1 / 59

COGTA: MUNICIPAL FINANCE 06 OCTOBER 2019

MUNICIPAL FINANCE. COGTA: MUNICIPAL FINANCE 06 OCTOBER 2019. MUNICIPAL FINANCE CIGFARO CONFERENCE – SCM MASTERCLASS. UNAUTHORISED, IRREGULAR, FRUITLESS AND WASTEFUL EXPENDITURE. EXPENDITURE MANAGEMENT. Unauthorised, Irregular, Fruitless and Wasteful Expenditure

gen
Download Presentation

COGTA: MUNICIPAL FINANCE 06 OCTOBER 2019

An Image/Link below is provided (as is) to download presentation Download Policy: Content on the Website is provided to you AS IS for your information and personal use and may not be sold / licensed / shared on other websites without getting consent from its author. Content is provided to you AS IS for your information and personal use only. Download presentation by click this link. While downloading, if for some reason you are not able to download a presentation, the publisher may have deleted the file from their server. During download, if you can't get a presentation, the file might be deleted by the publisher.

E N D

Presentation Transcript

  1. MUNICIPAL FINANCE COGTA: MUNICIPAL FINANCE 06 OCTOBER 2019

  2. MUNICIPAL FINANCE CIGFARO CONFERENCE – SCM MASTERCLASS UNAUTHORISED, IRREGULAR, FRUITLESS AND WASTEFUL EXPENDITURE

  3. EXPENDITURE MANAGEMENT • Unauthorised, Irregular, Fruitless and Wasteful Expenditure • Objectives of the presentation are to: • State the regulatory and legislative requirements surrounding fruitless, wasteful and irregular expenditure. • Provide definitions of fruitless, wasteful and irregular expenditure. • To provide examples of fruitless, wasteful and irregular expenditure. • To outline procedures to manage, prevent, investigatesuch expenditures. • To highlight the consequences of not complyingwith the relevant regulatory and legislative requirements

  4. Introduction Section 217 of the Constitution provides that (1) “When an organ of state in the national, provincial or local sphere of government, or any other institution identified in national legislation, contracts for goods or services, it must do so in accordance with a system which is fair, equitable, transparent, competitive and cost-effective.” ( 2 ) Subsection ( 1 ) does not prevent the organs of state or institutions referred to in that subsection from implementing a procurement policy providingfor- (a) categories of preference in the allocation of contracts; (b) the protection or advancement of persons, or categories of persons, disadvantaged by unfair discrimination

  5. …continued • Based on the above, it is clear that when an organ of state contravenes or violates relevant legislation, MFMA, it is potentially violating the Constitution of the Republic as for any legislation to be enacted as law, it has to be in line with the provisions of the Constitution of the Republic; • UIFW is normally incurred in instances where the SCM or Procurement Process was judged not to be “fair, transparent, competitive and cost-effective”, (section 217(1) of the Constitution); or • The municipality failed to take into account the relevant legislations like BBBEE, PPPFA that promote and protect categories of persons, disadvantaged by unfair discrimination, s217(2) of the Constitution; or • Providing stipulated minimum threshold of portion of local production and content as determined by the Department of Trade and Industry

  6. Triggers of Unauthorised, Irregular, Fruitless & Wasteful Expenditure • Blatant disregard for internal controls, adopted circulars, regulations, compliance with legislation, Internal Audit recommendations and AGSA recommendations results to municipalities incurring unnecessary or avoidable costs during the process of procurement processes; • In some cases, if not most, inadequate controls are put in place that the municipalities do not incur or pay exorbitant prices for goods and services thereby ensuring value for money;

  7. Triggers of Unauthorised, Irregular, Fruitless & Wasteful Expenditure • Failure to review budget related policies to ensure they are continually updated to ensure relevance and standard operating procedures (SOPs) are in place to simplify the processes contained in the SCM policies thereby ensuring that officials are guided by uniformity and consistency in executing their duties; • Lack of/absence of Procurement Plans aligned to approved budgets are also major contributing factor to unnecessary procurements not geared towards service delivery but leaning towards spending budgets just because funds are available, no need assessment is done to justify the spending guided by Cost Containment Regulations (effective from 01/07/2019);

