1. OFFICE OF THE ACCOUNTANT-GENERAL CAPACITY BUILDING FOR LOCAL GOVERNMENT Presenter: TV Pillay | Chief Director, National Treasury | 17 August 2010 1

2. Capacity Building: Government and role players  University – Curriculum design versus the LG workplace needs, is it still relevant?  LGSETA – Can they structure MOU’s with Departments to assist in mobilising the required resources for skills training?  PALAMA – Can they play a role in fast tracking skills training in the LG arena?  DBSA – Can they assist with their development mandate?  National Treasury – FM - Regulate, Coordinate, Review, Guide, Support and monitor?  DCoG – Their role in Governance and Oversight training?  SALGA – Support for Councillor development programmes?  Consultants - Are they delivering on their contracts? 22

3. LG CAPACITY BUILDING UNDERTAKEN BY THE NATIONAL TREASURY  National Treasury is responsible for training, supporting and monitoring the reforms framework under LG finance;  Municipal Finance Management Internship Programme;  Budget and Treasury Office (BTO) survey;  Minimum Competency Regulations, Gazette 29967 of 15 June 2007;  Awareness raising on MFMA reforms;  Building capacity of the Provincial Treasury (PT) MFMA, and Provincial Accountant-General units to assist municipalities;  Siyenza Manje programme - allocation of financial expertise;  CFO forums;  NT/PT MFMA coordinators quarterly meetings;  Financial Management Grant (FMG) allocations - published in DORA. 33

4. MUNICIPAL FINANCE MANAGEMENT INTERNSHIP PROGRAMME (MFMIP)  This graduate internship programme was introduced in 2004 to build in-house capacity of Budget & Treasury Offices (BTO) within Municipalities;  A 2-year structured programme affording training opportunities to previously unemployed graduates with Accounting, Economics, Finance of Auditing qualifications;  MFMIP focuses on all areas of support, e.g. mentoring, training and work rotation and is financed from municipality budgeted funds and supplemented by the FMG;  There are 1181 interns in the 283 municipalities as at 31 July 2010; the target is 1500 by March 2011. (30 to 40 percent of the allocation is in support of the interns training and stipends);  We encourage municipalities to retain or, if unable, to refer interns to neighbouring municipalities for permanent appointments after the training period;  This is a flagship effort worth replicating in other sectors, e.g. water and sanitation, public works, etc. 44

5. MUNICIPAL FINANCE MANAGEMENT INTERNSHIP PROGRAMME (MFMIP) AS AT 31 JULY 2010 ProvinceNumber of municipalitiesCaptured on Intern Database Eastern Cape45159 Free State25144 Gauteng1450 KwaZulu-Natal61271 Limpopo30161 Mpumalanga2179 North West2573 Northern Cape32121 Western Cape30123 Total2831181 55

6. BUDGET AND TREASURY OFFICE (BTO) SURVEY  NT/PT undertook BTO survey in all municipalities;  The purpose of the survey was to evaluate the establishment of the unit in accordance with the MFMA;  Understand financial management capacity constraints and requirements per Municipality;  Upon analysis, we recommended support areas and measures for improvement; The following key areas, amongst other, were surveyed: o Delegations within the key positions; o Qualifications of officials; o Experience of officials; o Number of officials within the BTO; o Financial performance information from the key responsibility areas;  A limited sample of 30 senior officials were surveyed in the 17 large municipalities due to the large number of officials within a given BTO unit;  Report used to provide feedback to municipalities on gaps, recommendations and follow up in progress. 66

7. Findings of the BTO survey  Delegations of financial management responsibilities is still very weak in most municipalities, thus creating unnecessary bottlenecks;  Key skills shortages in Financial Accounting, Auditing, Risk Management and SCM among others, is common within most municipalities;  Financial performance information emerging from the responsibility areas still reflects a weak internal control structures;  The metropolitan municipalities have the largest concentration of personnel with degrees or diplomas;  The 17 large municipalities exhibit poor revenue management reflected in huge amounts outstanding from consumers;  The use of consultants in the preparation of annual financial statements appears to be widespread across municipalities;  There is a generally limited experience and financial management qualification base in most municipalities. 77

