Clarifying accountability in municipal finance: The court’s interpretation of ss 32 and 176(1) of the MFMA

February 1st, 2025
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Mbambisa and Others v Nelson Mandela Bay Metropolitan Municipality (SCA) (unreported case no 272/2023, 8-11-2024) (Schippers, Mokgohloa and Nicholls JJA and Baartman and Masipa AJJA)

In the case of Mbambisa, the Supreme Court of Appeal (SCA) offered a detailed interpretation of ss 32 and 176(1) of the Local Government: Municipal Finance Management Act 56 of 2003 (MFMA). This judgment not only resolved questions of liability for municipal officials under these sections but reinforced the MFMA’s role in maintaining fiscal discipline and accountability in South Africa’s municipalities. By clarifying that s 176(1) does not provide a shield against recovery actions initiated by the municipality itself under s 32, the court set a significant precedent on the scope and reach of municipal accountability mechanisms. The decision emphasised that municipal officials cannot escape liability for unauthorised, irregular, or wasteful expenditure by claiming they acted in good faith. This interpretation underscores a robust expectation that municipal officials will strictly adhere to the MFMA’s procurement and financial management policies, contributing to a more disciplined, transparent, and accountable public finance environment. The decision is likely to have lasting implications for how municipal officials approach procurement and compliance, reinforcing the MFMA’s core mandate to safeguard public resources and prevent financial misconduct.

Legislative purpose of the MFMA and the role of ss 32 and 176(1)

The MFMA was enacted as part of South Africa’s broader effort to improve governance, transparency, and accountability in the management of public resources. Recognising that municipalities manage a substantial share of public funds and are critical to service delivery, the MFMA sought to establish a clear legal framework for fiscal oversight and financial management within local government. The Act aims to secure sound fiscal practices, reduce waste, and prevent the abuse of public funds by placing strict requirements on municipal officials. Sections 32 and 176(1) form an essential part of this framework, as they define the boundaries of liability for officials who are responsible for municipal finances.

Section 32 of the MFMA is at the heart of the Act’s accountability regime, specifically addressing the recovery of unauthorised, irregular, fruitless, and wasteful expenditures. It mandates municipalities to take proactive steps to recover funds spent outside the scope of approved budgets or proper procurement processes. Under s 32, municipal officials who engage in, authorise, or neglect to prevent such expenditures become liable to repay those amounts. The statute imposes this liability irrespective of whether the municipality suffered actual financial loss, emphasising that the officials’ duty is to adhere to established procedures rather than to rely on discretionary judgments of value or benefit.

Conversely, s 176(1) operates to protect municipal officials, shielding them from personal liability in specific circumstances. This provision states that municipal officials who act in good faith while exercising their duties under the MFMA are not liable to third parties for losses or damages. Section 176(1) is intended to protect officials from external claims that could deter them from performing their roles effectively. By limiting third-party liability, s 176(1) encourages officials to make good-faith decisions without undue fear of personal litigation. However, it was not designed to exempt officials from the internal recovery mechanisms that s 32 provides.

The court’s ruling in Mbambisa highlighted this distinction, emphasising that s 176(1) does not protect officials from accountability within their own municipality. This interpretation reinforces the MFMA’s goal of ensuring strict compliance with financial regulations, even in cases where officials may claim good faith. By affirming that the two sections address distinct types of liability, the court’s decision underscores the Act’s commitment to fiscal discipline and rigorous oversight in local government.

Section 32: The foundation of municipal accountability

Section 32 of the MFMA is integral to enforcing accountability in municipal finance, as it requires the recovery of funds associated with unauthorised or irregular spending. This provision plays a preventive role in municipal financial management by holding officials personally liable when they authorise expenditures that do not comply with the municipality’s procurement or financial policies. The liability under s 32 extends to all unauthorised, irregular, fruitless, and wasteful expenditures, regardless of intent, reinforcing that adherence to procedures is non-negotiable.

In Mbambisa, the appellants were senior municipal officials who had authorised payments to Erastyle (Pty) Ltd, a consulting company appointed without following a required public tender process. This unauthorised appointment and subsequent payments were deemed irregular expenditures because they bypassed procurement policies designed to ensure transparency and fairness in the use of public funds. The municipality sought to recover the funds under s 32, arguing that the expenditures violated the MFMA’s financial regulations. The officials, in their defence, claimed they had acted in good faith and, therefore, should be shielded from liability.

The court rejected this defence, emphasising that s 32 mandates recovery regardless of an official’s intent or perceived benefit from the expenditure. The section’s focus is strictly on whether the spending adhered to authorised procedures, not on whether the municipality received value or whether the officials acted with good intentions. This strict adherence requirement reflects the MFMA’s broader intent to create an environment in which public officials act within the boundaries of prescribed processes. Allowing officials to bypass these processes based on their subjective evaluations of value would undermine transparency and accountability, enabling discretion that could lead to financial abuse.

