TABLE OF CONTENTS
SECTION ONE: INTRODUCTION
1.1 Introduction 3
1.2 Background to Dannhauser 4
1.3 Purpose and Objectives of the financial plan 1.4 Key Challenges for Financial Planning in Dannhauser 1.5 Key Aspects of the Financial Plan
4
5
8
8
9
SECTION TWO: STRATEGIC DEVELOPMENT
2.1. Powers and Functions 9
2.2 Vision
2.3 Mission 10
2.4 Dannhauser Overall Strategy 2.5 Key Developments
2.6 IDP Implementation Trends and Challenges
10
11
11
11
12
12
SECTION THREE: FINANCIAL PLANNING
14
14
3.1Introduction to Financial
3.2 FINANCIAL STRATEGY OVERVIEW
3.3 FINANCIAL GUIDELINES
3.4 FINANCIAL ARRANGEMENTS 3.5 Financial Guidelines and Procedures
15
15
16 SECTION FOUR: CURRENT BUDGET ANALYSIS
4.1 Salaries and Allowances
4.2 GENERAL EXPENSES BUDGET
4.3 OPERATING AND CAPITAL BUDGET PER MAIN
EXPENDITURE VOTES
4.4 INVESTMENT PLAN BUDGET AS NATIONAL KPIS
4.5 FIVE YEAR CAPITAL INVESTMENT PLAN BUDGET PER EXPENDITURE CATEGORY
17
17
19
21
23
24
4.6 DETAILED FIVE YEAR CAPITAL BUDGET
SECTION FIVE: FINANCIAL PLANNING
5.1 Capital and Operating Financial Strategies
5.2 REVENUE RAISING STRATEGIES
5.3 ASSET MANAGEMENT STRATEGIES
5.4 COST EFFECTIVE STRATEGIES 5.5 Policy Development and Refinement Strategy
25
25
26
26
26
SECTION SIX: SUPPORT PROGRAMMES
6.1 Produce Annual Update of the district MTEF
6.2 BUDGET ACCORDING TO IDP PRIORITIES
6.3 EFFECTIVELY MANAGE CREDIT CONTROL
6.4 GROW REVENUE STREAMS
27
27
27
28
28
28
SECTION ONE: INTRODUCTION
1.30 1.1: INTRODUCTION
The Integrated Development planning (IDP) guidelines and Municipal Systems Act advice each municipality to prepare a financial plan as a component of the IDP. This plan mainly allows the municipality to plan its finances and manage them efficiently. It is also in the interest of the plan to find alternative ways of mobilizing financial resources required to implement key strategic programmes and projects as prioritized in the IDP.
In the light of such requirements Dannhauser Municipality has committed itself in running a seamless financial administration thereby improving its financial viability. Such commitment comes against the background of limited revenue base within the municipal area that tends to hinder any municipal attempts to expedite the implementation of developmental programmes.
Section 26 of the Municipal Systems Act prescribes the key components of an IDP and the financial plan fall within the Implementation framework of the IDP which deals with implementation of financial strategies. The financial plan must be aligned with the vision. Clearly, the proper financial plan should demonstrate linkages between IDP and Budget and most importantly comply with the stipulated legislation.
To this end, it is worth noting that the successful service delivery in any municipality will evolve around availability of financial resources and the manner in which those resources are managed. The financial viability of any municipality always depends on its capacity to mobilise resources and create sound economic base that will support revenue generation strategies.
6.5 SEEK ALTERNATIVE SOURCES OF FUNDING 6.6 Reduce Costs to the Organisation
1.31 1.2: BACKGROUND TO DANNHAUSER MUNICIPALITY
1.2.1 Brief Background
Dannhauser Municipality was established in terms of Section 155 (1) (b) of the Constitution of the Republic of South Africa. It carries out its duties and functions in line with the Municipal Structures Act stipulations.
Dannhauser Municipality is one of the three local Municipalities that make- up Amajuba District. Other municipalities being:
o Newcastle Local Municipality, o eMadlangeni Local Municipality
Dannhauser municipality is located along the southern boundary of the Amajuba District and adjoins New Castle and eMadlangeni local municipalities to the north, eNdumeni local municipality to the east and eMnambithi to the south. The town of Dannhauser is located midway between Durban and Johannesburg on the main railway line, about eight kilometres off the national road between the two cities. It is surrounded by some of the largest coal-producing mines in KwaZulu-Natal. Numerous rivers flow through the municipal area, the most important being the Ngagane and uMzinyathi Rivers and there are scenic landscapes in the western portion of the municipality. The Buffalo River forms the boundary between Dannhauser and Utrecht municipalities, while the Drakensberg Mountains form the boundary with the Free State province.
