BOPHIRIMA
DISTRICT MUNICIPALITY, NORTH WEST PROVINCE
FINANCIAL
VIABILITY AND MANAGEMENT AS AT
|
CONTENT |
|
D. Municipal
Infrastructure Grant |
|
E. Amounts Owed
to Municipalities |
|
F. External
Audit Results and Financial Management Capacity |
|
G. Conclusion |
A. INTRODUCTION
All the municipalities
within the Bophirima District have increased their operating budgets in the
2005/06 financial year when compared to the actual expenditure incurred in the
2004/05 financial year. The highest increase in operating budget provision
occurred within the Kagisano Municipality and the lowest increase in operating
budget is that estimated by the Naledi Municipality.
The capital budget of all
the municipalities within the Bophirima District increased in the 2005/06
financial year when compared to actual expenditure incurred in 2004/05
financial year. All the increases comprise at least 50%, while the Bophirima
District Municipality, Mamusa, Greater Taung and Lekwa-Teemane have doubled the
amount that was expended in 2004/2005. This reflects as much a lack of capacity
to spend the capital budget in 2004/05 as it reflects a higher availability of
funding for capital projects in 2005/06 (MDB Assessment of Capacity:
Bophirima District Municipality Report, 2005/06).
B. ANALYSIS OF THE 2004/05 BUDGETS
The District Municipality
and its local municipalities budgeted for total expenditure of R402 million for
2004/05 financial year. Of this amount, R83 million was targeted for capital
expenditure and R319 million for operating expenditure. A total operating
revenue of R341 million was budgeted, which resulted in an operating surplus of
R22 million.
A summary of the operating
and capital budgets of the District Municipality and its local municipalities
for the 2004/05 year are summarized in the table below.
Operating income,
operational and capital expenditure: 2004/05
|
Municipality |
Operating revenue (R’000) |
Operating Expenditure (R’000) |
Capital Expenditure (R’000) |
Total Expenditure Budget (R’000) |
Capital as % of total Expenditure (%) |
Capital grant funding as % of capital |
|
Kagisano |
24 440 |
16 485 |
16 447 |
32 932 |
50 |
6 |
|
Naledi |
84 244 |
84 089 |
17 621 |
101 710 |
17 |
70 |
|
Mamusa |
33 650 |
33 544 |
12 358 |
45 902 |
27 |
45 |
|
Greater Taung |
36 165 |
36 033 |
12 930 |
48 963 |
26 |
23 |
|
Molopo |
6 650 |
5 577 |
6 186 |
11 763 |
53 |
63 |
|
Lekwa-Teemane |
50 719 |
50 184 |
10 946 |
61 130 |
18 |
68 |
|
Bophirima |
105 110 |
93 062 |
6 269 |
99 331 |
6 |
21 |
|
Total |
340 978 |
318 974 |
82 757 |
401 731 |
21 |
42 |
(Source: National Treasury Local Government Database:
September 2005)
The District Municipality
budgeted for an operating surplus of approximately 10% of its total revenue
whilst relatively small operating surpluses are budgeted by the local
municipalities. This indicates that planned expenditure was financed by
budgeted revenue and there should not be an adverse impact on the overall
financial position of the municipalities if there is adherence to the budget.
The budgeted operating
revenue that was used to finance salaries and wages, repairs and maintenance,
interest and redemption and the provision for bad debt is summarised in the
table below.
Expenditure categories as
percentage of operating revenue
|
Operating Budget Component |
Amounts budgeted (R’000) |
Percentage of total revenue (%) |
|
Total operating revenue |
340 979 |
100 |
|
Salaries and wages |
128 372 |
38 |
|
Repairs and maintenance |
13 081 |
4 |
|
Interest and redemption |
24 434 |
7 |
|
Provision for bad debt |
3 684 |
1 |
(Source: National Treasury Local Government Database,
September 2005)
The expenditure on salaries
and wages as a percentage of total revenue for the District and its local
municipalities was 38%, which is above the norm of 30% of revenue determined by
National Treasury. Repairs and maintenance at 4% of total operating revenue was
substantially lower than the norm of 10-12% of revenue, also determined by
National Treasury. This could indicate that some of the municipalities were
encountering cash flow difficulties or are reducing repairs and maintenance
expenditure to balance their operating budgets. This is a matter of concern as it could indicate that existing
infrastructure is being under-maintained and could result in disruptions in the
delivery of services such as water and electricity.
