SOE FOUNDING LEGISLATION: LOCAL GOVERNMENT: MUNICIPAL FINANCE MANAGEMENT ACT. NO.56 OF 2003

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Tshisevhe Gwina Ratshimbilani Inc.

Illovo Edge Office Park, Building 1, 3rd Floor

Fricker Road CNR Harries

Illovo Sandton, 2196

P.O. Box 782352, Sandton 2146

t. +27 (0) 11 243 5027

f. +27 (0) 11 243 5028

e.
info@tgrattorneys.co.za

website:
www.tgrattorneys.co.za


D
RAFT FOR DISCUSSION

PURPOSES ONLY












SOE

FOUNDING LEGISLATION
:
LOCAL GOVERNMENT: MU
NICIPAL FINANCE

MANAGEMENT ACT. NO.5
6
OF 2003

(AS AMENDED) (“THE A
CT”)

SOE:
MUNICIPAL OWNED ENTI
TIES OF
CITY OF JOHANNESBURG






2




A
NALYSIS OF

MUNICIPAL ENTITIES

FOUNDING LEGISLATION
PROVISIONS


MUNICIPAL
OWNED
ENTITIES



CITY OF JOHANNESBURG (“COJ”)

1.

CORPORATE GOVERNANCE MATTERS
: FORMATION AND DI
S
SOLUTION


Establishment
/Disestablishment of
SOE

Principal objectives of
SOE


Role of

Parliament

R
ole

of

Government

Capitalising / Funding
or Financing of the SOE

Restructuring /
Divestiture of SOE

Conflicts of Interest
Provisions

S.84 (2)


Provides for
the conditions under
which a municipality
may establish or
participate in a
municipal

entity.

S.84 (1)
-

P
rovi
des

considerations to be
followed by
municipality

before
establishment of any

municipal entities.

S.84 (3)


Establish
includes the acquisition
of an interest in a
private company that
would render the
private company a
municipal e
ntity.

S.
84



to support
municipality in service
delivery
.


S
.
134

-

Cabinet
member responsible
for local government
must, annually report
to Parliament on
,
inter
alia
,

financial
affairs

of
municipalities and
municipal entities.



S
.
34 (1)


national and
provincial governments
must assist
municipalit
ies

in
building capacity for
efficiency, effective
and transparent
management; support
in identifying and
resolving financial
problems.
A
ssist in
improving financial
management;
A
lert
of

any
det
ected
emerging
and impending
financial problems in
the municipalit
ies
; and
assist in averting or
resolving financial
problems.

S
.
18



provides for the
funding of expenditure,
and states that, an
annual budget may
only be funded from
realistically antic
ipated
revenues to be
collected and

cash
-
backed accumulated
funds from previous
years surplus which is
not committed for
other purposes.

S.90


Municipal entity
may not transfer
ownership or
otherwise dispose of a
capital asset needed to
provide the
minimum
level of basic municipal
service.

S.90 (2)


municipal
entity may dispose
asset only after council
of parent municipality
has in public meeting
decided that asset is
not needed for
minimum level service,
and fair market value,
economic and
communit
y value have
been assessed.

S.94


Accounting
Officers

may not use
position or privileges or
confidential
information for
personal gain or for the
improper benefit of
others.


3





2.

CORPORATE GOVERNANCE MATTERS
: PROVISIONS ON DIRECTORS


Constitution of Board
of
Directors

Provisions on Independent
Directors

Provisions of Executive Directors

Appointment and removal of
Directors

Appointment and removal of
CEO / MD

Regulated by Part 6 of Local
Government: Municipal Systems
Act, No.32 of 2000 (“
MSA
”),
s.93E


s.93J.


See summary of the MSA.

Regulated by Part 6 of Local
Government: Municipal Systems
Act, No.32 of 2000 (“
MSA
”),
s.93E


s.93J.


See summary of the MSA.

Regulated by Part 6 of Local
Government: Municipal Systems
Act, No.32 of 2000 (“
MSA
”),
s.93E


s.93J.

See summary of the MSA.

Regulated by Part 6 of Local
Government: Municipal Systems
Act, No.32 of 2000 (“
MSA
”)
,
s.93E


s.93J.


See summary of the MSA.

Regulated by Part 6 of Local
Government: Municipal Systems
Act, No.32 of 2000 (“
MSA
”),
s.93E


s.9
3J.


