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According to a report, Newcastle Municipality is forced to make budget corrections or face repercussions from the National Treasury.
Newcastle Municipality received a letter from the National Treasury advising it to prioritise resolving the local government’s financial situation.
In the letter seen by the Newcastillian – Online News, Treasury states, “It is our experience that municipalities that plan well, have minor variances between the budget originally approved by council, the February main adjustment budget and the related audit outcomes. However, often municipal officials compile unfunded budgets and council is only made aware through the Treasuries’ subsequent enforcement. We note that this is tantamount financial misconduct and must stop.”
Furthermore, the National Treasury explains that the municipality now has an additional opportunity to tabulate the mid-year budget and performance assessment on 28 February 2022. This is to correct its unfunded 2021/22 MTREF (Medium Term Revenue and Expenditure Framework) by tabling a funded main adjustments budget.
“If your municipality has adopted a credible funding plan, it is important that the measures outlined in the plan are implemented accordingly to improve the municipalities dire situation and show gradual progression. The municipality is urged to make use of this opportunity to reduce its expenditure to fully align with the municipality’s realistically anticipated revenue for the remainder of the year.”
Additionally, the Treasury reminds the accounting officer and senior management team of their overall financial management fiduciary responsibilities. Further emphasising the importance of closely monitoring the municipality’s financial situation and weekly aligning expenditures with the municipality’s actual cash flow situation.
“Considering the municipality’s (persistent or not) failure to address its unfunded budget to date, the National Treasury cautions the municipality that should the Treasuries’ funding assessment reveal that the 2021/22 main adjustments budget is also not funded in terms of section 18 of the MFMA, it results in a further contravention and persistent failure of MFMA section 171.
“The municipal council will then have to adopt an updated funding plan and closely monitor its implementation of the adjustment budget in conjunction with this updated funding plan. This must include the submission of monthly progress reports supported with documented evidence to the Treasuries parallel and as part of the monthly MFMA section 71 reports,” the Treasury explains.
Failure of the municipality to adopt a 2021/22 funded main adjustments budget will constitute a material breach of the MFMA, forcing the National Treasury to invoke Section 216(2) of the Constitution and withhold the Equitable Share allocation tranche due to be released to the municipality in March 2022.
Section 216 (2) of the Constitution states:
“The national treasury must enforce compliance with the measures established in terms of subsection (1), and may stop the transfer of funds to an organ of state if that organ of state commits a serious or persistent material breach of those measures.”
In its letter, National Treasury says, “We emphasise that you need to develop and implement the necessary measures to address and remedy this situation as an urgent necessity.”
With the letter dated 19 January 2022, it is essential to note that the Treasury had previously sent communications regarding the matter. According to the letter, National Treasury had sent notifications on 10 September, 4 November and 16 November 2021, respectively. This was before the new leadership of the Newcastle Municipality took over.
The council now faces the daunting task of resolving the issue before time runs out.
Newcastle’s Deputy Mayor Musa Thwala explains, “We will now all have to sit down together and ensure the Newcastle Municipality is compliant with the National Treasury. As it is a matter of importance, everything that is required must be done with immediate effect.”
Furthermore, Cllr Thwala believes it is critical that the Newcastle Municipality corrects the situation and ensures that the Newcastle community benefits from the budget.
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