national treasury Department: National Treasury REPUBLIC OF SOUTH AFRICA

Transcription

1 national treasury Department: National Treasury REPUBLIC OF SOUTH AFRICA

2 . rc;>s_ f,il')ancial position at year-ending June ~ "-. :...IL4:;-~S.w-_,.l!:,t~ -~- -.,~.. ~:; - - ~- ~-. :.. ::!..:.-.-. _-.,J.~ June 2015/16 30 June 2016/17 Cash and cash Cash and cash Municipality equivalents at the Net increase/ Cash and cash equivalents at the Net increase/ Cash and cash beginning of the decrease in cash equivalents at the beginning of the decrease in cash equivalents at the year held end of the year year held end of the year Buffalo City ( ) Nelson Mandela Bay Mangaung I ( ) City of Ekurhuleni ( ) City of Johannesburg ( ) ( ) City of Tshwane ethekwini I ( ) Cape Town (30 348) Metros are in a fairly healthy financial position, however 6 experienced a decline in cash for the financial year. On average the metros performed at 96.2 per cent on the operating revenue and 96.8 per cent on the operating expenditure - nj UOll.11 U-e!SU}' :~~!ct;,; - 1.ovtt4 Ult<' ETH cash and cash equivalents decreased in 2016/17 as compared to 2015/16 mainly due to the funding of capital projects from own funding.

3 Mu nicipality Bu ffalo City 2015/16 Qualified 2016/17 Unqualified - with findings Most common matters impacting audit opinion Higher levels of material losses (water and electricity) Ne Ison Mandela Bay Qualified Qualified Material impairment of consumer debtors Ma ngaung Unqualified - with findings Qualified Irregular and unauthorised expenditure I Substantial underspending of capital City of Ekurhuleni Unqualified with findings Unqualified with findings grants due to poor project management Non-compliance with SCM Processes City of Johannes burg Unqualified - w ilh findings Unqualified - with findings Ineffective political and administrative City of Tshw ane Unqualified - with findings Unqualified - with findings leadership et hekwini Unqualified - with findings Unqualified - with findings I Poor management of indigent registers Ca pe Town Unqualified - No findings Unqualified with findings Chaotic billing of municipal accounts Slow response in improving internal controls and addressing key risk areas Inadequate consequences for poor performance and transgression Mangaung and City of Cape Town's audit outcomes regressed while Buffalo City improved when compared to the previous financial year. The rest of the metros audit outcomes were unchanged. I Manqaunq water losses 34.8%. electricity losses %,,. nauvnao u e.1>u y.,_,_., ~:,;.:.:i; ;_ ~»01'-C ' 3

4 .. "'?- '= l-.. "!' ,-{, ~ ;~ i;;~;~~-?'. :. s~.e.@(ic.~ ~Clel _ivery performance in 2016/17 I ~.(: ~~ ' -! r: ~~": ~~:;.~ - ~- <.- l.~ ~ ~4: ~--... "I :a..~..:b!.. -. ~.. -..: Basic Service Delivery Performance Municipality - ~ 2015/ /17 h. -- ~ -~u~-,-.--u.~- u u Target Achieved % Target Achieved m Buffalo City % Nelson rv1andela Bav % rv1angaung % City of Ekurhuleni % City of Johannesburg % 13 5 rihr nf Tc::hw::mp Q% I ethekwini % Gape Town % Source: Mid-year presentations Reasons for under performance of capital budget Misalignment between budgeting and departmental planning. Poor contract and project management. Weaknesses in SCM processes - delays the completion. Social unrest by communities disrupts project implementation. Adoption of unrealistic budaets - capital budaets that are overinflated. ~. l tij)j n:iliornl trcasuy ~:.7,_) ~ "11'\.eJCOf' S0V1MAJ «A % -~~-'-'AAO.U..U 65% 74% 42% I 71 % 38% 73% 72% I 71 % - - J '"-' Fiscal risks Drought-stricken municipalities experienced a decline in water revenue; Growing decline in electricity revenue due to switching to alternative energy sources; Lack of willingness to implement credit control measures - political interference; Substantial price hikes are unaffordable and leads to nonpayments of services; Unfunded mandates is prevalent; Inadequate implementation of Land Use Management in areas under Tribal Authorities to guide development; Conflicts between ethekwini Metro and lngonyama Trust remains unresolved; Slowdown of economic growth leads to job losses and acute in mining towns. ~

