CHAPTER THREE LOCAL GOVERNMENT FINANCING AND
3.5 BUDGET AND BUDGETARY PROCESS
3.4.7 Strategic Plans and Business Plan
A strategic plan consists of key performance outcomes for the public service. The strategies are designed by the department. Business plans are derived from strategic plans. The business plans consist of indicators, programmes and operational guidelines.
Budgets can be viewed as important components of business plans and do not necessarily replace business plans ( Visser and Erasmus,2005:12).
3.4.8 Provisioning
Provisioning or procurement is a very important component of public financial management. Procurement is charged with the acquisition, disposal, and management of assets and services for the state. Mechanisms such as legislation and policies are put in place to ensure that proper procurement processes and asset management take place (Visser and Erasmus, 2005:11).
National legislation must prescribe the format of national, provincial and municipal budgets, the tabling thereof, and the sources of revenue, and the way in which proposed expenditure will comply with national legislation. The budgeting cycle is categorised into four phases, namely:
(a). Preparation of the budget;
(b). Approval of the budget;
(c ). Implementation or the execution of the budget; and (d). Control ( Pauw et al ,2002:48).
Chapter 4 of the Act lays down the process and procedure that must be followed by municipalities in preparation of budgets. The four distinct processes are discussed below.
3.5.1 Preparation of the budget
The initial stage in the budget process is the preparation stage. The preparation stage involves information gathering, the type of budget, the structure of the budget, projections, identification of revenue sources, comparative analysis of expenditure and revenue patterns. It is at this stage that extensive participation by various state institutions takes place. The result is a draft budget which is a comprehensive, consolidated document ready for parliamentary debate and approval (Pauw et al, 2002:48).
In local government preparation stage commences with the adoption of the Mayoral Notice which grants the municipality approval to commence with the preparation for the budget. The Notice must be adopted ten months before the commencement of the financial year. The financial year cycle for municipalities starts in July and it ends in June of the following year, which means, therefore, that the budgeting process commences in September of each year. The adoption of the Mayoral Notice must take place before the end of August of each year (Pauw et al ,2002:48).
3.5.2 Approval of the budget
The approval of the budget is the climax of the budgetary process. The approval is preceded by a series of events such as intensive public input and parliamentary and council debates. The approval of the budget must take place before the commencement of the financial year, ideally one month before the commencement of the ensuing financial year. In local government the final date for the approval is the end of May each year. The approval of the budget cannot be delegated. Various committees are involved. Budgets can only be approved and adopted by the full sitting of Council. (Pauw et al , 2002:48).
3.5.3 Implementation of the Budget
After the approval of the budget, implementation takes place. This is the stage where programmes are set in motion to achieve set objectives. The implementation is guided by relevant policies and operational guidelines. Policies lie under the leadership of the Minister as the political head, and administration lies under leadership of the accounting officer (Pauw, 2002:48). Accounting officers ensure that the atmosphere is conducive for policies to be implemented.
In local government implementation of the budget commences with the approval and adoption of the Budget Implementation Programme which must be adopted not later than two weeks after the adoption of the budget. The Budget Implementation Programme is a plan of action which details the manner in which the budget must be spent (Pauw et al ,2002:48).
3.5.4 Control
Control and evaluation form a vital part of effective budget execution. The budget cycle is completed once the report of the Auditor General has been accepted by parliament. The Report of the Auditor General is paramount to effective control of the public purse.
Pauw et al (2002:78) state that budgets by “their own nature are ex ante control measures”. Budget are therefore control measures before the effect, whilst the Auditor General’s report is a “post facto” control measure.
Control starts with the preparation of the budget. The approval of the budget provides a certain measure of control. Control is also exercised through the implementation stage with the use of procurement procedures, accounting systems, internal audit, training of personnel and other means. Council must set policies and provide an oversight role. The Office of the Auditor General must conduct an annual audit into the finances of the municipality and present its report to Council and to Parliament. The control of the budget for the year ends when parliament adopts the report of the Auditor General.
Budgets for municipalities are streamlined according to two avenues; namely, the revenue stream and the expenditure stream. The Constitution assigns certain functions to municipalities and the following may not be delegated:
(a) approving budgets,
(b) imposing rates, taxes, levis and duties, and (c ) raising loans”. (Pauw et al, 2002:256).
The budgeting guidelines and procedures are outlined in the Local Government Municipal Finance Management Act (Act 56 of 2003). Chapter 4 states:
Appropriation of funds for expenditure:
15. A municipality may, except where otherwise provided in this Act, incur expenditure only in terms of an appropriated budget; and
(h) Within the limits of the amounts appropriated for the different votes in an approved budget.
Annual budgets
16. (1) The council of a municipality must for each financial year approve an annual budget.
17. ( 1 ) An annual budget of a municipality must be a schedule in the prescribed format setting out realistically anticipated revenue for the budget year from each revenue source appropriating expenditure for the budget year under the different vote for the municipality; setting out indicative revenue per revenue source and projected expenditure by vote for the two financial years following the budget year; setting out…
Municipal budgets must be approved on an annual basis. Budgets must follow a prescribed format, be realistic and should enlist all the sources of revenue.
According to Reddy et al, (2003: 10):
Budgets must
a. follow a prescribed format;
b. be balanced and realistic; and
c. comply with the Integrated Development Plan.
In addition, budgets must reflect the following:
a. estimated revenue;
b. estimated current expenditure;
c. estimated interest, debt servicing charges and loan repayment; and d. Estimated capital expenditure.
In South Africa, the Municipal Finance Management Act (Act 56 of 2003) prescribes that a multi-year budget be prepared on the basis of the national approved Multi-Term Expenditure Framework.