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ANNEXURE F 


BUDGET RELATED POLICIES 





PETTY CASH POLICY 



NEWCASTLE MUNICIPALITY 

PETTY CASH POLICY 


Petty Cash Policy 2020/2021 


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PETTY CASH POLICY 


Contents Page No 

1 PREAMBLE .3 

2 POLICY OBJECTIVES.3 

3 SCOPE OF POLICY.3 

4 APPLICABLE LEGISLATION.3 

5 POLICY PRINCIPLES.4 

6 POLICY PROCEDURES.4 

7 GENERAL CONTROL MEASURES.8 

8 IMPLEMENTATION & REVIEW OF THIS POLICY.10 


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1. PREAMBLE 

1.1 Where the need may arise in a department of the municipality to have cash available 
for payments of a minor and non-recurring nature and it is impracticable to follow 
Supply Chain Management policies and procedures for every expense, such 
payments (excluding remuneration for services rendered) may be made by means of 
petty cash facilities. 

2. POLICY OBJECTIVES 

The objective is to provide guidelines on the usage and management of petty cash by 
Newcastle Municipality. 

3 . SCOPE OF POLICY 

This policy applies to all Newcastle Municipal employees, whether full-time or part- 
time, or paid on a salaried or an hourly individual basis and to duly appointed cashiers. 

4. APPLICABLE LEGISLATION 

4.1 Municipalities must comply with the requirements of the Municipal Finance 
Management Act, Act 56 of 2003 (MFMA) and Newcastle Municipality has 
incorporated the applicable principles, objectives and prescripts in its policy on the 
management and control of petty cash. 

4.2 The MFMA endeavours “to regulate financial management in the municipalities; to 
ensure that all revenue, expenditure, assets and liabilities of those governments are 
managed efficiently and effectively: to provide for the responsibilities of persons 
entrusted with financial management in those municipalities; and to provide for 
matters connected therewith.” 

4.3 In particular. Section 78(1 )(b) and (c) of the MFMA places the onus on each 
employee within the municipality to take responsibility for the effective, efficient, 
economical and transparent use of financial and other resources within that 
employee’s area of responsibility. In particular, the employee must take effective and 
appropriate steps to prevent, within that empioyee’s area of responsibility, any 


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PETTY CASH POLICY 


unauthorised, irregular, fruitless and wasteful expenditure and any under-collection of 
revenue due. 

5. POLICY PRINCIPLES 

5.1 Before approving expenditure or incurring a commitment to spend using petty cash, 
the delegated or authorised official must ensure compliance with any limitations or 
conditions attached to the delegation or authorisation. All transactions must be 
supported by authentic documents. 

6. POLICY PROCEDURES 

6.1 Approval of Petty Cash Float 

6.1.1 The Strategic Executive Director: Budget and Treasury Office or delegated official 
shall be responsible for making application for petty cash facility or for increase of the 
operational amount of an existing petty cash float to the Accounting Officer for 
consideration and decision. 

6.1.2 The application shall state sound and valid reasons for the need of petty cash float 
and the amount required for its operation, as well as the cost centre and vote number 
from which funds are to be applied for petty cash. The amount applied for must be 
sufficient to cover expenses for approximately one month. 

6.1.3 The municipality shall keep petty cash not exceeding R5 000.00 which must be 
reviewed on annual basis. 

6.1.4 The use of petty cash shall be limited to minor requirements for which a single 
transaction shall not exceed R500.00. 

6.1.5 In cases where the municipality has an account with the supplier or can negotiate 
opening an account, the municipality should avoid at all cost to use petty cash but 
use the account in terms of the policies of the municipality, in particular Supply Chain 
Management policy which regulates acquisition and disposal of goods and services. 


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PETTY CASH POLICY 


6.2 Appointment of Petty Cash Officers 

6.2.1 The Strategic Executive Director: Budget and Treasury Office must appoint in writing 

one of the Salaries Clerks as a petty cash custodian who shail be assigned the 

responsibility of managing and controiling petty cash. The custodian of petty cash 
must acknowledge appointment by appending his or her signature and date as an 
acceptance of the responsibilities and must abide by the contents of the this poiicy 
and MFMA. 

6.2.2 The Strategic Executive Director: Budget and Treasury Office must appoint in writing 

one of the Accountants as a relief petty cash custodian who shall be assigned the 

responsibility of managing and controliing petty cash in the absence of the 

designated petty cash custodian. The Accountant must acknowledge appointment by 
appending his or her signature and date as an acceptance of the responsibilities and 
must abide by the contents of this poiicy and MFMA. 

6.2.3 During absence of the designated petty cash custodian, the designated Accountant 
must assume the responsibilities as a reiief petty cash custodian. The petty cash 
custodian and relief petty cash custodian must ensure that they are famiiiar with all 
relevant statutory requirements and institutional responsibilities attached thereto. 

6.2.4 Shouid the Strategic Executive Directors wish to keep petty cash float within their 
departments, the Strategic Executive Director: Budget and Treasury Office must 
satisfy himself / herself whether there were proper and sound controls within that 
department and assess the reasons for request for petty cash float. 

6.2.5 Where petty cash float has been approved by the Accounting Officer for departments 
or sub-offices and sateliite offices, the responsibiiity for operating petty cash and safe 
keeping rest with the Strategic Executive Director of that particuiar department. 
Strategic Executive Directors must assign to the designated petty cash custodians 
who have financiai acumen only and who have no previous conviction or suspicions 
relating to commerciai crimes (e.g. theft, fraud, corruption, funds embezziement, 
forgery, bribery, uttering, extortion etc). 

6.2.6 Officiais who have garnishee orders against their saiaries must not be appointed as 
petty cash custodians. 


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PETTY CASH POLICY 


6.3 Custody & Safe Keeping of Petty Cash 

6.3.1 The petty cash custodians are responsible for controlling of petty cash float, together 
with supporting documentation. Specifically the custodian is responsible for the 
following: 

6.3.1.1 Petty cash float (including original receipts and vouchers) must be kept 
secured in a locked cash box. 

6.3.1.2 The office and the safe where petty cash float is kept shall at all times be 
kept locked and the key to the safe where cash float is kept shall be kept 
by the petty cash custodian. 

6.3.1.3 The petty cash custodian must sign for the key and must be always kept in 
a safe place. 

6.3.1.4 Only petty cash custodian must have access to and disburse petty cash. 
Handling of petty cash must only take place In secure locations. 

6.3.1.5 The petty cash custodians must ensure that petty cash is only disbursed to 
authorised officials when an original requisition signed by a duly delegated 
official has been produced. 

6.3.1.6 The petty cash custodian must not process requisitions that is not 
authorised by the Strategic Executive Director or delegated official. 

6.3.1.7 The petty cash custodian must not process requisition that has not been 
checked, signed and dated by the Accountant who is the supervisor of the 
custodian. 

6.3.1.8 The petty cash custodians must not put her personal monies or of any 
other officials in the box and the safe where petty cash is kept. 

6.3.2 If petty cash float is lost, the Petty Cash Officer responsible for that petty cash shall 
be held liable. 

6.4 Application for Petty Cash 

6.4.1 The department that requires petty cash has to complete a requisition which must be 
authorized and signed by the Strategic Executive Director. The requisition must be 
submitted to the Accountant. 

6.1.2 In cases where minor expenditure was incurred by officials during official trips e.g. 
parking and toll fees. Such expenditure may be claimed from petty cash but a 
requisition must still be completed. 


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PETTY CASH POLICY 


6.6 Issuing of Petty Cash 

6.5.1 On receipt of requisition the Accountant must check the requisition and be satisfied 
that it correct in every respect and authentic, sign and date the requisition as 
evidenced that he/she has checked it. Once checked and signed the Accountant 
must submit the requisition to petty custodian. 

6.5.2 The petty cash custodian completes a petty cash voucher using information on the 
requisition and hand over cash to the official that submitted the requisition. 

6.5.3 The official receiving such cash must acknowledge receipt by appending his or her 
signature and date on the petty cash voucher. The requisition is then attached to the 
petty cash voucher by the petty cash custodian. 

6.5.4 The official who received petty cash must submit original receipts to the petty cash 
custodian before the close of business on the date on which petty cash was received. 

6.5.5 The municipal official receiving petty cash is entirely accountable for the amount. 

6.5.6 If the official who received petty cash fails to submit the original receipts before the 
close of business, the petty cash custodian must follow-up the next morning. If no 
original receipts are submitted on the following day by close of business, the matter 
must be reported to the Accountant who shall refer the matter to the Manager. 

6.6 Recording of Petty Cash 

6.6.1 The petty cash custodian records the date of petty cash voucher, requisition number, 
petty cash voucher number, description of what petty cash is required for and the 
amount on the petty cash register. The petty cash register must be numbered 
throughout consecutively for control purposes. 

6.6.2 The expenditure in respect of the petty cash requested will be debited against the 
vote of the department that requested cash. 

6.6.3 All entries on the requisition, petty cash voucher, expenditure voucher and petty cash 
register must be recorded in ink and no correcting fluid or tip-ex must be used. 


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PETTY CASH POLICY 


6.6.4 The petty cash register must be balanced at the end of each month by the petty cash 
custodian or relief petty cash custodian. All petty cash vouchers and requisitions 
must be reconciled to the petty cash register at the end of each month. 

6.6.5 The petty cash custodian must sign and date the petty cash register as evidence that 
it was done by him or her. 

6.6.6 After the balancing of the petty cash register it must be reviewed by the Accountant. 
The Accountant must append his or her signature and date on the petty cash register 
as evidence of review. 

6.7 Reimbursements 

6.7.1 The petty cash custodian completes the “expenditure voucher” and attaches all 
requisitions and petty cash vouchers to the expenditure voucher. The expenditure 
voucher must be signed by the petty cash custodian, Accountant as a checking 
official and Manager as authorizing official. 

6.7.2 Once the expenditure voucher has been processed the cash cheque is presented at 
the bank in exchange for cash to replenish petty cash. 

6.7.3 Petty cash shall be reimbursed on a monthly basis. 

7. GENERAL CONTROL MEASURES 

7.1 When the petty cash custodian is on leave a proper handing over certificate should 
be completed with the relief petty cash custodian. The handing over should be done 
after reconciliation and balancing petty cash. This process should be done under the 
supervision of the Manager: Expenditure and Financial Accounting. The handing over 
certificate should be signed by the official handing over and the official taking over 
petty cash as well as the Manager: Expenditure and Financial Accounting who 
witnessed the handing over process. 

7.2 When the petty cash custodian is on sick leave or any unplanned leave due to 
circumstances that are beyond control of the official and a proper handing over 


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cannot be done a key to the safe and cash box must be collected by the Accountant 
and the Senior Accountant: Payroll if petty cash is urgently required. 

7.3 The Director: Budget and Financial Reforms must investigate the reasons for non- 
compliance with this policy and make recommendations. This recommendation will 
be based on the written explanation submitted by the official who received petty 
cash. 

7.4 Should the matter remain unresolved by the attempts by the manager, the manager 
must refer the matter to the Director and at this level the Strategic Executive Director 
whose official received petty cash must be involved and be asked to take the 
necessary disciplinary measures in terms of the code of conduct of the municipality. 

7.5 Should the Strategic Executive Director whose official received petty cash fail to 
resolve the matter within that month on which petty cash was received the following 
must take place: 

7.5.1 The Strategic Executive Director or delegated official who authorised the requisition 
shall be held responsible for reimbursement of petty cash should proof of purchase in 
the form of receipt not be submitted before the close of the same day on which petty 
cash was handed over or within 24 hours from the date of receipt of petty cash. 

7.5.2 Should the Strategic Executive Director or delegated official fail to comply with 
paragraph 7.5.1 above the full amount of petty cash shall be deducted from his/her 
salary without any further notice. 

7.6 The Manager: Budget and Financial Accounting must conduct surprise review of 
petty cash on hand against the petty cash register and petty cash vouchers and 
requisitions on quarterly basis. 

7.7 Internal auditors and Auditor-General staff are entitled to conduct any surprise petty 
cash audit at any time and must not be prevented from doing so. 


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8. IMPLEMENTATION AND REVIEW OF THIS POLICY 

8.1 The Accounting Officer shall be responsible for the implementation and 
administration of this policy with the assistance of the Strategic Executive Director: 
Budget and Treasury Office once approved by Council. 

8.2 In terms of section 17(1) (e) of the Municipal Finance Management Act, 2003 this 
policy shall be reviewed on annual basis and the reviewed policy tabled to Council for 
approval as part of the budget process. 


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VIREMENT POLICY 



NEWCASTLE MUNICIPALITY 

VIREMENT POLICY 


Draft Virement policy 2020/21 Newcastle Municipality 


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VIREMENT POLICY 


Sections 


Index 


Page 


1 

2 

3 

4 

5 

6 

7 

8 


Definitions 

Abbreviations 

Objective 

Virement Clarification 
Financial Responsibility 
Virement Restrictions 
Virement Procedure 
Implementation of the Policy 


3 

4 

5 
5 
5 

5 

6 
7 


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VIREMENT POLICY 


1. Definitions 

1. “Accounting Officer” The municipal manager of a municipality is the accounting 
officer of the municipality in terms of section 60 of the MFMA. 

2. “Approved budget” means an annual budget approved by a municipal council. 

3. “Budget-related policy” means a policy of a municipality affecting or affected by 
the annual budget of the municipality 

4. “Chief Financial Officer” means a person designated in terms of the MFMA 
who performs such budgeting, and other duties as may in terms of section 79 of 
the MFMA be delegated by the accounting officer to the Chief Financial Officer. 

5. “Capital Budget” This is the estimated amount for capital items in a given fiscal 
period. Capital items are fixed assets such as facilities and equipment, the cost 
of which is normally written off over a number of fiscal periods. 

6. “Council” means the council of a municipality referred to in section 18 of the 
Municipal Structures Act. 

7. “Financial year” means a 12-month year ending on 30 June. 

8. “Line Item” an appropriation that is itemised on a separate line in a budget 
adopted with the idea of greater control over expenditures. 

9. “Operating Budget” The Municipality's financial plan, which outlines proposed 
expenditures for the coming financial year and estimates the revenues used to 
finance them. 

10. “Ring Fenced” an exclusive combination of line items grouped for specific 
purposes for instance salaries and wages. 

11. “Service delivery and budget implementation plan” means a detailed plan 
approved by the mayor of a municipality in terms of section 53(1)(c)(ii) for 
implementing the municipality’s delivery of municipal services and its annual 
budget. 

12. “Virement” is the process of transferring an approved budget allocation from one 
operating line item or capital project to another, with the approval of the relevant 
Strategic Executive Director. To enable budget managers to amend budgets in 
the light of experience or to reflect anticipated changes. 

13. “Vote” means one of the small segments into which a budget of a municipality is 
divided for the appropriation of funds for the different items of revenue and 
expenditure for all departments in the municipality. 