5 D D D n ational treasu y Oe~~n U41 J0n>t Tr ""'Y REPUDl.tC OF SOUTU ~FAtCA FUNDING/SUSTAINABILITY MANAGEMENT Total Operating Revenue (A4) Total Operating Expenditure (A4) Operating Perfonnance Surplusl(Deflcit) Net increase I (Decrease) in Cash for the Year (A7) Cash and Cash Equivalents (A7) Cash backing I Surplus (Deficit) Reconclliatlon (A8) Tabled 2018/19 Medium-term Revenue and Expenditure Framework for Metros JHB CPT ( ) ETH EKU TSH NMA (23 921) (34 253) ( ) ( I Recal- Cash and Cas/1 Equivalents Recal Cash backing I Surplus (Deficit) Reconciliation Opinion /19 Funded/Unfunded Opinion 2018/19 MTREF Funded/Unfunded % Reserves of available cash & investments % Long tenn Investments of available cash & investments 0 /o Creditors to cash & Investments Operational Surplus Deficits MAN BUF ( Funded Funded Funded Funded Funded Funded Unfunded Funded Funded Funded Funded Funded Funded Unfunded Unfunded Funded 0% 35% 185% 59% 31% 101% Four of the 8 Metros budgeted for operational deficits Cash & Cash Equivalents All metros budgeted for a positive cash position for the first year of the MTREF, on recalculation MAN presented a deficit Funded budgets All metros except MAN presented funded budgets for first year of MTREF All metros except NMA and MAN presented funded budgets in the two outer years of the MTREF (NMA was found to be funded after correction of some misstatements in their tabled budget) 80% 0% 138% 0% 0% 78% 3% 0% 256% 38% 0% 76% 33% 0% 575% 0% 0% 55%

6 9,,-,VftMJ.f.0$ M);)laVlf J W*J _..,. - fln I ~ 1 O ~co.q, 0 ~ 3 vr 3 CD OJ c Q_ (!) <D -+ doi iuawuoj!au mns 1 \ '... :. UO!+DIS!6a1 1ouo!+DN : sa1ined101unw -~ -. ~ uej!iodojjaw aln LI! waisas 6u!uue1d aln JO iu~wu6!_1~ ~~~

7 national treasury Department: National Treasury REPUBLIC OF SOUTH AFRICA 7

8 Review of Draft BEPP using the BEP1P Progression Evaluation Instrument and Strength of Theory of Change for spatial transformation

9 Financial health: Very fragile The city does not have a long term financial strategy. Massive consumer debt: R4.2bn (R3.6bn + R600m from Centlec) Capital budget (R1.1 bn) is ±85% grant/subsidy funded Consolidation of municipal accounts is essential for the city to pursue especially in credit control management There is an urgent need for credit control enforcement and management of inefficiencies like overtime MTREF budget is not sustainable, relevant or credible Service delivery: In decline There's a need review the master plans which will inform the Capital Investment Plan The city needs to exploit the on existing investment in bulk infrastructure to leverage economic development Balance between addressing priorities for social development and economic development. Improve budgeting for Repairs & Maintenance There is also a need for a clear economic strat9gy for Integration Zone b and Airport Development Node.

10 Institutional: progress, but under strain and at risk The city is lacking capacity especially at executive management and this places over-reliance on the office of the City Manager There is a potential risk of loss of institutional memory as a result of the departure of key staff The situation is made worse by longer turn-around time in filling in critical vacancies. Governance: going in the wrong direction According to the City, there's is blurring of administrative and executive functions, however NT sees this as interference in administrative duties Due to congested budget/idp process, political leadership/oversight has been compromised Qualified audit opinion :Z - n:ttioml lt<!asu y ;'1{1.':':.--.-.:.. I. ~,tl\llric OI SQU1MA/Jt<..\

11 ' ~=:e: \M:~dat~s~ Water and Electricity Losses /19 MTREF. -~~ ~ t, The unfunded mandate for the city is mainly on Libraries Services The City is receiving a subsidy of only R 2 million and raising revenue of R321 thousand on the function However the total expenditure is R 107 million, i.e. R105 million UNFUNDED NT encouraged City to sign a Service Level Agreements with sector departments before they render any service on behalf of province; NT provides a platform to discuss this matter at the Budget benchmarking engagement; Water and electricity losses as at end of 2017/18 were R215 million and R 129 million respectively. 11

