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

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’