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14. “Project Segment” 

15. “Function Segment” Linking operational and capital expenditure to a specific 
mandate 

16. “Funding Segment” Linking operational and capital expenditure to the sources 
of funding used to incur the expenditure 

17. “Regional Segment” Linking operational and capital expenditure to the 
geographical region impacted by the expenditure 

18. “Costing Segment” 

19. “Item Expenditure Segment” Linking operational and capital expenditure to the 
type and nature of expenditure incurred 

20. “Item Revenue Segment” Linking operational item to the type of revenue source 

21. “Municipal Standard Classification” Linking operational and capital 
expenditure to the organizational unit 

2. Abbreviations 

1 . C.F.O. - Chief Financial Officer 

2. iDP - Integrated Development Plan 

3. MFMA- Municipal Finance Management Act No. 56 of 2003 

4. SDBiP - Service Delivery and Budget Implementation Plan 

5. CM - Council Minute/’s 


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3. Objective 

To allow limited flexibility in the use of budgeted funds to enable management to act on 
occasions such as disasters, unforeseen expenditure or savings, etc. as they arise to 
accelerate service delivery In a financially responsible manner. 

4. Virement Clarification 

Virement is the process of transferring budgeted funds from one line item number to another, 
or from one function to another with the approval of the relevant Strategic Executive Director, 
Director, Manager or any employee delegated to enable budget managers to amend on 
approved budgets in terms of (Section 28 (2) (c) (d) of the MFMA). The bottom line of the 
original approved budget should remain unchanged. 

Virement should accommodate all 7 segments that is: project, item, function, funding, region, 
costing and GFS. When applying for a virement, one must consider the implication of 
possible mSCOA segment changes due to the virement 

5. Financial Responsibilities 

Strict budgetary control must be maintained throughout the financial year In order that 
potential overspends and / or income under-recovery within individual vote departments are 
identified at the earliest possible opportunity. (Section 54 MFMA) 

The Chief Financial Officer has a statutory duty to ensure that adequate policies and 
procedures are in place to ensure an effective system of financial control. The budget 
virement process is one of these controls. (Section 27(4) MFMA) 

It Is the responsibility of each Strategic Executive Director to which funds are allocated, to 
plan and conduct assigned operations so as not to expend more funds than budgeted. In 
addition, they have the responsibility to identify and report any irregular or fruitless and 
wasteful expenditure in terms of the MFMA sections 78. 

6. Virement Restrictions 

a) No funds may be transferred between functions without the approval of both heads of 
departments and the Chief Financial Officer, unless through an adjustment budget as 
per S28 of the MFMA. 

b) Virements may not exceed a maximum of 20% of the total approved operating 
expenditure budget, with the exception of line items where virement is implemented 
for MSCOA compliance. 


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c) A virement may not create new policy, significantly vary the current policy, or alter the 
approved outcomes / outputs as approved in the IDP for the current or subsequent 
years, (section 19 and 21 MFMA) 

d) Virements resulting in adjustments to the approved SDBIP need to be submitted with 
an adjustments budget to the Council with altered outputs and measurements for 
approval. (MFMA Circular 13 page 3 paragraph 3) 

e) No virement may commit the municipality to increase recurrent expenditure, which 
commits the Council’s resources in the following financial year, without the prior 
approval of the Council. This refers to expenditures such as entering into agreements 
into lease or rental agreements such as vehicles, photo copier’s or fax machines. 

f) No virement may be made where it would result in over expenditure in the vote and 
in each line item, (section 32 MFMA) 

g) If the virement relates to an increase in the work force establishment, then the 
Council’s existing recruitment policies and procedures will apply. 

h) Virements in respect of ring-fenced allocations must be made within ring fenced 
items. These include finance charges, debt impairment, depreciation and employee 
related costs. 

i) Virements for employee related cost may only be allowed for month end procedures 
and must be within the employee related costs category. 

j) Virements on fleet budget may only be done within the vote and fleet budget. 

k) Virements should not result in adding ‘new’ projects to the Capital Budget. Any new 
projects may only added in compliance with S28 of MFMA or the Budget Policy of the 
municipality. 

l) Virements are permitted after three months of the start of the financial year. However 
virements to correct budget to be MSCOA compliant are permitted at any time of the 
financial year. 

m) Virement amounts may not be rolled over to subsequent years, or create 
expectations on following budgets. (Section 30 MFMA) 

n) Virements should not be permitted in relation to the revenue side of the budget. 

o) Virements from capital budget to operational should not be permitted as per circular 
51 of the MFMA; this may only be permitted via adjustment budget. 

p) Virements from an amount of R200 000 on both operational and capital budget may 
only be actioned after approval by the Executive Committee of Council. 


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VIREMENT POLICY 


q) Virements are not allowed between sources of funding especially if such sources 
refer to conditional grant funding or funding received for a specific purpose. Approval 
of virements between funding sources will be subject to the authorization of the Chief 
Financial Officer, accompanied by a motivation. 

p) Virement is not allowed if such virement will result to a mSCOA segment change, by 
adding a new project, changing the region or funding source; 

r) Virement is not permitted if such virement will result to a change of project or 
function; 

s) Virement is not permitted if such virement will result to a change to a funding source; 

t) Virement is permitted on the item segment where such a change is taking place on 
within the operational or capital budget, provided the project remains the same; 

u) Virement is permitted only where savings are available within the same projects of 
similar function, provided that such projects are funded within the same revenue 
source; 


7. Virement Procedure 

a) A request for a virement must be in a virement template which must be 
signed by any official delegated in terms of municipal delegations policy or 
must be in a form of item to EXCO or to council or any adjustments in terms 
of S28 of the MFMA. Department should take the item to budget office for 
confirmation of funds prior to submission to EXCO/Council 

b) Once approved, virement must only be captured on the financial system by 
junior budget official, and approved by the senior official. All virements must 
be accompanied by proper supporting evidence; 

c) If the virement is between two different departments or functions both 
Executive Strategic Directors must sign where funds are moved and where 
funds are transferred endorsed by the Chief financial officer, otherwise if 
funds are moved within same functions any senior official may sign and this 
may be endorsed by a director budget or budget manager. 

d) Any virement with the outcome to correct budget to be MSCOA compliant 
may be initiated by any senior official to the director budget or manager 
budget by means of internal emails, otherwise this will be corrected by budget 
office from time to time. 

e) All virement requests, inclusive of relevant documentation, must be to 
forwarded to the budget office. 

f) Virements relating to employee related costs for the purposes of month-end 
procedures shall be approved by the Director: Budget and Financial Reports 
which each vote by means of internal email. 


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VIREMENT POLICY 


g) Virements relating to fleet budget for the purpose of month-end and other 
urgent operational requirement shall be authorized by the Director: Budget 
and Financial Reporting. 

h) Budget transfers, to and from a particular vote per year, in excess of R200 
000.00 with a maximum as determined under section 6(p) requires the 
approval of the Executive Committee. Such a virements must be 
accompanied by a fuil report detaiiing the compeliing reasons that lead to it. 

i) The Municipal Manager must report to the Mayor on a quarterly basis on 
those virements above R200 000 that have taken place during that quarter. 

j) Any budgetary amendment of which the net impact will be a change to 
the total approved annual budget allocation and any other amendments 
not covered in this policy are to be considered for budgetary adoption 
via an adjustments budget (per MFMA Section 28). 

8. Implementation of the Policy 

(a) The Accounting Officer shail be responsibie for the impiementation and 
administration of this policy with the assistance of the Strategic Executive 
Director: Budget and Treasury Office. 

(b) The policy shall be reviewed on annuai basis and updated if there are any 
changes brought about through an amendment of any iegislation and/or policies 
by National Treasury or arrangement within the municipality. 

(c) This policy must be read together with the Budget and the Local Government 
Municipal Finance Management Act, Act 56 of 2003. 


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FUNDING & RESERVES POLICY 



NEWCASTLE MUNICIPALITY 
FUNDING & RESERVES POLICY 


Funding and Reserves Policy 2020/21 


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FUNDING & RESERVES POLICY 


Contents Page No 

1 PREAMBLE.3 

2 POLICY OBJECTIVES.3 

3 SCOPE OF POLICY. 3 

4 APPLICABLE LEGISLATION.3 

5 FUNDING OF ANNUAL BUDGET.4 

6 CASH MANAGEMENT.4 

7 DEBT MANAGEMENT.5 

8 OPERATING BUDGET.5 

9 CAPITAL BUDGET .8 

10 RESERVES.10 

11 PROVISIONS.11 

12 OTHER ITEMS TO BE CASHED BACK.12 

13 IMPLEMENTATION AND REVIEW OF THE POLICY.13 


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FUNDING & RESERVES POLICY 


1. PREAMBLE 

The funding and reserves policy is aimed at ensuring that the municipaiity has sufficient and 
cost-effective funding in order to achieve its objectives through the implementation of its 
operating and capitai budgets. 

This poiicy aims to set guidelines towards ensuring financial viability over both the short- and 
long-term which includes reserves requirements. 

2. POLICY OBJECTIVES 

2.1 The objectives of the policy are to: 

2.1.1 Ensure that the Medium Term Expenditure Framework (annual budget) of the 
municipality is appropriately funded. 

2.1.2 Ensure that cash resources and reserves are maintained at the required levels to 
avoid future year unfunded liabilities. 

2.1.3 To achieve financial sustainability with acceptable levels of service delivery to the 
community. 

3. SCOPE OF THE POLICY 

This policy shall apply to the Council, Executive Committee, Finance Portfolio Committee, 
Budget Steering Committee, Accounting Officer, Strategic Executive Directors and all staff of 
the municipal council. It is, however, specifically applicable to the council and all officials who 
have a formal, administrative duty to prepare, manage and control the municipal’s budget 
and expenditure. 

4. APPLICABLE LEGISLATIVE 

4.1 The legislative framework governing borrowings are: 

4.1.1 Local Government Municipal Finance Management Act, Act 56 of 2003; and 

4.1.2 Local Government Municipal Budget and Reporting Regulation, Regulation 393, 
published under Government Gazette 32141, 17 April 2009. 


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FUNDING & RESERVES POLICY 


5. FUNDING OF ANNUAL BUDGET 

5.1 An annual budget may only be funded from: 

(a) cash backed accumulated funds from previous years surpluses and reserves 
not committed for any other purpose; 

(b) borrowed funds but only for capital expenditure; and/or 

(c) Grant funding. 

5.2 Realistic anticipated revenue projections must take into account: 

(a) projected revenue for the current year based on collection levels to date. 

(b) actual revenue collected in previous financial years. 

5.3 Capital expenditure may only be incurred on a capital project only if: 

(a) the funding for the project has been appropriated in the capital budget. 

(b) the total cost for the project has been approved by Council. 

(c) the future budgetary implications and projected cost covering ail financial year 

until the project is operational has been considered. 

(d) the implications of the capital budget on municipal tax and tariff increases. 

(e) the sources of funding are available and have not been committed for other 
purposes. 

6. CASH MANAGEMENT 

6.1 The availability of cash is one of the most important requirements for working capital 
management and must be closely monitored to ensure a minimum days cash on 
hand of forty five (45) days for its daily operations. 

6.2 Changes in the municipal environment that may have an impact on the municipal 
cash flow position include: 

(a) changes in revenue levels as a result of consumption patterns (water 
restrictions, load shedding etc.); 

(b) reduced growth as a result of economic conditions; 

(c) increase in non-payment rate as a result of economic conditions; 

(d) implementation of electricity industry pricing policy (inclining block tariffs). 

(e) increased debt levels. 


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FUNDING & RESERVES POLICY 


6.3 Surplus cash not immediately required for operational purposes is invested in terms 
of the municipality’s investment policy to maximize the return on investment. 

7. DEBT MANAGEMENT 

7.1 Debt is managed in terms of the municipal credit control and debt collection policy 
and the writing off of bad debts and impairments of debtors policy. 

7.2 The provision for revenue that will not be collected are budgeted as an expense and 
is based on the projected annual non-payment rate for each service. 

8. OPERATING BUDGET 

8.1 The operating budget provides funding to departments for their medium term 
expenditure as planned. The municipality categorises services rendered to the 
community according to its revenue generating capabilities. 

(a) trading services - services that generate surpluses that can be used for cross 
subsidization to fund other services. 

(b) economic services - services that break even with no surpluses. 

(c) rates and general services - services that are funded by rates, surpluses 
generated by trading services, and/or other revenues generated such as 
fines, interest received, grants and subsidies etc. 

8.2 The operating budget is funded from the following main sources of revenue: 

(a) property rates. 

(b) surpluses generated from service charges. 

(c) government grants and subsidies. 

(d) other revenue, fines, interest received etc. 

(e) cash backed accumulated surpluses from previous years not committed for 
any other purposes. 

8.3 The following guiding principles apply when compiling the operating budget: 

(a) the annual budget must be balanced. 

(b) growth parameters must be realistic taking into account the current economic 
conditions. 


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(c) tariff adjustments must be realistic, taking into consideration the general 
inflation, affordability, bulk increases and the demand according to the 
approved Integrated Development Plan (IDP). 

(d) Revenue from government grants and subsidies must be in line with 
allocations gazette in the Division of Revenue Act and provincial gazettes. 

(e) Revenue from public contributions, donations or any other grants may only be 
included in the budget if there are acceptable documentation that guarantees 
the funds such as: 

(i) signed service level agreement; 

(ii) contract or written confirmation; or 

(iii) any other legally binding document. 

(f) Property rates are levied according to the Municipal Property Rates Act, and 
property rates policy based on land and improvement values. The budget is 
compiled using the latest approved valuation and supplementary roll, 
consistent with current and past trends. Property rates tariffs and rebates are 
determined annually as part of the tariff setting process. 

(g) Property rates rebates, exemptions and reductions are budgeted either as 
revenue foregone or a grant as per directive in MFMA Budget Circular 51 
depending on the conditions thereof. 

(h) Projected revenue from service charges must be realistic based on current 
and past trends with expected growth considering the current economic 
conditions. The following factors must be considered for each service: 

(i) Metered services comprise of electricity and water: 

• the consumption trends for the previous financial years; 

• envisaged water restrictions or load shedding when applicable; and 

• actual revenue collected in previous financial years. 

(ii) Refuse removal services: 

• the actual number of erven receiving the service per category; and 

• actual revenue collected in previous financial years. 

(iii) Sewerage services: 

• the actual number of erven receiving the service and the 
consumption trends per category; and 

• actual revenue collected in previous financial years. 


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FUNDING & RESERVES POLICY 


(i) Rebates, exemptions or reductions for service charges are budgeted either as 
revenue foregone or as a grant as per directive in MFMA Budget Circular 51 
depending on the conditions thereof. 

(j) Other projected income is charged in terms of the approved sundry tariffs and 
fines considering the past trends and expected growth for each category. 

