ATC161021: Report of the Joint Standing Committee on the Financial Management of Parliament on the Parliament of the Republic of South Africa’s 2015/16 Annual Report, dated 21 October 2016
Joint Standing Committee on Financial Management of Parliament
REPORT OF THE JOINT STANDING COMMMITTEE ON THE FINANCIAL MANAGEMENT OF PARLIAMENT ON THE PARLIAMENT OF THE REPUBLIC OF SOUTH AFRICA’S 2015/16 ANNUAL REPORT, DATED 21 OCTOBER 2016
The Joint Standing Committee on the Financial Management of Parliament, having considered the Parliament of the Republic of South Africa’s 2015/16 Annual Report, reports as follows:
1. INTRODUCTION
1.1 Section 4 of the Financial Management of Parliament and Provincial Legislatures Act (No 10 of 2009) provides for the establishment of an oversight mechanism to maintain oversight of the financial management of Parliament. The Joint Standing Committee on the Financial Management of Parliament (the Committee) was established in terms of the Joint Rules of Parliament. The Committee has the powers afforded to parliamentary committees under sections 56 and 69 of the Constitution. In addition, section 4 of the Act mandates the Committee to, amongst others, consider Parliament’s annual report.
1.2 Parliament’s 2015/16 Annual Report was tabled and referred to the Committee on 8 September 2016 for consideration and report. In its consideration of the report the Committee received input from the Auditor General of South Africa (AGSA) and the National Health Education & Allied Workers Union (Nehawu). The Secretary to Parliament—the accounting officer—and his senior management team appeared before the Committee in a meeting held on 12 October 2016 during which the institution’s performance in the period under review was interrogated.
1.3 This report should be read along with Parliament’s 2014-2019 Strategic Plan, the 2015/16 Annual Performance Plan and budget, as well as the 2015/16 Annual Report.
1.4 The report comprises three parts: Part A containing a summary of the institution’s financial and performance information for the period under review; Part B containing the AGSA’s key findings; Part C containing the Committee’s observations and recommendations.
PART A: PERFORMANCE IN THE 2015/16 FINANCIAL YEAR
2. Mandate
2.1 Parliament derives its mandate from:
- chapter 4 of the Constitution of the Republic of South Africa, 1996 (Act No 108 of 1996), which sets out its composition, powers and functions;
- the Financial Management of Parliament and Provincial Legislatures Act, 2009 (Act No 10 of 2009) which regulates the institution’s financial management;
- the Money Bills Amendment Procedure and Related Matters Act, 2009 (Act No 9 of 2009) which provides procedures to amend money bills; and
- the Powers, Privileges and Immunities of Parliament and Provincial Legislatures Act of 2004 (Act No 4 of 2004) which defines and declares the national and provincial legislatures’ powers, privileges and immunities.
2.2 Mission and vision
2.2.1 The institution identified six values according to which it conducts its business: openness; responsiveness; accountability; teamwork; professionalism; and integrity.
2.2.2 In pursuit of its vision to be “activist and responsive” so as to improve the quality of life in South Africa and to ensure enduring equality, the institution has, as its mission, to provide, amongst others, “an innovative, transformative, effective and efficient parliamentary service and administration that enables Members of Parliament to fulfil their constitutional responsibilities”.
2.3 Strategic Priorities 2014-2019/Strategic Goals in the year under review
2.3.1 The institution’s five strategic priorities are:
- strengthening oversight and accountability;
- enhancing public involvement;
- deepening engagement in international fora;
- strengthening co-operative governance; and
- strengthening its legislative capacity.
2.3.2 To achieve the above, the 5th Parliament adopted the following strategic outcome-oriented goals:
- to enhance Parliament’s oversight and accountability over the work of the executive to ensure implementation of the objectives of the Medium Term Strategic Framework (MTSF) 2014-2019;
- to co-operate and collaborate with other spheres of government on matters of common interest and ensure co-operative and sound inter-governmental relations;
- to enhance public involvement in the processes of Parliament in order to realise participatory democracy through the implementation of the public involvement model by 2019;
- to enhance parliamentary international engagement and co-operation;
- to enhance the ability of Parliament to exercise its legislative power through the consolidation and implementation of integrated legislative processes by 2019 so as to fulfil its constitutional responsibility; and
- to build a capable and productive parliamentary service that delivers enhanced support to Members of Parliament in order that they may efficiently fulfil their constitutional functions.
