Implementation of Public Finance Management Act: briefing

Meeting report

STANDING COMMITTEE ON PUBLIC ACCOUNTS
23 September 2003
IMPLEMENTATION OF PUBLIC FINANCE MANAGEMENT ACT: BRIEFING BY TREASURY

Chairperson: Mr F Beukman (NNP)

Relevant documents
Treasury Presentation on Implementation of Public Finance Management Act
Resolutions passed by Committee

SUMMARY
The presentation by Treasury outlined its implementation plans, the plans for government departments and constitutional institutions as well as the survey results for each of these. During the discussion on the presentation, Members sought clarity on the measures put in place by Treasury to ensure that each department's accounting officer complies with the Act, whether government has made sufficient progress in implementing the Act, whether the South African Management Development Institute (SAMDI) was involved in the training. Treasury indicated that it was providing the training and it had told SAMDI that it must prioritise financial management training, but there appeared to be a problem with the structures within SAMDI. Also asked was whether it would be wise to hand over the functions of the State Tender Board to government departments at this time. The Committee suggested that Treasury seriously consider the imposition of sanctions on those government departments that fail to comply with the PFMA. It requested clarity on Treasury's plans to ensure greater oversight over public entities and their compliance with the PFMA and the reasons for the poor compliance with the PFMA by the Chapter 9 constitutional institutions. Treasury indicated that Parliament should exercise a stronger oversight role over the constitutional institutions.

MINUTES
Introduction by Chairperson
The Chair informed Members that the Compensation Commissioner on Occupational Diseases would not be addressing this Committee today as planned, due to family bereavement of the Accounting Officer.

Briefing on Implementation of Public Finance Management Act (PFMA)
Mr N du Plessis, Treasury: Acting Accountant-General, conducted the presentation (document attached) which outlined Treasury's implementation plans, the plans for government departments and constitutional institutions as well as the survey results for each of these.

Discussion
The Chair asked Treasury to explain the extra measures it was putting in place to ensure that those accounting officer of government departments that were not adhering to the requirements of the PFMA, were made to do so.

Mr du Plessis responded that there was a responsibility on both the national and provincial Treasury departments to enforce implementation of the PFMA. National Treasury should act more stringently that it has been doing up to this point. It would not be possible to include a provision in the legislation which would make it an offence should an accounting officer not fulfil his responsibilities. He stated that Treasury would sharpen its PFMA implementation initiatives, and the Treasury Director-General has already instructed that detailed accounting practices, policies and processes be put in place. This was not the intention at the commencement of the process, because Treasury was of the view that government departments should be doing this themselves.

He stated that the processes and practices vary from department to department, and Treasury has tried to avoid the situation which occurred under the old Exchequer Act in which it prescribed in detail all the processes and practices within a department. The clear indication was that only 50% of the government departments were abiding by the requirements, and this forced Treasury to issue those practices and procedures as a best practice guideline. Mr du Plessis agreed that Treasury had to sharpen its enforcement role, perhaps via hosting workshops on matters such as Generally Recognised Accounting.Practices (GRAP). The provincial departments should do the same.

The Chair stated that the Chief Financial Officer (CFO) of a government department did not appear to involve the accounting officer much in the financial affairs of the department. He proposed that this area be focused on to improve involvement of the accounting officer in the financial management practices.

Mr du Plessis agreed and stated that Treasury has set specific indicators for the compilation of monthly and quarterly reports. A pro forma process had been introduced for the accounting officer himself to sign off on those performance indicators. Treasury believed that it would secure the involvement of the accounting officer in this way. It would however be difficult because the accounting officer would only be signing off on them, and would not really be acting on the efficiencies.

Treasury would attempt to strengthen the accountability issue in much greater detail in the Public Finance Management Act Amendment Bill, as far as the role of the accounting officers and their performance contracts are concerned.

Mr L Chiba (ANC) suggested that the issue of best practice guidelines would not be sufficient to improve the present levels of compliance, and proposed that Treasury seriously consider the imposition of sanctions on such government departments.

