Chantelle Benjamin
6 August 2007
Johannesburg — FINANCE Minister Trevor Manuel has extended the deadline for full implementation of the Municipal Finance Management Act, with a lack of expertise and skills at local government level prompting him to give municipalities at least another year to prepare fully for the new rules.
The act was designed to introduce more transparency and accountability into municipal finances. Phased implementation began in 2004, acknowledging the different abilities of high-, medium- and low-capacity municipalities, and to set goals for functions such as internal audit and for audit committees.
Local government finances were in the headlines recently, when auditor-general Terence Nombembe said that in the 2005-06 financial year, only 2% of local government departments had earned clean audit opinions. He attributed this to the stringent requirements of the Public Finance Management Act, and the technically tricky move from cash to accrual accounting.
Manuel's legislation is designed to rectify just such shortcomings. In June he told a South African Local Government Association meeting that calls to lower standards set in the act should be resisted.
He also criticised municipalities for their poor financial audits, saying the number of qualified audits for municipalities had doubled between the 2003-04 and 2005-06 financial years.
Now municipalities have been given a reprieve, with the Government Gazette of June 29 saying larger municipalities will not have to prepare consolidated annual financial statements incorporating the statements of the municipality and the municipal entities -- a task which has tripped up many municipalities in the past -- until the next financial year (2008-09) .
Large municipalities, such as Johannesburg, Tshwane and Cape Town, and medium-capacity municipalities are exempt for the financial years 2006-2007 and 2007-08 and may submit their financial statements using "the same basis of accounting" used in the 2005-06 financial year. The low- capacity municipalities, such as those in the rural areas, are also exempt for the 2008-09 financial year.
Municipalities have also been excluded from certain financial reporting standards, pertaining largely to the valuation of assets.
A finance department member blamed the delay on the inability of municipalities to properly account for their assets, a lack of skills to implement the new standards and differences in accounting practices between the municipalities and municipal entities. This is despite the treasury undertaking several initiatives to build capacity, including intensive training in municipal budgeting and finance. In consultation with local government and various accounting financial bodies, the treasury developed a certificate in municipal finance to train local government finance staff. There are also efforts to recruit staff, as most government departments are running at 40%-50% capacity.
There have been doubts for some time about the ability of SA's 283 municipalities to implement the new act, which subjected local government and municipal entities to more stringent reporting requirements and a greater degree of scrutiny regarding their financial affairs. It also involved greater communication between local, provincial and national government.
Accountant-general Freeman Nomvalo said at the weekend that many municipalities were battling to comply with the act because they lacked expertise. They were also still struggling to compile a proper asset register, he said .
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