  8. …continued • Abuse of deviations, which are allowed in law as long as justifiable in terms of s36(1) of the SCM Regulations, remains one of the challenges engulfing the municipalities whereby normal procurement processes are by-passed to favour certain service providers or procuring goods or services not prioritized in terms of service delivery; • Abuse of section 32 in terms of SCM Regulations whereby SCM processes are by-passed illegally to favour certain companies already providing services in other organs of state

  9. …continued • Lack of obtaining sufficient or required quotations guided by SCM regulations to ensure that prices to be paid are competitive and market related to ensure cost containment measures; • Poor contract managementthat result to using service providers in the supplier database whose contracts have expired; • Lack of performance management of service providersalso contributes immensely in municipalities not getting value for money for goods and services derived through SCM processes and expenditure management

  10. DEFINITIONS: Irregular Expenditure In terms of the definition of irregular expenditure as defined in section 1 of the MFMA, the following is applicable: “irregular expenditure”, in relation to a municipality or municipal entity, means— (a) expenditure incurred by a municipality or municipal entity in contraventionof, or that is not in accordance with, a requirement of this Act, and which has not been condoned in terms of section 170; (b) expenditure incurred by a municipality or municipal entity in contravention of, or that is not in accordance with, a requirement of the Municipal Systems Act, and which has not been condoned in terms of that Act; (c) expenditure incurred by a municipality in contravention of, or that is not in accordance with, a requirement of the Public Office-Bearers Act, 1998 (Act No. 20 of 1998); or (d) expenditure incurred by a municipality or municipal entity in contravention of, or that is not in with, a requirement of the supply chain management policy of the municipality or entity or any of the municipality’s by-laws giving effect to such policy, and which has not been condoned in terms of such policy or by-law, but excludes expenditure by a municipality which falls within the definition of “unauthorised expenditure”.

  11. DISTINCTION BETWEEN UNAUTHORISED EXPENDITURE AND IRREGULAR EXPENDITURE If a department incurs expenditure that contravenes any applicable legislation, such expenditure meets with the definition of irregular expenditure and must be classified as such. Should the same expenditure in paragraph above relate to the procurement of goods or services that is not in accordance with the purpose of the vote or main division within a vote or which results in the overspending of the main vote or main division within a vote, such expenditure also meets with the definition of unauthorised expenditure.

  12. DISTINCTION BETWEEN UNAUTHORISED EXPENDITURE AND IRREGULAR EXPENDITURE Considering that irregular expenditure is defined as expenditure other than unauthorised expenditure, this means that unauthorised expenditure shall take precedence over irregular expenditure.

  13. Unauthorised Expenditure In terms of the definition of unauthorised expenditure as defined in section 1 of the MFMA, the following is applicable: "unauthorised expenditure", in relation to a municipality, means any expenditure incurred by a municipality otherwise than in accordance with section 15 or 11(3), and includes- (a) overspending of the total amount appropriated in the municipality's approved budget; (b) overspending of the total amount appropriated for a vote in the approved budget; (c) expenditure from a vote unrelated to the department or functional area covered by the vote; (d) expenditure of money appropriated for a specific purpose, otherwise than for that specific purpose; (e) spending of an allocation referred to in paragraph (b), (c) or (d) of the definition of "allocation" otherwise than in accordance with any conditions of the allocation; or (f) a grant by the municipality otherwise than in accordance with the Act; Regulation 23 of the Municipal Budget and Reporting Regulations i) Timeframes for tabling adjustment budgets.

  14. …continued Regulation 23 of the Municipal Budget and Reporting Regulations provides for the following: • Adjustment budget to avoid unauthorised expenditure must be tabled by 28 February (main adjustment budget); • Adjustment budget to approve a roll-over should be tabled by 25 August (special adjustment budget); • Special adjustment budget to approve any unforeseen or unavoidable expenditure in terms of s29 of the MFMA; • Special adjustment budget to approve previous year’s unauthorised expenditure disclosed in the Audited AFS in an Annual Report in terms of s127(2) of the MFMA

  15. DISTINCTION BETWEEN VIREMENT AND SHIFTING OF FUNDS • Virementis the movement of funds from one main division within a vote to another main division with the same vote. Shifting of funds takes place between economic classifications within a main division of a vote.

