Local Government Municipal Finance Management Act

1 J u l y to 30 September:

1 October to 3 1 December: I January to 31 March: or i n relation to a municipality. means a manager referred to i n section 56 of the hlunicipal System? Act: or i n relation to a municipal entity, means a manager directly accountable t o the chief executive officer of the entity: ( h ) ‘0 to secure the interest of a lender or 1.5 “security” means any mechanism intended investor. and includes any of the mechanisms mentioned in section JX(2): “service delivery agreement” has the meaning assigned to it in section I o f the hlunicipal Systems Act: “service delivery and budget implementation plan” means ;I detailed plnn approwd hy the mayor of a municipality in terms of section 53( I )Ic)(ii) for 30 itnplrmenting the municipality‘s delivery budget. and which must indicate- ( r r ) projections for each month of- of municipal services and its annual ( i ) revenue to be collected. by source: and expenditure. ( i i ) operational capital and by vote; any other matters that may be prescribed. ( h i service delivery targets and performance indicators for each quarter: and ( c ) and includes any revisions of such plan by the mayor in terms of section 5 4 1 ) ( ( , I : “service utility” has the meaning assigned to it in section 1 of the Municipal Systems “shared control”, in relation to a municipal entity, means the rights and powers a municipality has over a municipal entity which ( ( I ) a private company as defined in section I of the Municipal Systems Act is vested in that municipality and one or more other municipalities is- in which effective control Act; or collectively: 35 10 1 5 ( h ) a multi-jurisdictional service utility in which that municipality participates: “short-term debt” means debt repayable over a period not exceeding one year; “sole control”, in relation to a municipal entity, means the rights and powers a municipality has over a municipal entity which is- ( ( 1 ) a private company in which effective control as defined in section 1 of the 50 Municipal Systems Act is vested in that municipality alone: or ( I ? ) a service utility established by the municipality; “standards of generally recognised accounting practice” means an accounting practice complying with standards applicable entities and issued in terms of Chapter 11 of the Public Finance Management Act: 55 “this Act” includes regulations made in terms of section I68 or 175; “unauthorised expenditure”, in relation to a municipality, means any ture incurred by a municipality otherwise than in accordance with section 1 I(3). and includes- (a) overspending of the total amount appropriated in the municipality’s approved 60 to municipalities or municipal expendi- 15 or budget; ( h ) overspending of the total amount appropriated for a vote in the approved budget; Act No. 56, 2003 GOVERNMENT: LOCAL MUNICIPAL FINANCE MANAGEMENT ACT. 2003 f c ) expenditure from a vote unrelated to the department or functional area covered by the vote; (cl) expenditure of money appropriated for a specific purpose. otherwise than for that specific purpose: ( e ) spending of an allocation referred (0). ( c , ) or (ti) of the definition of “allocation” otherwise than in accordance with an! condi1ions of the allocation; or to in paragraph cf, a grant by the municipality otherwise than “vote” means- ( a ) one of the main segments into which a budget of a municipalit! is di\,ided for the appropriation of money for the different departments or functional areas of the municipality; and in accordance with t h i 5 Act: ( h ) which specifies, the total amount that is appropriated for the purposes of the department or functional area concerned. ( 2 ) In this Act. a word or expression derived from a word or expression detined 5 1 0 I5 i n that another subsection ( I ) has a corresponding meaning unless the context indicates meaning is intended. Object of Act

2. The object of this Act is to secure sound and sustainable management o f the tiscal and financial affairs of municipalities and municipal entities by establishing norms and 2 0 standards and other requirements for- ( a ) ensuring transparency, accountability and appropriate lines of responsibility in the fiscal and financial affairs of municipalities and municipal entities: ( h ) the management of their revenues, expenditures, assets and liabilities and the dealings; handling of their financial ( c ) budgetary and financial planning processes and the co-ordination of those processes with the processes of organs of state i n other spheres of government: ( d ) borrowing; ( e ) the handling of financial problems i n municipalities; If) ( S I other financial matters. supply chain management: and 25 30 Institutions to which Act applies and 3. ( 1 ) This Act applies t o - ( a ) all municipalities; 0 7 ) all municipal (c) national and provincial organs of state to the extent of their financial dealings entities: 35 with municipalities. (2) In the event of any inconsistency between a provision of this Act and any other legislation in force when this Act takes effect and which regulates any aspect of the fiscal and financial affairs of municipalities or municipal entities, the pro\,ision prevails. of this Act 40 24 N o . 260 I9 Act No. 56,2003 GOVERNMEKT C.1LETTE.. I i I I HI<( \ I < \ 200L ___ LOCAL GOVERNMENT MUNICIPAL FINANCE MANAGEMENT ACT. 2003 Amendments to Act

4. Draft national legislation directly or indirectly amending this Act. or providing f o r mag be the enactment of subordinate legislation that introduced in Parliament only after the Minister and the Financial and Fiscal Commission have been consulted in writing on the contents of the draft legislation. and have responded in writing. may conflict with this Act. CHAPTER 2 SUPERVISION OVER LOCAL GOVERNMENT FINANCE MANAGEMENT General functions of National Treasury and provincial treasuries 5. ( I ) The National Treatury must- ( u ) fulfil its responsibilities in terms of Chapter 13 of the Constitution and t h i h Act; (hi promote the object of this Act as stated in section 2- (i) within the framework of co-operative government set out in Chapter 3 of the Constitution; and (ii) when coordinating intergovernmental financial and fiscal relations i n terms of the Intergovernmental Fiscal Relations Act. 1997 (Act N o . 97 o f 1997), the annual Division Management Act; and of Revenue Act and the Public Finance (c) enforce compliance with the measures established in terms of section 2 16 ( 1 ) of the Constitution. including those established i n terms of t h i h Act. to comply with subsection ( 2 ) To the extent necessary (1). the National Treasury may- ( u ) monitor the budgets of municipalities to establish whether they- (i) are consistent with the national government's fiscal and macro-economic policy; and (ii) comply with Chapter 4; ( h ) promote good budget and fiscal management by municipalities. and for this purpose monitor the implementation expenditure, revenue collection and borrowing; of municipal budgets. including their ( c ) monitor and assess compliance by municipalities and municipal entities with- (i) (ii) any applicable standards of generally recognised accounting practice and this Act: and uniform expenditure and revenue classification systems; ((1) investigate any system of financial management and internal control in a n ! ' municipality or municipal entity and recommend improvements; (e) take appropriate steps if a municipality or municipal entity commits a breach of this Act, including in term4 of section 216(2) of the Constitution if the municipality. or a municipal entit!, under the sole or shared control of that municipality. commits a serious o r persistent material breach of any measures referred to in that section: and cf, take any other appropriate steps necessary to perform its functions efl~ectivelp. the stopping of funds to a municipality (3) A provincial treasury must in accordance with a prescribed framework- ( a ) fulfil its responsibilities in terms of this Act: ( h ) promote the object of this Act as stated in section 2 within the framework of co-operative government set out in Chapter 3 of the Constitution: and ( c ) assist the National Treasury in enforcing compliance with the measures established in terms of section 216(1) of the Constitution, including those established in terms of this Act. (4) To the extent necessary to comply with subsection (3), a provincial treasury- ( a ) must monitor- (i) compliance with this Act by municipalities and municipal entities in the province; 26 No. 26010 GAZETTE. GOVERNMENT I 3 FEBRUARY 7003 Act Nu. 56,2003 GOVERNMENT: LOCAL MUNICIPAL FINANCE MANAGEMENT ACT, 2003 the preparation by municipalities in the province of their budgets; (ii) (iii) the monthly outcome of those budgets; and (iv) the submission of reports by municipalities in the province as required in terms of this Act; (6) may assist municipalities in the province in the preparation of their budgets; it by the (c) may exercise any powers and must perform any duties delegated to 5 National Treasury in terms of this Act; and (d) may take appropriate steps if a municipality or municipal entity in the province commits a breach of this Act. ( 5 ) The functions assigned to the National Treasury or a provincial treasury in terms 10 of this Act are additional to those assigned to the National Treasury or treasury in terms of the Public Finance Management Act. a provincial (6) The Minister, as The head of the National Treasury, takes National Treasury in terms of this Act, except those decisions taken delegation in terms of section 6( 1). all decisions of the as a result of a 15 (7) The MEC for finance in a province, as the head of the provincial treasury, takes all decisions of the provincial treasury in terms of this Act. except those decisions taken as a result of a delegation in terms of section 6(4). (8) A provincial treasury must submit all information submitted to it in terms of this Act to the National Treasury on a quarterly basis, or when requested. 20 Delegations by National Treasury 6. (1) The Minister may delegate any of the powers or duties assigned to the National Treasury in terms of this Act t+- ( a ) the Director-General of the National Treasury; or ( b ) the MEC responsible for a provincial department, as MEC may agree. the Minister and the 25 (2) The Minister may not delegate the National Treasury's power to stop funds to a municipality in terms of section 5(2)(e). (3) A delegation in terms of subsection (1)- (i) ( a ) must be in writing; 30 ( b ) is subject to any limitations or conditions which the Minister may impose; (c) may. subject to any such limitations or conditions, authorise- the Director-General of the National Treasury to sub-delegate a delegated power or duty to a staff member of the National Treasury: and the MEC responsible delegate a delegated power or duty to a staff member of that department; and for the relevant provincial department (ii) to sub- 3.5 (d) does not divest the National Treasury of the responsibility concerning the (4) The MEC for finance exercise of the delegated power or the performance of the delegated duty. of the powers or duties of the relevant in a province may delegate any Act to the head assigned to a provincial treasury in terms of this provincial department of which the provincial treasury forms part. 40 (5) A delegation in terms of subsection (4)- ( a ) must be in writing: (b) is subject to any limitations or conditions which the MEC for'finance in the 45 province may impose; ( c ) may, subject to any such limitations or conditions, authorise the relevant head of the provincial department to sub-delegate a delegated power or duty to a staff member of that treasury: and (d) does not divest the provincial treasury of the responsibility concerning the exercise of the delegated power or the performance of the delegated duty. SO (6) The Minister or MEC for finance in a province, as may be appropriate. may confirm, vary or revoke any decision taken in consequence of a delegation or ~ ~~ Act No. 56,2003 LOCAL GOVERNMENT: MUNICIPAL FINANCE: MANAGEMENT ACT. 2003 sub-delegation in terms of this section, but no such variation or revocation of a dccision may detract from any rights that may have accrued as a result of the decision. CHAPTER 3 MUNICIPAL REVENUE Part 1: Municipal bank accounts Opening of bank accounts 7. (1) Every municipality must open and maintain at least one bank account in the name of the municipality. ( 2 ) All money received by a municipality must its bank account or accounts, and this must be done promptly and in accorc'wce with this Chapter and a n y requirements that may be prescribed. be paid into ( 3 ) A municipality may not open a bank account- ( a ) abroad; (b) with an institution not registered as a bank in terms of the Banks Act. 1990 (Act No. 94 of 1990): or ( c ) otherwise than in the name of the municipality. (4) Money may be withdrawn from a municipal bank account only in terms of section I ] ( ] ) . Primary bank account 8. ( 1 ) A municipality must have a primary bank account. If a municipality- ( a ) has only one bank account, that account is its primary bank account: or ( 6 ) has more than one bank account, it must designate one of those bank accounts as its primary bank account. (2) The following moneys must be paid into a municipality's primary bank account: ( ( 1 ) All allocations to the municipality, including those made to the municipality for transmission to a municipal entity or other external mechanism assisting the municipality in the performance of its functions: ( h ) all income received by the municipality on its investments; (c) all income received by the municipality municipal entity, including dividends: in connection with its interest i n any 5 10 15 (d) all money collected by a municipal entity or other external mechanism on behalf of the municipality; and ( e ) any other moneys as may be prescribed. ( 3 ) A municipality must take all reasonable steps to ensure that all moneys referred to in subsection ( 2 ) are paid into its primary bank account. (4) No organ of state in the national, provincial or local sphere of government may transfer an allocation of money referred to in subsection ( 2 ) to a municipality except by an organ of through the municipality's primary bank account. All allocations due state to a municipal entity must be made through the parent municipality. or if there are more than one.parent municipality, any of those parent municipalities as'rnay be agreed between the parent municipalities. (5) The accounting officer of a municipality must submit to the National Treasury. the relevant provincial treasury and the Auditor-General, in writing, the name of the bank where the primary bank account of the municipality is held, and the type and number of it may do so the account. If a municipality wants to change its primary bank account, only after the accounting Auditor-General, in writing, at least 30 days before effecting the change. officer has informed the National Treasury and the Act No. 56,2003 LOCAL GOVERNMENT MUNICIPAL FINANCE MANAGEMENT ACT. 2003 Bank account details to be submitted to provincial treasuries and Auditor-General

9. The accounting officer of a municipality must submit to the relevant provincial treasury and the Auditor-General, in writing- ( a ) within 90 days after the municipality has opened a name of the bank where the account has been opened, and the type number of the account; and new bank account. the and ( b ) annually before the start of a financial year, the name of each bank where the municipality holds a bank account, and the type and number of each account. Control of municipal bank accounts 10. ( 1 ) The accounting officer of a municipality- ( a ) must administer all the municipality's bank accounts. including a banh account referred to in section 12 or 48(2)(d); (b) is accountable to the municipal council for the municipality's bank accounts: and ( c ) must enforce compliance with sections 7, 8 and 11. (2) The accounting officer may delegate the duties referred to in subsection ( 1 ) ( ( ' I to the municipality's chief financial officer only. I O 15 Withdrawals from municipal bank accounts 11. ( 1 ) Only the accounting officer or the chief financial officer of a municipalit!,. o r any other senior financial official of the municipality acting on the written authority o f the accounting officer. may withdraw money or authorise the withdrawal of money from any of the municipality's bank accounts, and may do so only- (0) to defray expenditure appropriated in terms of an approved budget: ( h ) to defray expenditure authorised in terms of section 26(4); (c) to defray unforeseeable and unavoidable expenditure authorised i n terms of section 29( 1); (d) in the case of a bank account opened in terms of section 12. to make payments from the account in accordance with subsection (4) of that section: (e) to pay over to a person or organ of state money received by the municipalit! on behalf of that person or organ of state, including- (i) money collected by the municipality on behalf of that person or o r p 1 o f state by agreement; or received by the municipality for that (ii) any insurance or other payments person or organ of state; to refund money incorrectly paid into a ( f ) ( g ) to refund guarantees, sureties and security deposits; (12) (i) ( j ) for such other purposes as may be prescribed. for cash management and investment purposes in accordance with section 13: to defray increased expenditure in terms of section 3 1; or bank account; (2) Any authorisation in terms of subsection ( 1 ) to a senior financial official to withdraw money or to authorise the withdrawal of money from a bank account must be in accordance .with a framework as may be prescribed. The accounting officer may not authorise any official other than the chief financial authorise the withdrawal of money from the municipality's primary bank account if the municipality has a primary bank account which is separate from its other bank accounts. in terms of subsection ( 1 ) ( h ) t o ( j ) officer to withdraw money or to (3) Money may be withdrawn from a bank account without appropriation in terms of an approved budget. (4) The accounting officer must within 30 days after the end of each quarter- ( a ) table in the municipal council a consolidated report of all withdrawals made in terms of subsection (I)(b) to (j) during that quarter; and 50 32 No. 26019 Act No. 56,2003 GOVERNMENT GAZETTF. I : 1-1.11111 \ I < ) 2 0 0 ~ ____- LOCAL GOVERNMENT MUNICIPAL HNANCE MANAGEMENT ACT. 2003 ( b ) submit a copy of the report to the Auditor-General. relevant provincial treasur!' :ud thr Relief, charitable, trust or other funds 12. (1) No political structure or office-bearer of a municipality may set up a relief. in the namr 01' the be the accounting officer of an). wc11 charitable, trust or other fund municipality. Only the municipal manager may fund. of whatever description except (2) A municipality may in terms of section 7 open a separate bank account of the municipality for the purpose of a relief, charitable, trust or other fund. in thtl name (3) Money received by the municipality for the purpose of a relief. charitable. trust 0 1 ' other fund must be paid into a bank account of the municipality. or if a separatc bank account has been opened in terms of subsection (2). into that account. 5 I O (4) Money in a separate account opened in terms of subsection ( 2 ) may be v ~ i t h d r a ~ n from the account without appropriation in terms of an approved budget. but onll- ( a ) by or on the written authority of the accounting officer acting in ;IcCordance 15 with decisions of the municipal council: and (b) for the purposes for which, and subject to any conditions on which. the f u n d was established or the money in the fund was donated. Part 2: Cash, investment and asset marlagenzent Cash management and investments 2 0 13. ( 1 ) The Minister, acting with the concurrence of the Cabinet member responsible for local government, may prescribe a framework within which municipalitieh must- ( a ) conduct their cash management and investments: and ( b ) invest money not immediately required. (2) A municipality must establish an appropriate and effective cash mana_rement and investment policy in accordance with any framework that may be prescribed i n terms of subsection (1). 25 (3) A bank where a municipality at the end of a financial year holds ;I bunk account. or held a bank account at any time during a financial year. must- ( a ) within 30 days after the end of that financial year notify the Auditor-Gencral. . X I in writing, of such bank account, including- (i) the type (ii) the opening year; and and number of the account; and and closing balances of that bank account i n that financial (b) promptly disclose information regarding the account when so requested b! the 35 National Treasury or the Auditor-General. (4) A bank, insurance company or other financial institution which at the end of a financial year holds, or at any time during a financial year held, an investment for ;I municipality, must- ( a ) within 30 days after the end of that financial year, notify the Auditor-Gencral. 10 in writing, of that investment, including the opening and closing balances o f ' that investment in that financial year; and (6) promptly disclose information regarding the investment when so requested by the National Treasury or the Auditor-General. Disposal of capital assets I S 14. (1) A municipality may not transfer ownership as a result transaction or otherwise permanently dispose of a capital asset needed minimum level of basic municipal services. of a sale or other to provide the (2) A municipality may transfer ownership or otherwise dispose of a capital asset other than one contemplated in subsection ( I ) , but only after the municipal council. in a 50 meeting open to the public- 31 N o . IhOI') Act No. 56, 2003 GAZETTE. GOVERNMENT I3 FEBRUARY 2004 GOVERNMENT: LOCAL MUNICIPAL FINANCE MANAGEMENT ACT. 2003 ( a ) has decided on reasonable grounds that the asset is not needed to provide the minimum level of basic municipal services: and 07) has considered the fair market value of the asset and the economic and community value to be received in exchange for the asset. (3) A decision by a municipal council that a specific capital asset is not needed t o S provide the minimum level municipality after that asset has been sold, transferred or otherwise disposed of. of basic municipal services, may not be reversed by the (4) A municipal council may delegate to the accounting officer of the municipality its power to make the determinations referred to in subsection (2)(a) and ( h ) in respect of movable determined council. a value capital below assets the by 10 ( 5 ) Any transfer of ownership of a capital asset in terms of subsection (2) or (4) must be fair. equitable, transparent, competitive and consistent management policy which the municipality must have and maintain in terms of section 1 1 1 . with the supply chain ( 6 ) This section does not apply to the transfer of a capital asset to another municipality 15 or to a municipal entity or to a national or provincial organ of state in circumstances and in respect of categories of assets approved by the National Treasury, provided that such transfers are i n accordance with a prescribed framework. CHAPTER 4 RIUNICIPAL BUDGETS 20 Appropriation of funds for expenditure

15. A municipality may. except where otherwise provided in this Act, incur expenditure only- in terms of an appro\,ed budget; and l c r ) ( h ) within the limits of the amounts appropriated for the dif€eerent votes in an 25 approved budget. Annual budgets 16. ( 1 ) The council of a municipality must for each financial year approve an annual budget for the municipality before the start of that financial year. ( 2 ) I n order for a municipality t o comply with subsection (1). the mayor of the 30 municipality must table the annual budget at a council meeting at least 90 days before the start of the budget year. ( 3 ) Subsection ( 1 ) does not preclude the appropriation of money for capital expenditure for a period appropriation is made each for not exceeding three financial years, provided a separate years. of those financial 3s Contents of annual budgets and supporting documents 17. ( 1 ) An annual budget of a municipality must be a schedule in the prescribed format- source: 40 setting out realistically anticipated revenue for the budget year from each revenue appropriating expenditure for the budget year under the different votes of the municipality; setting out indicative revenue per revenue source and projected expenditure by vote for the two financial years following the budget year; setting out- (i) estimated revenue and expenditure by vote for the current year; and (ii) actual revenue and expenditure by vote for the financial year preceding the current year: and a statement containing any other information required by section Constitution or as may be prescribed. 215(3) of the 45 50 Act No. 56,2003 LOCAL GOVERNMENT MUNICIPAL FINANCE MANAGEMENT ACT. 7003 (2) An annual budget must generally be divided into a capital and an operating budget in accordance with international best practice, as may be prescribed. (3) When an annual budget is tabled in terms of section 16(2). it must be accompanied by the following documents: ( a ) Draft resolutions- 5 (i) approving the budget of the municipality; (ii) imposing any municipal tax and setting any municipal tariffs as may be required for the budget year; and (iii) approving any other matter that may be prescribed; (b) measurable performance objectives for revenue from each source and for each 1 0 vote in the budget, taking into account the municipality's integrated development plan; ( c ) a projection of cash flow for the budget year by revenue source. broken down per month; (d) any proposed amendments to the municipality's integrated de\.elopmcnt plan 15 following the annual review of the integrated development plan i n terms of section 34 of the Municipal Systems Act; (e) any proposed amendments to the budget-related policies of the municipality: (f) particulars of the municipality's investments; f g ) any prescribed budget information on municipal entities under the sole or 20 shared control of the municipality; (11) particulars of all proposed new municipal entities which the municipality intends to establish or in which the municipality intends t o participate: (i) particulars of any proposed service delivery agreements. including material agreements; service delivery amendments to existing ( j ) particulars of any proposed allocations or grants by the municipality to- (i) other municipalities; (ii) any municipal entities and other external mechanisms assisting the municipality in the exercise of its functions or powers: (iii) any other organs of state; ( i v ) any organisations or bodies referred to in section 67( I ) : to the municipality for the budget year ( k ) the proposed cost of the ~ a l ~ y . allowances and benefits of- (i) each political office-bearer of the municipality; (ii) councillors of the municipality; and ( i i i ) the municipal manager, the chief financial officer. each senior manager of the municipality and any other remuneration package greater than or equal to that of a senior manager: or the proposed cost for the budget year to a municipal entity under the sole shared control of the municipality of the salary. allowances and benefits of- (i) each member of the entity's board of directors: and (ii) the chief executive officer and each senior manager of the entity: and official of the nwnicipality having a ( I ) 40 ( m ) any other supporting documentation as may be prescribed. Funding of expenditure 18. ( 1 ) An annual budget may only be funded from- ( u ) realistically anticipated revenues ( h ) cash-backed accumulated funds from previous years' surpluses not committed to be collected; for other purposes; and ( c ) borrowed funds, but only for the capital budget referred to in section 17(2). ( 2 ) Revenue projections in the budget must be realistic. taking into account- 50 ( a ) projected revenue for the current year based on collection levels to date; and 25 30 38 N o . 26010 Act No. 56,2003 C;OVtKNMENT G.-\%E7'Tt.. I ? FFftilil \I<) 2llllU LOCAL GOVERNMENT MUNICIPAL FINANCE MANAGEMENT ACT. 2003 ( h ) actual revenue collected in previous financial years. Capital projects 19. ( I ) A municipality may spend money on a capital project only if- ( ( I ) the money for the project, excluding the cost of feasibility studieh conducted by or on behalf of the municipality, has been appropriated in the capital budget referred to in section 17(2); 5 ( h ) the project, including the total cost, has been approved by the council: (c) section 33 has been complied with, applicable to the project; and to the extent that that section may he ( d ) the sources of funding have been considered. are available and have n o t been committed for, other purposes. ( 2 ) Before approving a capital project in terms of subsection ( 1 )(h). the council of ;I municipality must consider- ( N ) the projected cost covering all financial years until the project is operation;~l: and ( 6 ) the future operational costs and revenue on the project. including municipal tax and tariff implications. (3) A municipal council may in terms of subsection ( 1 ) ( h ) approve capital pro,iects below 11 prescribed value either individually or programme. as part of consolidated capital I O IS 20 Matters to be prescribed 20. ( I ) The Minister. acting with the concurrence of the Cabinet member rrsponhible for local government- ( a ) must prescribe the form of the annual budget of municipalities: and ( h ) ma)' prescribe- ( i ) the form of resolutions and supporting documentation relating annual budget: 25 t o the ( i i ) the number of years preceding and following the budget yenl- for which revenue and expenditure history or projections must be sho\vn i n the supporting documentation; inflation projections to be used with regard (iii) ( i v ) uniform norms and standards concerning the setting of municipal tarifl'h. ;I municipal financial risks and other matters where a municipality uses entity or other external mechanism for the performance of ;I municipal service t o the budget: io is function; other or ( v ) uniform norms and standards concerning the budgets of municipal entities: or ( v i ) any other uniform norms and standards aimed at promoting transparency and expenditure control. (2) The Minister may take appropriate steps to ensure that a municipality i n the 40 exercise of its fiscal powers in terms of section 1-29 of the Constitution materially and unreasonably prejudice- does n o t ( u ) national economic policies, particularly those on inflation. administered pricing and equity; ( h ) economic activities across municipal boundaries: ( c ) the national mobility of goods, services, capital or labour. and Budget preparation process 21. ( 1 ) The mayor of a municipality must- ( m ) co-ordinate the processes for preparing the annual budget and for reviewing the municipality's integrated development plan and budget-related policies t o SO ensure that the tabled budget and any revisions of the integrated development plan and budget-related policies are mutually consistent and credible: ( h ) at least 10 months before the start of the budget year. table in the municipal council a time schedule outlining key deadlines for- 40 No. 26014 Act No. 56,2003 GOVERNMENT GAZETTE. I 1 I'kBl<i \I<) 7001 GOVERNMENT: LOCAL MUNICIPAL FINANCE MANAGEMENT ACT. 2003 the preparation, tabling and approval of the annual budget; (i) (ii) the annual review of- (aa) the integrated development plan Municipal Systems Act; and (bb) the budget-related policies; in terms of section 34 of the (iii) the tabling and adoption of any amendments to the integrated develop- ment plan and the budget-related policies; and (iv) any consultative processes forming part subparagraphs (i), (ii) and (iii). of the processes referred to i n ( 2 ) When preparing the annual budget, the mayor of a municipality must- (0) take into account the municipality's integrated development plan: (b) take all reasonable steps to ensure that the municipality revises the integrated development plan in terms of section 33 of the Municipal Systems Act. taking into account realistic revenue and expenditure projections for future years: ( c ) take into account the national budget, the relevant provincial budget, the national government's fiscal and macro-economic policy. the annual Division of Revenue Act and any agreements reached in the Budget Forum: (d) consult- (i) the relevant district municipality and all other local municipalities within is ;I local the area municipality: of the district municipality, if the municipalit) (ii) all local municipalities within its area, if the municipality is ;I district municipality; (iii) the relevant provincial treasury. and when requested. the National Treasury: and (iv) any national or provincial organs of state. as may be prescribed: and (e) provide, on request, any information relating to the budset- to the National Treasury; and (i) (ii) subject to any limitations that may be prescribed, t o - (aa) the national departments responsible for water, sanitation. electric- ity and any other service as may be prescribed: (hb) any other national and provincial organ of states. as may be prescribed; and (cc) another municipality affected by the budget. Publication of annual budgets

