FINANCIAL BEST PRACTICE MANUAL

CORPORATE GOVERNANCE
1. Introduction
Financial Standing Orders refers to a guideline on the financial operations in a
Municipality. The Financial Standing Orders establishes the basis for the
Municipalitys internal financial system and its financial rules and must not be
isolated from its financial plan, which in turn flows from its strategic plan.
The Financial Standing Orders is also derived from the Constitution, as well as
from the ocal !overnment Transition "ct, the #hite $aper on ocal
!overnment, the ocal !overnment Ordinance, the ocal !overnment Structures
"ct, the #hite $aper on #ater and Sanitation, the Municipal Finance
Management "ct and all other applicable legislation.
The Constitution of the %epublic of South "frica mandates ocal !overnment to&
$rovide democratic and accountable governments for local communities'
(nsure the provision of services to communities in a sustainable manner'
$romote social and economic development'
$romote a safe and healthy environment' and
(ncourage the involvement of communities and community organisations in
the matters of ocal !overnment
The ob)ect of the Municipal Finance Management "ct is to secure sound and
sustainable management of fiscal and financial affairs of Municipalities and
Municipal entities by establishing norms and standards and other re*uirements
for&
(nsure transparency, accountability and appropriate lines of responsibility'
Management of revenues, e+penditures, assets and liabilities and the handling
of financial affairs'
,udgetary and financial planning processes and the co-ordination of those
processes with organs of state in other spheres of !overnment'
,orrowing
The handling of financial problems in Municipalities
Supply chain management' and
Other financial matters.
2. Principl! o" Sr#ic $li#r%
.n choosing the delivery options for the different wards, the Municipality will be
guided by the following principles&
/.0 "ccessibility of services
The Municipality will ensure that all citi1ens 2 regardless of race, gender or
se+ual orientation 2 have access to at least a minimum level of services.
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.mbalances in access to services will be addressed through the development of
new infrastructure, and rehabilitation and upgrading of e+isting infrastructure.
The Consolidated Municipal .nfrastructure $rogram has been established to
provide capital grants to assist Municipalities in funding bul3 and connector
infrastructure for low 2 income households and so e+tended access to services.
The Municipality underta3es to actively see3 approval for pro)ects identified
through community participation.
"ccessibility is not only about ma3ing services available, but also about ma3ing
services easy and convenient to use. The Municipality will therefore aim to
ensure that people with a disability are able to access Municipal services and
amenities.
/./ "ffordability of Services
"ccessibility is closely lin3ed to affordability. (ven when service infrastructure
is in place, services will remain beyond the reach of many unless they are
financially affordable. The Municipality will ensure affordability through&
Setting tariffs that balance the economic viability of continued service
provision and the ability of the poor to access services'
4etermining appropriate service levels. Service levels that are too high may be
economically unsustainable and may )eopardise continued service provision.
.nade*uate service levels may perpetuate unsatisfactory delivery. 5owever,
inade*uate service levels may perpetuate spatial divisions between low,
medium or high-income users and )eopardise the socio-economic ob)ectives of
the Council' and
Cross-subsidisation 6between high and low-income users and commercial and
residential users7 within and between services.
/.8 9uality of $roducts and Services
The *uality of services is difficult to define, but includes attributes such as
suitability for purpose, timeliness, convenience, safety, continuity and
responsiveness to service-users. .t also includes a professional and respectful
relationship between service-providers and service users.
/.: "ccountability for Services
#hichever delivery mechanism is adopted, the Council remains accountable for
ensuring the provision of *uality services that are affordable and accessible.
/.; .ntegrated 4evelopment and Services
The Municipality should adopt an integrated approach to planning and ensuring
the provision of Municipal services. This means ta3ing into account the economic
and social impacts of service provisions in relation to Municipal policy ob)ectives
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such as poverty eradication, spatial integration and )ob creation through public
wor3s.
/.< Sustainability of Services
Ongoing service provision depends on financial and organisational systems that
support sustainability. Sustainability includes both financial viability and the
environmentally sound and socially )ust use of resources.
/.= >alue-For-Money
>alue-For-Money in the Municipal sector is both matters of the costs of inputs,
and the *uality and value of outputs. This principle re*uire that the best possible
use is made of public resources to ensure universal access to affordable and
sustainable services in order to meet predetermined ob)ectives.
/.? (nsuring and $romoting Competitiveness of ocal Commerce and .ndustry
The )ob generating and competitiveness nature of commerce and industry must
not be adversely affected by higher rates and service charges on industry and
commerce in order to subsidise domestic users. Transparency must be maintained
at all times to ensure that investors are aware of the full costs of doing business in
the Municipal area.
/.@ $romoting 4emocracy
The Municipal administration must promote the democratic values and principles
enshrined in the Constitution.
/.0A Service 4elivery Options
The Municipality will consider the following service delivery options&
,uilding on e+isting capacity'
Corporatisation'
Municipal Service $artnership'
$artnerships with community-based organisations and non-governmental
organisations'
Contracting out'
eases and concessions 6public-private partnerships7' and
Transfers of ownership.
The Municipality will see3 an appropriate mi+ of service delivery options.
Choices about delivery options will be guided by clear criteria such as coverage,
cost, *uality and the socio-economic ob)ectives of the Municipality.
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&. T' Municip(lit%)! Fin(nc!* B(!ic Polic% Principl!
8.0 " Framewor3 for the Municipalitys Finances
" framewor3 must be developed for the Municipalitys finances that must&
"ddress the root causes of the financial problems that face the Municipality'
,alance programs for poverty eradication and e*uity with strategies to enhance
growth, )ob creation and competitiveness' and
(mpower the Municipality to fulfil its constitutional mandate.
