EFFECTIVE POLITICAL OVERSIGHT ROLE ON FINANCIAL MANAGEMENT

BACKGROUND Political reform and the Constitution of the Republic of South Africa (1996) (hereafter called the Constitution) have been the most important factors leading to the democratization of institutions of state and the facilitation of a decentralized public service. Since the first democratic elections, South Africa has transformed from an undemocratic and highly centralized state to a democratic state, whilst adapting its national, provincial, and local spheres of government accordingly. Political accountability is the obligation resting on each functionary to act in the public interest and according to his or her conscience, with solutions for every matter based on professionalism and participation, with divulgement as a safety measure

The Municipal Finance Management Act (Act No. 56 of 2003) (“MFMA”) The MFMA is aimed at providing secure, sound and sustainable management of the financial affairs of municipalities and other institutions and standards for the local sphere of government. The MFMA aims to modernise budget and financial management practices in municipalities in order to maximise the capacity of the municipalities to deliver services to all residents, customers and users. It also gives effect to the principle of transparency as required by sections 215 and 216 of the Constitution. The MFMA supplements conventional procedural financial management rules with a performance based system focusing on outputs, outcomes and measurable objectives and the MFMA gives council a number of financial management tasks to execute in the oversight role context

THE MUNICIPAL FINANCE MANAGEMENT ACT, NO 56 0F 2003 The objective of this Act is to secure sound and sustainable management of the fiscal and financial affairs of municipalities and municipal entities, by establishing norms and standards and other requirements for (Section 3 of the Act): • ensuring transparency, accountability, and appropriate lines of responsibility, in the fiscal and financial affairs of municipalities and municipal entities; • the management of their revenue, expenditure, assets, and liabilities and the handling of their financial dealings; • budgetary and financial planning processes and the co-ordination of these processes with the processes of organs of State in other spheres of government; • borrowing; • the handling of financial problems in municipalities; • supply chain management; and • other financial matters.

LEGAL FRAMEWORK Municipal Finance Management Act, No 5 of 2003: Section 122 of the MFMA: Every municipality must for each financial year prepare annual financial statements which: Fairly presents the state of affairs if 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. Both annual financial statements and consolidated annual financial statements must be prepared in accordance with Generally Recognised Accounting Practice prescribed in terms of Section 91(1)(b) of the Public Finance Management Act.

SUBMISSION AND AUITING OF THE ANNUAL FINANCIAL STATEMENTS Municipal Finance Management Act, No 56 of 2003: Section 126 of the MFMA states that the Accounting Officer of the 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.

AG AUDIT OF FINANCIAL STATEMENTS The AG will audit and report on the fair presentation of the annual financial statements of municipalities including the financial position, financial performance and cash flows for the period under audit which must be in accordance with GRAP, MFMA and DORA. A clean audit outcome means that the financial statements are free from material misstatements and there are no material findings on performance objectives or non compliance with legislation.

ROLE OF POLICITICAL LEADERSHIP IN ACHIEVING A CLEAN AUDIT Municipal councils are vested with the legal authority to promote financial accountability in their respective municipalities. To accomplish this responsibility, municipal council establishes committees to enable a structured and coordinated mechanism through which it can promote financial accountability effectively. Effective oversight on financial management plays a critical role to achieving a clean audit . The political leadership must be able to effectively implement their oversight role when reviewing, analysing and making informed decisions on financial information. Councils must be kept informed of the business of the municipality by receiving regular financial reports on the activities of the administration, which reports must provide feedback in respect of predetermined deliverables within key performance areas. The success of the councillor oversight role requires that councillors extend their involvement beyond the mere scrutiny of reports.

ROLE OF POLICITICAL LEADERSHIP IN ACHIEVING EFFECTVE FINANCIAL MANAGEMENT Political leadership must be able to interpret financial information in order to make informed decisions. Political leadership (Council) must adopt all circulars issued by National Government to ensure that he municipality is bound to comply rather than use the circular as a guideline. There must be emphasis on promoting transparency and accountability. There must be constant monitoring of the going concern analysis of the municipality to be able to ascertain the ability of the municipality to carryon its financial operations in the near future with its available resources. The must be an assessment of the financial norms and ratios of the municipality in compliance with MFMA Circular 71 in order to analysis the financial health of the municipality to ensure sound and sustainable financial management of fiscal and financial affairs of the municipality.

CONCLUSION AND RECOMMENDATIONS The municipal council needs to create a culture of governance that promotes accountability, openness and transparency. Financial accountability must be promoted throughout the year and not a once-off activity as is currently the situation. The council committees cannot exercise effective financial oversight only at the tail-end of the budget process. They must participate in all the stages of the budget process to ensure that they are neither disadvantaged nor dominated by the executive structures that tend to be much more informed about the budget issues than non-executive councillors. Oversight Committee members must be trained in financial analysis and management. Committee members require these skills to develop an informed and meaningful input into the financial management processes of the municipality.