MOTHEO DISTRICT MUNICIPALITY

 

 

 

BRIEFING SESSION

 TO THE

PARLIAMENTARY

SELECT COMMITTEE

ON

FINANCE

 

 

 

 

18 September 2007

Cape Town

 

 

 

.     Budgets and Financial Status

 

a)                   Financial Systems

 

The following financial systems are in operation at Motheo District Municipality:

 

-                      South African Municipal Resource Administration system (SAMRAS);

-                      VIP Payroll system; and

-                      Collaborator SCM system.

 

Compliance

 

Although the 2006/2007 Annual Financial Statements were prepared in terms of the standards laid down by the Institute of Municipal Finance Officers in its Code of Accounting Practice for local Authorities in South Africa (1996) and the Published Annual Financial Statements for Local Authorities (1996), the SAMRAS financial system is fully GAMAP/GRAP compliant.

 

A Fixed Assets Register (FAR) has been compiled in order to comply with GAMAP/GRAP requirements.            

           

Manual systems are in place to keep record of Investments and External Loans.

                   

All systems are reconciled on a monthly basis in order to ensure accuracy of financial information.

 

b)                   Audit Outcomes

 

The Auditor General expressed a qualified opinion on the Annual Financial Statements for the 2004/2005 and 2005/2006 financial years.

 

Qualifications raised refer to:

 

-                      Revenue and treatment of output VAT on unallocated receipts;

-                      Expenditure and payment of salaries and bonuses;

-                      Treatment of expenditure against funds;

-                      Recoverability of outstanding debt;

-                      Disclosure of unspent funds on projects and conditional grants as creditors and not as Reserves;

 

c)                   Risks

d)                    

Due to the abolition of RSC levies, the resources of Motheo District Municipality came under tremendous pressure. During the 2006/2007 financial year all the funds accumulated in previous financial years were spent and the District Municipality’s only source of income for 2007/2008 will be in the form of grants.  Spending on operational budgets and investment in infrastructure will have to be planned carefully in order to ensure that the District Municipality remains a going concern.

 

 

e)                   Loans

 

-    A loan of R50 million was taken up from the Development Bank of South Africa by the former Bloem Area District Municipality to fund Electrification and Sanitation projects in the Southern Free State.

 

-    Assets generated in projects funded by this loan was capitalised by Local Municipalities who, in turn, had to pay the interest and redemption on their portion of the loan to the District Municipality.

 

-    As a result of the demarcation process, the majority of these local municipalities were no longer under the jurisdiction of the newly established Motheo District Municipality. Furthermore, all of these municipalities were experiencing difficulty repaying their respective loans to the Motheo District Municipality.

 

-    On instruction of the Office of the Auditor General an opinion on the outstanding debt of Local Municipalities, disclosed as Long term debtors in the AFS, was obtained. In order to ensure fair representation of the 2005/2006 AFS, the debt of Local Municipalities totalling R76, 821,756 had to be written off.

 

-    The current situation can be summarized as follow:

i)          Motheo District Municipality is liable for the repayment of the external loan with a current balance of R44, 181,121.

ii)         Motheo District Municipality is effectively subsidizing local Municipalities outside its area of jurisdiction. (R9 million per annum)

ii)                   Motheo District Municipality cannot show any assets that was generated through the utilization of the external loans, therefore hampering the implementation of GAMAP/GRAP (Redemption vs. Depreciation)

 

f)                     Investments

 

Total investments as at 30 June 2007 was R52, 598,860 (2006 R 70,765,087)

(2005: R85, 491,277).

     

An investment of R875, 477 at New Republic Bank will have to be written off.

 

Investments are made according to the Investment Policy as approved by Council

 

g)                   Capital Expenditure

 

The District Municipality invested R31, 192,912 in infrastructure of Local Municipalities during the 2006/2007 financial year. (2006: R20, 310,741) (2005: R52, 712,916)

 

Assets are capitalised by Local Municipalities. These projects therefore form part of Motheo District Municipality’s operational budget

 

h)                   Operational and Personnel Expenditure

 

Operational expenditure can be summarised as follow:

 

 Personnel                          Total                          % Expenditure                         Expenditure                  

                                                     

2005/2006 Actual                             R36, 797,782                   R98, 727,479               37.27

 

2006/2007 Actual                               R48, 518,623                   R122, 481,634           39.63

 

2007/2008 Budget                           R54, 902,100                    R156, 317,150            35.12

       

 

Employees currently employed – 140

Number of Councillors – 45

 

i)                     Credibility of Budgets

 

The 2007/2008 budget was compiled in accordance with the IDP of Motheo District Municipality and was approved by Council.

 

                       

2.         Spending and Performance with regards to conditional grants

 

a)                   MSIG (R1,000,000 per annum)

Spending 2006/2007

-     PIMS Centre                                          R800, 000

-     Performance Management                       R25, 000

-     SCM Training                                         R32, 000

-     IDP                                                       R143, 000

 

Spending 2007/2008

-     Performance workshops                        R190, 000

 

 

3.         Relations and Collaboration with National and Provincial Departments

     

      Relations with all above bodies are cordial.

 

            With regard to Provincial Government, Motheo District Municipality is a member of the Premier’s Coordinating Forum (PCF)

 

Motheo District Municipality established a District IGR Forum, comprising of the District Municipality and Local Municipalities.

 

4.         Local Government Finance Grant

 

            A grant of R750, 000 was received during the 2006/2007 financial year

 

            At June 30, 2007 an amount of R215, 474 was unspent. As no Interns were employed by Motheo, the unspent funds could not be utilised to subsidise the operational expenditure of the Budget Office – conditions not yet met.

 

            R534, 526 were spent on improving financial systems and to build capacity in the Budget Office and SCM unit.  

 

 

5.         Compliance with the MFMA.

 

            The Municipal Finance Management Act 2003, (Act 56 of 2003) is implemented according to the attached implementation schedule.

 

            Progress reports are submitted to Provincial and National Treasury on a regular basis (Monthly and quarterly reports)

 

6.         DPLG on MIG, MSIG and Project Consolidate

 

Municipal Infrastructure Grants are paid directly to Local Municipalities.

 

Motheo District Municipality assists Local Municipalities in the administration of MIG projects and acts as Project Management Unit (PMU) for Naledi Local Municipality.    

 

7.         Capacity Constraints

 

            Motheo District Municipality was rated by National Treasury as a low-capacity municipality.

           

            As a low capacity municipality, Motheo District Municipality implemented the relevant sections of the MFMA according to the implementation schedule.  During the implementation process, capacity was created by establishing a Budget Office and a Supply Chain Management unit.

           

8.         IDP alignment with the Provincial Growth and Development Strategy (PGDS)

 

            The IDP of Motheo District Municipality was aligned with the Free State Growth and Development Strategy (FSGDS) and address economic growth, development and employment, social development, justice and crime prevention and efficient governance and administration. (Page 88 of IDP 2007 – 2012)