(k) Provision for revenue that wili not be coilected is made against the 
expenditure item bad debt and based on actual collection ievels for the 
previous financial year and the projected annual non-payment rate. 

(l) Interest received from actuai long-term and or short-term investments are 
based on the amount reasonably expected to be earned on cash amounts 
available during the year according to the expected interest rate trends. 
Transfers from the accumulated surplus to fund operating expenditure will 
only be allowed for specific once-off projects and with no recurring operating 
expenditure resulting thereof. 

(m) Transfers from the accumulated surplus to offset the increased depreciation 
charges as a result of the implementation of GRAP 17 will be phased out over 
a number of years. 

(n) A detailed salary budget is compiled on an annual basis. All funded positions 
are budgeted for in total and new and/or funded vacant positions are 
budgeted for six (6) months only of the total package considering the 
recruitment process. As a guiding principle the salary budget should not 
constitute more than 35% of annual operating expenditure. 

(o) Depreciation charges are fully budgeted for according to the asset register 
and to limit the impact of the implementation of GRAP 17 a transfer from the 
accumulated surplus is made. However the annual cash flow requirement for 
the repayment of borrowings must fully be taken into consideration with the 
setting of tariffs. 

(p) To ensure the health of municipal assets, sufficient provision must be made 
for the maintenance of existing and infrastructure assets based on affordable 
levels, resulting that maintenance budgets are normally lower than the 
recommended levels. Therefore the mere reduction of maintenance budgets 
to balance annual budgets must carefully be considered. As a guiding 
principle repair and maintenance should constitute between 5 and 8% of total 
operating expenditure and should annually be increased incrementally until 
the required targets are achieved. 

(q) Individual expenditure line items are to be revised each year when compiling 
the budget to ensure proper control over expenditure. Increases for these line 


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FUNDING & RESERVES POLICY 


items must be linked to the average inflation rate and macro-economic 
indicators unless a signed agreement or contract stipulates otherwise. 

9. CAPITAL BUDGET 

9.1 The capital budget provides funding for the municipality’s capital programme based 
on the needs and objectives as identified by the community through the Integrated 
Development Plan and provides for the eradication of infrastructural backlogs, 
renewal and upgrading of existing infrastructure, new developments and enlargement 
of bulk infrastructure. 

9.2 Provisions on the capital budget will be limited to availability of sources of funding 
and affordability. The main sources of funding for capital expenditure are: 

(a) accumulated cash backed internal reserves; 

(b) borrowings; 

(c) government grants and subsidies; and 

(d) public donations and contributions, 

9.3 The following guiding principles applies when considering sources of funding for the 
capital budget: 

(a) Government grants and subsidies: 

(i) only gazette allocations or transfers as reflected in the Division of 
Revenue act or allocations as per provincial gazettes may be used to 
fund projects; 

(ii) the conditions of the specific grant must be taken into consideration 
when allocated to a specific project; and 

(iii) government grants and subsidies allocated to specific capital projects 
are provided for on the relevant department’s operating budget to the 
extent the conditions will be met during the financial year. 

(b) In the case of public contributions, donations and/or other grants, such capital 
projects may only be included in the annual budget if the funding is 
guaranteed by means of: 

(i) signed service level agreement; 

(ii) contract or written confirmation; and/or 

(iii) any other legally binding document. 


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(c) Public donations, contributions and other grants are provided for on the 
relevant department’s operating budget to the extent the conditions wiil be 
met during the financiai year. 

(d) The borrowing requirements as contained in the borrowing policy are used as 
a basis to determine the affordabiiity of external loans over the Medium Term 
Income and Expenditure Framework. The ratios to be considered to take up 
additional borrowings: 

(i) iong-term credit rating of BBB; 

(ii) interest cost to total expenditure to not exceed 8%; 

(iii) iong-term debt to revenue (excluding grants) not to exceed 50%; 

(iv) payment rate of above 95%; 

(v) percentages of capital charges to operating expenditure less than 18%. 

(e) Allocations to capitai projects from cash backed internai reserves wili be 
based on the avaiiabie funding for each ring-fenced reserve according to the 
conditions of each reserve as follows: 

(i) infrastructure projects to service new developments and the revenue is 
received through the sale of erven must be allocated to the capital 
reserve for services; 

(ii) capitai projects of a smaller nature such as office equipment, furniture, 
plant and equipment etc. must be allocated to the capital reserve from 
revenue which is funding from the revenue budget for that specific year. 
A generai principle is that these types of capital expenditure should not 
exceed more than 1% of total operating expenditure; 

(iii) capitai projects to replace and/or upgrade existing assets wiii be 
aiiocated to the capitai replacement reserve; 

(iv) capital projects to upgrade bulk services wili be aiiocated to the capitai 
bulk contributions reserve for each service. 

9.4 All capital projects have an effect on future operating budget therefore the foliowing 
cost factors should be considered before approval: 

(a) additional personnel cost to staff new facilities once operational; 

(b) additional contracted services, that is, security, cleaning etc. 

(c) additionai generai expenditure, that is, services cost, stationery, teiephones, 
materiai etc. 

(d) additionai other capital requirements to the operate faciiity, that is, vehicies, 
plant and equipment, furniture and office equipment etc. 

(e) additionai costs to maintain the assets; 


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FUNDING & RESERVES POLICY 


(f) additional interest and redemption in the case of borrowings; 

(g) additional depreciation charges; 

(h) additional revenue generation. The impact of expenditure items must be 
offset by additional revenue generated to determine the real impact on tariffs. 

10. RESERVES 

10.1 All reserves are “r/ng fenced’ as internal reserves within the accumulated surplus, 
except for provisions as allowed by the General Recognized Accounting Practices 
(GRAP). 

10.2 The following ring fenced reserves exist: 

(a) Housing development reserves 

The reserve is used to fund housing expenses for housing units that 
previously belonged to the Department of Human Settlements. All rentals are 
deposited to this fund and only utilised on authorisation by the department. 
This reserve must be fully cash backed and be not utilised for any other 
purpose than authorised by the Department of Human Settlements. 

(b) Self-insurance reserve 

Self-insurance reserve exists to selected risks including fire, storm, workmen 
compensation, public liability and motor vehicles. The service is re-insured 
externally to cover major losses and excess amounts as approved by the 
municipal Insurer. This reserve must be fully cash backed to ensure 
availability of cash in the event of minor losses or excess amounts 
subsequent to claims approved by the municipal Insurer. 

(c) Capital replacement reserve 

Funding for capital budgets of future financial years are generated through a 
combination of methods. Once a municipality has reached its maximum 
gearing ability no further borrowings can be taken up. This necessitates that 
the municipality also invests in a capital replacement reserve, however, it 
must be cash backed. 


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This reserve once fully established will enable the municipality to provide 
internal funding for its capital replacement and renewal programme. 

In the past, the cash generated from depreciation was used for the 
redemption payments on borrowings only. The increased asset value as a 
result of GRAP 17 has resulted that the depreciation charges increased 
drastically which was not supported by cash. 

To limit the tariff increases a non-cash contribution was made from the 
depreciation reserve to offset the depreciation charge. Depreciation is a 
method to generate future cash. Therefore it is anticipated to annually 
incrementally decrease the offset depreciation charge from the depreciation 
reserve with 2% until the depreciation is fully funded from cash through tariff 
setting. 

Other contributions to the capital replacement reserve through the operating 
budget are: 

(i) interest received on investments; 

(ii) surface rentals from mines as identified from time to time; and 

This reserve must be cash backed only when excess funds to do so are 
available within municipal reserves; 

11. PROVISIONS 

A provision is recognised when the municipality has a present obligation as a result of a past 
event and it is probable, more likely than not, that an outflow of resources embodying 
economic benefits or service potential will be required to settle the obligation and a reliable 
estimate can be made of the amount of the obligation. 

Provisions are revised annually and those estimates to be settled within the next twelve (12) 
prior to the finalisation of annual financial statements. Only current portion of provision at 
each balance sheet date should be cash backed as follows: 

{a) Leave provision 


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Liabilities for annual leave are recognised as they accrue to empioyees. An annual 
provision is made from the operating budget to the leave provision. Due to the fact 
that not aii leave balances are redeemed for cash, only 30% of the leave provision is 
cash backed, 

(b) Long services awards 

Municipai employees are awarded leave days according to years in service at year 
end. Due to the fact that not ali long service awards are redeemed for cash, 
provisions for long service awards should not necessarily be cash backed. 

(c) Post employment medical care benefits 

The municipality provides post retirement medicai care benefits by subsidizing the 
medicai aid contributions to retired employees and their legitimate spouses. The 
entitiement to post retirement medical benefits is based on empioyees remaining in 
service up to retirement age and the completion of a minimum service period. The 
expected cost of these benefits is accrued over a period of employment. The 
provision payable for at least one financial year must be cash backed to ensure the 
availability of cash for the payment of medicai aid payments. 

(d) Landfill rehabilitation provision 

The landfili site rehabilitation provision is created for the current operational site at 
the future estimated time of ciosure. The vaiue of the provision is based on the 
expected future cost to rehabilitate the landfiii site. This provision wiil be treated as 
non-current liabiiity in the municipal financial statements and will not be fully cash 
backed as the new landfill site will occur at a future date. 

12. OTHER ITEMS TO BE CASH BACKED 

(a) Donations, public contributions, unspent grant funding 

Revenue received from conditional grants, donations and funding is recognised as 
revenue to the extent that the municipality has complied with any of the criteria, 
conditions or obligations embodied in the agreement. Unspent amounts in relation to 
donations, public contributions and unspent grant funding are therefore retained in 


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FUNDING & RESERVES POLICY 


cash and are not available to fund any other items on the operating or capital budget 
other than that for which it was intended for. All unspent conditional grants, donations 
and public contribution at the end of each reporting date must be fully cash backed. 

(b) Consumer deposits 

Consumer deposits are partial security for a future payment of an account. Deposits 
are considered a liability as the deposit is utilised on the account once the service is 
terminated. Therefore the funds are owed to consumers and can therefore not be 
utilised to fund the operating or capital budget. Due to the fact that it is not likely to 
redeem all of the consumer deposits at once, consumer deposits must not 
necessarily be cash backed. 

13. IMPLEMENTATION AND REVIEW OF THIS POLICY 

13.1 The Accounting Officer shall be responsible for the implementation and 
administration of this policy with the assistance of the Strategic Executive Director: 
Budget and Treasury Office once approved by Council. 

13.2 In terms of section 17(1) (e) of the Municipal Finance Management Act, 2003 this 
policy shall be reviewed on annual basis to ensure that it complies with changes in 
applicable legislation, regulations and any other directive issued by National 
Treasury.and tabled to Council for approval as part of the budget process. 

13.3 This policy must be read in-conjunction with the Budget and Borrowing Policies; 
Local Government Municipal Finance Management Act, Act 56 of 2003; and Local 
Government Municipal Budget and Reporting Regulation, Regulation 393, published 
under Government Gazette 32141, 17 April 2009. 


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BORROWING POLICY 



NEWCASTLE MUNICIPALITY 

BORROWING POLICY 


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BORROWING POLICY 


Contents Page No 

1 PREAMBLE .3 

2 DEFINITIONS.3 

3 POLICY OBJECTIVES.3 

4 SCOPE OF POLICY.4 

5 APPLICABLE LEGISLATION.4 

6 BORROWING PRINCIPLES.5 

7 COMPULSORY DISCLOSURE WHEN INCURRING MUNICIPAL DEBT.7 

8 PROCESS.8 

9 CONDITIONS APPLYING TO BOTH SHORT AND LONG TERM DEBT.11 

10 SECURITIES.11 

11 DISCLOSURES.11 

12 GARANTEES.12 

13 SUBMISSION OF DOCUMENTS.13 

14 NOTIFICATION OF NATIONAL TREASURY.13 

15 FINANCIAL AFFAIRS OF THE MUNICIPALITY.13 

16 lINTEREST RATE RISK.13 

17 LIMITATIONS.13 

18 IMPLEMANTATION OF THIS POLICY.13 


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1. PREAMBLE 

1.1 Considering the large demand for municipal infrastructure, borrowing is an important 

element to obtain additional funding sources to fund the municipal capital programme 
over the medium term. 

1.2 Given that a large portion of municipal infrastructure has a long-term economic life 

and a general principle is that the current ratepayers should not pay for the usage of 
future ratepayers, there is a strong economic argument to finance this capital 
expenditure through long-term borrowing in order to accelerate the pace of delivery 
and to mirror the repayment of funds with the economic life of the asset. 

2. DEFINITIONS 

“Acf means the Local Government: Municipal Finance Management Act, 2003 (Act No. 56 
of 2003). 

“current year” means the financial year which has already commenced but not yet ended; 
“debt” means- 

(a) monetary liability or obligation created by a financing agreement, note, 55 debenture, 
bond or overdraft, or by the issuance of municipal debt instruments: or 

(b) a contingent liability such as that created by guaranteeing a monetary liability or 
obligation of another; 

‘‘disclosure statements" means a statement issued or to be issued by: 

• a municipality which intends to incur debt by issuing municipal debt instruments; and 

• a person who intends to incur debt by issuing securities backed by municipal debt. 
“financing agreement’ means any loan agreement, lease, instalment, purchase 
arrangement under which a municipality undertakes to repay a long-term debt over a period 
of time. 

‘iendef in relation to a municipality means a person who provides debt finance to the 
municipality. 

“long term debf means debt repayable by the municipality over a period exceeding one (1) 
year. 

“municipal debf means: 

(c) a monetary liability or obligation on a municipality by: 

• a financing agreement, note, debenture, bond or overdraft; and 

• the issuance of municipal debt instruments. 


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(d) a contingent liability such as that created by guaranteeing a monetary liability or 
obligation of another. 

“security' means any mechanism intended to secure the interest of a lender or investor and 

includes any of the mechanisms mentioned. 

“short term debt’ means debt that is repayable over a period not exceeding one (1) year. 

3. POLICY OBJECTIVES 

The objectives of the policy are to: 

3.1 enable the municipality to exercise its obligation to ensure sufficient cash resources 
to implement capital programme in the most cost effective manner; 

3.2 ensure compliance with the relevant legal and statutory requirements relating to 
municipal borrowing: 

3.3 govern the taking up of short-term and long-term debt according to the legislative 
framework; 

3.4 manage interest rate and credit risk exposure; 

3.5 maintain debt with specified limits and ensure adequate provision for the repayment 
of debt; and 

3.6 maintain financial sustainability. 

4. SCOPE OF THE POLICY 

4.1 This policy shall apply to the Council, Executive Committee, all Portfolio Committees, 
Accounting Officer and Strategic Executive Directors. It Is, however, specifically 
applicable to the council and all officials who have a formal, administrative duty to 
deal with capital projects and programmes of the municipality management of 
budget. 