8./ $olicy Changes and Capacity-,uilding
The underlying problems with the e+isting Municipal finance system relate both
to shortcomings in policy, and to poor implementation of the current system, such
as inade*uacies in financial management and service delivery. .nterventions to
improve the system must therefore include changes to both policy, and capacity-
building initiatives. The Municipal Finance Management "ct, Bo. ;8 of /AA8,
Sections 8:607 mandates that national and provincial governments must by
agreement assist Municipalities in building their capacity for efficient, effective
and transparent financial management
8.8 %evenues from Services
Trading services 6i.e. electricity, water, refuse and sewerage7 must generate most
of the Municipalitys revenue. .n aggregate, revenue from trading services should
account for the ma)or portion of the Municipalitys revenue. (lectricity usually
constitutes the largest revenue source for the Municipality. #hile the surplus
derived from the sale of electricity 6i.e. the difference between revenue and total
e+penditure7 is not large, it remains an important source of income for the
Municipality. "lternative income from levies on electricity sales could be
generated once restructuring within the electricity sector results and the
Municipality may no longer have a direct service provision role. The Municipal
Finance Management "ct, Bo. ;8 of /AA8, Sections <:607 mandates that the
Municipal manger is responsible for the management of the revenue of the
Municipality.
8.8.0 "ssistance in "ddressing Service ,ac3logs
Cost recovery is an essential part of sustainable service delivery.
5owever, the Municipality will not be able to meet all the costs associated
with addressing bac3logs. Bational government has therefore provided a
capital grant pac3age, the Consolidated Municipal .nfrastructure $rogram
6Consolidated Municipal .nfrastructure $rogramme7 to assist
Municipalities in meeting the capital costs of bul3 and connector
infrastructure. The .nter-!overnmental Transfers is aimed at subsidising
the operating costs of basic services to indigent and low-income
households.
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8.8./ $rinciples for Service Tariffs
The Municipality and sta3eholders have agreed on the following principles
to guide tariff policy&
$ayment in proportion to the amount consumed& "s far as practically
possible, consumers must pay in proportion to the amount of service
consumed.
Full payment of service costs& "ll households, with the e+ception of
the indigent, must pay the full cost of the services consumed.
"bility to pay& The Municipality must develop a system of targeted
subsidies to ensure that poor households have access to at least a
minimum level of basic services.
Fairness& Tariff policies must be fair in that all people must be treated
e*ually.
Transparency& Tariff policy must be transparent to all consumers and
any e+isting subsidies and concessions must be visible and understood
by all consumers.
ocal determination of tariff levels& The Municipality must have the
fle+ibility to develop its own tariffs in 3eeping with the above
principles.
Consistent tariff enforcement& " consistent policy for dealing with
non-payment of tariffs needs to be maintained. This must be targeted
and enforced with sensitivity to local conditions.
(nsure local economies are competitive& ocal tariffs must not unduly
burden local business through higher tariffs, as these costs affect the
sustainability and competitiveness of such businesses and firms.
.t is the responsibility of the Municipal Manager to ensure that the
Municipality has and implements a Tariff policy referred to in Section =:
of Municipal Systems "ct, as prescribed in section </6076f76i7 the
Municipal Finance Management "ct.
8.8.8 Clear $olicy and ,etter Credit Control
The Municipality needs to maintain a clear tariff policy, including a policy
to ensure that indigent households have access to basic services. Tariff
enforcement needs to be lin3ed to improved credit control mechanisms.
The d The Municipal Finance Management "ct, Bo. ;8 of /AA8, Sections
<:6/76a7 prescribes that the Municipal manager who is designated the by
the "ct to be the "ccounting officer, has to ta3e reasonable steps to ensure
that the Municipality has effective revenue collection systems consistent
with Section @;vof the Municipal Systems "ct and the Municipalities
Credit
8.8.: Credit Control
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.t is vital to the long-term financial viability of any Municipality that it
collects the revenues due to it for services rendered. The onus is placed on
the Municipal Manager, as prescribed in section </6076f76iii7 the Municipal
Finance Management "ct, to ensure a credit control and debt collection
policy referred to in Section @<6b7 of the Municipal Systems "ct.

This means that appropriate credit control mechanisms must be
maintained.
(fficient Metering
"s a first step the Municipality needs to be able to measure the amount
of services that its households consume. This means that metering of
services such as water and electricity must ta3e place efficiently.
%egular and "ccurate ,illing
Secondly, households need to receive monthly, accurate bills for the
services they use, in a format that is easy to understand. .n some
wards special arrangements may be re*uired to ensure that households
receive bills regularly.
%elief for the poor
Thirdly, credit control measures will only be successful if targeted
relief is available for those households who cannot afford to pay for
services. The current system whereby indigent consumers can apply
for a subsidy on service charges must therefore be maintained.
Strong Measures "gainst 4efaulters
Fourthly, the Municipality needs to ta3e strong measures to deal with
those households who can afford to pay for services but are not doing
so. This means that the Municipality must 3eep a proper record of
outstanding debtors, and must ta3e action against them in terms of the
Municipalitys approved credit control policy and procedure. .t is
fundamentally important that the Municipality is able to retain the
power to cut off electricity to consumers as a credit control measure,
and amendments to the (lectricity "ct will be promulgated by the
central government in this regard.
8.: %evenue from Ta+es
The ma)or source of ta+ revenue for the Municipality is property rates. The power
to ta+ is essential to sustain local government. There are four important areas of
decision-ma3ing with respect to ta+ation&
The choice of ta+ to be imposed'
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The definition of the ta+ base'
The choice of the ta+ rate' and
Ta+ administration.
