Public Finance Management Act (PFMA) implementation: briefing by Treasury & SAMDI

Public Accounts (SCOPA)

29 August 2007
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Meeting Summary

A summary of this committee meeting is not yet available.

Meeting report


29 August 2007

Co-Chairpersons: Ms L Mabe (ANC) Mr T Godi (PAC)

Relevant documents
Progress Report on Implementation of Public Finance Management Act by Accountant General
Building Capacity for Effective Financial Management in Public Service: SAMDI presentation

Audio recording of meeting

The Accountant General spoke on the implementation of the Public Finance Management Act and its Regulations by Departments. He said the Act was being adhered to more closely each year, but the levels of adherence were not satisfactory. He had interesting comments about the misinterpretation of the role of internal auditors and the incorrect deployment of accountants, amongst other trends. Generally he could see progress and targets were being attained, but there were also good and proper reasons why the standards were not being implemented. He outlined a diagnosis and not a justification for certain poor and unacceptable standards. Generally the poor standards were the result of the lack of a work ethic and a lack of management and leadership rather than due to the perennial excuse of lack of skills.

The presentation by the South African Management Development Institute (SAMDI) outlined the attempts to collaborate with the three tiers of Government to train officials to have an understanding of, and implement, the PFMA. SAMDI emphasised that its intention was not to take over or replace but rather collaborate with the Sector Education and Training Authorities. Members were concerned that attendees at training courses were the incorrect attendees, having insufficient authority to thereafter implement the policies and strategies to which they had been exposed. Alternatively attendees treated attendance at the course as relief from their departmental duties and were not diligent in their attendance at, or attentive to, the courses presented.

Implementation of Public Finance Management Act (PFMA) and Regulations by Departments
Mr Lesetja Kganyago, Treasury Director General, introduced the Accountant General.

Mr Freeman Nomvalo, Accountant General, said that this was the eighth presentation on the PMFA before this Committee. He personally was of the opinion that the former constant references to skills capacity and shortages had been overplayed and that the role players concerned should now accept accountability, and responsibility, for their actions or lack of actions, as the case might be.

Further he urged all persons concerned to study, and make use of, the reports by the Auditor General (AG) This was the only way that the Administration of South Africa could and would be improved so that there was in fact service delivery. He added that there were improvements as almost without exception, reports were being provided more timeously and there was greater adherence to budgets but in both respects there was room for greater improvement, even by the best role players.

The major challenges remained internal audits, risk management, internal control and performance managements.

Internal Audits
Mr Nomvalo said that it seemed that there were some role players who did not understand or take the importance of internal audits sufficiently seriously. Internal audits themselves frequently required qualification in respect of internal control. He was of the opinion that the Internal Auditors should become proactive, rather than reactive, and insist on compliance by the Departments. On the other hand some Departments were complying with their Internal Auditors but the question arose was this effective compliance with the PFMA Act in the light of the Reports by the AG. He conceded that there were many vacancies in many Departments but he added that the role of the Internal Auditor was erroneously interpreted. He illustrated that a receptionist at the front desk could dispense receipts on production of payments, and at the end of the working day collate the amount of money received, and balance such against the receipts issued and the total of the receipts issued, and similarly collate these figures weekly, fortnightly, and monthly. It did not take an auditor, or even a graduate, to perform such function.

He was of the opinion that there was a misallocation of resources because either the function and purpose of internal auditing was not properly understood or the persons appointed as Internal Auditors were not appointed at the appropriate level with the authority their positions demanded. This inappropriate or misuse of auditor staff led to their changing to other departments or to the private sector, where they obtained greater job satisfaction. Associated with the question of the role of Internal Auditors was their immediate access to the CFO when necessary. It all turned on the status accorded to the Internal Auditors within their Departments and by the CFO. This status was more important than their job descriptions which may well be grandiosely misleading and differ from the actual status accorded the individual.

In terms of Treasury regulations a Quality Assurance of the Internal Auditors / Audits was required every five years and this forthcoming year was the fifth year and would require such Quality Assurance. Additional to this being ongoing work in progress there was also the question of a National Framework and National Training of Internal Auditors to ensure uniformity.

Interwoven with this was the fact that in an age of shortage of accountants and accountancy skills, there was the incorrect deployment of accountants in positions which were either too low in the hierarchical organogram or because of personality factors, either from the CFO or even the accountants themselves, led to the curtailing of the Internal Audit function and process.

