N5 – Module 3
• External statutory control – concentrates on broad guidelines, and deals with – preparation of the budget; – compulsory bookkeeping; – auditing of financial records; – control over expenditure and borrowing of money; – control over fixed property; – control over purchasing and contracting of goods; – control over revenue – taxation – the type of tax; the way it is imposed; the maximum tax rate; how the tax base is determined and the steps to be taken for the collection of arrears; – powers of higher authorities to instruct investigation into financial activities of council.
• Internal financial regulations demand more detail and is supervised by local Accounting Officers and financial officers within a town council, and is detailed by local bylaws – they can be summarised by control over – internal auditing which includes custody of financial records and documents; – assets, insurance and investment of surplus funds; – costing and accounting; – methods of payment which include salaries, wages, allowances; – tenders and contracts; – collection and control of revenue; – expenditure including capital expenditure; – preparation of estimates.
Budget Control The main financial control instrument is the annual budget: it should contain a detailed estimate of income and expenditure. Financial policy (political consideration of the needs of the community – see 10 Democratic Principles of a Financial System in Module 2, page 27, and also debated on
www.Publicfinance4sa.info) must be enforced through efficient and effective budget management and has three objectives, namely to ensure that: • goals for estimated income are realised; • expenditure takes place in accordance with approved estimates; • the voter-cum-taxpayer receives value for money in the form of the provision of quality services (Gildenhuys 1993:144).
Financial Reporting Because a budget is a works programme for one financial year it is essential that the local Legislature receives a regular supply of progress reports. Only with these can the councillors clearly see the level of spending against the estimates in the budget itself.
A report may also record any deviations and discrepancies and more importantly recommendations on what may be done to rectify the situation.
Internal Auditing The Chief Financial Officer should report to the Finance Committee on the effectiveness and correctness of financial administration. This office is supported by the internal auditor in exercising financial control. To make sure all funds are accounted for there should be a daily audit of the many financial transactions that take place within a town or city.
The Internal Auditor also acts independently of the Chief Financial Officer and reports directly to the Chief Accounting Officer. Their report will include a performance audit which shows clearly how efficiently and effectively all funds have been appropriated and spent. See Module 2 for the performance of local councils as reported by the Auditor-General on
www.Publicfinance4sa.info: it is a sad reality that out of 278 local councils, only 17 had a clean audit in the 2010/11 financial year.
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