8.:.0 The Ta+ %ate
The choice of ta+ rate is the most critical means of promoting the fiscal
autonomy of local government. The freedom of the Municipality to vary
the ta+ rate strengthens local accountability, and enables the community to
challenge the Municipality about the value-for-money of services
provided.
8.:./ Own %evenues
The Municipality re*uires access to ade*uate resources and budgetary
powers to fulfil its assigned functions. On average, the Municipality has
sufficient revenue raising powers to fund the bul3 of its e+penditure, and
finance its recurrent e+penditure out of own revenues.
8.:.8 %egular >aluation $eriods
" process of regular assessments of property values needs to be
entrenched. "ll properties that fall within the boundaries of the Municipal
area should therefore be valued regularly at mar3et related values in line
with the re*uirements of the ocal !overnment Ordinance.
8.; %evenue "de*uacy and Certainty
The Municipality needs to have access to ade*uate sources of revenue - either
own resources or .nter-!overnmental Transfer - to enable it to carry out the
functions that have been assigned to it. The Municipality should be encouraged to
fully e+ploit these sources of revenue in order to meet its developmental
ob)ectives. The Municipality should have reasonable certainty of revenue to
allow for realistic planning.
8.< Sustainability
Financial sustainability re*uires that the Municipality ensures that its operating
budget is balanced 6income should cover e+penditure7. !iven revenue constraints,
this involves ensuring that services are provided at levels that are affordable, and
that the Municipality is able to recover the costs of service delivery. Bo bailout
will be provided if the Municipality overspends its budget andCor fails to put in
place proper management controls. .t is the responsibility of the
CouncillorCCommittee for financial matters to ensure that they set realistic
budgets, however, there is a need for subsidisation to ensure that poor households,
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who are unable to pay even a proportion of service costs, have access to basic
services.
8.= (ffective and (fficient %esource Dse
(conomic resources are scarce and should be used in the best possible way to reap
the ma+imum benefit for the local community. 5owever, there are no effective
mechanisms available to ensure that Municipal decision will indeed lead to an
effective allocation of resources. .t is therefore important that local residents
contribute the necessary chec3s and balances. They can do this by participating in
the budgeting process to ensure that resources are being put to their best use.
(fficiencies in public spending and resource allocation will ultimately increase
the access of the poor to basic services.
8.? "ccountability, Transparency and !ood !overnance
The Municipality must be held responsible and accountable to local ta+payers for
the use of public funds. (lected representatives must be re*uired to )ustify their
e+penditure decisions and e+plain why and how the revenue necessary to sustain
that e+penditure is raised. The fiscal system must be designed to encourage
accountability. Municipal budgeting and financial affairs must be open to public
scrutiny, and communities must have a greater voice in ratifying decisions about
how revenue is raised and spent. Community participation in budgeting must aim
to incorporate those groups in the community, such as women, who face
particular constraints in participating. .t should also include a capacity-building
component to ensure that people understand the process of prioritisation 2 why
resources are allocated to one set of things rather than to another. "ccounting and
financial reporting procedures must minimise opportunities for corruption and
malpractice.
8.@ (*uity and %edistribution
Municipalities must treat citi1ens e*uitably with regard to the provision of
services. .n return, national and provincial government must treat Municipalities
e*uitably with regard to .nter-!overnmental Transfers. ocal government cannot
be solely responsible for redistribution, and national government has a critical role
to play in this regard, particularly with respect to subsidising the provision of
basic services. The e*uitable share of national revenue to which local government
is entitled will be directed primarily at this purpose. .n addition to targeted
subsidies to poor households, funded from the e*uitable share, Municipalities can
cross-subsidise between high and low-income consumers, both within particular
services and between services. The e+tent of this cross-subsidy is a local choice
that needs to be e+ercised carefully, within the framewor3 of the Municipal
integrated development plan.
+. Addition(l In#!t,nt in t' Municip(lit%
Meeting basic needs in the conte+t of e+isting service bac3logs will re*uire
increased investment in Municipal infrastructure. $ublic $rivate $artnerships,
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such as leases and concessions, provide a mechanism for attracting private
investment in Municipal infrastructure. The Municipal Finance Management "ct
stipulates the conditions and process for $ublic $rivate $artnerships.
There are three 3ey areas of Municipal finance that could lead to additional
investment in the Municipality, namely&
,orrowing and investment powers of the Municipality'
Credit enhancement' and
Concessional loan finance.
:.0 ,orrowing and .nvestment $owers of the Municipality
The ocal !overnment Transition "ct e+tended and introduced broad uniformity
into the borrowing powers of Municipalities.
The Municipality will need to establish its creditworthiness through proper
budgeting and sound financial management, including establishing firm credit
control measures and affordable infrastructure investment programs.
.f private investment is to be encouraged, greater clarity needs to be achieved with
respect to the security of loan investments.
.t is critical that the Municipality, investors, as well as national and provincial
government have a clear understanding of the character of their respective ris3s.
%is3s should not be unduly transferred to national or provincial government.
:./ Measures to (nhance Credit
Bational government will not provide sovereign guarantees of Municipal debt.
5owever, there are a range of other mechanisms which can be considered to
enhance the credit of the Municipality, including&
Municipal bond insurance'
Treasury Trusts'
.nterception of inter-governmental transfers'
4ebt syndication' and
,ond ban3ing.
Other measures which may indirectly enhance the credit of the Municipality
include, introducing better Municipal accounting systems, the provision of
relevant and reliable information, a clear framewor3 for supervision by other
spheres of government, procedures for intervention when failure occurs,
establishing fiscal certainty 6grant flows, ownership of local ta+ bases, etc7 and
clarifying the role of concessional loan finance.
