Implementation of the Public Finance Management Act

Public Accounts (SCOPA)

13 September 2000
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Meeting Summary

A summary of this committee meeting is not yet available.

Meeting report

13 September 2000

Documents handed out
Presentation by the National Treasury (see Appendix 1)

Chairperson: Dr Gavin Woods (IFP)
National Treasury panel: Ms Maria Ramos (DG of the National Treasury), Mr Ismail Momoniat (Chief Director of Intergovernmental Fiscal Relations), Mr Ismail Moomajee (Accounting-general in the National Treasury) and Mr Nors Du Plessis (also from the Treasury). The Auditor-General, Mr Fakie, was also present.

Capacity is a problem in the provinces, the national departments, and even within the National Treasury. The problem is that they have to compete with the private sector for qualified personnel. The private sector offers large salaries and often ''steals'' employees after the government has trained them. Ms Ramos said that ''All must take responsibility for managing human resources''. The National Treasury is not a training institution.

The Committee feels that greater progress should have been made on formalising the implementation plans for the Public Finance Management Act. The Committee, along with National treasury and the Auditor General, will assess the National Treasury's plan for implementation at a workshop. They will also consider alternative plans as the Treasury's plan may not necessarily be the best one to achieve the end product. The Committee might suggest amendments to the Treasury's plan and the Treasury will be given an opportunity to respond.

The roles of all roleplayers including the Auditor General, the National Treasury, and this Committee with regard to this Act will be unpacked and defined at this workshop.
Capacity in the National Treasury will also be discussed.

Discussion on general issues
Mr Kannemeyer (ANC) referred to the problem of budget underspending. The Department of Welfare had claimed that the reason for their underspending was the late approval of funds by the Department of Finance. He asked what the current situation was in this regard. If additional funds are voted into the budget system, when do the departments get the money? Can they spend it in that financial year?

Ms Ramos replied that:
Allocations related to poverty relief - These allocations started in the 1997/98 financial year. At that time it was a new initiative and particular programs had to be identified. As such they experienced a problem therefore allocations were made late in the first year. The result was that the departments could not spend the money that year. However this situation has improved. Late allocations are not a problem anymore. In fact the allocations for the 2001/2002 budget have already started. This means a reduction of roll-overs in respect of the poverty relief allocations.

Allocations not related to poverty relief - Sometimes departments ask for money for projects which do not get off the ground. Consequently the money comes back to the Treasury. In the 96/97 financial year there was a rollover of R7.1billion. The rollovers are now much lower. For example in the 98/99 financial yea,r the rollover was only R1.5billion. This is also due to the introduction of the Medium Term Expenditure Framework (MTEF) which gives departments reliability around their budgets so they can plan.

Changes that Treasury has introduced to reduce rollovers and unspent funds:
1) The MTEF brings certainty and planning.
2) The PFMA requirement to publish monthly accounts for actual revenue and expenditure for the previous month. In this way, accounting officers and Ministers will be more aware if their department is likely to overspend or underspend.
3) The Adjustment Estimates is expenditure which is unavoidable or unforeseen that is voted into the budget in the course of a financial year. Treasury has to ensure that departments do not ask for more money than they can realistically spend as this late budget adjustment creates pressure to spend this allocation within that financial year which is unlikely to be accomplished. It is an improving situation.

Mr Kannemeyer referred to the summary of audit outcomes (in the Auditor General's General Report). He noted that a number of trading accounts have adverse audit opinions. What is the Treasury doing to provide guidelines in this regard until new measures are taken?

Ms Ramos said that the PFMA is designed to bring transparency and accountability into the system. The relevant accounting officers must ensure that the trading accounts are operational. If there are problems and the accounting officer asks the Treasury for help then they try to assist as far as possible. In the end however the accountability remains with the accounting officer. The role of the Treasury must be unpacked without taking away the accountability of the accounting officer.

The Chairperson asked for a comment on the state of financial management in the provinces.

Ms Ramos replied that Section100(1)(a) of the Constitution is used in respect of problems with provinces. Interventions are designed to improve financial management and improvements are achieved. For example, after intervention in KwaZulu-Natal there has been great fiscal improvement.
Capacity however remains a problem. Large budgets are run with inadequate skills. A problem is that they have to compete with the private sector for qualified personnel.

