Municipal Cost Containment Regulations: An attempt to curb local government wastefulness?

The Regulations are an extension of cost containment measures that are already being implemented by the national and provincial spheres. This article sets out the main features and also examines some of the problems with the Regulations.

The Regulations, whose effective date was 1 July 2019, were promulgated in terms of section 168(1)(b) and (p) of the Municipal Finance Management Act (MFMA). The provision empowers the Minister of Finance to issue regulations regulating financial management and internal controls and any other matters that may facilitate the enforcement and administration of the Act. In a press statement, on 11 June 2019, the National Treasury highlighted that a well-managed municipality or entity should already have in place a cost containment policy, approved by its council, as part of its budget.  The Regulations apply across all municipalities and municipal entities, which means even those municipalities that had such policies will have to revise their policies in line with the Regulations. Failure to implement or comply with these Regulations may result in the official or political office bearer in question being liable for a financial misconduct or financial offense as defined in Chapter 15 of the MFMA read together with the Municipal Regulations on Financial Misconduct Procedures and Criminal Proceedings of 2014. This article looks at some of the major changes brought about by these Regulations but it will first deal with their legality.

Legality of the Regulations

Section 154(2) of the Constitution requires that draft national and provincial legislation that affects local government be published for public comments, before it is introduced in Parliament, to allow organised local government, municipalities and other stakeholders to make representations The South African Local Government Association (SALGA), which represents and promotes the interests of municipalities, disputes the legality of the Regulations on the basis of this provision. It argues that it was not given meaningful opportunity to make representations on the Regulations before they were promulgated. SALGA President, Ms Thembi Nkadimeng, has argued that the Regulations that were tabled for debate are not the same as the Regulations that were later promulgated. It is further argued the draft regulations that were put on the table for discussion were later withdrawn without being fully discussed. SALGA is also of the view that some parts of the Regulations promulgated are out of context or are no longer relevant. For instance, Ms Nkadimeng, in a radio interview, stated that municipalities have already abolished credit cards and the last municipality that had such credit cards was in 2009. However, it is important to note that SALGA does not dispute the need for further regulation to curb resource wastage. How do the Regulations seek to contain resource wastage at the local level?

Use of consultants

The Regulations require municipalities or municipal entities to appoint consultants only in the event that the municipality or municipal entity does not have the skills or resources in their full-time employment to perform such functions. Once the decision to make use of consultants is taken, the Regulations require the remuneration for relevant consultants to be determined in accordance with guidelines prescribed by various bodies regulating the profession(s) of the consultants. Contracts with the consultants are also supposed to include a fee retention or penalty clause for poor performance. These and other provisions on the use of consultants are necessary to curb the huge sums of money that municipalities have been spending on consultants. For example, in the 2017/18 financial year, 96% of the municipalities in Limpopo province used consultants at a total cost of R177 million. This is against the warnings by the Auditor General that municipalities across the country are over-relying on consultants (a short-term remedy) instead of focusing on improving capacity and skills in their respective finance departments.

Vehicles for political office-bearers

Too many municipalities are known for uneconomic spending or overspending when purchasing vehicles for their political office bearers. For instance, the draft budget of the 2019/20 financial year indicated that the bankrupt Govan Mbeki Local Municipality set aside R2.244 million in its budget to buy a new car for its mayor. The Municipal Cost Containment Regulations now impose a threshold limit for vehicle purchases. Vehicle purchases may no longer exceed R700 000 or 70% (VAT inclusive) of the total annual remuneration package for the different grades of municipalities as defined in the Public Office Bearers Act and the notices issued in terms thereof by the Minister of Cooperative Governance and Traditional Affairs. In addition, vehicles for official use by political office bearers can only be replaced after the completion of 120 000 kilometres unless the vehicles have serious mechanical problems or are in poor condition (this is subject to obtaining a detailed mechanical report by the vehicle manufacturer or an approved dealer). The resources saved this way are desperately needed for service delivery.

Travel and subsistence

The Regulations also seek to minimise spending on travelling and subsistence. All municipal officials (political or administrative) are now only permitted to fly with economy class tickets where the flying time is five hours or less. Flying business class is reserved for flying time exceeding five hours or for municipal officials with disabilities or medically certified conditions. International travel is now limited to meetings or events of a critical nature. The amount of money to be spent on accommodation costs should be in line with the framework determined by the National Treasury. Municipalities and their entities have been directed to utilise all discounts and negotiate rates available to them. In as far as domestic accommodation is concerned, overnight accommodation may only be booked in instances where the return trip exceeds 500 kilometres. The Regulations seek to curb unnecessary spending on travel and accommodation.

Conferences, meetings and study tours

Too often, political and administrative officials of municipalities attend conferences, meetings and study tours within and outside borders of South Africa with little or no benefit to their municipalities. All accounting officers are now required to establish policies and procedures to manage applications to attend conferences, meetings and study tours. Therefore, before the officials can attend such events, they would need to first comply with the policies and follow the required application procedure. 

Use of credit cards

The Regulation on the use of municipal credit cards aims to end the practice of municipal officials paying their personal expenses using municipal credit cards. Under the new Regulations, no municipal official can be issued with a credit card or debit card linked to the bank account of a municipality or a municipal entity. This also extends to members of the board of directors of municipal entities. In the event that a municipal official incurs expenditure while in the course of a lawful municipal duty, the official is now required to use his or her own personal credit/debit card or cash and request (in accordance with a written approved policy and processes) for a reimbursement from the municipality or municipal entity.

