1. Municipal Budget & Reporting Regulations
Rollout Presentation
Chief Directorate: Local Government Budget Analysis INTERGOVERNMENTAL RELATIONS
January 2009

2. Outline Problem Statement Underlying Principles Legal Framework
Background to reform
Objective of reform
Scope of the regulations
Structure and content of regulations
Technical aspects of document formats
Technical aspects of budget tables
Implementation strategy

3. Problem Statement
283 different municipal budgets despite efforts around Circular 28
Makes aggregation of budget and other information very difficult
Quality of municipal information is compromised due to lack of uniform classifications for revenue and expenditure items
Most municipal budgets do not contain narrative information
Lack of consistent information across the IDP, Budget, SDBIP, IYM and AFS
Compromises monitoring and oversight by Councils, dplg, treasuries and legislatures
Compromises government’s ability to formulate coherent policies affecting local government, and its ability to use the budget as a redistribution tool to address poverty and inequality
To compensate national departments send supplementary requests for information
Financial Information questions
Non-financial Information questions
Municipal Councils probably make uniformed decisions in the absence of credible information and poor advice from officials

4. Underlying Principals
Guided by the Constitution and the MFMA
Promote transparency and accountability
Strengthens the link between policy priorities, planning, budgeting, implementation and reporting;
Forms the basis for the Medium Term Revenue and Expenditure Framework for municipalities (MTREF)
Facilitates inter-local government comparability (to demonstrate the effective use of resources and to inform allocation decisions)
Consistent budget and reporting formats that will support GFS.

5. Accountability Cycle

6. Legal Framework

7. Constitutional requirements
Section 215 (1) of the Constitution states that:
national, provincial and municipal budgets and budgetary processes must promote transparency, accountability and effective financial management of the economy, debt and the public sector.
Section 215 (2) of the Constitution states that:
National legislation must prescribe -
(a) the form of national, provincial and municipal budgets;
(b) when national and provincial budgets must be tabled; and
(c) that budgets in each sphere of government must show the sources of revenue and the way in which proposed expenditure will comply with national legislation. 7

8. Constitutional requirements
Section 216(1) of the Constitution states that:
national legislation must establish a national treasury and prescribe measures to ensure both transparency and expenditure control in each sphere of government, by introducing -
Generally recognised accounting practice
(GAMAP/GRAP – OAG)
(b) Uniform expenditure classifications; and
(Standard Chart of Accounts / General Leger)
(c) Uniform treasury norms and standards
(MFMA, Regulations, Circulars and Guidelines) 8

9. Legislative requirements
Section 17 of the MFMA:
An annual budget must be in a schedule in the ‘prescribed format’
Sections 121, 122 and 125 of the MFMA:
Relate to municipal annual reports, preparation of financial statements and compulsory disclosures in financial statements – each section includes a power for the Minister of Finance to prescribe the information required 9

10. Legislative requirements
Section 168 of the MFMA states that:
The Minister (of Finance), acting with the concurrence of the Cabinet member responsible for local government, may make regulations for, among other things -
(a) any matter that may be prescribed … and
(c) a framework for regulating the exercise of municipal fiscal and tariff-fixing powers.

11. Background to reform

12. Early reform Advance pilot testing began in 2000
Included testing new budget formats
Further worked and consultation done between 2001 – 2005
Circular 28 released December 2005
Gives further guidance on budget formats
Municipalities encouraged to apply to the 2006/07, 2007/08 and 2008/09 budgets
Circular 42 released March 2007
Gives guidance on funding the budget
Sets out the Funding Compliance Test

13. Latest developments
Budget and Reporting Regulations drafted and consulted in 2007
Technical reference group consultations
MFMTAP advisors
Selected municipal and entity CFOs
Provincial Treasuries and Office of the Accountant General
DPLG, SALGA, SARB, Stats SA, ASB and AG
MFMA Joint Meeting
30 August 2007
22 November 2007
13 March 2008
27 written submissions received
3 workshops and several info sessions
Formats released on Treasury website on 28 June 2008
Some feedback received

14. Objective of reform

15. Objective of reform
Improve LG spheres ability to deliver basic services to all through
Improved financial sustainability
Facilitation of medium term planning and policy choices on service delivery
The regulations achieve this through
Formalising norms and standards which will improve
Credibility
Sustainability
Transparency
Accuracy, and
Reliability
of budgets and in year reports of municipalities and entities