8. Findings of the BTO survey Continued The next high level analysis of the data is presented using the following municipal classifications:  The 6 Metropolitan Municipalities are classified as Category A municipalities comprising of a large urban complex with population size exceeding one million and accounting for 56 percent of all municipal expenditure;  The 21 B1 local municipalities are classified as having large budgets and consisting of major secondary cities;  The 29 B2 local municipalities have a large town as their centre;  The 111 B3 local municipalities have small towns, with relatively small population and a significant proportion of urban population but with no large town as a core;  The 70 B4 municipalities are mainly rural with communal tenure and with at most, two small towns in their area;  There are 46 C district municipalities of which 25 of those are not water service authorities and provide limited functions, whilst the other 21 are water service authorities. 88

9. ACADEMIC QUALIFICATIONS WITHIN THE BTO’S Municipal Category Number of municipalities Proportion of Disclaimers or Adverse Audit Opinions (2008/2009) Total number of staff responses Total number of staff with no Diplomas or Degrees Total number of staff with Diplomas and Degrees A - Metros6NIL19121170 B1 – Secondary Cities 2133%17901140650 B2 – Local Municipalities 2934%1249821428 B3 – Local Municipalities 11144%23701653717 B4 - Local Municipalities 7068%1016413603 C – Districts 4620%950439511 Total283 756644873079 99

10. MINIMUM COMPETENCY REGULATIONS, GAZETTE 29967 OF 15 JUNE 2007  The minimum competency levels were introduced to support a sustained, uniform and consistent implementation of the MFMA reforms;  The regulations affect the following positions at a municipality: o Accounting officer; o CFO and CEOs for municipal entities; o Senior Managers; o Heads of SCM and other middle management officials;  The competency levels cover the required minimum: o Work-related experience; o Higher education requirements; o Performance management competencies as prescribed through the CoGTA performance regulations; o Financial and SCM competency levels.  The above is consistent with the work undertaken in the competency evaluation of other divisions within municipalities by DCoG. 1010

11. MINIMUM COMPETENCY REGULATIONS CONTINUED …  The Regulations were issued with the supporting implementation guidelines for the affected positions;  Deriving out of the regulations was the need to develop an appropriate training programme, Municipal Finance Management Programme (MFMP) in conjunction and registered with LGSETA to facilitate ease of compliance progressively;  All training material and assessment instruments have been designed to ensure consistent and uniform interpretation of the reforms;  Up to 40 regionally based training providers. PALAMA and DBSA’s Vulindlela Academy received training status to deliver against the prescribed programme and received free training material;  Further training on basic accounting skills are presented by SAICA’s (AAT) Accounting Association Technician programme;  600 learners have completed the AAT programme to date. The following training opportunities are currently running or planned for rollout:  300 learners for WC; 250 for FS; 212 for EC; 100 for NC and 138 for NW; 200 for MP; 366 of KZN; and 195 for LP  A high level summary of participation on the MFMP supporting the implementation of the above Regulations follows. 1111

12. MUNICIPAL FINANCE MANAGEMENT PROGRAMME Learning ProgrammesSAQA Unit Standard IDs (NQF level 5) and NQF level 6 Registered 09/10Registered 10/11Total Learners Strategic management; Budgeting implementation and Performance management 116358; 116342; (116345); 116364; 116363; 116341 226512213486 Municipal accounting and Risk management (119350); (119348); 116346; 116362; 116339; 116357; 116351 8794981377 Governance and Legislation116348; 116343; 116344;116361; (119334) 7885651353 Cost and capital planning116347; 116340; (119331); (119341)221436 Municipal IT support and Project management (119351); (119352); (119343); 116360303255558 SCM and PPP116353; 119353 652375 1027 Total Learners490929287837 1212