Sponsorships, events and catering

The Regulations also deal with what municipalities are permitted to spend on sponsorships, events and catering. The Regulations prohibit the incurring of catering expenses for meetings that are only attended by employees of the municipality or municipal entity unless prior approval is attained. Moreover, catering will now only be provided to lawful proceedings exceeding a duration of five hours. Spending towards entertainment, alcohol, social events and team building exercises has also been restricted. Therefore, municipal spending on sponsorships, events and catering is now strictly reserved for crucial municipal programs and events.

Communication

Municipalities are now required to advertise their events, as far as possible on their respective websites instead of advertising in magazines or newspapers. This will reduce the costs associated with communication. Given that electronic media is the future, paper-based publications are to be discontinued on expiry of existing contracts or supply orders, unless they are required in that format for professional purposes and are unavailable in electronic format. Furthermore, all commodities, services and products covered by transversal contracts (centrally facilitated contracts arranged by the National Treasury for goods or services that are required by one or more than one institution) must be considered before approaching the market.

Spending on election-related activities

In the past, some municipalities have funded political party activities by providing funds for food, clothing, printing of agendas and brochures and other inducements during the election period or any other time. The new Regulations now prohibit such conduct.

Remuneration, overtime and security

To avoid overspending on remuneration and overtime, municipalities are now required to consider providing additional time off instead of payment in monetary terms. Planned overtime must be submitted monthly to managers and all unplanned overtime must be motivated. This is to ensure tight control of money spent towards remuneration and overtime. The South African Police Services (SAPS) will now provide all security instead of hiring private security firms. SAPS will also conduct periodical or quarterly security threat assessments, some of which were previously conducted by private security firms at exorbitant costs. This is against a background of too many municipalities irrationally contracting security firms to provide security services even in cases where it was not warranted or when there were other alternatives.

Disciplining of staff

Over the years, municipalities and their entities have spent considerable amounts of municipal resources on litigation in cases involving the disciplining of their staff members. To avoid spending resources on unnecessary litigation costs, the Regulations prescribe that a municipality or municipal entity must ensure that due process is followed when disciplining staff, especially when suspending or dismissing officials. The requirement to follow such due process was already there before the Regulations were promulgated. For instance, section 67 of the Municipal Systems Act already prescribes the relevant disciplinary mechanisms and procedures. The question that arises is what is the purpose of repeating this requirement in the Regulations?

Comment

The tightening of controls on spending by municipalities will help cut wasteful, unnecessary and dishonest spending and ensure that municipal revenues are used to fund activities that improve the lives of the ordinary people. The effective implementation of the Regulations is the responsibility of the municipal councils, board of directors of municipal entities, municipal accounting officers, and accounting officers of municipal entities, provinces and national government. Parties who fail to adhere with the Municipal Cost Containment Regulations can be held liable for financial misconduct or financial offences in the case of political office bearers as defined in Chapter 15 of the MFMA read together with the Municipal Regulations on Financial Misconduct Procedures and Criminal Proceedings. The citizens should also play their role in holding municipal officials that fail to adhere to the legislative prescriptions accountable.

The intentions behind the Regulations are no doubt good and the vast majority of the provisions make perfect sense. However, it is not clear whether the impact on local governance has been sufficiently considered. There are unintended consequences. For example, what impact will the 250 km minimum distance for accommodation have on intergovernmental relations? Consider this: a mayor who wants to attend a 2-day Premier’s Coordinating Forum 200 km away is not permitted to sleep over, but will have to commute, that is drive 800 km in two days. Will he or she still go to the meeting? Similarly, is the complete ban on catering for meetings shorter than 5 hours always warranted? Is the municipality really not permitted to serve sandwiches during a public participation hearing?

Another unintended consequence may be that these regulations may add further tension to the already fickle political-administrative interface and pit municipal managers against the rest of the municipality. Given their detailed nature and their impact on the daily running of municipal affairs, there is likely going to be many requests to the municipal manager for exemption from the municipality’s cost containment policy. Some of those will be genuine, others not. However, given the ever-tightening auditing framework, municipal managers will be particularly ill-disposed to exempt local politicians and officials from the strictures of these regulations. This is because, as accounting officers, they are most at risk of personal liability should the Auditor-General find fault with their decision. What impact will this have on the political-administrative interface?

Section 151(3) of the Constitution prohibits the national government from “compromising or impeding” a municipality’s ability to perform its functions. This provision does not negate the power of the National Treasury to regulate standards for financial management. Instead, it is concerned with how it uses these powers and what the impact is on a municipality’s ability to perform its functions. It is submitted that there are provisions in the Cost Containment Regulations that are too intrusive, too detailed and that pursue objectives that could really be achieved with less interference. For example, is the 5-hour rule for catering really the only way for the national government to get municipality to curb unnecessary spending on catering? Is the national government really best-placed to prohibit a municipality from renewing a paper-based newspaper? Surely, there are less intrusive and more principled ways for national government to regulate towards this and other objectives

by Melissa Ziswa, Doctoral Researcher