Local Government Revenue and Expenditure: Fourth Quarter Local Government Section 71 Report (Preliminary Results) for the period: 1 July 2020 – 30 June 2021

National Treasury has released the local government revenue and expenditure report for the fourth quarter of the 2020/21 financial year. This report covers the performance against the adjusted budgets of local government for the fourth quarter of the municipal financial year ending on 30 June 2021 and includes spending against conditional grant allocations for the same period.

Noteworthy, is that this is the second municipal financial year that the report is prepared by using the figures from the Municipal Standard Chart of Account (mSCOA) data strings. The mSCOA Regulations were promulgated on 22 April 2014 and prescribe the uniform recording and classification of the municipal budget and financial information at a transaction level. All municipalities and municipal entities had to comply with the Regulations by 01 July 2017. The mSCOA Regulations require that municipalities upload their budget and financial information in a data string format to the Local Government portal across the six mSCOA regulated segments.

The report is part of the In-year Management, Monitoring and Reporting System for Local Government (IYM), which enables the provincial and national government to exercise oversight over municipalities and identify possible problems in implementing municipal budgets and conditional grants.

The credibility of the information contained in the mSCOA data strings is still a concern but progressively moving in the right direction. At the core of the problem is:

• The incorrect use of the mSCOA and municipal accounting practices by municipalities;

• A large number of municipalities are not budgeting, transacting and reporting directly in or from their core financial systems. Instead, they prepare their budgets and reports on an excel spreadsheet and then import the excel spreadsheets into the system. Often this manipulation of data leads to unauthorised, irregular, fruitless and wasteful (UIFW) expenditure and fraud and corruption as the controls that are built into the core financial systems are not triggered and transactions go through that should not; and

• These Municipalities are not locking their adopted budgets and monthly reporting periods on their financial systems at month-end to ensure prudent financial management. To enforce municipalities to lock their budgets and close their financial system at month-end in 2020/21, the Local Government Portal will be locked at the end of each quarter. System vendors were also requested to build this functionality into their municipal financial systems. The actual COVID-19 expenditure reported by municipalities for the last three months of the 2020/21 municipal financial year is included as a separate Annexure to this publication.

The Section 71 report facilitates transparency, better in-year management as well as the oversight of budgets. This enables these reports to be management tools and early warning

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mechanisms for municipal councils, provincial legislatures and officials to monitor and improve municipal performance. The improvement of the credibility of the data strings is therefore a priority for national and provincial treasuries.

Source: Government of South Africa