control.

(2) The purpose of an annual report is –
(a) to provide a record of the activities of the municipality or municipal entity during the financial year to which the report relates;
(b) to provide a report on performance against the budget of the municipality or municipal entity for that financial year; 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 a municipality must include –
(a) the annual financial statements of the municipality, and in addition, if section 115 (2) applies, consolidated annual financial statements, as submitted to the Auditor-General for audit in terms of section 119;
(b) the Auditor-General’s audit report in terms of section 119 (3) on those financial statements;
(c) the annual performance report of the municipality prepared by the municipality in terms of section 46 of the Municipal Systems Act;
(d) the Auditor-General’s audit report in terms of section 45 (b) of the Municipal Systems Act on the results of performance measurements referred to in section 41 (1) (c) of that Act;
(e) an assessment by the municipality’s accounting officer of the municipality’s performance against the measurable performance objectives set in terms of section 17 (3) (b) for each vote on the municipality’s approved budget for the relevant financial year;
(f) particulars of any corrective action taken or to be taken in response to issues raised in the audit reports referred to in paragraphs (b) and (d);
(g) any information as determined by the municipality;
(h) any recommendations of the municipality’s audit committee; and
(i) any other information as may be prescribed.

(4) The annual report of a municipal entity must include –
(a) the annual financial statements of the entity, as submitted to the Auditor-General for audit in terms of section 119;
(b) the Auditor-General’s audit report in terms of section 119 (3) on those financial statements;
(c) an assessment by the entity’s accounting officer of the entity’s performance against any measurable performance objectives set in terms the service delivery agreement or other agreement between the entity and its parent municipality;
(d) particulars of any corrective action taken or to be taken in response to issues raised in the audit report referred to in paragraph (b);
(e) any information as determined by the entity or its parent municipality;
(f) any recommendations of the audit committee of the entity or its parent municipality; and
(i) any other information as may be prescribed.

Preparation of financial statements
115. (1) Every municipality and every municipal entity must for each financial year prepare annual financial statements which –
(a) fairly presents the state of affairs of the municipality or entity, its performance against its budget, 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; and
(b) disclose the information required in terms of sections 116, 117 and 118.

(2) A municipality which has sole control of a municipal entity or which controls the majority voting rights at a general meeting of a municipal entity under its shared control, must in addition to complying with subsection (1), prepare consolidated annual financial statements incorporating the annual financial statements of the municipality and of such entity. Such consolidated annual financial statements must comply with any requirements as may be prescribed.

(3) Both annual financial statements and consolidated annual financial statements must be prepared in accordance with generally recognised accounting practice as prescribed in terms of section 91(1) (b) of the Public Finance Management Act.

Disclosures on intergovernmental allocations
116. (1) The annual financial statements of a municipality must disclose information on—
(a) any 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) any 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 allocation;
(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) any allocations received by the entity from any municipality or other organ of state;
(b) any allocations made by the entity to a municipality or other organ of state; and
(c) any other information as may be prescribed.

Disclosures concerning councillors, officials, etc.
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 senior manager and such categories of other officials as may be prescribed.

(2) The notes to the annual financial statements of a municipal entity must include particulars of the salaries, allowances and benefits of –
(a) the members of the board of directors of the entity; and
(b) the chief executive officer of the entity, every senior manager and such categories of other officials as may be prescribed.

Other compulsory disclosures
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) 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;
(c) the total amounts paid for 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 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 entity as at the end of the
financial year;
(c) particulars of any contingent liabilities of the municipality or entity as at the end of the
financial year;
(d) particulars of—
(i) any material losses through criminal conduct and any material irregular or fruitless and wasteful expenditures, including in the case of a municipality, any material unauthorised expenditure, 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.

Submission and auditing of annual financial statements
119. (1) The accounting officer of a municipality –
(a) must prepare the annual financial statements of the municipality and, within two months after the end of the financial year to which those statements relate, submit the statements to the Auditor-General for auditing; and
(b) must in addition, in the case of a municipality referred to in section 115 (2), prepare consolidated annual financial statements in terms of that section, and within three months after the end of the financial year to which those statements relate, submit the statements to the Auditor-General for auditing.

(2) The accounting officer of a municipal entity must prepare the annual financial statements of the entity and, within two months after the end of the financial year to which those statements relate, submit the statements to –
(a) the parent municipality of the entity; and
(b) the Auditor-General, for auditing.

(3) The Auditor-General must—
(a) audit those financial statements; and
(b) submit an audit report on those statements to the accounting officer of the municipality or entity within three months of receipt of the statements.

(4) If the Auditor-General is unable to complete an audit within three months of receiving the financial statements from an accounting officer, the Auditor-General must promptly submit a report outlining the reasons for the delay to the relevant municipality or municipal entity and to the provincial legislature and Parliament.

