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FINANCE PORTFOLIO COMMITTEE, FINANCE SELECT COMMITTEE: JOINT SITTING
15 May 2002
FINANCIAL & FISCAL COMMISSION BUDGET: BRIEFING
Co-Chairpersons: Ms Hogan (ANC), Ms Mahlangu (ANC)
Presentation on the Budget of the FFC for 2002/2003 - PowerPoint Presentation
Presentation on the Budget of the FFC for 2002/2003 - Full Submission
The Chairperson of the Financial and Fiscal Commission briefed the committee on its budget for 2002/03. He was satisfied with the allocation received and submitted that the process was flexible enough for the Commission to request additional funds during the fiscal year should the need arise.
Mr Mathew Morobe, Chairperson of the Financial & Fiscal Commission (FFC), presented the briefing.
He asked if the FFC is adequately resourced to fulfil its major responsibilities as mandated by the constitution.
Looking at the budget, the allocation for 2002/03 is R9 038 000 increasing to R9 670 000 in 2003/04 and R10 259 000 in 2004/05.
Personnel Expenditure takes up 57% of the budget. The chair said that this was a critical element because of the high level of skills that are required. For this reason it was the core expenditure.
One of the factors that will influence the budget over the following years is the need to increase the rate at which the FFC interacts with the legislature local government and other stakeholders. The chairperson said that it should not be seen that the FFC is just interacting with Treasury.
The Commission recommended that over the next three years greater attention should be spent on local government. The budget will have to be reviewed in this regard.
The MTEF allocation is further influenced by specific focus areas of the FFC in terms of the Intergovernmental Fiscal Relations Act. It is important to understand these mandates and how to fulfil them. For this reason the FFC has adopted a conservative approach and the budget increases at a lesser rate than other budgets in the system. He submitted that the FFC recognised that the allocation must be used for quality and effectiveness.
Institutional factors that effect the budget are the introduction of legislation like the Public Finance Management Act (PFMA) and the Access to Information Act.
In terms of the FFC Act a request for additional funding can be made in the fiscal year. The request must be motivated and must contain clear guidelines. He submitted that the system is not inflexible and therefore the FFC is never too concerned about the allocation.
Budgetary Pressures Anticipated for 2002/2003
The requirement of internal audit is an obligation of the PFMA. The FFC is currently in the process, together with National Treasury, of finalising the procurement of the services of a service provider for the operationalisation of an internal audit unit. The sharing of the services for internal audit with National Treasury has been approved by the Accountant-General. The FFC has already established an Audit Committee and internal audit charter that would be the basis of the shared service arrangement. It has already concluded a risk assessment exercise that will inform a three-year audit plan to be proposed by the internal audit for ratification by the Audit Committee of the FFC and the Commission. The cost of an internal audit unit will result in new costs not catered for in the 2002/03 budget. The FFC intends to cope with this through savings in other expenditure items and crafting an internal audit plan that spreads the cost over the next three years. This cost will be included in the FFC's MTEF Submission this year for fiscal years 2003/04-2005/06.
The Promotion of Access to Information Act will also add pressures on the budget for 2002/03. Full compliance by organs of state is expected by August 2002. A manual of all information held by the FFC will have to drawn up, published and gazetted. Re-orientation of filing systems and the website for public access will add pressure on the current budget.
Keeping up with market related salaries has posed a problem for the FFC given the rapidly changing remuneration landscape, particularly where it has the effect of attracting skilled personnel away from an organisation resulting in skills drain. For the FFC this has posed a problem in attracting and retaining skilled personnel. The FFC intends to, on a regular basis, review its salary structures and respond positively in its endeavours to retain skill staff given the investment it has already made in skills development and training of staff.
A further obligation is the promotion of Employment Equity and the FFC's plan thereof pays particular attention to affirmative action. Vacancies and the restructuring of the Secretariat will be reviewed in terms of the opportunities they present for promoting existing staff into higher level job categories. This will entail pressure on salary expenditure item.
The Commission has embarked on the streamlining of the structure of the operations of the
Commission. A research subcommittee of the Commission will be finalised soon. It is intended that this Sub-committee of the Commission meet regularly throughout the year to oversee the recommendations and research programme. The FFC wishes to adequately remunerate the members of the Subcommittee for their participation.
