1. PRESENTATION TO SALGA MUNICIPAL FINANCE WORKING GROUP Based on Operating and Capital Budget 2013/2014 October 2013

2. THE 2013/2014 BUDGET CREDIBLE FUNDED BUDGET • No deficit budgeting • Linked to IDP • Service delivery prioritized • Funding arrangements should be sustainable

3. Budget Focus Areas • Discretionary Revenue/Sustainable • Levy Replacement Grant • Equitable Share • Discretionary Revenue /Unsustainable • Interest Income • Conditional Grants • Increased Payroll costs • Disaster Management • Environmental Health Services • Fire Fighting Services • Funding for Development Projects • Long Term Sustainability • Under spending Conditional grants

4. REVENUE

5. DISCRETIONARY REVENUE

6. Interest Income

7. USE OF INTEREST INCOME TO FINANCE OPERATING EXPENDITURE

8. GROWTH IN EQUITABLE SHARE (INCL LEVY REPLACEMENT GRANT

9. Growth in Levy Income / Levy Replacement Grant

10. EXPENDITURE

11. Total Expenditure by Department 2013/2014

12. Revenue by Source

13. Expenditure by Type

14. PROJECTS

15. PROJECTS BUDGET PER DEPARTMENT

16. FINANCIAL ISSUES • Dependence on discretionary income from National Treasury to fund operations • Most projects and programmes can only implemented using Conditional Grant funding • Dependence on interest earnings and contribution from reserves to balance budget • Inadequate discretionary revenue sources to make meaningful impact covering 9 LMs • Under spending on project budgets as well as a tendency of dipping into the reserves during the year requesting additional budgets, whilst there is a sizeable unspent budget • Financial sustainability is a key consideration 16

17. FINANCIAL SUSTAINABILITY

18. POSSIBLE SOLUTIONS • REDUCE PROJECTS FUNDED FROM SURPLUS BY PRIORITISING PROJECTS • REDUCE OPERATING BUDGET BY ELIMINATED EXCESSIVE / WASTEFUL EXPENDITURE • INCREASE GRANT FUNDING FOR PROJECTS • DATABASE FUNDERS TO MUNICIPALITIES • BUSINESS PLANS REQUIRED • CHARGE MANAGEMENT FEES • INCREASE GRANT FUNDING = INCREASE INTEREST = BECOME SUSTAINABLE

19. IMPROVING AUDIT OUTCOME

20. Critical Success Factors • Role-players and Teamwork • Personnel with the Required Skills and Experience • MM and CFO Actively Involved • Plan of Action for the Annual Audit and audit file • Keeping abreast of New Accounting Standards, disclosure requirements and Audit Approaches • Excellent Control Environment • Regular Audit Steering Committee Meetings • Eliminating material misstatements • Achievement of predetermined objectives

21. THE REVIEW PROCESS A review of financial statements in accordance with recognised standards consist primarily of making enquiries of management and others within the municipality or municipal entity involved in financial and accounting matters, applying analytical procedures, and evaluating the sufficiency and appropriateness of evidence obtained. A review also requires performance of additional procedures when the reviewer / practitioner becomes aware of matters that cause the reviewer / practitioner to believe the financial statements as a whole may be materially misstated.

22. THE REVIEW PROCESS(Cont) It must be understood that the procedures that will be performed by the Accounting Officer, Audit Committee and Internal Audit in the review process are substantially less than those performed by the Office of the Auditor-General who performs an audit in accordance with International Standards on Auditing.

26. RISK AREAS TO BE ADDRESSED • Supply chain management • Human resource management • Performance management • Risk management • IT governance • Internal audit • In year financial reporting • Conditional grant funding • Escalating operational expenditure impacting on availability of project funding • Project under spending • Financing of major projects such as relocation of office accommodation and CDM development agency

27. Current Strategies and Projects to Address Risk Areas • Reviewing and establishing appropriate controls in respect of SCM and human resource management • Providing external training programmes and in house training projects • Establishing appropriate risk management committee structures • Negotiate appropriate financial structures for financing the relocation costs as well as the development agency • Accessing additional grant funding • Developing appropriate project management strategies aimed at accelerating project spending • introducing austerity measures aimed at doing more with less

28. Summary Questions and Answers Thank you