5. APPLICABLE LEGISLATION 

5.1 In terms of the Municipal Finance Management Act, No. 56 of 2003, Chapter 6 on 
Debt, Section 45 (1) which deals with short-term debts states that a municipality may 
incur short-term debt only in accordance with and subject to the provisions of the act 
and only when necessary to bridge shortfalls and capital needs within a specific 
financial year. 


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5.2 In terms of the Municipal Finance Management Act, No. 56 of 2003, Chapter 6 on 
Debt, Section 46 (1) which deals with long-term debts states that a municipality may 
incur short-term debt only In accordance with and subject any applicable provisions 
of the act, including Section 19 for the purposes of capital expenditure or re-financing 
existing long-term debt. 

5.3 Local Government Municipal Regulations and Debt Disclosure, Regulation R492, 
published under Government Gazette 29966, 15 June 2007 further regulates 
compulsory disclosures when incurring municipal debt and securities backed by 
municipal debt. 

6. BORROWING PRINCIPLES 

6.1 The economic life of assets should always be equal to or longer than the tenure of 
the debt finance. 

There are five main reasons why access to financial markets is considered important for 

local authorities. These may be summarised as follows: 

• Access to capital. Local governments in SA are responsible for infrastructure that 
requires large, “lumpy” capital Investments on a periodic basis. Given the extensive 
needs in SA, financing this investment on a “pay-as-you-go” or “taxation-in-advance” 
basis is usually neither possible nor efficient. Particularly where the need for capital 
greatly exceeds what is available on a grant basis from the central fiscus, access to 
capital markets can provide municipalities with the capital resources necessary to 
finance infrastructure investments efficiently. 

• Inter-temporal equity. The benefits of the infrastructure investments that 
municipalities make often endure for extensive periods and accrue to future 
generations of taxpayers and consumers. It is equitable for such generations to bear 
some of the costs of these benefits. Financing investment over time with funds 
accessed from capital markets allows for this. 

• Efficiency. Because capital markets allocate capital resources on a commercial 
basis, capital should be appropriated efficiently. Moreover, the opportunity costs of 
capital provide incentives to ensure efficient standards of delivery and discouraged 
“overbuilding” and wasteful investment. 


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• Accountability. Markets tend to punish poor fiscal and management performance 
through pricing (pushing up interest rates or making capital increasingly scarce.) This 
can promote accountability and fiscal discipline at the local level. It may also provide 
other stakeholders (national government; the provinces; aid agencies and so on) with 
a convenient means to assess the relative performance of municipal governments. 

• Short-term matching of revenues and expenditures. In the short term - for example 
within a given financial year - municipal revenues and expenditures are seldom 
completely congruent in time. Short-term borrowing allows municipalities to deal with 
this lack of synchronicity. 

• International experience suggests that achieving these benefits depends on the 
method of access and the conditions under which this access occurs. In principle 
there are two main routes here: local governments can access capital markets 
through “on-lending” from central government, most often through a Policy 
Framework for Municipal Borrowing and Financial Emergencies 9 public intermediary 
(a financial parastatal), or they may access the markets directly. 

In SA the DBSA, which is increasingly active in the municipal market, already represents one 
“indirect" access mechanism. As already recorded, the interface between this mechanism 
and the private market in respect of municipal debt is an important issue which will require 
further attention once the policy framework outlined below is established in legislation. The 
DBSA aside, there are three broad reasons that government wishes to facilitate direct 
access by municipalities to the capital markets: 

• Limitation of implicit or contingent liabilities. It is important to protect central 
government from ultimately inheriting the debts of local government. When sub¬ 
sovereigns borrow through central government the debts of these bodies easily 
become the implicit or contingent liabilities of central government. Policy and 
legislation need to ensure that central government is not perceived as banker of last 
resort. This is necessary for prudent fiscal management at the national level and is 
fundamental to government’s ability to maintain its macro targets. It is also needed to 
ensure that municipalities face strong incentives to improve their own management 
and creditworthiness, knowing that it is unlikely that central support will be 
forthcoming to compensate for local mismanagement or policy errors. 


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• Systemic discipline. International experience suggests that the indirect borrowing 
route can result in situations where credit allocation decisions become increasingly 
less commercial in character. Under such conditions, capital does not necessarily 
flow to the most productive uses, but to those players which are politically the most 
astute. In other words the efficiency and accountability outcomes mentioned above 
become diluted. Incentives for inefficient and wasteful decision-making can replace 
those which encourage the productive use of capital and tight financial management. 

• Expanding investment resources. Subsovereign borrowing via the state can result in 
the “squeezing out” of private capital from the municipal sector, thereby narrowing 
the aggregate resource available for investment. Moreover, central control of 
borrowing can also create incentives for local governments to elude these restrictions 
through innovative off-budget schemes. Centralised borrowing, therefore, does not 
necessarily increase the ability of central government to control the liabilities of local 
government, but it may simultaneously diminish the overall financial resource base 
for investment in worthy projects. 

In sum, direct access to capital markets offers the potential for a more transparent, market- 
based system to develop where there is a greater chance of achieving the benefits of 
accessing capital markets discussed above. However, it is also true that moral hazard 
problems - which arise from the assumption by capital markets that borrowing by local 
governments is ultimately backed by central government - may also develop where there is 
direct borrowing by sub sovereigns from private financial markets. Ultimately, such problems 
can never be eliminated completely. The basic objective of the detailed policy framework 
given below is to ensure that such risks are managed through an appropriate regulatory 
framework while allowing market discipline to guide the allocation of capital in order to 
maximise the potential benefits that this offers. 

7. COMPULSORY DISCLOSURES WHEN INCURRING MUNICIPAL DEBT 

7.1 When entering into discussions with a prospective lender with a view to incur 
municipal debt, the municipality must indicate in writing to the prospective lender 
whether it intends to incur short-term or long-term debt. 

7.2 In the case of short-term debt it must be disclosed whether the debt is to bridge: 


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(a) shortfalls within a financial year during which the debt is incurred, in 
expectation or specific and realistic anticipated revenue to be received with 
that financial year; or 

(b) capital needs within a financial year, to be repaid from specific funds to be 
received from enforceable allocation or long-term debt commitments. 

7.3 In the case of long-term debt, whether the purposes of the debt is for: 

(a) capital expenditure on property, plant or equipment to be used for the purpose 
of achieving the objectives of local government, subject to section 46(4) of the 
Act. 

(b) refinancing of existing long-term debt, subject to section 46(5) of the Act. 

8. BORROWING PROCESS 

The process as required by the Act is as follows: 

8.1 Short-term debt 

8.1.1 Newcastle Municipality may incur short-term debt only if: 

(a) a resolution of the municipal council, signed by the mayor, has approved the 
debt agreement; and 

(b) the accounting officer has signed the agreement or other document which 
creates or acknowledges the debt. 

8.1.2 A short term debt transaction may be: 

(c) Approve by the municipality alone; or 

(d) approve an agreement with a lender for short-term credit facility to be 
accessed as and when required, including a line of credit or bank overdraft 
facility, provided that: 

(i) the credit limit must be specified in the resolution of the council; 

(ii) in terms of the agreement, including the credit limit, may be changed 
only by a resolution of the council; and 

(iii) if the council approves a credit facility that is limited to emergency use, 
the accounting officer must notify the council in writing as soon as 
practical of the amount, duration and cost of any debt incurred in terms 
of such a credit facility, as well as options for repaying such debt. 


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8.1.3 Newcastle Municipality: 

(a) must pay off short-term debt within the financial year; and 

(b) may not renew or refinance short-term debt, whether its own debt or that of 
any other entity, where such renewal or refinancing will have the effect of 
extending the short-term debt into a new financial year. 

8.1.4 No lender may willfully extend credit to a municipality for the purpose of renewing or 

refinancing short-term debt that must be paid off in terms of subsection 6.3 (a). 

8.1.5 If a lender willfully extends credit to a municipality in contravention of paragraph 6.4, 

the municipality is not bound to repay the loan or interest on the loan. 

8.1.6 Subsection 6.1.5 does not apply if the lender: 

(a) relied in good faith on written representations of the municipality as to the 
purpose of the borrowing; and 

(b) did not know and had no reason to believe that the borrowing was for the 
purpose of renewing or refinancing short-term debt. 

8.2 Long-term debt 

8.2.1 Newcastle Municipality may incur long-term debt only if: 

(a) a resolution of the municipal council, signed by the mayor, has approved the 
debt agreement: and 

(b) the accounting officer has signed the agreement or other document which 
creates or acknowledges the debt. 

8.2.2 Newcastle Municipality may incur long-term debt only if the accounting officer of the 

municipality: 

(a) has, in accordance with section 21A of the Municipal Systems Act: 

(i) at least twenty one (21) days prior to the meeting the council at which 
approval for the debt is to be considered, made public an information 
statement setting out particulars of the proposed debt, including the 
amount of the proposed debt, the purposes for which the debt is to be 
incurred and particulars of any security to be provided; and 
(i) invited the public, the National Treasury and the relevant provincial 
treasury to submit written comments or representations to the council 
in respect of the proposed debt; and 


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(b) has submitted a copy of the information statement to the municipal council at 
least twenty one (21) days prior to the meeting of the council, together with 
particulars of: 

(i) the essential repayment terms, including the anticipated debt 

repayment schedule; and 

(i) the anticipated total cost in connection with such debt over the 
repayment period. 

8.2.3 Capital expenditure contemplated in 5.3(a) may include: 

(a) financing costs, including: 

(ii) costs associated with security arrangements in accordance with 
section 48 of the Act; 

(iii) discounts and fees in connection with the financing; 

(iv) fees for legal, financial, advisory, trustee, credit rating and other 
services directly connected to the financing; and 

(v) costs connected to the sale or placement of debt, and costs for printing 
and publication directly connected to the financing. 

(b) costs of professional services directly related to the capital expenditure; and 

(c) such other costs as may be prescribed. 

8.2.4 A municipality may borrow money for the purpose of refinancing existing long-term 
debt, provided that: 

(a) the existing long-term debt was lawfully incurred; 

(b) the refinancing does not extend the term of the debt beyond the useful life of 
the property, plant or equipment for which the money was originally borrowed; 

(c) the net present value of projected future payments (including principal and 
interest payments) after refinancing is less than the net present value of 
projected future payments before refinancing; and 

(d) the discount rate used in projecting net present value referred to in paragraph 

(c), and any assumptions in connection with the calculations, must be 
reasonable and in accordance with criteria set out in a framework that may be 
prescribed. 

8.2.5 A municipality’s long-term debt must be consistent with its capital budget referred to 
in section 17(2) of the Act. 


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BORROWING POLICY 


9. CONDITIONS APPLYING TO BOTH SHORT-TERM AND LONG-TERM DEBT 

9.1 Newcastle Municipality may incur debt only if: 

(a) the debt is denominated in rand and is not indexed to, or affected by 
fluctuations in the value of the rand against any foreign currency: and 

(b) section 48(3) of the Act has been complied with, if security is to be provided 
by the municipality. 

10. SECURITIES 

10.1 Newcastle Municipality may by resolution of its council provide security for: 

(a) any of its debt obligations; and 

(b) contractual obligations of the municipality undertaken in connection with 
capital expenditure by the persons on property, plant or equipment to be used 
by the municipality or such other person for the purpose of achieving the 
objectives of local government in terms of section 152 of the Constitution. 

10.2 Appropriate security is contemplated in section 48(2) of the Act. 

10.3 Other additional conditions to be complied with are contemplated in section 48(3) to 
(5) of the Act. 

11. DISCLOSURE 

11.1 Any person involved in the borrowing of money by a municipality must, when 
interacting with a prospective lender or when preparing documentation for 
consideration by a prospective investor: 

(a) disclose all information in that person’s possession or within that person’s 
knowledge that may be material to the decision of that prospective lender or 
investor; and 

(b) take reasonable care to ensure the accuracy of any information disclosed. 

11.2 Lender or investor may rely on written representations of the municipality signed by 
the accounting officer, if the lender or investor did not know and had no reason to 
believe that those representations were false or misleading. 


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BORROWING POLICY 


12. GUARANTEES 

12.1 Newcastle Municipality may not issue any guarantee for any commitment or debt of 
any organ of state or person, except on the following condition: 

(a) the guarantee must be within limits specified in the municipality’s approved 
budget. 

12.2 Neither the national nor a provincial government may guarantee the debt of a 
municipality except to the extent that chapter 8 of the Public Finance Management 
Act provides for such guarantees. 

13. SUBMISSION OF DOCUMENTS 

13.1 When entering into discussion with a prospective lender with a view to incur short¬ 
term or long-term debt, the following information must be made avaiiable to the 
prospective lender. 

(a) audited financiai statements for the preceding three (3) financial years with 
audited outcomes; 

(b) approved annuai budget; 

(c) the municipai integrated deveiopment pian; 

(d) repayment scheduies pertaining to existing short-term or long-term debt. 

14. NOTIFICATION TO NATIONAL TREASURY 

All information prescribed in the act must be provided to Nationai Treasury with respect to a 
long-term debt proposal. Any intention to incur a long term debt must also be reported to 
National and Provincial Treasury for the purpose of affordability assessment. 

15. FINANCIAL AFFAIRS OF THE MUNICIPALITY 

The following information concerning the financial situation and financial management of the 
municipality must be disclosed: 

(a) schedule of all long-term debt obligations stating principal and interest 
payments for the life of all loans and any security provided to secure such 
debt; 

(b) the amount of any short-term debt outstanding; 


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BORROWING POLICY 


(c) the revenue of the municipality for the preceding three (3) financial years 
stated separately: 

(i) government grants and public donations; 

(ii) revenue from rates and service charges; and 

(iii) other revenue sources 

(d) what source of funding will be used to repay the loan; 

(e) details of any default by the municipality on outstanding or repaid debt during 
the preceding three (3) years; 

(f) the reserves of the municipality; 

(g) a summary of financial policies and practices; and 

(h) the latest credit rating obtained. 

16. INTEREST RATE RISK 

16.1 As a general principle when interest rates are expected to decrease, it is advisable 
that a floating rate be negotiated in order to take advantage of the lower interest rates 
in future. If interest rates are expected to increase, it is advisable to obtain a fixed 
rate so that the benefits of the current low interest rate are maintained. 

16.2 The interest risk must be limited in so far as possible. The policy directive is to 
negotiate fixed interest rates for all long-term borrowings. This will ensure stability of 
the repayments and reduce the risk for high rates and tariff increases as a result of 
interest rate hikes in the market. 

16.3 Variable rates should be considered for short-term debt only. 

17. LIMITATIONS 

To ensure a financial viable municipality the following ratios are used to determine the 
municipal gearing ability to borrow: 

• long-term credit rating of BBB; 

• interest cost to total expenditure to not exceed 8%; 

• long-term debt to revenue (excluding grants) not be exceed 50%; 

• payment rate mature above 95%; and 

• percentage of capital charges to operating expenditure less than 18%. 


