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Performance Management

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  • 1. LOCAL GOVERNMENT FINANCIAL BEST PRACTICE MANUAL ILLUSTRATIVE PERFORMANCE MANAGEMENT SYSTEM DOCUMENT 1. Introduction This section is not intended to be a comprehensive document on performance management systems. It incorporates the key principles as outlined in the Municipal Systems Act and Municipal Finance Management Act. Municipalities must therefore refer to all latest documents issued in this regard, including all new regulations issued in terms of the aforementioned Acts. Municipalities may contact their provincial department of local government for all latest documents and regulations on this matter. The White Paper on Local Government identified performance management as one of local government’s tools for the implementation of its developmental mandate in terms of the Constitution. Chapter 6 of the Municipal Systems Act 32 of 2000 provides the legal framework for performance management and places it squarely within integrated development planning. 2. Performance Management Principles A number of principles that should guide a municipality in developing and implementing a performance management system can be identified in the Municipal Systems Act No. 32, 2000 and the regulations: • A performance management system should be embedded in the circumstances of the municipality; it must be commensurate with its resources; it must be suited to its circumstances and, most importantly, it must be in line with the priorities, objectives, indicators and targets contained in the integrated development plan (Municipal Systems Act No. 32, 2000, Section 38(a)); • The municipality must promote a culture of performance management amongst its politicians and within its administration (Municipal Systems Act No. 32, 2000, Section 38(b)); • The municipality must administer its affairs in an economical, effective, efficient and accountable manner (Municipal Systems Act No. 32, 2000, Section 38(c)); • The performance management system must be devised in such a way that it can serve as an early warning system for underperformance (Municipal Systems Act No. 32, 2000, Section 41(2) and reg. 8(2)(e)); • The performance management system must link the performance of the municipality to the performance of employees; and • The Minister has set a number of general, compulsory key performance indicators. Municipalities must include these, together with the other key SALGA IMFO
  • 2. LOCAL GOVERNMENT FINANCIAL BEST PRACTICE MANUAL ILLUSTRATIVE PERFORMANCE MANAGEMENT SYSTEM DOCUMENT performance indicators that may be applicable, to their performance management system (Municipal Systems Act No. 32, 2000, Section 43). 3. Main Roleplayers Section 39 of the Municipal Systems Act No. 32, 2000 states that the executive mayor, executive committee, or a special committee of councillors (in a ‘plenary type’ municipality) must manage the development of the performance management system and submit it to council. Responsibilities must be assigned to the municipal manager. 4. Adoption And Review 4.1 In terms of Regulation 3, the performance management system must be adopted before the municipality initiates the formulation of key performance indicators and targets as part of the integrated development plan process. This is problematic and inconsistent with the principle that the performance management system must be in line with the integrated development plan process. 4.2 The key performance indicators will only be formulated in the integrated development planning process and the performance management system is based on the key performance indicators. This makes adoption prior to the setting of key performance indicators difficult, if not impossible. 4.3 The performance management system itself must also be constantly improved. Section 40 of the Municipal Systems Act No. 32, 2000 states that the municipality must establish mechanisms to monitor and review its performance management system, but the Act does not provide time frames or stipulate intervals for such review. 5. General Requirements The regulations stipulate a number of general requirements: • It must be clear from the performance management system how it is linked to the integrated development plan; • The performance management system must indicate how the municipality will plan and monitor the implementation of its general key performance indicators. 6. Management and Operation SALGA IMFO
  • 3. LOCAL GOVERNMENT FINANCIAL BEST PRACTICE MANUAL ILLUSTRATIVE PERFORMANCE MANAGEMENT SYSTEM DOCUMENT 6.1 The municipality must demonstrate in the performance management system how it plans to operate and manage the system throughout the planning, performance review and reporting stages. Important in the operation and management of the system are the roles and responsibilities of each role- player, including the municipal manager, council, council committees, executive mayor, executive committee and the community. 6.2 In terms of the operation and management of the performance management system, the municipality must determine the frequency of reporting and the lines of accountability for performance. 