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Municipal Infrastructure Grant Monitoring Select Committee on Appropriations

Municipal Infrastructure Grant Monitoring Select Committee on Appropriations. x. Presenter: Mr Sello Mashaba Intergovernmental Relations Branch, National Treasury 20 September 2016. Outline. Introduction Municipal Infrastructure Grant Duties of DCoG as Transferring Officer

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Municipal Infrastructure Grant Monitoring Select Committee on Appropriations

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  1. Municipal Infrastructure Grant MonitoringSelect Committee on Appropriations . x Presenter: Mr Sello Mashaba Intergovernmental Relations Branch, National Treasury 20 September 2016

  2. Outline • Introduction • Municipal Infrastructure Grant • Duties of DCoG as Transferring Officer • National Treasury’s monitoring of MIG • Fourth Quarter Local Government Section 71 Report (Preliminary results). For the period: 1 July 2015 – 30 June 2016 • 2016/17 proposed conversion of MIG allocations • Procedure and timelines for applying for roll-overs • 2014/15 MIG roll-over and unspent CG process and outcomes • 2015/16 MIG roll-over requests

  3. Introduction • The Division of Revenue Act broadly provides for two types of allocations to municipalities: • Unconditional allocations (The Equitable Share); and • Purpose-specific allocations (Conditional Grants) • Also included are clauses, which outline the process around funds transfers, management of reporting requirements, and various duties of transferring officers (national departments) and receiving officers (provinces and municipalities) with respect to conditional grants (CGs) • The April Gazette provides for frameworks, including conditions, conditional grants (this is published 14 days after passage of Division of Revenue Act (DoRA) • The 2016 Division of Revenue Act (Act No.3 of 2016) (DoRA) and the DoRA section16 (1) Gazette must be read together with the 2016 Budget Review, in particular annexure W1, which is the explanatory memorandum of the division of revenue, and provides details of: • Recommendations of the Finance & Fiscal Commission (FFC) and National Treasury’s response thereto • Policy issues informing the allocations • Details of the mechanisms used (e.g. allocation criteria) to determine allocations

  4. Duties of Department of Cooperative Governance • These include: • Determining the allocation criteria for the Municipal Infrastructure Grant (MIG) • Drafting the spending and management of conditions for the grant programme • Managing the MIG registration and registration of MIG projects • Certifying compliance with various requirements of the DoRA • Implementing a uniform performance monitoring system • Reporting on performance and expenditure to National Treasury and Parliament in a manner consistent with the PFMA and MFMA • Accounting for MIG within AFS and Annual Reports in a manner consistent with the PFMA and MFMA

  5. Municipal Infrastructure Grant • The establishment of a consolidated grant mechanism, MIG, was approved by Cabinet on 5 March 2003, after being strongly supported by organised local government and a range of public and private agencies, including the FFC • Purpose of the grant: • To provide specific capital finance for eradicating basic municipal infrastructure backlogs for poor households, micro enterprises and social institutions servicing poor communities • Facilitate access of basic water and sanitation, roads, solid waste collection, recycling and disposal, recycling, street/community lighting, public facilities sport facilities and alleviating poverty in poor households. • Administered by National DCoG (Vote 4) • The National Department will administer the implementation of the grant and monitor performance

  6. Duties of DCoG as Transferring Officer • These include: • Meeting the conditions stipulated in the MIG framework gazetted in the DoRA section 16 (1) relevant Government Gazette • Proper management and ring-fencing of funds and spending, including for facilitation of access to municipal sports facilities (this requires good cash management by munics’ CFOs) • Reporting to National Treasury on MIG expenditure and performance • Reporting the actual expenditure in respect of the MIG schedule 5B allocation every month and quarter (both by DCoG and munics) • Reporting on performance on CGs within the AFS and Annual Report

  7. National Treasury monitoring of MIG • National Treasury ensures that all allocated funds are made in accordance to the payment schedule • Facilitates payments of grants through the safety web system • Support national departments with withholding, and advancement of the transfers and amendment of the payment schedule • DCoG and municipalities submit monthly and quarterly reports i.e. financial performance • Performance reports (non-financial) submitted to NT quarterly • Weekly, monthly and quarterly meetings with DCoG to discuss MIG quarterly and monthly reports, address challenges and propose solutions • DCoG submits annual evaluation reports to the National Treasury • Quarterly publication in terms of section 71 of MFMA