(5) 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.

Submission and tabling of annual reports
120. (1) The accounting officer of a municipal entity must, within six months after the end
of a financial year, or such earlier date as may be agreed between the entity and its parent
municipality, submit the entity’s annual report for that financial year to the municipal manager
of the entity’s parent municipality.

(2) The mayor of a municipality must, within seven months after the end of a financial year, table in the municipal council for discussion and adoption in accordance with section 122, the annual report of the municipality and of any municipal entity under the municipality’s sole or shared control.

(3) If the mayor, for whatever reason, is unable to submit to the council the annual report of the municipality, or the annual report of any municipal entity under the municipality’s sole or shared control, within seven months after the end of the financial year, the mayor must –
(a) promptly submit to the council a written explanation referred to in section 126 (1) (a) setting out the reasons for the delay, together with any components of the annual report that are ready; and
(b) submit to the council the outstanding annual report or the outstanding components of the annual report as soon as may be possible.

(4) The Auditor- General may submit the financial statements and audit report –
(a) of a municipality directly to the municipal council, the National Treasury, the MEC responsible for local government in the province or any prescribed organ of state, if the mayor fails comply with subsection (2) or (3); or
(b) of a municipal entity directly to the parent municipality, the National Treasury, the MEC responsible for local government in the province or any prescribed organ of state, if the accounting officer of the entity fails comply with subsection (1).

(5) The annual report of a municipality or municipal entity must be made public when tabled in a municipal council. If components of the annual report are tabled in terms of subsection (3), those components must be made public when tabled in a municipal council

Compliance to be monitored
121. The accounting officer of a parent municipality must –
(a) monitor whether the accounting officer of any municipal entity under the sole or shared control of the municipality has complied with sections 114 (1) and 119 (2);
(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.

Adoption of annual report
122. (1) The council of a municipality must adopt the annual report of the municipality and of any municipal entity under the municipality’s sole or shared control not later than two months from the date on which the annual report was tabled in the council in terms of section 120.

(2) Immediately after an annual report is tabled in the council in terms of section 120, the accounting officer of the municipality must—
(a) in accordance with section 21A of the Municipal Systems Act –
(i) make public the annual report; and
(ii) invite the local community to submit representations in connection with the annual report; and
(b) submit the annual report to the Auditor-General and the provincial department responsible for local government matters in the province, in writing.

(3) The accounting officer must –
(a) attend council and council committee meetings where the annual report is discussed, for the purpose of responding to questions concerning the report; and
(b) submit copies of the minutes of those meetings to the Auditor-General and the relevant provincial department responsible for local government matters.

(4) Within seven days of the adoption of the annual report, the accounting officer must in accordance with section 21A of the Municipal Systems Act make public copies of –
(a) the council’s resolution adopting an annual report; and
(b) any oversight or other report issued by the council in connection with the adoption of an annual report.

(5) The National Treasury may issue guidelines on –
(a) the manner in which municipal councils should consider the annual report and conduct public hearings; and
(b) the functioning and composition of any public accounts or oversight committees established by the council to assist it to consider the annual report.

(6) No guidelines issued in terms of subsection (5) are binding on a municipal council unless adopted by the council.

Council meetings open to public and certain public officials
123. (1) The meetings of a municipal council at which an annual report is to be discussed or at which decisions concerning an annual report 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 the annual report; and
(b) for members of the local community or any organs of state to address the council.

(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 annual financial statements of municipalities in the province, the audit reports on such statements and any responses of municipalities to such audit reports, and determine whether municipalities have adequately addressed any issues raised by the Auditor-General in audit reports; 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 each municipal entity in the province; and
(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 has been adopted.

(2) The accounting officer of a municipality must submit the documents
referred to in subsection (1) (a) and (b) to the provincial legislature within seven days
after the municipal council has adopted the relevant annual report in terms of section 122 (1).

(3) The MEC responsible for local government in a province must monitor
whether municipalities in the province comply with subsection (2).

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

(5) The National Treasury may issue guidelines on the manner in which provincial legislatures should consider the annual reports of municipalities.

Consequences of non-compliance with certain provisions
126. (1) If the accounting officer fails to submit financial statements to the Auditor-General in accordance with section 119 (1), or if the mayor fails to table the annual report of a municipality in the council in accordance with section 120 (2)—
(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;
(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, is 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 in the province may intervene in the municipality in terms of section 139 of the Constitution; and
(e) the National Treasury may take appropriate steps against the municipality in terms of section 5 (2) (h).

(2) The Auditor-General must submit to Parliament and the provincial
legislatures –
(a) by no later than 31 October of each year, the names of any municipalities or municipal entities which have failed to submit their financial statements to the Auditor-General in terms of section 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 audit reports on financial statements of municipalities and municipal entities.