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30 June 2021 LOCAL GOVERNMENT CONSOLIDATED MFMA REPORT FOURTH QUARTER SECTION 71(7) 2020/2021 FINANCIAL YEAR AS AT 30 JUNE 2021 1 of 33 CONSOLIDATED MFMA SECTION 71(7) QUARTERLY REPORT AS AT 31 DECEMBER 2020 TABLE OF CONTENT A. Acronym…………………………………………………………………………………….3 B. Introduction…………………………………………………………………………………4 C. MEC - Key Notes ………………………………………………………………………….5 D. Municipal Risk Position Statement………………………………………………………7 E. Summary: State of EC Municipal Finances.……………………………………………8 F. In-Year Reporting: Compliance Monitoring….……………………….….……….……16 G. Overview on the Districts Performance a. Operating Revenue & Expenditure…………………….………………….…….....17 b. Capital Expenditure…………………….……………………………………..….….20 c. Cash Flow…………...………………………………………………….…….….…...21 d. Debtors……………………………………………………………….…...……….….21 e. Creditors…………………………………………………………….….……………..22 H. Progress on mSCOA implementation…………………………...……………………...23 I. Governance Provincial Overview…………………………………….……………........25 J. Covid-19 Reporting……………………………………………………………………….26 K. Procurement Status of Municipalities…………………………………………………...26 L. Conclusion……………………………………………………………………………..…..28 M. Recommendations…………………………………………………………………….….29 N. Annexures …………………………………………………………………………………30 Page 2 of 40 CONSOLIDATED MFMA SECTION 71(7) QUARTERLY REPORT AS AT 30 JUNE 2021 A. ACRONYMS 1 AWB Amatola Water Board 2 DWS Department of Water and Sanitation 3 ECAG Eastern Cape Auditor General 4 ECCOGTA Eastern Cape Cooperative Governance and Traditional Affairs 5 EC-SALGA Eastern Cape South African Local Government Association 6 GIZ German Agency for International Cooperation 7 IYM In Year Monitoring 8 LGD Local Government Database 9 MFMA Municipal Finance and Management Act 10 MPAC Municipal Public Accounts Committee 11 MRMCL Municipal Regulations on Minimum Competency 12 NMBM Nelson Mandela Bay Metro 13 NMD Notified Maximum Demand 14 NT National Treasury 15 PFMA Public Finance and Management Act 16 PT Provincial Treasury 17 SARS South African Revenue Services 18 UIF&W Unauthorised Irregular and Fruitless Expenditure Page 3 of 40 CONSOLIDATED MFMA SECTION 71(7) QUARTERLY REPORT AS AT 30 JUNE 2021 B. INTRODUCTION 1. Section 71(7) of the Municipal Finance and Management Act (MFMA) requires the Provincial Treasury to consolidate the quarterly budget statements of all municipalities in the province. Section 71(7) further requires the Provincial Treasury to publish this report and tabling in the Provincial Legislature by no later than 45 days after the end of each quarter. 2. This takes into account the verification process undertaken by the National and Provincial Treasury with municipalities, a process taking longer than expected. For this reporting period, municipalities are to submit verified data to National Treasury no later than 31 July 2021. 3. This report forms part of the IYM, which enables provincial and national government to exercise oversight over municipalities and provide necessary support. National Treasury has institutionalised IYM for a number of years to produce monthly and quarterly reports, however, some municipalities still fall short of full compliance because of administrative and political leadership instability including unsatisfactory political oversight and governance. 4. The report provides an overview on the state of municipal finances; Serves as an early warning system to measure and detect municipalities in financial challenges and the need for intervention where necessary; Assists in promoting effective oversight mechanism, the appropriate fiscal discipline and managerial accountability, transparency on financial performance of municipalities; Enables PT to monitor and improve municipal performance; and Promoting greater effective political oversight. 5. PT uses the LGD of the National Treasury as the primary source for the data used in this report. Users of the report should take note that the quality of the report is compromised when municipalities fail to submit all the required reports. The quality of this report depends on the credibility of the information submitted and verified by the municipalities. 6. PT continues to provide support to all municipalities in the province on the implementation of the budget according to developed plans and when required. The IYM report is a management tool and further provides municipal councils with system to hold executive management to account. The IYM forms the basis for combined assurance process for different local government stakeholders to support in improving the quality of information for decision-making purposes. 