Public Finance Management Act & Public Service Act: Responsibilities of leadership & implementation challenges: National Treasury and Department of Public Service & Administration briefings
Meeting Summary
The National Treasury (NT) and Department of Public Service and Administration briefed the Committee on the roles set out in the Public Finance Management Act (PFMA) and the Public Service Act for executive authorities and administrative heads of departments, and outlined some of the challenges in implementation of the two Acts. National Treasury outlined that the Executive had to seek approval from Parliament for the budget vote, give explanations for material variances between budget and expenditure, consider reports of non-compliance with the PFMA, and ensure that there was timeous tabling of annual reports in Parliament. Heads of Departments, or Accounting Officers had to implement policy, maintain efficient and transparent systems of internal control and risk management and operate an internal audit system. If any subordinate officials transgressed, the Accounting Officer had to take disciplinary steps. The PFMA had to be complied with. Delegations of authority must be done in writing. It was stressed that any Accounting Officers who were themselves found guilty of financial misconduct, through criminal proceedings, were liable, on conviction, to a fine or imprisonment for a period not exceeding 5 years. There were problems with delegations of authority, which impeded service delivery, although National Treasury and the DPSA had developed a template.
Members agreed that delegations of authority were problematic. They questioned the statutory responsibilities of AO’s to apply for conditional grants. Both the ANC and DA Members raised concerns about the lack of imposition of sanctions for financial misconduct. The Chairperson asked about the contribution the PFMA had made to modernising financial management systems, and what kind of models had been used to develop it, and noted that sometimes recommendations after the budget process were not implemented. Members also noted that accounting officers appointed by Premiers were apt to resist actions against them by another executive authority.
The briefing by the Department of Public Service and administration (DPSA) set out the role of political and administrative heads in terms of the Public Service Act (PSA). The Executive authority had to create organisational structure and a strategic plan, and was responsible for human resource planning. The administrative head had to utilise and train staff efficiently, and implement sanctions for misconduct. The PSA enabled delegation of powers. However, there were challenges around possible conflicts between the individuals, each using their powers to obstruct the other, and it was stressed that trust and professionalism had to play a key role at the political – administrative interface.
Members questioned the drawing of performance agreements between the Executive authority and administrative head, asked how targets were set, and what disciplinary and corrective measures were taken against administrative authorities assessed negatively by a panel. There was a question about lack of sanctions implemented for fruitless and wasteful expenditure. The difference between savings and underspending was emphasised, and it was noted that problems often arose if political heads made pledges that were not compatible with the implementation plan that was to be implemented by the administrative head, which contributed to a souring of relationships. The scoring system for evaluations was questioned. Chairperson expressed concern about that leading to dismissal of HODs and a lack of skills retention. The scoring system for HOD evaluation was interrogated by a DA member. The Personnel Salary System (PERSAL) was questioned. The Chairperson remarked that trust and professionalism were generally lacking, and noted that a seminar was needed on oversight issues and skills retention, to try to understand the exodus of administrative heads and to discuss ad hoc recruitment and the inadequate human resource development strategies. The Chairperson also expressed the view that the PERSAL system should be abandoned, and asked that an integrated financial management system be considered. The Chairperson said that National Treasury and DPSA did not seem to be interacting very closely on issues, and wanted more interaction between the Committee and National Treasury.
Meeting report
Public Finance Management Act: Roles of Political and Administrative Heads: National Treasury briefing
Mr Jayce Nair, Chief Director: Governance Monitoring and Compliance, National Treasury, gave a briefing on what the Public Finance Management Act (PFMA) provided in relation to the responsibilities of Executive Authorities (EA), such as political heads/ cabinet members. These included the necessity for the executive to seek the approval of Parliament for the adoption of the budget vote, to give explanations for material variances between budget and expenditure, to consider reports of non-compliance with the PFMA, and to ensure that there was timeous tabling of annual reports in Parliament.
