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Treasury to stop financial transfers to Free State municipality

National Treasury is intending to stop all financial transfers to Nala local municipality in the Free State following its persistent breach of financial management prescripts and alleged mismanagement of public funds.

In a statement, National Treasury said this will be done by invoking section 216(2) of the Constitution against the municipality.

National Treasury is empowered by Section 216(2) of the Constitution to stop the transfer of funds (conditional and non-conditional grants) to any organ of state that commits a serious or persistent breach of the measures prescribed to promote transparency, accountability and the effective financial management of the economy, debt and the public sector.

Allegations of maladministration, financial mismanagement, flouting of procurement processes, corruption and fraud at the municipality date back to the 2008/09 Audit Report of the Auditor-General.

These allegations were also investigated by auditing firm KPMG during the 2010/11 financial year.

Only the municipal manager was found guilty and fired as a result of the KPMG findings. None of the other municipal officials and councillors implicated in the KPMG report have faced disciplinary action or been charged for the alleged crimes.

The municipality has also not implemented most of the recommendations made by KPMG, including the filling of the critical posts of Municipal Manager and Chief Financial Officer.

Treasury has yet to receive evidence from the municipality that all its customers are now being fully billed after the collapse of the municipality’s billing system in 2010.

Treasury has given Nala Local Municipality several chances to remedy the situation and tried unsuccessfully to work with the municipality to address its budgeting, financial management and service delivery challenges.

National Treasury’s decision to invoke Section 216(2) of the Constitution and Section 18 of the Division of Revenue Act will make it difficult for the municipality to meet its financial obligations, including the payment of salaries and allowances for staff and councillors.

However, the cutting off of funding to the municipality is meant to send a strong message that maladministration, financial mismanagement, corruption and fraud will not be condoned at the expense of transparency and accountability.

In terms of the allocations for local government medium term expenditure framework for 2012/13 – 2014/15, as published in the 2012 Division of Revenue Act (DoRA),the municipality was allocated R203.9 million for the 2012/13 financial year.

This allocation constitutes 63 percent of the municipality’s 2012/13 total budget of R321.5 million. Of the 2012/13 allocation, R81.6 million has already been transferred to the municipality.

For the 2013/14 and 2014/15 financial years, the municipality’s DoRA allocations are R205.5 million and R220.7 million, respectively.

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