Mr Momoniat added the following comments:
- The quarterly reports required in terms of s32(a) of the PFMA were published for the first time in the Government Gazette. Now for the first time they can compare the expenditure to the budget.
- There are some governance issues. Provinces have various departments and sometimes there is a problem in one or two departments and it impacts negatively on the whole province. The question which arises is ''What is the line of accountability? In terms of the PFMA it must be clear where accountability lies.
- The finances have improved. Most provinces did complete the financial statements by the end of June. General problems are experienced for which they must get the right skills in place to improve the system.

The Chairperson commented that it is in the interest of the state fiscus for PIC (Public Investment Commission) to perform. He asked for a comment on PIC [the Director General sits on this board].

Ms Ramos said that there have been changes. PIC now has a strong audit committee and a strong board. PIC are asset managers for many funds. The Government Employee Pension Fund is the biggest one that it controls. PIC has a large asset portfolio therefore it must be modernised. It must be managed like an institution like SARS. It is autonomous but still accountable to the Minister and the Finance Committee.

Employing asset managers is a problem because they compete with the private sector which is able to offer big remuneration packages. This is a big constraint for PIC. The Board however has raised no difficulties in the way assets are managed and invested. Most are invested in government bonds.

Mr Kannemeyer referred to the Municipal Finance Management Bill now being formulated. He asked what timeframes would be needed to get to generally accepted accounting standards for municipal finance.

Mr Momoniat replied that they do not need accounting standards to enforce GAMAT (Generally Accepted Municipal Accounting Practice). There has been broad consensus on this. To bring in real changes they have to wait for the demarcation process to be completed. With the demarcation process will come new managers and CEOs. They are looking at timeframes but he could not answer this because there was too much uncertainty in this area but they were probably looking at a 3 year period to implement GAMAT.

The Chairperson asked for a comment on making up the shortfall in the GEPF.

Ms Ramos replied that they were now up to 96.5%. This was a big improvement. The fund is close to being completely funded. This was because of an improvement in management. They have also cleaned up and increased the quality of their database.

Mr Leeuw (ANC) noted that there was a dispute between employers and employees in respect of surplus funds (which arose from the pensions) and asked if there was discussion on this by government.

Ms Ramos replied that surpluses deemed to have accumulated in the system is estimated at R80billion. The problem was that there was no legislation which said who the surplus belongs to, the employers or the employees. There are currently ongoing negotiations in NEDLAC as to who has what rights in respect of the surplus.

This marked the end of the discussion on general issues.

The implementation of the PFMA
Introductory comments by the Chairperson
The Committee feels that greater progress should have been made on formalising these implementation plans. They will assess the implementation plan. The state loses lots of money due to fraud and corruption on the one hand and inefficiency and mismanagement on the other. The PFMA is designed to counter this but only if it is properly interpreted, sensibly implemented and properly resourced.

Introductory comments by the Director General of the National Treasury
Possibly more effort should have been put into implementation during the year of promulgation. The approach was to develop the legislation first, then work on implementation, planning and capacity building.

The focus is on whether funds are properly utilised. There must also be an emphasis on systems. Executive officers must truly be responsible for outcomes and input.
It will take a long time to implement the Act fully. Training is required to ensure that the legislation is meaningful. In approximately 5 to 7 years the legislation will significantly change the face of public finance. The National Treasury's plan for implementation will be in Cabinet on 20 September. Thereafter it will be distributed.

Summary of presentation by the Director General

The PFMA is about improving financial management as well as accountability and transparency. Plans for implementation from various departments were submitted to the Treasury on 31August 2000. Not all the Departments submitted their plans timeously, some of them have asked for an extension. The Treasury is now in the process of evaluating these plans and if there are any shortcomings they will try to identify them.

The provincial treasuries also have to submit by 15 September 2000 provincial PFMA plans for implementation. The implementation plan of the National Treasury will be in Cabinet on 20 September.

Steps taken thus far in respect of the implementation of the PFMA
- A process to ensure consistency with other legislation was undertaken. There were some interpretation problems with the Public Service Amendment Act and the PFMA which have now been resolved.
- A hotline has been created to attend to queries on the PFMA.
- They have held awareness workshops countrywide for political office-bearers and senior management. These were well attended by Ministers, deputy ministers and MECs. The workshops were held at Cabinet's request.
- Exemptions and delays were published on 31 March 2000.