In addition, the restructuring of the functions of the Secretariat will ultimately entail reviewing job-profiles and positions with a view to efficiency and effectiveness and also salary adjustments commensurate with adjustments to these profiles. This process will be completed at the end of May 2002.
The 2002/03 budget catered for an annual cost of living increase of 6% for the salaries of existing staff. Depending on the trends in inflation as of July 2002, it is expected that, if necessary, this percentage may have to be reviewed.
The 2002/03 budget catered for the expenses of Commissioners (14) serving on the FFC as at September 2001. Recently, Commissioners have been re-appointed by the President in terms of existing legislation with the first round of appointments being made for national appointees. Provincial appointees are in the process of being finalised. It is expected that after the appointment process is complete, the FFC will have a full compliment of 22 Commissioners for year 2002/03. The Commission anticipates added pressure on the budget arising from expenses for 22 Commissioners such as remuneration for attending meetings, workshops, hearings, travel, accommodation, postage of documents and minutes, attending sub-committee meetings, etc.
Pressure on the budget is also expected from an increase in consultant fees for procuring the services of international experts given the fluctuations in Rand / dollar rates. This pressure on the budget will, in some cases of international expertise, be offset through obtaining donor commitment to carry part of the costs of providing such expertise.
The four important objectives / outputs of the FFC
These include the annual submission, the annual submission on the Division of Revenue Bill, In year responses to requests from organs of State as per mandates provided for in the relevant legislation and the submission of the annual report and audited financial statements.
These objectives and outputs are supported in the following way:
Financial Management - that includes the establishment of the internal audit unit, implementing a three year audit plan giving effect to the PFMA requirements and the corporate plan 2003/04.
Stakeholder participation - that includes feedback from the Parliamentary hearings on the annual submission, consultation on the draft annual submission of the vertical division of revenue, participation at key meetings like the Budget Council, Budget Forum, Minmecs etc,
and Engaging of technical teams and liaison with relevant national and provincial departments and SALGA.
Developing a communication strategy, upgrading the communication technology and implementing the Access to Information Act.
Human Resource and Capacity Building - implementing the Employment Equity Plan, the Skills development and career path plan, a management performance system and conducting team building exercises.
External Relations - Consolidate relationships with international bodies, partners and donor agencies to involve international expertise and to strengthen and complement policy and research at the FFC.
Approved Adjustment estimate 2001
A total allocation of R1 617 000 was received in January 2002. R817 000 was spent in the last fiscal year. In 2002/03 the remaining R800 000 will be spent on the IT server network. Because the IT procurement is such a minefield it was decided to proceed with caution to ensure the purchases are suited for the purpose it is intended to serve.
The Chairperson concluded by saying that the amount of money received is not the issue but rather the coming up with a plan to justify the allocation. He reiterated that if money is needed the system is flexible.
Prof. Turok (ANC) commented that he talked to the Dean of Social Sciences at UCT who had complained about research conducted at UCT that had nothing to do with the needs of the country. He asked if the FFC tried to establish a network of research support with universities. He added that such a relationship would be useful to the FFC and the University.
Ms Taljaard (DP) referred to the extent of the research challenges and the modest increase in the research allocation and asked if there was a possibility of aligning some donor funding with a research chair at a university.
Mr Morobe replied that he had spoken to each Vice-Chancellor, looked at their strategic plans and found that there was a pre-occupation on issues that did not have the same priority as this discussion. He recognised that it was a real problem and said that he had made the point 4 years ago. The FFC has never been approached by a university to ask to form a partnership on work involving intergovernmental fiscal relations. He said that the FFC had a relationship with Afric and also students to internships at the FFC. The FFC is looking to establish a network on intergovernmental fiscal relations so that there could be more discourse. He added that the FFC also uses Professors to do research on their behalf but as yet there are no formal structures.
Ms Taljaard commented that research capacity is important because parliament relies on the FFC for advice and guidance. It is important that the FFC receives sufficient funding to discharge its constitutional obligations especially in respect of the legislature.
Ms Maabe (ANC) asked if the FFC has interacted with the department of education to get the curriculum to focus on research as well.
