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)