22. Immediately after an annual budget accounting officer of the municipality must- is tabled in a municipal council. the ( a ) in accordance with Chapter 4 of the Municipal Systems Act- (i) make public the annual budget and the documents referred to in section 17(3); and (ii) invite the local community to submit representations in connection with the budget: and (h) submit the annual budget- (i) in both printed and electronic formats relevant provincial treasury; and to the National Treasurl. and the (ii) in either format to any prescribed national or provincial organs of state and to other municipalities affected by the budget. Consultations on tabled budgets 23. ( 1 ) When the annual budget has been tabled, the municipal council must consider views any of- ( a ) the local community; and 35 40 45 SO 42 No. 36019 GAZETTE. GOVERNMENT I3 FEBRUARY 2004 Act No. 56.2003 GOVERNMENT: LOCAL MUNICIPAL FINANCE MANAGEMENT ACT. 2003 ( b ) the National Treasury, the relevant provincial treasury and any provincial or national organs of state or municipalities which made submissions budget. on the (2) After considering all budget submissions, the council must give the mayor an opportunity- 5 ( a ) to respond to the submissions; and ( 6 ) if necessary, to revise the budget and table amendments for consideration by the council. ( 3 ) The National Treasury may issue guidelines on the manner in which municipal councils should process their annual budgets, including guidelines on the formation of a committee of the council to consider the budget and to hold public hearings. 10 (4) No guidelines issued in terms of subsection (3) are binding on a municipal council unless adopted by the council. Approval of annual budgets 24. ( I ) The municipal council must at least 30 days before the start of the budget year 15 consider approval of the annual budget. (2) An annual budget- ( a ) must be approved before ( b ) is approved by the adoption by the council of a resolution referred t o in section the start of the budget year; 17(3)(a)(i); and ( c ) must be approved together with the adoption of resolutions as may be necessary- (i) imposing any municipal tax for the budget year; (ii) setting any municipal tariffs for the budget year; (iii) approving measurable performance objectives for revenue from each source and for each vote in the budget; (iv) approving any changes to the municipality's integrated development 20 25 plan; and (v) approving any changes to the municipality's budget-related policies. ( 3 ) The accounting officer of a municipality must submit the approved annual budget 3 0 to the National Treasury and the relevant provincial treasury. Failure to approve budget before start of budget year 25. ( I ) If a municipal council fails to approve an annual budget, includin, 0 revenue- raising measures necessary to give effect to the budget, the council must reconsider the budget and again vote on the budget, or on an amended version thereof. within seven days of the council meeting that failed to approve the budget. 35 (2) The process provided for until a budget, including revenue-raising measures necessary to give effect to the budget, is approved. (3) If a municipality has not approved an annual budget. including revenue-raising measures necessary to give effect to the budget, by the first day of the budget year. the mayor must immediately comply with section 5 5 . in subsection (1) must be repeated Consequences of failure to approve budget before start of budget year 26. (1) If by the start of the budget year a municipal council has not approved an annual budget or any revenue-raising measures necessary to give effect to the budget, the provincial executive of the relevant province must intervene in the municipality in terms of section 139(4) of the Constitution by taking any appropriate steps to ensure that the budget or those revenue-raising measures are approved, including dissolving the council and- (a) appointing an administrator until a newly elected council has been declared elected; and 40 45 50 33 No. 76019 Act No. 56,2003 GOVERNMENT GAZETTE-. 13 FEl3l<L'AR)' 2004 LOCAL GOVERNMENT MUNICIPAL FINANCE MANAGEMENT ACT. 2003 ( 6 ) approving a temporary budget or revenue-raising measures to provide for the continued functioning of the municipality. ( 2 ) Sections 34(3) and (4) and 35 of the Municipal Structures Act apply when :I provincial executive dissolves a municipal council. (3) When approving a temporary budget for a municipality in terms of subsection (l)(b), the provincial executive is not bound by any provision relating to the budget process applicable to a municipality in terms of this Act or other legislation. Such ;I budget must, after the intervention has ended, be replaced by a budget approved by the newly elected council, provided that the provisions of this Chapter relating to annual budgets are substantially complied with in line with any revised time frames approxed by the MEC for finance in the province. (4) Until a budget for the municipality is approved in terms of subsection ( 1 ). funds for the requirements of the municipality may, with the approval of the MEC for finance in accordance rvith in the province, be withdrawn from the municipality's bank accounts subsection (5). (5) Funds withdrawn from a municipality's bank accounts in terms of wbsection (4)- (aj may be used only to defray current and capital expenditure in connection with votes for which funds were appropriated previous financial year: and in the approved budget for the (6J may not- (i) during any month, exceed eight per cent of the total amount appropriated in that approved budget for current expenditure, which percentage must be scaled down proportionately if revenue flows are not at least at the same level as the previous financial year: and (ii) exceed the amount actually available. (6) The funds provided for in subsection (4) are not additional to funds appropriated in terms of subsection (5) must be for the budget year, and any funds withdrawn regarded as forming part of the funds appropriated in a subsequently approved annual budget for the budget year. Non-compliance with provisions of this Chapter 27. ( I ) The mayor of a municipality must, upon becoming aware of any impendins non-compliance by the municipality of any provisions of this Act or any other legislation pertaining to the tabling or approval of an annual budget or compulsory consultation processes, inform the MEC for finance in the province, in writing, of such impending non-compliance. ( 2 ) If the impending non-compliance pertains to a time provision, except section 16( 1 ), the MEC for finance may, on application by the mayor and on good cause shown. extend any time limit or deadline contained in that provision, provided that no such extension may compromise compliance with section 16( 1). An MEC for finance must- ( a ) exercise the power contained in this subsection in accordance with a prescribed framework; and (b) promptly notify the National Treasury, in writing, of any extensions given in terms of this subsection, together with the name of the municipality and the reasons. (3) The mayor of a municipality must, upon becoming aware of any actual non-compliance by the municipality of a provision of this Chapter. inform the council, the MEC for finance and the National Treasury, in writing. of- ( a ) such non-compliance; and to (b) any remedial or corrective measures the municipality intends to implement avoid a recurrence. (4) Non-compliance by a municipality with a provision of this Chapter relating to the of a budget process budget-related policy, does not affect the validity of an annual or adjustments budget. or a provision in any legislation relating to the approval Act Nu. 56.2003 LOCAL GOVERNMENT: MUNICIPAL FINANCE MANAGEMENT ACT. 100.1 ( 5 ) The provincial executive may intervene in terms of the appropriate pro\,ision 01' not comply uith ;I section 139 of the Constitution if a municipality cannot or does provision of this Chapter, including a provision relating to process. Municipal adjustments budgets 28. ( 1) A municipality may revise an approved annual budget through an adju\tments 5 budget. (2) An adjustments budget- if there is that have become available must adjust the revenue and expenditure estimates downwards material under-collection of revenue during the current year: may appropriate additional revenues o \ w and above those anticipated in the annual budget, but only to revise or accelerate spending programmes already budgeted for: may, within a prescribed framework, authorise unforeseeable and una\,oidable expenditure recommended by the mayor of the municipality: may authorise the utilisation spending under another vote; may authorise the spending of funds that were unspent at the end of the part not reasonabll, ha\^ been financial year where the under-spending could foreseen at the time to include projected roll-overs when the annual budget for the year current may correct any errors in the annual budget: and may provide for any other expenditure within a prescribed frame\vork. of projected savings council; by the in one \'ate toward< 15 70 I O approved was (3) An adjustments budget must be in a prescribed form. (4) Only the mayor may table an adjustments budget in the municipal council. but an adjustments budget in terms of subsection ( 2 ) ( b ) to (8) may only be tabled ~4 ithin an) 75 prescribed limitations as to timing or frequency. ( 5 ) When an adjustments budget is tabled, it must be accompanied by- ( a ) an explanation how the adjustments budget affects the annual budget: (6) a motivation of any material changes to the annual budget: ( c ) an explanation of the impact of any increased spending on the annual budget 30 and the annual budgets for the next two financial years: and that may be prescribed. (d) any other supporting documentation (6) Municipal tax and tariffs may not be increased during a financial year except \vhrn required in terms of a financial recovery plan. (7) Sections 22(b), 23(3) and 24(3) apply in respect of an adjustments budget. and i n a s :I in those sections to an annual budget must be read such application a reference reference to an adjustments budget. .33 Unforeseen and unavoidable expenditure 29. ( I ) The mayor of a municipality may in emergency or other exceptional circumstances authorise unforeseeable and unavoidable expenditure for provision was made in an approved budget. (2) Any such expenditure- tvhich 110 10 ( a ) must be in accordance with any framework that may be prescribed: (6) may not exceed a prescribed percentage of the approved annual budget: ( c ) must be reported by the mayor to the municipal council at its next meeting; 15 and (d) must be appropriated in an adjustments budget. ~~~~ Act No. 56,2003 LOCAL GOVERNMENT MUNICIPAL FINANCE MANAGEMENT ACT. 2003 (3) If such adjustments budget is not passed within 60 days after the expenditure was incurred, the expenditure is unauthorised and section 32 applies. Unspent funds

30. The appropriation of funds in an annual or adjustments budget lapses t o the extent that those funds are unspent at the end of the financial year to which the budget relates. except in the case of an appropriation for expenditure made for a period longer than that financial year in terms of section 16(3). 5 Shifting of funds between multi-year appropriations

31. When funds for a capital programme are appropriated more than one financial year, expenditure for that programme during a may exceed the amount of that year’s appropriation for that programme, provided that- (a) the increase does not exceed 20 per cent of that year’s appropriation for in terms of section 16( 3 ) lor financial year the I O programme; (b) the increase is funded programme; the municipal manager certifies (i) actual revenue for the revenue; and (c) (ii) sufficient the beyond borrowing limit; annual budget ( d ) prior written approval is obtained ( e ) the docnments referred to in paragraphs within the following year’s appropriation for that- financial year is expected to exceed budgeted funds are available for the increase without incun-ing further from the mayor for the increase: and ( c ) and (d) are submitted t o the that I S 2 0 expenditure; relevant provincial treasury and the Auditor-General. Unauthorised, irregular or fruitless and wasteful expenditure 32. ( I ) Without limiting liability in terms of the common law or other legislation- 25 a political office-bearer of a municipality is liable for unauthorised expendi- or after having been advised by the ture if that office-bearer knowingly t o result I n accounting officer of the municipality that the expenditure is likely unauthorised expenditure, instructed an official-of the municipality to incur the the accounting officer is liable for unauthorised expenditure deliberately or negligently incurred by the accounting officer. subject to subsection (3); any political office-bearer or official of a municipality who deliberately or negligently committed, made or authorised an irregular expenditure. is liable for that any political office-bearer or official of a municipality who deliberately or negligently made or authorised a fruitless and wasteful expenditure is liable for that expenditure. or 3 ) 3 .i expenditure; ( 2 ) A municipality must recover unauthorised, irregular or fruitless and wasteful expenditure from the person liable for that expenditure unless the expenditure- -10 ( a ) in the case of unauthorised expenditure, is- (i) authorised in an adjustments budget; or (ii) certified by the municipal council, after investigation by a council committee, as irrecoverable and written off by the council: and (b) in the case of irregular or fruitless and is. after 45 investigation by a council committee, certified by the council as irrecoverable and written off by the council. (3) If the accounting officer becomes aware that the council, the mayor or the wasteful expenditure. executive committee of the municipality, as the case may be, has taken a decision which, if implemented, is likely to result in unauthorised, irregular or fruitless and wasteful 5 0 50 N o . 16019 GOVERNMENT GAZETTE. I ? FEBRUARY 2004 Act No. 56,2003 GOVERNMENT: LOCAL MUNICIPAL FINANCE MANAGEMENT ACT. 2003 expenditure, the accounting officer is not liable for any ensuing unauthorised. irregular or fruitless and wasteful expenditure provided that the accounting officer has informed the council, the mayor or the executive committee, in writing, that the expenditure is likely to be unauthorised, irregular or fruitless and wasteful expenditure. (4) The accounting officer must promptly inform the mayor, government in the province and the Auditor-General, in writing, of- the MEC for local (a) any unauthorised, irregular or fruitless and wasteful expenditure incurred by the municipality; (6) whether any person is (c) unauthorised, irregular or fruitless the steps that have been taken- (i) to recover or rectify such expenditure; and (ii) to prevent a recurrence of such expenditure. responsible or under investigation and wasteful expenditure; for such and (5) The writing off in terms of subsection (2) of any unauthorised, irregular or fruitless and wasteful expenditure as irrecoverable, is no excuse proceedings against a person charged with the commission of an offence or a breach of this Act relating to such unauthorised, irregular or fruitless and wasteful expenditure. (6) The accounting officer must report to the South African Police Service all cases of in criminal or disciplinary alleged- ( a ) irregular expenditure that constitute a criminal offence; and (b) theft and fraud that occurred in the municipality. (7) The council of a municipality must take all reasonable steps to ensure that all cases referred to in subsection (6) are reported to the South African Police Service if- (a) the charge is against the accounting officer; or ( b ) the accounting officer fails to comply with that subsection. (8) The Minister, acting with the concurrence of the Cabinet member responsible for local government. may regulate the application of this section by regulation in terms of section 168. Contracts having future budgetary implications 5 10 15 20 25 33. ( I ) A municipality may enter into a contract which will impose financial 30 obligations on the municipality beyond a financial year, but if the contract will impose financial obligations on the municipality beyond the three years covered in the annual budget for that financial year, it may do so only if- ( a ) the municipal manager, at least 60 days before the meeting of the municipal council at which the contract (i) has, in accordance with section 21A of the Municipal Systems Act- to be approved- is 35 (aa) made public the draft contract and an information statement summarising the municipality’s obligations in terms of the proposed contract; and (bb) invited the local community and other interested persons to submit 40 to the municipality comments or representations in respect of the proposed contract; and (ii) has solicited the views and recommendations of- (aa) the National Treasury and the relevant provincial treasury; (bb) the national department responsible for local government: and (cc) if the contract involves the provision of water, sanitation, electricity, or any other service as may be prescribed, the responsible national department; 45 (6) the municipal council has taken into account- (i) the municipality’s projected financial obligations in terms of the 50 proposed contract for each financial year covered by the contract; (ii) the impact of those financial obligations on the municipality’s future municipal tariffs and revenue; (iii) any comments or representations on the proposed contract received from the local community and other interested persons; and 55 52 N o . 26019 GAZETTE. GOVERNMENT 13 FEBRUARY 2004 ~ ~~~ ~ ~~ ~ ~~ Act No. 56,2003 GOVERNMENT: LOCAL MUNICIPAL FINANCE MANAGEMENT ACT, 2003 ( c ) the (i) municipal (iv) any written views and recommendations on the proposed contract by the National Treasury, the relevant provincial treasury, the national depart- ment responsible for local government and any national department referred to in paragraph (a)(ii)(cc); and council a adopted has it determines that the municipality will secure a significant capital investment or will derive a significant financial economic or financial benefit from the contract; it approves the entire contract exactly as it is to be executed; and (ii) (iii) it authorises the municipal manager to sign the contract resolution which- in on behalf of the I O 5 municipality. ( 2 ) The process set out in subsection (1) does not apply to- ( a ) contracts for long-term debt regulated in terms of section 46(3); (b) employment contracts; or (c) contracts- (i) for categories of goods as may be prescribed; or (ii) in terms of which the financial obligation on the municipality is below- (aa) a prescribed value; or (bb) a prescribed percentage of the municipality’s approved budget for concluded. is contract in which the year the 15 20 (3) ( a ) All contracts referred to in subsection (1) and all other contracts that impose a financial obligation on a municipality- (i) must be made available in their entirety to the municipal council; and (ii) may not be withheld from public scrutiny except as provided for in terms of the Promotion of Access to Information Act, 2000 (Act No. 2 of 2000). 75 ( b ) Paragraph (a)(i) does not apply to contracts in respect of which the financial obligation on the municipality is below a prescribed value. (4) This section may not be read as exempting the municipality from the provisions of Chapter 11 to the extent that those provisions are applicable in a particular case. CHAPTER 5 CO-OPERATIVE GOVERNMENT management. financial municipalities in building the capacity transparent and provincial governments must by agreement assist of municipalities for efficient, effective and Capacity building 34. ( I ) The national 30 35 (2) The national and provincial governments must support the efforts of municipali- ties to identify and resolve their financial problems. (3) When performing its monitoring function in terms of section 155(6) of the Constitution, a provincial government- ( a ) must share with a municipality the results of its monitoring to the extent that 40 those results may assist the municipality in improving its financial manage- ment; (b) must, upon detecting any emerging or impending financial problems in a municipality, alert the municipality to those problems; and ( c ) may assist the municipality to avert or resolve financial problems. 45 (4) Non-compliance with this section or any other provision of this Act by the national of a municipality, its or a provincial government does not affect the responsibility political structures, political office-bearers and officials to comply with this Act. Act Nu. 56,2003 LOCAL GOVERNMENT MUNICIPAL FINANCE MANAGEMENT ACT. 2003 Promotion of co-operative government by national and provincial institutions

35. National and provincial departments and public entities must- -with the local sphere of go\ ernment. 3 of the in their fiscal and financial relations promote co-operative government in accordance with Chapter Constitution; promptly meet their financial commitments towards municipalities: provide timely information and assistance to municipalities to enable municipalities- (i) to plan properly, including in developing and revising their integrated 5 and plans; (ii) development to prepare their budgets in accordance with the processes set Chapter 4 of this Act; and I O out in comply with the Public Finance Management Act, the annual Division of Revenue Act and the Intergovernmental Fiscal Relations Act, 1997 (Act No. 97 of 1997), to the extent that those Acts regulate intergovernmental relations 15 with the local sphere of government. and provincial allocations to municipalities years. financial In order to provide predictability and certainty about the sources and levels o f of a national or intergovernmental funding for municipalities, the accounting officer of a national or provincial public provincial department and the accounting authority entity responsible for the transfer of any proposed allocations to a municipality, must by no later than 20 January of each year notify the National Treasury or the rele\mt pro\/incial treasury, as may be appropriate, of all proposed allocations, and the projected amounts of those allocations. to be transferred to each municipality during each of the next three 2 0 25 (2) The Minister or the MEC responsible for finance in a province must, to the extent or the possible, when tabling the national annual budget in the provincial legislature. make public particulars of any provincial annual budget allocations due to each municipality in terms of that budget. including the amount to be transferred to the municipality during each of the next three financial years. in the National Assembly 30 Promotion of co-operative government by municipalities 37. (1) Municipalities must- ( a ) in their fiscal and financial relations with the national and provincial spheres of government and other municipalities, promote co-operative government in 3 of the Constitution and accordance with Chapter Fiscal Relations Act; the Intergo\.ernmental 35 ( 6 ) provide budgetary and other financial information and national and provincial organs of state; and to relevant municipalities organs provincial of state. (2) In order to enable municipalities to include allocations from other municipalities 30 all financial commitments towards other municipalities or (c) promptly meet national and in their budgets and to plan effectively for the spending accounting officer of a municipality responsible for the transfer to another municipality must, by no later than 120 days before the start of its budget year. notify the receiving municipality of the projected amount of any allocation proposed to 45 be transferred to that municipality during each of the next three financial years. of such allocations, the of any allocation Stopping of funds to municipalities 38. (1) The National Treasury may stop- ( a ) the transfer of funds due to a municipality as its share of the local government's equitable share referred to in section 214(l)(a) of the 50 56 No. 26019 Act No. 56,2003 GOVERNMENT GAZETTE. 13 FEBRUARY 1004 LOCAL GOVERNMENT: MUNICIPAL FINANCE MANAGEMENT ACT, 2003 Constitution, but only breach of the measures established Constitution; or if the municipality commits a serious or persistent in terms of section 21 6( 1) of the (b) the transfer of funds due to a municipality as an allocation referred to if the municipality or the section 214(l)(c) of the Constitution, but only municipal entity for which the funds are destined- (i) commits a serious or persistent breach of the measures established terms of section 216(1) of the Constitution; or (ii) breaches or fails to comply with any conditions subject to which the allocation is made. in in 5 10 (2) Before the National Treasury stops the transfer of funds to a municipality in terms of subsection ( l ) ( a ) or (b), it must- (a) give the municipality an opportunity to submit written representations with regard to the proposed stopping of the funds; (b) inform the MEC for local government ( c ) consult the Cabinet member responsible for the national department making in the province; and 15 the transfer. (3) If the stopping of funds in terms of subsection ( l ) ( a ) or (b) affects the provision of basic municipal services in the municipality, the provincial executive must monitor the if the continuation of those services. Section 139 municipality cannot or does not fulfil its obligations with regard to the provision of those services. of the Constitution applies (4) When considering whether to stop the transfer of funds to a municipality in terms of subsection ( l ) ( a ) or (b)(i), the National Treasury must take into account all relevant facts, including- (a) the municipality’s compliance with the requirements of this Act, in particular 30 25 those relating to- (i) annual financial statements, including the submission to the Auditor- General of its annual financial statements; and (ii) budgets, including the submission of information on the budget and implementation of the budget to the National Treasury and the relevant provincial treasury; and 30 (b) the municipality’s co-operation with other municipalities on fiscal and financial matters, in the case of district and local municipalities. Stopping of equitable share allocations to municipalities 35 39. (1) A decision by the National Treasury to stop the transfer to a municipality of funds referred to in section 38( l)(a)- (a) lapses after the expiry of 120 days, subject to approval of the decision in terms of paragraph (b) of this subsection and renewal of the decision in terms of subsection (2); and 40 (b) may be enforced immediately, but will lapse retrospectively unless Parliament approves it following a process substantially the same as that established in terms of section 75 of the Constitution, and prescribed by the joint rules and orders of Parliament. This process must be completed within 30 days of the decision by the National Treasury to stop the transfer of the funds. 45 (2) Parliament may renew a decision to stop the transfer of funds referred to in section 38( l ) ( a ) for no more than 120 days at a time, following the process established in terms of subsection (l)(b) of this section. (3) Before Parliament approves or renews a decision to stop the transfer of funds to a municipality- 5 0 (a) the Auditor-General must report to Parliament, if requested to do so by Parliament; and (6) the municipality must be given an opportunity to answer the allegations against it, and to state its case, before a committee. 58 No. 26019 Act No. 56,2003 GAZETTE. GOVERNMENT 13 FEBRUARY 2004 GOVERNMENT LOCAL MUNICIPAL FINANCE MANAGEMENT ACT, 2003 Stopping of other allocations to municipalities