  16. UNFORESEEN AND UNAVOIDABLE EXPENDITURE Unforeseen and unavoidable expenditure is discussed in section 29 of the MFMA and reads as follows, to be read with s71(1) of MBRR: (1) The mayor of a municipality may in emergency or other exceptional circumstances authorise unforeseeable and unavoidable expenditure for which no provision was made in an approved budget. (2) Any such expenditure— (a) must be in accordance with any framework that may be prescribed; (b) may not exceed a prescribed percentage of the approved annual budget as per section 72 of MBRR; (c) must be reported by the mayor to the municipal council at its next meeting; and (d) must be appropriated in an adjustments budget. (3) If such adjustments budget is not passed within 60 days after the expenditure was incurred, the expenditure is unauthorised and section 32 applies.

  17. UNFORESEEN AND UNAVOIDABLE EXPENDITURE Section 71(1) of the MBRR defines an emergency as a situation if delayed might cause: i) financial loss to the municipality; ii) disruption or suspension, or serious threat to the continuation, of a basic municipal service; iii) lead to loss of life or serious injury or significant damage to property; or iv) obstruct the municipality from instituting or defending the legal proceedings on an urgent basis

  18. UNFORESEEN AND UNAVOIDABLE EXPENDITURE However Section 71(2) of the MBRR specifically excludes the following: items considered by the council but not included in the annual budget or adjustment budge of the municipality; During the financial year, is required for: i)price increases for goods and services; ii)new municipal services or functions; iii)the extension of municipal services or functions; iv) the appointment of personnel; and v) allocating discretionary appropriations to any vote Would contravene any existing municipal policies; Is intended to ratify irregular or fruitless & wasteful expenditure

  19. Fruitless and Wasteful Expenditure In terms of the definition of fruitless & wasteful expenditure as defined in section 1 of the MFMA, the following is applicable: "fruitless and wasteful expenditure" means expenditure that was made in vain and would have been avoided had reasonable care been exercised. NB: Fruitless and wasteful expenditure must fulfil both the conditions in the definition, namely, that it was made in vain and it would have been avoided had reasonable care been exercised

  20. …continued “Reasonable care” is defined as: Applying due diligence (careful application, attentiveness, caution) to ensure that the probability of a transaction, event or condition not being achieved as planned is being managed to an acceptable level. “In vain” is defined as: A transaction, event or condition which was undertaken without value or substance and which did not yield any desired results or outcome.

  21. Role of the Accounting Officer’s Office in preventing UIFW General Financial Management Functions - MFMA – s62(1)(d) & (f)(iv) • The Accounting officer is supposed to take all reasonable steps to ensure that unauthorised, irregular or fruitless and wasteful expenditure and other losses are prevented; and a supply chain management policy is strictly implemented • Among the issues that have been raised by The Auditor General under Expenditure Management in various Audit Reports of the municipalities is the general failure to implement the above sections

  22. …continued • The implementation of the above sections can be effected in various ways by the Accounting Officer using all resource at his/her disposal, including but not limited to: • Internal Audit monitoring if there is strict adherence to SCM Regulations in a form of using a Procurement Checklist or SOPS during the procurement process; • Use of support by the Internal Audit department, which reports to the Accounting Officer administratively as long as such support will be free from undue influence, free from any conflict of interest and maintain its independence at all material times;

  23. …continued • Internal Audit independence should be viewed through the lenses of acknowledging that ad-hoc or regular reviews (may include monitoring the submission of UIFW Register to Council, CoGTA& AG in terms of MFMA S32(4) and reviewing tender processes before Adjudication Stage) or investigations (s32(2) of the MFMA as directed by MM) that Management and Audit Committee may request, should be considered where capacity permits to undertake or perform such tasks; and • Lines should always be clear that Internal Audit has no direct responsibility for or authority over, any of the Municipality’s activities beyond what can be regarded as advisory

