Municipal Timeline

An adjustment budget, if necessary, must be tabled

Posted on by The CAN Team

Section 72 of the Municipal Finance Management Act (MFMA) is a critical provision for monitoring a municipality’s financial health and operational performance during the financial year. It emphasizes the importance of a mid-year budget and performance review, ensuring alignment with the municipality’s budget and service delivery goals.

Overview of Section 72

Section 72 requires municipalities to undertake a mid-year review of their budget and performance. The accounting officer (municipal manager) is responsible for preparing and submitting this report to key stakeholders, ensuring that financial and service delivery targets are on track.

Specific Role of Section 72(3)

Section 72(3) highlights the responsibilities following the submission of the mid-year report:

  1. Mandatory Budget Adjustments:
    • If the mid-year review identifies material variances, Section 72(3) requires the mayor to ensure that an adjustments budget is prepared.
    • The adjustments budget must align financial plans with actual performance, correcting revenue or expenditure imbalances.
  2. Action Plan for Underperformance:
    • The mayor must recommend measures to address underperformance in service delivery or financial management based on the findings of the mid-year report.
  3. Strategic Recommendations:
    • Proposals must focus on improving fiscal discipline and operational efficiency while ensuring resources are reallocated to meet critical service delivery needs.

How Section 72 and 72(3) Function Together

  1. Performance Monitoring:
    • Section 72 mandates a review of progress halfway through the financial year, focusing on revenue collection, expenditure, and service delivery.
    • Section 72(3) ensures that any identified discrepancies or inefficiencies are addressed through concrete adjustments.
  2. Accountability and Transparency:
    • The report required by Section 72 promotes accountability by providing detailed insights into financial and operational performance.
    • Section 72(3) enhances transparency by mandating corrective actions, which are presented to the council and stakeholders.
  3. Prevention of Fiscal Risks:
    • By identifying financial misalignments early, Section 72 helps prevent further deterioration of the municipality’s financial position.
    • Section 72(3) ensures timely adjustments to avoid revenue shortfalls or over-expenditure.
  4. Service Delivery Alignment:
    • Section 72 reviews the alignment between budgeted and actual service delivery targets.
    • Section 72(3) enables adjustments to reallocate resources to underperforming areas, ensuring community needs are met.

Significance for Municipal Governance

  1. Mid-Year Course Correction:
    • Section 72 provides municipalities with a structured opportunity to reassess their financial and operational strategies mid-year, ensuring targets remain achievable.
    • Section 72(3) formalizes the process of making necessary adjustments to address gaps.
  2. Enhanced Financial Oversight:
    • Continuous monitoring under Section 72 strengthens the municipality’s financial governance, reducing risks of mismanagement or fiscal crises.
  3. Support for Long-Term Planning:
    • Adjustments made in line with Section 72(3) not only address immediate concerns but also help improve budget credibility for future financial years.

Conclusion

Section 72 and Section 72(3) of the MFMA are essential tools for ensuring municipalities maintain fiscal discipline and meet their service delivery commitments. While Section 72 focuses on evaluating mid-year performance, Section 72(3) provides a mechanism for addressing any shortfalls or inefficiencies through adjustments. Together, these provisions enhance accountability, promote good governance, and ensure that municipalities remain responsive to the needs of their communities.

The CAN Team