40. If the transfer of funds to a municipality has been stopped in terms of section 38( l ) ( b ) for the rest of the relevant financial year, the accounting officer of the national of funds, or provincial department responsible for the transfer must reflect such stopping together with reasons, in the annual financial statements of the department. Monitoring of prices and payments for bulk resources 41. (1) The National Treasury must monitor- ( a ) the pricing structure of organs of state for the supply of electricity, water or any other bulk resources that may be prescribed, to municipalities and municipal entities for the provision of municipal services; and (b) payments made resources. by municipalities and municipal entities for such bulk (2) Each organ of state providing such bulk resources to a municipality must within of each month furnish the National Treasury 15 days after the end statement setting out, for each municipality or for each municipal entity providing municipal services on behalf of such municipalities- with a written (a) the amount to be paid by the municipality or municipal entity for such bulk resources for that month, and for the financial year up to the end of that month; (b) the arrears owing and the age profile of such arrears; and ( c ) any actions taken by that organ of state to recover arrears. 5 10 15 20 Price increases of bulk resources for provision of municipal services 42. (1) If a national or provincial organ of state which supplies water, electricity or any other bulk resource as may be prescribed, to a municipality or municipal entity for the provision of a municipal service, intends to increase the price of such resource for the municipality or municipal entity, it must first submit the proposed amendment to its 25 pricing structure- ( a ) to its executive authority within the meaning of the Public Finance Management Act; and (b) to any regulatory agency for approval, if national legislation requires such approval. 30 (2) The organ of state referred to in subsection (1) must, at least 40 days before making a submission in terms of subsection (l)(a) or (b), request the National Treasury and organised local government to provide written comments amendment. on the proposed (3) Any submission in terms of subsection ( I ) ( a ) or (b) must be accompanied by- 35 ( a ) a motivation of the reasons for the proposed amendment; (b) an explanation of how the amendment takes account of- (i) the national government’s inflation targets and other macroeconomic policy objectives; (ii) steps taken by the organ of state to improve its competitiveness or 40 efficiency in order to reduce costs; (iii) m y objectives or targets as outlined in any corporate or other governance plan applicable to that organ of state; ( c ) any written comments received from the National Treasury, organised local and municipalities; any or government 45 (d) an explanation of how such comments have been taken into account. (4) The executive authority of the organ of state must table the amendment and the documents referred to in subsection legislature, as may be appropriate. (3) in Parliament or the relevant provincial (5) Unless approved otherwise by the Minister, an amendment to a pricing structure 50 which is tabled in Parliament or the relevant provincial legislature- 60 No. 26019 Act No. 56.2003 GAZETTE. GOVERNMENT 13 FEfIRL;.ARY 2004 GOVERNMENT: LOCAL MUNICIPAL FINANCE MANAGEMENT ACT, 2003 ( a ) on or before 15 March in any year, does not take effect for the affected municipalities or municipal entities before 1 July in that year; or (b) after 15 March in any year, does not take effect for the affected municipalities or municipal entities before 1 July the next year. Applicability of tax and tariff capping on municipalities 5 43. (1) If a national or provincial organ of state in terms of a power contained in any national or provincial legislation determines the upper limits of a municipal tax or tariff, such determination takes effect for municipalities in the determination. on a date specified ( 2 ) Unless the Minister on good grounds approves otherwise, the date specified in a 10 determination referred to in subsection (1) may- (a) if the determination was promulgated on or before 15 March in a year, not be a date before 1 July in that year; or (b) if the determination was promulgated after 15 March in a year, not be a date before 1 July in the next year. 1s (3) If a municipality has in accordance with section 33 or 46(3) entered into a contract which provides for an annual or other periodic escalation of payments to be made by the in terms of a power referred to in municipality under the contract, no determination subsection (1) of the upper limits of a municipal tax or tariff applies to that municipality in so far as such upper limits would impair the municipality's ability to escalation of its payments under the contract. meet the 20 Disputes between organs of state 44. (1) Whenever a dispute of a financial nature arises between organs of state. the all reasonable steps that may be parties concerned must as promptly as possible take necessary to resolve the matter out of court. ' 5 (2) If the National Treasury is not a party to the dispute. the parties- ( a ) must report the matter to the National Treasury; and ( 6 ) may request the National Treasury to mediate between the parties designate a person to mediate between them. or to (3) If the National Treasury accedes to a request in terms of subsection ( 2 ) . the 30 National Treasury may determine the mediation process. (4) This section only applies if at least one of the organs of state referred to in subsection (1) is a municipality or municipal entity. CHAPTER 6 DEBT 35 Short-term debt 45. (1) A municipality may incur short-term debt only in accordance with and subject to the provisions of this Act and only when necessary to bridge- (a) shortfalls within a financial year during which the debt is incurred, in expectation of specific and realistic anticipated income to be received within that financial year; or 40 (b) capital needs within a financial year, to be repaid from specific funds to be received from enforceable allocations or long-term debt commitments. (2) A municipality may incur short-term debt only if- (a) a resolution of the municipal council, signed by the mayor, has approved the 45 debt agreement; and (b) the accounting officer has signed the agreement or other document which creates or acknowledges the debt. (3) For the purpose of subsection (2)(a), a municipal council may- ( a ) approve a short-term debt transaction individually; or 50 62 No. 26019 GOVERNMENT GAZETTE. 13 FEf3Rl'AK)' 2(104 Act No. 56,2003 GOVERNMENT LOCAL MUNICIPAL FINANCE MANAGEMENT ACT. 2003 (b) approve an agreement with a lender for a short-term credit facility to be accessed as and when required, including a line of credit or bank overdraft facility, provided that- (i) the credit limit must (ii) the be specified in the resolution of the council; terms of the agreement, including the credit limit. may be changed (iii) only by a resolution of the council; and if the council approves a credit facility that is limited to emergency use. the accounting officer must notify the council in writing as soon as practical of the amount, duration and cost of any debt incurred in terms of such a credit facility, as well as options for repaying such debt. (4) A municipality- ( a ) must pay off short-term debt within the financial year: and ( b ) may not renew or refinance short-term debt, whether its own debt or that of any other entity, where such renewal or refinancing will have the effect of extending the short-term debt into a new financial year. (5) ( a ) No lender may wilfully extend credit to a municipality for the purpose of renewing or refinancing short-term debt that must be paid off in terms of subsection (4)(a). ( b ) If a lender wilfully extends credit to a municipality in contravention of paragraph ( a ) , the municipality is not bound to repay the loan or interest on the loan. (6) Subsection (5)(h) does not apply if the lender- ( a ) relied in good faith on written representations purpose of the borrowing; and of the municipality as to the (b) did not know and had no reason to believe that the borrowing was for the purpose of renewing or refinancing short-term debt. Long-term debt 46. ( 1 ) A municipality may incur long-term debt only in accordance with and subject to any applicable provisions of this Act, including section 19, and only for the purpose of- ( a ) capital expenditure on property, plant or equipment to be used for the purpose of achieving the objects of local government as set out in section 152 of the Constitution, including costs referred to in subsection (4): or (b) re-financing existing long-term debt subject to subsection (5). 30 (2) A municipality may incur long-term debt only if- ( a ) a resolution of the municipal council, signed by the mayor, has approved the 35 debt agreement; and ( b ) the accounting officer has signed the agreement or other document which creates or acknowledges the debt. (3) A municipality may incur long-term debt only if the accounting officer of the municipality- ( a ) has, in accordance with section 21A of the Municipal Systems Act- (i) at least 21 days prior to the meeting of the council at which approval for be considered, made the debt is to setting out particulars of the proposed debt. including the amount of the is to be incurred and for which the debt proposed debt, the purposes particulars of any security to be provided; and public an information statement 40 45 (ii) invited the public, the National Treasury and the relevant provincial treasury to submit written comments or representations to the council in respect of the proposed debt; and (b) has submitted a copy of the information statement to the municipal council at 50 least 21 days prior to (i) the meeting of the council, together with particulars of- the essential repayment terms, including the anticipated debt repayment schedule; and (ii) the anticipated total cost in connection with such debt over the repayment period. 5s (4) Capital expenditure contemplated in subsection (l)(a) may include- 64 No. 26019 Act No. 56,2003 GAZETTE. GOVERNMENT I 3 FkBI<l'.ARJ 200-1 LOCAL GOVERNMENT MUNICIPAL FINANCE MANAGEMENT ACT, 2003 (a) financing costs, including- (i) capitalised interest for a reasonable initial period; (ii) costs associated with security arrangements in accordance with section 48; (iii) discounts and fees in connection with the financing; (iv) fees for legal, financial, advisory, trustee, credit rating and other services 5 directly connected to the financing; and (v) costs connected to the sale or placement of debt, and costs for printing and publication directly connected to the financing; (b) costs of professional services directly related to the capital expenditure: and (c) such other costs as may be prescribed. 10 (5) A municipality may borrow money for the purpose of re-financing existing long-term debt, provided that- ( a ) the existing long-term debt was lawfully incurred; (b) the re-financing does not extend the term of the debt beyond the useful life of was originally the property, plant or equipment for which the money borrowed; (c) the net present value of projected future payments (including principal interest payments) after re-financing is less than the projected future payments before re-financing: and and net present value of IS 20 (dl the discount rate used in projecting net present value referred to in paragraph (c), and any assumptions in connection with the calculations. must be reasonable and in accordance with criteria set out in a framework that may be prescribed. (6) A municipality's long-term debt must be consistent with its capital budget referred 25 to in section 17(2). Conditions applying to both short-term and long-term debt

47. A municipality may incur debt only if- ( a ) the debt is denominated in Rand and is not indexed to, or affected by. fluctuations in the value of the Rand against any foreign currency: and (b) section 48(3) has been complied with, if security is to be provided by the municipality. Security 48. (1) A municipality may, by resolution of its council, provide security for- ( a ) any of its debt obligations; ( h ) any debt obligations of a municipal entity under its sole control: or (c) contractual obligations of the municipality undertaken capital expenditure by other persons on property, plant or equipment to used by the municipality or such other person for the purpose objects of local government in terms of section 152 of the Constitution. in connection with be of achieving the (2) A municipality may in terms of subsection (1) provide any appropriate security. including by- ( a ) giving a lien on, or pledging, mortgaging, ceding or otherwise hypothecating. an asset or right, or giving any other form of collateral; ( b ) undertalung to effect payment directly from money or sources that may 35 become available and to authorise the lender or investor direct access to such sources to ensure payment secured obligations, but this form of security may not affect compliance with section 8(2); of the secured debt or the performance of the (c) undertaking to deposit funds with the lender, investor or third party as security; (d) agreeing to specific payment mechanisms or procedures to ensure exclusive or or investors, including revenue intercepts, dedicated payment to lenders payments into dedicated accounts or other payment mechanisms or proce- dures; 55 35 30 so Act Nn. 56. 2003 LOCAL GOVERNMENT: Ml!NlCIPAL FINANCE MANAGEMENT ACT. 2003 ( ( I ) ceding as security any category of revenue or rights to future revenue: ( f j undertaking to have disputes resolved through mediation, arbitration or other dispute resolution mechanisms; ( 8 ) undertaking to retain revenues or specific municipal tariffs or other charges, fees or funds at ;I particular level or at a level sufficient to meet its financial obligations: (17) undertaking to make provision in its budgets for the payment of its financial 5 obligations. including capital and interest; ( i ) agreeing to restrictions on debt that the municipality may incur in future until is settled or the secured obligations are met: and the secured debt 10 (ji agreeing to such other arrangements as the municipality may consider necessary and prudent. (3) A council resolution authorising the provision of security in terms of subsection ( 2 ) ( l l ) - ( a i must determine whether the asset or right with respect to which the security is provided. is necessary for providing the minimum level of basic municipal \ervices: and if so. must indicate the manner in which the availability of the asset or right for the provision 01' will be protected. that minimum level of basic municipal services (11, IS 20 ( 4 ~ I f the resolution h a determined that the asset or right is necessary for pro\,iding the minimum level of basic municipal services, neither the party to whom the municipal security is provided. nor any successor or assignee of such party. may. in the event of a default b\, the municipality. deal with the asset or right in a manner that would preclude or impede the continuation of that minimum level of basic municipal services. 15 (5) A determination in terms of subsection ( 3 ) that an asset or right is not necessary for pro\ iding the minimum le\,el of basic municipal services is binding on the municipality until the secured debt has been performed in full, as the cahe may be. in full or the secured obligations have been paid Disclosure 30 49. ( 1 ) Any person involwd in the borrowing of money by a municipality must. when for considel-- interacting with ;I prospective lender or when preparing documentation ation b>, ;I prospectiire investor- ( n ) disclose a l l infortnation in that person's possession or within that person's ( 1 7 ) Anowledge that may be material to the decision of that prospecti\,e lender or 35 investor: and take reasonable cilre to ensure the accuracy of any information disclosed. 12) A lender or investor may rely on written representations of the municipality signed b) the accounting officer. if the lender or investor did not know and had no reason to believe that those false representations or misleading. were 40 Ylonicipal guarantees

50. A municipality may not issue any guarantee for any commitment or debt of any o r p o f state or person. except on the following conditions: I n ) The guarantee must be within limits specified in the municipality's approved budget: 15 (17) a municipality may guarantee the debt of a municipal entity under its sole control only if the guarantee is authorised by the council in the same manner in terms of this and subject to the same conditions applicable to a municipality Chapter if it incurs debt; ( c ) a municipality may guarantee the debt of a municipal entity under its shared of the National control or of any other person, but only with the approval Treasury, and then only if- SO Act NO. 56. 2003 LOCAL G O V E R N M t N T MUNICIPAL FINANCE MANAGEMENT ACT. 200.3 ( i ) the municipality creates, and maintains for the duration of the guurantec. a cash-backed reserve equal to its total potential financial exposure as 21 result of such guarantee; or ( i i ) the municipality purchases and maintains in effect for the duration of the of insurance issued by a registered insurer. m.hich guarantee. a policy covers the full amount of the municipality's potential financial exposure as a result of such guarantee. 5 National and provincial guarantees

51. Neither the national nor a provincial government may guarantee the debt of a municipality or municipal entity except Finance Management Act provides for such guarantees. to the extent that Chapter 8 o f the Public I O CHAPTER 7 RESPONSIBILITIES OF MAYORS General responsibilities

52. The mayor of ;I municipality- I5 must provide general political guidance over the fiscal and financial affairs of the municipality: i n providing such general political guidance. may monitor and. to the extent pro\.ided in this Act. oversee the exercise of responsibilities assigned in terms of this Act to the accounting officer and the chief financial officer. but may not 20 interfere in the exercise of those responsibilities; must take all reasonable steps to ensure constitutional and statutory functions within the limits approved budget: must. within 30 days of the end of each quarter. submit a report to the council 25 on the implementation of the budget and the financial state of affair\ of the municipality; and must exercise the other powers and perform the other dutie5 a s s i p x l to the mayor in terms of this Act or delegated by the council t o the mayor. its of the municipality's that the municipality performs Budget processes and related matters 3 0 53. ( I j The mayor of a municipality must- ( N ) pro\.ide general political guidance over the budget process and the priorities that must guide the preparation of a budset; (17) co-ordinate the annual revision of the integrated development plan in terms of section 34 of the Municipal Systems Act and the preparation of the annual budpet. and determine how the integrated development plan is t o be taken into account or revised for the purposes of the budget; and 35 ( c ) take all reasonable steps to ensure- the start of the that the municipality approves its annual budget before budget that the municipality's service delivery and budget implementation plan is approved by the mayor within 28 days after the approval of the budget; and that the annual performance agreements 57( 1)(6) of the Municipal Systems Act for the municipal manager and all 15 senior managers- ( r r a ) comply with this Act in order to promote sound financial manage- as required in terms of section 1 0 ment; (bh) are linked to the measurable performance objectives approved with the budget and to the service delivery and budget implementation plan; and 50 year; Act No. 56.2003 GOVERNMENT LOCAL MUNICIPAL FINANCE MANAGEMENT ACT. ZOO3 ( c c ) are concluded in accordance with section 57(2j of thc Municipal Systems Act. (2) The mayor must promptly report to the municipal council and the MEC for finance in the province any delay in the tabling of an annual budget, the approval o f ' the senice or the signing of the annual perf'ormance delivery and budget implementation plan agreements. (3) The mayor must ensure- (0) that the revenue and expenditure projections for each month and the service delivery targets and performance indicators for each quarter. as set out in the no later service delivery and budget implementation plan, are made public than 14 days after and budget implementation plan: and the approval of the service delivery ( h ) that the performance agreements of the municipal manager. senior managers and any other categories of officials as may be prescribed. are tnadc public no later than 14 days after the approval of the municipality's service delivery and budget implementation plan. Copies of such performance agreements must be local government i n the province. submitted to the council and the MEC for Budgetary control and early identification of financial problems 54. ( 1 j On receipt of a statement or report submitted by the accounting oflicer ot the municipality in terms of section 7 1 or 72. the mayor must- ( a ) consider the statement or report; ( h ) check whether the municipality's approved budget is implenwwd i n accordance with the service delivery and budget implementation plan: 5 I 0 15 ( c ) consider and, if necessary, make any re\,isions to the service deli\wy and that revisions to the service deli\ery in the plan may only be made with the budget implementation plan, provided targets and performance indicators approval of the council following approval of an adjustments budget: issue any appropriate instructions to the accounting officer t o ensure- ( i ) that the budget is implemented in accordance with and budget implementation plan; and the service delivery ([I) ( i i ) that spending of funds and revenue collection proceed i n ;Iccord;tncc' with the budget: ( e ) identify any financial problems facing the municipality. including an>' (J') emerging or impending financial problems: and in the case of a section 72 report. submit January of each year. the report t o the council b> 3 I ( 7 ) If the municipality faces any serious financial problems. the mayor must- ((/) promptly respond to and initiate any remedial or corrective steps proposed by the accounting ofiicer to deal with such problemh, which ma!. (i) steps to reduce spending when revenue is anticipated to be less than include- projected in the municipality's approved budget; ( i i ) the tabling of an adjustments budget: or (iii) steps in terms of Chapter 13; and ( h ) alert the council and the MEC for local go\rernment in the pro\,ince to those problems. (3) The mayor must ensure that any revisions of the service delivery and budget implementation plan are made public promptly. Report to provincial executive if conditions for provincial intervention exist

55. If a municipality has not approved an annual budget by the first day of the budget year or if the municipality encounters a serious financial problem referred t o in section 136. the mayor of the municipalit!/- SO 72 N o . 26019 Act No. 56,2003 GOVERNMENT G A Z t T T t . I 3 VI H I < ( -\I<) 300-1 LOCAL GOVERNMENT MUNICIPAL FINANCE MANAGEMENT ACT. 1003 ( a ) must immediately report the matter to the MEC for local government i n the province; and ( b ) may recommend to the MEC an appropriate provincial intervention i n term\ of section 139 of the Constitution. Exercise of rights and powers over municipal entities .? 56. ( 1 ) The mayor of a municipality which has sole or shared control over entity, must guide the municipality in exercising municipal entity in a way- its rights and powers a municipal o \ w thc ( a ) that would reasonably ensure that the municipal entity complies with this Act and at all times remains accountable to the municipality: and I O (6) that would not impede the entity from performing its operational responsibili- ties. (2) In guiding the municipality in the exercise of its rights and pou'ers over (1). the mayor may monitor the municipal entity operational functions of the entity, but may not interfere in the performance of those functions. in accordance with subsection I5 Municipalities which do not have mayors 57. ( I ) The council of a municipality which does not have a mayor. must designate ;I councillor to exercise the powers and duties assigned by this Act to a mayor. (2) A reference in this Act to the mayor of a municipality must, in the case of a municipality which does not have a mayor, be construed as a reference to ;I councillor designated by the council of the municipality in terms of subsection ( 1). 2 0 hlunicipalities with executive committees

58. The powers and functions assigned by this Act to a mayor must. in the case of ;I municipality which has to in section 1.7 o f the Municipal Structures Act, be exercised by the mayor in consultation with the executive committee. an executive committee referred 35 Delegations of mayoral powers and duties 59. ( I ) The powers and duties assigned in terms of this Act to the m ~ ~ y o r of a municipality, may- ( a ) in the case of a municipality which has to i n section 55 of the Municipal Structures Act. be delegated by the executive mayor in terms of section 60(1) of that Act of the municipality's mayoral committee; an executive mayor referred to another member ( b ) in the case of a municipality which has an executive committee referred t o in section 43 of that Act, be delegated by the council of the municipality to another member of the executive committee; or ( c ) in the case of a municipality which has designated a councillor in terms of section 57( 1) of this Act, be delegated by the council to any other councillor. (2) A delegation in terms of subsection (1)- (a) must be in writing; ( h ) is subject to any limitations or conditions that the executive mayor or council. as the case may be, may impose; and (c) does not divest the mayor of the responsibility concerning the exercise of the delegated power or the performance of the delegated duty. (3) The mayor may confirm, vary or revoke any decision taken in consequence of a delegation in terms of this section, but no such variation or revocation of a decision may detract from any rights that may have accrued as a result of the decision. 74 ~ ~~~~~~ No. 26019 Act No. 56,2003 GOVERNMENT GAZETTE. I3 FEBRUARY 2004 GOVERNMENT LOCAL MUNIClPAL FINANCE MANAGEMENT ACT, 2003 CHAPTER 8 RESPONSIBILITIES OF MUNICIPAL OFFICIALS Part 1: Accounting oficers Municipal managers to be accounting officers