  8. Fourth Quarter Local Government Section 71 Report (Preliminary results)For the period: 1 July 2015 – 30 June 2016

  9. Fourth Quarter Local Government Section 71 Report (Preliminary results)For the period: 1 July 2015 – 30 June 2016 • In the 2015/16 financial year MIG had a total allocation of R14.9 billion in terms of the 2015 Division of Revenue Act (Act No. 1 of 2015). The allocation was later reduced by R67.8 million to R14.8 billion. R14.8 billion was approved for MIG and transferred to municipalities in 2015/16 • MIG is the third best preforming grant with expenditure of R13.8 billion or 93.1 per cent of the adjusted MIG allocation of R14.8 billion • Through the stopping and re-allocation of conditional grants against slow spending municipalities to faster spending municipalities, improved expenditure was obtained on the MIG

  10. Fourth Quarter Local Government Section 71 Report (Preliminary results)For the period: 1 July 2015 – 30 June 2016 • The fourth quarter performance also takes into account the shifting of funds between municipalities through the adjustment gazettes published on 26 February 2016 and 30 March 2016 respectively (Government Gazettes No. 39746 and No. 39869 respectively) • Another key milestone on the stopping and re-allocation was that, where a DM has the capacity to implement infrastructure projects on behalf of Local Municipalities (LMs) with institutional capacity and cash flow challenges, MIG funds were re-allocated to DMs to spend on behalf of the struggling LMs. • MIG amounts of R23.6 million and R3.3 million (Makana and Ikwezi LMs) were stopped and re-allocated to Sarah Baartman DM in the Eastern Cape and R29.1 million in MIG was stopped from Thabazimbi LM and re-allocated to Waterberg DM

  11. Fourth Quarter Local Government Section 71 Report (Preliminary results)For the period: 1 July 2015 – 30 June 2016 • The approach followed with regard to the MIG stopping and re-allocation of grants in 2015/16 was that funds were first re-allocated within a district, then within a province, and only after there were no qualifying municipalities in that province, funds were re-allocated to municipalities in other provinces. • This meant service delivery in municipalities within a DM, however the Limpopo province suffered when MIG funds were stopped and re-allocated • Municipalities that have lost their 2015/16 MIG funds through this process will be assisted in the next financial year with the same stopping and reallocation process if they show a better spending performance

  12. Fourth Quarter Local Government Section 71 Report (Preliminary results)For the period: 1 July 2015 – 30 June 2016 • The fourth quarter performance includes expenditure reported by municipalities against the approved roll-overs for unspent conditional grants allocated in the 2014/15 financial year and spent in the 2015/16 financial year • A total roll-over amount of R654.3 million in MIG was approved for municipalities from the 2014/15 to the 2015/16 financial year. Out of their roll-overs municipalities only managed to spend R162.4 million

  13. Fourth Quarter Local Government Section 71 Report (Preliminary results)For the period: 1 July 2015 – 30 June 2016

  14. 2016/17 proposed conversion of MIG allocations • Section 21 subsection (1) (a), (b) and (i) of the Division of Revenue Act, 2016 (Act No. 03 of 2016), which states: if satisfied that the conversion will prevent under-expenditure or improve the level of service delivery in respect of the allocation in question NT may convert any portion of an allocation listed in Part B of Schedule 5 to one listed in Schedule 6 Part B • National Treasury is intending to convert a portion of the 2016/17 MIG allocation in terms of section 21 of the 2016 DoRA against the following municipalities; - Mopani District Municipality, - Mafube Local Municipality, and - Ngaka Modiri Molema District Municipality.

  15. 2016/17 proposed conversion of MIG allocations • The conversion for Mopani District Municipality is informed by consistent poor performance against the MIG allocation. As the result of poor performance the allocation MIG has been reduced and their unspent MIG allocation has been offset against their Equitable Share (ES) grant • Fezile Dabi DM and Mafube LM failed to agree on a SLA during 2015/16 year • Ngaka Modiri Molema DM has been experiencing numerous challenges which include amongst others the issues of governance, cash flow challenges, litigations and backlogs against projects and so on.