Mr du Plessis replied that this was definitely the case. He emphasised that the low percentages reported by the study were conducted against the Normative Measures document, which set a best practice standard. This was not however a legal requirement but merely a best practice guideline. He stated that the presentation thus indicated that high percentages of government departments were complying with the legal requirements of the PFMA, whereas the percentages for compliance with the best practice standards were low. Treasury would attempt to address this again via the guideline documents and by hosting workshops with government departments on these issues.

Treasury would also have to strike a balance between allowing government departments to manage their own finances, with that of prescriptive practices laid down by Treasury itself. Mr du Plessis stated that it was clear that a few matters would have to be laid down as legal requirements in the detailed accounting practices, policies and processes. The problem created here was that it was not certain whether government departments would comply with these legal requirements when they failed to comply with the much less prescriptive guidelines. He stated that it was not only about the responsibility of Treasury to act against accounting officers and officials within departments, but it was also about the relationship between the executive authority and the departmental head. Mr du Plessis suggested that this Committee should also be brought on board as to the real issues at work, so that it too could act against such accounting officers.

Mr Chiba asked Mr du Plessis to explain what this Committee should do to "beef up the performance" of the government departments.

Mr du Plessis responded that this was a difficult question to answer. He could not see any alternative but a clear indication from an audit report to Parliament, which clearly indicated that the accounting officer had not discharged his responsibilities properly. In such a case this Committee would probably have to recommend to Parliament that an executive authority would have to act against the accounting officer.

The Chair approved of this suggestion, and stated that this Committee had already done this on a previous occasion.

Mr B Bell (DA) asked Treasury to indicate its honest opinion on the progress made thus far in implementing the PFMA. It appeared that the initial stages of the implementation had gone well, but the implementation of the detail seemed to be a problem. He stated that he disagreed with the imposition of sanctions, because it simply did not work in practice.

Mr du Plessis replied that the report did contain negative aspects of the PFMA implementation, but this must not create the impression that the entire situation is a negative one. He reminded Members that there were many success stories involving government departments that were abiding by the requirements of the PFMA.

He stated that government was doing quite well as far as compliance with the PFMA and its regulations were concerned, but there were problems with the target quality improvements. Performance evaluation and its outputs and outcomes was a much more long-term issue, and Treasury was of the view that this would be achieved in eight to ten years. Mr du Plessis stated that Treasury was also responsible for putting in place management systems, and it would hopefully address this system in early 2004 via the detailed master systems plan. Government departments were experiencing problems with financial support, and effective performance measurement would not be done if the outputs were not properly costed. These were however longer-term issues.

Mr Bell asked whether the South African Management Development Institute (SAMDI) was involved in the training measured in the presentation.

Mr du Plessis responded that a Cabinet decision was passed very recently which stipulated that SAMDI would be the only government institution responsible for the co-ordination of training within government departments. Treasury ventured into the evaluation process of service providers because a problem was created by institutions who offered PFMA implementation courses without the proper co-ordination, and no assurance was given that the course was value for money. This responsibility was not taken up by SAMDI, and Treasury thus reached an agreement with SAMDI that Treasury itself would provide this function. It was agreed that it would take over this responsibility from Treasury when SAMDI had the necessary structures in place, because providing training was not a function that fell within Treasury's mandate.

He stated that a similar arrangement was entered into with SAMDI with regard to the presentation of courses. A provision was included in the service level agreement with the Institute of Public Finance and Auditing (IPFA) that required a Memorandum of Understanding to be concluded between IPFA and SAMDI regarding SAMDI's role and responsibility in co-ordinating training.

Mr du Plessis stated that a "straight answer" would be that Treasury by itself, together with its arrangement with IPFA, was currently performing functions that SAMDI should properly be performing. He stated that Treasury has already indicated to SAMDI that it must prioritise financial management training, but there appeared to be a problem with the structures within SAMDI.