See summary of the MSA.





S.93


CEO is the accounting
officer (“
Accounting Officer
”).





S.

107


the Accounting Officer,
senior managers and any chief
financial officials must meet the
prescribed financial management
competency levels.







4





3.

CORPORATE GOVERNANCE MATTERS: PROVISIONS ON DIRECTORS CONTINUED


Duties of Directors

Directors Powers

Validity of Directors
Actions

Liability of Directors

Delegation of Powers

Offences and Penalties

S.94
-

Accounting Officer’s
fiduciary duties.

-

Duty of utmost care to
protect assets and records,
-

fidelity, honest, integrity
and best interest of entity,

-

disclose all material facts
to parent Municipality or
board of directors.

-

Seek to prevent prejudice
to financial interests of
entity.

May not

act in any way
inconsistent with above
duties.



Regulated by Part 6 of Local
Government: Municipal
Systems Act, No.32 of 2000
(“
MSA
”), s.93E


s.93J.

See summary of the MSA.

Regulated by Part 6 of Local
Government: Municipal
Systems Act, No.32 of 2000
(“
MSA
”), s.93E


s.93J.

See summary of the MSA.

S.176


Municipalities,
municipal entities and/or
any of their office bearers,
directors and/or officials
are NOT liable in respect of
any loss or damage
resulting from the
exercising, in good faith, of
any pow
er or performance,
in good faith, of any
function in terms of the
Act.

-

Unlimited civil liability (at
common law or other
legislation) against any
director, official and/or
office bearer for loss or
damage suffered by any
municipality or municipal
entity
as a result of
deliberate or negligent
unlawful actions in
performance of functions.

S.106


Accounting officer
may:

-

delegate to an official
entity any of the powers or
duties assigned or
delegated to the
accounting officer in terms
of the Act, or any powers
or duties reasonably
necessary to assist the
Accounting Officer
in
complying with a duty
which requires the
Acco
unting Officer to take
reasonable or appropriate
steps to ensure the
achievement of the aims of
a specific provision of the
Act.


-

Must regularly review
delegations and if
necessary, amend or
revoke

the

delegatio
n
.

S.173
(
2
)


Accounting
officer
of a municipal entity
is guilty of an offence if
they
:

(a)

deliberately or in a gross
negligent manner (i)
contravene or fail to
comply with certain
fiduciary duties and
financial management
provisions in Chapter
10
,
Part
3

of the Act, (ii) fail to
take re
asonable steps to
prevent irregular or
fruitless and wasteful
expenditure
;
or
fail to take
reasonable steps to
prevent corrupt practices in
the management of

assets
or receipt of money or in
the implementation of the
entity
’s

supply chain
management policy
;

5








S.106 (2)


all such
delegations must be in
writing, subject to any
limitations and conditions
the Accounting Officer may
impose, may be to a
specific individual or holder
of a particular office of the
municipal entity, and all
such delegation DO NO
T
divest the Accounting
Officer of the responsibility
concerning the exercise of
the delegated power or
performance of the
delegated duty.

S.173 (
2
) (
b
)


deliberately
mislead or withhold
information form the
auditor general on any
bank accounts of the
ent
ity

or on receipts or expenses
by the
entity
; or





Accounting Officer may
confirm, vary or revoke any
decision
taken by an official
in consequence of a
delegation in terms of the
Act. No such variation or
revocation may detract
from any rights accrued
as
a result of the decision.

S.173 (
2
) (
c
)


deliberately
provide false or misleading
information in any
document which in terms
of the Act must be
submitted to the auditor
general, National Treasury
or any State organ or made
public.

6









S.173 (3)


senior manager
s

and

other official
s who

exercis
e

financial
management
responsibilities and

are

acting on
delegate
d
authority

are

guilty of an
offence if
they
deliberately
or gross negligent
ly

contravene or fail to
comply with condition
s

of
such

delegation.






S.173 (5)


o
fficia
ls

or
directors
are

guilty of an
offence if deliberately or
gross negligent
ly impede

A
ccounting
O
fficer from
complying with the Act;
give

material

incorrect,
untrue or misleading
information; make
withdrawal
s

in
contravention of s.11
;

fail
to comply with s.49
;
contravene

s.115 (2), 118
or 126 (5); or provide false
or misleading information
to the auditor general,
National Treasury or any
State organ or public.






