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Key Provisions of the MFMA on Municipal Budgeting

Posted on by CAN Team

The Municipal Finance Management Act (MFMA), Act 56 of 2003, is the primary legislation governing municipal budgeting, financial management, and accountability in South Africa. It ensures that municipalities operate within strict financial controls to promote transparency, public participation, and fiscal discipline.

The Act establishes fundamental budgeting principles, stating that municipalities may only spend funds allocated in the approved budget (Section 15) and must ensure their budgets are fully funded (Section 18). Capital projects require affordability assessments before approval (Section 19).

Municipalities must follow a structured budgeting timeline, where the mayor submits a budget preparation plan at least 10 months before the new financial year (Section 21), and the draft budget must be published for public comment (Section 22-23). The municipal council must approve the budget before July 1st (Section 24).

Public participation is a critical component, with residents given the right to engage in budget discussions (Section 16(1)) and demand transparency in tariffs, debt, and service charges (Section 17). Oversight mechanisms require the mayor to monitor implementation (Section 52) and the municipal manager to report monthly (Section 71), with a mid-year review by January 25th (Section 72).

Failure to comply with the MFMA can result in disciplinary action (Section 133) or provincial intervention (Section 139). Additional regulations, such as the Municipal Budget and Reporting Regulations (2009) and mSCOA Regulations (2014), further standardize financial reporting.

The MFMA strengthens accountability and responsible financial management, empowering communities to hold municipalities accountable for budget decisions and spending.

Key Provisions of the MFMA on the Municipal Budget Process

1. Principles of Municipal Budgeting

  • Section 15 – A municipality may only spend funds if they are in the approved budget.
  • Section 18 – Budgets must be funded, meaning revenue must cover expenditure (no unfunded budgets).
  • Section 19 – Capital projects can only be approved if properly assessed for affordability and impact.

2. Timelines and Budget Preparation Process

  • Section 21 – The mayor must table a budget preparation process plan at least 10 months before the new financial year starts (by end-August).
  • Section 22 – The draft budget must be made publicly available immediately after tabling (typically by end-March).
  • Section 23 – The public must be given at least 30 days to provide comments before the budget is finalized.
  • Section 24 – The municipal council must approve the final budget before July 1st (start of the financial year).

3. Public Participation and Transparency

  • Section 16(1) – The public has the right to participate in budget processes, and municipalities must create opportunities for engagement.
  • Section 22 – The draft budget must be published for public comment before adoption.
  • Section 23 – The municipal council must consider public submissions before finalizing the budget.

4. Structure of the Municipal Budget

  • Section 17 – The budget must include:
    • Projected revenue and expenditure (operating & capital budget).
    • Proposed tariffs, rates, and service charges.
    • Debt obligations and funding sources.
    • Allocations to external entities (grants, NGOs, municipal entities).

5. Oversight and Accountability

  • Section 52 – The mayor must monitor budget implementation and report quarterly.
  • Section 71 – The municipal manager must submit monthly budget reports to the mayor and provincial treasury.
  • Section 72 – A mid-year budget review must be done by January 25th each year.
  • Section 129 – The council must consider and adopt an oversight report on the budget and financial statements.

6. Consequences for Poor Financial Management

  • Section 32 – Officials can be held liable for unauthorized, irregular, or wasteful expenditure.
  • Section 133 – Municipal officials may be disciplined or removed for financial mismanagement.
  • Section 139 – Provincial intervention can occur if a municipality fails to pass a budget or implement it properly.

Regulations Complementing the MFMA

  • Municipal Budget and Reporting Regulations (2009) – Standardizes budget formats and financial reporting.
  • mSCOA Regulations (2014) – Requires municipalities to use a uniform accounting classification system.
  • Public Finance Management Act (PFMA, 1999) – Guides financial practices at the national and provincial levels.

Conclusion

The MFMA establishes strict rules to ensure financial accountability, public participation, and transparency in municipal budgeting. Residents can use these legal provisions to demand explanations, challenge irregularities, and hold municipalities accountable during the public participation process.

CAN Team