  16. 2016/17 proposed stopping and re-allocation of MIG allocations • In addition, National Treasury is also intending to stop and reallocate the 2016/17 MIG allocation of Thabazimbi Local Municipality and Makana Local Municipality in terms of section 19 of the 2016 DoRA • Similarly to 2015/16 NT in consultation with DCoG intends to stop the MIG allocation of Thabazimbi LM because of consistent under-spending against the project. This allocation will be reallocated against Waterberg DM to implement the infrastructure projects on behalf of the LM • Further, NT also intends to stop the MIG allocation of Makana LM and re-allocate to Sarah Baartman DM because of continued institutional challenges that hinders the munic to implement infrastructure projects • By converting to schedule 6B, the municipality would not run the risk of potentially losing some of their allocated funds through the stopping and reallocation process should they perform poorly during the financial year

  17. Procedure for applying for roll-overs • Municsmust submit 2015/16 roll-over applications or required information by 31 August 2016, if not, application will not be considered. • Munics to supply NT with the following info: • Formal letter signed by AO, addressed to NT requesting roll-over of unspent CGs ito section 22 (2) of the 2016 DoRA • List of projects that are linked to the unspent CGs, and evidence that work has commenced on each of the projects, including the following: • Proof that the project tender was published and the period for tender submissions closed before 30 June 2016; or • Proof that a contract for delivery of the project was signed before 30 June 2016 • Progress report on implementation of each of the projects • Amount of funds committed to each project, and the conditional allocation from which the funds come from

  18. Procedure for applying for roll-overs • Reasons why the grant(s) were not fully spent in the year that it was originally allocated as per the DoRA; and • An indication of the time-period within which the funds are to be spent; and Proof that the CFO is permanently appointed. • Submission of pre-audit AFS including accurate disclosure of grant performance • When considering roll-over requests from municipalities, all unspent cash backed grants should be classified only as “Cash and cash equivalents”. This number must also reconcile with the cash flow statements. • All conditional grants must be spent in line with the conditions for which they are set for. They must not be invested

  19. Timelines for roll-over process • Municipalities should have their application sent by 31 August 2016 • National departments should meet and discuss the roll-overs between 31 August and end of 15 September 2016 in order to make a decision before re-gazetting • A decision should made final by 2 October 2016 • By 31 October 2016; all monies for roll-overs not approved and unspent funds not requested for roll-over should be paid back to the National Revenue Fund (NRF) • By November 2016; if unspent monies are not paid back, they will be offset against the 1 December 2016 and next trench of the Equitable Share and or their conditional grants

  20. Additional Info required for roll-overs • Compliance to in year reporting, section 71 and 72 of the MFMA and section 12 of DoRA including the MM and CFO signing-off on the info sent to NT • Submission of 2015/16 pre-audit AFS by 31 August 2016 • Accurate grant disclosure • Min expenditure of 50 per cent of the allocation per grant • No approval granted for requests for the same grant for the 3rd consecutive time • Incorporation of the appropriation statement as part of the AFS

  21. Reporting and Accounting for Municipal Conditional Grant Approved for Roll-over • A municipality must report separately on the spending of conditional grant funds that are rolled over • A roll-over reporting template will be provided to all municipalities that have approved roll overs • The roll-over reporting template must be submitted together will a normal template for reporting conditional grant spending for the current year • Municipalities that have approved roll-overs can request a reporting template at lgdataqueries@treasury.gov.za • TOs are encouraged to monitor the approved roll-over spending on a monthly basis

  22. 2014/15 MIG roll-over and unspent CG process and outcomes

  23. 2014/15 MIG roll-over and unspent CG process and outcomes

  24. 2015/16 MIG roll-over requests • In assessing these roll-over requests, procedure for applying for roll-overs and criteria outlined in MFMA Circulars 75 and 79 will be applied (slides 8 – 12)

  25. Challenges experienced in MIG Monitoring • Misalignment between the allocation and ready projects • Projects not aligned with MIG policy • Inability to ring-fence MIG • Inconsistencies in reporting across various stakeholders • Usage of MIG for operational purposes • Late submission of documentation • Advance payment of MIG to contractors/risking vandalism

  26. Challenges experienced in MIG Monitoring • In depth monitoring on ready projects • Proper assessment on the payment schedule • Ensuring/facilitates that Accounting officers sign off on reports • Close relations between all stakeholders that monitors conditional grants • Consideration of other delivery mechanisms like conversion of the allocation and invoice verification process • Supporting of the BTO (budget and Treasury Offices) and PMU (Project Management units) by NT and CoGTA (MISA, Water boards, etc)

  27. Thanks

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