S.174


Penalty on
conviction, prison up to
5
years or appropriate fine.

7





4.

PROCEDURAL AND MANAGEMENT MATTERS


Quorum for Board Meetings

Conduct at Board Meetings

Annual General Meeting (AGM) Provisions

No provisions
.


Regulated by Part 6 of Local Government: Municipal
Systems Act, No.32 of 2000
(“
MSA
”), s.93E


s.93J.


See summary of the MSA.

No provisions.













8






5.

AUDIT AND REPORTING MATTERS


Report Submission Requirement

Responsible Reporting Officer

To whom SOE Reports
(Parliament or Government)

Frequency of Reports
(Annual/Semi
-
Annual)

Reporting Standards /
Benchmarks

S.12
2



Every municipal entity
must for each financial year
prepare annual financial
statements (“
AFS
”)
, which must
fairly represent state of affairs of
the municipal entity and provide
information as
required in terms
of such section and the Act.


S.104
-

Accounting Officer, except
where otherwise provided in the
Act.

S.126 (2)
-

Accounting Officer
must prepare AFS and submit
them within 2 months after end
of financial year
for

such
statements to, pare
nt
municipality, and the Auditor
General who must audit them
and submit audit report to the
Accounting Officer within 3
months of receipt.

S.127
-

Accounting officer must,
within 6 months of end of
financial year or earlier, submit
Audited Report to the Mu
nicipal
manager of the parent
municipality.

Mayor of municipality submits
Annual Report to Municipal
Council.

Auditor General may submit the
AFS to other government
departments such as National
Treasury, provincial treasury etc.

Annual reports for AFS.

S.1
22 (3) AFS and consolidated
annual financial statements must
be prepared in accordance with
generally recognised accounting
practice in terms of s.91 (1) (b) of
the Public Finance Management
Act.

S.126 (5)
-

Only the Auditor
-
General may alter the audit
report or financial statements of
the report once such statements
are submitted to the Auditor
-
General.

S.121 (1)


Every municipal entity
must for each financial year
prepare an annual report

(“
AR
”)
,
to provide record of activities and
performance of the

municipal
entity
.

S.104


Accounting Officer.




9





6.

AUDIT AND REPORTING MATTERS


Auditing Requirements

Business Plans / Statement of Objectives

/ Budgets

Liquidity and Solvency Management
Provisions

Performance Review

S.92
-

Audited by Auditor
-
General.

S.100


Accounting Officer is responsible
for implementing the entity’s budget and
all matters in connection therewith.

No provisions.

Reviewed i
n terms of S.121

and s.129,

a
gainst its budget, by the Parent
municipality’s Municipal Council and then
the Aud
itor General, relevant provincial
treasury and the provincial department
responsible for local government in the
province.

S.102


Board of directors have a duty to,
on discovery of any irregular expenditure
or fruitless and wasteful expenditure,
promptly

report, in writing, to the mayor
and municipal manager of the parent
municipality.

S.102 (2)


Board of directors must also
promptly report to the South African
Police Service any irregular expenditure
that may constitute a criminal offence; and
other los
ses suffered by the municipal
entity which resulted from suspected
criminal conduct.

S.87


Board of directors of a municipal
entity must for each financial year submit
a proposed budget for entity to its parent
municipality not later than 150 days
before
start of financial year.

S.87 (3)


lists various criteria for the
budget.

S.88


Accounting officer must by 20
January each year assess performance of
the entity for 1
st

half of year and submit a
report on such assessment to board of
directors and parent municipality.




10





7.

MISCELLANEOUS MATTERS


S.103


Interference by councillors in financial affairs of municipal entity; or in responsibilities of the board of directors
must be promptly reported by the Accounting Officer to the
speaker of the council of the parent municipality.

S.128


provides for the monitoring of compliance. Municipality’s accounting officer has a duty to monitor compliance by the Accounti
ng Officer o
f any municipal entity under the
Municipality’s sole or shared control. Must establish reasons for any non
-
compliance and report on it to the council of the Municipality, the relevant provincial treasury and the
Auditor General.

S.3 (2)


in the event of
any inconsistency between a provision of this Act and any other legislation in force, which regulates the fiscal and financia
l affairs of the municipalities or
municipal entities, the provisions of this Act prevails.