13. INFORMAL TRAINING  Informal training – basic FM reforms, awareness raising, and technical questions answered, examples provided to delegates which emphasize MFMA reforms, such as: o Budgeting o SCM o GRAP standards o Reporting o Auditing o Oversight o Etc.  Reforms are developed with support from provincial treasury units, local government departments and municipal officials;  The following slide presents a high level summary of 2 areas of informal training support provided. 1313

14. 1414 INFORMAL TRAINING CONTINUED… Province Municipal Budget and Reporting Regulations 2009/2010 Generally Recognised Accounting Practice (GRAP) statements 2009/2010 Total Eastern Cape180128308 Free State97137234 Gauteng20677283 Kwa-Zulu Natal422197619 Limpopo143113256 Mpumalanga26139165 North West9972171 Northern Cape74115189 Western Cape126102228 Total1 37310802453

15. BUILDING CAPACITY OF THE PROVINCIAL TREASURY (PT) MFMA UNITS  The Budget Council and the Technical Committee on Finance have approved support for all Provincial Treasury MFMA units to build capacity;  This action will assist in ensuring that municipalities receive continuous, efficient support and monitoring in all areas of MFMA reforms;  Regular PT visits are undertaken by National Treasury, especially to provinces that experience challenges in implementing the MFMA;  Future plans also include the placement of experts in the 9 provinces to assist all municipalities in making Financial Management improvements. 1515

16. CFO AND PT MFMA COORDINATORS FORUMS  NT makes presentation on key issues covering FM in the CFO forums countrywide;  The quarterly MFMA provincial treasury coordinators meetings also serve as a platform of review and update on the progress of MFMA implementation and reforms relating to: o Compliance; o Support; o Monitoring; o Development of guides and circulars; o Feedback on training; o Coordinating joint efforts of provinces. 1616

17. FINANCIAL MANAGEMENT GRANT (FMG) CONDITIONS  Appointment of a minimum of five (5) interns;  Appointment of a qualified CFO;  Establishment of Supply Chain Management and Internal Audit units;  Ongoing review, revision and submission of MFMA Implementation plans to NT;  Improvement of the financial and reporting systems; implementation of the MFMA reforms;  Acquisition of financial management system that can produce multi-year budgets, in- year reports, SDBIP, annual reports and automation of financial management practices;  Compliance with the MFMA Competency levels;  Preparation and submission of annual financial statements for audits and implement changes required to address findings;  Preparation of a financial recovery plan and implementation where applicable. 1717

18. 2 FMG OUTCOMES STATEMENTS  Improved capacity in financial management of municipalities;  Progressive improvement in the quality of reporting for municipalities;  Appropriately skilled financial management officers appointed in municipalities consistent with competency regulations;  Municipalities have processes and producers in place to provide quality reports and are publishing financial information on a regular basis;  Continuous improvement in audit outcomes;  Improved revenue, expenditure, asset and liability management;  Improved overall compliance with implementing the MFMA. 1818

19. 1 FMG OUTPUTS AS STATED IN DORA  Improved and sustained skills development including the appointment of at least five interns supporting the implementation of financial management reforms in municipalities focusing on the gaps identified in MFMA Implementation plans;  Upgrading of IT systems to deliver reports required for financial management improvement and improve quality of data;  Preparation and implementation of multi-year budgets meeting uniform norms and standards;  Assist in the implementation of supply chain reforms, producing quality and timely financial statements;  Assist in the preparation and implementation of financial recovery plans;  Progressive improvements in audit outcomes;  Improvements to internal and external reporting on budgets, finance, Service Delivery and Budget Implementation Plan (SDBIP), in-year and annual reports;  Implementation of the MFMA. 1919