Risk Management
This was regarded as a management tool, and as such played an increased role and there was an increasing demand for data to be pulled out or extracted from the relevant records and where deficiencies were found for disciplinary processes to be taken to determine the responsibility of those concerned. This was tied up or interwoven with training and although there were 203 officials in training, the optimum use of their training and skills was not being made. There were programmes to help the provinces and municipalities establish and implement certain programmes and these would be implemented and officials from his department rotated to ensure compliance by the provinces and municipalities.

The AG had drawn attention to the fact that the minimum was Level 2 internal controls but many of the departments and municipalities had not implemented this. The framework had now been established with a template, which could be established and imposed from 2007, and with ongoing work towards establishing support strategies.

Asset Management
Here the challenges were twofold. Firstly certain departments such as Defence have an enormous volume of assets to be retained in the legal system but there was no stability and training in this field. Secondly there were departments which had a high incidence of turnover of assets, especially at Level 6-12. He was of the opinion that the relevant Accounting Officer could take this more seriously and he was engaging with them about this on an ongoing basis.

Supply Chain Management procedures
There was ongoing implementation of the procedures and again the task was to persuade and convince the Accounting Officer that the Accounting Officer was responsible and accountable for the alignment of the Supply Chain Procedures in line with BBBEE requirements.

With regard to performance, there were ongoing workshops to ensure the implementation of the requirements in terms of legislation so that there was assistance of the Auditor General in his work.

Mr Nomvalo stated that he could see progress and targets were being attained, but there were also good and proper reasons why the standards were not being implemented. Chief of these was the reason of the multiplicity of different standards and the lack of a suitable reporting framework. He had met with representatives of the Accounting and Auditing professions the previous week for another meeting on the standardization of the framework. This was another work in progress.

He was intending to use the Internal Audits as an early warning report system and to this effect was devoting staff and resources to implement this plan. Additionally he was working towards acquiring these reports earlier in the year so that rectification work could be undertaken, where necessary, to ensure compliance with Treasury requirements and forestall any adverse audit reports by the AG. The provincial bodies were improving but unfortunately there was always room for improvement.

Further, he was working towards the training within government departments of chartered accountants, but fully in compliance with the standards of the profession. The first ten candidates would be beginning their course in January 2008. He hoped that this would have an impact on the shortage of skills.

Another aspect of concern was under-spending which amounted to 2%. In this regard National Government, notably the Department of Home Affairs, was “guilty” while the other two tiers of government, especially Local Government, was improving. However, overall there was an improvement and this question did not relate to inefficiencies. However, it must be remembered that these were the preliminary numbers. A matter of interest was that Parliament itself was not spending all its money but further he could not comment, as he did not have access to all the data. Unlike the Departments, which have to return all unspent funds, Parliament retained the funds. His task was to ensure compliance with the PMFA Act. The task of the respective Accounting Officers was to ensure compliance with section 38 of the PMFA by their Departments.

South African Management Development Institute (SAMDI) presentation
Mr Oliver Seale explained that SAMDI was transferring to an academy, so as not to impose itself upon the area of the Sector Education and Training Authorities. He pointed out that 43% of all level staff in Provincial Departments reported that they had had no training exposure in 2006. SAMDI was reconstituting its mandate and was intending to change 100 000 person training days (PTD) per year to 1 000 000 to approach the international norm of 5 PTD per annum per employee. The emphasis was on collaboration with existing structures and not replacement thereof. SAMDI and National Treasury had identified ten challenges but these were merely the tip of the iceberg. The implementation strategy for the capacity building for financial management was in place and has been rolled out since July but the industrial action of June 2007 had had a markedly deleterious effect on this. Capacity building for financial management in the municipalities (JIPSA ASGISA projects) was supported by Liberty Life and internal audit training and assistance was supported by Old Mutual.

Mr V Smith (ANC) remarked that he was pleased that the Treasury Department was not in the “guilty” category. Since 1999 the AG had been producing qualified reports on Departments emphasising the necessity for internal controls, maintenance of a full and up to date asset register, separation of duties and so on and yet you say part of the problem was the lack of skills. He felt that SCOPA could no longer accept this, the lack of skills could no longer be an excuse. In his opinion it was not a lack of skills. One must comply with legislation and regulations but they were fobbed off with the “lack of skills” story. What skills were in short supply? He was of the opinion that this problem could not continue and that a skills shortage could no longer be offered as an excuse. The focus was on the procurement budget and the asset register. He was of the opinion that a matriculant, not a graduate or an accountant, should be able to maintain such. He felt the skills shortage was in management skills in middle management.

Mr E Trent (DA) agreed with Mr Smith. SCOPA could no “longer accept the excuse of a lack of skills.” Skills and capacity went hand in hand. In fact there was no shortage of skills for the skills required to defraud the Government on a massive scale existed and were being implemented. He was of the opinion that what was lacking was an appropriate “work ethic” from top to bottom. Additionally, he wished to know who comprised the steering committee of SAMDI and finally what was the time frame with regard to the plan and monitoring to make a difference?