MAP 1: Dannhauser Municipality within Amajuba District
Source: Dannhauser Municipality LED Plan (2008).
1.2.2 Demographic Assessment based on Global Insight Southern Africa 2007 Projections
Local Municipality Population %
Dannhuaser 97 602 100%
Groups
African Indian Coloured White
97%
1%
0.30%
1.70%
Gender
Females Males
54117 48659
52.7%
47.3%
Households
Urban Non-urban
18%
82%
Literacy rate 44%
Poverty levels 68%
Employment rate 15%
Backlogs
Water Sanitation
65%
%
Energy %
A closer look at the current sources of funding indicates that a large sum of funding used for the municipality operations to deliver on their expectations is sourced externally. That remains a challenge in a sense that some of the grants are conditional and if their conditions are not met, the municipality stands a good chance of loosing that funding. It is therefore imperative to strategically identify and utilise other funding mechanisms that may minimize the possibility of losing guaranteed grants, which will allow the municipality to deal with ever-escalating socio-economic ills within the area of its jurisdiction.
1.32 1.3: PURPOSE, OBJECTIVES AND KEY ASPECTS OF THE FINANCIAL PLAN
1.3.1 Purpose of the Financial Plan
The primary purpose of the Financial Plan is to provide a clear and sound framework for proper mobilisation, utilisation and management of scarce financial resources within Dannhauser Municipality.
1.3.2 Financial Plan
This plan attempts to present an accurate financial position of the organization’s operations and to ensure its long term financial viability.
1.3.3 The main objectives for the Plan are:
To develop sound financial management strategies that are in compliance with the Municipal Financial Management Act
To maximise revenue collected to enhance service delivery
To formulate implementable cost recovery and revenue collection strategies To strengthen financial viability and sustainability of the municipality
To improve effectiveness and efficiency in utilization of financial scarce resources
This financial plan has a strong focus on a multi financial programme, Capital investment programme as well as set of strategies deemed appropriate to bring about financial viability and sustainability of IDP prioritised initiatives
1.33 1.4: KEY ASPECTS OF THE FINANCIAL PLAN
Multi Financial Programme- this serves as a midterm financial framework for managing municipal revenue collection and for expenditure planning. It includes capital expenditure and serves as a crucial document for ensuring a close planning or budget link.
Cost recovery and Asset management strategies prove as critical components and base of the entire plan
2 SECTION TWO : STRATEGIC DEVELOPMENT FRAMEWORK
2.1 Dannhauser Municipality Overall Strategy
Dannhauser developed strategies in line with key performance indicators of the local government agenda which are:
2.1.1 Basic Service delivery and infrastructure Development
This strategy focuses on facilitating the provision of new infrastructure and also the maintenance of existing infrastructure to ensure sustainable service delivery within the community.
2.1.2 Municipal Institutional development and transformation
This strategy focuses in promoting sound administration which is efficient and effective that will enable the municipality to meet its developmental needs
2.1.3 Municipal Financial viability and management
This strategy focuses on ensuring sound financial management and responsible budgeting as per the requirements of the MFMA that will ensure proper alignment with the municipality’s IDP.
2.1.4 Promote Economically and Socially Sound Municipal Area
The strategy aims to identify potential and feasible initiatives that will contribute to the alleviation of poverty within the municipal area.
2.1.5 Good Governance and Public Participation
This strategy focuses mainly on accountability to the communities on developmental issues and also introducing systems, procedures and processes in place to allow maximum participation.
For the implementation of the municipal strategy the Municipality must have systems to raise revenue and manage its finances in a manner that will see it achieving its developmental priorities as outlined in its capital investment programme.
2.2 Key Development Programmes
The key strategic development objectives have been used extensively to design interventionist programme aimed at mitigating the impact of socio-economic ills and most importantly stimulate much desired economic growth within the area. Indeed, the need persist for our municipality to raise at least relatively sufficient amount of funding to execute most of the planned initiatives within the area. The suggested strategies, if well implemented will allow the municipality to be driven by initiative, strong financial management principles and municipal community partnerships in spearheading municipal wide development.