The PFMA also contained provisions around the responsibilities of Heads of Department (HOD) or Accounting Officers (AO). Amongst other issues, they had to implement of policy choices and achievement of outcomes. The AO had to maintain efficient and transparent systems of internal control and risk management systems, as well as operate an internal audit system under direction of an audit committee. Disciplinary steps had to be taken against officials when the AO became aware of transgressions. There had to be institutional compliance with the PFMA. Proper financial records had to be kept. AO’s powers in the Act had to be delegated to departmental officials, where appropriate, in writing. AOs who were themselves found guilty of financial misconduct, through criminal proceedings, were liable, on conviction, to a fine or imprisonment for a period not exceeding 5 years.
Mr Nair concluded that Cabinet had to resolve issues of delegations of authority, as these were impeding service delivery. The National Treasury (NT) and the Department of Public Service and Administration (DPSA) had instituted the principle of documenting delegations, and had developed a template, which was now being piloted in national and provincial departments.
Discussion
The Chairperson opined that the concluding remarks of Mr Nair were the most important, even though they were not included in the Power Point presentation. The delegations of authority had to be discussed, in the light of what was actually being implemented.
Mr G Hill-Lewis (DA) asked if there was any statutory obligation upon the AO to apply for conditional grants, or whether it was discretionary.
Mr Nair replied that he was not yet clear on what the Division of Revenue Act required in that regard, but that he would find out.
Ms H Van Schalkwyk (DA) referred to severe penalties that could be imposed for financial misconduct of AOs, including five years imprisonment. She commented that it was a pity that this provision did not seem to have been used in the past. She asked if that was due to a lack of political will, or whether the courts were to blame.
Mr Nair answered that legislative provisions for sanctions had been implemented. 8 000 officials had been charged in the recent past. The Public Service issued an Annual Report on misconduct. He did not consider it due to a lack of political will. However, he did confirm that no Accounting Officer had as yet received a prison sentence.
Mr Hill-Lewis remarked that even though 8 000 people had been charged, the situation still stood where it was likely that those staff below the AOs would be charged, and the question was who would lay charges against the AO.
Mr Nair replied that it was the duty of the executive authority.
Mr Hill-Lewis asked if it was conceivable that the Executive authority would decide not to press charges.
Mr Nair agreed that it was.
The Chairperson noted that it was a slow process, and that government usually did not win such cases.
Mr Nair responded that the Executive would not lay charges if investigations had shown a lack of evidence. The National Treasury had a duty to inform the executive if it made relevant discoveries of misconduct.
The Chairperson referred to problems around verification. She asked what would be the most important aspects of modernising the financial management system. She asked what the National Treasury had done in that regard.
Mr Nair replied that there had been many reforms since the institution of the PFMA, including the development of the Medium Term Expenditure Framework (MTEF). Uniform classification systems were adopted, and International Monetary Fund standards were reached. Information was published for investors. There were monthly Section 32 reports. Departments submitted monthly statements of revenue expenditure to the National Treasury. Information was consolidated and published for the benefit of investors. Government budgets were managed by integrated finance management systems. Previously, AO’s had been restricted by the Exchequer Act, but now they could take financial decisions, and management had moved away from the provisions of this Act. Provisioning was done in terms of the supply chain system. Audit Committees were introduced. Annual Reports were being published earlier. Transparency was promoted through raising the bar with regard to full disclosure and performance information. Strategic plans for departments were also introduced.
The Chairperson asked what the preferred model was, and if it was integrated.
Mr Nair responded that research by the National Treasury informed the PFMA. Drafters looked at the example of countries like
The Chairperson remarked that a consideration of reports had indicated that Portfolio Committee recommendations on virements had not been implemented. She asked what the problem might be.
Mr Nair responded that the Standing Committee on Public Accounts (SCOPA) made recommendations to departments, and it was then incumbent upon the Accounting Officer to implement those recommendations. He advised that the portfolio committees should establish a database of recommendations made, with due dates for implementation. There had to be regular feedback to the portfolio committees.
The Chairperson remarked that in terms of the PFMA, there was a budget recommendation process in Parliament in the second term. That was the time that the portfolio committees would realise that no changes had been implemented. In the previous year, the budget review to control virements had just been a process, but had not been properly implemented.