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18. IMPLEMENTATION AND REVIEW OF THIS POLICY 

18.1 The Accounting Officer shall be responsible for the implementation and 
administration of this policy with the assistance of the Strategic Executive Director for 
Financial Services Department once approved by Council. All future borrowings must 
be considered in accordance with this policy read with MFMA and Local Government 
Municipal Regulations and Debt Disclosure, Regulation R492, published under 
Government Gazette 29966, 15 June 2007 and other directives and guidelines 
issued by National Treasury. 

18.2 In terms of section 17(1) (e) of the Municipal Finance Management Act, 2003 this 
policy shall be reviewed on annual basis to ensure that it complies with changes in 
applicable legislation and regulation and the reviewed policy tabled to Council for 
approval as part of the budget process . 

18.3 This policy must be read together with the Budget and Funding and Reserves 
Policies: Local Government Municipal Finance Management Act, Act 56 of 2003; and 
Local Government Municipal Budget and Reporting Regulation, Regulation 393, 
published under Government Gazette 32141, 17 April 2009. 


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Newcastle Municipality 























Newcastle Local Municipality 

Loss Control Policy 


CHAPTER A 


1. PREAMBLE 

The Loss Control Policy provides a framework within which the Municipality will prevent, limit or 
reduce unnecessary losses. Section 78(1)(b-e) of the Municipal Finance Management Act places 
the responsibility on each official within their Department to take responsibility for the effective, 
efficient, economical and transparent use of financial and other resources within that official’s area 
of responsibility. In particular, the official must take effective and appropriate steps to prevent, within 
that official’s area of responsibility, any unauthorised, irregular, fruitless and wasteful expenditure 
and any under-collection of revenue due. The policy includes procedures for reporting losses to 
Management and the insurance claims. It also serves as a basis for the development of our loss 
control strategies and plans. 


2. DEFINITIONS 

For the purposes of this policy the following definitions apply: 

2.1 “Losses” - any material loss or damages or prejudice to Council or a said person and, 
without derogating from or limiting the concept, also shortages, damages, fruitless or wasteful 
expenditure and compensations. 

2.2 “Claim” - a lawsuit, action, interdict, arbitration, inquest or dispute and also includes an 
intended lawsuit, action, interdict, arbitration, inquest or dispute. 


3. ESTABLISHMENT AND IMPLEMENTATION OF LOSS CONTROL POLICY 
1. LEGISLATIVE FRAMEWORK 

The Municipal Finance Management Act, 2003 states that, 

I. The accounting officer of a municipality is responsible for the management of 

(a) The assets of the municipality, including the safeguarding and the maintenance of those 
assets; and 

(b) The liabilities of the municipality. 

II. The accounting officer must for the purposes of subsection (I.) take all reasonable steps to 
ensure: 

(a) That the municipality has and maintains a management, accounting and information 
system that accounts for the assets and liabilities of the municipality; 

(b) That the municipality’s assets and liabilities are valued in accordance with standards of 
generally recognised accounting practice; and 

(c) That the municipality has and maintains a system of internal control of assets and 
liabilities, including an asset and liabilities register, as may be prescribed 

Section 62 of the MFMA provides that. 

The accounting officer of a municipality is responsible for managing the financial administration of 
the municipality, and must for this purpose take all reasonable steps to ensure— 

(a) That the resources of the municipality are used effectively, efficiently and economically: 

(b) That full and proper records of the financial affairs of the municipality are kept in 
accordance with any prescribed norms and standards; 


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Loss Control Policy 


Newcastle Local Municipality 


(c) That the municipality has and maintains effective, efficient and transparent systems— 

(i) Of financial and risk management and internal control; and 

(ii) Of internal audit operating in accordance with any prescribed norms and 
standards; 

(d) That unauthorised, irregular or fruitless and wasteful expenditure and other 
losses are prevented; 

(e) That disciplinary or, when appropriate, criminal proceedings are instituted 
against any official of the municipality who has allegedly committed an act of 
financial misconduct or an offence in terms of Chapter 15 

The MFMA also provides for the other officials and senior managers as stated below. 

Each senior manager of a municipality and each official of a municipality exercising financial 
management responsibilities must take all reasonable steps within their respective areas of 
responsibility to ensure; 

(a) that the system of financial management and internal control established for the 
municipality is carried out diligently; 

(b) that the financial and other resources of the municipality are utilised effectively, 
efficiently, economically and transparently; 

(c) that any unauthorised, irregular or fruitless and wasteful expenditure and any 
other losses are prevented; 

(e) that the assets and liabilities of the municipality are managed effectively and that 
assets are safeguarded and maintained to the extent necessary; 


4. OBJECTIVE OF THIS POLICY 

1. All officials Including management are held accountable for losses in their respective area 
of responsibility. 

2. Assist officials to create a climate that is conducive to internal control, risk management and 
prevention of losses. 

3. Contribute towards creating respect for the resources entrusted to the Municipality for use 
in the best way possible. 

4. Encourage officials to perform their duties in a responsible manner and to avoid unlawful 
conduct that may result in unnecessary losses in general of claims for compensation being 
instituted against the Municipality in particular. 

5. Uniform reporting procedure will not only ensure that the record of losses is kept more 
efficiently and effectively, but will also contribute to the promotion of greater efficiency in the 
management of losses and the establishment of an effective risk prevention strategy. 


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Newcastle Local Municipality 

Loss Control Policy 


CHAPTER B 


1. TYPES OF LOSSES, DAMAGES AND FRAUD 

a) Loss, theft and damage of immovable assets: 

• Municipal buildings through whether elements and/or a negligence of maintaining 
official buildings. 

• Infrastructural Assets. 

b) Loss, theft and damage of moveable assets: 

• Municipal vehicles through thefts, high-jacks, accidents and other damage costs 

• Fines (not speeding and parking) e.g. noisy un-roadworthy vehicles, storage 
charges for vehicles and penalties for late submission to Department of Transport. 

• Official’s cell phones, iPads and laptops, through thefts and negligence. 

• Office furniture, computers, printers, faxes, photocopiers, air conditioners and other 
electronic equipment through thefts and other damage costs, 

• Minor equipment such as tools and maintenance equipment through thefts and other 
damage costs. 

c) Loss, theft and damage of inventory stores items: 

• Stationary, maintenance, electrical material, cleaning material through thefts and 
other damage costs. 

d) Loss, theft and damage of municipal monies and face value forms 

• Cash - theft and shortages on petty cash, rental and bidding revenue collected. 

e) Claims against the municipality through acts or omissions against said person (s). 

• Notices of intended civil action served on municipal officials or councillor 

f) Claims by the Municipality against other person (s) 

• Overpaid salaries-after death or termination. 

• Salaries paid for staff under suspension. 

• Irrecoverable- rates, rentals and electricity 

• Ex-Gratia payments 

g) Fraud cases with loss implications 

• Criminal/negligence 

• Stolen cheque cashed 

• Fraudulent credit transfers 

• Unauthorized orders 

• Ghosts in salary system 

h) Fruitless and wasteful expenditure 

• Late payment to a creditor for which interest is charge and for which we have been 
invoiced and obligated to pay. 

• Any payment to a service provider for which the full value was not received, e.g. 
paying for 2 officials booked for training when only 1 actually attended. 

• Wasteful Expenditure made in vain and would have been avoided had reasonable 
care been taken. E.g. paying for 10 chairs when 5 is actually necessary and needed. 

• Losses due to poor tender/bids allocation. 

i) Other losses 

• Poor management actions 

• Attempted fraud (no actual loss) 

• Municipality’s all write-offs 


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Newcastle Local Municipality 

Loss Control Policy 

2 . PROCESS OWNERS 

a) On account of the organizational composition of the assets & control, an Assets 
Controller must be appointed in each directorate. The Assets Controller will also perform 
duties of the loss control officer so that loss control can be applied in a regulated and 
effective manner. 

b) The Assets Controller in each directorate (hereafter called the DAC); will be responsible 
for loss control in the relevant directorate and in all offices or institutions under the 
directorate. 

c) The Asset Accountant will then be the central loss control officer until the Central Loss 
Control Officer is appointed. 

a. APPOINTMENT OF DEPARTMENTAL LOSS CONTROL OFFICER (DAC) 

i. The duties attached to loss control are delegated by the accounting officer 
to an Assets Controller in terms of delegation. These powers have been 
delegated to the Chief Financial Officer (CFO). 

ii. The HOD’s can arrange that the DACs, when necessary, be appointed in 
writing to take over the duties in connection with loss control in that 
directorate and the offices and institutions under its management. 

iii. The letter of appointment or resolution of a DAC, including particulars 
regarding his or her office address and telephone number, is attached. A 
copy of the letter of appointment must be sent to the CFO. This also applies 
when appointed DACs are replaced. 

b. RESPONSIBILITIES OF THE LOSS CONTROL OFFICER (DAC) 

The duties attached to loss control officer include, amongst others the following:- 

a) Obtaining all details and statements regarding claims and losses and entering the same in 
loss register; 

b) Timely reporting of all claims and iosses to the Head of the Directorate 

c) Following up and settling such cases; 

d) Liaise as far as possible with the office of Assets Management and Legal Office and; 

e) Compiling and maintaining the Loss Control Register 

f) Reporting to the Loss Control Committee ( Assets Management Committee) quarterly on 
losses 

g) Recording proceeds from the insurance provider and/ or the official found liable as received 
by the Insurance clerk 

h) Conduct loss control awareness campaigns to departmental institutions. 

i) Inform the Asset Accountant regularly (quarterly) in writing ( or email) of losses 

c. RESPONSIBILITIES OF THE LOSS CONTROL COMMITTEE 

a) Must consider all reports submitted by the Loss Control Officer 

b) Evaluate reports and determine possible negligence 

c) Recommend to the Accounting Officer action that must be taken against officials implicated 
in negligent loss of assets 

d) Recommend to the Accounting Officer the writing off of assets on the asset register 


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Loss Control Policy 


Newcastle Local Municipality 


d. RESPONSIBILITIES OF THE ASSET ACCOUNTANT 

The Asset Accountant has the following additional duties: 

a) Co-coordinating the duties of DACs regarding loss control 

b) Following up with Municipal Insurance broker and settling of such cases 

c) Regular checking of losses registers and cases recorded therein 

d) Checking all cases for authorization by SCM Manager, the accounting officer or 
directors 

e) The reconciliation of written -off items with the respective lost items in the budgeting 
of expenditures in cases where book entries have been made for the accounting of 
the written-off items 

f) Reporting all cases to the office of Risk Management - Introducing preventative 
measures to avoid the recurrence of any losses 


3. MANAGEMENT OF LOSSES 

The Management of losses includes the following:- 

• Losses to be reported within 24 hours after acknowledgement to the Loss Control 
Officer (Assets Controller). 

• The Loss Control Officer will investigate to determine accountability. 

• In an event where the Loss Control Officer (DAC) receives a report of an incident, he/she 
must consider all possible implications, including legal effect it might have on an individual 
and the Municipality. 

• Recording such claims and/or losses in a loss register. 

• Follow-up all claims and/losses. 

• Ensuring that all registered loss cases are finalized within a prescribed period. 

• To refer cases of negligence to Directorate Legal Support Services to investigate the matter. 

• Report all cases to the Loss Control committee (Assets Management Committee) in writing, 
so that it can be investigated and reported to the Head of Municipality for inclusion in the 
Annual Municipality al Financial statements. By way of Municipality Directive instructions, 
e.g. to periodically draw the attention of all persons to the fact that all possible efforts are 
continually made to prevent claims arising against the Municipality. 

• Losses or damages suffered by an institution because of an act committed or omitted by an 
official, must be recovered from such an official if that official is liable in law. 

• The accounting officer must determine the amount of the loss or damage and, in writing, 
request that the official to pay the amount within 30 days or in reasonable instalments. If 
the official fails to comply with the request, the matter must be handed to the Manager Legal 
Services for the recovery of the loss or damage. 

• If in doubt, the accounting officer of the institution must consult the Manager Legal Services 
on questions of law in the implementation of the above paragraphs 


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Newcastle Local Municipality 

Loss Control Policy 


step 1: Registration of damages and iosses 

a) All departments must keep their own loss registers for all incidents they reported. 

b) When notified of the incident, the Head of the Department or Delegated official must register 
such case/loss within two 24 hours of receiving a report/notice of such case/loss to the Loss Control 
Officer. 

c) After notified of losses/damages/fruitless expenditure/claims, these are to be handled in 
accordance with Chapter 12 of the National Treasury Regulations. 

Step 2: Gathering of information 

a) The Departments must submit a detailed report of the losses to the Loss Control Officer i.e. 

I. Details of the time, place and how the incident of loss took place. 

II. The case number, name and the contact numbers of the Police Officer who is in 
charge of the case 

b) The Loss Control Officer must seek legal advice as widely as possible; consult parties 
broadly as possible consult experts; advice widely; follow and note (in writing) events 
systematically as swiftly as possible and compile final reports for future reference containing 
the following: 

• Detailed description of incidents and; 

• Investigator’s observations and recommendations 

c) The Loss Control Officer must lodge the insurance claim within a week of the occurrence 
of the incident with the appointed service provider on behalf of the Municipality, after 
gathering the relevant information of the incident. 

d) All incidents submitted to the Loss Control Officer should be submitted to the Assets 
Management Committee/ Loss Control Committee 

Step 3: Collection of documents and evidence to determine liability 

a) The Loss Control Committee must determine cases where there is negligence on the part 
of the Municipal official 

b) Liability investigation is mainly to determine the circumstances under which a loss occurred 
and to determine whether any official could be held liable for such loss. This type of 
investigation is done completely apart from any criminal or misconduct investigator, it is 
self-evident that the investigator shall also communicate with the criminal and misconduct 
investigator for the purpose of obtaining information. 

c) There is nothing that prohibits that documents, which were used in a liability investigation, 
can also be used in a case of misconduct or neglect of duty for disciplinary steps. 

d) The Loss Control Officer shall acquaint himself/herself of specific instructions that might be 
applicable to the case, determine the official version of the occurrence by checking initial 
reports. 

e) Depending on the nature of the loss, it shall be ascertained who was responsible for Specific 
responsibilities or duties. 

f) The collection of job descriptions and the proof that a certain official/s was/were aware of 
his/her/their responsibility is of importance. Proof that a duty was performed or neglected, 
shall be obtained. If relevant copies of specific instructions should be made, it should be 
included in the investigation. 

g) If, for certain reasons, it is necessary to confiscate a certain register, the person giving the 
instruction (for investigation) should be consulted. Certified copies of a register of specific 
entry/entries are usually sufficient. 

h) If any problems were encountered with a reluctant witness or with the destruction or 
withholding of documentation or information, the investigator should not hesitate to make 
use of provisions of Disciplinary Regulations or appropriate provisions in the Public Service 
Act. 

i) Cases of arson and vandalism of Municipal properties or infrastructure assets within the 
areas covered by the private security service provider must be referred to the particular 
security service provider for cost recovery and insurance claim purposes 


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Newcastle Local Municipality 

Loss Control Policy 

j) Obtain certified copies of all the original documents and use only the copies relating to the 
investigation. Keep the original documents in a safe place. No inscription, deletions, 
changes or corrections should be made on original documents, as this would negatively 
influence its evidential value with a view to possible legal action. Evaluate data integrity of 
gathered information. Should any uncertainty exist regarding the date integrity exist of such 
information, steps must be taken in consultation with the stakeholders concerned in order 
to rectify the situation and to ensure the said data is accurate and reliable. 