60. The municipal manager of a municipality is the accounting officer of the S municipality for the purposes of this Act, and, as accounting officer, must- ( a ) exercise the functions and powers assigned to an accounting officer in terms of this Act; and (b) provide guidance and advice on compliance with this Act t e - (i) the political structures, political office-bearers and officials of the 10 municipality; and (ii) any municipal entity under the sole or shared control of the municipality. Fiduciary responsibilities of accounting officers 61. (1) The accounting officer of a municipality must- ( a ) act with fidelity, honesty, integrity and in the best interests of the municipality 15 in managing its financial affairs; ( b ) disclose to the municipal council and the mayor all material facts which are available to the accounting officer or reasonably discoverable. and which in any way might influence the decisions or actions of the council or the mayor: and ( c ) seek. within the sphere of influence of the accounting officer. to prevent any prejudice to the financial interests of the municipality. (2) An accounting officer may not- ( a ) act in a way that is inconsistent with the duties assigned to accounting officers of municipalities in terms of this Act; or (b) use the position or privileges of, or confidential information obtained as, accounting officer for personal gain or to improperly benefit another person. 2 0 25 Financial management General financial management functions 62. ( 1 ) The accounting officer of a municipality is responsible for managing the 30 of the municipality, and must for this purpose take of the municipality are used effectively. efficiently and financial administration reasonable stem to ensure- that the resources economically; that full and proper records of the financial affairs of the municipality are kept 35 in accordance with any prescribed norms and standards; that the municipality has and maintains effective, efficient and transparent systems- (i) of financial and risk management and internal control; and (ii) of internal audit operating in accordance with any prescribed norms and all 40 standards; that unauthorised, irregular or fruitless and wasteful expenditure and other losses are prevented; that disciplinary or, when appropriate, criminal proceedings are instituted against any official of the municipality who has allegedly committed an act of 45 financial misconduct or an offence in terms of Chapter 15: and that the municipality has and implements- (i) a tariff policy referred to in section 74 of the Municipal Systems Act; (ii) a rates policy legislation; as may be required in terms of any applicable national so 7 0 N o . 26019 GOVERNMENT GAZETTE. 13 FtHKl’Al<~’.?OOJ Act No. 56,2003 GOVERNMENT LOCAL MUNICIPAL FINANCE MANAGEMENT ACT. 2003 (iii) a credit control and debt collection policy referred to in section 96th) of the Municipal Systems Act; and (iv) a supply chain management policy in accordance with Chapter I I . (2) The accounting officer is responsible for and must account for all bank account5 of the municipality, including any bank account opened for- 5 ( a ) any relief, charitable, trust or other fund set up by the municipality i n term5 of section 12; or (b) a purpose referred to in section 48(2)(d). Asset and liability management 63. (1) The accounting officer of a municipality is responsible for the mmd, ‘ r~ement of- ( a ) the assets of the municipality, including the safeguarding and the maintenance of those assets; and (b) the liabilities of the municipality. (2) The accounting officer must for the purposes of subsection ( I ) take all reasonable steps to ensure- ( a ) that the municipality has and maintains a management, accounting and information system that accounts municipality; for the assets and liabilities of the ( b ) that the municipality’s assets and liabilities are valued in accordance with standards of generally recognised accounting practice: and ( c ) that the municipality has and maintains a system of internal control of assets and liabilities, including an asset and liabilities register, as may be prescribed. Revenue management 64. (1 ) The accounting officer of a municipality is responsible for the management of the revenue of the municipality. ( 2 ) The accounting officer must for the purposes of subsection ( 1 ) take all reasonable 15 steps to ensure- ( a ) that the municipality has effective revenue collection systems consistent with section 95 of the Municipal Systems Act and the municipality’s credit control 30 and debt collection policy; ( h ) that revenue due to the municipality is calculated on a monthly basis: ( c ) that accounts for municipal tax and charges for municipal services are prepared on a monthly basis, or less often as may monthly accounts are uneconomical; be prescribed where 35 (d) that all money received is promptly deposited in accordance with this Act into (e) c f ) (g) it is earned; the municipality’s primary and other bank accounts; that the municipality has and maintains a management, accounting and information system which- (i) recognises revenue when (ii) accounts for debtors; and (iii) accounts for receipts that the municipality has and maintains a system of internal control in respect of debtors and revenue, as may be prescribed; that the municipality charges interest on arrears, except where the council has granted exemptions in accordance with its budget-related policies and within a prescribed framework: and of revenue; 40 45 ( h ) that all revenue received by the municipality, including revenue received by any collecting agent on its behalf, is reconciled at least on a weekly basis. (3) The accounting officer must immediately inform the National Treasury of any payments due by an organ of state to the municipality in respect of municipal tax or for municipal services, if such payments are regularly in arrears for periods of more than 30 days. 50 (4) The accounting officer must take all reasonable steps to ensure- ( a ) that any funds collected by the municipality on behalf of another organ of state 55 is transferred to that organ of state at least on a weekly basis; and 78 No. 26019 GOVERKMENT GAZETTL. I.: Ft.HI11 \K\' 1004 Act No. 56,2003 GOVERNhlENT: LOCAL MUNICIPAL FINANCE MANAGEMENT ACT. 2003 ( b ) that such funds are not used for purposes of the municipality. Expenditure management 65. (1) The accounting officer of a municipality is responsible for the management of the expenditure of the municipality. (2) The accounting officer must for the purpose of subsection ( 1 ) take all reasonable 5 steps to ensure- that the municipality has and maintains an effective system of expenditure control, including procedures for the approval, authorisation, withdrawal and payment of funds; that the municipality has and maintains a management, accounting and information system which- (i) recognises expenditure when (ii) accounts for creditors of the municipality; and (iii) accounts for payments made by the municipality: that the municipality has and maintains a system of internal control i n respect of creditors and payments: that payments by the municipality are made- (i) directly to the person to whom it is due unless agreed it is incurred: otherwiw tor I O I5 organs reasons as may be prescribed; and (ii) either electronically or by way of non-transferable cheques, prwided 10 that cash payments and payments by way of cash cheques may be made for exceptional reasons only. and only up to a prescribed limit; its tax. levy. duty, pension. medical aid, by the municipality to another in terms of legislation regulating disputes that all money owing by the municipality be paid within 30 days of recciving the relevant invoice or statement, unless prescribed otherwise for certain categories of expenditure; that the municipality complies with audit fees and other statutory commitments: that any dispute concerning payments due organ of state is disposed of between that the municipality's available working capital is managed effectively economically in terms of the prescribed cash management framework: that the municipality's supply chain management policy referred to in section 11 1 is implemented in a way that and cost-effective: and that all financial accounts of the municipality are closed at the end of each month and reconciled with its records. is fair. equitable. transparent. competitive and and investment of state: 35 30 35 Expenditure on staff benefits

66. The accounting officer of a municipality must, in a format and for periods as may 40 be prescribed, report to the council on all expenditure incurred by the municipality on staff salaries. wages, allowances that discloses such and benefits, and expenditure per type of expenditure, namely- in a manner (a) salaries and wages; (b) contributions for pensions and medical aid: ( e ) travel, motor car, accommodation, subsistence and other allowances: (d) housing benefits and allowances; ( e ) overtime payments: (f) ( g ) any other type of benefit or allowance related to staff. loans and advances; and 45 5 0 80 No. 16019 GOVERNMENT GAZCTTF-. I.? t'l~lil<L .\I<)' 2OllJ Act No. 56,2003 GOVERNMENT LOCAL MUNICIPAL FINANCE MANAGEMENT ACT. 2003 Funds transferred to organisations and bodies outside government 67. (1) Before transferring funds to an organisation or bod! outside any sphere of government otherwise than in compliance with a commercial o r other business transaction, the accounting officer must be satisfied that the organiwtion or body- of the municipality ( a ) has the capacity and has agreed- (i) to comply with any agreement with the municipality; (ii) for the period of the agreement to comply with management and auditing requirements agreement; all reporting, financial as may be stipulated in the > I O (iii) to report at least monthly to the accounting officer on actual expenditure against such transfer; and (iv) to submit its audited financial statements for its financial year to the accounting officer promptly; (6) implements effective, efficient and transparent financial management and 15 internal control systems agement; and to guard against fraud. theft and financial misman- ( c ) has in respect of previous similar transfers complied with all the requirements of this section. (2) If there has been a failure by an organisation or body to comply with the requirements of subsection (1) in respect of a previous transfer, the municipalit!. may despite subsection (l)(c) make a further transfer to that organisation or body pro\,idcd that- 2 0 (a) subsection (I)(aj and (b) is complied with: and ( b ) the relevant provincial treasury has approved the transfer. (3) The accounting officer must through contractual and other appropriate mecha- nisms enforce compliance with subsection (1). ( 3 ) Subsection ( l ) ( a ) does not apply to an organisation or body serving the poor or used by government as an agency to serve the poor, provided- (a) that transfer the (b) that the accounting officer- does not exceed a prescribed and limit; (i) takes all reasonable steps to ensure that the targeted beneficiaries receive the benefit of the transferred funds: and (ii) certifies to the Auditor-General that compliance by that organisation or body with subsection (l)(a) is uneconomical or unreasonable. -. ?i i o 7 - -1 > Budget preparation

68. The accounting officer of a municipality must- ( a ) assist the mayor in performing the budgetary functions assigned to the ma>or in terms of Chapters 4 and 7; and (6) provide the mayor with the administrative support. resources and intormation 40 necessary for the performance of those functions. Rudget implementation 69. (1) The accounting officer of a municipality is responsible for implementing the municipality's approved budget, including taking all reasonable steps to ensure- ( a ) that the spending of funds is in accordance with the budget and is reduced as 15 necessary when revenue is anticipated to be less than projected in the budget or in the service delivery and budget implementation plan: and (b) that revenue and expenditure are properly monitored. (2) When necessary, the accounting officer must prepare an adjustments budget and submit it to the mayor for consideration and tabling in the municipal council. 5 0 (3) The accounting officer must no later than 14 days after the approval of an annual budget submit to the mayor- ( a ) a draft service delivery and budget implementation plan for the budget year: and 83 N o . 26019 GAZETTE. GOVERNMENT 13 FEBRUARY 2N1-1 Art No. 56,2003 GOVERNMENT LOCAL MUNICIPAL FINANCE MANAGEMENT ACT, 2003 ( 6 ) drafts of the annual performance agreements S7( 1 )(b) of the Municipal Systems Act for the municipal manager and senior managers. as required in terms of section all Impending shortfalls, overspending and overdrafts 70. ( I ) The accounting officer of a municipality must report in writing to the 3 municipal council- ( a ) any impending- (i) shortfalls in budgeted revenue; and (ii) overspending of the municipality’s budget; and ( b ) any steps taken to prevent or rectify such shortfalls or overspending. I O (2) If a municipality’s bank account, or if the municipality has more than one bank shows a net overdrawn oficer of the account, the consolidated balance position for municipality must promptly notify the National Treasury in the prescribed format of-- a period exceeding a prescribed period, the accounting in those bank accounts, ( a ) the amount by which the account ( b ) the reasons for the overdrawn account or accounts; and ( c ) the steps taken or to be taken to correct the matter. or accounts are overdrawn; (3) When determining the net overdrawn position for purposes of subsection (2). the encumbered or accounting officer must exclude any amounts reserved purpose in any other way. or pledged for any specific 15 20 Reports and reportable matters Monthly budget statements 71. ( I ) The accounting officer of a municipality must by no later than 10 working days to the mayor of the municipality and the relevant after the end of each month submit provincial treasury a statement in the prescribed format on the state of the municipality‘s 3 budget reflecting the following particulars for that month and for the financial year up t o the end of that month: per expenditure, vote: Actual revenue, per revenue source; actual borrowings; actual actual capital expenditure. per vote; the amount of any allocations received; actual expenditure on those allocations. excluding expenditure on- ( i ) ( i i ) allocations exempted its share of the local government equitable share: and by the annual Division of Revenue Act from 30 35 compliance with this paragraph; and when necessary, an explanation of- (i) any material variances from the municipality’s projected revenue by source, and from the municipality’s expenditure projections per vote; the service delivery and budget implemen- ( i i ) any material variances from 30 tation plan; and ( i i i ) any remedial or corrective steps taken or to be taken to ensure that projected revenue and expenditure remain within the municipality’s approved budget. statement (2) The must include- 35 ( a ) a projection of the relevant municipality’s revenue and expenditure for the rest of the financial year. and any revisions from initial projections; and ( h ) the prescribed information relating to the state of the budget of each municipal entity as provided to the municipality in terms of section 87( IO). Act No. 56,2003 GOVERNMENT LOCAL MUNICIPAL FINANCE MANAGEMENT ACT. 2003 (3) The amounts reflected in the statement must in each case be compared with the corresponding amounts budgeted for in the municipality's approved budget. (4) The statement t o the provincial treasury must be in the format of a signed document and in electronic format. (5) The accounting officer of a municipality which has received an allocation referred to in subsection (l)(e) during any particular month must, by no later than 10 workin: days after the end particulars referred to in subsection (l)(e) and (fl to the national or provincial organ of state or municipality which transferred the allocation. of that month, submit that part of the statement reflecting the (6) The provincial treasury must by no later than 22 working days after the end of each month submit to the National Treasury a consolidated statement in the prescribed format on the state of the municipalities' budgets, per municipality and per municipal entity. (7) The provincial treasury must, within 30 days after the end of each quarter, make in the prescribed format on the public as may be prescribed. a consolidated statement state of municipalities' budgets per municipality and per municipal entity. The MEC for 15 finance must submit such consolidated statement than 45 days after the end of each quarter. to the provincial legislature no later 5 I O Mid-year budget and performance assessment 72. ( I ) The accounting officer of a municipality must by 25 January of each year- ( a ) assess the performance of the municipality during the first half of the financial 20 year, taking into account- (i) to in section 71 for the first half of the the monthly statements referred financial year: the municipality's service delivery performance during the the financial year, and the service indicators set in the service delivery and budget implementation plan: on resolving problems the past year's annual report, and progress identified in the annual report: and deliveq targets and performance first half of (ii) (iii) 25 (iv) the performance of every municipal entity under the sole control of the municipality, taking into account reports section 88 from any such entities; and or shared in terms of 30 ( b ) submit a report on such assessment to- (i) the mayor of the municipality; (ii) the National Treasury; and (iii) the treasury. provincial relevant ( 2 ) The statement referred to in section 71(1) for the sixth month of a financial year 35 may be incorporated into the report referred to in subsection (I)(b) of this section. (3) The accounting officer must, as part of the re\ rlew- ' ( a ) make recommendations as to whether an adjustments budget is necessary: and ( b ) recommend revised projections for revenue and expenditure to the extent that -10 this may be necessary. Reports on failure to adopt or implement budget-related and other policies

73. The accounting officer must inform the provincial treasury, in writing. of- ( a ) any failure by the council of the municipality to adopt or implement a budget-related policy or a supply chain management policy referred section 11 1 ; or t o in 45 ( h ) any non-compliance by a political structure or office-bearer of the municipal- ity with any such policy. Act No. 56, 2003 GOVERNMENT LOCAL MUNICIPAL FINANCE MANAGEMENT ACT. 2003 General reporting obligation 74. ( I ) The accounting officer of a municipality must submit to the National Treasurb,. in the province or the the provincial treasury. the department for local government Auditor-General such information, returns, documents, explanations and motivations ah required. may be prescribed or may be as 3 report: annual 25 section; (2) If the accounting officer of a municipality is unable to comply with any of the responsibilities in terms of this Act, he or she must promptly report the inability. together with reasons, to the mayor and the provincial treasury. Information to be placed on websites of municipalities 75. ( 1 ) The accounting. officer of a municipality must place on the website referred to 1 0 in section 21A municipality: of the Municipal Systems Act the following documents of the in terms of section 57( I ) ( h l of the The annual and adjustments budgets and all budget-related documents: all budget-related policies: the all performance agreements required Municipal Systems Act: all service delivery agreements; all long-term borrowing contracts; all supply chain management contracts above a prescribed value: list of assets over a prescribed value an information statement containing a that have been disposed of in terms of section 14(2) or (4) during the ptwious quarter: contracts to which subsection ( I ) of section 33 apply, subject to subsection ( 3 ) of that public-private partnership agreements referred to in section 110: all quarterly reports tabled in the council in terms of section 52(rl,: and any other documents that must be placed on the website in terms of this Act 01- any other applicable legislation, or as may be prescribed. 1 .5 2 0 (2) A document referred to in subsection ( I ) must be placed on the website not later 30 than five days after its tabling in the council or on the date on which it must bc made public, whichever occurs first. Protection of accounting officer

76. Any action taken by a political structure or office-bearer of a municipality against the accounting officer of the municipality solely because compliance with a provision of this Act, is an unfair labour practice for the purposes of the Labour Relations Act, 1995 (Act No. 66 of 1995). of that accounting officer's 35 Part 2: Financial administration Top management of municipalities 77. (1) The top management of a municipality's administration consists of- (a) the accounting officer; (b) the chief financial officer; ( c ) all senior managers who are responsible for managing the respective \'otes of the municipality and to whom powers and duties for this purpose have been delegated in terms of section 79: and (d) any other senior officials designated by the accounting officer. ( 2 ) The top management must assist the accounting officer in managing and 35 co-ordinating the financial administration of the municipality. 88 No. 26019 Act No. 56,2003 GOVERNMENT GAZETTE. 13 FEHKI ,-\IO’ 2 0 0 4 GOVERNMENT LOCAL MUNICIPAL FINANCE MANAGEMENT ACT. 2003 Senior managers and other officials of municipalities 78. (1) Each senior manager of a municipality and each official of a municipnlity exercising financial management responsibilities must take all reasonable steps within their respective areas of responsibility to ensure- ( a ) that the system of financial management and internal control established for 5 the municipality is carried out diligently; (b) that the financial and other resources of the municipality are utilised effectively, efficiently, economically and transparently; ( e ) that any unauthorised, irregular or fruitless and wasteful expenditure and any prevented; are losses other I O ( d ) that all revenue due to the municipality is collected; ( e ) that the assets and liabilities of the municipality are managed effectively and (f) that assets are safeguarded and maintained to the extent necessary; that all information required by the accounting officer for compliance with the provisions of this Act is timeously submitted to the accounting officer: and IS ( g ) that the provisions of this Act, to the extent applicable to that senior manager or official, including any delegations in terms of section 79, are complied with. t o in (2) A senior manager or such official must perform the functions referred subsection (1) subject to the directions of the accounting officer of the municipality. Delegations 79. (1 ) The accounting officer of a municipality- ( a ) must, for the proper application of this Act in the municipality‘s administra- of delegation that will both maximise and tion, develop an appropriate system administrative and operational efficiency and provide adequate checks balances in the administration; municipality’s financial 3 (b) may, in accordance with that system, delegate to a member the municipality’s top management referred to in section 77 or any other official of the municipality- (i) any of the powers or duties assigned to an accounting officer in terms of of or Act; this 3 0 (ii) any powers or duties reasonably necessary to assist the accounting officer in complying with a duty which requires the accounting officer to take reasonable or appropriate steps to ensure the achievement of the aims of a specific provision of this Act; and (c) must regularly review delegations issued in terms of paragraph ( 1 7 ) and. if 35 necessary, amend or withdraw any of those delegations. ( 2 ) The accounting officer may not delegate to any political structure or political office-bearer of the municipality any of the powers or duties assigned to accounting officers in terms of this Act. ( 3 ) A delegation terms in of subsection (1)- (a) must be in writing; ( b ) is subject to such limitations and conditions impose in a specific case; as the accounting officer may (e) may either be to a specific individual or to the holder of a specific post in the municipality; -10 35 (d) may, in the case of a delegation to a member of the municipality’s top management in terms sub-delegate the delegated power or duty to specific post in that member’s area of responsibility; and of subsection (l)(b), authorise that member an official or the holder to of a ( e ) does not divest the accounting officer of the responsibility concerning the SO exercise of the delegated power or the performance of the delegated duty. (4) The accounting officer may confirm, vary or revoke any decision taken in consequence of a delegation or sub-delegation in terms of this section, but no such GAZETTE. GOVERNMENT 26019 No. 90 13 FEBRUARY 200-1 Act No. 56,2003 GOVERNMENT LOCAL MUNICIPAL FINANCE MANAGEMENT ACT. 2003 variation or revocation of a decision may detract from any rights that may have accrued as a result of the decision. CHAPTER 9 MUNICIPAL BUDGET AND TREASURY OFFICES Establishment 5 80. (1) Every municipality must have a budget and treasury office. ( 2 ) A budget and treasury office consists of- (a) a chief financial officer designated by the accounting officer of the municipality; , (b) officials of the municipality allocated by the accounting officer to the chief 10 financial officer; and ( c ) any other persons contracted by the municipality for the work of the office. Role of chief financial officer 81. (1) The chief financial officer of a municipality- ( a ) is administratively in charge of the budget and treasury office; (b) must advise the accounting officer on the exercise of powers and duties assigned to the accounting officer in terms of this Act; 1s (c) must assist the accounting officer in the administration of the municipality's bank accounts and in the preparation and implementation of the municipali- ty's budget; 20 (d) must advise senior managers and other senior officials in the exercise of powers and duties assigned to them in terms in terms of section 79; and of section 78 or delegated to them ( e ) must perform such budgeting, accounting. analysis, financial reporting, cash management, debt management, supply chain management. financial man- agement, review and other duties as may in terms of section 79 be delegated by the accounting officer to the chief financial officer. 25 ( 2 ) The chief financial officer of a municipality is accountable to the accounting ofticer for the performance of the duties referred to in subsection (1). Delegations 82. (1) The chief financial officer of a municipality may sub-delegate any of the duties referred to in section 81( l)(b), (d) and (e)- ( a ) to an official in the budget and treasury office; (b) to the holder of a specific post in that office; or ( c ) with the concurrence accounting of the officer, t o - 3 0 35 (i) any other official of the municipality; or (ii) any person contracted by the municipality for the work of the office. ( 2 ) If the chief financial officer sub-delegates any duties in terms of subsection (1) to a person who is not an employee of the municipality, the chief financial officer must be satisfied that effective systems and procedures are accountability. in place to ensure control and 40 (3) A sub-delegation in terms of subsection (1)- (a) must be in writing; (b) is subject to such limitations impose; or conditions as the chief financial officer may and 45 (c) does not divest the chief financial officer of the responsibility concerning the delegated duty. (4) The chief financial officer may confirm, vary or revoke any decision taken in consequence of a sub-delegation in terms of subsection (l), but no such variation or 92 No. 26019 Act No. 56,2003 GAZETTE. GOVERNMENT 13 FEBRUARY 2004 LOCAL GOVERNMENT MUNICIPAL FINANCE MANAGEMENT ACT, 2003 revocation of a decision may detract from any rights that may have accrued as a result of the decision. Competency levels of professional financial officials 83. ( I ) The accounting officer, senior managers, the chief financial officer and other financial officials of a municipality must meet the prescribed financial management competency levels. 5 ( 2 ) A municipality must for the purposes of subsection (1) provide resources or opportunities for the training of officials referred to prescribed competency levels. in that subsection to meet the (3) The National Treasury or a provincial treasury may assist municipalities in the 1 0 training of officials referred to in subsection (1). CHAPTER 10 MUNICIPAL ENTITIES Part 1: Establishment Financial implications for municipalities 15 84. ( 1 ) When considering the establishment of, or participation in, a municipal entity. a municipality must first- (a) determine precisely the function or service that such entity would perform on behalf of the municipality; and (6) make an assessment of the impact of the shifting of that function or service to 20 the entity on the municipality’s staff, assets and liabilities. including assessment of- (i) (ii) the number of staff of the municipality to be transferred to the entity; the number of staff of the municipality that would become redundant because of the the cost to the municipality of any staff retrenchments or the retention of redundant staff; or service; function shifting of that an (iii) (iv) any assets of the municipality to be transferred to the entity; (v) any assets of the municipality that would become obsolete because of the function that of shifting or service; (vi) any liabilities of the municipality to be ceded to the entity; and (vii) any debt of the municipality attributed to that function or service which 25 3 0 the municipality would retain. (2) A municipality may establish or participate in a municipal entity only if- ( a ) the municipal manager, at least 90 days before the meeting of the municipal 35 council at which the proposed establishment of the entity, or the municipali- ty’s proposed participation in the entity, is to be approved- (i) has, in accordance with section 21A of the Municipal Systems Act- (aa) made public an information statement setting out the munici- pality’s plans for the municipal entity together with the assessment which the municipality must conduct subsection (1); and in terms of (bb) invited the local community, organised labour and other interested persons to submit to the municipality comments or and matter: of the respect representations in (ii) has solicited the views and recommendations of- (aa) the National Treasury and the relevant provincial treasury: (bb) the national and provincial departments responsible for local government; and (cc) the MEC for local government in the province; and 40 45 50 (b) the municipal council has taken into account- (i) the assessment referred to in subsection (1); 94 No. 26019 Act No. 56,2003 GOVERNMENT GAZETTE. 1.3 kt:HI<L’,4l<Y 21104 - LOCAL GOVERNMENT MUNICIPAL FINANCE MANAGEMENr‘ ACT. 2003 (ii) any comments or representations on the matter received from the local community, organised labour and other interested persons: (iii) any written views and recommendations on the matter received from the National Treasury, the relevant provincial treasury, the national depart- ment responsible for local government or the MEC for local government in the province. 5 (3) For the purposes of this section, “establish” includes the acquisition of an interest in a private company that would render that private company a municipal entity. Part 2: Financial governance Bank accounts 1 0 85. ( I ) A municipal entity must open and maintain at least one bank account in the name of the entity. ( 2 ) All money received by a municipal entity must be paid into its bank account o r accounts, and this must be done promptly and in accordance with any requirements that may 1.5 (3) A municipal entity may not open a bank account- ( a ) abroad; ( b ) with an institution not registered as a bank in terms of the Banks Act. 1990 (Act No. 94 of 1990); prescribed. be ( c ) otherwise name the in (d) without the approval of its board of directors. than of the and entity; (4) Money may be withdrawn from a municipal entity’s bank account only I n accordance with requirements that may be prescribed. ( 5 ) The accounting officer of a municipal entity- 25 bank accounts; entity’s all the ( a ) must ( b ) is accountable to the board of directors of the entity for administer the entity’h bank accounts: and ( c ) must enforce any requirements that may be prescribed in terms of subsection (4). Bank account details 86. (1) The accounting officer of a municipal entity must submit to the entity‘s parent municipality, in writing- 2 0 30 ( a ) within 90 days after the entity has opened a new bank account. the name o f the of the bank where the account has been opened, and the type and number account; and 3s ( b ) annually before the start of a financial year. the name of each bank where the entity holds a bank account, and the type and number of each account. (2) The accounting officer of the municipal entity’s parent municipality. or if there are officers of those of the information 30 more than municipalities as may be agreed between them, must upon receipt referred to in subsection ( I ) , submit that information to the Auditor-General. the National Treasury and the relevant provincial treasury, in writing. one parent municipality, any one of the accounting Budgets 87. (1 )The board of directors of a municipal entity must for each financial year submil a proposed budget for the entity to its parent municipality not later than I50 days before 45 the start of the entity’s financial year or earlier if requested by the parent municipality. ( 2 ) The parent municipality must consider the proposed budget of the entity and assess the entity’s priorities and objectives. recommendations on the proposed budget, the board If the parent municipality makes any of directors of the entity must Act No. 56,2003 LOCAL GOVERNMENT MUNICIPAL FINANCE MANAGEMENT ACT. 3-00? consider those recommendations and, if necessary, submit a revised budget to the parent municipality not later than 100 days before the start of the financial yeat-. (3) The mayor of the parent municipality must table the proposed budset 01' budget of the municipality for the thc municipal entity in relevant year is tabled. the council when the annual (4) The board of directors of a municipal entity must approve the budget o f the municipal entity not later than 30 days before the start of the financial year. takins i n t o account any hearings or recommendations of the council of the parent municipality. ( 5 ) The budget of a municipal entity must- ( a ) be balanced: ( b ) be consistent with any service delivery agreement or other agreement between the entity and the entity's parent municipality; (c) be within any limits determined by the entity's parent municipality. including any limits on tariffs, revenue, expenditure and borrowing (d) include a multi-year business plan for the entity that- (i) sets key financial and non-financial performance objectives and mea- surement criteria as agreed with the parent municipality: (ii) is consistent with the budget and integrated development plan of the entity's parent municipality; (iii) is consistent with any service delivery agreement or other agreement between the entity and the entity's parent municipality: and (iv) reflects actual and potential liabilities and commitments. particulars of any proposed borrowing which the plan relates; and including of money during the period t o ( e ) otherwise comply with the requirements of section 17( 1) and (3) t o the extent that such requirements can reasonably be applied to the entity. (6) The board of directors of a municipal entity may, with the approval of the mayor. revise the budget of the municipal entity, but only for the following reasons: ( a ) To adjust the revenue and expenditure estimates downwards if there i h material under-collection of revenue during the current year; ( h ) to authorise expenditure of any additional allocations to the municipal entit! from its parent municipality; (c) to authorise, within a prescribed framework, any unforeseeable and unawid-- able expenditure approved by the mayor of the parent municipality; (d) to authorise any other expenditure within a prescribed framework. (7) Any projected allocation to a municipal entity from its parent municipality must be the extent not so provided for in the annual budget of the parent municipality, and to provided, the entity's budget must be adjusted. (8) A municipal entity may incur expenditure only in accordance with its appro\ed budget or an adjustments budget. (9) The mayor must table the budget or adjusted budget and any adjustments budget of a municipal entity as approved by its board of directors. at the next council meeting of the municipality. (1 0) A municipal entity's approved budget or adjusted budget must be made public i n substantially the same way as the budget of a municipality must be made public. (1 1) The accounting officer of a municipal entity must by no later than seven working days after the end of each month submit to the accounting municipality a statement in the prescribed format on the state reflecting the following particulars for that month and for the financial year up to the end of that month: officer of the parent of the entity's budget (a) Actual revenue, per revenue source: (6) actual borrowings; (c) actual expenditure; (d) actual capital expenditure; (e) the amount of any allocations received; 98 N o . 26019 Art No. 56, 2003 GAZETTE. GOVERNMENT 13 FEBRUARY 2 0 0 1 LOCAL GOVERNMENT: MUNICIPAL FINANCE MANAGEMENT ACT. ?(I03 If) actual expenditure on those allocations, excluding expenditure on allocations exempted by the annual Division of Revenue Act from compliance with this paragraph; and ( g ) when necessary, an explanation of- ( i ) any material variances from the entity’s projected revenue by source, and from the entity‘s expenditure projections; ( i i ) any material variances business plan: and from the service delivery agreement and ( i i i ) any remedial or corrective steps taken or to be taken to ensure the that projected revenue and expenditure remain within the entity’s approved budget. ( 12) The statement must include a projection of revenue and expenditure for the rest of the financial year. and any revisions from initial projections. (13) The amounts reflected in the statement must in each case be compared with the corresponding amounts budgeted for in the entity’s approved budget. ( 14) The statement to the accounting officer of the municipality must be in the format o f a signed document and in electronic format. XIid-year budget and performance assessment 88. ( 1 )The accounting oflicer of a municipal entity must by 20 January of each year-- ( N ) assess the performance of the entity during the first half of the financial year. taking into account- ( i ) the monthly statements referred to in section 87 for the first halt of the financial year and the targets set in the service delivery, business pian or other agreement with the entity’s parent municipality: and ( i i ) the entity’s annual report for the past year. and progress on resolving problems identified in the annual report: and ( h ) submit a report on such assessment to- ( i ) ( i i ) the board of directors of the entity: and the parent municipality of the entity. ( 3 ) A report referred to in subsection ( 1 ) must be made public. Remuneration packages