Mr Bell asked whether government was really ready to hand over the State Tender Board functions to government departments, because the presentation indicated that government departments were not performing this function efficiently

Mr du Plessis replied that government departments have no option in this regard because the PFMA expressly requires accounting officers to implement efficient and effective procurement systems. Failure to implement the supply chain management regulations would prevent the department from dealing with its own procurement functions. He stated that a very strong monitoring component has been built into the supply chain management regulations, which would be issued soon. Mr du Plessis reminded Members that the preferential procurement policy legislation was an important factor in the procurement of goods and services, and this would have to be monitored as well. It is hoped that Treasury would deal with the problems as and when they arise.

Ms K Mothoagae (ANC) asked whether the risk management plans applied to regional offices as well, and not only to national departments.

Mr du Plessis responded that this applied to the Department as a whole. Proper risk management could not only be conducted by the head office of the Department, because it would also have to address the specific problems and risks within the regional offices as well. It was for this reason that Treasury regarded risk management as quite an important issue. Treasury had a detailed risk management assessment in mind, and this would be dealt with via the guideline document and proper training. Risk management would also be included as one of the courses to be offered to government departments by IPFA.

Ms Mothoagae stated that it was learnt from the recent situation with Statistics South Africa, that there was a vast difference between the work done by the internal audit committee of government departments and the official in charge, as though the work done by the internal audit committee was being disregarded. She asked whether Treasury was aware of such problems, and whether government departments were aware of the functions of the audit committees.

Mr du Plessis replied that he was not fully aware of all the issues involved in the Statistics South Africa situation. The aim was to have a good working relationship between the audit committee and the accounting officer, because the audit committee would make recommendations to the accounting officer which would actually assist him with the internal controls of the department as well as the implementation of the PFMA.

Ms Mothoagae stated that government department's oversight function over national public entities was very minimal, and some entities were not even aware that they have to comply with the PFMA.

Mr du Plessis agreed that this was a problem. Treasury had indicated that, although the percentages indicated in the presentation were very low, there was definitely an improvement during this year in the compliance with the PFMA. This had been reported to Cabinet, and it has taken a very strong resolution regarding the reporting requirements of public entities. There was definitely an improvement in the oversight role played by government departments.

He stated that apart from these measures, the audit of all public entities was on its way and consisted of three phases. The first phase involved the gathering of information from public entities, and the second involves the re-classification of all public entities to bring them in line with the provisions of the PFMA. The third phase dealt with the revision of legislation to accommodate all the problems that have been identified with public entities, and to improve the legal framework regulating public entities.

One of the issues that could arise as a possible amendment to the current regulatory structure would be the designation of the accounting officer of the public entity. One view would be that the accounting officer of the relevant government department would be responsible, and it is hoped that some of the problems with public entities would be addressed in this way.

Ms Mothoagae stated that a very serious problem was sill being experienced with regard to the division of revenue and expenditure, especially regarding the transfer of funds.

Mr du Plessis responded that the slide in the presentation referred only to the transfer payments made to public entities and institutions outside government, and it did not necessarily address the transfer of funds from a national to a provincial department.

Ms Mothoagae replied that her question would then fall away, because it was aimed specifically at government departments.

Ms Mothoagae stated that there were several government departments that were experiencing severe problems with providing the necessary supporting documentation, such as the postings to suspense accounts..

Mr du Plessus replied that these did appear to be problematic within government departments. Treasury was currently engaged in issuing instructions with regard to suspense accounts to avoid the carrying over of amounts from one month to the next.

Mr E Vezi (IFP) contended that some form of sanctions would have to be applied if government departments continued to avoid compliance.

Mr du Plessis agreed with Mr Vezi. He stated that it was important to remember that there were various levels of responsibility in taking action against officials. The accounting officer would take action against officials who do not execute their mandate properly, and this would not necessarily result only in the transfer of the official to another department. There would surely be a responsibility on both the national and provincial Treasury departments to take action should the accounting officer fail to take action against such an official, and there would also be a huge responsibility on the Parliamentary Committee as well.

Mr Vezi asked whether it would be wise to abolish the State Tender Board at this point, in view of the capacity problems being experienced by government departments.