  24. Internal Audit Role in assisting with the prevention of irregular expenditure • Bid reviews prior to award; • Conducting due diligence on outcomes of bid evaluation processes and issuing a compliance certificate to the respective bid adjudication committees; • Where non-compliance which may result in irregular expenditure is detected, the Internal Audit makes recommendations to the relevant BAC and the Accounting Officer to either withdraw, cancel the bid or other appropriate recommendation on how to proceed with the procurement processes; • It may be made compulsory for Internal Audit to independently review bids exceeding R10 million (all applicable taxes included) prior to awarding of contracts and table such reports to Bid Adjudication Committee for consideration of their findings and recommendations

  25. Internal Audit Role may focus on the following • The regulatory audit on procurement may reveal a number of internal control weaknesses in relation to bidding processes and procedures, which may include amongst others: • Bidders Incorrectly ranked; • Bids not advertised for a minimum period; • Unjustifiable or unreasonable grounds for disqualification of bidders; • Vast Discrepancies in points allocated for functionality criteria by members of Bid Evaluation Committees (BEC);

  26. Internal Audit Role in assisting with the prevention of irregular expenditure • Bidders names not advertised on the website; • Inadequate budget availability controls; • BEE points incorrectly awarded; • Shortlisted bidders do not appear in the list of prohibited Suppliers; or • Prior to the bid being awarded, SCM verifies the bidder’s information on the register of restricted suppliers and tender defaulters on National Treasury website; • Lastly verification is also done before the contract is signed; and • The CSD registration reports are kept for audit purpose.

  27. Auditor General Summary of findings • According to Auditor General’s findings, most common findings relating to consequence management were that investigations of unauthorised, irregular and/or fruitless and wasteful expenditure were not taking place; • 80% of the total irregular expenditure incurred has not been dealt with by the Municipal Councils; • 74% of the total unauthorised expenditure has not been dealt with by the Municipal Councils; • 60% of the total fruitless and wasteful expenditure has not been dealt with by Municipal Councils;

  28. Auditor General Summary of findings • Inadequate investigations are being performed, whereby 77% of investigations took longer than 3 months, 15% of allegations were not properly investigated, and 8% of the completed investigations, disciplinary proceedings were not instituted for confirmed cases of fraud/misconduct; • 49% of SCM findings reported for investigation were not investigated • The above stats points a bleak picture in terms of commitment by Municipalities to implement or enforce consequence management.

  29. List of causes of incurring UIFW as picked up by the Auditor General • Contravention of SCM Regulations that result to irregular procurement process; • S13 – Declaration on being on the service of the state or connected to such person • S14 – List of accredited prospective providers (through written or verbal quotations and formal written price quotations); • S16 – Written or Verbal Quotations (R2000 up to R10 000 (VAT included); • S17(1)(a) & ( c ) – Formal written quotations from at least different 3 service providers and documented reasons for not obtaining such quotations (R10 000 up to R200 000 (VAT included); • S18 – Procedure for procuring goods and services through written quotations and formal written price quotation • S19 – Competitive Bids (Goods or services may not deliberately be split into parts or items of a lesser value merely to avoid complying with the requirements of this Policy); • S29 – Bid Adjudication Committees;

  30. List of causes of incurring UIFW as picked up by the Auditor General • Contravention of SCM Regulations that result to irregular procurement process (continued); • S32 – Procurement of goods and services under contract secured by another organ of State; • S36 – Deviations (unqualifying or not approved by relevant authority) • S42 – Performance Management • S43 - Prohibition on awards to persons whose tax matters are not in order; and • S44 – Prohibition on awards to persons in the service of the State • MFMA s116 – Contract and Contract Management

  31. Procurement Process may include the following • Ensuring that Procurement Plans aligned to the approved Budgets & SDBIPs are in place; • Proper Management of expansion or variation of orders against the original contract in terms of S116(3) of the MFMA; • Quotations are available, where applicable; • Tender Documents or SCM Documents are available at all times; • Check on service providers that are on service of the State; • Check on Tax Clearance of service providers prior to appointment; • Valid contracts are in place prior to procuring goods and services, not at the point of payment