2.2.1 Key Challenges
To this end, it could be argued that the development of the Dannhauser will always be undermined and compromised by its very own socio-economic design. The key socio-economic challenges facing our municipality present the weakness of our economy and subsequent poor financial or revenue base.
The local economy remains too dependent on government and social services;
The GDP per capita value of the municipal economy is amongst the smallest in KwaZulu-Natal;
Mining, manufacturing remain declining sectors but have some strength in their resilient remnants;
There is a weak social base, with the area having the highest levels of unemployment and illiteracy;
There are low levels of local demand as a result of low household income;
The area is largely rural, with a low population density. This means that purchasing power is diluted and service costs are higher;
There has been a lack of progress around meaningful and practical Growth and Development partnerships between government, business and civil society to optimise the municipal economic strengths and deal with threats and weaknesses;
SECTION THREE : FINANCIAL PLANNING
Over the last few years, the Municipality has been implementing new national government legislation. The legislation is aimed at improving systems and processes to ensure effective, efficient and economic service delivery. Whilst the impact of implementing the new legislation is demanding, this has not negatively impacted on the Municipality’s service delivery programmes to meet the needs of previously disadvantaged communities.
In order to fulfill financial, legislative and developmental requirements, much of the Municipality’s capital budget has been redirected towards new developmental expenditure. It has also extended its existing operating budget over a wider area in order to fulfill developmental goals.
In this regard, the financial response to the challenges facing the Dannhauser require that our limited resources are used strategically and that a focus be given to growing the revenue streams available to address current and future needs. Based on the Municipality’s strategic focus areas, the allocation of resources in the Medium Term Expenditure Framework (MTEF) should strongly reflect a “Develop and Maintain” budget.
3.1 Financial Arrangements
3.1.1 All expenditure will be incurred in the municipality in accordance with the budgetary provision.
3.1.2 Development of the operational budget on an annual basis will be undertaken in consultation with affected communities/stakeholders in accordance with guidelines laid down in the Municipal Finance Management Act.
3.1.3 Approval of expenditure and effecting of payment in accordance with documented delegations of authority in line with MFMA.
3.1.4 The principle of separation of duties will be observed at all times – i.e. a person involved in billing of services and issue of statements cannot be responsible for the collection of revenue.
3.1.5 Each financial official has been provided with a job description outlining his/her duties – acceptance of the responsibilities encapsulated in the job description to be by affixed signature
3.1.6 On a monthly basis a cash flow projection will be completed for the ensuing six monthly period to facilitate management of cash flow
3.1.7 A preferred list of suppliers/service providers, based on the principle of supporting the local economy, will be prepared.
3.1.8 Terms of payment will be negotiated with creditors and advantage taken of cash discounts only when economically justified and possible in terms of cash flow
3.1.9 Stocktaking of stores items is to be undertaken on a quarterly basis and any significant variances reported to Council
3.1.10 On an annual basis the asset register, which is updated as assets are acquired/disposed of during the year, is to be reconciled with a physical stock take of assets
3.1.11 All consumers are to be issued with statements in accordance with the payment arrangement laid down by the municipality
3.1.12 A credit control policy is to be approved by Council in terms of which strict debt collection procedures will be enforced including the engagement of legal proceedings to elicit payment
SECTION FOUR: CURRENT BUDGET ANALYSIS
4.1 Salaries and allowances budgeted amount is R 17 243 786
The budget for this category has increased significantly due to provisions made for the recently reached agreement between Salga and Samwu to improve and increase salary scales. The salary grading which differs from municipality to municipality has been considered and the municipality’s size, income and Equitable Share assistance it receives from the central government played a role in this regard. The wage curve agreement would be effected in July 1, 2010 also contributed to this significant increase in salary budget. Hence, the individual staff increase has remained in line with Employer Organization agreement reached on salary increases. Provision was made for increase in salaries, allowances and benefits for councillors.
The consideration of current limited capacity within the municipality makes it possible to experience even higher increase on salary budget during the upcoming financial years. The current depicted increase for the next five years only take into cognisance estimated increase in salaries of current labour force.