Interest and redemption was
well below the norm of 15 – 20% of total operating revenue. This was due to
infrastructural capital expenditure being financed primarily from capital
grants rather than other interest bearing and repayable forms of financing (see
comments on budgeted capital expenditure below).
The provision for bad debt
at 1% of operating revenue was low and indicates that the collection of rates
and service charges included in budgeted annual revenue was effectively 99%,
which is extremely high taking into account indigent consumers. This indicates that budgeted annual revenue
may not be collected, which would impact on the financial viability of the
local municipalities within the District (it should be noted that the District
Municipality has a low risk of bad debts because it collects regional council
levies; it is only the local municipalities that have a risk of significant bad
debts).
Capital expenditure as a
percentage of total expenditure consisting of operating and capital expenditure
was approximately 21% for the District and its local municipalities.
Sustainable capital expenditure levels were deemed to be between 10 – 15% of
operating expenditure. It should be noted that 42% of capital expenditure was
financed through capital grants and this accounts for the higher capital
expenditure.
The budgeted capital
expenditure by nature of asset for the District as a whole is summarized as
follows:
Budgeted capital expenditure
per asset category: 2003/04 and 2004/05
|
Asset category |
Budget 2004/05 (R’000) |
% of total capital expenditure (%) |
Budget 2003/04 (R’000) |
% of total capital expenditure (%) |
|
Land and
buildings |
13 472 |
16 |
23 842 |
23 |
|
Roads and Storm
water |
8 925 |
11 |
18 220 |
17 |
|
Water
infrastructure |
3 555 |
4 |
28 463 |
27 |
|
Electricity
infrastructure |
783 |
1 |
10 610 |
10 |
|
Sewerage
infrastructure |
8 122 |
10 |
5 000 |
5 |
|
Housing |
2 078 |
3 |
0 |
0 |
|
Other
infrastructure |
4 003 |
5 |
8 722 |
8 |
|
Community assets |
12 289 |
15 |
1 841 |
2 |
|
Movable assets |
26 825 |
32 |
7 638 |
7 |
|
Other |
2 705 |
3 |
316 |
1 |
|
Total Capital
Budget |
82 757 |
100 |
104 652 |
100 |
(Source: National Treasury Local Government Database,
2004 – 2005)
Grants and Intergovernmental Transfers
The following table shows
the dependence on operating grants by the District Municipality and its local
municipalities for the 2004/05 budgeted year.
Subsidies and grants as
percentage of operating revenue: 2004/05
|
Municipality |
Subsidies and grants (R’000) |
Total Operating Revenue (R’000) |
Subsidies and grants as a percentage of
total revenue (%) |
|
Kagisano |
17 695 |
24 440 |
72 |
|
Naledi |
7 147 |
84 244 |
9 |
|
Mamusa |
8 439 |
33 650 |
25 |
|
Greater Taung |
29 019 |
36 165 |
80 |
|
Molopo |
5 055 |
6 650 |
76 |
|
Lekwa-Teemane |
0 |
50 719 |
0 |
|
Bophirima |
85 975 |
105 110 |
82 |
|
Total |
153 330 |
340 978 |
45 |
(Source: National Treasury Local Government Database,
September 2005)
The operating grants were
relatively high in relation to total operating revenue and supported the
provision of free basic services to communities within the District
Municipality and its local municipalities. The
benchmark for grant dependency was 5% of operating revenue but most of
the local municipalities and the District Municipality received substantial
operating grants. Operating grants were 45% of the total operating income of
the District as a whole. (Also see table below). Included in the operating
revenue of the District Municipality was R10 million of RSC Levies. The levies
terminated in July 2006. Should that have been replaced by grants in financial
year 2004/2005 the District Municipality would have been dependent on grants
for 91% of its operating revenue. The Division of Revenue Act, 2006 make
provisions for a grant of more than R14 million to the Bophirima District
Municipality to replace the RSC Levies in 2006/2007 financial year.
