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  • Subject Name : Management

Public Financial Management

Q1. Ans1.1: Emfuleni Local Municipality is one of the municipalities in Sedibeng District Municipality. The municipality’s strategic location is the reason it attracts various tourist or tourism opportunities. This bring in responsibilities for better management of the area. Municipality manager has various responsibilities in managing the city they are functioning.

The main responsibility of the manager lies in ensuring that a god quality of life is delivered to the citizens by providing them the basic services. They are required to maintain a balance between the resources that are available and the needs of the communities in their area. The manager has the responsibility to make sure that water, sanitation, electricity, roads and cleansing is being done appropriately in the area (Leon-Moreta, 2018). So, as to provide a good hygienic environment to the locals and also the tourists that will be visiting the city. With that manager is also responsible for establishing and maintaining a strategic system in the municipality and develop policies at the level of strategic management so as to ensure efficiency and purposefulness. Also, the manager is required to manage the local usage of land and control the building development (Leon-Moreta, 2019).

Thus, in this manner managers play an important role in managing the areas they are heading. They are required to make plan and policies and ensure that they are successfully delivered in their area.

Ans 1.2 Emfuleni municipality’s annual budget is prepared every year as per the financial year. The main persons that are responsible in preparation of annual budget includes the manager, chief financial officer of the municipality and also a dedicated team that works on the finances of the municipality.

According to the annual report of the municipality due to its deteriorating situation of cash flow, municipal manager and the chief financial officer from Sedibeng municipality are helping the Emfuleni municipality in turning the situation. A team has been dedicated that comprises of the official from Emfuleni Municipality, Sedibeng Municipality and provincial treasury is created so as to deal with the issues and the challenges of cash flow that the municipality is facing (Annual report Emfuleni Municipality, 2016).

Thus, the team responsible for the budget preparation of Emfuleni municipality includes manager, CFO of the municipality and also the manager and CFO from Sedibeng municipality and the provincial treasury that helps in creating the budget. CFO is the person who looks after the cash flow for the municipality.

Ans 1.3  In Emfuleni municipality, there is a committee of mayoral that is formed under Section 80 of Municipal structure Act 1998. There are various portfolio that are being dealt by the mayoral committee that includes corporate and governance, basic services, environmental planning and management, safety of public, health and social development, finance and revenue, agriculture, human settlement, infrastructure planning, local economic development and asset management.

Mayor is basically the head of municipality. All the committee mayors report to the head of the mayoral committee. The person acts as the CEO of the corporation. It is their responsibility to provide leadership and look over the council meetings. It is their responsibility to review plan and policies and then pass it accordingly. Mayor is responsible for determining the services that will be provided by the municipality (Kovacova, 2018). It is their responsibility to maintain the financial integrity of the municipality and also to make sure that there is transparency and accountability in the operations.

Thus, the mayor is the head or the CEO for the organization. He/she looks after every activity that is being carried out in their area. They are the representative of the municipal corporation to the general public and ensure the good functioning of the municipality by reviewing their plan and policies.

Ans 1.4: The mayor has an important role to play in the budget process. The person is the authoritative body who decides what services will be offered and the policies that will be flowed in the area. These decisions help in deciding the budget.

The mayor has a responsibility of passing the services and policies. With that they decide how much amount will be allocated from the budget to a particular service (Copik, Kopriva & Cmejrek, 2019). Also, they are the one who present unaudited result to the board. Through which decisions on the budget are made. Thus, mayor define the budget by deciding the services and policies to be rendered to the public.

Ans 1.5: Budgeting is a technique where budgets are prepared on the basis of the estimated future expenses. Budget provides an idea of how much expense will happen in the time to come. Budgeting can be done by using various methods that will help in creating the budget in a manner.

The very first type is incremental budgeting. In this type of budgeting adjustments are made to the actuals of the preceding period. The change is made in the terms of percentage and can be an increase or the reduction depending on factors like the situations or the needs (Siziba & Hall, 2019).

Another method of budgeting involves zero based budgeting where there is no connection with the previous budget and a new budget is build from scratch.

Rolling budget is the budget where a new period is added to the budget when the previous one has expired. This helps in forecasting the changes and the threats and opportunities that come with the future.

Activity based budgeting measures or forms the budget on the basis of total cost that will be required to meet the activity level of activities that are required to be done.

The most suitable budget for the municipality will be activity based budgeting as various activities might be included and some might be dropped off. Through activity based budgeting only those activities will be considered which are supposed to take place in the next financial year and hence will provide appropriate results.