  32. Consequence Management - OVERVIEW • An accounting officer of a municipality or municipal entity commits an act of financial misconduct if deliberately or negligently contravenes a provision in the MFMA, makes or permits or instructs another official to incur UIFW expenditure, provides incorrect or misleading information to the mayor, council, AGSA, National Treasury or other organs of state and the public. • An accounting officer must take disciplinary or, when appropriate, criminal proceedings against any official of the municipality who has allegedly committed an act of financial misconduct; • Officials commit financial misconduct if deliberately or negligently fails to carry out delegated duty, makes or permits or instructs another official to incur UIFW expenditure or provides incorrect or misleading information to the accounting officer

  33. LEGISLATION: MFMA S32 – Consequence Management (1) Without limiting liability in terms of the common law or other legislation— (a) a political office-bearer of a municipality is liable for unauthorised expenditure if that office-bearer knowingly or after having been advised by the accounting officer of the municipality that the expenditure is likely to result in unauthorised expenditure, instructed an official of the municipality to incur the expenditure; (b) the accounting officer is liable for unauthorised expenditure deliberatelyor negligently incurred by the accounting officer, subject to subsection (3); (c) any political office-bearer or official of a municipality who deliberately or negligently committed, made or authorised an irregular expenditure, is liable for that expenditure; or (d) any political office-bearer or official of a municipality who deliberately or negligently made or authorised a fruitless and wasteful expenditure is liable for that expenditure.

  34. …continued (2) A municipality must recover unauthorised, irregular or fruitless and wasteful expenditure from the person liable for that expenditure unless the expenditure— (a) in the case of unauthorised expenditure, is— (i) authorised in an adjustments budget; or (ii) certified by the municipal council, after investigation by a council committee, as irrecoverable and written off by the council; and (b) in the case of irregular or fruitless and wasteful expenditure, is, after investigation by a council committee, certified by the council as irrecoverable and written off by the council.

  35. …continued (3) If the accounting officer becomes aware that the council, the mayor or the executive committee of the municipality, as the case may be, has taken a decision which, if implemented, is likely to result in unauthorised, irregular or fruitless and wasteful expenditure, the accounting officer is not liable for any ensuing unauthorised, irregular or fruitless and wasteful expenditure provided that the accounting officer has informedthe council, the mayor or the executive committee, in writing, that the expenditure is likely to be unauthorised, irregular or fruitless and wasteful expenditure.

  36. …continued (4) The accounting officer must promptly inform the mayor, the MEC for local government in the province and the Auditor General, in writing of; (a) any unauthorised, irregular or fruitless and wasteful expenditure incurred by the municipality; (b) whether any person is responsible or under investigation for such unauthorised, irregular or fruitless and wasteful expenditure; and (c) the steps that have been taken by the municipality; (i) to recover or rectify such expenditure; and (ii) to prevent a recurrence of such expenditure

  37. …continued (5) The writing off in terms of subsection (2) of any UIFW as irrecoverable is no excuse in criminal or disciplinary proceedings of person charged with the commission of an offence or breach of MFMA; (6) The Accounting Officer must report to the South African Police Services all cases of alleged- (a) irregular expenditure that constitutes criminal offense; (b) theft and fraud occurred in the municipality (7) The Council of the Municipality must take all reasonable steps to ensure that all cases referred to in subsection (6) are reported to the SAPS, if- (a) the charge is against the Accounting Officer; or (b) the Accounting Officer fails to comply with that subsection NB: Internal Audit must not, under any circumstances, undertake investigations on cases referred to in (6) and (7) above

  38. PROCEDURE: MFMA S176 - Liability of functionaries exercising powers and functions Section 176 of the MFMA reads as follows: • No municipality or any of its political structures, political office-bearers or officials, no municipal entity or its board of directors or any of its directors or officials, and no other organ of state or person exercising a power or performing a function in terms of this Act, is liable in respect of any loss or damageresulting from the exercise of that power or the performance of that function in good faith. (2) Without limiting liability in terms of the common law or other legislation, a municipality may recover from a political office-bearer or official of the municipality, and a municipal entity may recover from a director or official of the entity, any loss or damage suffered by it because of the deliberateor negligent unlawful actions of that political office-bearer or official when performing a function of office.