89. The parent municipality of a municipal entity must- ((1) determine the upper limits of the salary. allowances and other benefits of the chief executive officer and senior managers of the entity: and by on directors and that municipal entity a manner that discloses such expenditure per that the municipal entity reports to the council ( h ) monitor and ensure expenditure incurred remuneration matters. and in type of expenditure namely: Salaries and wages; contributions for pensions and medical aid; travel. motor car, accommodation. subsistence and other allowances: housing benefits and allowances; overtime payments; loans and advances; and any other type of benefit or allowance related to directors and staff. on all staff 35 30 15 Disposal of capital assets 90. ( I A municipal entity may not transfer ownership as a result of a sale or other transaction or otherwise dispose of a capital asset needed to provide the minimum level of basic municipal services. ( 2 ) A municipal entity may transfer ownership or otherwise dispose of a capital asset other than an asset contemplated in subsection ( 1 ), but only after the council of its parent municipality. in a meeting open to the public- 50 ~~ ~ ~ Act No. 56,2003 GOVERNMENT: LOCAL MUNICIPAL FINANCE MANAGEMENT ACT. 2003 ( a ) has decided on reasonable grounds that the asset is not needed to provide the minimum level of basic municipal services; and ( h ) has considered the fair market value of the asset and the economic and community value to be received in exchange for the asset. (3) A decision by a municipal council that a specific capital asset is not needed t o of basic municipal services may not be reversed by t h e provide the minimum level municipality or municipal entity after that asset has been sold, transferred or otherwise disposed of. (4) A municipal council may delegate to the accounting officer of a municipal entity its power to make the determinations referred to in subsection (2)(a) and ( h ) in respect of movable capital assets of the entity below a value determined by the council. (5) Any transfer of ownership of a capital asset in terms of subsection ( 2 ) or (4) musl be fair, equitable, transparent and competitive and consistent management policy which the municipal entity must have and maintain section 11 1. with the supply cham in terms o f (6) This section does not apply to the transfer of a capital asset to a municipality or another municipal entity or to a national or provincial organ of state in circumstances and in respect of categories of assets approved by the National Treasury provided that such transfers are in accordance with a prescribed framework. Financial year

91. The financial year of a municipal entity must be the same as that of municipalitieh. Audit

92. The Auditor-General must audit and report on the accounts, financial statement\ and financial management of each municipal entity. Part 3: Accounting oflcers Chief executive officer to be accounting officer

93. The chief executive officer of a municipal entity appointed in terms of section 93J of the Municipal Systems Act is the accounting officer of the entity. Fiduciary duties of accounting officers 94. ( 1 ) The accounting officer of a municipal entity must- ( a ) exercise utmost care to ensure reasonable protection of the assets and record$ of the entity; 5 I O 15 20 25 30 (b) act with fidelity, honesty, integrity and in the best interest of the entity i n managing the financial affairs of the entity; (c) disclose to the entity's parent municipality and the entity's board of directors 35 in any wa\' all material facts, including those reasonably discoverable. which may influence the decisions or actions of the parent municipality or the board of directors; and (d) seek, within the sphere of influence of that accounting officer, t o prevent any prejudice to the financial interests of the parent municipality or the municipal 10 entity. (2) The accounting officer may not- ( a ) act in a way that is inconsistent with the responsibilities assigned to accounting officers of municipal entities in terms of this Act; or ( h ) use the position or privileges of, or confidential information obtained as 15 accounting officer, for personal gain or to improperly benefit another person. Act Nu. 56.2003 GOVERNMENT LOCAL MUNICIPAL FINANCE MANAGEMENT ACT. 2003 General financial management functions of accounting officers

95. The accounting officer of a municipal entity is responsible for ma nu gin^ thc financial administration of the entity, and must for this purpose take all reasonablc 5teps to ensure- that the resources of the entity are used effectively. efficiently. economicall\, i and transparently; that full and proper records of the financial affairs of the entity are kept: that the entity has and maintains effective, efficient and transparent systems- (i) of financial and risk management and internal control; and (ii) of internal audit complying with and operating in accordance with any I O prescribed norms and standards; that irregular ,and fruitless and wasteful expenditure and other losses arc prevented; that expenditure is in accordance with the operational policies of the entity: and that disciplinary or, when appropriate. criminal proceedings. are instituted against any official of the entity who has allegedly committed financial misconduct or an offence i n terms of Chapter 15. an act 01' 15 Asset and liability management 96. ( I ) The accounting officer of a municipal entity is responsible for the management 2 0 Of- ( u ) the assets of the entity, including the safeguarding and maintenance of those assets: and ( h ) the liabilities of the entity. (2) The accounting officer must, for the purposes of subsection ( 1 ). takc a l l reasonable 25 steps t o ensure that the entity has and maintains- ( a ) a management, accounting and information system that accounts for proprr assets and liabilities of the management systems of the municipal entit),: and ( h ) a system of internal control of assets and liabilities. including an asset and prescribed. be may as register. liabilities Revenue management

97. The accounting officer of a municipal entity must take all reasonable steps to ensure- budget: that the entity has and implements effective revenue collection <;vstems to give effect to its that all revenue due to the entity is collected: that any funds collected by the entity on behalf of a municipality- ( i ) are transferred to that municipality strictly in accordance with the of the entity; purposes for the agreement between the entity the municipality: and used (ii) are not that the municipal entity has effective revenue collection systems consistent with those of the parent municipality; that revenue due to the entity is calculated on a monthly basis: that accounts for service charges are prepared on a monthly basis. or less often as may be prescribed where monthly accounts are uneconomical: that all money received is promptly deposited in accordance with this Act into the municipal entity's bank accounts: that the municipal entity has and maintains information system which- when recognises revenue (i) (ii) accounts for debtors; and (iii) accounts for receipts of revenue; that the municipal entity has and maintains a system of internal control respect of debtors and revenue, as may be prescribed; and a management, accounting and earned; it is (i) in 30 35 40 45 5 0 Act No. 56,2003 GOVERNMENT LOCAL MUNICIPAL FINANCE MANAGEMENT ACT. 2003 f j l rcl that all revenue received by the municipal entity, including revenue receil by any collecting agent on its behalf, is reconciled at least on ;I weekly basis. (3) The accounting officer must immediately inform the parent municipality of an! payments due by an organ of state to the entity in respect of service charges. i f such payments are regularly of more than 30 days. in arrears for periods 5 Monthly reconciliation of revenue and accounts

98. The accounting officer of a municipal entity must take all reasonable steps to ensure that- ( a ) all revenue received by the entity, including revenue received collecting agency on its behalf, is reconciled on a monthly basis; and (b) all accounts o f t h e entity are reconciled each month. by any or more regular I O Expenditure management entity. the of expenditure of the 15 99. (1) The accounting officer of a municipal entity is responsible for the nlana, (Tenlent ( 2 ) The accounting officer must for the purpose of subsection ( 1 ) take all reasonable steps to ensure- payments; and that the entity has and maintains an effective system of expenditure control including procedures for the approval, authorisation, withdrawal and payment of funds; 2 0 that all money owing by the entity is paid within 30 days of receiving the relevant invoice or statement unless prescribed otherwise for certain categories of expenditure; that the entity has and maintains a management, accounting and information system which- (i) recognises expenditure when (ii) accounts for creditors of the entity; and (iii) accounts for payments made by the entity; that the entity has and maintains a system creditors that payments by the entity are made- (i) directly to the person to whom it is due unless agreed otherwise only for of internal control it is incurred; in respect of 30 25 reasons as may be prescribed: and (ii) either electronically or by way of non-transferable cheques, provided that cash payments and payments by way of cash cheques may be made 35 for exceptional reasons only, and only up to a prescribed limit; that the entity complies with its tax, duty, pension, medical aid. audit fees and other statutory commitments; that the entity's available working capital is managed effectively and economically in terms of any prescribed cash management and investment framework; and that the entity has and implements a supply chain management policy accordance with section 111 in a way that is fair, equitable, transparent and cost-effective. in Budget implementation

100. The accounting officer of a municipal entity is responsible for implementing the entity's budget, including taking effective and appropriate steps to ensure that- ( a ) the spending of funds is in accordance with the budget; (b) revenue and expenditure are properly monitored; and (c) spending is reduced as necessary when revenue is anticipated to be less than projected in the budget. 30 4s 50 106 No. 26019 Act No. 56,2003 GAZETTE. GOVERNMENT 13 FEBRUARY 2004 LOCAL GOVERNMENT. MUNICIPAL FINANCE MANAGEMENT ACT. 2003 Part 4: Reports and reportable matters Impending under collection, shortfalls, overspending, overdrafts, and non- payment 101. (1) The accounting officer of a municipal entity must report, in writing, to the board of directors of the entity, at its next meeting, and to the accounting officer of the entity’s parent municipality any financial problems of the entity, including- 5 ( a ) any impending or actual- (i) under collection of revenue due; (ii) shortfalls in budgeted revenue; (iii) overspending of the entity’s budget; (iv) delay in the entity’s payments to any creditors; or (v) overdraft in any bank account of the entity for a period days; and exceeding 21 (b) any steps taken to rectify such financial problems. (2) The accounting officer of the municipality must table a report referred to in 15 subsection ( 1 ) in the municipal council at its next meeting. Irregular or fruitless and wasteful expenditure 102. ( 1 ) On discovery of any irregular expenditure or any fruitless and wasteful report. i n expenditure, the board of directors of a municipal entity must promptly writing. to the mayor and municipal manager of the entity‘s parent municipality and the 20 Auditor-General- ( a ) particulars of the expenditure; and ( b ) any steps that have been taken- (i) to recover the expenditure; and (ii) recurrence of the to expenditure. (2) The board of directors of a municipal entity must promptly report to the South a prevent conduct. criminal African Police Service any- ( a ) irregular expenditure that may constitute a criminal offence; and ( 6 ) other losses suffered by the municipal entity which resulted from suspected 75 30 Reporting of improper interference by councillors

103. The accounting officer of a municipal entity must promptly report to the speaker of the council of the entity’s parent municipality any interference by a councillor outside that councillor’s assigned duties, in- ( a ) the financial municipal of the affairs (b) the responsibilities of the board of directors of the municipal entity. entity; or 35 General reporting obligations 104. (1) The accounting officer of a municipal entity- ( a ) is, except where otherwise provided in this Act, responsible for the submission by the entity of all reports, returns, notices and entity’s parent municipality, as may be required by this Act: and other information to the 40 (b) must submit to the accounting officer of the entity’s parent municipality, the National Treasury, the relevant provincial treasury, the department of local government in the province or the Auditor-General such information, returns, documents, explanations and motivations as may be prescribed or as may be 45 required. (2) If the accounting officer of a municipal entity is unable to comply with any of the responsibilities in terms of this Act, he or she must promptly report the inability, together with reasons, to the council of the entity’s parent municipality. 108 No. 26010 Act No. 56,2003 GOVERNMENT GAZETTE.. 1.1 F E B K l ' A K Y 3001 LOCAL GOVERNMENT MIJNICIPAL FINANCE MANAGEMENT ACT. 2003 Part 5: Other oficials of municipal entities Duties of other officials 105. (1) Each official of a municipal entity exercising financial management responsibilities must take all reasonable steps within that official's area ensure- to of responsibility ( a ) that the system of financial management and internal control established for the entity is carried out diligently; ( b ) that the financial and other resources of the entity are utilised effectively. (c) efficiently, economically and transparently; that any irregular expenditure, fruitless and wasteful expenditure and other losses are prevented; 5 1 0 (d) that all revenue due to the entity is collected; ( e ) that the provisions of this Act to the extent applicable to that official. including (f) any delegations in terms of section 106, are complied with; and that the assets and liabilities of the entity are assets are safeguarded and maintained to the extent necessary. managed effectively. and thal 15 ( 2 ) An official of a municipal entity must perform the functions referred to in subsection (1) subject to the directions of the accounting officer of the entity. Delegation of powers and duties by accounting officers 106. (1) The accounting officer of a municipal entity- ( a ) may delegate to an official of that entity- (i) any of the powers or duties assigned or delegated to the accounting officer in terms of this Act; or (ii) any powers or duties reasonably necessary to assist the accounting oflicer in complying with a duty which requires the accounting officer reasonable or appropriate steps to ensure the achievement of the aims of a specific provision of this Act; and to take 35 (b) must regularly review delegations issued in terms of paragraph ( a ) and, if necessary, amend or withdraw any of those delegations. (2) A delegation in terms of subsection (1)- 3 0 ( a ) must be in writing; (b) is subject to any limitations and conditions the accounting officer may impose: (c) may be either to a specific individual or to the holder of a specific post in the municipal entity; and ( d ) does not divest the accounting officer of the responsibility concerning the exercise of the delegated power or the performance of the delegated duty. 35 (3) An accounting officer may confirm, vary or revoke any decision taken by an official in consequence of a delegation in terms of subsection ( l ) , but no such variation or revocation of a decision may detract from any rights that may have accrued as a result of the 30 Competency levels of professional financial officials

107. The accounting officer, senior managers, any chief financial officer and all other financial officials of a municipal entity must meet the prescribed financial management competency levels. decision. Borrowing of money Part 6: General 108. (1) A municipal entity may borrow money, but only in accordance with- (a) the entity's multi-year business plan referred to (b) the provisions of Chapter 6 to the extent that those provisions can be applied in section 87(5)(d); and entity. municipal a to 45 50 Act No. 56,2003 LOCAL GOVERNMENT: MUNICIPAL FINANCE MANAGEMENT ACT. 2003 (2) In applying Chapter 6 to a municipal entity, a reference in that Chapter to ;I municipality, a municipal council or an accounting officer must be read as reterring t o ;I municipal entity, the board of directors of a municipal entity or the accounting ofticer of a municipal entity, respectively. Financial problems in municipal entities 5

109. If a municipal entity experiences serious or persistent financial problems and the must to act effectively, the parent municipality board of directors of the entity fails either- ( a ) take appropriate steps in terms including its rights and powers other agreement; of its rights and powers over that entit). in terms of any relevant service delivery oI I O ( b ) impose a financial recovery plan, which must meet the same criteria set out in section 142 for a municipal financial recovery plan; or liquidate and disestablish the entity. (c) CHAPTER 11 GOODS AND SERVICES Part 1: Supply chain management 1s Application of this Part 110. ( 1 ) This Part, subject to subsection (2), applies to- (a) the procurement by a municipality or municipal entity of goods and ser\,ices: 7 0 ( b ) the disposal by a municipality or municipal entity of goods no longer needed: ( c ) the selection of contractors to provide assistance in the provision of municipal services otherwise than in circumstances where Chapter 8 of the Municipal Systems Act applies; and (d) the selection of external mechanisms referred to in section 80( 1 ) ( h i o f the 35 Municipal Systems Act for the provision of municipal ser\.ices stances contemplated in section 83 of that Act. ( 2 ) This Part, except where specifically provided otherwise, does i n circun- not apply if ;I municipality or municipal entity contracts with another organ of state for- ( a ) the provision of goods or services to the municipality or municipal entity: ( b ) the provision of a municipal service or assistance in the provision of ;I 30 (c) municipal service; or the procurement of goods and services under a contract secured by that other organ of state, provided to such procurement. that the relevant supplier has agreed 35 (3) The disposal of goods by a municipality or municipal entity in terms of this Part must be read with sections 14 and 90. Supply chain management policy

111. Each municipality and each municipal entity must have and implement a supply chain management policy which gives effect to the provisions of this Part. 30 Supply chain management policy to comply with prescribed framework following: at the 112. (1) The supply chain management policy of a municipality or municipal entity must be fair, equitable, transparent, competitive and cost-effective and comply with a prescribed regulatory framework for municipal supply chain management, which must cover least 3.5 Act No. 56,2003 GOVERNMENT: LOCAL MUNICIPAL FINANCE MANAGEMENT ACT. 2003 ( a ) The range of supply chain management processes that municipalities and municipal entities may use, including tenders, quotations, auctions and other types of competitive bidding; ( b ) when a municipality or municipal entity may or must use a particular type o f ' process; 5 (c) procedures and mechanisms for each type of process; (d) procedures and mechanisms for more flexible processes where the value of a contract is below a prescribed amount; ( e ) open and transparent pre-qualification processes for tenders or other bids; ( f l competitive bidding processes in which only pre-qualified persons ma> 1 0 participate; ( 8 ) bid documentation, advertising of and invitations for contracts: ( h ) procedures and mechanisms for- (i) the opening, registering and recording of bids in the presence 01' I! I persons; interested to ensure best value for money; (ii) the evaluation of bids (iii) negotiating the final terms (iv) screening processes and security clearances for prospective contractors or tenders (i) other ( j ) compulsory disclosure of any conflicts of interests prospecti\.e contractor\ the approval of bids; of contracts; and value; prescribed a above bids 011 may have in specific tenders and the exclusion of such prospecti\,e contractor\ from those tenders or bids; ( k ) participation in the supply chain management system of persons who are not IS 2 0 (I) officials of the municipality or municipal entity, subject to section the barring of persons from participating processes, including persons- (i) who were convicted for fraud or corruption during (ii) who wilfully neglected, reneged past contract the during on or failed five years: government or in tendering or other the past five years: to comply w i t h ;I 30 I 17: 25 bidding (iii) whose tax matters are not cleared by South African Revenue Service: ( m ) measures for- (i) combating fraud, corruption, favouritism and unfair and irregular practices in municipal supply chain management: and (ii) promoting ethics of officials and other role players involved in municipal 35 supply chain management; (n) the invalidation of recommendations or decisions that were improperly made, taken or influenced, including recommendations decisions that were made, taken or in any way influenced by- (i) councillors in contravention of item 5 or 6 of the Code of Conduct fw 40 unlawfull~~ 01. or Councillors set out in Schedule 1 to the Municipal Systems Act; or (ii) municipal officials in contravention of item 4 or 5 of the Code of Conduct for Municipal Staff Members set out in Schedule 2 to that Act: (0) the procurement of goods and services by municipalities or municipal entitiez through contracts procured organs by other of state; ( p ) contract management and dispute settling procedures: and (9) the delegation of municipal supply chain management powers and duties. including to officials. (2) The regulatory framework for municipal supply chain management must be fair. cost-effective. and competitive transparent, equitable, 45 SO 1 I4 No. 26019 Act No. 56,2003 Unsolicited bids GOVERNMENT GAZETTE. 13 FEBRUARY 2004 LOCAL GOVERNMENT: MUNIClPAL FINANCE MANAGEMENT ACT, 2003 113. ( 1 ) A municipality or municipal entity is not obliged to consider an unsolicited bid received outside its normal bidding process. (2) If a municipality or municipal entity decides to consider an unsolicited bid received outside a normal bidding process, prescribed framework. it may do so only in accordance with a 5 (3) The framework must strictly regulate and limit the power of municipalities and municipal entities to approve unsolicited bids received outside their normal tendering or other bidding processes. Approval of tenders not recommended I0 114. ( 1 ) If a tender 'other than the one recommended in the normal course of implementing the supply chain management policy of a municipality or municipal entity is approved, the accounting officer writing. notify the Auditor-General, the relevant provincial treasury and the National Treasury and, reasons for deviating from such recommendation. in the case of a municipal entity, also the parent municipality, of the 15 of the municipality or municipal entity must, in ( 2 ) Subsection (1) does not apply if a different tender was approved in order to rectify an irregularity. Implementation of system 115. (1) The accounting officer of a municipality or municipal entity must- 20 ( a ) implement the supply chain management policy of the municipality or municipal entity; and (6) take all reasonable steps to ensure that proper mechanisms and separation 01 the duties in the supply chain management system are likelihood of fraud, corruption, favouritism and unfair and irregular practices. 25 in place to minimise 30 (2) No person may impede the accounting officer in fulfilling this responsibility. Contracts and contract management 116. ( 1 ) A contract or agreement procured through the supply chain management system of a municipality or municipal entity must- ( a ) be in writing; f b ) stipulate the terms and conditions of the contract or agreement, which must include provisions providing for- (i) the termination of the contract or agreement in the case of non- or under- performance; (ii) dispute resolution mechanisms (iii) a periodic review of the contract or agreement once every three years in the case of a contract or agreement for longer than three years; and to settle disputes between the parties; 35 (iv) any other matters that may be prescribed. (2) The accounting officer of a municipality or municipal entity must- ( a ) take .all reasonable steps to ensure that a contract or agreement procured 40 through the supply chain management policy of the municipality entity is properly enforced; or municipal ( b ) monitor on a monthly basis the performance of the contractor under the contract or agreement; ( c ) establish capacity in the administration of the municipality or municipal 45 entity- (i) to assist the accounting officer paragraphs ( a ) and (b); and in carrying out the duties set out in (ii) to oversee the day-to-day management of the contract or agreement; and 116 No. 26019 GAZETTE. GOVERNMENT 13 FEHKLiARY 2004 - Act No. 56,2003 GOVERNMENT LOCAL MUNICIPAL FlNANCE MANAGEMENT ACT. 2003 (dl regularly report to the council of the municipality or the board of directorb of the entity, as may be appropriate, on the management of the contract or agreement and the performance of the contractor. (3) A contract or agreement procured through the supply chain management policy o f the municipality or municipal entity may be amended by the parties, but only after--- (a) the reasons for the proposed amendment have been tabled in the council of the municipality or, in the case of a municipal entity, in the council of its parent municipality; and (b) the local community- (i) has been given reasonable notice of the intention to amend the contract or agreement; and (ii) has been invited to submit representations to the municipality o r municipal entity. Councillors barred from serving on municipal tender committees