The table below indicates
the operating as well as the infrastructure grant funding for Bophirima
District Municipality and its local municipalities in terms of the
intergovernmental transfers for the financial year 2006/7.
C. OPERATING AND
INFRASTRUCTURE GRANTS FOR 2006/07 (R’000)
|
Grant Municipality |
Equitable Share |
Financial Management |
Systems Improvement |
Total Operating Grants |
Infra-structure |
Total Grants |
|
Kagisano |
18 837 |
500 |
734 |
20 071 |
4 580 |
24 651 |
|
Naledi |
11 034 |
500 |
734 |
12 268 |
2 650 |
14 918 |
|
Mamusa |
10 052 |
500 |
734 |
11 286 |
3 442 |
14 728 |
|
Greater Taung |
30 600 |
500 |
734 |
31 834 |
9 266 |
41 100 |
|
Molopo |
4 509 |
500 |
734 |
5 743 |
0 |
5 743 |
|
Lekwa-Teemane |
8 945 |
500 |
734 |
10 179 |
3 168 |
13 347 |
|
Bophirima |
72 694 |
500 |
1 000 |
74 194 |
38 812 |
113 006 |
|
Total |
156 671 |
3 500 |
5 404 |
165 575 |
61 918 |
227 493 |
(Source: Division of Revenue Act, 2006.)
These levels of operating
grants should ensure that the level of expenditure on electricity, water,
sewerage and roads infrastructure included in the capital budget are
sustainable due to the limited revenue base of the local municipalities in the
District.
MIG Allocations from 2004/05 to 2008/9
|
2004/05 (R'000) |
2005/06 (R'000) |
2006/07 (R'000) |
*2007/08 (R'000) |
*2008/09 (R'000) |
||||||
|
Total |
% |
Total |
% |
Total |
% |
Total |
% |
Total |
% |
|
|
NW391:
Kagisano |
0 |
0.0 |
4,218 |
7.6 |
4,443 |
7.4 |
4,992 |
7.4 |
6,167 |
7.4 |
|
NW392:
Naledi |
0 |
0.0 |
0 |
0.0 |
2,571 |
4.3 |
2,889 |
4.3 |
3,568 |
4.3 |
|
NW393:
Mamusa |
0 |
0.0 |
2,844 |
5.1 |
3,338 |
5.6 |
3,752 |
5.6 |
4,634 |
5.2 |
|
NW394:
Greater Taung |
0 |
0.0 |
7,594 |
13.7 |
8,988 |
14.9 |
10,100 |
23.2 |
12,477 |
14.9 |
|
NW395:
Molopo |
0 |
0.0 |
0 |
0.0 |
954 |
1.6 |
1,072 |
0.0 |
1,324 |
1.6 |
|
NW396:
Lekwa-Teemane |
0 |
0.0 |
0 |
0.0 |
3,073 |
5.1 |
3,453 |
6.0 |
4,265 |
5.8 |
|
DC39:
Bophirima District Municipality |
41,996 |
100.0 |
40,809 |
73.6 |
36,694 |
61.1 |
41,233 |
50.7 |
50,936 |
61.1 |
|
Total |
41,996 |
100.0 |
55,465 |
100.0 |
60,060 |
100.0 |
67,491 |
100.0 |
83,373 |
100 |
(Source: As published in the Division of Revenue Act,
2006) - *Indicative amounts
2004/05
The Bophirima District received R41, 996 million in 2004/05 financial
year. All the funds for 2004/05 were spent as at 30 June 2005.