  39. PROCEDURE: MFMA – Financial Misconduct by Municipality Officials & Offences Section 171(1) of the MFMA (c) The Accounting Officer of a municipality is committing an offense if he deliberately or negligently fails to take all reasonable steps to prevent unauthorised, irregular or fruitless and wasteful expenditure; Section 173(1)(a) of the MFMA (iii) The Accounting Officer of a municipality is guilty of an offence if that accounting officer deliberately or in a grossly negligent way fails to take all reasonable steps to prevent unauthorised, irregular or fruitless and wasteful expenditure;

  40. Criminal offences in the MFMA decided by the Court • A recent judgment handed down by the Western Cape High Court held a former municipal manager criminally liable for offences relating to irregular expenditure. • The case raises concerns about the severity of the penalty that municipal managers – acting with good intentions and in what they believe to be the best interests of the municipality – may face for failing to prevent irregular expenditure. • In Martin Noel Pietersen v the State [Case Number: A309/2017] – an appeal judgment handed down on 6 February 2019 – the Western Cape Division of the High Court imposed a sentence of two years’ imprisonment on a former municipal manager of the Oudtshoorn Municipality.

  41. Decided Court Case against the Accounting Officer • The former municipal manager was found to have deliberately failed to implement the Municipality’s supply chain management (SCM) policy by not taking reasonable steps to prevent irregular expenditure arising from the irregular appointment of a service provider and the authorisation of irregular payments to the same service provider (amounting to R2,082,093). • At the time of the offence, several of the Municipality’s officials were suspended or facing suspension and several councillors were facing disciplinary proceedings for alleged misconduct uncovered by investigations. • In light of the aforesaid circumstances, the Municipality’s municipal manager at the time, was instructed by the speaker, the mayor and several senior council membersto stop the investigation ongoing at the time and appoint a consultant who could “independently investigate without a political motive”.

  42. …continued • He, acting on the instruction of the speaker and the mayor (the political office-bearers), proceeded to appoint a service provider as the consultant using SCM Regulation s36(1)(a)(i) Deviation and s36 of the Municipality’s SCM policy. • The basis for the deviation was that the specialised services of the service provider were urgently required to resolve the dysfunction of council and to bring political and administrative stability to the Municipality before the next election. • The Accounting officer, in his capacity as municipal manager, concluded a service-level agreement with the service provider. • This led to a conviction of five years’ imprisonment on five counts of contravening several provisions of the MFMA in respect of actions he carried out during his tenure as the Accounting Officer of the Municipality

  43. …continued • All counts being taken together for purposes of the sentence. Mr Pietersen appealed against his conviction and sentence with the leave of the court a quo. • On appeal, the High Court found that the service provider was not appointed because of its expertise, but rather because the political office-bearers had instructedthe Accounting Officer to make the appointment. • Further, the appointment lacked urgency as the Accounting Officer could have proceeded with the appointment of the service provider by way of an expedited tender, and, in any event, the reason for the urgency was that the political office-bearers and he wanted the tasks completed before the next election. • The High Court held that a “self-imposed urgency based on political expedience does not amount to the sort of urgency or exceptional case contemplated in regulation 36”.

  44. …continued • The payments made to the service provider were thus held to constitute irregular expenditure for purposes of the MFMA. • The High Court found the Accounting Officer guilty of two of the five counts brought against him. • Specifically, he was found guilty of deliberately breaching the requirements of s62(1)(f) “SCM Policy implementation”, read with s173(1)(a)(i), of the MFMA, and s173(1)(a)(iii) of the MFMA. • The High Court explained that he committed a serious offence by deliberately breaching the SCM policy and the MFMA, and thereby failed to take reasonable steps to prevent irregular expenditure, in order to accommodate the political office-bearers who wanted him to appoint the service provider to assist them in achieving their political objectives for the Municipality