Step 4: Identify possible causes and trends 

a) If shortages/losses/theft/damages/ misuse of municipal property or municipal money, or 
fruitless expenditure, especially with regard to accommodation, or wasted, unauthorized or 
irregular expenses are involved, or the rightof recovery of the state has become prescribed, 
which gave rise to a loss for the state, a liability investigation shall be taken by the Loss 
Control Officer with the purpose of impartiality and transparency. 

b) It should however be noted that a liability investigation is mainly conducted to determine the 
circumstances under which the loss occurred. The circumstances of the loss and facts that 
came to light during the investigation, can eventually lead to a decision whether an official 
can be held legally liable for a loss in terms of the applicable Treasury Regulation. If any 
neglect of duty or other circumstances may have negative implications for the AO of the 
institution, the investigator ought to complete his/her investigation. 

c) The Loss Control Officer shall display own initiative and shall be conversant with all the 
relevant instructions, which may be applicable to the loss in question. 

d) When a liability investigation is considered necessary, it is important that it be instituted 
immediately after the reporting of the loss, as evidence that might be of interest could be 
changed or simply disappear. 

Step 5: Compilation of a report 

a) To compile a report regarding losses, which have to be referred to Loss Control Committee 
and Legal Services at Head Office, one must determine liability and comply with certain 
provisions of the PFMA. 

b) The report includes all gathered statements, documentary proof and recommendations. 

c) The loss report consists of the following Sections: 


ABCD Sections 

• The department/ section where the losses took place completes these sections as soon as 
possible after the incident. 

• The information concerning the incident as requested in this section is self-explanatory. 

• As soon as the forms are received by the DAC, the DAC must allocate a departmental 
losses register serial number to the case. 

• After it has been completed and signed, the DAC sends the notification report to the Asset 
Accountant. 

E Section 

• The head of the relevant department/section must see to it that all the required declarations 
are attached. (Memorandum format) 

The asset Accountant is responsible for the completion of this section and must see to it 
that a claim from the insurance is made and followed-up until paid, where necessary. 


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__ Newcastle Local Municipality 

Loss Control Policy 

4. RECORDKEEPING 

Records of loss, damage, forms, files, registers etc. should include the following minimum info: 

• Gross vaiue of the loss 

• Amount recovered 

• Approved amount written off 

• Authority/reference for adjustment 

• Report to Asset section for updates of assets register and inventory record. 


5. RISK ASSURANCE 

a) In general the Municipality bears its own damages and accident risk and accepts 
responsibility for ali claims and iosses of Municipal property arising from Municipal activities 
by a person who is liable in law and who is or was empioyed by an Institution to which the 
loss control instructions appiied or originated from or took place during the performance of 
Municipal activities. 

b) Treasury Reguiation part 3, 3.2.1 is clear on the inclusion of such risks in a risk 
Management strategy and dovetaiiing to a fraud prevention strategy and the 
determination of the skills required of managers and staff to improve controls and to manage 
such risks. 

c) Officials causing unnecessary losses, or who abuse or exceed their powers or misuse State 
property and/or resources, or neglect their duties resulting in unnecessary losses for the 
Municipality , should also be prepared to face disciplinary steps initiated against them. 

6. WRITE-OFF, DISPOSAL AND RECOVERY PROCESSES 

a. WRITE-OFF 

a) Write-off means the withdrawai of an asset/item or an amount of money owned by the state 
in monetary vaiue as prescribed by the PFMA and the Treasury 
Regulations. Write-off exercise is the end product of the Loss Controi process. 

b) Debt recovery means the repossession of an asset/item/money owned by the state in 

monetary value as compensation for the state ioss. 

c) An Accounting Officer may only write off debts owed to the state if he or she is 
satisfied that- 

• Ali reasonable steps have been taken to recover the debt and the debt is irrecoverable or, 
he or she is convinced that recovery of the debt would be uneconomical; 

• He or she is convinced that recovery of the debt would be uneconomical; 

• Recovery would cause undue hardship to the debtor or his/her dependants 

d) An Accounting Officer must ensure that ali debts written off are done in accordance with the 
write off policy determined by the accounting officer. 

e) Ali debts written off must be disciosed in the Annual Financial Statements, indicating the 
policy in terms of which the debt was written off 

f) When it appears that the state has suffered losses or damages through criminal acts or 
possible criminal acts or omissions, the matter must be reported, in writing, to the 
accounting officer and the South African Police Service. If liability can be determined, the 
accounting officer must recover the vaiue of the ioss or damage from the person 
responsible. 

g) The accounting officer may write off iosses or damages arising from criminal acts or 
omission if, after thorough investigation, it is found that the loss or damage is irrecoverabie. 


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Loss Control Policy 


Newcastle Local Municipality 


b. DISPOSAL 

Disposal refers to SCM policy, 

• The Municipality is from time to time faced with material, which is either damaged by Storm 
(nature) or through the negligence of an officer of officers or material or store, which had 
been bought but is not used anymore due to unforeseen circumstances. 

• Disposal is the doing away of an asset/item owing to the redundancy or obsolescence 
Condition. It involves the transfer, sale as a scrap or condemning the asset/item. 

• The income that accrues form Disposal process depends on the economic residual value 
of the item/asset and the demand. 

c. RECOVERY 

• Recovery and claims are implemented in terms of the current value of the loss and payment 
thereof in terms may accrue interests in terms of the Treasury Regulations. 

• Recovery can made from the said person or the private party. 

• Recovery implementation procedures may involve a series of legal action between the 
affected private person and the affected private party. 

d. PROCESS OF RECOVERY 

It may happen depending on the outcome of investigation that the relevant officer involved is 
approached to compensate for the loss/damaged, undertakes to pay the loss/damaged suffered by 
the municipality. Under such circumstances:- 

• Should the person, personally offer to pay off the debt in a once-off payment, or to pay 
monthly instalments so that the total loss is redeemed within 24 months, an undertaking 
must be obtained from him/her and submitted to the delegated official for his/her approval. 

• Should a person make an offer as set out in sub-paragraph (a) above, and the 
recovery of the loss/damage exceeds 24 months, a statement of his/her assets and 
liabilities together with his/her undertaking must be submitted to the delegated official in 
order to obtain approval. 

7. CALCULATION OF LOSSES 

With the recovery of any damage or loss it is of vital importance that the total extent of the 

municipality’s loss be determined beforehand and substantiated by means of 

documentation. 

The official who will be found negligent of damaging the municipal property or asset will be liable 
to pay the excess amount as required from the insurance claim 


8. ETHICAL STANDARDS 

a) A code of good practice is established for Loss Control Management and must be adhered 
to by all officials and other role players in the system in order to promote) mutual trust and 
respect; and an control environment where risks can be control and managed in a fair and 
reasonable manner. 

b) Must assist the accounting officer in combating fraud, corruption, favouritism and unfair and 
irregular practices; and 

c) Must report to the accounting officer any alleged irregular conduct in the supply chain 
management system which that person may become aware of, including- 

• Any alleged fraud, corruption, favouritism or unfair conduct; 

• Any alleged breach of this code of ethical standards 


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Newcastle Local Municipality 

Loss Control Policy 

9. OBJECTIONS AND COMPLAINTS 

Persons aggrieved by decisions or actions taken in the implementation of the loss control policy, 
may lodge within 14 days of the decision or action, a written objection or complaint against the 
decision or action. 

10. COMMENCEMENT 

This policy takes effect on the date on which it is adopted by the Accounting Officer. 


CHAPTER C 

KEEPING AN UPDATED STANDARDISED LOSSES REGISTER 

The CLCO (Central Loss Control Officer) keeps a central register in which all claims, losses, etc. 
which arise in the Department are entered. This register is known as the Central Loss Control 
register. 

2. Each DLCO (Department Loss Control Officer) keeps a register in which all claims, losses, etc. 
arising in that directorate and offices/institutions under its management are entered. These 
registers are known as Departmental Loss Control register. 


3. The 

osses registers must indicate the following particulars for each case: 

3.1 

Date received 

The date on which the case was 
received by the Assets Controller 

3.2 

Central losses register serial 
number 

The serial number allocated to the case 
by the Assets Accountant 

3.3 

Departmental losses register 
serial number 

The serial number allocated by the 
Assets Controller to a case. 

Numbers must be allocated numerically 

3.4 

File number 

The file number of the directorate/office 
where the case arose 

3.5 

Date of the loss 

The date on which the claim, loss, etc. 
arose or was discovered (N.B. This is 
not the date on which the loss was 
reported to the Assets Controller.) 

3.6 

Particulars of losses 

A factual description of the claim losses. 

If known, the place where it happened 
and the person responsible must also be 
mentioned 

3.7 

Amount 

The amount of the claim, losses. 

3.8 

Amount written off 

The amount authorized to be written off. 

3.9 

Amount recoverable 

The amount to be recovered from a 
person or an Institution 

3.10 

Authorised by 

The rank of the person who, in terms of 
the delegated powers, gave 

authorization to write off a loss or to pay 
out a claim 

3.11 

Authorisation number 

The number allocated to the delegated 
authority by which it was authorised 

3.12 

Remarks/follow up 

The latest progress made must be 
indicated briefly. Full details of the 
progress made with a case must be 
entered in the relevant case file 


10 




















Newcastle Local Municipality 

Loss Control Policy 


11 



SHORT TERM INSURANCE POLICY 



NEWCASTLE MUNICIPALITY 


SHORT TERM INSURANCE POLICY 


Short Term Insurance Policy 2020/21 Newcastle Municipality 


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SHORT TERM INSURANCE POLICY 


Contents Page No 

1 PREAMBLE.3 

2 PROPERTY TO BE INSURED.3 

3 CONSIDERATION OF HIGHER EXCESS PAYMENTS.6 

4 CONTRIBUTION TO SELF-INSURANCE RESERVE.6 

5 REPORTING RISKS, CLAIMS AND DAMAGE.6 

6 CLAIMS PREPARATION COSTS.6 

7 DESPUTES AND ARBITRATION.7 

8 APPOINTMENT OF INSURANCE BRKOKER.7 

9 IMPLEMENTATION OF THIS POLICY.7 


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SHORT TERM INSURANCE POLICY 


1. Preamble 

1.1 It is required of the accounting officer, to take all reasonable steps to ensure that the 
Council has and implemented policies for effective financial and risk management. The 
safeguarding of assets and the protection of Council against liabilities, is very important 
which forms part of a proper assets management system as prescribed by Section 63 and 
needs annual revision in terms of Section 24(2)(c)(v) of the Municipal Finance Management 
Act 56 of 2003. This requirement is also embedded in the Asset Management Policy and the 
Loss Policy of the municipality. 

1.2. Insurance brokers active in the municipal environment over years prepared a standard 
for local authority insurance that takes all circumstances related to a municipal environment 
into account. There are however aspects in addition to this standard that the Council can 
decide on policy in order to reduce premium without an increase in risk or where the Council 
is prepared to accept risk due to a very slim probability of the risk event occurring. 

2. Property to be insured 

The following is recommended as a policy on short term insurance of risk and liabilities: 

2.1 Asset schedules 

Upon the appointment of the new Insurance Broker, the Strategic Executive Director and 
submit the asset register of assets necessary to be covered in terms of this this policy, 
where after such assets shall be categorised in terms of insurance schedules in consultation 
with the insurance broker. 

Subsequent to the appointment of the insurance broker, each head of a department shall 
immediately on acquisition, submit all assets to be insured to the Strategic Executive 
Director: Budget and Treasury Office which will need cover shall in accordance to this policy. 

The Strategic Executive Director shall ensure that the asset register is regularly updated in 
order to avoid omissions of assets being covered for any risk of loss of damage, where after 
all new assets shall be submitted to the Council’s insurance broker for insurance purposes. 


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SHORT TERM INSURANCE POLICY 


Such assets shall accordingly be included In the insurance portfolio through updating of the 
insurance schedules representing the covers and in category of asset covered in the 
insurance portfolio. 

2.2 Property excluded from external insurance 

All property owned by or leased to the Council, property held by the Council in trust and/or 
commission and/or custody and/or under Council’s control and/or for which the Council is 
responsible must be insured except for the following which are specifically excluded. 

• property more specifically insured by any other firm arrangement. 

• dam walls, dam contents, canals, reservoirs and reservoir contents. 

• pavilions, sport stadiums, spectator stands, outdoor sports playing or recreational surfaces, 
athletic tracks. 

• loose assets falling within the excess payment of the applicable insurance policy. 

• explosives and ammunition. 

• bullion. 

• precious stones. 

• jewellery other than the Mayor’s regalia. 

• trophies and indexed museum items. 

• electrical and communication transmission and distribution lines including cabling and their 
support structures, other than on or within 150 meters of any insured premises. 

• water piping as well as stormwater piping including their supporting structures, other than 
on or within 150 meters of insured property. 

• sewerage piping including their supporting structures other than on or within 150 meters of 
insured property. 

• driveways, pavements, outdoor parking surfaces 

• roads, road and railway bridges, road and rail tunnels, manhole covers 

• aircraft runways and aprons 

• land, topsoil, backfill, drainage or culverts 

• accounts receivable 

• saving certificates and the like 

• property in possession of customers (library books, etc.). 

• trees, shrubs and plants 

• monuments and statues 

• growing timber, growing crops and livestock. 


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SHORT TERM INSURANCE POLICY 


2.3 Contingencies and risks specificaiiy exciuded 

• any event of risk where the Council is specifically indemnified. 

• contingencies arising from landslides and earthquakes. 

• removal of rubble or professional fees resulting from any damaged property or structures 
except for the Newcastle Civic Centre. 

• workmen’s compensation for personnel covered under the Workmen’s Compensation Act. 

• first 24-hours’ work on the recovery of lost electronic data information. 

2.4 Damage and risks to be specificaiiy inciuded to the short term insurance portfoiio 

• houses under rental and selling schemes administrated by the Council. 

• all property as contained in the assets schedules. 

• contractors all risk for high-risk construction as identified by the relevant Head of 
departments from time to time. 

• full theft cover at all insured property. 

• all money on the premises or in transit to a maximum at any stage at any premises in cash 
and in cheques. 

• fidelity insurance based on all positions higher than Task Grade 12 and including 
councillors. 