Mr du Plessis replied that this would be dealt with by the PFMA amendments during the next session of Parliament. He believed that the State tender boards had already been abolished in some provinces. Yet by abolishing the State tender board and replacing it with the new supply chain management regulations, Treasury would still contain a component that would deal with the transversal types of contracts. This unit within Treasury would also be able to assist those government departments that did not have the necessary capacity to deal with the tenders.

Mr Vezi asked Treasury to explain how it would address the problems with the variation of deviation in excess of cash flow projection, as indicated in the presentation. He stated that this was a serious problem, because cash flow was really the life blood of any undertaking.

Mr du Plessis responded that this issue had been identified by Treasury during the survey, and it would be one of the issues that would be covered by the practices and procedures to be issued to government departments to ensure that their accounting and reporting procedures are improved. This could also be included as a specific training issue for government departments. All the training could be provided, but the situation would only really improve when the officials themselves begin to abide by the PFMA.

Mr Vezi stated that his constant concern was the large amounts of money lost by government departments via prescription, at times through gross negligence. He asked what Treasury was doing to address this problem.

Mr du Plessis replied that Treasury's regulations on the recovery of loss management does fully provide for an accounting officer to take action against the official responsible for allowing the claim to prescribe. This then allowed Treasury to recover the money from the official responsible for the prescription. He stated that it is important that action be taken against such officials.

Ms Mothoagae noted that some public entities have not even tabled their annual reports or, if they have tabled them, those reports have still not been made available. She asked whether Treasury had a role to play here.

Mr du Plessis responded that the problem with the current wording of the PFMA is that those public entities would only fall within the scope of the PFMA once they have been listed. They do not have to table a report if they are not listed. He stated that there should surely be a penalty for a public entity that has not yet been listed when it actually should be. The PFMA imposes a very strict penalty here by stipulating that such public entities cannot retain any revenue, and all their revenue has to be deposited with the Revenue Fund. Mr du Plessis stated that the best he could do in this case was to receive the information on the specific public entities referred to by Ms Mothoagae and to follow up on them, as Treasury would in any event have to follow up to ensure that they are listed.

Mr Bell asked Treasury to comment on the fact that the implementation of the PFMA by the constitutional institutions appeared to be worse than the larger government departments, despite the fact that those institutions were small and were not heavily manned.

Mr du Plessis replied that the constitutional institutions were not dealt with in the same manner as the government departments, because there was a special relationship between the constitutional institutions and Parliament itself. He stated that a stronger exercise of Parliament's oversight role over these constitutional entities would be welcomed. Both the government departments themselves, as well as the public entities under that specific government department, have to submit their reports to their executive authority. This differs from the constitutional institutions which are required to table their reports directly to Parliament itself, and for this reason Parliament should exercise a stronger oversight role over the constitutional institutions.

Treasury does include the constitutional institutions as part of its Chief Financial Officer (CFO) Forums, where PFMA implementation issues are discussed with those structures. Treasury does try to treat them in the same way as it does the constitutional institutions, but the problem with the oversight role remains.

In conclusion Mr du Plessis informed Members that Treasury was currently updating its normative measures document in consultation with the Office of the Auditor-General, so that it could be made compatible with their capability modules. Treasury will submit the next report by the end of this financial year, and it would then be able to compare the contents of the current report with the outcomes of that report. Treasury would then be able to gauge whether it has improved on the issues raised, and in this way it would contribute to the financial management of government departments.

Adoption of Resolutions
The following Resolutions were adopted by the Committee (document attached):
Attorney-General (AG)
SADCOPAC Constitution
South African Human Rights Commission (SAHRC)
LANOK
National Electronic Media Institute of South Africa (NEMISA)
National Student Financial Aid Scheme (NSFAS)
People's Housing Partnership Trust (PHPT)
Represented Political Parties' Fund (RPPF)
South African National Broadcasting Corporation (SABC)
South African Medical Research Council (SAMRC)
SENTECH
State Information Technology Agency (SITA)
Thubelisha Homes
Truth and Reconciliation Commission (TRC)
Universal Service Agency (USA)

The meeting was adjourned.