Treasury suspends July funding for 69 municipalities due to financial mismanagement

The temporary withholding is implemented in accordance with Section 216(2) of the Constitution, combined with Section 38 of the Local Government: Municipal Finance Management Act 56 of 2003. The Treasury stressed that this measure is corrective, not punitive, and does not foresee an impact on service delivery, as the withholding is temporary.

Financial irregularities and reporting

The Treasury reported that despite extensive assistance provided to municipalities through MFMA circulars, individual meetings, and training sessions, many continued to fail to meet financial management requirements. These violations include adopting budgets without funding, inability to address UIFWE issues, and failure to meet established financial obligations.

The Treasury warned that non-compliance with legislation constitutes not only a dereliction of fiduciary duties by municipal political and administrative leadership but also threatens the financial stability of major suppliers, including water boards and Eskom. Furthermore, non-payment to third parties hinders the effective operation of state bodies such as the Auditor-General of South Africa (AGSA), the South African Revenue Service (SARS), and the Financial Sector Conduct Authority (FSCA).

Accountability for UIFWE

It was noted that some municipalities failed to comply with the requirements of Section 32 of the MFMA regarding the handling of UIFWE cases. This section obliges municipal councils to recover UIFWE from responsible persons unless the council committee determines after an investigation that the expenditure is irrecoverable and it will be written off. The responsible body is the Municipal Public Accounts Committee (MPAC).

The Treasury stated that some municipalities did not conduct proper UIFWE investigations, failed to determine responsibility, did not recover losses where appropriate, and did not implement corrective measures. This means that MPACs are functioning inefficiently. It was also pointed out that some municipalities failed to demonstrate the implementation of consequence management measures, including disciplinary action, investigations, recovery processes, and referral to the police when required, which is an obligation under Chapter 15 of the MFMA and the Municipal Rules on Procedures for Financial Misconduct and Criminal Proceedings 2014.

Scale of financial losses

The results of the AGSA's Consolidated Audit Report on Local Government for 2024/25 largely confirmed the Treasury's findings regarding persistent weaknesses in municipal financial management. According to the Treasury, since 2021/22, municipalities have incurred losses amounting to R24.12 billion in fruitless and wasteful expenditure. From 2021 to 2022, municipalities and their structures suffered R145.21 billion in irregular expenditure, including R40.14 billion in 2024 and 2025 alone. Since 2021 to 2022, municipalities have disclosed R118.13 billion in unauthorized expenditure, with R63.43 billion (54%) relating to non-cash budget items.

The Treasury added that budget reliability continues to decline: in 2024 and 2025, 116 municipalities (45%) adopted unfunded budgets, compared to 113 municipalities (44%) in the previous adjusted budget. By the end of the 2024 and 2025 financial year, municipalities were required to pay R3.40 billion in Eskom interest and R1.21 billion in water board interest. Additionally, payment delays extended to third-party deductions, with 48 municipalities (20%) having overdue third-party deductions for more than one month. The Treasury concluded that this once again demonstrates a persistent refusal to adhere to the legal framework, including the Local Government: Municipal Finance Management Act 2003 (Act No. 56 of 2003).

Fund transfers will resume once the affected municipalities meet the necessary conditions and provide proof of implementing compliance measures.