7. Phases in Performance Management 7.1 There are five phases in the performance management system: • Determination of key performance areas (from integrated development plan); • Setting of key performance indicators; • Target setting; • Monitoring and measurement; and • Reporting. 7.2 Key performance areas: The development priorities and objectives formulated by the municipality in its integrated development planning process must be clustered in respect of the following key performance areas: • Infrastructure and services; • Social and economic development; • Institutional transformation; • Democracy and governance; and • Financial management. 7.3 Setting of key performance indicators 7.3.1 Key performance indicators relating to inputs, outputs and outcomes must be set for each of the development priorities, clustered under the above five key performance areas (Municipal Systems Act No. 32, 2000, Section 41(1)(a)). The formulation of these key performance indicators takes place as part of a municipality’s integrated development planning process (Municipal Systems Act No. 32, 2000, Section 26(i)). The key performance indicators must be measurable, relevant, objective and precise, and communities must be involved in their formulation (Municipal Systems Act No. 32, 2000, Section 42). SALGA IMFO
  • 4. LOCAL GOVERNMENT FINANCIAL BEST PRACTICE MANUAL ILLUSTRATIVE PERFORMANCE MANAGEMENT SYSTEM DOCUMENT 7.3.2 The municipality must ensure that it has key performance indicators for all its administrative units and employees and for every municipal entity and service provider with whom the municipality has entered into a service delivery agreement. If the municipality amends its integrated development plan, the key performance indicators must be reviewed within a month of the adoption of the amendment. 7.3.3 Compulsory key performance indicators Section 43 of the Municipal Systems Act No. 32, 2000 authorises the Minister to prescribe general key performance indicators that every municipality must report on. The following is the gazetted set of general key performance indicators (see Regulation 10): • Percentage of households with access to all basic household services; • Percentage of households with imputed expenditure of less than R1 100 per month that have access to all free basic services; • Percentage of capital budget spent on projects identified in terms of the integrated development plan; • Number of jobs created through local economic development initiatives supported by the municipality; • Percentage achievement of approved employment equity plan within the first three layers of management; • Percentage of skills levy received in rebate as a measure of the municipality’s investment in human resource development; and • Financial viability. A municipality cannot change these indicators when it amends its integrated development plan. Each year, the Minister must compile a report on the performance of municipalities in terms of these general key performance indicators (Municipal Systems Act No. 32, 2000, Section 48). This report will be published in the Government Gazette. 7.4 Targets 7.4.1 For each financial year, the municipality must set measurable performance targets for each key performance indicators (Municipal Systems Act No. 32, 2000, Section s 41(1)(b)). These targets must: SALGA IMFO
  • 5. LOCAL GOVERNMENT FINANCIAL BEST PRACTICE MANUAL ILLUSTRATIVE PERFORMANCE MANAGEMENT SYSTEM DOCUMENT • Be practical and realistic; • Measure the efficiency, effectiveness, quality and impact of the municipality to which they apply, including the municipality as a whole, an administrative component of the municipality (department, unit, vote), a municipal service provider, a political structure or a person; • Be in line with available resources and capacity; • Be consistent with the priorities, objectives and strategies of the integrated development plan; • Be in line with applicable minimum national standards. 7.4.2 Notification of Key Performance Indicators and Targets: The key performance indicators and targets must be publicised by the municipality, both internally and publicly (Municipal Systems Act No. 32, 2000, Section 44). 7.5 Monitoring and Measurement 7.5.1 The measurement of performance against the key performance indicators and targets must be done at least once a year (Municipal Systems Act No. 32, 2000, Section 41(1)(c)(ii)). The mechanism to monitor and measure performance must be devised by the municipality, after consultation with the community. The mechanism must measure quantity (numbers, quotas) as well as quality (standard, level, consumer satisfaction). It must compare the effectiveness and cost of the input that was required to get to the output, and assess the impact of that output. 7.5.2 The roles of the different role-players must be identified. The municipality will have to assign the monitoring and measuring tasks to various bodies, such as the office of the municipal manager (to monitor for example the financial management cluster), the office of the speaker (to monitor the cluster dealing with democracy and governance), the office of the executive mayor/executive committee (to monitor key performance indicators and targets set for the municipality as a whole). It will also have to assign specific tasks regarding the gathering of data and submission of reports. The municipality must specify: • Which data must be collected , • How the data are to be collected, stored, verified and analysed, and • How the reports on the data are to be compiled (format, frequency, content). SALGA IMFO