Mr Nair responded that a review of allocations was part of the Parliamentary process. Allocations had to be reviewed over the Medium Term Expenditure Framework (MTEF). The National Treasury did not allocate, but Parliament did so, through the portfolio committees.
The Chairperson asked about the roles assumed by the National Treasury and the DPSA, with regard to the annual submission of reports.
Mr Nair replied that the AO of each department was responsible for the Annual Report, and the reports would be provided to the Executive authority.
The Chairperson asked if there had been any overhaul with regard to the timeous submission of annual reports.
Mr Nair answered that the National Treasury sent an annual memorandum to Cabinet, detailing whether the annual reports had been tabled on time, and whether any deviations from the rules had been justified. The National Treasury also compiled its own Annual Report.
Mr M Manana (ANC) noted that HODs were appointed by Premiers. Whenever there were complaints or requests to the provincial HODs to take actions, they would be quick to respond that they had been appointed by the Premier.
Mr Nair replied that the executive authority could lay charges in terms of the PFMA, and in fact it was incumbent upon them to do so. The fact that the AO had been appointed by the Premier only had relevance in the case of dismissal. The HODs could not claim that no action could be taken against them because of this appointment process. He stressed that action had to be taken against non-compliance in a department.
Public Service Act and challenges with the implementation of the Public Finance Management Act: Department of Public Service and Administration (DPSA) briefing
Mr Moshwale Diphofa, Director General, Department of Public Service and Administration, briefed the Committee on the role of political and administrative heads under the Public Service Act (PSA). He noted that, in terms of the PSA, the Executive authority (EA) of a department was responsible for organisational structure, strategic planning, service delivery improvement, and Human Resources (HR) planning. The head of department (HOD) or administrative head was responsible for efficient management and administration. That included effective utilisation and training of staff, and implementing sanctions for misconduct. The PSA enabled the EA to delegate powers set out under the PSA to the HOD. The HOD could further delegate such powers.
Challenges included possible conflict between the EA and the HOD, with one using powers to obstruct the other, such as, for instance, a case where the HOD might frustrate financial approval, or a case where the EA might withdraw HR delegations. Trust and professionalism had to play a key role at the political and administrative interface.
Discussion
Mr Hill-Lewis referred to performance agreements between the Executive Authority and Heads of Departments and how they operated, in political terms, and how targets were set. He asked if there was anything said on this point by the DPSA. He also noted that the performance agreement had to be regularly assessed in terms of the targets.
Mr Diphofa replied that Chapter 4 of the Handbook for Senior Managers (SMs) provided a template. The National Treasury developed performance plans for departments. Indicators and target setting could be developed once the performance agreement had been signed. There was a checklist to look for compliance. Key performance areas would be regional integration, integrated government, and management of information integrity. The Public Service Commission (PSC) would look for gaps. There was also checking to ensure that there was no duplication in key performance areas and core management. A mid-term assessment of management performance would be carried out. The EA and HOD were responsible for this, with the PSC involved at the end. The EA had to set up a panel for assessment. The PSC chaired the panel. In meetings, the Minister and Head of Department would make their presentations, then leave, and the panel would make a decision.
Mr Hill-Lewis asked what disciplinary and corrective action would be taken if the HOD was assessed negatively by the panel.
Ms Van Schalkwyk asked, with reference to the checklist, if targets were only set after the consultation process, or whether the checklist was rigidly applied.
Ms M Mohale (ANC) asked what would happen if there had been financial misconduct, such as fruitless and wasteful expenditure and irregular expenditure. The Auditor General (AG) compiled a list of departments most at fault, yet it did not seem that any action was taken against HODs.
Mr Diphofa replied that the assessment was done according to a scale of 1 to 5. On this scale, a rating of 3 was considered fully effective. If the assessment came to less than 3, the Handbook for Senior Managers provided measures for management of poor performance. A plan had to be developed, implemented and monitored. Measures such as vacating a post had to commence immediately. There had to be training and development.