Q2. Ans 2. Emfuleni Municipality follows the going concern method of accounting for its financial statements. The municipality has two methods of generating revenue that is the services revenue which are provided by them or the transfers or grants that are received by the municipality for the cash inflow boost up from national and provincial government.

According to the annual report of Emfuleni Municipal Corporation, the revenue that is generated by them includes that revenue generated from the exchange transaction and also from the non-exchange transaction. The overall revenue that is generated from these two totals is $5159078242. While the revenue that is generated from the donations and subsidiary grants equals $929515148 (Annual report Emfuleni Municipality, 2016)..

The revenue for the municipality is earned from the servives that are being provided like cleaning, water, electricity etc. Also, there is rental fees and he interest income that is generated. They have their bond too that circulate in the economy. Fines that are charged also serve as income in the non-exchange transactions.

The grants are provided for operation improvements like infrastructure site development grant, system improvement in the municipality grant. Other than that health subsidy, library, sports and recreation, led grants are also been provided to the municipality (Annual report Emfuleni Municipality, 2016).

The revenue that is generated by the municipality is 5 times of the grant being received to the municipality. There are certain variations in the budgeted and the actual grant in the provincial government grant of health and library. But overall the balance is more than the expected grants. So, it is good to say that municipality is receiving the good amount of grants and generating appropriate revenues.

Q3. Ans 3. Emfuleni municipality with a deficit in the statements require funding. To borrow these funds in the markets there are various steps that should be taken by the municipality before getting into the financial markets again.

The very first step is required to be taken by the municipality manger is to devise a plan. They should select the places or the infrastructure where the funds are to be invested. A proper plan of how much time it will take to generate the returns should be considered. Once this has been decided, bonds as per the requirement can be distributed. Like a bond with a 12% rate of interest for a maturity of 20 years where the first payment is to be made after 10 years. This will be allowed in a situation where returns stated pouring in from the 9th year, so that municipality have enough resources to pay off the interest to the bond holders (Kuhlengisa, 2017). This plan is to be presented to the banks or the investment bankers for issuing the debentures. Also, the can use their assets as a backup if the situation goes south. This will help them in generating the finances from the financial markets.

Thus, due to deficit there might be an issue but asset back bonds can be issued. Also, a proper plan of investment and return can help them in generating the funds that are required for further development.

Q4. Ans 4. Municipal corporation Act requires municipality to prepare annual financial statements as per the GRAP i.e. Generally Recognized Accounting Practices. Also known as GAAP i.e. Generally Accepted Accounting Principles. There are certain principle which are to be followed while preparing statements according to GAAP.

The very first principle is the revenue principle. According to this principle revenue is defined at the time it is earned at the point of sale. This depicts that revenue is recorded when the item is transferred or service is provided not when the transaction of cash happens.

Another principle as per GAAP is the expense principle. According to this principle a transaction is logged into the books when the expense has been incurred like at the time business accepts goods or services from any other entity (Prather-Kinsey, Boyar & Hood, 2018).

The third principal is the matching principal where the revenue is matched with the expenses. Like if an item is sold then the cost incurred in creating that product will be shown. When this principal is applied it means the statements are prepared as per the accrual basis of accounting.

The next principal that is used in GAAP is historical cost principal where the costs are recorded on the basis of actual cost i.e. the cost at which the item is purchased not the value that is prevailing in the market currently.

There is an objectivity principal too. It states that in the books of accounts only that data will be mentioned which is factual and can be verified. The subjective measurement of values is not considered under the GAAP principle.

Emfuleni Municipal Corporation follows the same principals. It has been mentioned in the statements of accounts that the accounts are prepared on the basis of accrual accounting. Also, the compliances of GRAP or GAAP has been followed for preparation of accounts. Thus, Emfuleni’s financial statements were prepared according to the requirements of GRAP as mentioned in the books of accounting or the annual report of the company. All the principles have been applied to produce an appropriate results.

Q5. Ans 5. Emfuleni municipality’s procurement processes was not according to the legislation system. The legislation system states that the procurement management should be such where there is transparency and delegation of powers. While in the municipality, the system was not clear and the powers were beholder due to which there were inefficiencies and the system was not according to the legislation. The principal of the legislation includes fairness, Equitability, Transparency, Competitiveness and cost effectiveness.

