budget week Lichtenburg, North West Province
23 August 2006
Theme: Fostering Improved Change in Financial Management, âWater is for
Life, Whiskey is for Funâ
Programme Director
It is a great pleasure for us to be part of this platform to reflect on our
views regarding what we consider to be the key towards improving financial
management in our municipalities. It is our hope that this summit will
contribute towards inculcating a new prism through which we should consider
that which constitute improvement in financial management.
We must further salute organised local government, under the aegis of South
African Local Government Association (SALGA), for electing to concern itself
with this important question pertaining to financial management. Without any
serious diagnostic analysis of the financial affairs of each municipality, our
contribution to this summit will do two things:
One, we will paint a cursory picture of the state of municipalities in the
province with a view to provide a human development perspective to the need to
foster improved change in financial management and two, we will highlight some
of the essential factors we think are necessary to help achieve the goals of
our developmental state.
Programme Director
It is important to note that 17 of the 25 municipalities in the province are
on Project Consolidate. As all the delegates should know by now, Project
Consolidate is a hands-on support initiative to assist struggling
municipalities.
These municipalities are faced with a plethora of challenges ranging from
poor revenue collection and financial management, sanitation backlogs, to lack
of project management and technical skills. Primarily, the following
municipalities will generally fall within this category:
Tswaing Local Municipality
Ventersdorp Local Municipality
Mamusa Local Municipality
Maquasi Hills Local Municipality
Kgetlengrivier Local Municipality And
Naledi Local Municipality
The common feature among Central, Bophirima, and Southern District
municipalities is that they all have sanitation backlogs in that there is
evidence in these areas of the use of the bucket system. This is especially the
case in the Matlosane area. As regards to challenges of a transformational
nature; one can safely say that most municipalities lack knowledge of the
utility of Performance Management Systems. In many municipalities, section 57
managers were entered into contracts that could keep them in municipalities for
the duration of their natural lives, due to lack of contract development and
management skills.
The absence of internal control systems such as Internal Audits and Supply
Chain Management imply that there are no internal checks and balances within
our municipalities. What exacerbates the situation even further is the absence
of comprehensive asset registers and lack of proper property valuations in the
majority of our municipalities.
Programme Director
It is important that we consistently refer to this important matter of
financial management capacity. One of the most noticeable financial
underperformance in the preceding financial year relates to Capital
Expenditure. We must highlight here that by the close of the fourth and final
quarter (4th Quarter) of the 2005/06 municipal financial year, none of our
municipalities had spent more than 80% of their Capex.
This is despite the fact that in our country and province 'there remain
significant needs to scale up infrastructure investmentâespecially in the yet
un-served areasâand improve efficiency in all major infrastructure sectors if
South Africa's infrastructure performance is to catch up with its group of
upper middle-income countries'. In a recent World Bank Policy Research Working
Paper based on a comparative study of South Africa's infrastructure
performance, Bogetic and Fedderke (February, 2006) make the following
conclusion:
âDespite recent gains, access remains a major issue in electricity and,
especially, in water and sanitation (particularly in rural areas), and so does
performance in local telecom services. Even transport performance appears
comparatively less strong than would be expected in an upper middle-income,
though more in-depth analysis of comparative performance of transport may be
warranted to develop a more nuanced picture.â
As governors and administrators in the local government sector, we should be
aware that, directly and indirectly, infrastructure affects the welfare of our
communities via access to and quality of basic services such as water and
sanitation, and is also associated with child health, human capital
accumulation and the achievement of the Millennium Development Goals.
But equally important, as development economics has taught us,
infrastructure strongly affects economic growth (Luiz, 2005). For a better
understanding of this causal relationship between infrastructure and the human
capital development imperative we need to give a service and human development
perspective to the effects of poor financial management:
* Under-performance in capital expenditure denies our communities access to
basic services such as water, sanitation and electricity.
* Lack of these basic services often lead to chronic ailments caused by
waterborne bacteria such as cholera, bilharzia and other gastro-intestinal
diseases.