4.2 General expense budgeted amount is R 24 168 647
The total provision for this category has increased by 13% on the previous year. This item or category is set to increase to at least R 30 506 929 in 2015/16.
Series1, OPERATING EXPENDITURE, -
, 0%
Series1, Salaries, Wages &
Allowances, 17 243 786 , 21%
Series1, General Expenses, 24 168 647 , 29%
Series1, Repairs
& Maintenance, 6 128 867 , 7%
Series1, Contribution to Capital Outlay &
Projects, 36 352 070 , 43%
OPERATING EXPENDITURE Salaries, Wages &
Allowances General Expenses Repairs & Maintenance Capital Charges
DANNHAUSER MUNICIPALITY - TOTAL OPERATING BUDGET 2010/2011,2011/2012 and 2012/2013
Budget 2011/12 Budget 2012/13 Budget 2012/13
Draft Budget 2014/15
Draft Budget 2015/16
INCOME
Rates -8 427 320 -9 017 232 -9 648 439 -10 130 861 -10 637 404
Refuse Removal -735 090 -786 546 -841 605 -883 685 -927 869
Rental Recieved -98 440 -105 331 -112 704 -118 339 -124 256
Cemmetry Fees -13 910 -14 884 -15 926 -16 722 -17 558
Interest on Investment -1 159 880 -1 241 072 -1 327 947 -1 394 344 -1 464 061
Licences and Permits -1 459 480 -1 561 644 -1 670 959 -1 754 507 -1 842 232
Traffic Fines -224 700 -240 429 -257 259 -270 122 -283 628
Sundry Income -69 550 -74 419 -79 628 -83 609 -87 790
Contribution From Operating Surplus - - - - -
National Grants -35 352 930 -38 814 102 -41 342 196 -43 409 306 -45 579 771
Provincial Grants - - - - -
TOTAL REVENUE -47 541 300 -51 855 658 -55 296 661 -58 061 494 -60 964 569
Salaries, Wages & Allowances 17 243 786 18 450 851 19 742 411 20 729 531 21 766 008
General Expenses 24 168 647 25 860 452 27 670 684 29 054 218 30 506 929
Repairs & Maintenance 6 128 867 7 544 355 7 883 567 8 277 745 8 691 633
Capital Charges - - - - -
Contribution to Capital Outlay & Projects - - - - -
0 - - - - -
TOTAL EXPENDITURE 47 541 300 51 855 658 55 296 661 58 061 494 60 964 569
NETT DEFICIT/-SURPLUS -0 -0 0 0 0
SALARIES AND WAGES AS A PERCENTAGE 36% 36% 36% 36% 36%
4.3 Total Operating and Capital Budget per Department
The total operating and capital budget attempts to show allocations that relate to responsibilities of each department in terms execution and implementation of IDP major items. To this end, the Technical department has a larger share of the budget as it is responsible for managing infrastructure development component of service delivery. Community service department has the second largest share of the budget due to its functions which seek to maintain municipality facilities and amenities. Undoubtedly, the budgets of these two departments are far below the amount required to implement all programme planned within the IDP and directed to them as per their responsibilities.