3. Financial Performance in the year under review
At the end of the period under review, Parliament had spent R2.133 billion of an adjusted appropriation of R2.097 billion, which resulted in an over expenditure of R36.570 million.
Table 1: Appropriation Statement for 2015/16 (Source: Parliament of the Republic of South Africa, 2016)
3.1 Variances
The reported reasons for variances over 5 per cent within programmes, is outlined below.
3.1.1 Programme 1: Administration recorded an over expenditure of R120.132 million or 26.14 per cent. The over expenditure was due to the following parliamentary work which was not provided for in the base line allocation: Projects (R24.158 million); Parliamentary Budget Office (R12.730 million); Treasury Advice (R2.057 million); Office of the Institutions Supporting Democracy (R4.209 million); Legislative Sector Support (R23.839 million); Deficits on Salaries (R44.146 million); and Parliamentary Business Functions (R8.993 million). The over-expenditure was funded from funds not spent in previous years, and which have now been exhausted.
3.1.2 Programme 3: Public Participation and International Engagement recorded an under-expenditure of R11.219 million or 8.92 per cent. The under-expenditure was due to invoices for international trips undertaken, which were not received timeously from the Department of International Relations and Cooperation.
3.1.3 The under expenditure of R62.836 million or 12.49 per cent on Direct Charges, was due to many members of Parliament having lost their seats after the general elections in 2009/10 financial year after which the baseline allocation was not reduced downwards[1]. The unspent amounts were surrendered to the National Revenue Fund.
3.2 Disclosures
3.2.1 The reported irregular expenditure for the 2015/16 financial year was R653 thousand. The total irregular expenditure from the 2009/10 financial year to date amounted to R15.483 million. The amount of R14.830 million between 2009/10 and 2014/15 has yet to be condoned. Irregular expenditure for the 2015/16 financial year relates to the procurement of goods and services without prior approval (R649 000); and local content not specified (R4 000).
3.2.2 Fruitless and wasteful expenditure amounted to R276 thousand during the 2015/16 financial year. The total fruitless and wasteful expenditure from the 2009/10 financial year to date amounts to R830 thousand. The R554 thousand incurred between the 2009/10 and 2014/15 financial years is still to be condoned. The fruitless and wasteful expenditure incurred in the 2015/16 financial year relates to the following: Interest of late payments (R14 000); damaged or lost hired goods (R2 000); traffic fines administration fees (R1 000); backlogs of digitisation of library books due to unavailability of Parliament staff (R257 000); and other (R2 000).
3.2.3 Parliament reported that corrective and preventative measures have been put in place to mitigate against irregular, fruitless and wasteful expenditure, which entail including best practices and standards in the new supply chain management legislation; using the National Treasury Central Supplier Database to source reputable service providers; and establishing designated committees to ensure adherence to laws and regulations.
3.2.4 The reported contingencies for 2016 were R8.067 million for staff litigation (labour disputes) and R19.500 million for other litigation. When compared to 2015, this was an increase from R2.100 million and R10.689 million respectively. Furthermore, it was reported that an arbitration award was made to the Parliamentary Research staff on 5 September 2016, amounting to R38 million. The matter is under litigation.
3.2.5 It was reported that R23.694 million has been spent on consultants, contractors and special services at the end of the 2015/16 financial year. From the total amount spent, R8.009 million or 33 per cent was spent on consultants who provided advisory or intellectual services. Parliament reported that spending on consultants was only 1.74 per cent of the total goods and services budget.
3.2.6 In terms of revenue, Parliament received R29.897 million in 2016 and R35.771 million in 2015 from exchange transactions. The decrease in exchange revenue was due to cost-cutting measures which affected items such as sales from catering services, and a decline in interest earned because the retained earnings from prior years were used to fund institutional projects.