  45. …continued • The High Court held that the Accounting Officer bore the responsibility for the appointment and was therefore required, at all times, to act in accordance with the law. • Furthermore, the High Court noted his assertion that he acted in order to bring about stability and functionality at the Municipality. • Accordingly, the Court acknowledged that his actions were not actuated by greed; he derived no financial gain from appointing and paying the service provider; and he was genuinely trying to improve the operation of the Municipality. • The High Court explained that he committed a serious offence by deliberately breaching the SCM policy and the MFMA, and thereby failed to take reasonable steps to prevent irregular expenditure, in order to accommodate the political office-bearers who wanted him to appoint the service provider to assist them in achieving their political objectives for the Municipality

  46. …continued • However, the High Court reasoned that, despite Mr Pietersen’s goals being conceivably laudable, the end did not justify the means. The High Court held in this regard that: • “officials cannot be permitted to subvert the law in order to achieve personal ambitions or political objectives, however well intentioned. A strong message needs to be sent that they will be severely punished if they do so”. • Despite acknowledging MM’s good intentions, and only finding him guilty on two of the five charges brought against him, • The Court found that a suspended sentence, coupled with a fine, would be too lenient and, pursuant thereto, held that the imposition of a custodial sentence of two-years imprisonment would be appropriate.

  47. …continued • This case thus forcibly highlights the fact that the MFMA is no paper tiger – municipal officials not only face potential civil liability for incurring irregular expenditure, but also criminal liability for deliberately, or even grossly negligently failing to take reasonable steps to prevent irregular expenditure. • The judgment sets precedent and municipal officials, in particular municipal managers and chief financial officers, should be mindful of the possibility of being held criminally liable and facing imprisonment for offences under the MFMA, irrespective of whether an official contravened the SCM process in good faith and in the best interests of the Municipality, to ensure service delivery or by acting on the instructions of political office-bearers, • However it should be noted that, since the material irregularity did not amount to anyfinancial loss incurred by the municipality, no order was made to recover the expenditure from the Accounting Officer

  48. PROCEDURE: MFMA - Departures from treasury regulations or conditions Section 170 of the MFMA 1) The National Treasury may condone non-compliance with a regulation issued in terms of the MFMA or a condition imposed by the Act itself including Supply Chain Management Regulations Therefore, it follows that: • A council may only condone irregular expenditure resulting from a contravention of the SCM policy provided that the contravention is not also a contravention of the MFMA or the SCM Regulations, in which case only the National Treasury can condone a contravention of the SCM Regulations. • Minor breaches of the procurement process can be ratified by the Accounting Officer (if the municipality’s SCM policy allows for it). Only the breaches in the process can be ratified and not the irregular expenditure itself. • However, it should be noted that the Municipal Council is solely empowered to deal with the expenditure part of the UIFW in that, guided by section 32(2)(a) & (b) of the MFMA, to a point of recovery or writing off the expenditure in its financial statements through notes as per provisions of s125(2)(d) of the MFMA without obtaining or invoking s170 of the MFMA provisions.

  49. PROCEDURE: MFMA - Departures from treasury regulations or conditions Section 32 versus Section 170 of the MFMA • Municipal councils should note that its ability to resolve on the irregular expenditure is not dependent on National Treasury’s decision in relation to the municipality’s application for condonation in terms of section 170; • It is solely dependent on the investigation and recommendation from the council committee; • Whatever the municipal council resolves is sufficient for the municipality to adjust its annual financial statements from an accounting disclosure perspective. The treatment of expenditure associated with the non-compliance is therefore the responsibility of the Council.

  50. Dealing with Internal Investigation by the Institutions and implementation of Findings • The actions or decision of the council or accounting authority to certify the expenditure as recoverable/irrecoverable and be written off should be guided by the outcomes of a proper investigation clearly indicating the following: • Terms of Reference and Scope of the investigation *Inspection and analysis of the source documentation obtained, requested and provided • Process followed *Establish the nature of non-compliance (MFMA/SCM Regulations/POB Act) *Reason for UIFW (instruction given, by whom) *Whether UIFW results from minor breach *Financial loss suffered (material or immaterial) *Whether or not official acted deliberately or negligently

More Related