• comprehensive motor own damage and third party liability on a motor fleet basis including 
specifically mentioned high valued vehicles. 

• full comprehensive coverage for all emergency vehicles. 

• goods in transit up to value as might be considered the Strategic Executive Director: 
Budget and Treasury Office, per single load. 

• group personal accident insurance on 24-hour basis for all councillors up to value as might 
be considered the Strategic Executive Director: Budget and Treasury Office, per single load. 

• special risk cover for councillors vehicles and properties in terms of Upper Limits Notice as 
issued from time to time. 

• electronic equipment on the mainframe computer, document imaging system and 
networks. 

• incidental damages including consequential damages at high risk electrical and mechanical 
plants as identified by the Strategic Executive Director: Electrical Services. 

• aerodrome owners liability insurance. 

• public liability for bodily injury or damage to an amount of R2-million per event and a total 
annual coverage of R100-million. 

• maximum employers liability of R10-million. 


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SHORT TERM INSURANCE POLICY 


3. Consideration of higher excess payments 

The possibility of paying higher first amounts with claims which might result in lower 
premiums must constantly be considered by the Strategic Executive Director: Budget and 
Treasury Office taking into account the best benefit for Council at all times. 

4. Payment of premiums and contribution to insurance reserve 

4.1 The Strategic Executive Director: Budget and Treasury Office shall make provision in the 
annual budget for the payment of insurance premium; 

4.2 The short term insurance portfolio must be administrated on an internal insurance fund 
principle as contemplated in the Financial Code of Practice. 

4.3 Excess payments on claims are allocated to the Budget and Treasury Office department 
vote under general expenditure. 

4.4 All uninsured assets are replaced from the Self-insurance reserve funds. 

5. Reporting risk, claims and damage 

It shall be the duty of a head of a department to notify the Strategic Executive Director: 
Budget and Treasury Office without delay of any new insurable risk or of any alteration in an 
existing insurable risk which has arisen in connection with his or her department. 

On the occurrence of any event giving rise or likely to give rise to a claim by or against the 
Council or against its insurers, the head of the department concerned shall notify the 
Strategic Executive Director: Budget and Treasury Office of that event which shall 
immediately notify the Council’s insurer thereof. 

The Strategic Executive Director: Budget and Treasury Office shall keep a register in which 
particulars of all insurance policies held by the Council shall be entered and he shall be 
responsible for the payment of all premiums and shall ensure that claims that arise under 
such policies are instituted. 

6. Claims preparation costs 


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The Strategic Executive Director: Budget and Treasury Office shall with annual renewal of 
insurance or otherwise as regular as required negotiate for the inclusion of exceptional 
claims preparation costs to be included to the related insurance portfolio. 

7. Disputes and arbitration 

The Strategic Executive Director; Budget and Treasury Office shall with the annual renewal 
of insurance arrange with the insurerance brokers that any disputes as to the amount of 
liability of the insurers under any of the insurance policies be determined by arbitration in 
accordance with the laws of the Republic of South Africa. 

8. Appointment of insurance brokers 

The Council shall call for tenders for the appointment of insurance brokers at least once 
every three (3) years, unless circumstances require deviation herefrom. Insurance brokers 
will be appointed according to their ability to administrate the Council’s short term insurance 
portfolio, the professional people in their employment and their record of sound brokerage 
service in the municipal environment. 

The insurance brokers shall specifically indemnify the Council of increased risk because of 
the incorrect of unprofessional handling of the placement of insurance or the handling of a 
specific insurance claim. The insurance broker shall revise the Council's insurance policy 
annually in collaboration with the Strategic Executive Director: Budget and Treasury Office. 

9. Implementation of this Policy 

The Accounting Officer shall be responsible for the implementation and administration of this 
policy through the delegation of Strategic Executive Director: Budget and Treasury Office. 

The policy shall be reviewed on annual basis and updated if there are any changes brought 
about through an amendment of any legislation and/or policies by National Treasury or 
arrangement within the municipality. 

This policy must be read in conjunction with the municipality's Asset Management and the 
Loss Control policies. 


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COST CONTAINMENT POLICY 



NEWCASTLE MUNICIPALITY 

COST CONTAINMENT POLICY 


Draft Budget 2020/21 Cost Containment Policy Newcastle Municipality 


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COST CONTAINMENT POLICY 


Contents Page No 

1 INTRODUCTION .3 

2 OBJECTIVES OF THE POLICY.3 

3 SCOPE OF POLICY.4 

4 APPLICABLE LEGISLATION.4 

5 COST DRIVERS IDENTIFIED.4 

6 ENFORCEMENT PROCEDURES.9 

7 DISCLOSURES OF COST CONTAINMENT MEASURES.9 

8 IMPLEMENTATION AND REVIEW PROCESS.9 

9 SHORT TITLE.9 


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COST CONTAINMENT POLICY 


1. INTRODUCTION 

1.1 Section 62(1 )(a) of the Municipal Finance Management Act No. 56 of 2003 (MFMA) 
stipulates that the accounting officer of a municipality is responsible for managing the 
financial administration of a municipality and must for this purpose take all 
reasonable steps to ensure that the resources of the municipality are used 
effectively, efficiently and economically. 

1.2 In terms of the legal framework, the elected councils and accounting officers are 
required to institute appropriate measures to ensure that the limited resources and 
public funds are appropriately utilized to ensure value for money is achieved. This 
policy must be read, understood, practiced and implemented against this legislative 
background. 

2. OBJECTIVES OF THE POLICY 

2.1 The purpose of this policy is to guide council and officials on cost containment 
measures that are being implemented in an effort to minimize costs by cutting of 
unnecessary expenditure, looking at alternative ways to procure goods and services 
and gradually reduce the deficit. 

2.2 This policy is intended to ensure: 

2.2.1 That measures are in place to contain operational costs and eliminate all non- 
essential expenditure. 

2.2.2 That excessive and wasteful expenditure has to be reduced, and that increased 
action be taken to manage unnecessary expenditure 

2.2.3 That measures are taken in terms of Section 32 of the MFMA in event of 
unauthorized, irregular, fruitless and wasteful expenditure. 

2.2.4 That the Strategic Executive Directors implemented proper monitoring of non¬ 
necessary expenditure 

2.2.5 That the Mayor exercise proper general political guidance over the fiscal and 
financial affairs of the municipality 


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3. SCOPE OF THE POLICY 

This policy shall apply to the Council, Executive Committee, Finance Portfolio Committee, 
Budget Steering Committee, Accounting Officer, Strategic Executive Directors and all 
officials who have a formal and administrative duty to procure goods and services, manage 
and control the municipality’s budget. 

4. APPLICABLE LEGISLATION 

4.1 The budget process and management is regulated in terms of the Municipal Finance 
Management Act, Act 56 of 2003 (MFMA):- 

4.1.1 Chapter 4 of the MFMA deals with the municipal budgets. 

4.1.2 Chapter 7 of the MFMA deals with the responsibilities of the Mayor in relation 
to budget processes and related matters as well as the fiscal and financial 
affairs of the municipality. 

4.1.3 Chapter 8 of the MFMA deals with the responsibilities of the municipal officials 
in relation, among others, budgeting processes, revenue and expenditure 
management and reporting. 

4.1.4 Chapter 9 of the MFMA deals with the municipal budget and treasury offices. 

4.1.5 The Municipal Finance Management Act, Circular 82, published on 7 
December 2018 

4.1.6 Municipal Cost Containment Regulations, 2019 

5. COST DRIVERS IDENTIFIED 

The municipality has identified various cost drivers where non-essential, fruitless and 
wasteful expenditure can be curbed and eliminated 

5.1 Vehicles for Political Office Bearers 

5.1.1 The threshold limit for vehicle purchases relating to official use by political 
office-bearers may not exceed R700,000 or 70% of the total annual remuneration 
package for different grades, whichever is greater; 

5.1.2 The procurement of vehicles must be undertaken using the national government 
transversal control mechanism; 


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5.1.3 If any other procurement process is used, the cost may not exceed the threshold limit 
set out above; 

5.1.4 Before deciding on another procurement process, the chief financial officer must 
provide the council with information relating to the following criteria which must be 
considered: 

a) Status of current vehicles; 

b) Affordability; 

c) Extent of service delivery backlogs; 

d) Terrain for effective usage of vehicle; and 

e) Any other policy of council 

5.1.5 Regardless of their usage, vehicles for office use by public office-bearers may only 
be replaced after completion of 120,000 kilometres; 

5.1.6 Notwithstanding above, a municipality may replace vehicles for official use by public 
officebearers before completion of 120,000 kilometres only in instances where the 
vehicle experiences serious mechanical problems and is in a poor condition and 
subject to obtaining a detailed mechanical report by the vehicle manufacturer or 
approved dealer. 

5.2 Engagement of consultants 

5.2.1 The municipality may only appoint consultants if an assessment of the needs and 
requirements confirms that the municipality does not have the requisite skills or 
resources in its full time employ to perform the function. 

5.2.2 The accounting officer must adopt a fair and reasonable remuneration framework for 
consultants taking into account the rates: 

5.2.2.1 Determined in the “guidelines on fees for audits undertaken on behalf of the 
Auditor-General of South Africa”, issued by the South African Institute of 
Chartered Accountants; 

5.2.1.2 Set out in the ‘guide on hourly fee rates for consultants,’ issued by the 
Department of Public Service and Administration; 

5.2.2.3 As prescribed by the body regulating the profession of the consultant 

5.2.2 The tender documentation for the appointment of consultants must include a 
clause that the remuneration rates will be subject to negotiation, not exceeding 
the applicable rates mentioned above 


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5.2.3 When negotiating cost-effective consultancy rates for international consultants, 
the accounting officer may take into account the relevant international and 
market-determined rates 

5.2.4 When consultants are appointed, the accounting officer must: 

a) Appoint consultants on a time and cost basis with specific start and end 
dates; 

b) Where practical, appoint consultants on an output-specific basis, subject to a 
clear specification of deliverables and associated remuneration; 

c) Ensure that contracts with consultants include overall cost ceilings by 
specifying whether the contract price is inclusive or exclusive of travel and 
subsistence disbursements; 

d) Develop consultancy reduction plans; and 

e) Undertake all engagements of consultants in accordance with the Municipal 
Supply Chain Management Policy; 

f) All contracts with consultants must include fee retention or penalty clause for 
poor performance; 

g) The municipality must ensure that the specifications and performance, are 
used as a monitoring tool for the work to be undertaken and is appropriately 
recorded and monitored; 

h) The travel and subsistence costs of consultants must be in accordance with 
the travel policy issued by the National Department of Transport, as updated 
from time to time; 

i) The contract price must specify all travel and subsistence cost and, if the 
travel and subsistence costs for appointed consultants are excluded from the 
contract price, such costs must be reimbursed in accordance with the travel 
policy of the National Department of Transport. 

5.3 Catering, refreshments and entertainment 

5.3.1 The municipality may not incur catering expenses for internal meetings, i.e. for 
meetings attended only by persons in its employ, except where a meeting will 
be in excess of 5 hours. These include meetings such as workshops, courses, 
committees, forums, recruitment interviews, trainings, hearings, meetings 
hosted by the Management Committee and governance structures. 

5.3.2 The municipality may not incur expenses on alcoholic beverages. 

5.3.3 Standard price for catering services must be introduced. 


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COST CONTAINMENT POLICY 


5.3.4 Entertainment allowance shall be limited to the Accounting Officer and the 
Strategic Executive Directors, with the annual budget not exceeding R5000 for 
the Accounting Officer and R2000 for each Strategic Executive Director. 

5.3.5 The Accounting Officer must ensure that team building exercises and social 
functions, including year-end functions, are not financed from the budgets of 
their respective establishments or by any suppliers or sponsors; 

5.3.6 Apart from tea, coffee and muffins, limited catering and refreshments may be 
provided at Council workshops, retreats, strategic sessions, internal training 
sessions, official meetings (Standing Committees and other Council 
committees). Council and Management meetings provided prior approval is to 
be obtained from the Accounting Officer; 

5.3.7 At the discretion of the Accounting Officer, catering and refreshments may only 
be provided at meetings with overseas visitors and other spheres of 
government, after budget availability has been confirmed by the Budget & 
Treasury Office; 

5.4 Telephone Costs 

5.4.1 Review and introduce limits on municipal staff telephones and limiting private 
call to a reasonable amount. 

5.4.2 Any costs for abuse of telephone or private calls must recovered from the 
employee’s salary through the payroll office. 

5.4.3 Review of cell phone contracts and introduction of cell phone allowance, 
depending on the level for and the need analysis 

5.5 Events, advertising and sponsorships 

5.5.1 Eliminate wasteful expenditure on events, advertising in magazines, television, 
newspapers etc. where the municipality can use other cost effective means such as 
websites to market the institution or properly publicize the matters or events under 
consideration. 

5.5.2 Limit or stop all unnecessary expenditure on matters such as printing of shirts, 
hosting of sporting events, festivals and other associated events, lavish functions, 
and extraordinary costs associated with visits of dignitaries or induction of new 
councilors. 

5.6 Travel and subsistence 


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The accounting officer: 

5.6.1 May only approve purchase of economy class tickets for employees and Councillors 
where the flying time for the flights is five hours or less; 

5.6.2 May approve the purchase of business class tickets for employees and Councillors 
with disabilities or for those with special needs, where the flying time is five hours or 
less; 

5.6.2 Purchasing of air tickets for first class travel is not permitted under any 
circumstances; 

5.6.3 For flights exceeding five hours, may purchase business class tickets only for 
accounting officer and Councillors; 

5.6.4 This policy limits international travel to meetings or events that are considered critical 
and the number of officials attending such meetings or events is limited to the 
officials directly involved in the subject matter related to such meetings or events; 

5.6.5 Domestic hotel accommodation linked to travel and subsistence may not exceed 
R1,370 per night. This amount can be reviewed by National Treasury periodically; 

5.6.6 The amount of R1,370 may be exceeded with the approval of the accounting officer 
in instances 

5.6.6.1 such as peak holiday periods, and 

5.6.6.2 when South Africa is hosting an event in the country or in a particular 
geographical area that results in an abnormal increase in the number of 
local/international guests in the country or in that particular geographical area; 

5.6.7 Hiring of vehicles for travelling must be undertaken in terms of the Council approved 
Subsistance and Travelling policy as it relates to vehicle groupings that can be hired 
as per the level of employees or councillors; 

5.6.8 Sharing of the mode of transport when employees or councillors travel to the same 
destination must be implemented; 

5.6.9 Overnight accommodation must be limited to instances where the distance by road 
exceeds 500 kilometres to and from the destination (return journey); 

5.6.10 When a vehicle is hired, it must be shared between the employees or councillors 
attending the same workshop, conference, seminar, etc (one vehicle to be hired per 
occasion); 

5.6.11 Flight bookings must be made timeously, to prevent unnecessary overnight stay 
costs 

5.6.12 Strategic Executive Directors must implement systems in their respective 
departments to ensure cost effective and time efficient travelling; 


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COST CONTAINMENT POLICY 


5.6.13 Travelling must be pre-authorised by the Accounting Officer or the Strategic 
Executive Director of the respective department who must implement systems to 
ensure cost-effective and time efficient travelling 

5.7 Protective Clothing 

5.7.1 A policy must be developed stipulating the guidelines, including the type of clothing, 
shoes and frequency of issue in line with the working environment of the employees; 

5.7.2 A monthly reconciliation of the clothing purchased, issued and on stock must be 
performed by the Stores unit; 

5.7.3 Introduce turnaround period time for the procurement of protective clothing. 

5.7.4 Number of Personal Protective Clothing issued to the employee must be limited. 

5.8 Conferences, meetings, study tours 

5.8.1 Employees may attend conferences hosted by professional bodies or non¬ 
governmental institutions (external conferences) held within the borders of South 
Africa provided that expenses related to their attendance do not exceed two 
thousand five hundred rand (R2 500) per person per day. The number of municipal 
officials attending such conferences and workshops must be limited, see below. The 
National Treasury may periodically review this amount. 