Mr Morobe replied that he had worked on the restructuring of higher education and the question of research had been discussed. He said the research at some universities is very weak and commented that a university is not much without research. The chairperson added that this does address the issue but not through the FFC but through his other involvement.
Ms Hogan asked what kind of relationship the FFC had with Statistics SA whose outputs are important for the FFC's work on the division of revenue.
Mr Morobe replied that that there is an open relationship. For the 1996 census there had been significant discussion from the point of view of the information needed by the FFC for the division of revenue formula. Discussions do tale place but it is not formalised.
Mr Moloto (ANC) asked what specific programmes were the FFC undertaking for this year.
Dr Fast (FFC) replied that in terms of the local government programme, the FFC has for the past two years commented on the equitable share to local government. This will be followed up. More specifically fiscal capacity will be looked at because a formula cannot ignore the fiscal capacity of local government. The cost of delivery of services will also be looked at but this work will only be completed around 2005/06. The FFC will look to differentiate municipalities because different municipalities have different capacities. Another focus area is municipal infrastructure and the transfer thereof.
Mr Van Gass (FFC) commenting on the work in respect of provinces said that the capacity to raise own revenue will be looked at. There will be a focus on expenditure related items. The work on Adult Basic Education and raining and Early Childhood development will be continued. Another area of focus is provincial capital grants.
In respect of national government there will be an overall evaluation of the Intergovernmental Fiscal Relations System, a focus on contingency reserves in respect of disaster management and debt servicing capacity, the National Social Services Agency and Comprehensive Social Security.
Mr Morobe added that any work that impacts on the revenue sharing formula must begin this year so that it could be put on the table next year to be factored into the budget cycle of 2004/05. Work is done in the outer years to review the formula. Other work that the FFC is obliged to do as it arises is to comment on powers that are given to municipalities or any new proposed taxes in terms of the Provincial Tax Regulation Process Act.
Mr Nene (ANC) asked to what extent are the international consultants used.
Ms Joemat (ANC) asked if and how the international consultants were used to transfer skills to our researchers to broaden the skills base in South Africa.
Mr Morobe replied that the FFC has relationships with a number of experts from many different countries. the wide range of consultants is very expensive and interesting ways are looked at to fund their work. The way the work is carried out is that FFC researchers lead the project. The international consultants are not necessarily in South Africa. Technology makes it possible for researchers in various countries to work on the same project. Researchers also go on training in other countries.
Ms Taljaard referred to the constitutional amendment that decreased the number of commissioners from 22 to 9 and said that if the FFC was not concerned that all 9 provinces would not be represented. She asked how the FFC would be structured to source the views of provinces.
Secondly. She asked for the breakdown of salaries to see if there is a cost saving due to the decrease in number of commissioners and how the savings are channelled to other operations.
Mr Morobe replied that the size of the commission was discussed internally. The FFC is not a representative body and commissioners are not obliged to report back to the provinces that nominated them. In terms of best practice it would be appropriate for commissioners to report back to provinces who nominated them. Once in the commission all work is done in terms of the constitution and business cannot be carried out in a way that seems to favour one sphere of government over another. The FFC reports to parliament and it is the members that can engage with the advice and recommendations in their constituencies. He added that the FFC must be measured by the quality of the advice and the recommendations.
In respect of the cost saving he said that any savings would be taken up by the re-arranging of the affairs of the FFC but did not have any disaggregated information at the moment.
Ms Taljaard commented that parliament needs to develop a system to go through the quarterly reports. In respect of the internal audit function, she asked what where the cost implications thereof and if the outsourcing was in compliance with the PFMA.
Mr Morobe replied that the FFC has negotiated with treasury to share the outsourcing function. This way a better rate could be obtained. It would be compliant and has been authorised by the Accountant-General.
There were no further questions.
Ms Mahlangu summarised as follows:
the Committee needs to visit the FFC because it has never done this;
a discussion is needed around research capacity and co-operation between the FFC and universities at a later date;
the committee should try to engage with the quarterly reports and develop a mechanism to ensure the information is best utilised and
if quality research is wanted from the FFC then the resource allocation needs to be looked at.
The members were happy with this summary.
The meeting was adjourned.
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