Financial and Fiscal Commission 2014/15 Annual Report

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Finance Standing Committee

15 September 2015
Chairperson: Mr D van Rooyen (ANC) (Acting)
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Meeting Summary

The Financial and Fiscal Commission (FFC) reported that prior year issues were related to irregular expenditure, misstatement of financial statements, and capacity within the Commission. The Committee was taken through performance information on research; policy advice and recommendations; human resource management; ICT development; compliance with legislation and access to alternative sources of funding. The Commission had received an unqualified audit opinion. Its financial performance, medium term expenditure framework (MTEF) allocation, revenue, personnel costs, professional fees and operating costs were covered.

Increased requests from stakeholders had led to challenges in balancing the FFC wage bill against the rest of its activities. Other challenges had been related to the extension of the Commission’s work across all three spheres of government, skills and capacity shortages, an outdated information communication technology (ICT) infrastructure, and long-standing issues related to its leased premises.

Discussion was limited on account of the fact that only two Members --one from the ANC and one from the DA – was present, apart from the acting Chairperson. There were comments and questions about supply chain management, the provincial equitable share formula, depreciation, and the review of the 1997 FFC Act. There was concern about the appointment of Commissioners in general, and particular concern about the regression with regard to the appointment of female Commissioners. Other issues covered were human resource expenditure targets, resignations, irregular expenditure, the wage bill, and the position of the FFC’s current acting Chairperson. Challenges around lease agreements against the background of cost containment, received considerable attention. The implications of the extension of the FFC’s work across all three spheres of government were also discussed.

 

Meeting report

Briefing by Financial and Fiscal Commission
Mr Bongani Khumalo, Acting Chairperson of the Financial and Fiscal Commission (FFC), Ms Ansuyah Maharaj Dowa, Commission Secretary, and Mr Mavuso Vokwana, Chief Financial Officer (CFO), presented the FFC’s annual report.

They said that the prior year’s issues had been related to irregular expenditure, misstatement of financial statements and capacity within the Commission. Three new Commissioners had been appointed. Key issues in the Research and Recommendations Programme Division had been completed. The FFC had hosted an Intergovernmental Fiscal Relations international conference during the period under review. It had tabled a report in Parliament on climate change, household vulnerability and smart agriculture.

The Committee was taken through the Commission’s performance information on research; policy advice and recommendations; human resource management; information communication technology (ICT) development; compliance with legislation and access to alternative sources of funding, among others. The Commission had been given an unqualified audit opinion, with a finding on non-compliance with legislation. The financial performance;, medium-term expenditure framework (MTEF) allocation, revenue, personnel costs, professional fees and operating expenditure were covered.

Increased requests from stakeholders had led to challenges in balancing the FFC wage bill and the rest of its activities. Other challenges were related to the extension of the Commission’s work across all three spheres of government, skills and capacity shortages, outdated ICT infrastructure, and challenges around leased premises.

Discussion
The Chairperson said that he was impressed with the improvements, but there were still challenges around supply chain manangement.

Mr A Lees (DA) remarked that he had a high regard for the FFC. Good work was being done under trying circumstances. He asked about the formula for the provincial equitable share. The North West Province, Limpopo and the Free State were not getting money. The FFC had done a lot of work in this regard. An update was needed.

Mr Khumalo replied that a presentation about the provincial equitable share formula had been made to a budget forum, at which the National Treasury (NT) had been present. Recommendations had been based on a review of the formula. Components had been shifted to where people resided. The process was driven by demographic positions. Money followed people. When transfers were shifted away from a province as people left, the province became poorer. Provinces had to make their own submissions. The apartheid legacy still had an impact. The original formula had a backlogs component which had to be reviewed. It had been changed to the Presidential Infrastructure Grant. It contributed to current challenges, and would be reviewed as soon as possible. A task team from the FFC and the national and provincial Treasuries had been devoted to that. 

Mr Lees noted with concern that Mr Kenneth Fihla had attended only one meeting in the previous year. He had missed his first meeting as a member of the audit committee.

Mr Khumalo replied that the FFC received inputs from people who were employed on a part-time basis. Mr Fihla was employed by Standard Bank and was involved with markets, so he had to spend time out of the country. It had been difficult to synchronise meeting dates with his programme. It was not a permanent feature. Things would be less complicated in the year to come.

Mr Lees asked for comments on the debt ceiling and cost cutting. Cash and cash equivalents were up by R1.6 million, an increase of 61% year on year.

Mr Lees drew attention to anomalies in the annual report regarding dates. Some columns were headed 2013/14 and some 2014/15. He referred to the financial position, balance sheet, and interest received. He asked why no income had been cited for 2015. It had been  R118 000 in the previous year.