16. Broad Objectives Forms part of the MFMA financial management reforms
Ensure budgets are funded
Information for determining municipalities financial status
DoRA compliance without duplicated reporting regimes
Achieve ‘best’ practice
Support the issuance of annual budget circular
Achieve a standardised vote approval structure
Promote ease of performance comparison and evaluation
Promote simplicity ahead of complexity
The cost of measurement and compliance is minimised
Standardisation across local government nationally
To promote improved serviced delivery
Strengthen accountability, transparency and understandability
Achieve, consistency and comparability with other spheres of government
Meeting the challenge of future accounting reforms

17. Consistency of formats
Between budgets, adjustment budgets, and reporting
All stakeholders can readily compare approved budget with actual results
Budget formats and Annual Financial Statements alignment
Between municipalities
Municipalities may structure votes according to their needs
Additional reporting by standardised classification allows comparison
Easier aggregation for national accounts
Greater consistency promotes improved councillor and community understanding
Improved alignment with private sector requirements promotes
Mobility of financial management skills between private and government sectors
Greater understanding by financial institutions and credit rating agencies

18. Scope of regulations

19. Scope of regulations
The Municipal Budget and Reporting Regulations will apply to all municipalities and municipal entities, and cover their -
Annual budgets
Adjustments budgets
In-year reports (to the Mayor)
For each of the above the Regulations set out -
Format (content and structure)
Funding
Process
Non-compliance with time provisions.
In addition, the Regulations cover -
A Framework for unforeseen and unavoidable expenditure
Unauthorised, irregular or fruitless and wasteful expenditure

20. Structure and content of regulations

21. Overview Consists of 6 chapters and 7 schedules
Ch 1 – Interpretation, object and application of these regulations
Ch 2 – Budget and budget related matters of municipalities
Covering the requirements, process, content and structure of budgets and reports of municipalities
Ch 3 - Budget and budget related matters of municipal entities
Covering the requirements, process, content and structure of budgets and reports of municipal entities
Ch 4 – Non compliance with time provisions for budgets and reports
Ch 5 – Framework for unforeseen and unavoidable expenditure
Ch 6 – Unauthorised, irregular or fruitless and wasteful expenditure

22. Ch 2 – Budgets and budget related matters of municipalities
General provisions
Budget related policies of municipalities
Annual budgets of municipalities – Schedule A
Format, funding, process
Adjustments budgets of municipalities – Schedule B
In-year reports of municipalities – Schedule C
Format & process
Monthly budget statements
Quarterly report
Mid-year budget and performance assessment

23. Ch 3 – Budgets & Budget related matters of municipal entities
General provisions
Funding and reserves policies of municipal entities
Annual budgets of municipal entities – Schedule D
Format, funding, process
Adjustments budgets of municipal entities – Schedule E
In-year reports of municipal entities – Schedule F
Format & process
Monthly budget statement
Mid-year budget and performance assessment

24. Ch 4 – Non compliance with time provisions
Processes and formats for: application or notification, consideration and response related to:
Impending non-compliance by municipalities with time lines and deadlines concerning annual budgets
Actual non-compliance by municipalities with time provisions concerning annual budgets and adjustments budgets
Non-compliance by municipalities with time provisions concerning in-year reports
Non-compliance by municipal entities with time provisions 24

25. Ch 5 – Framework for unforeseen & unavoidable expenditure
Unforeseen and unavoidable expenditure by municipalities
Types of expenditure that may be authorised as unforeseen or unavoidable
Monetary limits allowed to be authorised
Unforeseen and unavoidable expenditure by municipal entities
Approval of unforeseen and unavoidable expenditure

26. Ch 6 – Unauthorized, irregular or fruitless and wasteful expenditure
Unauthorized, irregular or fruitless and wasteful expenditure by municipalities
Issues to be considered by council committee
Irregular or fruitless and wasteful expenditure by municipal entities
Recovery of irregular or fruitless and wasteful expenditure
Board may not delegate authority to certify expenditure as irrecoverable

27. Schedules to the municipal budget and reporting regulations
Schedule A Annual Budget and Supporting Documentation of Municipalities
Schedule B Adjustments Budget and Supporting Documentation of Municipalities
Schedule C In-year Reports of Municipalities
Schedule D Annual Budget and Supporting Documentation of Municipal Entities
Schedule E Adjustments Budget and Supporting Documentation of Municipal Entities
Schedule F In-year Reports of Municipal Entities
Schedule G Extensions and Non-compliance with Time Provisions

28. Technical aspects of document formats

29. Overview Schedules A, B and C provide Schedules D, E and F provide
Structure and content for annual budget, adjustments budget and in-year reports for municipalities
Prescribe the main tables
Schedules D, E and F provide
Structure and content for annual budget, adjustments budget and in-year reports for municipal entities
Documentation must present the content described in the exact sequence shown in the schedules to improve
Credibility;
Sustainability;
Transparency;
Accuracy; and
Reliability.