7. This consolidated quarterly report relates to the fourth quarter of the 2020/21 municipal financial year. It should be noted that this is an unaudited state of municipal finances in the province in respect of the 2020/21 financial year. The PT publishes the quarterly IYM as required by the legislative prescripts and presented to various provincial political and technical structures within the province. Page 4 of 40 CONSOLIDATED MFMA SECTION 71(7) QUARTERLY REPORT AS AT 30 JUNE 2021 N.B C. KEY NOTE 8. The performance of the municipalities takes into account the current unfavourable economic conditions and fiscal challenges exacerbated by the Covid-19 pandemic national disaster lockdown. The non-submission by the Nelson Mandela Bay Metropolitan Municipality’s 2020/21 original and adjustments budget data strings because of its financial systems challenges is an issue both National and Provincial Treasury are constantly working with the metro to find a solution. This resulted in the municipality’s total operating revenue, expenditure and capital expenditure understatement by R11.9 billion, R11.6 billion and R1.6 billion respectively. The non-reporting of actual results also grossly distorts the comparative analyses poorly affecting information credibility. On aggregate, municipal revenue billing and other generated revenue, amounts to R24 billion representing 89.7 per cent of their adjusted revenue budget of R26.8 billion compared to 62 per cent achieved for the same period in the previous year, showing a year on year (y/y) percentage improvement of 26.7 per cent. Employee related costs, on aggregate shows an unstable pattern with R8.5 billion spending reported for the period under review constituting 40 per cent of the total YTD operating expenditure. 9. Municipalities reported capital expenditure amounting to R6.6 billion representing 79.8 per cent of the adjusted capital budget of R8.2 billion, a significant y/y underperformance compared to R10.8 billion reported during the same period in 2019/20. 10. Short term financial obligations outstanding over 60 days payable to Eskom, Auditor General, Amatola Water and the Department of Water and Sanitation for the quarter under review shows an increase of R100 million from R2.1 billion in 2019/20 to R2.2 billion. Eskom arrears are escalating at an alarming rate and this threatens municipality’s ability to provide sustainable service delivery to communities. 11. The y/y comparatives shows that Municipalities reported a net increase in cash held of R12.3 billion for the period under review which is significantly higher compared to net cash increase of R8.5 billion in the previous year. 12. Compliance to the Municipal Regulations on Minimum Competency Levels remains stable with an average compliance of 92 per cent of Municipal Managers and 95 per cent of Chief Financial Officers having attained the competency level out of 39 municipalities. 13. All municipalities have established the Municipal Disciplinary Boards with exception of Amathole District municipality Sarah Baartman District Municipality and Kou-Kamma local municipalities. Amathole District Municipality Council approved a Financial Misconduct Policy in 2020 after which the policy was workshopped to Councillors and officials. The municipality has also advertised for DC Board members in 2021 and the process has not yet been finalized. Sarah Baartman District Municipality had initially established the DC Board as an ad-hoc committee. Municipalities that established have shown functionality of the DC Boards; however, implementation of the recommendations by municipal Councils remains a challenge. The MPAC and DC Boards plays a joint significant role to limit the Unauthorised, Irregular, Fruitless and Wasteful expenditure, which is a provincial concern. It is however important to note that PT, EC-CoGTA, SALGA and GIZ provides support to municipalities to address effective functionality of the MPAC and DC Boards. Page 5 of 40 CONSOLIDATED MFMA SECTION 71(7) QUARTERLY REPORT AS AT 30 JUNE 2021 N.B 14. The implementation of the mSCOA reform remains a challenge, however, there are gradual improvements noted during Provincial Treasury and system vendor’s regular interactions with municipalities. 15. On aggregate, municipal debtors book continues to increase at an alarming rate. The y/y comparative shows that consumer debtors increased to R21.8 billion from R16.7 billion in (2019/20) Organs of state debt towards municipalities increased by approximately R100 million in 2020/21 from R1.1 billion reported in the same period in 2019/20. Organs of state debt forums interact quarterly to remedy the situation between national and provincial departments with municipalities. 16. PT and EC-CoGTA monitoring of infrastructure procurement plans for the quarter under review identified slow procurement process in six (6) municipalities where seven (7) catalytic projects were selected with capital budget of R740.6 million. The SCM procurement
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