2005/06
For the 2005/06 financial year, the total
MIG allocation for the District and the three local municipalities of Kagisano,
Mamusa and Greater Taung was
R55, 465 million. These three local municipalities received MIG funds
for the first time in 2005/06. The Bophirima District Municipality received 74%
of the total allocation and the rest was shared among the local municipalities
as follows: Kagisano 7,6%; Mamusa 5,1%
and Greater Taung 13,7%. Naledi, Molopo and Lekwa-Teemane Local Municipalities
did not receive MIG allocations for this financial year.
2006/07
For the 2006/07 financial
year, the total MIG allocation for the District and all the local
municipalities under the district is R60 060 million. The amount included
allocations to the district municipality and to the local municipalities. Bophirima District will get the biggest
allocation of R36, 694 million or 61% of the total allocation to the district,
and the share of the local municipalities are as follows: Kagisano 7,4%; Naledi
4,3%; Mamusa 5,6%; Greater Taung 14,9%; Molopo 1,6% and Lekwa Teemane 5,1%. The
local municipalities with an allocation under R2 million will receive their
allocations via the District municipality.
The Project
Management Unit (PMU) is a ring-fenced unit within a municipality that is
dedicated to manage infrastructure (capital) projects. The PMU is established for the purposes of
managing the MIG projects. If a municipality has adequate capacity to fulfil
project management functions, then it is not necessary to establish a PMU. A
receiving municipality may utilise between 0,5 to 5% of the MIG allocated funds
for the project management function as determined on a sliding scale (not
exceeding R3, 5 million).
|
MUNICIPALITY |
ALLOCATION 05/06 |
DATE APPROVED |
ALLOCATION 06/07 |
|
Kagisano LM |
R 211,000.00 |
29-Sep-05 |
R222,000.00 |
|
G Taung LM |
R 380,000.00 |
14-Jun-05 |
R449,000.00 |
|
Bophirima DM |
R 1,504,000.00 |
8-Dec-05 |
R1,506,000.00 |
(Source: dplg Municipal Infrastructure Grant
Unit, 2006)
As
indicated above, only Kagisano and Greater Taung Local Municipalities as well
as Bophirirma District Municipality have received approvals of business plans
for their Project Management Units (PMUs). The three municipalities have each
been allocated R222 000.00, R449 000.00 and R1 506000.00, respectively for the
functions of the PMUs. All other municipalities in the district have not
established PMUs.
The
Provincial Team together with the district PMU are assisting all the receiving
municipalities with project management functions. The Provincial Team is in a process of capacitating and
transferring skills to the PMUs. The PMUs are made aware of the fact that they
should be capable of performing the project management function without the
assistance of the province.
Commitments on projects for
2006/07
|
Municipality |
2006/07 |
||
|
Allocation (R'000) |
Commitments (R'000) |
% Committed |
|
|
NW391: Kagisano |
4,443 |
4,443 |
100% |
|
NW392: Naledi |
2,571 |
2,571 |
100% |
|
NW393: Mamusa |
3,338 |
3,338 |
100% |
|
NW394: Greater
Taung |
8,988 |
2,976 |
33.1% |
|
NW395: Molopo |
954 |
0 |
0 |
|
NW396:
Lekwa-Teemane |
3,073 |
0 |
0 |
|
DC39: Bophirima
District Municipality |
36,694 |
36,694 |
100% |
|
District
Total |
60,060 |
50,022 |
83.3% |
(Source: dplg Municipal Infrastructure Grant
Unit, 2006)
Out of seven
local municipalities that received allocations for the 2006/07 financial year,
only four are fully (100%) committed. The Greater Taung Local Municipality with
the second highest allocation of R8,988 million is 33.1% committed for the
2006/07 financial year. It is reported that Lekwa-Teemane Local Municipality
has not spent its allocation for this financial year. The allocation for Molopo
Local Municipality is administered by the District. According to information
available this allocation has not been spent to date.