5.8.2 Employees must make every effort to take advantage of early registration in order to 
avoid additional costs of late registration. 

5.8.3 Conferences abroad must be limited to its ultimate minimum or none at all. 

5.8.4 Utilise municipal and/or provincial office facilities for conferences, meetings, strategic 
planning sessions etc. where an appropriate venue exists within the municipal 
jurisdiction. 

5.8.5 Limit or stop overseas trips and the delegations going on such trips unless a tangible 
and clear benefit to the local community and performance of essential service 
provision can be established beforehand 

5.8.6 The number of employees travelling to conferences or meetings on official duty for 
the same matter is limited to three (3) employees, unless otherwise approved in 
advance by the relevant Strategic Executive Director or the Accounting Officer. 

5.9 Office Furnishing 


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COST CONTAINMENT POLICY 


5.9.1 When new persons are elected or appointed, use of existing facilities and equipment 
must be considered. 

5.9.2 Office furnishing when required, should be contained to minimal costs, avoiding 
elaborate and expensive furniture or equipment. 

5.9.3 Buying of laptop should be discouraged unless it is need for the official mobility is 
established beyond doubt and duly authorized to attend meetings where such 
equipment might be required. 

5.9.4 Buying of laptops for interns and junior personnel should be eliminated, unless where 
prior approval is obtained from the relevant Strategic Executive Director of his 
delegate. 

5.10 Staff study, perks and suspension costs 

5.10.1 Training attended by employees and councillors of municipalities must be organized 
on site. 

5.10.2 Expenditure associated with overseas study tours by councillors or officials must be 
reduced and preferably stopped. 

5.10.3 Overtime policy and measures must be reviewed to ensure that overtime is limited to 
the budget 

5.10.4 Encourage staff to take time off to make up for overtime worked. 

5.10.5 Planned overtime must be submitted to management for consideration on a monthly 
basis and no payment should be made if planned overtime is not motivated by the 
Strategic Executive Director. 

5.10.6 Unplanned overtime worked must be motivated and approved by management, and 
no payment should be made if unplanned overtime is not motivated by the Strategic 
Executive Director. 

5.10.7 Costs associated with long-standing staff suspensions and legal costs associated 
with not following due processes when suspending and dismissing staff must be 
eliminated otherwise S32 of the MFMA should be implemented if it is established that 
a supervisor did not consider reasonable steps in suspending the subordinate. 

5.10.8 Constant management of staff, improvements in productivity levels and feedback 
must be provided to all staff. 

5.11 Credit cards 

5.11.1 The Municipal Manager must ensure that no credit or debit cards linked to a bank 
account of the municipality is issued to any employee or councillor; 


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COST CONTAINMENT POLICY 


5.11.2 Where employees or councillors incur expenditure in relation to official municipal 
activities, the employee or councillor must use their personal credit/debit card or cash 
or arrangements made by the municipality and request reimbursement form the 
municipality in accordance with the relevant policies and processes 


5.12 Budget provision 


5.12.1 Each Strategic Executive Director shall, prior to providing for any expenditure in 
respect of any items in the budget or the adjustments budget, prepare and submit to 
the Strategic Executive Director: Budget and Treasury Office a business plan relating 
to such item, which business plan shall contain the following information regarding 
such item: 


5.12.1.1 

5.12.1.2 

5.12.1.3 

5.12.1.4 

5.12.1.5 

5 . 12 . 1.6 

5.12.1.7 

5.12.1.8 

5.12.1.9 

5.12.1.10 

5 . 12 . 1.11 
5 . 12 . 1.12 
5.12.1.13 


A full description; 

Its purpose: 

The expected beneficiaries ; 

Alternative means of providing the same benefits; 

An acquisition, construction and implementation plan ( as applicable): 
The expected useful life; 

The principal cost; 

The sources of funding: 

A schedule of financing costs; 

A maintenance plan; 

A schedule of maintenance costs; 

A depreciation schedule; and 
Insurance costs. 


5.13 General measure to be implemented 

5.13.1 Introduce measure to control budget for stores items in relating to the 
requirement and affordability 

5.13.2 Municipal funds may not be used to fund election campaign activities. No 
expenditure may be incurred by the municipality to support campaign of any 
political party; 

5.13.3 Printing of documents must be back-to-back and use of color printing be 
avoided at all costs, unless in the cases of graphs and necessary documents. 
Use of electronic files must be encouraged; 


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COST CONTAINMENT POLICY 


5.13.4 Where practical, the warranties on vehicle and computer equipment should be 
extended instead in order to save on maintenance costs and new assets. 
Purchasing of computers is recommended compared to lab tops due to the life 
span and risk associate with the movement of asset; 

5.13.5 Purchasing of newspapers and other publications for municipal employees 
must be discouraged. Use of internet must be encouraged; 

5.13.6 Municipalities should ensure that awareness is raised with municipal staff so 
that a high degree of energy saving measures can be introduced, e.g. air- 
conditioning and lights in buildings are switched off at night and when offices 
are not in use. 

5.13.7 Every effort must be made to recover debt from consumers before write-off. 
Municipalities to avoid the excessive usage of debt collectors and improve its 
internal capacity for debt collection. 

5.13.8 Ensure synergy between municipal divisions or departments to avoid 
duplication of processes and efforts.( dropbox, DRMS, printing of copies while 
sent as soft copies) 

5.13.9 In order to curb wastage on petrol, the vehicle tracking system should be 
utilized to monitor usage in order to curb abuse of municipal vehicles and 
excessive petrol consumption. 

5.13.10 Telephone and/or video conferencing facilities must be encouraged, where 
possible, to avoid unnecessary traveling and subsistence costs. 

5.13.11 Bulk purchases and negotiated discounts must be considered for regularly 
consumed inventory. 

5.13.12 All commodities, services and products covered by Transversal contract 
concluded by the National Treasury must be procured through that transversal 
contract before approaching the market, in order to benefit from savings where 
lower prices or rates have been negotiated. 

6 ENFORCEMENT PROCEDURES 

6.1 Failure to implement or comply with this policy may result in any official of the 
municipality or political bearer that has authorized or incurred any expenditure contrary 
to those stipulated herein being held liable for financial misconduct as set out in chapter 
15 of the MFMA. 

7 DICLOSURES OF COST CONTAINMENT MEASURES 


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COST CONTAINMENT POLICY 


7.1 Cost containment measures applied by the municipality must be included in the in- year 
budget report. 

7.2 The measures implemented and the aggregate amount saved per quarter, together with 
the report of reprioritization of cost savings on the implementation of the cost 
containment measure must be submitted to the municipal council for review. 

7.3 Such reports must be placed to municipal website within 5 days after council meeting. 

8 IMPLEMENTATION & REVIEW PROCESS 

8.1 The policy will be implemented with immediate effect after approval by the municipal 
council. 

8.2 The policy will be reviewed at least annually and will be part of budget related policies, it 
will also be reviewed when an update is issued by National or Provincial Treasury. 

9 SHORT TITLE 

9.1 This policy shall be called the “Cost Containment Policy of the Newcastle Municipality” 


Draft Budget 2020/21 Cost Containment Policy Newcastle Municipality 


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NEWCASTLE MUNICIPALITY 



PROPERTY RATES BY-LAWS 



NEWCASTLE MUNICIPALITY PROPERTY RATES BY-LAWS 


The Newcastle Municipality, hereby, in terms of section 6 of the Local Government: Municipal Property Rates 
Act, 2004, adopted the Municipality’s Property Rates By-law set out hereunder. 


PREAMBLE 

WHEREAS section 229(1) of the Constitution requires a municipality to impose rates on property and 
surcharges on fees for the services provided by or on behalf of the municipality. 

AND WHEREAS section 13 of the Municipal systems Act read with section 162 of the constitution require a 
municipality to promulgate municipal by-laws by publishing them in the gazette of the relevant province. 

AND WHEREAS section 6 of the Local Government: Municipal Property Rates Act, 2004 requires a 
municipality to adopt by-laws to give effect to the implementation of its property rates policy; the by-laws may 
differentiate between the different categories of properties and different categories of owners of properties 
liable for the payment of rates; 


NOW THEREFORE BE IT ENACTED by the Council of the Newcastle Municipality, as follows: 


1. DEFINITIONS 

In this by-law, any word or expression to which a meaning has been assigned in the Local Government: 
Municipal Property Rates Act, 2004 (Act No. 6 of 2004), shall bear the same meaning unless the context 
indicates otherwise. 

‘Municipality’ means the Newcastle Municipality; 

‘Property Rates Act’ means the Local Government: Municipal Property Rates Act, 2004 (Act No. 6 of 
2004); 

‘Rates Policy’ means the policy on the levying of rates on rateable properties of the Newcastle 
Municipality, contemplated in chapter 2 of the Municipal Property Rates Act. 


2. OBJECTS 


The object of this by-law is to give effect to the implementation of the Rates Policy as contemplated in 
section 6 of the Municipal Property Rates Act. 


Newcastle Municipality Rate Byiaw 2019 - 2020 


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3. ADOPTION AND IMPLEMENTATION OF RATES POLICY 


3.1. The Municipality shall adopt and implement its Rates Policy consistent with the Municipal Property 
Rates Act on the levying of rates on rateable property within the jurisdiction of the Municipality; 
and 

3.2. The Municipality shall not be entitled to levy rates other than in terms of its Rates Policy. 


4 CONTENTS OF RATES POLICY 

The Rates Policy shall, inter alia: 

4.1 Apply to all rates levied by the Municipality pursuant to the adoption of its Annual Budget; 

4.2 Comply with the requirements for: 

4.2.1 The adoption and contents of a rates policy specified in section 3 of the Act; 

4.2.2 The process of community participation specified in section 4 of the Act; and 

4.2.3 The annual review of a Rates Policy specified in section 5 of the Act; 

4.3 Provide for principles, criteria and implementation measures that are consistent with the Municipal 
Property Rates Act for the levying of rates which the Council may adopt; and 

4.4 Provide for enforcement mechanisms that are consistent with the Municipal Systems Act, 2000 (Act 
No: 32 of 2000). 


5 ENFORCEMENT OF THE RATES POLICY 

The Municipality’s Rates Policy shall be enforced through the Credit Control and Debt collection Policy 
and any further enforcement mechanisms stipulated in the Act and the Municipality’s Rates Policy. 


6 SHORT TITLE AND COMMENCEMENT 

This By-law is called the Municipal Property Rates By-law, and takes effect on 1 July 2019. 


Newcastle Municipality Rate Bylaw 2019 - 2020 


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NEWCASTLE MUNICIPALITY 


, crii. 



TARIFF BY-LAW 




NEWCASTLE MUNICIPALITY TARIFF BY-LAW 


The Newcastle Municipality, hereby, in terms of section 75 of the Locai Government: Municipal Systems Act, 
32 of 2000 read with Section 62 (1) (f) (i) of the Municipal Finance Management Act, 56 of 2003, adopts the 
Municipality's Tariff By-law set out hereunder. 


PREAMBLE 

WHEREAS section 13 of the Municipal systems Act read with section 162 of the constitution require a 
municipality to promulgate municipal by-laws by publishing them in the gazette of the relevant province. 

AND WHEREAS section 74 of the Local Government: Municipal Systems Act, 32 of 2000 requires a 
municipality to adopt and implement a tariff policy together with the related by-laws to give effect to the policy. 


NOW THEREFORE BE IT ENACTED by the Council of the Newcastle Municipality, as follows: 


1. DEFINITIONS 

In this by-law, any word or expression to which a meaning has been assigned in the Local Government: 
Municipal Systems Act, 32 of 2000, shall bear the same meaning unless the context indicates otherwise. 

‘Municipality’ means the Newcastle Municipality; 

‘Municipal Systems Act means the Local Government: Municipal Systems Act, 32 of 2000; 

‘Tariff Policy’ means the policy on the levying of fees for municipal services provided by the 
Municipality itself or by way of service delivery agreements, as contemplated in part 1 of chapter 8 of 
the Municipal Systems Act. 


2. OBJECTS 

The object of this by-law is to give effect to the implementation of the Tariff Policy as contemplated in 
Section 74 of the Local Government: Municipal Systems Act. 


Newcastle Municipality Tariff Bylaw 


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3. ADOPTION AND IMPLEMENTATION OF TARIFF POLICY 

3.1. The Municipality shall adopt and implement its Tariff Policy consistent with the Municipal Systems 
Act on the levying of fees for municipal services provided by the Municipality itself or by way of 
service delivery agreements, within the jurisdiction of the Municipality; and 

3.2. The Municipality shall not be entitled to levy tariffs other than in terms of its Tariff Policy and 
related Tariff of Charges. 


4 CONTENTS OF TARIFF POLICY 

The Tariff Policy shall, inter alia: 

4.1 Apply to all tariffs levied by the Municipality pursuant to the adoption of its Annual Budget; 

4.2 Comply with the requirements for: 

4.2.1 The adoption and contents of a tariff policy specified in section 74 of the Municipal Systems 
Act, 

4.2.2 The process of community participation specified in section 13 of the Municipal Systems Act. 

4.3 Provide for principles, criteria and implementation measures that are consistent with the Municipal 
Systems Act for the levying of tariffs which the Council may adopt; and 

4.4 Provide for implementation mechanisms that are consistent with the Municipal Systems Act. 

5 ENFORCEMENT OF THE TARIFF POLICY 

The Municipality’s Tariff Policy shall be enforced through the Customer Care, Credit Control and Debt 
Collection Policy as approved by Council when adopting its Annual Budget 


6 SHORT TITLE AND COMMENCEMENT 

This By-law is called the Municipal Tariff By-law, and takes effect on 1 July 2016. 


Newcastle Municipality Tariff Bylaw 


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