Treasury aims to boost laws to tighten grip on local government, MPs told

National Treasury is reviewing key legislation that governs the financial management of government departments and municipalities with a view to strengthening it.

The financial management of many of the country’s 257 municipalities is in a parlous state as evidenced by the 2022/23 report on local government audit outcomes reported on this week by auditor-general Tsakani Maluleke. 

The report shows that only 13% (34) municipalities received clean audits with 87% failing to comply with financial management prescripts. Fruitless and wasteful expenditure amounted to R7.4bn. 

Treasury officials were grilled on Wednesday by MPs of the standing committee on public accounts (Scopa) on the repeated poor financial performance of municipalities, asking why National Treasury continued doing the same thing when it was not producing the desired results. 

Scopa chair Songezo Zibi said the system had clearly failed.

EFF MP Veronica Mente asked what Treasury was doing about the continued noncompliance by municipalities with sound financial management practices. 

Accountant-general Shabeer Khan told MPs that the aim of reviewing the Public Finance Management Act and the Municipal Finance Management Act was to implement some of the recommendations of the Zondo commission of inquiry into state capture, specifically to strengthen the legal framework regarding consequence management. 

Grant framework

The aim would also be to improve governance of audit committees and internal audit functions and to strengthen the intervention methods of National Treasury so that it had stronger powers to enforce compliance and to subpoena documents related to financial mismanagement. 

In local government the grant framework was also being reviewed and Treasury was looking at the qualifications of CFOs. 

Chief director in the office of the accountant-general Lindy Bodewig added that National Treasury was also looking at enhancing its powers under the Public Finance Management Act and Municipal Finance Management Act so that it could possibly withhold funds from municipalities without being taken to court, and at how it could better intervene.

The law does allow for a municipality or province to be placed under administration, and it has taken place. This enables Treasury to stop funds, appoint an administrator and ensure that there is a turnaround plan. 

Khan noted that a balance had to be struck between building capacity in local government and taking over its functions. 

A total 13% of municipalities have complied.

“We have seen that 94% of CFOs in local government meet the minimum qualifications. The question is, why is the qualification of CFOs not translating into the audit outcomes we would like to see?” Khan asked.

Supply chain

“What we are seeing currently [in the performance audit being undertaken] is that some of the finance structures that are supporting CFOs are either not well structured or there are huge vacancies in those units.” 

Khan said that most of the noncompliance and irregular expenditure by municipalities was in supply chain management. Stronger consequence management was needed. 

He said the focus had to be on the leadership in local government such as accounting officers and municipal managers, who were key for accountability to function. 

“National Treasury can provide the framework but … it requires leadership across the board,” he said. 

Earlier this week the Financial and Fiscal Commission (FFC), a statutory body that advises government on budgets and intergovernmental fiscal relations noted in a presentation on its 2025/25 recommendations on the 2025/26 division of revenue to the standing committee of appropriations that local government was in a “state of decay” countrywide and is plagued by many challenges that have hampered its ability to deliver services. 

ensorl@businesslive.co.za