The District as
whole is 83.3% committed on its 2006/07 allocations. In terms of the project
life cycle, 49.3% of the projects are in the implementation (construction)
phase. Only 30.7% of the projects are in the planning phase. The District has
managed to complete 13.3% of projects. Projects in the design phase are
calculated at 6.7%.
Most projects have been
delayed due to EIA approvals, which is a general problem experienced by almost
all municipalities in North West. The bulk of the funds
is mainly spent in the implementation phase, thus the expenditure can increase
when the projects currently in the pre-implementation phase proceed into
construction.
As part of the
capacity building initiative, one senior engineer and three graduates have been
deployed to the District Municipality to assist with the roll-out of
infrastructure projects.
E. AMOUNTS OWED TO MUNICIPALITIES
The table below shows the
collection period in days for each municipality in Bophirima District based on
information collected for the 2004/05 financial year. The formula used to
calculate debtors’ days outstanding is [Debtors outstanding / (Billed
revenue x 365 days)]. The norm is a 45-day collection period after
consumers have been billed.
Debtors collection periods
in days: 2004/05
|
Municipality |
Billed revenue (R’000) |
Outstanding debtors (R’000) |
Debtors days outstanding (days) |
|
Kagisano |
0 |
0 |
0 |
|
Naledi |
72 406 |
58 956 |
297 |
|
Mamusa |
21 541 |
38 641 |
655 |
|
Greater Taung |
2 691 |
7 236 |
981 |
|
Molopo |
0 |
0 |
0 |
|
Lekwa-Teemane |
24 829 |
71 105 |
1 045 |
|
Bophirima |
9 600 |
369 |
14 |
|
Total |
131 067 |
176 307 |
491 |
(Sources:
National Treasury Local Government Database, September 2005)
Kagisano and Molopo
municipalities have no outstanding debtors as they do not provide services for
which consumers are billed. Of the remaining municipalities only Bophirima
District Municipality collects its revenue within 45 days of debtors being
billed. The other local municipalities have significant debtors days
outstanding. Lekwa-Teemane has almost three years’ billed revenue that has not
been collected while Greater Taung and Mamusa Municipalities have 2.7 times and
1.8 times the annual billed amounts outstanding respectively. If debtors are
outstanding for such long periods it is very unlikely that these amounts will
be collected and therefore may have to be written off.
The debtors’ balances
outstanding will adversely impact on the financial viability of the local
municipalities, as insufficient cash will be collected to finance expenditure. It is likely that the provision for bad
debts including in budgeted operating expenditure is insufficient.
F. EXTERNAL AUDIT RESULTS
AND FINANCIAL MANAGEMENT CAPACITY
The criteria used by
National Treasury to classify the financial capacity of local governments was
based on, amongst others, the internal capacity in the finance department to
implement the Local Government: Municipal Finance Management Act (2003) and the
associated reforms contained therein, treasury and project management capacity
as well as budget spend. The Bophirima District Municipality and three of the
local municipalities, Kagisano, Mamusa and Greater Taung were classified as
medium capacity, while the other three local municipalities were classified as
low capacity.
The information
on external audit results has been obtained directly from the Office of the
Auditor-General in April 2006.
Audit findings 2002 – 2005
|
Municipality |
Report 2001/02 Issued Opinion |
Report 2002/03 Issued Opinion |
Report 2003/04 Issued Opinion |
Report 2004/05 Issued Opinion |
||||
|
Kagisano |
Yes |
Unqualified |
Yes |
Unqualified |
Yes |
Unqualified |
No |
No report |
|
Naledi |
Yes |
Disclaimer |
Yes |
Disclaimer |
Yes |
Disclaimer |
Yes |
Disclaimer |
|
Mamusa |
Yes |
Qualified |
Yes |
Qualified |
Yes |
Qualified |
No |
No report |
|
Greater Taung |
Yes |
Qualified |
Yes |
Qualified |
Yes |
Qualified |
Yes |
Qualified |
|
Molopo |
Yes |
Unqualified |
Yes |
Unqualified |
Yes |
Unqualified |
Yes |
Unqualified |
|
Lekwa-Teemane |
Yes |
Unqualified |
Yes |
Unqualified |
Yes |
Qualified |
Yes |
Disclaimer |
|
Bophirima |
Yes |
Unqualified |
Yes |
Unqualified |
Yes |
Unqualified |
Yes |
Unqualified |
(Source: Office of the Auditor-General, April 2006)
The audit findings are good
for the District Municipality and Molopo Municipality that received unqualified
audit reports for four consecutive financial years. Naledi Municipality has
disclaimers and Greater Taung Municipality has qualified audit reports in all
four years under review while Lekwa-Teemane Municipality deteriorated from an
unqualified audit report in 2002/03 to a qualified report in 2003/04 and a
disclaimer in 2004/05 financial year. The audit report of Mamusa Municipality
for financial year 2004/05 is still outstanding but the municipality received
qualified audit reports for the three previous financial years. Some assistance
is needed by the four municipalities to turn this trend around.
The dplg under the
auspices of Project Consolidate has entered into a tripartite Memorandum of
Agreement (MOA) with Mamusa Municipality. The aim of this MOA is to pilot a
collaborative approach through which the dplg, Mamusa municipality and
the Institute of Municipal Finance Officers (IMFO) work
together to ensure the completion of the annual financial statements on time.
The IMFO will help support this municipality in building capacity in the
Finance Department, transfer of skills and mentoring of the Finance Officials.
Intervention strategies
Based on the analysis and
the audit reports for 2001/02 to 2004/05 financial years most of the
municipalities do need some assistance as indicated below.
§
Credit control and revenue management
The four local
municipalities that provide services for which consumers are billed will
benefit from credit control and revenue enhancement support. In respect of credit
control, existing procedures will need to be analysed in detail to determine
which processes require improvement. In
addition, specific assistance needs to be given to the local municipalities to
develop indigent support policies and revenue enhancement strategies to improve
their cash flows and debt collection.
This strategy will need to be undertaken in conjunction with the budget
restructuring referred to below.
§
Financial Management Support
The municipalities that
received disclaimers from the Auditor-General should be assisted with reviewing
their financial policies, control procedures, accounting processes and overall
system of internal control in order to rectify this adverse situation. The details of the Audit Reports will set
out specific details of what support strategy is required.
In respect of municipalities
that received qualified opinions, support to rectify the circumstances giving
rise to the qualification should be provided.
§
Budget Restructuring
The four local
municipalities that are in need of credit control and revenue enhancement
assistance will benefit from structured training in budgeting with specific
emphasis on budget restructuring.
Structural issues such as containment of personnel costs, ensuring
repairs and maintenance are adequate and ensuring that realistic revenue is
included in the budget are key areas of budget restructuring support that is
required. This may also require a
critical review of affordable service levels and a review of how services are
rendered. It may also require a review
of the sustainability of infrastructure grant funding to ensure that
municipalities budget for the increased costs emanating from infrastructural
development in their operating budgets.
G. CONCLUSION
The analysis of the viability
of Bophirima District Municipality and its local municipalities indicates that
emphasis should be placed on the repair and maintenance of property, plant and
equipment in the District to ensure that the grant funded assets are adequately
maintained thereby enabling sustainable service delivery in the District to be
rendered.
There is also a need to
enhance revenue collection strategies in order to improve the financial
viability of the municipalities. Collecting outstanding debtors’ balances is an
important challenge but equally important is the development of the revenue
base of the municipalities through local economic development. This will reduce
their dependence on operating grants thereby strengthening their financial
viability.
- - - - - - - - - - - - - -
- - - - - - ooo000ooo - - - - - - - - - - - - - - - - - - - - -