Ms T Tobias (ANC) referred to depreciation. The FFC had to provide an assessment of how the economy was structured. The South African Revenue Service (SARS) had been unable to meet revenue collection targets, and the depreciation of the Rand had to be taken into account.

Mr Khumalo responded that it was primarily a SARS issue. The FFC was able to provide information about the economy. The FFC would make a submission after the Medium Term Budget Policy Statement (MTBPS) was tabled. There was a specific unit in the FFC research team that looked into the matter.

Ms Tobias referred to the 1997 FFC Act. She asked if any change to the legislation could be expected in the current year. A quarterly assessment of the economy was part of the FFC role. Other sectors had to be engaged.

Mr Khumalo replied that there had been a conversation about the Act in the previous year. The Committee had recommended in the Budgetary Review and Recommendation Report (BRRR) that the FFC, the Committee and the Minister of Finance had to converse with other stakeholders about the role and function of the FFC, on the basis of experience. There had been a conference at which the FFC role had been reviewed. When Parliament said that it accepted recommendations, the question for the FFC was how to implement them. The Parliamentary Budget Office (PBO) had to be involved in the processing of an amendment bill. He had started a conversation with the PBO. A review of the Act would be informed by that conversation.

The Chairperson remarked that the FFC was falling behind in the appointment of Commissioners. It was difficult for him to comprehend that with the best that was available in terms of required skills, appointments could not be made.

The Chairperson expressed dissatisfaction about the Commission’s gender composition. It had to be explained. There had to be certainty that there were no other options. In terms of government policy, it amounted to non-compliance of the first order. Compelling reasons had to be given. The Committee had to be satisfied about reasons, as it could not align itself with what had transpired without a proper explanation.

The Chairperson noted that 40% of the budget went to human resources. The FFC was human resource driven. He advised the FFC not just to make appointments without its own targets for expenditure in that area. He asked about reasons for the three resignations. He did not wish to read in the media that people were unsatisfied with their work conditions. He asked if interviews had been conducted, and the findings thereof.

Mr Khumalo replied that two of the resignations had been senior managers who wanted to go into private business. They would remain in touch with the FFC. The other one was currently in the Presidency. The resignations could not be ascribed to dissatisfaction with what the FFC offered. The third had joined the University of Johannesburg. The FFC would still be able to work with him. He was registered for a PhD degree. The FFC provided opportunities for PhD studies. A Commissioner had recently returned from four years’ study in the US.

The Chairperson asked about the status quo with regard to accommodation problems. He asked for comments from the Committee researcher.

Mr Khumalo replied that it was a challenging matter. The CFO had spoken about it at a meeting two days earlier. There had been a meeting with the Department of Public Works (DPW) and the landlord. The FFC was just a third party. The NT was doing its best to coordinate the process. There had been some movement towards reconciliation.

Ms Bridgette Diutwileng, Committee researcher, said that she had looked at the draft report, and there had been issues around financial statements, but they had been rectified in the new report received that day. She referred to supply chain management, and the financial position in the previous year. It had been the main reason for the under-performance of the FFC in the previous year.

Mr Khumalo agreed that the printers had erred.

The Chairperson asked about human resource targets.

Mr Khumalo replied that if the FFC had all the human resources needed, it would prefer to move away from using consultants. The FFC preferred not to engage consultants, as it affected the wage bill. If the FFC had everything it needed, the percentage could be would be 70 to 75 percent. FFC work was human resource intensive.  Specialists were sometimes needed, and they did not come cheaply. 60 percent was good. To be able to do its work, the FFC needed 50 percent.

Ms Tobias remarked that the extension of the FFC had created a lot of work. It had affected personnel and the wage bill. The NT had to be engaged. The FFC could do well to employ retired people who were prepared to take a lower wage. She wondered what made the environment so bad that women did not want to work in it. The SA Reserve Bank (SARB) involved women. An analysis was called for. The low number of women employed by the FFC suggested that women did not have the capability. There had to be active recruitment. It did not promote the FFC image. A 50/50 distribution was the ideal.

Mr Khumalo replied that in the FFC secretariat there was a preference to appoint female or disabled persons. Progress had been made in the previous year. Women were being targeted for internships. There were currently four female interns to one male. One of them had successfully applied for a post at Unisa. The FFC had control over the appointment process for the secretariat, but not over the appointment of Commissioners. He was asked for names and had opted for diversity.  But the stakeholders in the appointment process had their own list, and could choose who they would recommend. The appointment process was complex. Nine premiers and local and national government made nominations. The process could be sensitised. The FFC had been doing well with appointing women, but recent appointments had caused regression.