12 ... '"" ~0!f~'i4 '4il~~thoris~d, lrregul~r ~~d. Fruitless ~ Wastefu! _r:, ~l?~i!~ure 1n summary (See 1n1t1at1ves by NT 1n later shde) ~. <'~ ~! -- ". -- -~.,...,< J_ ~ _...J.c..:.A_..._~~ ~-- Unauthorised R mil Fruitles & wasteful R 'ths o;;lll'l 4000 ~~~~~~~~~~~~~~~~~~~~~~~~ r-307 ze I 810 I 600 I 3525 I 2010/ / :?/ &17 Closilg Irregular expenditure R mil g4082 ba~ce 35Q~ 30(00 25( ! soco 0 J ,' I 7900 I 7812 r-798,--hs Zl4 1:9~ J...J I J 2009/ / / / / / /16 Z01(y'17 Closirg bat a nee I ooo -iomrz /Pr 20T4/1S 20151rs- -~ 1mion.1I treasu-y TI, ~:'.~n~., ' IA.CIC Of 10l#l'4 jj~ ' 12 12

13 1. BEPP - There is progress in refining and developing the BEPP, but in absence of strategic vision and plan, BEPP is still largely a compliance process. It therefore needs a strong narrative (/) Q) O> Q) '- () ro c: I- ro ~ E (/) '- '-.g.9 Q) ro a..~ c: "O 0 - c: (/) (/) (/) Q) ~ E O> 0 0 () '- I - a. :::J '- O o w Q) co.!: - 1 Q) -.;:t" (/) x ro Q).0 c: 0 c: c: <( I Spatial Planning & Project Preparation Solid section, tighten narrative, reduce length 3 lzs - need targets Clarify which is priority IZ Econ data, analysis & econ st rat Integration of PT & HS Evidence of joint planning I l Misunderstanding Intergovernmental Project Pipeline Annexure needs work 2 submitte... d... b... u... Narrative needed. t -=--J. Urban Management Capital Funding Highly Grant Dependent 86% Own funding is only 10% [ Implementation CSP support for project prep & implementation (AON) Narrative and details I on IG implementation arrangements absent of section requirements? Specify how urban I precinct management is (or will be) carried out, involvement of private sector, data -=--=-- Institutional Arrangements & Operational Budgets ==~~~~==='==~= Progress but needs deepening and extending in BEPP 13 \ J

14 MAN Mangaung - Supporting Table SA4 Reconciliation of IDP strategic objectives and budget I "I"" Strategic Objective Goal 2018/19 Medium Term Revenue & 2018/19 Medium Term Revenue & 2018/19 Medium Term Revenue & - Budget Budget Budget Budget Year Budget Year Budget Year Budget Year Budget Year Budget Year Year Year +1 Year / / / / / /21 R thousand I 2018/ / /21 Strategic Leadership and Planning j Good Governance , , , , , ,000 IT governance and planning!good Governance ,082 98, , ,000 10,600 11,236 I Human Resource Management! Good Governance. 11,954 12,600 13, , , ,762 10,655 12,925 4,000 Fleet Management and Support!upgrading and Maintenance of Infrastructure , , ,791 59,484 63,716 8,000 Staregic Management Programmes I Good Governance , , ,956 13,000 17,790 30,000 Fire and Disaster Management I Social and Community Service ,381 84,011 90, , Environment Health, Social and Community Service ,779 20, , Parks and Cemeteries Management I Social and Community Service 6,852 7,222 7, , , ,746 10,000 5,000 10,000 Law Enforcement and Safety Social and Community Service 33,038 34,823 36, , , , Social and Community Development Social and Community Service 3, 106 3,274 3,454 93, , , Economic Development Poverty Reduction, Job Creation, Rural and Economic 18,661 19,770 20, , , ,059 54,278 57, ,989 I Development Market Services Management Poverty Reduction, Job Creation, Rural and Economic 26,710 28, , ,911 20,325 21,593 3, 100 2,500 4,000 I Development Fiscal Prudence i Financial Sustainability 2,809,963 3,049, 179 3,280, , , ,901 4,350 4,081 4,326 Roads and Stormwater Improvement!upgrading and Maintenance of Infrastructure , , , , , ,574 Solid Waste Management i Upgrading and Maintenance of Infrastructure 321, , , , , , Water and Sanitation Prov is ion j Eradication of Bucket System, VIP Toilets 375, , , , , , , , ,000 Sustainable Shelter Provision j Human Settlement 30,630 32,036 33, , , , , , Purified Water Provision!Upgrading and Maintenance of Infrastructure 1,264,414 1, 332,693 1,405, ,700 1,021,246 1,073, , , ,800 Electricity Provision and Maintenance I Upgrading and Maintenance of Infrastructure 2,435,416 2,590,873 2,751,397 2,307,575 2,446,698 2,594,297 96, , ,374 - : ~ Totaty)' nation.11 ire~u -y 7,337,565 7,882, 168 8,455,800 6,303,844 6,733,941 7, 181,203 1,130,453,.,. i1j1 1'..., _, 1, 155,899 1, 165,699 ltl l'\a.ic Of J ()t,,rh4 Al ~CA ~