According to the fairness principle equal information should be provided to every participant. Transparency suggests that every procurement should be open and accounted for. Also, according to competitiveness it should be procured at the cost that is lowest for the goods.

In the Emfuleni municipality system these were not being followed for which amendment actions were supposed be taken that included Bid Specification committee for formulating the specification and evaluation criteria (Annual report Emfuleni Municipality, 2016). The next will be Bid evaluation committee for evaluation and receiving of the bids. Then there will be Bid Adjudication Committee where bid evaluation and final recommendation is made. Thus, in this manner the legislations that have not been followed will be compiled with the legislation.

Q6. Ans 6.1: The auditor general of municipality has certain responsibilities to carry out. The auditor general is responsible for expressing an opinion on the financial statements that are based on their audit. They also are required to conduct the audit as per the International standards on Auditing. According to those standards it is required that reasonable assurance is obtained that the statements are free from the misstatements of material.

Also, audit of the statements involves the procedures that are to be performed and obtains evidence for the disclosures about the statements. The procedure that are to be selected is the responsibility of the auditor as they are based on the judgement of the auditor. So, it becomes the responsibility of the auditor general to evaluate the appropriateness of policies in the municipality and make the estimates.

It is also the responsibility of the auditor general to collect all the evidence that are required. Auditor general should collect the evidence that are sufficient and also appropriate for forming an opinion on the statements. Thus, these are certain responsibilities that are to be fulfilled by the auditor general before providing and opinion. Every evidence and support should be checked and procedures are to be formed as required.

Ans 6.2: The opinion of the auditor general of Emfuleni Municipality states that the financial statements that are prepared are fair and all the statements that are prepared like income statement, cash flow and balance sheet are as per the SA standards of GARP and fulfills the requirements of MFMA and DoRA (Annual report Emfuleni Municipality, 2016)..

The opinion of the auditor general clarifies that the statements are prepared appropriately as per the standards required. It provides confidence that the statement are true in nature and fair value has been represented in the books of accounts of various activities that have taken place. Also, with the statement of the auditor general it is clear that the statements are according to the GARP standards. Thus, this represents that all the rules and principles has been followed in the financial statements.

Ans 6.3 There are various matters that have been identified by the auditor general. The very first matter is about the insignificant uncertainties where the municipality is defending various legal cases. There is no certainty of the result and no provision has been created (Annual report Emfuleni Municipality, 2016).. To solve the issue municipality finance team should form a provision for liability for the uncertain events.

Another concern was ageing infrastructure, illegal connections and also the meters that are faulty. To curb these, new meters budget should be created and installed with a system to reduce the illegal connections. This will reduce the losses. One important concern that has been identified is the financial sustainability. The current liabilities of municipality exceed the asset of the municipality. To overcome the situation municipality needs to infuse cash and use it in a manner that its liabilities are reduce and better sustainability for finance is created for them.

References for Sedibeng District Municipality Management

Annual report. 2016. Emfuleni Municipality annual report. Retrieved from: http://www.emfuleni.gov.za/images/docs/reports/ar1516/annual_report_201516.pdf

Čopík, J., Kopřiva, R., & Čmejrek, J. (2019). Mayors as a variable in typologies of local governments: a case study of the Czech Republic. Local Government Studies, 1-19.

Kováčová, E. (2018). The Mayor of a Municipality-Competences, Qualifications, Current Status in the Slovak Republic. Przegląd Politologiczny, (3), 119-133.

Kuhlengisa, M. M. (2017). Financing social enterprises: constraints and opportunities in South Africa (Doctoral dissertation, University of Pretoria). Retrieved from: https://repository.up.ac.za/handle/2263/59845

Leon-Moreta, A. (2018). Functional Responsibilities of Municipal Governments. The American Review of Public Administration48(1), 18-32.

Leon-Moreta, A. (2019). Functional responsibilities of municipal government: Metropolitan disparities and instruments of intergovernmental management. Urban Studies56(12), 2585-2607.

Prather-Kinsey, J., Boyar, S., & Hood, A. C. (2018). Implications for IFRS principles-based and US GAAP rules-based applications: Are accountants’ decisions affected by work location and core self-evaluations?. Journal of International Accounting, Auditing and Taxation32, 61-69.

Siziba, S., & Hall, J. H. (2019). The evolution of the application of capital budgeting techniques in enterprises. Global Finance Journal, 100504.

Remember, at the center of any academic work, lies clarity and evidence. Should you need further assistance, do look up to our Management Assignment Help

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