Series1, COUNCIL , 13
141 217, 16% Series1,
FINANCE, 6 461 258, 8%
Series1, CORPORATE SERVICES, 5 668 767, 7%
Series1, TECHNICAL SERVICES, 40 357 026,
48%
Series1, COMMUNITY SERVICES , 10 122 679, 12%
Series1, PROTECTION
SERVICES, 3 907 332, 4% Series1, IDP , 2 655 045, 3%
Series1, MUNICIPAL MANAGER, 1 580 047,
2%
COUNCIL FINANCE
CORPORATE SERVICES TECHNICAL SERVICES COMMUNITY SERVICES PROTECTION SERVICES IDP
MUNICIPAL MANAGER
DANNHAUSER MUNICIPALITY
TOTAL OPERATING AND CAPITAL BUDGET 2011/2012 , 2012/2013 and 2013/2014 PER DEPARTMENT
INCOME
Draft Budget 2011/12
Draft Budget 2012/13
Draft Budget 2013/14
Draft Budget 2014/15
COUNCIL (1 478 000) (1 561 000) (1 652 000) (1 734 600) (1 821 330)
FINANCE (51 489 790) (56 533 665) (60 711 712) (63 747 297) (66 934 662)
CORPORATE SERVICES 0 0 0 0 0
TECHNICAL SERVICES (27 462 190) (28 781 953) (29 816 330) (31 307 147) (32 872 504)
COMMUNITY SERVICES (1 004 190) (1 270 893) (1 510 356) (1 585 874) (1 665 167)
PROTECTION SERVICES (1 669 200) (1 786 044) (1 911 067) (2 006 620) (2 106 951)
IDP (790 000) (800 000) (850 000) (892 500) (937 125)
MUNICIPAL MANAGER 0 0 0 0
TOTAL INCOME (83 893 370) (90 733 556) (96 451 465) (101 274 038) (106 337 740)
EXPENDITURE
Draft Budget 2011/12
Draft Budget 2012/13
Draft Budget 2013/14
Draft Budget 2014/15
Draft Budget 2015/16
COUNCIL 13 141 217 14 007 602 14 988 134 15 737 541 16 524 418
FINANCE 6 461 258 6 826 046 7 716 369 8 102 188 8 507 297
CORPORATE SERVICES 5 668 767 5 691 080 6 089 456 6 393 929 6 713 625
TECHNICAL SERVICES 40 357 026 45 886 558 47 908 177 50 303 586 52 818 765
COMMUNITY SERVICES 10 122 679 9 655 176 10 481 538 11 005 615 11 555 896
PROTECTION SERVICES 3 907 332 4 180 846 4 473 505 4 697 180 4 932 039
IDP 2 655 045 2 795 598 2 985 290 3 134 555 3 291 282
MUNICIPAL MANAGER 1 580 047 1 690 650 1 808 995 1 899 445 0
TOTAL EXPENDITURE 83 893 370 90 733 556 96 451 465 101 274 038 106 337 740
4.4 Key Performance Area
The five key performance areas in local government have proved to be critical in ensuring expeditious service delivery. The Dannhauser municipality has tried hard to adhere to these KPAs and allocated its budget accordingly. To this end, the five year budget shows a positive trend under infrastructure development which is mainly on it’s upwards growth and trend. Corporate governance is the second KPA that take large portion of the budget, however, it is noted with concern that the local economic development KPA is lagging behind and this translate to slow progress towards addressing the economic dynamics of the area.
INSTITUTIONAL DEVELOPMENT AND TRANSFORMATION
LOCAL ECONOMIC DEVELOPMENT
MUNICIPAL FINANCIAL VIABILITY MANAGEMENT
INFRASTRUCTURE AND SERVICE DELIVERY
CORPORATE GOVERNANCE
FIVE YEAR INVESTMENT PLAN AS PER NATIONAL KEY PERFORMANCE INDICATOR
DANNHAUSER MUNICIPALITY
FIVE YEAR INVESTMENT PLAN BUDGET AS NATIONAL KEY PERFOMANCE INDICATOR
Department
2011/2012 2012/2013 2013/2014 2014/2015 2015/2016
INSTITUTIONAL DEVELOPMENT AND
TRANSFORMATION 1 580 047 1 690 650 1 808 995 1 899 445 1 994 417 LOCAL ECONOMIC DEVELOPMENT 2 655 045 2 795 598 2 985 290 3 134 555 3 291 282
MUNICIPAL FINANCIAL VIABILITY
MANAGEMENT 6 461 258 6 826 046 7 716 369 8 102 188 8 507 297 INFRASTRUCTURE AND SERVICE DELIVERY 54 387 037 59 722 580 62 863 220 66 006 381 69 306 700 CORPORATE GOVERNANCE 18 809 983 19 698 682 21 077 590 22 131 469 23 238 043 TOTAL 83 893 370 90 733 556 96 451 465 101 274 038 106 337 740
4.5 Five Year Capital Investment Plan
DANNHAUSER MUNICIPALITY
FIVE YEAR CAPITAL INVESTMENT PLAN PER CAPITAL EXPENDITURE CATEGORY
CAPITAL EXPENDITURE CATEGORY
2010/2011 2011/2012 2012/2013 2013/2014 2014/2015
INFRUSTRUCTURE
Rural Roads 7 359 873 9 237 187 9 836 500 10 328 325
10 844 741
Bus Route 1 084 516 - - -
-
Community Hall 2 427 723 - - -
-
Sports Centre 4 464 887 9 410 813 9 836 500 10 328 325
10
844 741
COMMUNITY
Cemetry 200 000 - - -
-
Library 237 000 250 000 432 000 453 600
476 280
-
-
Property Plant & Equipment 20 578 070 19 979 898 21 049 804 22 102 294
23 207 408
TOTAL 36 352 070 38 877 898 41 154 804 43 212 544
45 373 171
4.6 Detailed Five Year Capital Budget
Capital Budget and Projects
Vote Discription