A committee member remarked that that the changes to SAMDI were exciting.

Mr Nomvalo replied that there was no ‘critical information’ tests but they needed a critical institutional railway to produce such.

Ms Dreyer (DA) asked what progress there was with monitoring departmental expenditure, especially Home Affairs. She asked for clarity on the figure not spent by Parliament.

Ms Dambuza (ANC) stated that lower level people should not be sent on SAMDI courses just to have a departmental presence at the courses. All course attendees should be monitored both while on the courses and on return to normal duties to determine the efficacy of the courses. Proceeding to the vacancy rates, she asked what retention strategies were in place to retain staff. The expense and interacting between departments seemed to be a lack of planning. Departments applied for budget allocations and did not spend such allocations appropriately and then claimed to have made savings. Employees could not work without tools and she wondered what the Human Resources departments were doing to assist employees.

With regard to SAMDI, she tended to agree with Mr Trent that what was required was a change in the work ethic and she felt that leadership would provide effective management and create a different work ethic. She felt that even Senior Mangers should go on training. She was of the opinion that there should be standardised synergies which would or could lead to a staggered roll out and essentially there were no quick fixes to the problems. It all rested upon Management to provide effective leadership. If the staff at the higher levels lacked specific accounting knowledge perhaps there should be a specific unit of “firefighters”. What seemed to be lacking was knowledge among the managerial units.

The Chair remarked that the training needs had already been identified and that this was a work in progress but that the departments had problems.

Mr Nomvalo replied that the questions and issues raised were important and that what he had outlined was a diagnosis and not a justification for the poor and unacceptable standards. Section 38 of the PMFA did not require capacity, it required compliance. He conceded that in certain areas there were shortages of skill. For example in Internal Auditing there were shortages but often those with the skills were not employed or deployed in the specific area required, or where they could make an effect. To this effect there were service providers who could provide leverage, training and supervision. He was of the opinion that there could always be strategies and a search for the required skills. With regard to accounting skills it was not only a question of having chartered accountants but of accountants. Use could always be made of interns in training to maximise the effect of what skills existed. He conceded that it was a question of attitude.

As an example he referred to the Chief Finance Officers who were appointed and held the title but had neither the training, skills nor experience to perform the work. This unfortunately occurred in the Municipalities where one could find cashiers holding the position of CFO. There were too many cases of square pegs in round holes. He agreed that the work ethic could be greatly improved upon and added that financial management required processes not skills, merely the energy to implement the processes. Sufficient training together with supervision could ensure compliance with requirements. Turning to Risk Management, he conceded that there were technical issues but there was support. A South African company had produced an acceptable software programme but the implementation thereof required planning and continuity, neither of which were skills.

With regard to the Department of Home Affairs, most of the problems had been identified. There were systemic issues but these had been reported to the Minister who has appointed a task team. The issues had been identified and progress was being made. Earlier training did not take into account all the issues but the treatment of Section 6(1)(d) has motivated the staff and progress and the benefits would soon be seen.

With regard to Parliament the exact figures could not be seen. It was in the region of R104 million and comprises both under-spending and vacancies. Whereas all other departments were accountable to Treasury, it was well documented that Parliament held that it was not accountable to Treasury. This was an area beyond his competence and authority to comment upon. However, he was of the opinion that a modus operandi needed to be arrived at.

With regard to the problem of vacancies and retention strategy, he felt that this was inevitable. Governmental employment practices were too rigid and this placed a challenge especially when there were opportunities elsewhere. He reminded all that he had presented a diagnosis not a cure.

He conceded that there was a lack of planning but the overcoming of this problem was a question for the executive authorities to combat and devise the necessary strategies and approaches and put them in place.

Mr D Gumede then took the floor and while commending the Department expressed the opinion that it was a “people problem at middle management level”, which was giving rise to all the adverse audits by the AG. He conceded that there might be adequate strategies, approaches and protocols but middle management was not implementing these. He asked what were the qualifications of middle management for he felt the weaknesses at this level were giving rise to poor morale and disaffection among the staff. He added that the diligent were not being commended, and promoted, while the less than diligent were being promoted to middle management, compounding the problems and leading to disaffection. The punishing of those when there was no implementation was a problem as implementation was out of the hands of those punished; while those who had control and were not implementing were not being punished. Finally he asked if the high vacancy rate arose not from a skills shortage but from management incompetencies and what analysis of this had been done.