20. FMG ALLOCATIONS PUBLISHED IN DORA PROVINCE2009/2010 Actual Expenditure 30 June 2010 for 2009/10 allocations 2010/20112011/2012 AmountPercentage Eastern CapeR 54 250 000R 44 688 00082.37%R 62 800 000R 66 300 000 Free StateR 26 500 000R 23 839 00089.96%R 33 939 000R 33 750 000 GautengR 14 750 000R 12 750 00086.44%R 19 250 000R 19 000 000 Kwa Zulu NatalR 67 490 000R 56 349 00083.49%R 78 900 000R 86 141 000 LimpopoR 31 500 000R 27 693 00087.91%R 37 750 000R 38 750 000 MpumalangaR 22 750 000R 18 947 00083.28%R 27 000 000R 26 250 000 Northern CapeR 30 000 000R 26 833 00080.97%R 41 200 000R 45 200 000 North WestR 22 750 000R 18 240 00089.44%R 27 500 000R 31 500 000 Western CapeR 30 000 000R 27 237 00090.79%R 36 250 000R 37 750 000 TOTALR 299 990 000R 256 756 00086.00%R 364 589 000R 384 641 000 2020

21. FMG 2010/11 ALLOC. WITHHELD (1) MUNICIPALITIES2009/10Actual Expenditure 30 June 2010 2010/11Reasons for Withholding Amount% Ukhahlamba (EC)R750 000R382 00050.93R 1 000 000Slow Expenditure: Awaiting cash flow projection (CFO contacted and promised information) Mkhondo (MP)R1 000 000R368 00036.80R1 000 000Slow Expenditure: Awaiting cash flow projection (Prov. Treasury visited munic.) Nkangala (MP)R750 000R58 0007.73R1 000 000Slow Expenditure: Awaiting cash flow projection (CFO working on the matter) 2121

22. FMG 2010/11 ALLOC. WITHHELD (2) MUNICIPALITIES2009/10 Actual Expenditure as at 30 June 2010 2010/11 Reasons for Withholding Amount% Bushbuckridge (MP)R750 000R71 0009.47R1 000 000Slow Expenditure: Awaiting cash flow projection ((Prov. Treasury visited munic.) Dikgatlong (NC)R750 000R388 00051.73R1 200 000Outstanding Reports: Still awaiting response from Muni (CFO suspended, acting persons) Molopo (NW)R1 000 000R662 00066.20R1 250 000Slow Expenditure: Awaiting cash flow projection ((Prov. Treasury visited munic.) uMdoni (KZN)R1 500 000R1 148 00076.53R1 200 000Slow Expenditure: Awaiting cash flow projection (CFO requested information) 2222

23. FMG 2010/11 ALLOCATIONS  Transfer of FMG allocations to 242 municipalities undertaken in July 2010:  comply with DORA requirements;  targeted spending levels were at 80% or higher;  Per payment schedule.  Transfers to 34 municipalities, who responded late to missing information will be made before 30 August 2010;  Remaining 7 non-complying municipalities receive constant correspondence, telephone calls, emails, requesting missing information or cash-flow projects, and commitments;  Monitoring of progress, regular follow-ups, etc very time consuming. 2323

24. Conclusion  National Treasury will continues to support municipalities in building the required capacity through: o The expansion of the Internship programme, bringing onboard new graduates, assisting in the placement of current interns etc; o Liaising with LG stakeholders (SAICA, Universities, SETAs, DCoG etc) to strengthen the capacity of all role players within the sector; o Support the efforts of other departments in the discharge of the responsibilities under LG sector, as it relates to FM; o Strengthen, support and monitor the reform agenda required as per the MFMA; o Monitoring the competency of official through the issued regulations; o Training of officials on preparation of AFS; o Provincial Accountant General forums; o Cluster approach in engagements with munic by introducing multi-disciplinary teams. 2424

25. Conclusion CONTINUED… o Develop and finalise the FMCMM specific for municipalities over the medium term; o Development of a delegations framework for municipalities; o Revenue enhancement project; o Improvements in content, quality and frequency of reporting to municipal councils and closer monitoring of resolutions taken by municipalities; o Direct visits and writing to municipalities on key issues requiring attention; o Recommendations to legislatures to implement and adopt joint sittings to evaluate municipal progress; o Strengthening the municipal committee structure; o Separation of political from administrative appointments. 2525