:.8 Concessional oan Finance
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"lthough the Municipality has fairly e+tensive borrowing powers, current
conditions at Municipal level and in the capital mar3et effectively constrain the
ability of the Municipality to raise loans. Concessional loan finance, offered
through a public sector financial intermediary, can play an important role in
enabling Municipalities that cannot gain access to credit from the capital mar3et,
to borrow at an affordable price.
Specialised institutions for providing concessional loan finances to Municipalities
are not intended to replace the e+isting commercial financial institutions, but
rather to complement them. Commercial and public sector financial institutions
should play complementary roles.
:.8.0 Ob)ectives of Concessional oan Finance&
$ublic sector financial intermediaries are designed to achieve a range of
ob)ectives, including to&
Ma3e credit accessible& One of the ma)or obstacles facing
Municipalities is securing loans on the private capital mar3et.
Financial intermediaries have the potential to provide Municipalities
with access to credit'
Mobilise additional resources& Financial intermediaries can be granted
sufficient powers to enable them to pool funds from various sources 2
including the domestic capital mar3et, and thereafter, lend these funds
to various Municipalities' and
$rovide technical assistance& "part from the primary goal of ensuring
that the Municipality has access to long-term capital financing.
Financial intermediaries can enable the Municipality to improve the
use of resources.

Financial intermediaries generally provide long-term credit financing for
Municipal investments, and could potentially play a critical role in the
funding of Municipal infrastructure.
.t should be noted that&
#here public sector financial intermediaries are involved, care must be
ta3en to ensure that government does not subsidise the borrower in a
manner which is not transparent or clearly *uantified so that the
subsidy is not absolutely clear'
$ublic sector financial intermediaries should not Ecrowd outF or
discourage private sector investment. .n fact, they are 3ey agents to
support the development of an effective mar3et for Municipal debt and
to enhance the overall level of investment in the Municipal sector.
#ithin the framewor3 of the %ural 4evelopment $rogramme, public
sector financial intermediaries should actively support financial
mar3ets and endeavour to engage the private sector in these mar3ets'
and
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Concessional finance sources could introduce the discipline of loan
finance to Municipal institutions which find it difficult to access private
mar3ets. This discipline in the way Municipalities conduct their
financial affairs should be a basic principle of concessional loan finance
so that, in the long term, such Municipalities will be able to satisfy the
re*uirement of the mar3ets and so gain access to private sector
investment.
-. Bud.tin./ Accountin./ Fin(nci(l Rportin. (nd M(n(.,nt

;.0. ,udgeting
;.0.0 .ntroduction
Municipal budgets are a critical tool for re-focusing the resources and
capacity of the Municipality behind developmental goals. To this end,
budgets must be developed in relation to the policies and programs put
forward in Municipal .ntegrated 4evelopment $lans.
!iven that resources are scarce, community participation in the
development of both .ntegrated 4evelopment $lans and Municipal budgets
is essential. $articipation provides an opportunity for community groups
to present their needs and concerns. .t enables them to be involved in the
process of prioritisation, and to understand and accept the trade-offs that
need to be made between competing demands for resources.
Current budgeting, accounting, financial reporting and a financial
management practise of Municipalities suffer from a number of
wea3nesses. These wea3nesses may act as disincentives to community
participation and to private investment. These wea3nesses could include
some of the following&
Dnrealistic budgeting'
$oor credit control'
" lac3 of budgetary and financial discipline' and
" lac3 of user-friendly accessible information on the budget process.
"ddressing these problems re*uires political will and improved
management efficiency.
;.0./ ,udget $rocess
Capital ,udgetC$rogram
o The three-year Capital $rogram shall be prepared annually by the
Municipal Manager or hisCher delegate and reviewed continuously
by the Council'
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o The three-year Capital $rogram will at all times be in line with the
framewor3 of the Municipal integrated development plan
6.ntegrated 4evelopment $lan7'
o ,y no later than 80
st
Ganuary in each year the Council shall
approve the Capital ,udget for the following three years' and
o Capital charges 6interest and redemption7 and capital e+penditure
to be funded from income can now be transferred to the ne+t and
following years Operating ,udgets.
Operating ,udget
o The CouncillorCCommittee responsible for financial matters, must
at least four months before the start of each financial year, prepare
a draft annual budget for that financial year'
o The CouncillorCCommittee responsible for financial matters must&
"llow the public access to the draft budget by ma3ing it
available at the main administrative office of the Municipality'
"llow the public to submit written comments and
representations to the Municipality' and
Table the draft budget in the Municipal Council for discussions
and public hearing.
o The CouncillorCCommittee responsible for financial matters, must
submit a copy of the Municipalitys draft budget to&
6!T" section 0A6!7, ocal "uthority Ordinance section
0A;6077
The Bational Treasury in the case of a Municipality whose
name appears on a list published by the Minister in the
!overnment !a1ette'
The $rovincial !overnment, in the case of a 4istrict
Municipality 64M7, and local Municipality, whether such
names appear on the above list or not'
The 4istrict Municipality 64M7, in whose area it falls, in the
case of a local Municipality' and
The local Municipalities in its area, in the case of a 4M.
o The CouncillorCCommittee responsible for financial matters, must
attend to the following matters as soon as the Council discussions
and the public hearings referred to above have been completed&
$repare the budget for the financial year, ta3ing into account&
The considerations of and public hearings conducted by the
Council on the draft budget'
"ny public comment and representations received by the
Municipality in terms of the above' and
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"ny recommendations of the $rovincial
!overnmentCBational Treasury on the draft budget, and any
guidelines and policy statements issued by the $rovincial
!overnmentCBational Treasury.