30. Overview – cont’d
The format and content of documentation as described in the regulations and schedules must be the same for
Tabling to council
Submission to National Treasury and provincial treasuries
Making public at municipal offices and on the municipal website
Distribution to other stakeholders
Council may distribute additional information in other summary formats for enhanced consultation including summaries in alternate languages
The annual budget documentation tabled to council for consultation purposes must be in the same format as the final approved budget. And must be funded according to the requirements of the regulations

31. Annual budget documentation – Part 1
Schedule A can be viewed as two parts
Part 1 covers
Mayor’s report
Resolutions
Executive summary
Annual budget tables (top level formats)
Part 1 provides an overall summary of the affect of the budget
The mayor’s report introduces the documentation to council and is politically orientated
The executive summary covers the entire budget and summarises the content of part 2
The annual budget tables contain the amounts to be approved by resolution

32. Annual budget documentation – Part 2
Part 2 provides more detail and covers
Overview of annual budget process
Overview of alignment of annual budget with Integrated Development Plan
Measurable performance objectives and indicators
Overview of budget related policies
Overview of budget Assumptions
Overview of budget funding
Expenditure on allocations and grant programmes
Allocations and grants made by the municipality
Councillor and board member allowances and employee benefits
Monthly targets for revenue, expenditure and cash flow
Annual budgets and SDBIPs – internal departments
Annual budgets and SDAs – entities and external mechanisms
Contracts having future budgetary implications
Capital expenditure details
Legislation compliance status
Other supporting documentation
Annual budgets of municipal entities attached
Municipal manager’s quality certification

33. Tables, charts and explanatory notes
Key tables must be represented by charts for ease of understanding of trends, anomalies and components
Each table and chart must be accompanied by an explanation of the trends and anomalies depicted
Formats for tables will be issued for strict compliance
Formats for charts will be issued as guidance
However, charts must demonstrate component breakdown, total trend and trend of components

34. Schedules B - F Schedules B – F each have two parts
Part 1 is always the same
Mayor’s report
Resolutions
Executive summary
Tables (incl. charts and explanatory notes)
Part 2 differs for each schedule based on need for supporting information

35. Tables for – Annual Budgets Adjustments Budgets In-year Reports

36. Overview Main tables are prescribed as part of the Schedules
Supporting tables are issued by way of guidance
All tables comply with the provisions in the regulations
Main tables are prescribed and so cannot be changed
Supporting tables can be amended while still complying with the regulations
Specimen tables have been prepared to demonstrate actual completion
Working excel models with links have been prepared for municipalities to enter their details and to promote comparability
7 years view, aligned to National and Provincial formats

37. Simultaneous standardisation & flexibility
Standardisation and flexibility is achieved concurrently
Key, high level tables are standard
Generic items and labels are used
Generic items are further explained in supporting tables
Supporting tables are partly standardised and can be expanded to suit local circumstances
Future changes in disclosure requirements (due to accounting standard changes for example) can be met within generic items on the key tables or the supporting tables
Should supporting tables need to be modified, National Treasury will re-issue them

38. Annual Budget Tables Table A1 Budget Summary
Table A2 Budgeted Financial Performance (revenue and expenditure by standard classification)
Table A3 Budgeted Financial Performance (revenue and expenditure by municipal vote)
Table A4 Budgeted Financial Performance (revenue and expenditure)
Table A5 Budgeted Capital Expenditure by vote, standard classification and funding
Table A6 Budgeted Financial Position
Table A7 Budgeted Cash Flows
Table A8 Cash backed reserves/accumulated surplus reconciliation
Table A9 Asset Management
Table A10 Basic service delivery measurement

39. Annual budget columns
Consistent with national and provincial requirements
3 years of audited outcome (an addition of 2 years)
Main amendment to circular 28 & will improve forecasting
1 yr of audited history not sufficient for performance comparison
3 Columns required for yr currently being implemented
Recent trend info vital for strategic decisions on the new budget
Original budget is critical as it represents promises made and consulted on when setting the budget
Significant differences between original budget, adjusted budget and full yr forecast indicate poor planning and unrealistic budgets.
The MTREF is now a standard feature for municipalities

40. Adjustments Budget Tables
Table B1 Adjustments Budget Summary
Table B2 Adjustments Budget Financial Performance (revenue and expenditure by municipal vote)
Table B3 Adjustments Budget Financial Performance (standard classification)
Table B4 Adjustments Budget Financial Performance (revenue and expenditure)
Table B5 Adjustments Capital Expenditure Budget by vote and funding
Table B6 Adjustments Budget Financial Position
Table B7 Adjustments Budget Cash Flows
Table B8 Cash backed reserves/accumulated surplus reconciliation
Table B9 Asset Management
Table B10 Basic service delivery measurement