Ms Hlengethwa (ANC) asked about those employees who went on training courses. What was the responsibility of those who were their superiors to monitor their performance when they returned to their posts? She was of the opinion that many regarded their training courses as “holidays.”

Mr T Mofokeng (ANC) raised the problem of solving the accountability issue. He felt that this was compounded by senior officials being placed on suspension, which lasted two, or three years on full salaries. When the disciplinary case was finalised the department lost it and the person was reinstated. He felt that this was a lack of discipline of those conducting the disciplinary enquiries. The decision to proceed with a disciplinary enquiry should be made at the right time. Then when there were questions the officials concerned left for “greener pastures” but in reality they left to avoid hot water.

Mr Trent added that as a “diagnosis” the departmental officials present were to be congratulated but he felt the higher officials should not interfere with the training assessments which he felt were an excellent starting point. With regard to Parliament’s underspending, he felt that the ball was in their court for they, the Members of Parliament, must do something about this.

Mr V Smith (ANC) agreed and said that he too was impressed with the production, as a report. He was of the opinion that SCOPA were specialists and the department presented the diagnosis but that SCOPA must utilise the powers contained in Section 81 and fire people. Placing them on suspension did no good. A few firings would be a salutary lesson to all concerned. He reiterated the view that it was not a skills shortage but a lack of management or leadership, which was the problem. He then proceeded to ask to what extent the labour laws were impacting upon poor performance delivery by the departments.

Ms Dreyer said that she felt that Parliament should be like Caesar’s wife, beyond reproach. With regard to vacancies in the Public Service she wished to know at what level they occurred and the percentage thereof.

The Chair said that she felt that there were no monthly figures provided by Parliament as to the under-spending. With regard to the skills shortage, she wished this neither to be over or under estimated. She conceded that there was a skills shortage but she felt it was aggravated by having too many square pegs in round holes as a result of wrong promotions.

Mr Nomvalo agreed that the problem was the implementation or control of an acceptable work ethic but he was of the opinion that there were capacity problems which arose from leadership which failed to implement the right corrective measures or do so timeously. Some Departments had competent people but the DG was never in the office. There was one occasion when the CFO had to go to the airport to have the DG sign the annual report for the Department. In such circumstances when the DG was away, the CFO acts, but without the authority and so he would not be effective. Often although there was a job description and requirements for appointment, because of political influence the wrong person was appointed. It all came down to Administration! Administration! Administration. Leadership was important. With regard to courses there was one instance where an attendee had sloped off early and had been disciplined for it. At the enquiry he had given evidence but because he was unable to state that the accused had left at 13h00 or 15h30 or 16h00 hours, the accused had been found not guilty and absolved.

With regard to the international norm of five days at courses, he felt that everyone required the re-charging of batteries, monitoring and mentoring and that perhaps five days were too few for this but it was necessary.

The AG was going to qualify departments, then meet with the DGs and departments concerned and focus on the future, not the past, for effective management to ensure that there would no longer be adverse audit reports regarding the lack of documents, supervision and the whereabouts of the assets. As had been stated earlier, such activities did not need high skill levels but merely the will to enforce them. What was required was that in future there must be no pulling wool over eyes and the people would respond appropriately.

Any dismissal of staff must be in terms of the labour laws which he felt were an attempt to introduce equity to labour relations for the labour laws were based on fairness. If human beings were afraid then there would be inappropriate reactions, which would bring the wrong message to all concerned. He was of the opinion that there was a fear of dealing with problems up front. If they were dealt with at an early stage before they could be regarded as “serious” then all problems could be solved proactively rather than reactively. He felt that management must manage.

Wasteful expenditure to avoid under-spending was not defined and must be identified properly in terms of the PMFA and if no action was taken then this gave rise to major questions.

Vacancies must be treated with fairness and equity. When vacancies were identified it took ages for the selection panels to be formulated, the shortlisted to appear before the panels and not selected. It was this time wasting process which led to skills in short supply being recruited by the private sector which operated more swiftly. He suggested that when a vacancy was identified that simultaneously with the stage of establishing the job criteria and the decision to advertise, the selection committee be formulated and advised of the dates when they were to meet and be required to enter such in their diaries.

Mr Seale stated that training, capacity and performance could not be separated, as they were all inextricably intertwined and that the effectiveness of the training to be established so that the impact of the training could be measured.

Mr Nols du Plessis (Chief Director: Specialist Services, Treasury) said that it all amounted to a people problem for people were not doing what was required of them. Chapter 10 of the PMFA set out what was required. Disciplinary procedures were to take place in terms of the provisions of the Labour Relations Act. There were 3 to 4000 cases of financial mismanagement where it was the responsibility of the CFO who did not enforce regulations and no action in terms of Chap 10 was taken. He suggested that the right or correct signals should be sent out as a salutary lesson and any money lost should be recovered.