15 Credibility Budget assumption not realistic and questionable Revenue forecast are not achievable and expenditure projections not consistent with cost containment principles Even though the budget is multi-year, its Capex is not informed by the Capital Investment Plan and the master plan is outdated Relevance The political leadership absolved its responsibility with regard to the Budget/I DP process The public participation process has been congested and might not relate to community needs. The budget schedule was not adhered to According to the budget book, the IDP's strategic objectives are linked to Revenue, Operational Expenditure and Capital budget of which NT questions their credibility Sustainability The huge operating deficit projected over the MTREF is not sustainable Budget not funded CAPEX funding from own sources not sustainable 15

16 9~ v::>1h:1v Hinos :10 ::>nand3li AmseaJ1 IBUO!}BN :}uawµedao

17 Financial health: improved but still fragile Strong cash position but reserves are deteriorating Increasing unauthorised and irregular expenditures Budget is funded but social package too high Sufficient capacity to borrow for capex Material water losses as a result of illegal connections and deteriorating infrastructure Collection rate deteriorating although it is still above norm -Debtor management constrained by lngonyama areas that don't pay; deceased estates and deregistered properties Electricity sales have generally declines over the past 3 years due to high cost Service delivery: performance improving High level of performance and expenditure in Spatially Targeted Areas; General service delivery performance needing to improve; City already pro-actively putting measures in place to deal with water crisis through : Security of Water Supply Plan in place and has adopted a 10 year plan for water loses which aims to reduce it to 20% 17 17

18 Institutional: moving in the right direction Adequate capacity - strong vertical performance; City identified challenges with integration across departments but has embraced the transversal management support from National Treasury to improve institutional alignment; City participating as a pilot on a number of programmes that will further strengthen institutional performance II Governance: moving in the right direction Strong and stable leadership - compliance in place Although there have been media reports on issues of audit - Finance & Audit Committee in place & functional - overseen by EXCO made up of all Committee chairs Audit Action Plan in place City integrity and investigations unit performed internal investigations on allegations of financial misconduct and non-compliance with SCM Regs. mlionil u casu y :iri """""' - ~ ,,,.,~.,... "'9..K Ot ' "1 H "I -U

19 Water and electricity losses (R1.3 billion at end of 2017/18; R1.8 billion as per SA8) Unfunded mandates (R1.3 billion) Libraries Health (not municipal) Museums Housing (new and hostels) Formal Housing TOTAL 1 rotioml trcasu y., ~II i f'i '..., t "-ajcoi $()llfmij ~CA R303.3 R357.4 R71.0 R578.4 R31.0 R M'easuh~s to deai with unfunded -mah ctat~s~ '" -: l. ;.,.ll._ : : Nf Ancouragecf City to sign a Se ey~~:_ Lev~l ~ Agr~ements with sector departmijn~; :-.-~.. "J befdre they render any service' onfb~ ttalt ic>t ~ '. ; i.. proyinc~;... ~J. -_ NT provides a platform to discuss tti1s.. matf.er at the Budget benchmark.ing.'.f ~... engagement;. r...,, KZNPT facilitated engagements Between the Metro and provincial sector. f dep~ rtments to discuss the reimbu~emeht " of tl\e Metro for services delivered bn the sector departments' behalf; -;. r -~- j ~

20 ISSUE 2016/2017 (R'OOO) Irregular expenditure arising through finalised investigations Awards made to entities whose directors/ members/ principal shareholders/ stakeholders were in the service of ethekwini municipality Awards made to entities whose directors/ members/ principal shareholders/ stakeholders were in the service of other state institutions Awards made to entities whose directors /members/ principal shareholders I stakeholders close family members were in the service of ethekwini municipality Non-compliance with S.C.M - No valid tax clearance certificate submitted Non Compliance with SCM {Other) TOTAL IRREGULAR EXPENDITURE FOR THE YEAR 'tf l,~',"j - I ~ 'f ~Cltt<>JTMA.lll(C..4 20