Mr Diphofa explained that the checklist was not applied to targets. It assessed performance agreements once implemented. Targets were set by departments themselves, in terms of the State of the Nation Address. There was pressure on departments to be clear about targets and to provide measurable indicators.
Mr Diphofa continued that in case of financial misconduct, it was to be expected that a set process would unfold, from charges laid to investigation to hearings. If a written warning was issued, it had to be filed. Dismissal had to be implemented. The PSC monitored finalised cases. There was currently a move to go beyond that. There had been instances where departments submitted a report that looked good, but where nothing had in fact been done. Where amounts of over R100 000 were involved, the matter had to be taken to the South African Police Service (SAPS). HODs or AOs who failed to act, could be held liable. The Public Service had to be decentralised in terms of actions taken.
Ms Mohale asked about account transactions. An example of fruitless and wasteful expenditure was where a flight would be booked to
The Chairperson added another example of IT systems that were bought and never used, as they were too sophisticated for anyone to operate. Money spent through government paying orders could not be retrieved. She asked the National Treasury and the DPSA why it seemed that these two departments were not interacting with each other.
Mr Nair responded that much of fruitless and wasteful expenditure could be avoided. Trips to places like
The Chairperson also referred to the issue of “savings” and said that monies budgeted for were not used.
Mr Nair stressed that savings were not the same as underspending. If R20 000 had been budgeted to establish two companies, and the eventual cost was R16 000, that was a saving. Virements could be used to transfer savings from one programme to another.
The Chairperson noted that the question of whether the lesser expenditure was a saving or underspending depended upon how it was presented.
Mr Nair responded that when a department received a sponsorship, Section 13 of the PFMA required that it first be deposited in the revenue fund, and then the appropriate money would be included in the adjustment estimate. It had to be deposited first, and then later the department would have to apply for the appropriation.
Mr Manana drew attention to the conflict set out on page 11 of the briefing. Politicians, in the course of their interactions, sometimes made pledges that were not part of the implementation plan. The President had called for pledges from Ministers in
Mr Diphofa replied that delegations had to be signed and dated. Professionalism had to be present at the political and administrative interface. There had to be reprioritisation and engagement. It would not do for one official to be behind the PSA, and one behind the PFMA. Options for the department had to be agreed upon.
The Chairperson remarked that trust and professionalism were generally lacking. A Public Service seminar on oversight issues and skills retention was being planned, because there was a need to gain an understanding of why HODs were resigning or becoming lost to the public service. The question was whether there was something wrong on the side of the executive authority, or whether it was due to lack of implementation. Care had to be taken about lack of performance, but yet many heads of departments had been expelled. The Public Service Commission (PSC) needed background. The Minister had to speak about delegation of authority. There had to be a work session for the seminar in the following week. PSC reports would be considered. Ad hoc recruitment also had to be discussed. The human resources development strategies of the DPSA were inadequate. She complained that the National Treasury had not responded well to invitations in the past.
Mr Nair replied that if details of invitations could be furnished, the Treasury could provide explanations .
Mr Hill-Lewis asked why the budget review process for an MTEF policy was only approved by Parliament when it was already done.
Mr Hill-Lewis asked about the assessment scoring system out of 5. If an AO got 3, he was considered fully effective. That could mean that government was only performing at 60%. There were only two negative numbers in this process.
Mr Diphofa stressed that the assessment was not to be seen as a “three out of five” scoring. The ranking of 3 constituted 100% performance, so 4 and 5 indicated that the performance had been above expectation.
Mr Hill-Lewis asked what kind of percentage a ranking of 2 represented
Mr Diphofa replied that 1 or 2 would bring incapacity procedures. 1 or 2 meant that the person was less than fully effective.
The Chairperson asked both departments to consider the merits of the Personnel Salary Management System (PERSAL), as against an integrated financial management system. Her opinion was that PERSAL had to be abandoned. She stressed that this Committee would like to see more interaction with National Treasury.
The meeting was adjourned.
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