The Chair stated that they were happy with the presentation but felt that a closed-door session going into a focus on departments might be beneficial and advantageous.

Ms Letibe remarked that the presentation was of a gloomy nature but wanted to know what the general trends might be What had been the general indicators over 2001 to 2006 was there a declined an increase in misconduct and a failure to apply leadership.

Mr Swart wanted to know whether this would be applied to the municipalities as well.

Ms R Mashigo wanted to know what the relationship between SAMDI and the SETA was. She wanted to know whether SAMDI was planning to take over the SETA and just what was the role of SAMDI?

Mr Titha commended the presenters on their diagnosis of the lack of skills and lack of capacity. He felt that if the wrong person was selected for a training course, this was wasteful expenditure especially since with the costs involved, the trainee did not add value. Were the departments aware of the diagnosis?

Mr Mnchunu said that when MPs tried to assist it appeared as interference and he wanted to know how they could work together. Additionally at the end of the financial year no one seemed to account for the money spent.

Mr Trent felt that the Central Government was transferring money and only about 90% was being spent and that perhaps the conditions were too onerous. Further with regard to Supply Chain Management and Asset Management he felt that they were two sides of the same coin.

Mr Godi (PAC) remarked that the AG also provided a report outlining the problems and he asked to what extent these reports mirrored the AG. Out of the 28 departments, which were the problem departments? He felt that a focus on such department would be beneficial. Additionally Treasury wished to have the PMFA applied and he wanted to know whether it was not time to apply Section 6(1)(c). He asked to what extent were all the Directors General utilised in complying with the PMFA. With regard to fiscal dumping, how were the CFOs monitored and observed. What measures were there to monitor training for it could be wrong training, or the wrong person being training?

With regard to the people issues, it seemed that having the hierarchy in mind and with compliance and management in mind, the lower the level, the less responsibility was taken or demanded.

The Chair wished to know in terms of the division of revenue, what percentage went to training

Mr Seale replied that the responsibility of SAMDI was not to take over from the SETAs but to work in collaboration, especially with cross departmental issues. The left hand of government needed to know what the right hand of government was doing. Training was not to be regarded in the abstract but that there needed to be a more realistic assessment of training.

Mr Nomvalo said that the general trend was that the PMFA was being adhered to more closely each year, but of course the levels of adherence were not satisfactory. In addition there were increasing levels of reporting required and achieved and so the perception might be disadvantageous to the departments. Even with regard to asset management there were increasing requirements each year and these were in advance of the developments by the Departments and so the levels of achievement were not necessarily deteriorating.

In terms of leadership, this was focussed on the DGs and the CFOs. There were DGs who left everything to the last possible moment. However, they were successful in bringing about changes of attitude among the DGs. With regard to Local Government, he was of the opinion that they were halfway between the issues of the past and where they should be. Last year was the first year that municipalities had to report in terms of PMFA and although nothing was satisfactory, there were ongoing meetings and the challenges in skills and accountancy requirements were being met.

With regard to training he agreed that if the person who should not be on the course was there, it was a waste and also where there was a person on training but no plan by the department for utilising him after training. The picture was being monitored and analysed. He has written to municipalities about the requirements and municipalities were taking disciplinary action against non compliers.

Wasteful expenditure instances were being analysed to see where, and why, such arose and what could be done to minimise or obviate it in future.

Mr Mnchunu’s questions require interaction between Portfolio Committees that have oversight functions. Supply Chain Management was a problem with political influences which people shy away from confronting. In the municipalities especially there needs to be a recognition of, and challenge to, the relationship between the executive and the political authorities, as there would always be an issue of conditions between Treasury and the departments.

Money being made available where there was no capacity to spend it, would always be a problem but there was a responsibility to develop capacity. The difference between Asset Management and Supply Chain management was recognised as a weak link but it would be monitored and attended to. The problem was where Supply Chain Management acquires, asset management supposedly preserves and Supply Chain needed to dispose of the (missing) asset.

The problem was to get the departments forwarding the correct information timeously to Treasury and then Treasury acting on it. It was different from four years ago and there were now systems of analysis. The aim was to anticipate what the AG would report, before he reported it and to install or implement the necessary corrections instantly.

Section 6(2)(c) of PMFA allowed investigations and Treasury was trying to anticipate, to be proactive, to obviate adverse audits from the AG.

Finally there was a forum of DGs at which mutual problems were highlighted discussed and attempts made at solving the problems. But above all what was required was a change of attitude among the Financial Officers.

The meeting was adjourned.


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