Departmental PFMA implementation plans
- Chief Financial officers must be appointed. They considered whether they should prescribe a profile for the CFOs who must be appointed. They decided not to prescribe in detail because different skills are necessary for different CFOs in different departments (for example, compare Justice and Sport).
- There must be training of managers on generic financial responsibilities. There are a lot of courses being offered on the implementation of the PFMA. They are working on developing some kind of accreditation for people offering courses on the PFMA. This way someone can get an official certificate for doing the course.
- The internal audit function must be enhanced.

National Treasury Implementation Plan

- The National Treasury's PFMA Implementation Plan sets deadlines for accomplishing certain goals. For example the format of annual budgets must be completed by February 2001 and they must set standards for GRAP (Generally Recognised Accounting Practice) by April 2000. The introduction of service delivery indicators for pilot departments must be completed by February 2002, and for other departments by February 2003. The introduction of the service delivery indicators means that a costing exercise must be undertaken.

The way forward
Written quarterly reports will be submitted to this committee on the progress with implementation. In this regard Ms Ramos suggested that the Committee should unpack the roles of the various roleplayers. She noted specifically that the Treasury should not be the ''post office'' for forwarding queries back and forth between this committee and the various Departments.

The Chairperson commented that they need more definition on the roles of the roleplayers, their relationship with each other and their respective duties.
SCOPA feels that the National Treasury has underplayed its role. Granted that the departments must play their own role in terms of the Act, the question was ''where does National Treasury intervene in terms of its role?''

Ms Ramos said that they would need time with the Committee and the Auditor General to define the various roles of the roleplayers - a workshop should be held to facilitate this.

She noted that Section 6(2) of the PFMA said that the National Treasury's responsibility is that it must prescribe norms and standards. They have done this. Now they are forcing departments to develop their own strategies. Treasury must ensure that regulations are enforced when they are in place. They may assist departments. If provinces have asked them for assistance, they have responded to the request. They made funds available to improve financial management.
S100 of the Constitution provides for intervention in provinces if things go wrong. Defining what a serious and material breach is important. They are trying to assist on the capacity and resources side but the Treasury is also limited as it is quite small. Departments need a more active approach on internal audit functions.

The National Treasury must define accounting standards and policy and see that they are followed. Section 2 of the PFMA provides that they may investigate. These investigations are designed to alert them to difficulties which may arise. Now Departments must implement actual spending and the Treasury can ask them to provide reasons if they are not spending. Ms Ramos noted that ''The Director General should not come before a committee to explain the overspending or underspending of departments. The Accounting Officer must do that''.

The Chairperson asked for a comment on the relationship between the Treasury and the Standing Committee on Public Accounts (SCOPA).

Ms Ramos said that there is major reorganisation taking place in the Treasury. The organogram is currently in Cabinet. The budget sphere of the Treasury is managed sectorally according to department. The individual who manages that particular department's budget is the contact point. There will be a contact person per department. Thus, no one individual will answer all questions.

Once the position of deputy Director General has been filled, the Committee will have access to that person as well.

The Chairperson commented that SA needs a stable Treasury and he wanted to know that the Auditor General was doing the best it could.

Mr Fakie said that his office must play a role in facilitating and implementing the PFMA. The accountability of the accounting officer must be ensured. However he was unsure of the role they must play. Is their role to give an opinion on a department's financial statements (as before) or is their role broader now. What about service delivery performance? Must the Auditor General evaluate these indicators or is it part of the budgetary process for the National Treasury. He said that he needs clarity as to what is expected from him in terms of the PFMA implementation. The role of the Auditor General must be defined.

The Chairperson said that they could not discuss this meaningfully now and all agreed that they should have a workshop to clarify the roles of the roleplayers.

Ms Ramos commented that she would be happy to facilitate such a workshop. She said that the Auditor General has an important role to play in terms of seeing if outputs can be delivered in light of the cost structure and the budget allocated to it. They need ongoing engagement.

The Chairperson said that the Auditor General must give credibility to the performance base. They need to develop this further.

The Chairperson commented that there must also be capacity building within the Treasury itself as the new treasury regulations and the PFMA Act gives numerous responsibilities to the Treasury.

Mr Kannemeyer asked how far the process of listing of public entities was. Whose responsibility was it to initiate the listing?

Ms Ramos said that they have encouraged the departments to list public entities within their departments. Mr Du Plessis (Treasury) said that they do not know the answer to this, they will follow it up and get back to the Committee.