41. Adjustments budget columns
First 2 columns show original budget and prior adjusted budget
Next 4 columns show specific adjustments
Total adjustments represents columns 4 – 8
The adjusted budget represents columns 3 & 9
The 2 outer year adjusted budget columns allow for shifting of funds between multi-year appropriations for capital as per section 33 of the MFMA

42. In-year Reports Table C1 s71 Monthly Budget Statement Summary
Table C2 Monthly Budget Statement - Financial Performance (revenue and expenditure by municipal vote)
Table C3 Monthly Budget Statement - Financial Performance (standard classification)
Table C4 Monthly Budget Statement - Financial Performance (revenue and expenditure)
Table C5 Monthly Budget Statement - Capital Expenditure (municipal vote, standard classification and funding)
Table C6 Monthly Budget Statement - Financial Position
Table C7 Monthly Budget Statement - Cash Flow

43. In-year reporting columns
The preceding year audited outcome is provided for comparison with the original budget, adjusted budget and full year forecast columns
Provision of year to date budget requires budgets to be timed, establishes monthly performance targets and encourages a more advanced approach to forecasting than is generally currently employed
Year to date variance percentage is a more appropriate measurement of performance than a percentage of full year budget as takes into account seasonality and actual targets set

44. Consolidation of municipality and entities
37 municipalities currently have entities
Table formats provide for consolidation where required
Municipalities must convey to readers of the documentation, information on the total service delivery package being provided through internal and external mechanisms
Consolidated information must therefore be provided
Parent information must be provided separately to facilitate approval of the parent municipality budget
The Council must monitor consolidated in-year reports as well as for the parent municipality
Adjustments budget documentation will be presented for the parent municipality only but be tabled to council along with the latest consolidated in-year report

45. Technical aspects of tables for the Annual Budget

46. Table A1 Budget Summary
Provides a 7-year view of the key aspects of the budget at a glance
Key summary of revenue, expenditure, capital expenditure and funds sources, financial position, cash flows, cash backing, asset management and basic services
Table does not need to be completed as it is linked to other budget tables.

47. Table A2 Budgeted Financial Performance (revenue and expenditure by standard classification)
The ‘standard classification’ refers to a modified Government Finance Statistics (GFS) reporting structure.
Modifications include
Separation of the ‘Budget and Treasury Office’
Separation of ‘Corporate Services’ that were previously grouped with ‘Finance’.
The aim of the standard classification approach is that all municipalities will approve a budget in one common format.
The information must be read in conjunction with the other financial performance views
The category of ‘other’ has not been included, as its inclusion reduces the value of the information and prevents comparability between municipalities. Municipalities with ‘other’ categories should display these items separately.

48. Table A3 Budgeted Financial Performance (revenue and expenditure by municipal vote)
Enables Council to enforce a vote in accordance with the municipality’s organisational structure and to assign responsibility for the revenue and expenditure recorded against these votes
Table A3 is protected and is not to be completed directly. Revenue and expenditure data should be entered at sub-vote level using Table A3A
Table A3A is a working sheet only, and should not be included in a budget document

49. Table A4 Budgeted Financial Performance (revenue and expenditure)
A key aim for this view is to facilitate comparison between the annual results and the original budget to assess performance
The purpose is to provide for generic items in the main table that will not need to be amended when accounting practices change.
Supported by additional detail in Supporting Table SA1
This view ensures consistency with annual reporting format requirements
More detailed technical information in Budget Formats Guide

50. Table A5 Budgeted Capital Expenditure (by vote, standard classification and funding )
Table A5 brings together in one table a range of information that should be considered concurrently when approving the capital budget, namely:
capital expenditure by municipal vote
capital expenditure by standard classification
the funding sources necessary to fund the capital budget
The MFMA provides that a municipality may approve multi-year capital budget appropriations.
The format provides for the capital budget to be approved as a multi-year appropriation, as a single year appropriation (with two additional years of indicative estimates), or as a combination
Total Capital Funding must balance with Total Capital Expenditure

51. Table A6 Budgeted Financial Position
Aligned to GRAP1, which is generally aligned to the international convention which presents Assets less Liabilities as ‘accounting’ Community Wealth
Note that the municipal equivalent of ‘equity’ is now described as Community Wealth/Equity.
The order of items is aligned to the convention of showing items in order of liquidity
Supported notes in Supporting Table SA3 which provides a detailed analysis of the major components