Mr Lees said that he understood about the printers. There had been no interest income in the current year, despite the increased cash reserves. He asked how irregular expenditure had been dealt with, and how amounts that had not been recoverable and not condoned had been dealt with in the books.

Mr Vokwana replied that there were NT and Auditor-General (AG) regulations with regard to what could be condoned. The process was shown on page 75 of the annual report. With regard to irregular expenditure, the focus was on non-compliance and value for money in terms of services rendered.

Mr Khumalo noted that the issue of printed documents was between the FFC and the printers. The printers would be spoken to about damage.

Mr Lees pointed out that the numbers in the table related to employees had been incorrectly added up.

He drew attention to the position of Mr Khumalo, who had been in an acting Chairperson capacity for seven years. During that time he had also had to fill the position of Deputy Chairperson. The previous Parliament had been unable to resolve the matter.

Mr Lees asked if there had been no response from Parliament to the conference report.

The Chairperson said that it was a confidential report.

Mr Khumalo responded that the report had been was submitted to the Chairpersons of the Standing Committees on Finance and Appropriations.

The Chairperson referred to fiscal consolidation and cost containment, as it related to the FFC accommodation issue.

Mr Khumalo replied that the FFC was of the view that money had to be given to it, but no money had been received from the DPW. The DPW acted on behalf of the FFC for accomodation. There had been a protracted running battle with the DPW, which the FFC thought the Treasury could resolve. When he was appointed in 2008, one of the first tasks he had been given was to address the problem. The FFC had failed to address the problem. The lease had expired in the previous year. Currently, there was a month to month lease. The FFC was at the mercy of the landlord. The FFC had held a different view to the DPW about where money had to come from and where it went, and the matter had never been resolved. The FFC had spoken to the current and previous Directors General (DGs). Parallel to that, the FFC had sat in a forum with others housed under the Ministry of Finance. It had to be possible for different entities to utilise each other’s facilities, in the interest of cost containment. The Public Investment Corporation (PIC) was housed at a substantially lower rate, and had agreed to make a building available. The FFC was in charge of the lease of the Cape Town office. But there had thus far been no option but to continue with the DPW. He had held recent discussions with the DPW Director General, who had asked if the FFC wanted to stay on in Midrand or move to Pretoria. He said that he would not mind the shift to premises comparable to what the PIC had offered. The NT was trying to assist the FFC. Issues between the DPW, the FFC and the landlord had to be spelled out.

Mr Khumalo asked Prof Steytler, chairperson of the research subcommittee, to comment on research.

Prof Steytler said that research was the core business of the FFC. The FFC was in competition with the market, but to a remarkable level it was able to rely on its own researchers. The FFC currently had skilled people who could produce. Given the demand for high quality, the FFC required the best. The FFC was looking towards retired professors who could assist at lower rates. The FFC was linking up with universities. Results could stand up to scrutiny. The FFC was part of a competitive peer review and published in prestigious journals. The FFC could produce its own people.

Ms Tobias referred to the extension of FFC work to other spheres of government, due to its extended mandate.

Mr Khumalo replied that in the past the FFC was mostly concerned with allocations being distributed equitably across provinces. Those concerns came to be known as first generation issues. However, at the ten- year celebration of the FFC, the then Finance Minister, Mr Trevor Manuel, had raised a new issue. The focus on allocation had still been most important at the time, but Mr Manuel had drawn attention to the effectivenes with which resources were utilised. It would not do to have enough money when there was waste and under-spending. The new concerns came to be known as second generation issues. There had to be value for money, and money had to go where it was best spent. There had to be a review of the local government fiscal framework, and gaps had to be filled. The expansion of FFC work implied much more research work. He had asked the research director to do some “number crunching” with regard to workloads. The local government unit had the biggest workload. When an equitable share was withdrawn, for instance, one had to go back and adjust. The FFC had a programme for the year, but could not ignore ad hoc requests. Workloads were unevenly distributed. The FFC had not broken down under the workload, but it could happen.

Part of the work of the FFC was to structure research programmes to get leverage. A memorandum of understanding (MOU) had been concluded with the University of the Western Cape (UWC), who would host a conference on BRICS within two to three weeks. There had to be leverage with special institutions. Engagement with the Human Sciences Research Council (HSRC) could lighten the load of researchers. Though resources were scarce, the Ministry of Finance was supportive. Value was attached to the FFC’s work.

The Chairperson noted that the accommodation challenge was urgent from a financial point of view. Departments had to be encouraged to institute cost containment measures. There had been a similar situation with Statistics SA, which was currently renting its own building. The Committee was constitutionally mandated to encourage a solution.

The Chairperson concluded that the report had been well received, but there were urgent issues.

The Chairperson adjourned the meeting.

 

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