21 National Treasury conducted onsite visits to selected municipalities that incurred the highest values of Irregular Expenditure to obtain information that assisted with targeted training. A large number of incidents of Irregular spending is due transgression of Regulations, especially SCM; therefore training was provided to municipal officials on implementation of Supply Chain Management Regulations. Also training was provided to MPAC members on their roles and responsibilities when it comes to investigating the recoverability of UIF&W. Internal Audit Units of municipalities must become more effective, to play a bigger role in assisting management identify and timeously address UIF&W expenditure. Regular audits of procurement processes must be introduced as a way of increasing the in-year detection of transgressions. National Treasury issued a Regulation for the establishment of Financial Misconduct Board to deal with cases of transgressing the MFMA. Also NT supports and advises municipalities on the functional Financial Misconduct Board - a dedicated facility to deal with queries. 2 1

22 1. BEPP - ETK finalised a quality BEPP and submitted to Council - BEPP quality improved significantly - issues remaining are strategic refinements. c 0 ~ ::::s - ~ w ~ C> c t: 0 Q. Q) 0:: "O c ro... c ro u li= c:.q> (/) t'. & Q) "O c ro >. e> Q) c Q) I~ co ro co "O L... c ro Cl> ::i E ~ E - 0 () (.) Spatial Planning & Project Preparation 1./ Spatial framework link well with BEPP Catalytic projects well underway - supporting private sector. Forward planning on integration & densification on earmarked corridors Institutional prioritisation still a question? ' ~~~...,.,...,,~...,,...,,,,...,...,...,,..~ Intergovernmental Project Pipeline Progress: KZN Treasury has shown budgets and plans for Health, Transport and education but joint planning is starting with Health only; IDMS hasn't been integrated into the city plans as is in EC. Urban Management ( ~-apltal Funding J,----.-r Implementation Own resources incl. borrowing Grants Public Works I PRASA Private sector Provincial investments Specify urban I precinct management in each precinct. Institutional Arrangements & Operational Budgets Implementation of Transversal Management support will improve institutional performance 1 Clarification of the pipeline and proper steps in each priority catalytic projects Prioritisation across social, gap, rental & L informal settlements..,,, J 1. 22

23 ~)tfp Lirl lr to 2018/1'9 Operational Revenue Budget ETH-Ethekwfni -Supporting Table SM-SA6 Reconciliation of IDP strategies objectivews and budget R thousand '. - _l Ope rating Revenue Operating Ex p e nditure Capital Ex p e nditure 2018/19 M e dium Te rm 2018/19 M e dium Term 2018/19 M edium Te rm strategic ObJocllve Re v e nue & Expe nditure Revenue & Expe nditure Re v e n ue & Expenditure Framework Frame work Framework Budget Year Budget Year Budg et Year Budget Year Bud g et Year Budget Year Budget Year Budget Year Budget Year 2018/ / / /20 n / / /21 Develop and Sus tain our Spalal,N akiral and Built Environm ent C limate prolecfon planning Developing a Prosperous, Div erse Economy and Employ ment Creafon Crealing a Quality Living Environment Adress C ommunity services backlogs Fostering a Socially Equitable Env ironment Promofng the safely of citizens Promofng the health of citizen s Supporting organlsalion design, Human capital development and m anagem ent Enabling a vibrant and crealve clly, Ile foundafon for sustaloabuily and social cohesion -Access and lnclusiv ily Enabling a v ibrant and crealv e cily, Ile found a ion for sustaloabuily and social cohesion An enabling environment for galn~i economic p artclpation and Olrough social culkiral empowerment Fostering Good Governance and R esponsive l ocal Government Creale an effectiv e,eflcien1 and accountable government Creaing Financially Accountable and Su stainable Cily Total n.ilioml t.ream)'...,._ 23 = - ~ ;1(>.iTt4A/ lllc..

24 i._.pverall budget benchmarking conclusion & insights ~:~~r~,_-: ~':_ _ -~- ----".. - ~ o Credibility - Budget assumptions are credible - Budget is multi-year o Relevance - Budget alignment to the SDF, I DP, BEPP has been verified o Sustainability - Cash flow sustainable over MTREF - Adequate cash coverage but reserves deteriorating - Collection rate high - despite declining trend - The budget is sustainable over the MTREF - The budget over the MTREF is cash backed and funded - To watch the increasing irregular expenditures 24 24

25 national treasury Department: National Treasury REPUBLIC OF SOUTH AFRICA

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