Province of the EASTERN CAPE DEPARTMENT OF PUBLIC WORKS Devolution of Property Rates and Taxes Grant PRESENTED BY : EUGENE V. JOOSTE CHIEF FINANCIAL OFFICER 24 th May 2011

Overview Conditional Grant Summary Conditional Grant Expenditure to 31 December Factors Contributing to Increased Expenditure: Municipal Finance Unit Factors Contributing to Increased Expenditure: Provincial Immovable Asset Register Remaining Challenges Material Discrepancies in Amounts Outstanding between Municipalities & DPW Rates and Taxes Charged on Non-Provincial Properties Outstanding Amounts Prior to 1 July

Conditional Grant Summary 1 April to 31 December 2010 Municipal YearA Amount Appropriated Roll OverTotal Allocation Rates & Taxes Grant Paid 08/09119,638,000 60,009,784 09/10134,061,000 59,030,000193,091,000108,577,000 10/11147,467, ,962,000283,429,000134,372,199 TotalR 401,166, ,992,000596,158,000302,958,983 3 The total amount spent as at 31 st March amounts to R220,538,907 or 78%

Conditional Grant Expenditure 1 April to 31 December

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Factors Contributing to Increased Expenditure: Municipal Finance Unit A strategically focused Municipal Finance Unit has been established and 3 Managers and 8 Assistant Managers have been appointed. The managers are supported by 9 administrative officials. This unit is dedicated to all activities relating to municipalities and is responsible for the payment and reconciliation of rates and taxes and utilities (electricity / water / refuse) accounts. Each Manager has been allocated a group of municipalities and is responsible for the resolution of queries, the processing of payments and the reconciliation of accounts. Although the roll over has contributed to a reduced reported expenditure – at year end 78% of the grant was spent 6

Factors Contributing to Increased Expenditure: Provincial Immovable Asset Register The department received an unqualified audit opinion for the current year as the Auditor General was satisfied with the completeness of the GRAP compliant Immovable Asset Register (IAR). The IAR will: facilitate the scientific calculation of the annual liability to municipalities. facilitate accurate cash flows projections. enable the department to apply for the correct annual appropriation shorten the payment turnaround process due to reduced verification procedures 7

Remaining Challenges Remaining outstanding debt relating to 2008 / 2009 and 2009 / 2010 although vastly reduced Material discrepancies between amounts reported as outstanding by municipalities and by the department Rates and Taxes charged on properties that are unregistered, properties on un-surveyed land and properties on municipal land Rates and taxes charged on provincial roads – the value on which the rateable amount is arrived at Amounts due by National Public Works prior to devolution (30 June 2008) 8

Factors Contributing to Outstanding Debt for 2008 / 2009 and 2009 / 2010 Incorrect invoicing by municipalities (e.g. incorrect valuations used for the calculation of rates, invoices at incorrect tariffs) Invoicing by municipalities on properties not owned by the province (the devolution took place based on an unaudited and unverified immovable asset base) Invoicing outside of the computerised system (i.e. manual invoices) The financial management capacity at the municipalities in the Eastern Cape remains a challenge Unallocated payments by municipalities 9

Rates and Taxes Charged on Non-Provincial Properties The department is being invoiced rates and taxes on private property, property owned by National and property owned by the municipality itself. These errors are not being corrected in the municipality and continue to reflect as owing by the department. Municipalities are charging rates and taxes on un-surveyed land. Municipalities are charging rates and taxes on unregistered land. 10

Outstanding Amounts Prior to 1 July 2008 The Devolution of Property Rates and Taxes Grant became effective on the 1 April 2008 for rates and taxes charged in the municipal financial year 1 July 2008 to 30 June This transition from national to provincial was not effectively managed by municipalities The outstanding balances due by National Public Works at 30 June 2008 (invoices issued July 2007) were not transferred to a separate account by municipalities – these were charged to the province. The province is being charged interest on the outstanding balances of National Public Works at 1 July 2008 Municipalities cannot provide all the supporting documents for the outstanding amounts at 1 July 2008 The municipalities continue to reflect these amounts as due by the province. 11

Prior to 1 July 2008 Estimated Amounts Due by National per Municipality MunicipalityR OutstandingMunicipalityR OutstandingMunicipalityR Outstanding Amahlathi5,113.92Intsika Yethu0.00Ndlambe669, Baviaans Inxuba Yethemba188,554.79Nelson Mandela Bay Blue Crane Route(33,866.05) King Sabata Dalindyebo 0.00Ngqushwa0.00 Buffalo City848,755.53Kouga47,247.48)Nkonkobe0.00 Cacadu District0.00Koukamma15,846.97Ntabankulu0.00 Camdeboo44,484.28Lukhanji1,974,793.99Nxuba45, Elundini224,701.22Makana3,328,976.58Nyandeni0.00 Emalahleni103,681.70Maletswai7,674.29Port St Johns224, Engcobo3,121.87Matatiele503,057.19Sakhisizwe18, Gariep77,879.57Mbashe74,170.79Senqu4, Great Kei0.00Mbizana0.00Sundays River Valley306, Ikwezi(1,258.07)Mhlontlo0.00Tsolwana199, Ingquza Hill1,697,449.95Mnquma98,230.42Umzimvubu 0.00 Inkwanca0.00 TOTAL 10,678,214.01

Way Forward The department waiting for a legal opinion on whether it is liable for the payment of rates and taxes on un-surveyed land (note there are schools and clinics on this land) Complete 2 of the Rates and Taxes Project to address – The detail behind the amounts reported to Provincial Treasury as outstanding by Provincial Public Works – The reconciliation of the amounts outstanding in the municipality’s records to the amounts in the department’s records – To verify the liability split between National and Provincial Public Works – To pay all outstanding amounts that are not disputed 13

Province of the EASTERN CAPE DEPARTMENT OF PUBLIC WORKS 14 Questions