117. No councillor of any municipality may be a member of a municipal bid 15 committee or any other committee evaluating or approving tenders, quotations. contracts or other bids, nor attend any such meeting as an observer. interference

118. No person may- f a ) interfere with the supply chain management system of a municipality or 2 0 municipal entity; or ( h ) amend or tamper with any tenders, quotations, contracts or bids after their submission. Competency levels of officials involved in municipal supply chain management 119. ( I ) The accounting officer and all other officials of a municipality or municipal entity involved in the implementation of the supply chain management policy of the municipality or municipal entity must meet the prescribed competency levels. 25 (2) A municipality and a municipal entity must for the purposes provide resources or opportunities for the training subsection to meet the prescribed competency levels. of subsection ( 1 :I of officials referred to i n thal 30 (3) The National Treasuq or a provincial treasury may assist municipalities and municipal entities in the training of officials referred to in subsection (1). Part 2: Public-private partnerships Conditions and process for public-private partnerships 120. (1) A municipality may enter into a public-private partnership agreement. but 35 only if the municipality can demonstrate that the agreement will- (a) provide value for money ( 6 ) be affordable for the municipality; and (c) transfer appropriate technical, operational and Party. to the municipality; financial risk to the private 40 (2) A public-private partnership agreement must comply with any prescribed regulatory framework for public-private partnerships. (3) If the public-private partnership involves the provision of a municipal service, Chapter 8 of the Municipal Systems Act must also be complied with. 45 (4) Before a public-private partnership is concluded, the municipality must conduct a feasibility study that- (a) explains the strategic and operational benefits of the public-private partner- ship for the municipality in terms of its objectives; (b) describes in specific terms- (i) the nature of the private party’s role in the public-private partnership; (ii) the extent to which this role, both legally and by nature, can be performed 50 by a private party; and Act No. 56,2003 GOVERNMENT LOCAL MUNICIPAL FINANCE MANAGEMENT ACT. 200.1 (iii) how the proposed agreement will- ( a ) provide value for money to the municipality; (hh) be affordable for the municipality; (cc) transfer appropriate technical, operational and financial rtsks t o the and party; private (dd) impact on the municipality’s revenue flows and its current and future budgets; takes into account all relevant information: and (c) ( d ) explains the capacity of the municipality to effectively monitor, manage and agreement. the enforce (5) The national government may assist municipalities in carrying out and assessing feasibility studies referred to in subsection (4). (6) When a feasibility study has been completed. the accounting ofticer of the municipality must- l a ) submit the report on the feasibility study together with all other relekant in principle. on ujhether the documents to the council municipality should continue with the proposed public-private partnership: for a decision. 5 I O IS ( 6 ) at !east 60 days prior to the meeting of the council at which the matter is t o be considered, in accordance with section 21A of the Municipal Systems Act--- ( i ) make public particulars of the proposed public-private partnership. 70 ( i i ) including the report on the feasibility study: and invite the local community and other interested persons municipality comments or representations public-private partnership; and to submit to tht. in respect of the proposed recommendations and views (c) solicit the of- the National Treasury; the national department responsible for local government: ( i ) (ii) (iii) if the public-private partnership involves and department; sanitation. electricity or any other service responsible national (iv) any other national or provincial organ of state as may be precribed. the provision of water. as may be prescribed. the 25 30 (7) Part I of this Chapter applies to the procurement of public-private partnership agreements. Section 33 also applies if the agreement will have multi-year budgerary implications for the municipality within the meaning of that section. CHAPTER 12 FINANCIAL REPORTING AND AUDITING Preparation and adoption of annual reports 121. ( 1 1 Every municipality and every municipal entity must for each financial year prepare an annual report in accordance with this Chapter. The council of a municipality must within nine months after the end of a financial year deal with the annual report of 30 the municipality and of any municipal entity under the municipality’s control in accordance with section 129. ( 2 ) The purpose of an annual report is- sole or shared ( a ) to provide a record of the activities of the municipality or municipal entity year financial during the relates; the report to which ( h ) to provide a report on performance against the budget of the municipality or (c) municipal entity for that financial year; and to promote accountability throughout the year by the municipality or municipal entity. to the local community for the decisions made report of a municipality must (3) The annual ( a ) the annual financial statements of the municipality, and in addition, if section 122(2) applies, consolidated annual financial statements, as submitted to the Auditor-General for audit in terms of section 126( 1 ) ; include- 45 SO ~ ~ ~~~ ~ Act No. 56,2003 GOVERNMENT LOCAL MUNICIPAL FINANCE MANAGEMENT ACT. 2003 the Auditor-General’s audit report in terms of section l26(3) on those financial statements; the annual performance report of the municipality prepared by the municipal- ity in terms of section 46 of the Municipal Systems Act: the Auditor-General’s audit report in terms of section 45(b) of the Municipal Systems Act; an assessment by the municipality’s accounting municipal taxes and service charges: an assessment by the municipality’s accounting officer of the municipality‘s to i n performance against the measurable performance objectives referred section 17(3)(b) for revenue collection from each revenue source and for each vote in the municipality’s approved budget for the relevant financial year: particulars of any corrective action taken or to be taken in response to issues raised in the audit reports referred to in paragraphs (bi and (d): any explanations that may be necessary to clarify issues financial statements: any information as determined by the municipality; any recommendations of the municipality’s audit committee: and any other information as may be prescribed. (4) The annual report of a municipal entity must include- officer of any arrears on 5 1 0 20 in connection with thc I5 and to the Auditor-. of the entity. as submitted the annual financial statements General for audit in terms of section 126(2j; the Auditor-General’s audit report in terms of section 126(3) on those financial statements: an assessment by the entity’s accounting officer of any arrears on municipai 2.5 taxes and service charges; an assessment by the entity’s accounting officer of the entity’s performance in terms the service against any measurable performance objectives set its parent delivery agreement or other agreement between the entity and municipality; particulars of any corrective action taken or to be taken in response to issues raised in the audit report referred to in paragraph (b); any information as determined by the entity or its parent municipality; any recommendations of the audit committee of the entity or of its parent municipality; any other information as may be prescribed. io 35 Preparation of financial statements 122. ( 1 ) Every municipality and every municipal entity must for each financial year prepare annual financial statements which- ( a ) fairly presents the state of affairs of the municipality or entity. its performance 40 against its budget, its management liabilities, its business activities, its financial results, and its financial position as at the end of the financial year; and of revenue, expenditure. assets and (b) disclose the information required in terms of sections 123. 124 and 125. (2) A municipality which has sole control of a municipal entity, or which has effective -IS control within the meaning of the Municipal Systems Act of a municipal entity which is ( I ) . prepare a private company, must in addition to complying with subsection consolidated annual financial statements incorporating the annual financial statements of the municipality and of such entity. Such consolidated annual financial statements prescribed. be any may must comply with as requirements SO (3) 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 j(b) of the Public Finance Management Act. 172 No. 26019 GAZETTE, GOVERNMENT ~~ 13 FEBRUARY 2003 Act No. 56,2003 GOVERNMENT LOCAL MUNICIPAL FINANCE MANAGEMENT ACT, 2003 Disclosures on intergovernmental and other allocations 123. (1) The annual financial statements of a municipality must disclose information on- ( a ) any allocations received by the municipality from- (i) an organ of state in the national or provincial sphere of government; or iii) a municipal entity or another municipality; (b) any allocations made by the municipality to- (i) a municipal entity or another municipality; (ii) any other organ of state; ( c ) how any allocations referred ( a ) were spent, per vote, to in paragraph or 5 I O of the excluding allocations received by the municipality as its portion equitable share or where prescribed otherwise because of the nature of the allocation; (d) whether the municipality has complied with the conditions of- (i) any allocations made to the municipality in terms of section 2l4( 1 )ic) of 15 the Constitution; and (ii) any allocations made to the municipality other than by national organs of state; ( e ) the reasons for any non-compliance with conditions referred to in paragraph (d); and (f, whether funds destined for the municipality in terms of the annual Division of to the Revenue Act were delayed or withheld, and the reasons advanced municipality for such delay or withholding. (2) The annual financial statements of a municipal entity must disclose information on- ( a ) any allocations received by the entity from any municipality or other organ of state; f b ) any allocations made by the entity to a municipality or other organ of state: and ( c ) any other information as may be prescribed. 20 25 30 Disclosures concerning councillors, directors and officials 124. ( I ) The notes to the annual financial statements of a municipality must include particulars of- ( a ) the salaries, allowances and benefits of political office-bearers and councillors of the municipality, whether financial or in kind, including a statement by the 35 accounting officer whether or not those salaries, allowances and benefits are within the upper limits in section 219 of the of the framework envisaged Constitution; (b) any arrears owed by individual councillors to the municipality, or a municipal entity under its sole or shared control, for rates or services and which at any 40 time during the relevant financial year days, including the names of those councillors; and were outstanding for more than 90 (c) the salaries, allowances and benefits of the municipal manager, the chief financial officer, every senior manager and such categories of other officials as may be prescribed. 45 (2) The notes to the annual financial statements of a municipal entity must include particulars of the salaries, allowances and benefits of- ( a ) the members of the board of directors of the entity; and (b) the chief executive officer of the entity, every senior manager and categories of other officials as may be prescribed. such 50 Other compulsory disclosures 125. (1) The notes to the financial statements of a municipality must include- ( a ) a list of all municipal entities under the sole or shared control of the municipality during the financial year and as at the last day of the financial year. (b) the total amount of contributions to organised local government for the financial year, and the amount of any contributions outstanding as at the end of the financial year; and 55 124 No. 260 19 GOVERNMENT GAZETTE. 13 FE~HIII'AKI' 7004 Act No. 56,2003 GOVERNMENT: LOCAL MUNICIPAL FINANCE MANAGEMENT ACT. 2003 ( c ) the total amounts paid in audit fees, taxes, levies, duties and pension and medical aid contributions, and whether any amounts were outstanding as at the end of the financial year. ( 2 ) The notes to the annual financial statements of a municipality or municipal entity information: following the must disclose 5 ( a ) In respect of each bank account held by the municipality or entity during the relevant financial year- (i) the name of the bank where the account is or was held, and the type of account; and (ii) year opening and year end balances in each of these bank accounts: 10 ( b ) a summary of all investments of the municipality or entity as at the end of the financial year; (c) particulars of any contingent liabilities of the municipality or entity as at the end of the financial year; (d) particulars of- 15 (i) any material losses and any material irregular or fruitless and wasteful of a municipality. any material year. and expenditures, including in the case unauthorised expenditure, that occurred during the financial whether these are recoverable; (ii) any criminal or disciplinary steps taken as a result of such losses or such 20 unauthorised, irregular or fruitless and wasteful expenditures: and (iii) any material losses recovered or written off ( e ) particulars of non-compliance with this Act; and u) any other matters that may be prescribed. Submission and auditing of annual financial statements 25 126. (1) The accounting officer of a 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: and (b) must in addition, in the case of a municipality referred to in section 122( 2). 30 prepare consolidated annual financial statements in terms of that section and. within three months after to which those statements relate, submit the statements to the Auditor-General for auditing. annual financial ( 2 ) The accounting officer of a municipal entity must prepare the the end of the financial year statements of the entity and, within two months after the which those statements relate, submit the statements to- ( a ) the parent municipality of the entity; and (b) the Auditor-General, for auditing. end of the financial year to 35 and statements; financial (3) The Auditor-General must- those ( a ) audit (b) submit an audit report on those statements to the accounting officer of the 30 municipality or entity within three months of receipt of the statements. (4) If the Auditor-General is unable to complete an audit within three months of receiving the financial statements from an accounting officer, the Auditor-General must promptly submit a report outlining the reasons for the delay to the relevant municipality 45 or municipal entity and to the relevant provincial legislature and Parliament. (5) Once the Auditor-General has submitted an audit report to the accounting officer, no person other than the Auditor-General may alter the audit report or the financial statements to which the audit report relates. Submission and tabling of annual reports 50 127. (1) The accounting officer of a municipal entity must, within six months after the end of a financial year, or on such earlier date as may be agreed between the entity and for that financial year to the its parent municipality, submit the entity's annual report municipal manager of the entity's parent municipality. Act No. 56,2003 GOVERNMENT: LOCAL MUNICIPAL FINANCE MANAGEMENT ACT. 200.1 (2) The mayor of a municipality must, within seven months after the end oi'a financ~ul year, table in the municipal council the annual municipal entity under the municipality's sole or shared control. report of the municipality and of an! (3) If the mayor, for whatever reason, is unable to table in the council thc annual report of the municipality, or the annual report of any municipal entity under the municipality's sole or shared control, within seven months after the end of the tinancinl year to which the report relates, the mayor must- ( a ) promptly submit to the council a written explanation referred t o in section 133( I)(a) setting out the reasons for the delay, together with any components of the annual report listed in section (b) submit to the council the outstanding annual report or the outstanding 121(3) or (4) that are ready; and components of the annual report as soon as may be possible. (4) The Auditor-General may submit the financial statements and audit report- ( a ) of a municipality directly to the municipal council, the National Treasury. the relevant provincial treasury, the MEC responsible for local government i n the province and any prescribed organ of state, if the mayor fails to complq nith subsection (2) or (3); or 5 I O IS ( 6 ) of a municipal entity directly to the parent municipality, the National Treasury. the relevant provincial treasury, the MEC responsible for local ~ovcrnment i n the province and any prescribed organ of state. if the accounting officer o f the 20 entity fails to comply with subsection ( 1 ). ( 5 ) Immediately after an annual report is tabled in the council in terms of subsection ( 2 ) , the accounting officer of the municipality must- report; annual (0) in accordance with section 21A of the Municipal Systems Act- the public and (i) make (ii) invite the local community to submit representations in connection nith 25 the annual report; and ( h ) submit the annual report to the Auditor-General, the relevant provincial treasury and the provincial department responsible for local government in the province. .3 0 (6) Subsection ( 5 ) , with the necessary modifications as the context may require. is also applicable if only components of the annual report are tabled in terms of subsection (3). Compliance to be monitored

128. The accounting officer of a parent municipality must- 35 (a) monitor whether the accounting officer of any municipal entity under the sole I ) and or shared control of the municipality has complied with sections I2 1 126(2); (b) establish the reasons for any non-compliance: ( e ) promptly report any non-compliance, together and with the reasons for such 40 non-compliance, to the council provincial treasury and the Auditor-General. of the parent municipality. the relevant report; annual the Oversight reports on annual reports 129. ( 1 ) The council of a municipality must consider the annual report of the municipality and of any municipal entity under the municipality's sole or shared control. and by no later than two months from the date on which the annual report was tabled in the council in terms of section 127, adopt an oversight report containing the council's comments on the annual report, which must include a statement whether the council- rejected (a) has approved the annual report with or without reservations; ( 6 ) has ( c ) has referred the annual report back for revision of those components that can or -IS 50 be revised. (2) The accounting officer must- ( a ) attend council and council committee meetings where the annual report is discussed, for the purpose of responding and to questions concerning the report; 55 Act No. 56,2003 GOVERNMENT LOCAL MUNICIPAL FINANCE MANAGEMENT ACT. 2003 ( 6 ) submit copies of the minutes of those meetings treasury and the provincial department responsible to the Auditor-General. thc t o r relevant provincial local government in the province. (3) The accounting officer must in accordance with section 21A of the Municipal Systems Act make public an oversight report referred to in subsection ( I ) within s e \ m 5 days of its adoption. (4) The National Treasury may issue guidelines on- (a) the manner in which municipal councils should consider annual reports and conduct public hearings; and (b) the functioning and composition of any public accounts or oversight 1 0 committees established by the council to assist it to consider an annual report. (5) No guidelines issued in terms of subsection (4) are binding on a municipal council unless adopted by the cguncil. (6) This section, with the necessary modifications as the context may require, is also applicable if only components of the annual report were tabled in terms of section 127( 3). IS Council meetings open to public and certain public officials 130. (1) The meetings of a municipal council at which an annual report is to be discussed or at which decisions concerning an annual report are to be taken. must be open to the public and any organs of state, and a reasonable time must be allowed- received from the local any written submissions ( a ) for the discussion of 2 0 community or organs of state on the annual report: and ( b ) for members of the local community or any organs of state to address the council. ( 2 ) Representatives of the Auditor-General are entitled to attend, and to speak at. an) 3 council meeting referred to in subsection (1). (3) This section, with the necessary modifications as the context may require. is also applicable if only components of the annual report were tabled in terms o f sectton 127(3). Issues raised by Auditor-General in audit reports 30 131. (1 ) A municipality must address any issues raised by the Auditor-General i n a t 1 audit report. The mayor of a municipality must ensure compliance by the municipalit!, with this subsection. ( 2 ) The MEC for local government in the province must- ( a ) assess all annual financial statements of municipalities in the province. the 35 audit reports on such statements and any responses of municipalities to such audit reports, and determine whether municipalities have adequately ad- dressed any issues raised by the Auditor-General in audit reports: and (b) report to the provincial legislature any omission by a municipality to issues adequately those address within 60 days. 40 Submissions to provincial legislatures 132. (1) The following documents must be submitted to the provincial legislature: ( a ) The annual report of each municipality and each municipal entity i n the province, or if only components of an annual report were tabled in terms of section 127(3), (b) all oversight reports on those annual reports adopted in terms of section 45 129( 1). ( 2 ) The accounting officer of a municipality must submit the documents referred to in subsection (l)(a) and (b) to the provincial legislature within seven days after the municipal council has adopted the relevant oversight report in terms of section 139( I ) . SO (3) The MEC for local government in a province must monitor whether municipalities in the province comply with subsection ( 2 ) . (4) A provincial legislature may deal with the documents referred to it in terms of subsection (1) in accordance with its constitutional powers. and components; those 130 No. 26019 GAZETTE. GOVERNMENT 13 FEBRUARY 2004 ~ ~ ~~ ~ Act No. 56,2003 GOVERNMENT LOCAL MUNICIPAL FINANCE MANAGEMENT ACT, 2003 ( 5 ) The National Treasury may issue guidelines on the manner in which provincial legislatures should consider the annual reports of municipalities. No guidelines issued in terms of this subsection are binding on a provincial legislature unless adopted by the legislature. Consequences of non-compliance with certain provisions 5 133. (1) If the accounting officer of a municipality or municipal entity fails to submit financial statements to the Auditor-General in accordance with section 126( 1 ) or (2), or if the mayor fails to table the annual report of the municipality or a municipal entity in the council in accordance with section 127(2)- ( a ) the mayor must promptly table in the council a written explanation setting out 10 the reasons for the failure; (b) the Auditor-General, in the case of any failure to submit financial statements for auditing, must promptly- (i) inform the speaker of the council, the National Treasury and the MEC for finance in the province of such local government and the MEC for failure; and 15 (ii) issue a special report on the failure to the relevant provincial legislature; and ( c ) the municipal council- (i) must request the speaker or any other councillor to investigate the 20 reasons for the failure and report to the council; (ii) must take appropriate steps to ensure that the financial statements are submitted to the Auditor-General or that the annual report, including the in financial statements and the audit report on those statements, is tabled the council, as the case may be; and (iii) may order that disciplinary steps be taken against the accounting officer 2s or other person responsible for the failure; (d) the provincial executive may intervene in the municipality in terms of section 139 of the Constitution; (e) the National Treasury may take appropriate steps against the municipality in 30 cf) terms of section 5 ( 2 ) ( e ) ; and the provincial treasury may take appropriate steps against the municipality in terms of section S(4)(d). (2) The Auditor-General must submit to Parliament and the provincial legislatures- ( a ) by no later than 3 1 October of each year, the names of any municipalities or municipal entities which have failed to submit their financial statements to the Auditor-General in terms of section 126; and (b) at quarterly intervals thereafter, the names of any municipalities or municipal at the end of each entities whose financial statements are still outstanding interval. 35 40 Annual report to Parliament

134. The Cabinet member responsible for local government must, as part of the report referred to in section 38 of the Municipal Systems Act, annually report to Parliament on actions taken by the by MECs for local government Auditor-General in audit reports on financial statements of municipalities and municipal entities. to address issues raised 45 CHAPTER 13 RESOLUTION OF FINANCIAL PROBLEMS Part 1: Zdentijcation of jinancial problems Primary responsibility for resolution of financial problems 50 135. (1) The primary responsibility to avoid, identify and resolve financial problems in a municipality rests with the municipality itself. (2) A municipality must meet its financial commitments. 132 GOVERNMENT No. 26019 GAZETTE. 13 FEBRUARY 7001 Act No. 56,2003 GOVERNMENT LOCAL MUNICIPAL FINANCE MANAGEMENT ACT. 2003 ( 3 ) If a municipality encounters a serious financial problem or anticipates problems in meeting its financial commitments, it must immediately- (a) seek solutions for the problem; (b) notify the MEC for local government and the MEC for finance in the province; and (c) notify organised local government. Part 2: Provincial interventions Types of provincial interventions 136. (1 1 If the MEC for local government in a province becomes aware that there is a serious financial problem in must promptly- ( a ) consult the mayor of the municipality to determine the facts; (b) assess the seriousness of the situation and the municipality’s response to the a municipality, the MEC situation; and (c) determine whether the situation justifies or requires an intervention in terms of 139 Constitution. of the section ( 2 ) If the financial problem has been caused by or resulted in a failure by the in terms of legislation or the municipality to comply with an executive obligation Constitution, and the conditions for an intervention in terms of section 139( 1) of the Constitution are met, the provincial executive must promptly decide whether or not to intervene in the municipality. If the provincial executive decides to intervene, section 137 applies. (3) If the municipality has failed to approve a budget necessary to give effect intervention in terms of section 139(4) of the Constitution are met, executive must intervene in the municipality in accordance to the budget, as a result of which the conditions for with section 26. or any revenue-raising measures an the provincial 5 10 15 20 25 (4) If the municipality, as a result of a crisis in its financial affairs, is in serious or persistent material breach of its obligations to provide basic services or to meet its financial commitments, or admits that it is unable to meet its obligations or financial commitments, as a result of which the conditions for an intervention in terms o f section 139(5) of the Constitution are met, the provincial executive municipality in accordance with section 139. must intervene in the 30 Discretionary provincial interventions 137. (1) If the conditions for a provincial intervention in a municipality in terms of in terms section 139(1) of the Constitution are met and the provincial executive decides of section 136(2) of this Act to intervene in the municipality, the provincial executive may take any appropriate steps referred to including-- in section 139(1) of the Constitution. 35 ( a ) assessing the seriousness of the financial problem in the municipality: (b) seeking solutions to resolve the financial problem in a way that would be sustainable and would build the municipality’s capacity financial affairs; to manage its own 30 ( c ) determining whether the financial problem, singly or in combination with other problems, is sufficiently serious or sustained that the municipality would if so, requesting any suitably benefit from a financial recovery plan and, qualified person- (i) (ii) to prepare an appropriate financial recovery plan for the municipality; to recommend appropriate changes to the municipality’s budget and revenue-raising measures that will give effect to the recovery plan; and to in in the 50 (iii) to submit the recovery plan and subparagraphs (i) and (ii) province within a period determined by the MEC; and any recommendations referred to the MEC for local government 45 (d) consulting the mayor of the municipality to obtain the municipality’s 1 3 1 N o . 26019 Act No. 56,2003 GOVERNMENT GAZETTE. 13 FEBI<I;\K\r' 2003 GOVERNMENT LOCAL MUNICIPAL FINANCE MANAGEMENT ACT. 2003 co-operation in resolving the financial problem. and if applicable. implement- ing the financial recovery plan. ( 2 ) The MEC must submit any assessment in t e r m of subsection ( ] ) ( a ) . any determination in terms of subsection (lj(c) and a copy of any request in terms of subsection (I)(c), to the municipality and the Cabinet member responsible for local government. (3) This section does not apply to a provincial intervention which is unrelated t o a financial problem in a municipality. Criteria for determining serious financial problems