Table the budget in the Council for approval.
o The CouncillorCCommittee responsible for financial matters must
manage the budget process in a manner so as to ensure that the
budget is tabled in the Council within a sufficient timeframe
before the start of the financial year to which that budget relates.
;./ %evenue of the Council
;./.0 .ncome
The revenue of the Council shall consist of rates, ta+es, fees, charges,
fines and other sums imposed or recoverable by or payable to the
Council'
.nterest shall be payable to the Council on rates which have not been
paid within thirty days, from the date on which such rates became due,
at a rate of one percent higher than the rate payable by the Council to
its ban3 in respect of overdraft for the period during which such rates
remain unpaid after the e+piry of the said period of thirty days'
The Council will charge interest on any other amounts due to the
Council, which have not been paid within thirty days from the date on
which such amounts became due, at one percent higher than the rate
payable to the Council to its ban3 in the respect of overdraft for the
period during which such amounts remain unpaid after the e+piry of
the said period of thirty days'
The Municipal Manager or hisCher delegate shall be responsible for the
collection of all monies due to the Council, provided that by
arrangement with the Municipal Manager or hisCher delegate and
sub)ect to hisCher overall control, monies may be collected by other
Cost Centres C %evenue Collection points'
"ny monies collected by any Cost Centre of the Municipality shall be
paid to the Municipal Manager or hisCher delegate or ban3ed in
conformity with the relevant procedures'
Bo amount due to the Council shall be written-off as irrecoverable
without the approval of the Council'
%eceipts issued for all monies collected by Cost Centres for the credit
of the Councils account shall be in a form approved by the Municipal
Manager or hisCher delegate and in conformity with the relevant
procedures'
Bo money shall be accepted unless a receipt can be issued
immediately' and
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#hen the Council suspects that a shortage, other than a shortage
discovered in the process of an audit, has arisen in the funds of other
property of the Council as a result of fraud or theft, the Council shall&
o "s soon as practicable institute an investigation to determine the
amount of the shortage'
o %eport the matter to the police' and
o (+cept in the case of a shortage not e+ceeding %/;A, AA in such
other property, immediately notify the Chief Financial Officer
thereof.
;././ (ffective Cash Management
"ll funds due to the Council should be collected as soon as possible
and ban3ed on a daily basis. Cash left in the safe can pose a security
ris3 and could necessitate additional insurance coverage and does not
earn any interest. arge amounts received should be ban3ed on the
same day on which it is received'
.t is essential that all amounts owing to the Council be levied by way
of a debit in the applicable debtors system. " well managed debtors
and ban3ing control system is the proper measure for ensuring that
funds owed to Council are timeously received and ban3ed. .t is also
important to review debt collection performance by comparing funds
presently owed to the Council in relation to the total income as well as
to the situation in previous financial years, in order to determine
whether the debt collection process is deteriorating or improving'
"nother aspect of effective cash management is ade*uate control over
the timing and payment of creditors accounts'
#ith the ban3 costs relating to che*ue payments getting more
e+pensive, it is essential to limit the payment of creditors to one
payment per creditor per month, if possible, and to consider ma3ing
use of electronic transfer facilities 2 if these are available 2 sub)ect to
strict control measures'
#hen considering the time to pay a creditor, proper consideration
should be give to the conditions of credit terms offered for payment.
.n cases where a cash discount is offered for early settlement, the
discount 2 if the relevant time scale is ta3en into account 2 will in most
cases be more than any investment benefit that could be gotten from
temporarily investing the funds. .f discounts are offered for early
settlement, therefore, they should be properly considered and utilised'
and
,esides this, the normal conditions of credit in terms of payment
offered by suppliers, should also be considered and utilised to the full
by paying on the due date and not earlier.
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;./.8 Credit Control
.mplementing and maintaining Councils Credit Control $olicy and
$rocedure shall be the responsibility of the Municipal Manager or hisCher
delegate. The Member of the (+ecutive Committee and the Council needs
to be informed on a monthly basis about debtors in arrears.
;./.: Subsidy for the .ndigent
.mplementing and maintaining Councils .ndigent $olicy and $rocedure
shall be the responsibility of the Municipal Manager or hisCher delegate
and an up to date indigent register should be available for audit purposes,
at all times.
;./.; .nter-!overnmental Transfers and Other Subsidies
%eceiving .nter-!overnmental Transfers and Subsidies from the Central
and $rovincial !overnments, as well as from any other institution, shall be
the responsibility of the Municipal Manager or hisCher delegate who will
on a monthly basis report thereon to the Council.
;.8 (+penditure of the Council
;.8.0 !eneral
The Council may incur such e+penditure approved in terms of its
estimates as may be necessary for any purpose&
o "uthori1ed by the Municipal Ordinance or any other law' and
o #hich, though not specially authori1ed by the ocal "uthority
Ordinance, is incidental to the e+ercise by the Council of its
powers and duties under the Ordinance or necessary or desirable in
the interest of the inhabitants of the Municipality in general'
The Council may out of revenue ma3e grants-in-aid in line with
provisions made in the ocal !overnment Ordinance'
(+cept where wor3, approved by the Council either specially or
generally, is to be underta3en on behalf of a third party where the full
costs are to be recovered from the persons or Cost Centres concerned,
no e+penditure shall be incurred unless provision therefore has been
made in the Capital or Operating budgets, provided that in the case of
an emergency, any proposed e+penditure not provided for in the
budget, shall be authorised by the Municipal Manager or hisCher
delegate after consultation with the Finance $ortfolio shall&
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o .n the case of operating e+penditure, report as soon as possible to
the Council and nominate e*uivalent reductions and see3 the
formal approval of the Council to the action ta3en'
o .n the case of capital e+penditure, report as soon as possible to the
Council and recommend a re-allocation of e+penditure' and
o 5aving regard to priority ratings within the level of the total
approved Capital ,udget.