52. Table A7 Budgeted Cash Flows
Table provides for
Clear separation of receipts and payments within each cash flow category
Clear separation of capital and operating receipts from Government, which enables cash from ‘Ratepayers and other’ being used in the imputed collection rate calculation (refer Supporting Table SA10)
Separation of borrowing and loan repayments (no set-off), to assist with MFMA compliance assessment regarding the use of long term borrowing (debt)

53. Table A8 Cash backed reserves/accumulated surplus reconciliation
This table meets the requirements of MFMA Circular 42
Answers the question:
What are the predicted cash and investments that are available at the end of the budget years and how are those funds used?
Budget Formats Guide outlines the steps the municipalities must complete to finalise this table

54. Table A9 Asset management
Key elements on asset management brought together in one view
capital expenditure, new asset expenditure, renewal expenditure asset value & repairs/maintenance
The format is specifically intended to highlight:
The level of resources being deployed for the renewal and maintenance of assets, relative to the resources being deployed for the acquisition and construction of new assets.
The level of asset renewal relative to the level of depreciation.
Adds clarity to the interrelationships between new expenditure and ongoing maintenance obligations and the need to maintain R&M standards

55. Table 10 Basic service delivery measurement
Transparent view of achievement of basic service targets
Alignment to national imperatives
Service standards, backlogs and free basic service levels identified
Cost of free basic services declared allowing alignment to equitable share
Progressive achievement of national targets encouraged

56. Role of Supporting Tables
Provide background detail to the main tables – main tables often just provide summaries of the supporting tables
Supporting tables are not regulated and so can be more readily changed in response to changing accounting practice
Some of the supporting tables provide for critical developments in the management of municipal finances:
MFMA funding compliance
Supporting the Municipal Property Rates Act
Supporting conditional grant control

57. Supporting Table SA10 MFMA funding compliance
Funding compliance methodology i.t.o. Section 18 & 19(1)(d) of the MFMA developed
Follow up to Circular 42 (Funding the Budget) issued March 2007
Methodology used to determine whether budget is sufficiently funded as opposed to “balanced”
Methodology is a self-test component incorporated within budget formats
Most of the calculations have been automated in the formats, so municipalities only have to interpret the results
See MFMA Funding Compliance Guideline for detailed guidance

58. Supporting the Municipal Property Rates Act
SA11 Property rates summary
Transparent reflection of tax increases, their impact on revenue, valuation trends and the treatment of ‘reductions’, rebates and exemptions
SA12-A13 Property rates by category
Both the current year and the budget year data is required to ensure that the budget clearly illustrates trends and changes.
SA14 Household bills
a comparison of various municipal bills, indicating the cost implication on households of proposed rates and tariff changes

59. Supporting conditional grant control
SA18 Transfers and grant receipts
Ensures all transfer ‘receipts’ are disclosed
SA 19 Expenditure on transfers and grants programme
Monitor timing of expenditure on individual grants
Encourages better ‘on time’ spending
SA 20 Reconciliation of transfers, grant receipts and unspent funds
Unspent grants reconciled between balances carried forward, amounts received and expenditure as shown in the Budgeted Financial Position

60. Implementation Strategy

61. Reform too difficult?
During the reform processes there have been complaints that the requirements are too difficult
This position is not accepted by National Treasury
MM, CFO's and their teams are required to attain a particular level of competency to carry out their duties. There has been ample opportunity for municipalities to progressively implement the reforms
National Treasury will continue to support municipalities by
strict enforcement of sanctions for non-compliance with competency levels and requirements of the legislation and regulations
significant support mechanisms that empower municipal councillors and officials to fulfil their responsibilities

62. Implementation Strategy
Formats represent ‘end states’
Critical that implementation be staged to meet capacity to deliver
National Treasury to support Provincial Treasuries
NT and PTs to support municipalities
Advanced implementation to be encouraged

63. Status of Budget and Reporting Regulations
Budget and Reporting Regulations finally past legal scrutiny during early November 2008
Regulations approved by the Minister of Finance on 4 december 2008
Gazetted on 16 January 2009
Public consultation processes and the Parliamentary scrutiny process will run concurrently
Public comment period extended to 90 days
Following the conclusion of both these processes, a final version of the Regulations and formats will be prepared and submitted to the Minister for final approval before promulgation towards the end of March 2009
Implementation Strategy
target date for implementation:
1 July 2009 (2009 Budget) for the 27 high capacity municipalities (six metros and 21 secondary cities); and
1 July 2010 (2010 Budget) for all other municipalities.
Message already communicated to all municipalities on 27 June 2008