Mr Kannemeyer asked if it was then correct to say that the National Treasury did not know how many public entities there were in departments. He asked if there was a database of public entities which they could use to compare against the entities that were listing.

Ms Ramos said that there was no consolidated database to check against. There were a few that they now knew existed that they did not know of before.
Mr Momoniat added that the listing is a process and they will get most of them in the net this financial year.

Dr Koornhof (UDM) referred to Ms Ramos's statement that implementation will take up to 7 years. He noted that the latest date mentioned in their implementation plan was July 2003. He asked for an explanation of this and commented that huge training would be needed. He asked if they were not implementing too fast or embarking on a crash course especially in light of the current capacity problems in various departments. He also asked if the implementation plan provided that various departments ''talk to each other''.

A minority party member asked if they were going to meet the dates that they noted in their implementation plan.

Mr Kannemeyer asked them to elaborate on departments who do not submit their financial statements on time. What assistance is given to these departments. He also asked if departments were making use of the PFMA Hotline, and if so, then what queries had they received on their hotline, whether there were specific problems and whether they had a special sector dealing with this. He also asked for motivation on the reasons for the delayed sections.

Ms Ramos replied that these questions all related to capacity. She said that implementation is a process. It will take longer than the actual dates mentioned. Five to eight years is a realistic period. The dates mentioned in the implementation plan relate to the core of the Act. Missing deadlines is always a concern but they feel as though they are on course. The Treasury has different capacities built up. Different people deal with different things. Mr Du Plessis co-ordinates implementation across the board. He ensures that the sub-projects are on track and he liaises with the departments. The accounting officer deals with the accounting aspect of implementation.

Mr Du Plessis said that queries usually relate to the interpretation of sections of the PFMA and treasury regulations. They facilitate questions and pass them on to specific people. They try to deal with them within 48 hours.

Section 38(2) of the PFMA was delayed in implementation only to amend the section. It had the effect for example that a department could not rent a photocopy machine for five years because it would mean that a liability had been appropriated. There was a problem with the wording.
Secondly, the National Treasury regulations are also applicable to provincial departments and section 6 of the PFMA allows delegation. They had to clarify that the delegation must be in line with broad treasury instructions.

Mr Nair (ANC) commented on the capacity issue. He said that this issue arises constantly. How will they compete with the private sector for personnel? A whole change in system is taking place (example the shift from a cash system to an accrual system). To make this change successful, they cannot rely on the old systems. A whole revamp is required. This will require a budget in excess of what they have. He asked how they are going to manage a system that requires the best of everything (the best data systems, the best personnel, a big budget).

The Auditor General noted that this is ambitious legislation. The deadlines are ambitious. Everything revolves around project management. A complete restructuring of the way they do business on a day to day basis is taking place. He asked if they have the capacity for the project management required.

The Chairperson said that this is the biggest project in the whole country and asked if anyone in South Africa had the skills to take on something this size.

Ms Ramos replied that they must try not be overwhelmed by the size of projects. It is enormous and they grappled long with it. They approached its management by breaking it down into different components. They then built projects around the component parts. Therefore it is not really one large project, it is many different (smaller) projects. There is a co-ordinating team within the National Treasury (to bring all these smaller projects together).

They need expertise. Capacity and training is key. The National Treasury is not a training institute and cannot do the training. They need to contract that capacity in. Capacity training is a big project that they are now working on. Finding where the capacity lies, how they contract it in, and how they accredit it are the key components of this project.

In competing with the private sector for personnel, the problem is that National Treasury trains people which the private sector ''steals'' from them. They have a limited skills base and a limited skills pool. They are worried that the economy is not building enough. Young people in the private sector are paid high incomes without having many years of experience. This is the environment that exists. The public sector does however have something to offer. It provides a kind of experience that cannot be found in the private sector.

Capacity is about training which is an ongoing process not an event. The capacity constraint cannot be overcome with a few training courses. The programs at universities and technikons must reflect the changing legislation.

The PFMA is law now, and it must be implemented. She assured the Committee that the National Treasury will not be looking for a bigger budget. ''They will have to make it happen on what they have, it is that straightforward''.

Capacity in the National Treasury is something they must discuss at the workshop. They have identified big gaps in their capacity. This is why the Accountant-General's Office is being redesigned. All must take responsibility for managing human resources. The National Treasury sets standards for training in the area.