;.8./ $ayments
The Municipal Manager and the Chief Financial Officer shall be
responsible for the payment of all accounts due by the Council.
The Chief Financial Officer shall advise the Municipal Manager or
hisCher delegate of the names of officials empowered to sign vouchers
authorising payments of accounts and furnish himCher with their
specimen signatures.
>ouchers submitted to the Municipal Manager or hisCher delegate by
any Cost Centre for payment, shall be in such form as may be re*uired
by the Municipal Manager or hisCher delegate and must state the vote
or pro)ect number on which budgetary provision has been made to
meet such payment.
The Chief Financial Officer submitting any voucher for payment by
the Municipal Manager or hisCher delegate shall be responsible for the
accuracy of the amount to be paid and shall ensure that&
o The goods have been received, or the services rendered'
o The prices and calculations are correct'
o "ny discounts to which the Council is entitled have been deducted'
o The account has not previously been paid'
o Sufficient budgetary provision e+ists' and
o .f e+cess e+penditure is involved and the Council on the
recommendation of the Municipal Manager or hisCher delegate has
approved such e+cess, the resolution authorising such e+cess
e+penditure shall be *uoted on the voucher.
$ayments re*uiring the special authority of the Member of the
(+ecutive Committee shall be accompanied by the reference to the
authority for such payment, *uoted on the voucher submitted to the
Municipal Manager or hisCher delegate.
"ll payments due by the Council shall be made by che*ue drawn upon
the Councils ban3ing account, e+cept that in the case of items not
e+ceeding a prescribed limit set by Council, payment may be made
from petty cash, should this method be more e+pedient.
"ll che*ues drawn on the Councils ban3ing account shall be signed
by not less than two persons authorised by the Council to do so in
compliance with legal re*uirements or Council resolutions.
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The Municipal Manager or hisCher delegate shall have authority to ma3e
imprest or advances to 4epartmental Managers and to other officials when
the Municipal Manager or hisCher delegate deems this necessary, for the
payment of e+penses not e+ceeding a prescribed limit set by Council, on
any one item or for the provision of change. The Municipal Manager or
hisCher delegate shall have the authority to determine the level of any such
advance from time to time, and to ma3e rules for the management thereof.
;.8.8 Salaries and "llowances
The Municipal Manager or hisCher delegate shall be responsible for the
calculation and payment of salaries and allowances' and
The Municipal Manager or hisCher delegate shall be notified by the
Municipal Manager or hisCher delegate or 5ead of "dministration of
all appointments, promotions, dismissals, resignations, transfers,
absences for any reason and all the matters which may affect the
emoluments of employees of the Council. The submission of such
information to the Municipal Manager or hisCher delegate shall be in
such form and at such dates and times as the Municipal Manager or
hisCher delegate may determine from time to time.
;.8.: Capital (+penditure
Bo capital e+penditure shall be incurred on any pro)ect unless&
$rovision therefore has been made on the approved Capital ,udget'
"ny necessary $rovincial or State approvals to incur the e+penditure
have been obtained' and
The formal approval of the Council to such e+penditure has been
obtained.
;.8.; Operating .ncome and (+penditure
Bo saving on an amount budgeted for a specific purpose may be
applied to meet e+penditure for another purpose without the approval
of the Council on the recommendation of the Finance $ortfolio and the
Municipal Manager or hisCher delegate' and
Should a 5ead of a 4epartment have reason to believe that any
budgetary provision is or will be insufficient, or that estimated income
is unli3ely to be received, heCshe shall forthwith report to the
Municipal Manager or hisCher delegate for consideration by the
Council. The reasons for the e+cess e+penditure 6or shortfall in
income7 shall be stated and any reductions that can be affected in order
to meet the e+cess shall be indicated. Should no e*uivalent reductions
be possible, the Council on the recommendation of the Finance
$ortfolio and the Municipal Manager or hisCher delegate shall consider
the matter.
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;.8.< Tenders and Contracts
Sub)ect to section 0A!6;7 of the ocal !overnment Transition "ct, 0@@8,
as amended, read with !overnment !a1ette Botice Bo. 0@??< dated
/<CA8C@@, a Municipality may dispense with the calling of tenders&
.n respect of any contract which is for the e+ecution of any wor3 or the
supply or sale of any goods or materials to the Municipality where&
o The amount concerned does not e+ceed % ;A AAA in case of
Category 0, % =A AAA in case of Category /, and % 0/A AAA in case
of Category 8. 5owever, it is recommended that all Municipalities,
in terms of best practices, adopt a uniform limit of % ;A AAA'
o The contract relates to the publication of notices and
advertisements by or on behalf of the Municipality'
o "ny purchase is done on behalf of the Municipality at a public
auction or by competitive tender'
o The contract is for the supply of goods or materials to a
Municipality by a contractor of the national or provincial sphere of
government at the price and on the terms and conditions applicable
to each sphere of government'
o The contract relates to any purchase by or on behalf of the
Municipality of a wor3 of art and the Council has consented to
such a purchase'
o The contract relates to the appointment of any person to provide
professional advice or services and the Council has consented to
such an appointment, provided that it is in accordance with a
schedule of fees approved by a nationally recognised institute or
body' and
o The contract is for the repairs to or the purchase of spare parts for
machinery or e*uipment for which only one authorised supplier is
available in the Municipal area or in the %epublic.