Section 32’s design shows that the MFMA prioritises procedural compliance as essential to preventing financial misconduct and protecting public resources. By affirming that officials are liable for unauthorised expenditures without regard to intent, the court reinforced the MFMA’s deterrent effect, signalling to municipal officials that deviations from authorised financial practices will have serious consequences. This interpretation underscores a culture of procedural caution and thorough compliance, ensuring that officials act in strict accordance with the law and that public resources are used responsibly.

Section 176(1): Protection with limits

While s 32 establishes stringent standards for internal accountability, s 176(1) serves a protective role, aiming to shield municipal officials from undue legal exposure in the exercise of their duties. Section 176(1) specifies that municipal officials are not personally liable to third parties for actions taken in good faith under the MFMA. This provision recognises the challenges inherent in public finance management, where officials must make complex decisions that could have significant financial implications. The intent behind s 176(1) is to protect officials from lawsuits that could deter them from performing their duties effectively, ensuring that they can act within their roles without fearing personal liability in every decision.

However, the court in Mbambisa clarified that s 176(1) does not apply to the municipality’s own recovery actions against officials under s 32. While section 176(1) may protect officials from external claims, it does not exempt them from accountability within their municipality for failing to adhere to authorised procurement practices. The court’s interpretation highlighted that s 176(1) operates in a limited scope, confined to shielding officials against third-party claims rather than acting as a blanket protection against all forms of liability.

The court’s ruling prevents officials from using s 176(1) as a defence against internal financial recovery. By clarifying this distinction, the court emphasised that the protection offered under s 176(1) does not excuse officials from their duty to adhere to the MFMA’s internal accountability standards. Allowing s 176(1) to override s 32’s recovery obligations would undermine the MFMA’s core mandate of promoting transparency and compliance. This interpretation aligns with the MFMA’s intent to maintain stringent oversight of municipal finances by affirming that internal accountability mechanisms remain robust, even in cases where officials acted with good faith.

Implications for municipal governance and compliance

The Mbambisa decision is likely to have significant implications for municipal governance and the behaviour of officials responsible for managing public funds. By reinforcing the distinction between ss 32 and 176(1), the court sent a clear message that good faith alone does not shield officials from accountability for procedural violations. This ruling encourages a more rigorous approach to compliance with procurement policies, as officials are now acutely aware that they cannot rely on s 176(1) to avoid liability if they fail to follow prescribed procedures.

For municipalities, the court’s interpretation underscores the importance of implementing and maintaining strong internal controls. Municipalities may seek to strengthen oversight mechanisms, ensuring that procurement decisions are made transparently and in accordance with the MFMA’s requirements. The ruling suggests that municipalities will be more proactive in pursuing recovery actions when irregular expenditures occur, as the court has affirmed their authority and obligation to hold officials accountable under s 32.

For municipal officials, the Mbambisa decision raises the stakes for procedural adherence. Knowing that good faith is insufficient to shield them from internal accountability, officials will likely exercise greater caution in procurement and financial decisions. This heightened awareness of personal liability under s 32 could lead to a cultural shift in how municipal officials approach compliance, emphasising the need for diligence and strict observance of procurement processes. The ruling aligns with the MFMA’s objective of fostering a responsible and compliant public finance environment, where officials are fully accountable for their financial management decisions.

The decision may also prompt municipalities to invest in additional training and support to ensure that officials are fully informed of their obligations under the MFMA. Training on procurement policies, financial controls, and internal accountability mechanisms could help reduce instances of unauthorised expenditure, as officials become more aware of the risks and consequences of non-compliance. This focus on compliance and training aligns with global trends in public finance management, where governments are increasingly emphasising the importance of accountability and transparency to protect public resources.

Conclusion

The Mbambisa ruling by the SCA represents a pivotal moment in South African municipal law, firmly establishing that s 176(1) of the MFMA cannot be used to evade accountability under s 32. By clarifying that s 176(1) serves only as protection against third-party claims and does not shield officials from recovery actions initiated by the municipality, the court reinforced the MFMA’s strict standards for internal accountability and compliance. This decision emphasised that adherence to procurement procedures is not only a matter of regulatory formality but a critical safeguard for public funds, and it underscores that municipal officials bear personal responsibility for ensuring compliance, regardless of intent or perceived benefit.

Simbongile Siyali BA Law LLB LLM (Criminal Law and Procedure) (NWU) is an Assistant State Attorney in Johannesburg.


This article was first published in De Rebus in 2025 (Jan/Feb) DR 64.

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