138. When determining for the purposes of section 137 the seriousness of a financial problem, all relevant facts must be considered, and the following factors, singly or in combination, may indicate a serious financial problem: ( ( I ) The municipality has failed to make payments as and when due; (h) the municipality has defaulted on financial obligations for financial reasons; ( c ) the actual current expenditure of the municipality has exceeded the sum of its at least two consecutive actual current revenue plus available surpluses for financial years; (dl the municipality had an operating deficit in excess of five per cent of revenue in the most recent financial year for which financial information is available: ( e ) the municipality is more than 60 days late in submitting its annual financial (''1 statements to the Auditor-General in accordance with section 136: the Auditor-General has withheld an opinion or issued a disclaimer due to inadequacies in the financial statements or records of the municipality. or has issued an opinion which identifies a serious financial problem in the municipality; (g) any of the above conditions exists in a municipal entity under the municipality's sole control, the municipality may be responsible, and the municipality has failed to intervene effectively: or or in a municipal entity for whose debts ( / I ) any other material condition exists which indicates that the municipality. o r a municipal entity under the municipality's sole control, is likely to be unable for financial reasons to meet its obligations. hlandatory provincial interventions arising from financial crises 139. (1) If a municipality, as a result of a crisis in its financial affairs, is in serious or persistent material breach of its obligations to provide basic services or to meet its financial commitments, or admits that it is unable to meet its obligations or financial commitments, the provincial executive must promptly- ( a ) request the Municipal Financial Recovery Service- (i) to determine the reasons for the crisis in its financial affairs; (ii) to assess the municipality's financial state; (iii) to prepare an appropriate recovery plan for the municipality: (iv) to recommend appropriate changes to the municipality's budget and revenue-raising measures that will give effect to the recovery plan: and (v) to submit to the MEC for finance in the province- 35 40 (aa) the determination and assessment referred to in subparagraphs (i) 45 and (ii) as a matter of urgency; and (bb) the recovery plan and recommendations graphs (iii) and (iv) within determined by the MEC for finance: and a period, not to exceed referred to in subpara- 90 days, (b) consult the mayor of the municipality to obtain the municipality's co- 50 operation in implementing the recovery plan, including budget and legislative measures giving effect to the recovery plan. the approval of a 136 No. 26019 Act No. 56,2003 GOVERNMENT GAZETTt. 1.: t'tHI<I \ I < ) 1 0 0 ~ GOVERNMENT LOCAL MUNICIPAL FINANCE; MANAGEMENT ACT. 200.3 (2) The MEC for finance in the province must submit a copy of any request i n term\ received in tcrms of of subsection (l)(a) and of any determination and assessment subsection (l)(a)(v)(aa) to- (a) the municipality; (6) the Cabinet ( c ) the Minister. for responsible member local government: and (3) An intervention referred (1) supersedes any discretionary provincial intervention referred to in section 137, provided that any financial recovery plan prepared for the discretionary intervention must continue until replaced by a intervention. recovery plan for the mandatory to in subsection 5 1 0 Criteria for determining serious commitments or persistent material breach of financial 140. (1) When determining whether the conditions for a mandatory inter\,ention referred to in section 139 are met, all relevant facts must be considered. (2) The following factors, singly or in combination, may indicate that a municipalit\ 15 is in serious material breach of its obligations to meet its financial commitments: ( a ) The municipality has failed to make any payment to a lender or investor as and when due; ( h ) the municipality has failed to meet a contractual obligation which p m i d e s security in terms of section 48; ( c ) the municipality has failed to make any other payment as and when due. which individually or in the aggregate is more than an amount as may be prescribed or, if none cent of the is prescribed, more than municipality's budgeted operating expenditure; or two per 30 ( d ) the municipality's failure to meet its financial commitments has impacted. or 75 is likely to impact, on the availability or price of credit to other municipdities. (3) Any recurring or continuous failure by a municipality to meet its financial commitments which substantially impairs the municipality's ability to procure goods. services or credit on usual commercial terms, may indicate that the municipality is in persistent material breach of its obligations to meet its financial commitments. 10 (4) Subsections (2) and (3) do not apply to- (a) disputed obligations as to which there are pending legal actions between the municipality and the creditor, provided that such actions are not instituted to avoid an intervention; or ( b ) obligations explicitly waived by the creditor. 35 Preparation of financial recovery plans 141. ( 1 ) Any suitably qualified person may, on request by the provincial executivs. prepare a financial recovery plan for a discretionary provincial intervention referred to in section 137. (2) Only the Municipal Financial Recovery Service may prepare a financial recovery 40 plan for a mandatory provincial intervention referred to in section 139. (3) When preparing a financial recovery plan, the person referred to in subsection ( 1 ) or the Municipal Financial Recovery Service must- ( a ) consult- (i) (ii) the municipality's principal suppliers and creditors, to the extent they can 35 reasonably be contacted; (iii) the MEC for finance and the MEC for local government in the pro\.ince: municipality; relevant the labour; and (iv) organised ( 6 ) take into account- 50 (i) any financial recovery plan that has previously been prepared for the municipality; and (ii) any proposed financial recovery plan, or proposals for a financial recovery plan, that may be advanced by the municipality or any creditor 55 of the municipality; and 138 No. 26019 Act No. 56,2003 GAZEITE, GOVERNMENT 13 FEBRUARY 2004 GOVERNMENT: LOCAL MUNICIPAL. FINANCE MANAGEMENT ACT, 2003 (c) at least 14 days before finalising the plan- (i) submit the plan for comment to- (aa) the municipality; (bb) the MEC for finance and the MEC for local government province; in the 5 (cc) organised local government in the province; (dd) organised labour; and (ee) any supplier or creditor of the municipality, on request; and (ii) publish a notice in a newspaper of general circulation in the municipal- ity- (aa) stating the place, including any website address, where copies of the plan will be available to the public free of charge or at a reasonable price; and (bb) inviting the local community to submit written comments in respect of the plan. 10 15 (4) The person charged with preparing the financial recovery plan or the Municipal Financial Recovery Service must- ( a ) consider any comments received pursuant to subsection (3)(c); ( 6 ) finalise the financial recovery plan; and ( c ) submit the final plan to the MEC for finance in the province for approval in 20 terms of section 143. Criteria for financial recovery plans 142. (1) A financial recovery plan must be aimed at securing the municipality’s ability to meets its obligations to provide basic services or its financial commitments, and such a plan, whether for a mandatory or discretionary intervention- 25 ( a ) must- identify the financial problems of the municipality; (i) (ii) be designed to place the municipality in a sound and sustainable financial condition as soon as possible; (iii) state the principal strategic objectives of the plan, and ways and means 30 for achieving those objectives; (iv) set out a specific strategy for addressing the municipality’s financial problems, including a strategy for reducing unnecessary expenditure and increasing the collection of revenue, as may be necessary; (v) identify the human and financial resources needed to assist in resolving to come financial problems, and where those resources are proposed from; 35 (vi) describe the anticipated time frame for financial recovery, and milestones (vii) to be achieved; and identify what actions are necessary for the implementation of the plan, distinguishing between actions to be taken by the municipality and actions to be taken by other parties; and 40 fb) may- (i) provide for the liquidation of specific assets, excluding those needed for the provision of the minimum level of basic municipal services; (ii) provide for debt restructuring or debt relief in accordance with Part 3 of 45 this Chapter; (iii) provide for special measures to prevent unauthorised, irregular and fruitless and wasteful expenditures and other losses; and (iv) identify any actual and potential revenue sources. (2) In addition, a financial recovery plan- ( a ) for a mandatory intervention must- (i) set spending limits and revenue targets; (ii) provide budget parameters which bind the municipality for a specified period or until stated conditions have been met; and (iii) identify specific revenue-raising measures that are necessary for 50 55 I40 No. 26019 Act No. 56,2003 GAZETTE, GOVERNMENT 13 FEHRL'4RY 2004 GOVERNMENT LOCAL MUNICIPAL FINANCE MANAGEMENT ACT, 2003 financial recovery, including the rate tariffs must be set to achieve financial recovery; and at which any municipal tax and ( b ) for a discretionary intervention may suggest for adoption by the municipal- ity- (i) spending limits and revenue targets; (ii) budget parameters for a specified period or until stated conditions have 5 been met; and (iii) specific revenue-raising measures that are necessary for financial recovery. Approval of financial recovery plans 143. (1) On receipt, of a financial recovery plan pursuant to a discretionary intervention referred to in section 137, the MEC for local government in the province the MEC considers may approve the recovery plan with or without amendments, as appropriate. (2) On receipt of a financial recovery plan pursuant to a mandatory intervention referred to in section 139, the MEC for finance must verify that the process set out in section 141 has been followed and that the criteria contained in section 142 are met. and- ( a ) if so, approve the recovery plan; or (b) if not, direct what defects must be rectified. (3) The responsible MEC must submit an approved recovery plan t o - ( a ) the municipality; (6) the Minister and the Cabinet member responsible for local government; (c) the Auditor-General; and (d) organised local government in the province. Amendment of financial recovery plans 144. ( 1 ) The MEC for local government or the MEC for finance in the province may at any time, but subject to section 141(1) and ( 2 ) . request any suitably qualified person or the Municipal Financial Recovery Service to prepare an amended financial recovery plan in accordance with the directions of the MEC. (2) Section 141, read with such changes as the context may require. apply to the amendment of a financial recovery plan in terms of this section. (3) No amendment of a recovery plan may impede the implementation of any court order made or agreement reached in terms of the plan before the amendment. 1s 20 25 30 Implementation of financial recovery plans in discretionary provincial interven- tions 35 145. ( 1 ) If the financial recovery plan was prepared in a discretionary provincial intervention referred to in section 137, the municipality must- (a) implement the approved recovery plan; and (b) report monthly to the MEC for local government in the province on the 40 implementation of the plan, in such manner as the plan may determine. (2) The financial recovery plan binds the municipality in the exercise of its executive authority, but only to the extent to resolve the financial problems of the municipality. (3) If the municipality cannot or does not implement the approved recovery plan, the provincial executive may in terms of section 139( 1) or (4) of the Constitution take further appropriate steps to ensure implementation of the plan. (4) Sections 34(3) and (4) and 35 of the Municipal Structures Act apply if a provincial executive dissolves a municipal council in terms of subsection (3). 45 142 No. 26019 GOVERNMENT GAZETTE, 13 FEHKl i.-\R\’ 7001 Act No. 56,2003 GOVERNMENT: LOCAL MUNICIPAL FINANCE MANAGEMENT ACT, 2003 Implementation of financial recovery plans in mandatory provincial interventions 146. (1) If the recovery plan was prepared in a mandatory provincial intervention referred to in section 139- ( a ) the municipality must implement the approved recovery plan; ( b ) all revenue, expenditure and budget decisions must be taken within the 5 (c) framework of, and subject to the limitations of, the recovery plan: and the municipality must report monthly to the MEC for finance in the province on the implementation of the plan in such manner as the plan may determine. in the exercise of both its (2) The financial recovery plan binds the municipality legislative and executive authority, including the approval of a budget and legislative 10 measures giving effect to the budget, but only to the extent necessary to achieve the objectives of the recovery plan. (3) The provincial executive must in terms of section 139(5)(b) of the Constitution either- ( a ) dissolve the council of the municipality, if the municipality cannot or does not 15 approve legislative measures, including any revenue-raising measures, necessary to give effect to the recovery plan within the time frames specified in the plan and- (i) appoint an administrator until a newly elected council has been declared a budget or and elected; 20 (ii) approve a temporary budget and revenue-raising measures, measures to give continued functioning of the municipality; or effect to the recovery plan and to provide for and other the (b) assume responsibility for the implementation of the recovery plan to the extent that the municipality cannot or does not take executive measures to 25 give effect to the recovery plan. (4) Sections 34(3) and (4) and 35 of the Municipal Structures Act apply when a in terms of section 139(5)(b)(i ) of the provincial executive dissolves a municipal council Constitution. review Regular interventions of provincial 30 147. ( 1 ) The MEC for local government or the MEC for finance in a province must at least every three months- (a) review any discretionary provincial intervention referred to in section 137 or any mandatory provincial intervention referred to in section 139, including- and its (i) progress with resolving the municipality’s financial problems 35 financial recovery; and (ii) the effectiveness of any financial recovery plan; and (b) submit progress reports and a final report on the intervention to- (i) the municipality; (ii) the Minister; (iii) the Cabinet member responsible for local government; (iv) the provincial legislature; and (v) organised local government in the province. 40 ( 2 ) The MEC for local government or the MEC for finance may request the person who prepared the recovery plan, or the Municipal Financial Recovery Service. to assist 45 the MEC in complying with subsection (1 ). Termination of provincial interventions 148. ( I ) A discretionary intervention referred to in section 137 must end- (a) if it is terminated in terms of section 139(2)(b) of the Constitution; or (b) when- 50 (i) the municipality is able and willing to fulfil the executive obligation in terms of legislation or the Constitution that gave rise to the intervention; and Act No. 56,2003 LOCAL CiOVERNMENT MUNICIPAL F'INANCll MANAGEMENT ACT. 2003 (ii) the financial problem that has been caused by or has caused the tailure h) the municipality to comply with that obligation is resolved. (2) A mandatory intervention referred to in section 139 must end when- ( a ) the crisis in the municipality's financial affairs has been resolved: and (b) the municipality's ability to meet its obligations to provide basic services 01- its 5 financial commitments is secured. (3) When a provincial intervention ends, the MEC for local government or the MEC for finance in the province must notify- case in the Minister, ( a ) the municipality; (b) the ( c ) the Cabinet member responsible for local government; (d) any creditors having pending litigation against the municipality; ( e ) the provincial, legislature; and (f,) organised local government in the province. of a mandatory intervention; Access to information, records and documents of municipalities

149. If a provincial executive intervenes in a municipality in terms of section 139 of the Constitution, the provincial executive and its representatives have access t o such information, records and documents of the municipality or of any municipal entity under the sole or shared control of the municipality as may be necessary for the intervention. including for identifying or resolving the financial problem of the municipality. National interventions 150. (1) If the conditions for a provincial intervention in a municipality in terms of section 139(4) or ( 5 ) of the Constitution are met and the provincial executive cannot or does not or does not adequately exercise the powers or perform the functions rel'erred t o executive the national in (a) consult the relevant provincial executive; and ( 6 ) act or intervene in terms of that section in the stead of the provincial executi\.e. section, must- that I O 15 20 -_ 7 5 (2) If the national executive intervenes in a municipality in terms of subsection ( 1 j- ( a ) the national executive assumes for the purposes of the intervention the functions and powers of a provincial executive in terms of this Chapter; (6) the Minister assumes for the purposes of the intervention the functions and 30 powers of an MEC for finance in terms of this Chapter: and ( c ) a reference in this Chapter- (i) to a provincial executive must be read as a reference to the national executive; (ii) to an MEC for finance must be read as a reference to the Minister; and (iii) to a provincial intervention must be read as a reference to ;I national intervention. Part 3: Debt relief and restructuring Legal rights 35 40

151. Except as expressly provided for in this Part, nothing in this Chapter limits or affects - ( a ) the rights of any creditor or other person having a claim against a municipality; (b) any person's access to ordinary legal process in accordance with the common 45 law and relevant legislation; or (c) the rights of a municipality or municipal entity, or of the parties to a contract with a municipality or municipal entity, to alternative dispute resolution mechanisms, notice procedures and other remedies, processes or procedures. 146 No. 26019 Act No. 56. 2003 GAZETTE. GOVERNMENT I3 FEBKIJAK\r' 1004 LOCAL GOVERNMENT MC\;CIP.\L FIS.4NCE MANAGEMENT ACT. 2003 Application for stay of legal proceedings 152. ( I ) If a municipalit!. is unable to meet its financial commitments. it may apply t o for a period not exceeding 90 days. all legal the High Court for an order proceedings, including the execution of legal process, by persons claiming money from the municipality or a municipal entity under the sole control of the municipality. to stay. (2) Notice of an application in terms of subsection (1) must be given to- (a) the MEC for local government and the MEC for finance in the province: ( b ) the Minister; (c) the Cabinet member responsible for ( d ) organised local go\ ernment: and (e) to the extent that the! can reasonably be contacted. all persons to whom the municipality or,the municipal entity owes an amount in excess of a prescribed amount, or if no anwunt is prescribed. in excess of RlOO 000. local government; 5 10 (3) An application in term5 of subsection (1) may for the purposes of section 139(5) of the Constirution be regarded a5 an admission by the municipality that it is unable to 15 meet its financial commitments. Application for extraordinary relief 153. ( 1 ) A municipalit! nm!- dppl!. to the High Court for an order- ( a ) to stay, for a period not exceeding 90 days at a time, all legal proceedings, including the execution of legal process, by persons claiming money from the 30 municipality; ( b ) to suspend the municipality's financial obligations to creditors. or any portion of those obligation>. until the municipality can meet those obligations; or ( c ) to terminate the municipality's financial obligations to creditors. and to settle claims in accordance 1% ith a distribution scheme referred to in section 155. 15 (2) The Court may makc an order in terms of subsection (1) only if- ( a ) the provincial esecuti\.e has intervened in terms of section 139 and a financial recovery plan to restore the municipality to financial health has been approved for the municipalit!.: ( h ) the financial recovery plan is likely to fail without the protection of' such an 30 order; ( c ) section 154 has been complied with, in the case of an application for an order referred to in subxction ( 1 ) ( b ) ; and (d) section 155(1) has been complied with. in the case of an application for an order referred to i n subsection (l)(c). (3) Notice of an application i n terms of subsection (1) must be given t c t (a) all creditors to \vhom the municipality owes an amount in excess of a prescribed amount. o r if no amount is prescribed, in excess of RIOO 000, in so far as those creditors can reasonably be contacted; finance and the MEC for local government in the province; the Minister; (h) the MEC for (c) ( d ) the Cabinet member responsible for local government; (e) organised labour. and 35 40 Suspension of financial obligations

154. Before issuing an order in terms of section 153(l)(b) for the suspension of a 45 municipality's financial obligations to creditors. the court must be satisfied that- ( a ) the municipality c;~nnot currently meet its financial obligations to creditors; and (6) all assets not reasonably necessary to sustain effective administration or to provide the minimum Ie\.el of basic municipal services have been or are to be 50 liquidated in accord~ulce \vith the approved financial recovery plan for the benefit of meeting creditors' claims. 148 ~~~~~ No. 26019 Act No. 56,2003 GOVERNMENT GAZETTE, 13 FEBRLAK’I’ 2004 GOVERNMENT LOCAL MUNICIPAL FTNANCE MANAGEMENT ACT, 2003 Termination of financial obligations and settlement of claims 155. (1) Before issuing an order for the termination of a municipality’s financial obligations to creditors in terms of section 153( l)(c), the court must be satisfied that- (a) the municipality cannot meet its financial obligations to its creditors and is not likely to be do to able foreseeable so in the future; (b) all assets not reasonably necessary to sustain effective administration or to provide the minimum level of basic municipal services have been liquidated in accordance with the approved financial recovery plan for the benefit of meeting creditors’ claims; and 5 (c) all employees have been discharged except those affordable in terms of reasonably projected revenues as set out in the approved financial recovery plan. I O (2) If the court issues an order referred to subsection (I), the MEC for finance in the province must appoint a trustee to prepare a distribution scheme for the proportional settlement of all legitimate claims against the municipality as at the date of the order. 15 Those claims must be settled against the amount realised from the liquidation of assets referred to in subsection (l)(b). (3) A distribution scheme must- ( a ) determine the amount available for distribution; (b) list all creditors with claims which qualify for the purposes of the distribution 30 scheme, indicating which of those are secured and the manner in which they are secured; and ( c ) provide for the distribution of the amount available amongst creditors in the following order of preference: (i) First preference must be given to the rights of secured creditors as to the 25 assets with which they are secured in terms of section 48, provided the in good faith and at least six months security in question was given in terms of section 139 before the mandatory provincial intervention began; thereafter the preferences provided for in the Insolvency Act, 1936 (Act 30 No. 24 of 1936), read with the necessary changes as the context may require, must be applied; and thereafter non-preferent claims must be settled in proportion to the amount of the different claims. (ii) (iii) (4) A distribution scheme may not be implemented unless approved by the court. 35 Matters to be prescribed

156. The Minister, acting with the concurrence of the Cabinet member responsible for local government, must by regulation in terms of section 168- ( a ) provide for an equitable process for the recognition of claims against a municipality for the purposes of sharing in a distribution scheme, provided 30 that rejection of any claim does not prevent a creditor from proving the claim in a court; and (b) provide for public access to a distribution scheme. Part 4: Municipal Financial Recovery Service Establishment 35 157. (1) A Municipal Financial Recovery Service is hereby established as an institution within the public service. ( 2 ) The Municipal Financial Recovery Service forms part of, and functions within, the National Treasury. 150 No. 26019 GAZETTE. GOVERNMENT I.? FEHKI'.1III. 2004 Act No. 56,2003 GOVERNMENT LOCAL MUNICIPAL FINANCE MANAGEMENT ACT. 2003 Functions and powers

158. The Municival Financial Recoverv Service- 5 finance in the province. monitor the must perform the duties and may exercise the powers assigned to the Service in terms of this Act; may, on request by the MEC for finance in a province, prepare a financial recovery plan for a municipality or, with the approval of the Director-General of the National Treasury, instruct any suitably qualified person to prepare the plan in accordance with the directions of the Service; may, on request by the MEC for implementation of any financial recovery plans that it has prepared. and may 10 recommend such amendments and revisions as are appropriate; may on request by any municipality that is experiencing financial problems. and in co-ordination with any other provincial or national efforts, assist the municipality to identify the causes for. these financial problems: may, with the approval of the Director-General of the National Treasury. obtain the services of any financial expert to perform any specific work for the Service; and may collect information on municipal financial problems and on best practices in resolving of, and potential solutions 70 1.5 problems. such Appointment of Head 159. (1) The Minister must appoint a person as the Head of the Service. subject to subsection ( 2 ) and legislation governing the public service. ( 2 ) Aperson appointed as the Head of the Service holds office in the National Treasury on terms and conditions set out in a written employment contract. which must include 35 terms and conditions setting performance standards. Responsibilities of Head 160. (1) The Head of the Service- and powers; its of exercise (a) is responsible for the performance by the Service of its functions and the (b) takes all decisions of the Service in the performance of its functions and the in exercise of its powers, except those decisions consequence of a delegation in terms of section 162. of the Service taken (2) The Head of the Service performs the functions of ofice subject to the directions Treasury. National of the Director-General of the Staff