.n respect of any contract which is for the sale of any goods or
materials by the Municipality&
o "t a public auction of which notice has been published in the
press'
o Commonly sold to the public at a charge fi+ed by law or by
resolution of the Municipality'
o "t a uniform price or tariff fi+ed by a law or by resolution of the
Municipality'
o #hich have previously been offered by sale at a public auction or
in respect of which tenders have previously been invited but which
could not be disposed of'
o The value of which, as assessed by the Municipality, does not
e+ceed a prescribed amount determined by Council' and
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o #here the sale of such goods or materials is so urgent that it would
not be in the interest of the Municipality to invite tenders.
;.8.= !oods and Materials
"ll goods and materials belonging to the Council and held for future
consumption shall be retained in the Councils Main Store. #ith the
approval of the Municipal Manager or hisCher delegate, certain goods
and materials may be held by Cost Centres in a sub-store, provided
that all items not re*uired shall be returned to the Main Store'
The Chief Financial Officer or hisCher delegate shall maintain a Stores
record reflecting full particulars of purchases and issues of goods and
materials and the balances of stoc3 on hand. 4epartmental Managers
shall maintain similar stores records in respect of sub-stores under
their control. The average monthly consumption of each item of stoc3
shall be determined as well as the number of months stoc3 to be held.
The stoc3 card shall show the number of months consumption that is
in stoc3'
Stoc3 shall not, e+cept where the Chief Financial Officer or hisCher
delegate is satisfied that special circumstances e+ist, be carried by or
for any Cost Centre in e+cess of normal re*uirements. #henever it
appears to the Chief Financial Officer or hisCher delegate that a
proposed purchase would result in infringement of this clause, heCshe
shall draw the attention of the 5ead of the Cost Centre concerned
thereto and, if heCshe feels it is necessary, shall report the matter to the
Municipal Manager.
The 5ead of the Cost Centre or hisCher nominees, provided written
notification of such nominees, shall sign re*uisitions for goods and
materials and the e+tent of their authority is given to the Chief
Financial Officer or hisCher delegate. 4epartmental Managers shall
advise the Chief Financial Officer or hisCher delegate of the persons
authorised to sign such re*uisitions in respect of the following
recommended categories&
o Bot e+ceeding %0A AAA per re*uisition'
o Bot e+ceeding %/A AAA per re*uisition' and
o "mounts in e+cess of % /A AAA will need the specific authority of
the Chief Financial Officer and the 5ead of Section.
Specimen signatures of all persons authorised to sign re*uisitions shall
be supplied to the Chief Financial Officer or hisCher delegate.
(+cept in the case of emergency re*uisitions, if the Municipal
Manager or hisCher delegate has reason to believe that insufficient
budgetary provision e+ists to cover the re*uisition presented to the
Stores Section, heCshe shall immediately inform the 5ead of the Cost
Centre concerned, who shall forthwith report the matter to the Council
for consideration'
The Municipal Manager or hisCher delegate shall be responsible for the
ordering, custody and issue of receipt forms, tic3ets, to3ens, vouchers
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of value, and such other stationary as heCshe may deem necessary to
control'
The Municipal manager or hisCher delegate shall submit tenders for
goods, materials or services to the Cost Centre concerned, and the
5ead of that Cost Centre shall recommend the tender or tenders to be
accepted. .f the lowest tender is not recommended the reasonCs for not
doing so shall accompany the recommendation. .f the Municipal
Manager or hisCher delegate does not agree with the reasonCs for not
accepting the lowest tender, heCshe shall send hisCher reasonCs for
disagreementCs to the head of the Cost Centre concerned and include
them in hisCher report to the Council. This report should include details
of the financial provision and vote number to cover the relevant
ac*uisition'
"ll surplus goods and materials left over on completion of wor3s or
the fulfilment of the purpose for which they were issued or goods
recovered in the course of covering out wor3s or on hand for any
reason what so ever, shall be returned to and recorded by the Chief
Financial Officer or hisCher delegate without delay. "n "dvice Bote
describing such goods and materials shall be furnished to the Treasury
Cost Centre in consultation with the "dministration Manager
concerned. The Municipal Manager or hisCher delegate shall in
consultation with the head of the Cost Centre concerned, decide on the
value, if any, to be credited to the appropriate voteCs'
$lant and (*uipment and other good and materials shall be deemed to
be redundant or obsolete as approved by the Council, on the
recommendation of the 5ead of the Cost Centre Technical Services.
Similarly, in the case of obsolete or redundant stores items, the
Municipal manager or hisCher delegate shall report to the Council'
Sub)ect to the ocal "uthorities Ordinance, the Municipal manager or
hisCher delegate to the Council, together with reasons for
discrepancies, shall report the amount and value of any surpluses and
shortages in stoc3 revealed in stoc3ta3ing. #here the stoc3 is not
under hisCher control, the Municipal Manager or hisCher delegate may
re*uire the responsible 5ead of the Cost Centre to furnish himCher with
a set of reasonCs. "ny ad)ustments thereafter must be formally
authorised by the Council, save and e+cept that the Municipal Manager
or hisCher delegate, may authorise ad)ustments in stoc3s and losses not
involving negligence or identifiable theft, provided favourable audit
reports are presented in all cases'
The Chief Financial Officer shall at least once each year cause stoc3 to
be ta3en of all stores and other loose property under hisCher control. "
report on such stoc3ta3ing shall be compiled and certified by the
persons appointed by the Chief Financial Officer to ta3e stoc3 and
such certified report shall be laid before the Council. The report shall
indicate&
o The value of the stores and other loose property found at the stoc3
ta3ing'
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o #hether a suitable record has been maintained showing what
articles should have been found at stoc3ta3ing'
o "ny discrepancies between the articles found at stoc3ta3ing and
the record referred to above' and
o The stores in respect of which no issues have ta3en place since the
previous stoc3ta3ing.