  • 6. LOCAL GOVERNMENT FINANCIAL BEST PRACTICE MANUAL ILLUSTRATIVE PERFORMANCE MANAGEMENT SYSTEM DOCUMENT The Municipal Systems Act No. 32, 2000, Section 41(2) requires that the system is capable of detecting early indications of underperformance, and that it provides for corrective measures (e.g. training, mentorship) where underperformance has been identified. A comparison with the previous financial year and baseline indicators must be part of the performance measurement exercise. 7.6 Reporting 7.6.1 A report on the implementation of the performance management system must go to the council at least twice a year. The council can refer the report back for refinement or adopt the report together with the necessary steps to improve performance where targets were not met (Municipal Systems Act No. 32, 2000, Section 41(1)(d)). 7.6.2 An annual report must be prepared for each financial year, and must contain, as a minimum: • A performance report, which indicates how the municipality and the municipal service providers performed, and contains the priorities and targets set for the following financial year (Municipal Systems Act No. 32, 2000, Section 46(1)(a)); • The financial statements for that year together with the Auditor-General’s report (Municipal Systems Act No. 32, 2000, Section 46(1)(b) and (c)); and • Other reporting requirements in terms of other legislation (Municipal Systems Act No. 32, 2000, Section 46(1)(d)). The report must be submitted to council within a month of receipt of the Auditor-General’s report (Municipal Systems Act No. 32, 2000, Section 46(2)). The meeting at which the report is discussed must be held in public, after notification to the public, the MEC for Local Government and the Auditor- General (Municipal Systems Act No. 32, 2000, Section 46(3)). Representatives of the MEC and the Auditor-General can attend the meeting and ask questions (Municipal Systems Act No. 32, 2000, Section 46(3)(b)). 7.6.3 Each year, the MEC for Local Government compiles and publishes in the provincial gazette a consolidated report on the performance of municipalities in the province (Municipal Systems Act No. 32, 2000, Section 47). This report must identify the municipalities that have underperformed and must propose remedial action. The report goes to the provincial legislature, the Minister and the National Council of Provinces. 8. Audit Committee SALGA IMFO
  • 7. LOCAL GOVERNMENT FINANCIAL BEST PRACTICE MANUAL ILLUSTRATIVE PERFORMANCE MANAGEMENT SYSTEM DOCUMENT 8.1 Section 45 of the Municipal Systems Act No. 32, 2000, states that the results of the performance measurement must be audited internally and by the Auditor- General. 8.2 The regulations instruct a municipality to appoint an audit committee, which must undertake the internal audit of the municipality’s performance. It must focus on economy, efficiency, effectiveness and impact in terms of the indicators and targets. 8.3 The committee may communicate directly with the council, the municipal manager or the auditors of the municipality. The committee may access any municipal records needed to perform its duties, request attendance by any relevant person at its meetings or, if necessary, ask information from anyone. It must present an audit report to the council at least twice a year. 8.4 The committee must comprise at least three members. The majority of its members, including its chairperson, may not be councillors or employees of the municipality. They can be remunerated. The municipality must budget for this committee and provide it with a secretariat. Local municipalities can choose to use the district municipality’s audit committee instead of appointing their own. 9. Assessment 9.1 Performance management is one of the great benefits flowing from an integrated development plan. The objectives and strategies identified in the integrated development plan, provide the municipality with direction on how to improve performance. 9.2 The performance management system will set targets and criteria to measure the municipality’s performance on those objectives and strategies. This will be done with respect to both the development of the municipality and specific projects and departments. This enables the municipality to manage its affairs by objectives. 9.3 Another advantage is that the performance management system, as it exists in conjunction with the integrated development plan, injects ‘customer satisfaction’ as a performance measure into the municipality’s system of assessing performance. Because communities are involved in identifying and prioritising needs and the setting of key performance indicators and targets, they are able to judge whether the municipality’s objectives and targets have been successfully achieved as planned. 9.4 The regulations include as a compulsory key performance indicator access to free basic services for households with less than R 1100 a month to spend. By SALGA IMFO
  • 8. LOCAL GOVERNMENT FINANCIAL BEST PRACTICE MANUAL ILLUSTRATIVE PERFORMANCE MANAGEMENT SYSTEM DOCUMENT including this, the Department is emphasising the free basic services policy that was adopted by the national government prior to the 2000 elections. SALGA IMFO