Ms Ramos said that the outputs must be more meaningful than they are now. This means that there must be a basis for the outputs, which in turn means that there must be credibility in the costing. Is there a mechanism to do this so that the Director General of a specific department can say that it is a credible budget?

The Chairperson said that many do not agree that the Treasury's implementation plan is the best way to go. The Committee must consider these other ideas as they may be useful. There are some things central to Treasury's implementation plan which no course can teach. He continued that the implementation plan was not specific enough on how to get to the end product. There had to be an interface of how one receives credible outputs. The interface of the Act and the National Treasury regulations dictates the outputs of the PFMA. Outputs and inputs must be measurable objectives.

Ms Ramos said that the plan they have submitted to the Chairperson is only a first draft. It is a big exercise and has to get built up over a number of years.

Mr Kannemeyer interjected to say that they should not go into detail now as the Committee has not had access to the document that the Chairperson has seen (and was discussing with Ms Ramos). There was also a document containing an alternate view which the Chairperson had given to the Treasury which they had not seen. He suggested that they discuss this issue at a workshop with the National Treasury and the Auditor General.

The Committee is going to have a workshop to:
1) define the roles of the roleplayers, and
2) look at documentation on plans for implementing the PFMA. The committee will look at the Treasury's plan as well as other opinions and views. The Chairperson said that if the Committee feels strongly about a particular view then they can amend the Treasury's plan. The Treasury will have an opportunity to respond.

Concluding remarks by Ms Ramos
This Act is a big piece of legislation. It is the core of public finance in the country. If oversight is not there in the form of this Committee and the Auditor General, then the Act is meaningless. They need workshops to finalise the issues.

The Chairperson said that they will resolve outstanding matters at the workshop. The meeting was adjourned.

Appendix 1:

-Implementation of PFMA
-Progress to Date with Implementation of PFMA
-Departmental Implementation Plans
-National Treasury Implementation Plan
-Way Forward

-Vehicle to improve Financial Management
- Departmental Implementation Plans submitted on 31 August 2000
- Provincial Treasuries submit Provincial PFMA Implementation Plans on 15 September 2000
- National Treasury submit PFMA Implementation Plan to Cabinet n 20 September 2000

-Interim Implementation Strategy approved by Cabinet on 15 March 2000
-Standing Agenda Point on Meetings of TCF and Budget Council
-Exemptions and Delays Published on 31 March 2000
- Process initiated to ensure consistency with other Legislation
-Maintenance of current systems to ensure timeous and quality information to meet reporting requirements
-Treasury regulations for Department and Constitutional Institutions published on 31 May 2000

-Treasury regulations for Public Entities published for Comments on 15 June 2000
- PFMA Website created to ensure relevant information is available
- "Hot Line" created to attend to queries
-"Accounting officers guide to PFMA" made available at national and provincial workshops
-Awareness workshops country wide for political office bearers and senior management
-Various workshops country-wide on PFMA and treasury regulations for officials
-Workshop and guideline document on in-year management and reporting
-Workshop and guideline document on departmental implementation plans

-Interim utilisation of previous instructions
-Appointment of CFO
-Delegation of powers and duties
-Enhancement of internal audit function
-Risk assessment
-Review of systems/processes/procedures
-Training of managers on generic financial responsibilities
-Strategic planning

-Establish Accounting Standards Board - October 2000
-Human Resource Development Plan - January 2001
-Format Of Annual Budgets - February 2001
-Set Standards For Grap - April 2001
-Strategic Planning - February 2002
-Introduction Of Service Delivery Indicators
Pilot Departments - February 2002
Other Departments - February 2003
-Implementation Of New Systems - April 2002
-Implementation Of Grap - April 2002
-Procurement Reform - October 2002

Listing of public entities (ongoing)
-Workshops with public entities on impact of PFMA (ongoing)
-Publishing of treasury regulations (September 2000)
-Establish an on-line data base for public enterprises (December 2000)
-Additional treasury regulations incorporating principles of corporate governance (March 2001)
-Institute shareholders compacts in all public entities (March 2002)

-Agree that the implementation of PFMA is the key enabler to improve financial management
-Broader steering committee within FOSAD has responsibility to oversee such implementation
-Steering committee convene meetings with reference group (NT,AG,SCOPA) to guide it in overseeing implementation of PFMA-accountability framework (memorandum of understanding between SCOPA, AG and NT on responsibilities regarding PFMA)
-Quarterly written reports to SCOPA on progress with implementation


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