;.8.? oans
The Municipal Manager or hisCher delegate shall be responsible for raising
of such loans, as may be re*uired form time to time, on such terms and
conditions and from such sources as may be approved by the Council.
;.8.@ .nsurance
The Municipal Manager or hisCher delegate shall be responsible for the
management of the Councils insurances covering such ris3s as the
Council may form time to time determine'
The Municipal Manager or hisCher delegate shall be responsible for the
placing of insurances as approved by the Council from time to time'
The 4epartmental Managers shall be responsible for ensuring that the
insurance cover in respect of assets under their control is sufficient
having regard to the current value and replacement costs of these
assets and shall notify the Municipal Manager or hisCher delegate
immediately of the ac*uisition or disposal or any change in insurable
value of any asset'
"nnually before 0
st
Guly, the Municipal Manager or hisCher delegate
shall provide the 4epartmental Managers with Schedules of all insured
items stating their value and the premium for the following year' and
The 4epartmental Managers shall notify the Municipal Manager or
hisCher delegate promptly of all accidents, damage or loss involving
the Councils employees or assets and refer all claims received to
himCher for attention.
;.: "ccounting
;.:.0 Financial Statements
The Municipal Manager or hisCher delegate shall prepare financial
statements annually and report thereon to the Council.
Bo revenue collection or accounting system shall be introduced in any
Cost Centre and no alteration shall be made to any e+isting system
unless the approval of the Municipal Manager or hisCher delegate has
first been obtained.
;.:./ !enerally "ccepted Municipal "ccounting $ractice 6!"M"$7 and
!enerally %ecognised "ccounting $ractice 6!%"$7
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"pplying accounting principles specifically tailored for Municipalities
promotes transparency. .t will enable the content and the presentation of
financial statement information to be consistent and so enable informed
decision-ma3ing on ris3 and returns. .t is therefore of utmost importance
that the Municipal Manager or hisCher delegate applies !"M"$C!%"$ in
the compiling of the budgets and financial statements of the Municipality
as well as the financial systems in use.
;.; .nternal "udit
The .nternal "udit staff of the Council shall perform such duties and conduct
such investigations, as may be prescribed by law, or re*uired by the Council,
or the Municipal Manager or hisCher delegate, and at all times review the
systems of internal control and report to the Municipal Manager or hisCher
delegate upon changes as they are re*uired'
.n performing such duties or conducting such investigations, the internal
audit staff shall be given access to any Cost Centre records re*uired for the
purpose of the audit and a 5ead of a Cost Centre and every officer thereof
shall upon re*uest by the Municipal Manager or hisCher delegate supply such
information as may be re*uired' and
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The .nternal "uditor shall report to the "udit Committee on the result of his
investigations and unless under obligation by law, or by resolution of the
Council, the "udit Committee shall in their discretion submit such reports to
the Council.
;.; "ssets
;.<
(ach "dministration Manager shall be responsible for an annual inventory
for furniture, e*uipment and other movable property under his control
showing *uantities and values'
The Council shall at least once in each year cause stoc3 to be ta3en of all
stores and other loose property under its control. " report on such
stoc3ta3ing shall be compiled and certified by the persons appointed by the
Council to ta3e stoc3 and such certified report shall be laid before the
Council'
The report shall indicate&
o The value of the stores and other loose property found at the stoc3ta3ing'
o #hether a suitable record has been maintained showing what articles
should have been found at stoc3ta3ing'
o "ny discrepancies between the articles found at stoc3ta3ing and the
record referred to' and
o The stores in respect of which no issues have ta3en place since the
previous stoc3ta3ing.
;.= Management %eports
;.=.0 .nternal %eporting
The lac3 of minimum internal reporting standards in the past limited the
effectiveness of senior management and Councillors23ey financial
information was not presented on a regular basis or in a clear and easy-to-
understand format. "s a result, it was difficult for management and
Councillors to react proactively to a change in the financial position of the
Municipality. The promulgated regulations on financial reporting by
Municipalities under the ocal !overnment Transitional "ct regulate such
reporting. Further guidelines on the content and fre*uency of internal
reports need to be formulated to improve financial management.
;.=./ (+ternal %eporting
"n important policy principle in ensuring accountability in Municipal
finances is the submission of annual financial statements to an e+ternal
body such as the "uditor-!eneral. The ocal !overnment Transitional
"ct spells out the Municipal Manager or hisCher delegates responsibilities
with respect to the compilation of annual financial statements to the
"uditor-!eneral. "nnual financial statements need to portray financial
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viability and enable an accurate assessment of the ris3 to be underta3en if
the use of private sector funding, in which ever form, is to be underta3en.
.n respect of reporting to the community, there is a perceived lac3 of
transparency, as Municipalities often do not understand the information
needs of the community. .t is unli3ely that there will be significant
demand for audited annual financial statements. Therefore Municipalities
need to consider preparing Mayoral ,udget "ddresses and annual reports
as a way to present information, which is credible and understandable and
allows citi1ens to assess Municipal e+penditure against the Municipal
.ntegrated 4evelopment $lan.
0. In#!t,nt!
The Municipal Manager or hisCher delegate shall be responsible for the
investment of surplus funds at approved financial institutions 6ocal "uthority
Ordinance, section 0/;7 in terms of Councils .nvestment $olicy and $rocedure
and report to Council on a monthly basis about investments made.
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