* Prevalence of such conditions at the homes often impact negatively on
young peoples' abilities to concentrate and absorb teaching and thus tend to
lose interest in education; Leading to a domino effect as follows:
* Lack of education inadvertently creates serious skills shortage which has
come to characterise the South African job market.
* As we all know, lack of appropriate skills contributes to the declining
probability for investment and, with it, the creation of new job
opportunities.
* Also we must remember that inadequate-expenditure (or lack thereof) on
capital budgets implies a lack of investment in infrastructure required to
create conditions that are conducive for economic investment
Programme Director
As we can all see, this is a cyclical dead-end. Whilst improved financial
management is not the only determinant to leapfrog the performance of our
municipalities, it is obviously among the critical factors. It is at this stage
that we should decode what improved and sustainable financial management must
entail in the context of our environment:
First, the financial management regime we have established requires that
municipalities must prepare financial statements and subject them to an
independent audit. Our high capacity municipalities are expected to prepare
these financial statements according to generally recognized accounting
practices (GRAP) standards starting from the 2005/06 financial year.
The medium and low capacity municipalities will follow respectively over the
next two financial years. Together, both the political and administrative
leadership of our municipalities must ensure that this requirement is
met.
Second, in-year reporting to the office of the Auditor-General, Provincial
Treasury and the Department of Developmental Local Government and Housing
provides early warning systems that assist both the municipality and other
relevant organs of state to prepare remedial plans. It is thus incumbent on the
accounting officers of our municipalities to ensure that these are accordingly
produced and submitted to the relevant authorities.
Third, the establishment of all the necessary internal control measures are
essential to ensure the prudent use of council resources and assets and their
proper valuation. Of particular importance in this respect, is the
establishment of Internal Audit sections, Audit Committees, Supply Chain
Management systems, and the use of appropriate financial management
systems.
Further to these, cognisance should be taken that the Municipal Finance
Management Act (MFMA) expressly details activities from which both the local
politicians and administrative functionaries of a municipality, or municipal
entity are forbidden from partaking in. Fourth, whilst many factors may be
considered important to ensure improvement in financial management, nothing
will substitute the need for the employment of competent Chief Financial
Officers and the establishment of the Budget and Treasury Office under their
supervision.
This consideration is intended to support the accounting officers by
ensuring efficiency and focused sharing of responsibilities within the
administration. We must emphasise here that even well-intended and
conceptualised government initiatives such as Project Consolidate will not
succeed in the absence of basic competencies that will allow for the transfer
of expertise. Fifth, for the proper implementation of the financial reforms,
the accounting officers must also consider developing and implementing
delegation systems that will assist in maximising administrative and
operational efficiency whilst providing adequate checks and balances in the
municipal financial administration.
It must, however, be noted that delegation of authority does not divest the
accounting officer of the authority and accounting responsibility for any
delegated function. The sixth and final consideration, Programme Director,
relates to Council Oversight. Continuously, the results of financial audits of
municipalities attract increasing attention from different political committees
provincially and nationally.
And as we have seen in the past, this attention is never directed to the
administration but to the political leadership of our municipalities. Hence,
the oversight role of Council over the administration is not entirely about
micro managing delivery, but more about ensuring that the administration does
implement council policies and decisions within the expected timeframes.
Put differently, discharging oversight simply means governing. Thus any
Council which does not require and/or receive these monthly, quarterly and
annual reports from the administration cannot claim to be in charge.
Programme Director
We have raised these issues not because we derive pleasure in the depressed
looks on the faces of the participants. All we ask is for each and every
municipality to take a closer look at itself against all these requirements,
and answer for itself the most critical question: âWhere are we in relation to
all this?â
If our response to this question is not materially expressed through our
peoples' access to basic services such as water and sanitation, that is, if it
does not appreciate that for their survival our people need clean drinking
water, we must accept that ours is not the course of a developmental state.
I thank you.
Issued by: Department of Finance, North West Provincial Government
23 August 2006
Source: North West Department of Finance (http://www.nwpg.gov.za)