Original Budget 2010/2011
Revised Budget 10/11
Draft Budget 2011/12
Draft Budget 2012/2013
Draft Budget 2013/2014
MIG 12 752 000 12 752 000 15 337 000 18 648 000
19 673 000
MSIG 750 000 750 000 790 000 800 000
850 000
FMG 3 000 000 3 000 000 1 250 000 1 250 000
1 750 000
RURAL HOUSING INFRASTRUCTURE - INDIRECT 4 000 000 10 000 000
10 000 000
INTERGRATED ELECTRIFICATION - INDIRECT 8 000 000 -
-
COMMUNITY LIBRARY & PROVINCIALISATION GRANT 237 000 250 000
432 000
COMMUNITY PARTICIPATION - 200 000
200 000
Council 350 000 150 000 50 000 -
-
Finance 1 022 000 - 100 000 107 000
114 490
Technical Services 4 540 000 4 603 007 3 860 500 6 451 398
6 881 808
Community 2 392 243 2 074 143 1 877 583 636 514
681 070
Protection Services 505 000 474 540 100 000 107 000
114 490
IDP 370 000 200 000 100 000 107 000
114 490
Corporate 361 000 430 820 599 987 267 486
286 210
MM 161 000 161 000 50 000 53 500
57 245
Total 26 203 243 24 595 510 36 352 070 38 877 898
41 154 804
SECTION FIVE: FINANCIAL STRATEGIES
The strategic response to financial viability and sustainability of Dannhauser Municipality will need to take into cognisance strategies for plugging existing holes into the system and further increase revenue streams with intent to rely less on external grants in the long run.
Plugging the holes by:
Promoting effective expenditure to avoid recurring surpluses on operating budget and conditional grants vigorously pursuing credit control policies
increasing efficiencies by working smarter, managing performance and alternative service delivery mechanisms
Increasing revenue by:
Improving collections Increasing rates base
Increasing share of intergovernmental grants to pay for unfunded/partially funded mandates Vigorously pursuing cost cutting measures
Pursuing public private partnerships at both programme and project level
5.1 Capital and Operational Financial Strategies
The council has adhered strongly on the use of funds in strict accordance with the approved budgets; however, there is still a need to improve our level of compliance. Further, in our previous strategy we proposed to submit request for funding to various organization thereby expedite implementation of key programmes. This has proved to be elusive and lacking. Nevertheless, the council still needs to pursue this strategy.
Funds allocated for a specific purpose are to be used for that purpose only. The CFO and his office will pursue a strong campaign to all council departments aimed an enforcing this principle of complying with the budget allocations.
Where capital projects are to be funded by donor organizations, the Municipality must ensure that the funds have been secured prior to their inclusion in the capital budget
5.2 Revenue Raising Strategies
All Consumers must be registered and billed for services rendered.
A debts collection service to be instituted to monitor the billing and payment of services.
An adoption of credit control policy; part of the debt collection process is the levying of interest on outstanding payments Fast racking of formalization of towns.
Attracting investors for property development in order to enhance rates income.
5.3 Asset Management Strategies
All assets whether fixed or moveable are to be recorded in a asset register which is electronically maintained
The asset register is updated when assets are acquired (purchase or transfer once a capital project has been completed) or disposed of On an annual basis at least there must be a reconciliation between the physical asset holding and that reflected in the asset register
Where capital assets are transferred from the municipality, budgetary provision for the operation and maintenance of those assets must be included
5.4 Cost Effectiveness Strategies
Development of a functional organizational structure that is staffed with appropriate personnel who contribute to the efficacy of the municipality The implementation of internal controls that ensure the management of stock holding (control over shrinkage), management of cash flow to reduce usage of overdraft facilities with attendant penal interest rates and ensure efficient investment of surplus monies.
5.5 Policy Development and Refinement Strategy