161. The staff of the Municipal Financial Recovery Service consists of- ( a ) the Head of the Service; ( 6 ) persons in the service of, or contracted by, the National Treasury and designated by the Director-General of the National Treasury for the work of the Service; and ( e ) persons seconded from an organ of state or organisation to the Service by agreement between organisation. the Director-General and that organ of state or Delegations 3 0 35 -10 45 162. (1) The Head of the Service may delegate, in writing, any of the powers or duties of the Service to a member of the staff of the Service. (2j A delegation in terms of subsection (1)- (a) must be in writing; ( 6 ) is subject to the limitations or conditions which the Head of the Service may 50 impose: and 152 No. 26019 GAZETTE. GOVERNMENT 13 FEBRUARY 2004 Act No. 56,2003 GOVERNMENT LOCAL MUNICIPAL FINANCE MANAGEMENT ACT. 2003 (c) does not divest the Head of the Service of the responsibility concerning the exercise of the delegated power or the performance of the delegated duty. (3) The Head of the Service may confirm, vary or revoke any decision taken in consequence of a delegation in terms of subsection (l), provided that no such variation or revocation of a decision may detract from any rights that may have accrued as a result of the decision. 5 CHAPTER 14 GENERAL TREASURY MATTERS Liabilities and risks payable in foreign currencies 163. (1) No municipality or municipal entity may incur a liability or risk payable in 10 a foreign currency. (2) Subsection ( I ) does not apply- ( a ) to debt regulated in terms of section 47; or (b) to the procurement of goods or services denominated in a foreign currency but the Rand value of which is determined at the time of procurement, or where this is not possible and risk is low, at the time of payment 15 Forbidden activities 164. (1) No municipality or municipal entity may- ( a ) conduct any commercial activities- (i) otherwise than in the exercise of the powers and functions assigned to it in terms of the Constitution or national or provincial legislation: or 20 (ii) outside the borders of the Republic; (b) provide a municipal service in an area outside its jurisdiction except with the approval of the council of the municipality having jurisdiction in that area: or (c) make loans to- (i) councillors or officials of the municipality; (ii) directors or officials of the entity; or (iii) members of the public. 25 (2) If a municipality or municipal entity on the date on which this section takes effect is engaged in any activity prohibited by subsection (l)(a) or (b) and which is otherwise lawful, the municipality or entity must take all reasonable steps to rectify its position and to comply with that subsection as soon as may be reasonable in the circumstances. 30 Internal audit unit 165. (1) Each municipality and each municipal entity must have an internal audit unit, subject to subsection (3). ( 2 ) The internal audit unit of a municipality or municipal entity must- ( a ) prepare a risk-based audit plan and an internal audit program for each financial year; (b) advise the accounting officer and report to the audit committee on the implementation of the internal audit plan and matters relating to- internal audit; internal controls; accounting procedures and practices; risk and risk management; performance loss control; and compliance with this Act, the annual Division of Revenue Act and any other applicable legislation; and 35 40 45 management; Act No. 56,2003 GOVERNMENT: LOCAL MUNICIPAL FINANCE MANAGEMENT ACT, 2003 ( c ) perform such other duties as may be assigned to it by the accounting officer. (3) The internal audit function referred to in subsection ( 2 ) may be outsourced it' the municipality or municipal entity requires assistance to develop its internal capacity and the council of the municipality or the board of directors of the entity has determined that this is or cost-effective. 5 feasible Audit committees 166. (1) Each municipality and each municipal entity must have an audit committee. subject to subsection (6). (2) An audit committee is an independent advisory body which must- advise the municipal council, the political ofice-bearers. the accounting officer and the management staff of the municipality, or the board of directors. the accounting officer and the management staff of the municipal entity. on matters relating to- (i) internal financial control and internal audits; (ii) risk management; (iii) accounting policies; (iv) the adequacy, reliability and accuracy of financial reporting and 1 0 15 information; (v) performance management; (vi) effective governance; (vii) compliance with this Act, the annual Division of Revenue Act and any '0 other applicable legislation: (viii) performance evaluation; and ( 1 7 ) (c) financial statements to provide the council of the 25 (ix) any other issues referred to it by the municipality or municipal entity: review the annual municipality or, in the case of a municipal entity. the council of the parent municipality and the board of directors of the entity, with an authoritative and credible view of the financial position of the municipality or municipal entity. its efficiency and effectiveness and its overall level of compliance with this Act, the annual Division of Revenue Act and any other applicable legislation: 30 respond to the council on any issues raised by the Auditor-General in the audit report; (dl carry out such investigations into the financial affairs of the municipality or of the municipality, or in the case of a municipal entity as the council municipal entity, the council of the directors of the entity, may request: and parent municipality or the board ot' 35 ( e ) perform such other functions as may be prescribed. (3) In performing its functions, an audit committee- ( a ) has access and entity; municipality or municipal ( 6 ) must liaise with- to the financial records and other relevant information of the (i) the internal audit unit of the municipality; and (ii) the person designated by the Auditor-General to statements of the municipality or municipal entity. audit the financial committee (4) An audit must- ( a ) consist of at least three persons with appropriate experience. of whom the majority may not be in the employ of the municipality or municipal entity, as the case may be; and (b) meet as often as is required to perform its functions, but at least four times a year. (5) The members of an audit committee must be appointed by the council of the the case of a municipal entity, by the council of the parent municipality or, in not in the employ of the municipality or municipality. One of the members who is municipal entity, must be appointed as the chairperson of the committee. No councillor of may be a member committee. an audit (6) A single audit committee may be established for- 40 45 50 55 156 No. 26019 GOVERNMENT GAZETIL 1.7 FLHR~':!Rl 2004 Act No. 56,2003 GOVERNMENT LOCAL MUNICIPAL FINANCE MANAGEMENT ACT. 2003 (a) a district municipality and the local municipalities within that district municipality; and (b) a municipality and municipal entities under its sole control. Councillors' remuneration 167. (1) A municipality may remunerate its political office-bearers and members of its 5 political structures, but only- (a) within the framework of the Public Office-Bearers Act, 1998 (Act No. 20 of of the salaries, allowances and benefits for 1998), setting the upper limits those political office-bearers and members; and section with (b) in accordance 219(4) of the (2) Any remuneration paid or given in cash or in kind to a person as a political office-bearer or as a member of a political structure of a municipality otherwise than in accordance with subsection (l), including any bonus, bursary, loan, advance or other benefit, is an irregular expenditure, and the municipality- Constitution. 10 (a) must, and has the right to, recover office-bearer or member; and that remuneration from the political IS (b) may not write off any expenditure incurred by the municipality in paying or giving that remuneration. (3) The MEC for local government in a province must report to the provincial legislature- 20 ( a ) any transgressions of subsection (1); and (b) any non-compliance with sections 17(3)(k)(i) and (ii) and 124( 1 )(n). Treasury regulations and guidelines 168. (1) The Minister, acting with the concurrence of the Cabinet member responsible for local government, may make regulations or guidelines applicable to municipalities 25 and municipal entities, regarding- any matter that may be prescribed in terms of this Act; financial management and internal control; a framework for regulating the exercise of municipal fiscal and tariff-fixing powers; a framework regulating the financial commitments municipal entities in terms of public-private partnership agreements; the establishment by municipalities of, and control over- (i) municipal entities; and (ii) business units contemplated of municipalities and in section 76(u)(ii) of the Municipal 35 30 Systems Act; the safe-guarding of the financial affairs of municipalities and of municipal entities when assets, liabilities or staff are transferred from or to a municipality or a municipal entity; the alienation, letting or disposal of assets by municipalities or municipal 30 entities; internal audit units and their functioning; the. information to be disclosed when municipalities or municipal entities issue or incur debt and the manner disclosed, including the circumstances under which further or specific disclosures are required after money has been borrowed by a municipality or municipal entity; the circumstances under which documentation or information pertaining to municipal debt must be lodged or registered; the establishment of a registry for the registration information pertaining to municipal borrowing; the settlement of claims against a municipality following an order of court in terms of section 153; the information that must be placed on the websites of municipalities; in which such information must be of documentation and SO a prospectus or other document; by way of 4s a framework regulating investments by municipal entities; and 55 any other matter that may facilitate the enforcement and administration of this Act. (2) A regulation or guideline in terms of this section may- 158 No. 26019 ~ ~ ~~ Act No. 56,2003 GAZETTE. GOVERNMENT I 3 FEBRUARY 2004 LOCAL GOVERNMENT MUNICIPAL FINANCE MANAGEMENT ACT, 2003 ( a ) differentiate between different-- (i) kinds of municipalities, which may, for the purposes of this section, be defined either in relation to categories, types or budgetary size of municipalities or in any other manner; (ii) categories of municipal entities; (iii) categories of accounting officers; or (iv) categories of officials; or (b) be limited in its application to a particular- 5 (i) kind of municipality, which may, for the purposes of this section, be defined either in relation to a category, type or budgetary size of 10 municipality or in any other manner; (ii) category of municipal entities; (iii) category of accounting officers; or (iv) category of officials. (3) No guidelines issued in terms of subsection (1) are binding on- 15 ( a ) a municipality unless adopted by its council; or ( b ) a municipal entity unless adopted by the council of the entity’s parent municipality. Consultative processes before promulgation of regulations 169. ( 1 ) Before regulations in terms of section 168 are promulgated, the Minister 20 must- ( a ) consult organised local government on the substance of those regulations; and ( b ) publish the draft regulations in the Govenvnenr Gazette for public comment. (2) Regulations made in terms of section 168 must be submitted to Parliament for parliamentary scrutiny at least 30 days before their promulgation. 25 Departures from treasury regulations or conditions 170. (1) The National Treasury may on good grounds approve a departure from a treasury regulation or from any condition imposed in terms of this Act. ( 2 ) Non-compliance with a regulation made in terms of section 168, or with a condition imposed by the National Treasury in terms of this Act, may on good grounds 30 shown be condoned by the Treasury. CHAPTER 15 FINANCIAL MISCONDUCT Part 1: Disciplinary proceedings Financial misconduct by municipal officials 171. ( 1 ) The accounting officer of a municipality commits an act of financial misconduct if that accounting officer deliberately or negligently- ( a ) contravenes a provision of this Act; (b) fails to comply with a duty imposed by a provision of this Act on the accounting officer of a municipality; 35 40 (c) makes or permits, or instructs another official of the municipality to make, an unauthorised, irregular or fruitless and wasteful expenditure; or (d) provides incorrect or misleading information in any document which in terms of a requirement of this Act must be- (i) submitted to the mayor or the council of the municipality, or to the 45 Auditor-General, the National Treasury or other organ of state; or (ii) made public. ( 2 ) The chief financial officer of a municipality commits an act of financial misconduct if that officer deliberately or negligently- (a) fails to cany out a duty delegated to that officer in terms of section 79 or 50 8 1 ( l > ( e ) ; GAZETTE. GOVERNMENT 26019 160 No. ~ ~~~~ 13 FEHIIL1.4KY 7004 Act No. 56,2003 GOVERNMENT: LOCAL MUNICIPAL F'INANCE MANAGEMENT ACT, 2003 (6) contravenes or fails to comply with a condition of any delegation of a power or duty in terms of section 79 or 81( l)(e); ( e ) makes or permits, or instructs another official of the municipality to make. an unauthorised, irregular or fruitless and wasteful expenditure; or (d) provides incorrect or misleading information to the accounting officer for the 5 purposes of a document referred to in subsection ( l ) ( d ) . ( 3 ) A senior manager financial management responsibilities and to whom a power or duty was delegated in terms of section 79, commits an act of financial misconduct if that senior manager or official deliberately or negligently- or other official of a municipality exercising 10 (a) fails to carry out the delegated duty; (b) contravenes or fails to comply with a condition of the delegated power or duty; ( e ) makes an unauthorised, irregular or fruitless and wasteful expenditure: or (d) provides incorrect or misleading information to the accounting officer for the 15 purposes of a document referred to in subsection (l)(d). (4) A municipality must- ( a ) investigate allegations of financial misconduct against the accounting officer, the chief financial officer, a senior manager or other official of the municipality unless those allegations are frivolous, vexatious, speculative unfounded: and or obviously 20 (6) if the investigation warrants such a step, institute disciplinary proceedings against the accounting officer, chief financial officer or that senior manager or other official in accordance with systems and procedures referred to in section 67 of the Municipal Systems Act, read with Schedule 2 of that Act. 25 Financial misconduct by officials of municipal entities 172. ( 1 ) The accounting officer of a municipal entity commits misconduct if that accounting officer deliberately or negligently- an act of financial ( u ) contravenes a provision of this Act; f b ) fails to comply with a duty imposed by a provision of this Act on the 30 accounting officer of a municipal entity; (c) makes or permits, or instructs another official of the municipal entity to make. an irregular or fruitless and wasteful expenditure; or (d) provides incorrect or misleading information in any document which in terms of this Act must be- (i) submitted to the entity's board of directors or parent municipality or to 35 the Auditor-General; or (ii) made public. ( 2 ) A senior manager or other official of a municipal entity exercising financial management responsibilities and to whom a power or duty was delegated in terms of 30 section 106. commits an act of financial misconduct if that senior manager or official deliberately or negligently- (a) fails to carry out the delegated duty; (b) contravenes or fails to comply with a condition of the delegated power or duty; 35 ( c ) makes an irregular or fruitless and wasteful expenditure; or Id) provides incorrect or misleading information to the accounting officer for the purposes of a document referred to in subsection (l)(dJ. (3) A municipal entity must- (a) investigate allegations of financial misconduct against the accounting officer, 50 a senior manager or other official of the entity unless those allegations are frivolous, vexatious, speculative or obviously unfounded; and (b) if the investigation warrants such a step, institute disciplinary proceedings Systems Municipal against the accounting officer, senior manager or official in terms of Schedule 3 of the 55 Act. 162 No. 26019 Act No. 56,2003 Offences GOVERNMENT GAZETTE. I ? Fkf3RLI.ARl’ 2004 LOCAL GOVERNMENT: MUNICIPAL FINANCE, MANAGEMENT ACT, 2003 Part 2: Criminal proceedings 173. (1) The accounting officer of a municipality is guilty of an offence if that accounting officer- ( a ) deliberately or in a grossly negligent way- (i) contravenes or fails to comply with a provision of section 61(?)(bj. 62(1), 63(2)(a) or (c), &@)(a) or (d) or 65(2)(a), f b ) , ( c ) . (dl. (fj or f i ) ; (ii) fails to take reasonable steps to implement the municipality’s supply chain management policy referred to in section 11 1; (iii) fails to take all reasonable steps to prevent unauthorised. irregular or fruitless and wasteful expenditure; or (iv) fails to take all reasonable steps to prevent corruptive practices- ( u a ) in the management of the municipality’s assets or receipt of money: or (bb) in the implementation of the municipality’s supply chain manage- ment policy; f h ) deliberately misleads or withholds information from the Auditor-General on any bank accounts of the municipality or on money received or spent by the municipality; or ( c ) deliberately provides false or misleading information in any document which in terms of a requirement of this Act must be - (aa) submitted to the Auditor-General, the National Treasury or any other organ of state; or fbb) made public. ( 2 ) The accounting officer of a municipal entity is guilty of an offence if that accounting officer- ( a ) deliberately or in a grossly negligent way- (i) contravenes or fails to comply with a provision of section 94(2)(hi. 9% 11, 96(2), 97fa) or 99(2)(n), ( e ) or (e): (ii) fails to take all reasonable steps to prevent wasteful expenditure; or irregular or fruitless and (iii) fails to take all reasonable steps to prevent corruptive practices in the management of the entity’s assets, receipt of money or supply chain management system; ( 6 ) deliberately misleads or withholds information from the Auditor-General or the entity’s parent municipality on any bank accounts of the municipal entity or on money received or spent by the entity; or ( e ) deliberately provides false or misleading information in any document which in terms of a requirement of this Act must be- (aa) submitted to the entity’s parent municipality, the Auditor-General, the National Treasury or any other organ of state; or (bb) made public. ( 3 ) A senior manager or other official of a municipality or municipal entity exercising financial management responsibilities and to whom a power or duty was delegated in terms of section 79 or 106, is guilty of an offence if that senior manager or official deliberately or in a grossly negligent way contravenes or fails to comply with a condition of the delegation. (4) A councillor of a municipality is guilty of an offence if that councillor- ( a ) deliberately influences or attempts to influence the accounting officer. the the a provision of this Act or to refrain from chief financial officer, a senior manager municipality to contravene complying with a requirement of this Act; or any other official of (b) interferes in the financial management responsibilities or functions assigned (c) in terms of this Act to the accounting officer of the municipality or delegated to the chief financial officer of the municipality in terms of this Act; interferes in the financial management responsibilities or functions assigned in terms of this Act to the accounting officer of a municipal entity under the sole or shared control of the municipality; or 164 _ No. 26019 _ ~ ~ ~ Act No. 56,2003 GOVERNMENT GAZETTE. 1.3 FEBKL;AKk' 7004 LOCAL GOVERNMENT MUNICIPAL FINANCE MANAGEMENT ACT, 2003 (d) interferes in the management or operational activities of a municipal entity under the sole or shared control of the municipality. ( 5 ) A councillor, an official of a municipality or municipal entity, a member of the board of directors of a municipal entity or any other person is guilty of an offence if that or deliberately person way- 5 (a) impedes an accounting officer from complying with a provision of this Act; to an investment (6) gives incorrect, untrue or misleading information material decision relating to borrowing by a municipality or municipal entity: negligent grossly a in section with comply to (c) makes a withdrawal in contravention of section 11; (d) fails ( e ) contravenes a provision of section 115(2), 118 or 126(5); or (f) provides false or misleading information for the purposes of any document 49; which must in terms of a requirement of this Act be- (i) submitted to the council, mayor or accounting officer of a municipality or or Treasury; to the Auditor-General or the National I O 15 (ii) made public. Penalties

174. A person is liable on conviction of an offence in terms of section 173 to imprisonment for a period not exceeding five years or to an appropriate fine determined in terms of applicable legislation. Part 3: General Regulations on financial misconduct procedures and criminal proceedings 175. (1) The Minister, acting with the concurrence of the Cabinet member responsible for local government, may make regulations prescribing- ( a ) the manner, form and circumstances in which allegations and disciplinary and 25 criminal charges of financial misconduct must be reported to the National Treasury, the MEC for local government in the province and the Auditor- General, including- (i) particulars of the alleged financial misconduct: and (ii) steps taken (b) matters relating in connection with such financial misconduct; to internal investigations by municipalities and municipal 3 0 (c) entities of allegations of financial misconduct; the circumstances in which the National Treasury government in the province may direct criminal charges be laid against a person for financial misconduct; or the MEC for local that disciplinary steps be taken or ( d ) criteria for the composition and functioning of a disciplinary board which hears a charge of financial misconduct; in which the findings ( e ) the circumstances of a disciplinary board and any sanctions imposed by the board must be reported to the National Treasury. the MEC for local government in the province and the Auditor-General; and 35 30 (f) any other matters to the extent necessary to enforce the provisions of this Act. (2) A regulation in terms of subsection (1) may- ( a ) differentiate between different- (i) kinds of municipalities, which may, for the purposes of this section, be defined either in relation municipalities or in any other manner; to categories, types or budgetary size of 45 (ii) categories of municipal entities; (iii) categories of accounting officers; or (iv) categories of other officials; or (b) be limited a application to its in particular- 50 166 GAZETTE, GOVERNMENT No. 26019 13 FEBRUARY 2004 Act No. 56,2003 GOVERNMENT: LOCAL MUNICIPAL FINANCE MANAGEMENT ACT, 2003 (i) kind of municipality, which may, for the purposes of this section, be of in relation to a category, type or budgetary size defined either municipality or in any other manner; (ii) category of municipal entities; (iii) category of accounting officers; or (iv) category of other officials. 5 CHAPTER 16 MISCELLANEOUS Liability of functionaries exercising powers and functions in terms of this Act 176. (1) No municipality or any of its political structures, political office-bearers or 10 officials, no municipal entity or its board of directors or any of its directors or officials, and no other organ of state or person exercising a power or performing a function in terms of this Act, is liable in respect of any loss or damage resulting from the exercise of that power or the performance of that function in good faith. (2) Without limiting liability in terms of the common law or other legislation, a 15 municipality may recover from a political office-bearer or official of the municipality, and a municipal entity may recover from a director or official of the entity, any loss or damage suffered by it because of the deliberate or negligent unlawful actions of that political office-bearer or official when performing a function of office. Delays and exemptions 20 177. (1) The Minister may by notice in the Guzerre- ( a ) delay the implementation of a provision of this Act for a transitional period not exceeding five years from the date when this section takes effect; or (b) where practicalities impede the strict application of a specific provision of this Act, exempt any municipality or municipal entity from, or in respect of, such 25 provision for a period and on conditions determined in the notice. (2) A delay or exemption in terms of subsection (1) may- generally; entities municipal fa) apply t o - (i) municipalities generally; or (ii) or (6) be limited in its application to a particular- (i) municipality; (ii) ,kind of municipality, which may, for the purposes of this section, be of in or defined either in relation to a category, type or budgetary size municipality (iii) municipal entity; or (iv) category of municipal entities. any other manner; 30 35 liabilities. or assets (3) To facilitate the restructuring of the electricity industry as authorised Cabinet member responsible for such restructuring, the Minister, acting concurrence of the Cabinet member responsible for local government consultation with organised local government, may, by notice in the Gazette, exempt any municipality or municipal entity from any specific provision of this Act for a period of not more than four years and on conditions determined in the notice, provided that such exemption may not be understood as obligating any municipality to transfer any staff, 45 by the with the and after 40 Transitional provisions 178. (1) Anything done in terms of a provision repealed by section 179( l), which can be done in terms of a provision of this Act, must be regarded as having been done in terms of this Act. 168 No. 26019 Act No. 56,2003 GAZETTE. GOVERNMENT 13 FEBRUARY 2004 GOVERNMENT LOCAL MUNICIPAL FINANCE MANAGEMENT ACT. 2003 (2) All municipalities must within three months of the date on which this section takes effect, submit to the National Treasury a list of- its ( a ) all corporate entities in which the municipality or a municipal entity under the sole or shared control has an interest, specifying- (i) (ii) the purpose, extent and other particulars of the interest; (iii) entity; of the corporate name and address if such corporate entity is a municipal entity, whether the entity is under the sole or shared control of the municipality; and 5 (iv) such other information as may be required by the National Treasury; (b) all public-private partnerships to which the municipality is a party, with a I O value of more than one million Rands in total or per annum, specifying- (i) the name and physical address of the private party participating in the public-private partnership; (ii) the purpose and other particulars of the public-private partnership; and (iii) such other information as may be required by the National Treasury; and (c) all other types of contracts of the municipality for a period beyond 1 January 2007 and with a value of more than one million Rands in total or per annum. I5 Repeal and amendment of legislation 179. (1) The legislation referred to in the second column of the Schedule is hereby amended or repealed to the extent indicated in the third column of the Schedule. 20 (2) Despite the repeal of section 10G of the Local Government Transition Act, 1993 in in force until the legislation (Act No. 209 of 1993), by subsection (1) of this section, the provisions contained subsections (6), (6A) and (7) envisaged in section 229(2)(b) of the Constitution is enacted. of section 10G remain ( 3 ) The repeal of the Municipal Accountants Act, 1988 (Act No. 21 of 1988). takes 25 effect on a date determined by the Minister by notice in the Gazette. Short title and commencement 180. (1) This Act is called the Local Government: Municipal Finance Management by the Minister by notice in the Gazette. Act, 2003, and takes effect on a date determined (2) Different dates may in terms of subsection (1) be determined for different 30 provisions of the Act. 170 No. 26019 Act No. 56,2003 ~~ GAZETTE. GOVERNMENT 13 FtBlllJARY 2004 LOCAL GOVERNMENT MUNICIPAL FINANCE, MANAGEMENT ACT. 2003 SCHEDULE REPEAL AND AMENDMENT OF LEGISLATION (Section 179) No. and year of Act Short title of Act Act No. 91 of 1983 Act No. 21 of 1988 Promotion of Local Govern- ment Affairs Act, 1983 ~ ~~~ Municipal Accountants Act, 1988 Extent of repeal or arnend- ment The repeal of sec[ion I7(D). Act No. 209 of 1993 Local Government Transition Act, 1993 The repeal of section 1 OG.