Statement issued by the Public Service Accountability Monitor, Rhodes University and Action for
Accountability (A4A) Project.

In a letter dated 8 November 2023, the Deputy Director General of Intergovernmental Relations at the National Treasury issued instructions for Makana Municipality to return a total of R60.7 million in unspent conditional grant funds for the 2021/22 and 2022/23 financial years. According to the National Treasury, of this total amount, Makana failed to spend R21.7 million of its Municipal Infrastructure Grant (MIG) in 2021/22 and a similar amount – R22.7 million of the MIG in 2022/23. For 2022/23, this equates to an astonishing 83% of the total grant allocation of R 27.4 million. There is therefore no question that this underspending has had major and adverse impacts on progress towards addressing Makana’s rapidly deteriorating infrastructure.

Significance of conditional grants
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 (MFMA) dictates that these funds must be surrendered to the National Revenue Fund. Section 52(d) of the MFMA obliges the mayor of a municipality to submit a report to council on expenditure and on the financial state of the municipality within 30 days of the end of each quarter. This includes expenditure on conditional grants. An example of such a grant is the Municipal Infrastructure Grant (MIG) whose objectives are to provide specific funds for the eradication of municipal infrastructure backlogs for poor households and social institutions servicing poor communities, amongst others. The MIG constitutes the largest transfer to municipalities from the national government and is particularly important as it is intended to expand service delivery and alleviate poverty. In Makana’s 2021/22 budget, the Municipality explained that the MIG would be used to upgrade certain streets, refurbish a wastewater treatment works, upgrade a gravity sewer, upgrade sports facilities and street lights – but with the bulk of the MIG funds now having to be returned, it’s clear that most of what was planned has not materialized. In Makana’s 2022/23 draft budget, the Municipality planned to spend the MIG on street upgrading; creating an Infrastructure Asset Management Plan; replacement of pipes; purchase of a waste compactor; upgrade of facilities in the Oval Stadium and Makana Way Phase 1. Again, with the need to refund the bulk of the MIG, what was planned has not been near to adequately achieved. It’s understandable then that communities become dismayed and express distrust towards elected representatives and public servants.

Responsibility of municipalities to plan, spend and report
Other conditions attached to the MIG include that municipalities must adhere to reporting
requirements and spend at least 60% of their previous transfers before additional transfers can be made. Additionally Makana needed to have spent 40% of the total MIG allocation by 31 December 2022.

In terms of section 21 of the Division of Revenue Act, 2022 (Act No.5 of 2022) and the Division of Revenue Amendment Act, 2022 (Act No. 15 of 2022), unspent conditional grants as at the end of the 2022/23 financial period must be surrendered to the National Revenue Fund. However, the Act provides room for municipalities to motivate for funds to be rolled over to the next financial year. For this to happen, the receiving officer and provincial treasury are required to prove to the National Treasury that the unspent funds are committed to specific projects, in which case the funds may be rolled over.  Amongst other requirements; the municipality must formally write to the National Treasury indicating that a contractor has been appointed for the work in question and motivating for the likelihood of these funds being spent by June 2024.

It is therefore unsurprising that in in its 2023 Budget plans, Makana Municipality notes: “(t)he capital budget for the MTREF [Medium Term Revenue and Expenditure Framework] …reflects a decrease in the third year as there is no indication of MIG funding in that year.”

The Public Service Accountability Monitor notes this admission and calls on the Municipal Manager and its Municipal Council to explain to the public what measures they have taken over the past two financial years to try and avoid such a situation and – in particular – to ensure the rollover and prudent use of  conditional grant funds. Additionally, the Municipality projects an allocation of R 28 million for the 2024/2025 financial year which begs the question; on what basis is this projection realistic made given the current state of unacceptable expenditure?

Underspending as a result of dismal financial management and oversight
In the PSAM’s view, National Treasury’s call for the repayment of R60 million in unspent conditional grant funding is the result of poor planning, reporting and consequence management at both the senior management and councillor level across Makana Municipality. Duty bearers and oversight actors alike have failed to adequately perform their responsibilities and support social and economic development. The PSAM has for instance considered Makana Council minutes where the Mayor raises concerns with amongst others, outdated reports, and frequent meeting delays.

Executive intervention and civic agency required.
The PSAM notes National Treasury’s warning to all municipalities in a recent circular to comply with their legal reporting obligations where municipal finances are concerned. National Treasury further warns that persistent non-compliance may result in the application of available legal sanctions, including recourse in terms of section 216(2) of the Constitution. The PSAM and A4A are encouraged by this seemingly stronger stance being taken. However, as noted more proactive and decisive action is needed from those who form part of the public finance accountability ecosystem alongside the Office of the Auditor General.

This latest turn of events in Makana provides additional reasons for an intervention by the national and provincial government to address long-standing systemic governance and accountability failures within Makana Municipality. However, it must be noted that past interventions were too superficial or misplaced to remedy these issues. In the absence of meaningful consequences, tangible change is unlikely.

For these reasons, citizens should exercise the power of their vote, especially as South Africa
approaches the local government elections in early 2024!

For media queries contact: PSAM Director Jay Kruuse: / South Africa Program
Head Zukiswa Kota: / Action for Accountability: Communication Officer – Makoma Maponya: