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MUNICIPAL FINANCES

Reprieve for Makana municipality after Eastern Cape treasury claws back half of unspent grants

Reprieve for Makana municipality after Eastern Cape treasury claws back half of unspent grants
The city of Makhanda in the Eastern Cape. (Photo: Wikipedia)

The Eastern Cape treasury has managed to secure an agreement with the National Treasury so that the troubled Makana Local Municipality, based in Makhanda, will only have to pay back half the grants it has failed to spend and get another chance to use the other half.

The Eastern Cape treasury this week confirmed that the troubled Makana Local Municipality will have to return to the National Treasury only half the infrastructure grants that it has failed to spend.

“We are pleased to report that our engagement with the National Treasury on the matter of the Makana Municipality has resulted in the approval of the rollover for R34.5-million of conditional grants,” Pumelele Godongwana from the Eastern Cape treasury said on Wednesday.

“The amount is made up of the Municipal Infrastructure Grant (R21.7-million), Water Services Infrastructure Grant (R12.5-million) and the Integrated National Electrification Programme grant (R342,000),” he said.

Read more in Daily Maverick: Treasury orders Makana Municipality to pay back R60.7m in unspent infrastructure grants

“Initially, the rollover was rejected due to an error in the pre-audited financial statements, which indicated a negative cash bank balance at the municipality.

“After further engagements with Auditor General SA, it was confirmed through obtaining bank confirmations that there is a positive cash position in the bank to back the rollover request. Subsequently, the National Treasury approved the rollover application to the amount of R34.5-million,” Godongwana said, noting the municipality’s cooperative approach to the issue.

“Going forward, the provincial treasury will continue to support the municipality … Considering that the municipality is under a recovery plan we continue to monitor and evaluate the implementation of that plan, working together with the Department of Cooperative Governance and Traditional Affairs, to ensure that the municipality stabilises its financial situation and improves service delivery.

“There is also a multidisciplinary workstream which sits on every Monday led by the Department of Water and Sanitation, and provincial treasury forms part of the task team,” Godongwana added.

“We believe that to enhance control and monitoring of conditional grant expenditure performance, the municipal manager and the executive mayor’s independent oversight must be strengthened,” he explained.

“In instances where there is evidence of underperformance or disregard of applicable legislations, consequence management must be applied, if we are to avoid these discrepancies and turn around the municipality. Monitoring of preventative controls should be a priority so that the accounting officer can take appropriate action to ensure that identified weaknesses are addressed by management timeously.”

In a letter dated 8 November 2023, the deputy director-general of intergovernmental relations at National Treasury issued instructions for Makana Municipality to return R60.7-million in unspent conditional grant funds for the 2021/22 and 2022/23 financial years. That amounted to 83% of the municipality’s infrastructure grant for the two years.

Read more in Daily Maverick: Makhanda residents will feel the pain if dysfunctional municipality has to repay unspent R60.7m grant — MEC

The order by National Treasury would also have thrown the finances of the municipality into even more disarray than usual.

According to National Treasury, the bulk of the R60.7-million that Makana failed to spend was made up of R21.7-million of its municipal infrastructure grant in 2021/22 and a similar amount, R22.7-million, in 2022/23. The rest of the funds are from the municipality’s failure to spend its full electrification grant over the two years.

The Public Service Accountability Monitor called the municipality’s failure to spend the money “shameful”. 

It said at the time: “There is … no question that this underspending has had major and adverse impacts on progress towards addressing Makana’s rapidly deteriorating infrastructure. Conditional grant funds are especially vital for ensuring priority service delivery issues are targeted, as these funds are strictly ‘ring-fenced’.

“Such funds may not be utilised for purposes other than the criteria set out in the relevant conditional framework. And, where grants are not spent by the end of the quarter of each financial year, the Municipal Finance Management Act dictates that these funds must be surrendered to the National Revenue Fund.”

‘No guarantee the funds will be properly spent’

The Democratic Alliance’s Vicky Knoetze said the news from National Treasury that R35-million would be rolled over was a welcome relief, especially in terms of the municipal infrastructure grant, taking into consideration the poor state of water and other critical infrastructure in the municipality.

“However, given the track record of poor financial governance and under-expenditure of conditional grant funding – there is absolutely no guarantee that these funds will be spent on priority infrastructure. Without increased oversight and prudent monitoring of these funds and the projects that these funds are directed to, history is bound to repeat itself,” she said. 

Late last year, while testifying before the South African Human Rights Commission on the state of the province’s roads, including municipal roads, Sabelo Mavundla, the deputy business leader in the Auditor-General’s Office, said the Makana Local Municipality’s financial records were found not to be “auditable”. He added that the municipality had reached 30% of its service delivery targets, although roads were not included in this target. DM

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  • Thinker and Doer says:

    The practice of clawing back unspent funds from municipalities is not having the intended effect of promoting better financial management in municipalities, and those who suffer are the residents who don’t get the infrastructure and services that they are supposed to receive. The Auditor General has repeatedly pointed out the failings and the reasons for those failing in very comprehensive reports, the National Treasury and the Department of Cooperative Governance and Traditional Affairs need to make this issue a serious area if focus, to ensure proper financial management in municipalities. This is not given nearly enough focus, and this has been an increasingly festering crisis for many years. These Departments need to be placed under scrutiny about what they are or are not doing to support sorting out the disaster with municipalities. There the Municipal Finance Management Act which is a very well-considered piece of legislation, but it needs to be ensured that it is fully and properly implemented. The Auditor-General is doing a good job on this issue, the National Treasury and the Department of Governance and Traditional Affairs really need to do an immense amount more.

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