3.2.7 With regard to non-exchange transactions, the reported revenue was R2.073 billion in 2016 and R1.989 billion in 2015. The total expenditure was R2.209 billion in 2016 and R2.162 billion in 2015, resulting in a deficit of R110.272 million and R144.115 million respectively. With regards to expenditure, there was a decrease of 0.3 per cent in the compensation budget, largely due to once-off ex-gratia payments to all parliamentary staff which were made in 2014/15. General expenses increased by only 4 per cent due to the implementation of various cost-containment measures.
3.2.8 In terms of the balance sheet, total assets of R537.371 million were recorded against total liabilities of R1.516 billion resulting in an accumulated deficit of R978.810 million at the end of the 2015/16 financial year. However, Parliament is assessed as a going concern. The deficit emanates mainly from provisions made for post-retirement medical benefits for current and former members of Parliament and Provincial Legislatures.
3.3 Efficiency Measures
The table below provides a breakdown of efficiency measures achieved in the 2014/15 and 2015/16 financial years.
|
Type of General Expense |
2015/16 R’000 |
2014/15 R’000 |
Percentage Reduction |
|
Advertisements |
22,387 |
28,842 |
22% |
|
Operating leases |
7,213 |
9,378 |
23% |
|
Flowers and decorations |
1,623 |
3,089 |
47% |
|
Re-settlement costs |
3,246 |
9,996 |
68% |
|
Venue Expenses |
15,08 |
19,647 |
22% |
Source: Parliament of the Republic of South Africa, 2016
- Performance across programmes
The institution only succeeded in meeting 15 of the 33 targets it had set for the period under review.
4.1 Programme 1: Administration
4.1.1 This programme is aimed at providing strategic leadership; institutional policy; development programmes for Members; and overall management and administrative and corporate services to Parliament’s management, executive and employees. The programme received R459 572 million of the budget and overspent by 26.1 per cent. At the end of the financial year, 22.9 per cent of the posts under the programme were vacant.
4.1.2 The strategic objectives under this programme are aimed at: improving members’ satisfaction with services; and reducing inefficiencies with the aim of saving 1 per cent of the total budget. Five of the eight targets under this programme were achieved. The three targets which were not met are discussed in brief in paragraphs 4.1.3 to 4.1.5.
4.1.3 Although the stakeholder management strategy was developed, and the client satisfaction survey completed, the institution did not succeed in developing the stakeholder management plan.
4.1.4 The institution reported savings of R27.8 million, 0.23 per cent less than the targeted 1 per cent. Efforts to reduce the costs associated with travel, catering, printing and stationary, conferencing, telephones, photocopying and subscriptions had resulted in R16.1 million of the total savings.
4.1.5 Client satisfaction with catering services was to be improved by 65 per cent, but the institution only achieved 59.5 per cent satisfaction. The under-achievement is attributed to the low sample response rate for the internal survey which was conducted.
4.2 Programme 2: Legislation and Oversight
4.2.1 This programme is aimed at procedural and legal advice; information and research; as well as language, content, and secretarial and legislative drafting services for meetings of the National Assembly, National Council of Provinces and their committees. The programme received R375 458 million and overspent by 1 per cent. At the end of the financial year, 13.4 per cent of the posts under this programme were vacant.
4.2.2 The strategic objectives under this programme are to improve timeliness and quality of advisory and information services; to improve independent analysis and advice on Money Bills; refining the Oversight and Accountability Model; and developing and implementing models for ensuring improved quality of legislation and improved oversight of co-operative government. There were sixteen targets under this programme; only six were met. The targets which were not met are discussed in brief in paragraphs 4.2.3 to 4.2.11.
4.2.3 Although procedural advice was provided as required, it was only provided within seven days in 84 per cent of instances. The 1 per cent under-achievement was due to additional research having had to be requested before advice could be finalised.
4.2.4 With regard to legal advice the institution reported a 2.4 per cent under-achievement. Legal advice could only be produced within seven days in 82.6 per cent of instances, mainly as a result of delays in receiving information from committees and departments. In some cases the due date agreed to with clients exceeded the seven-day timeframe.
4.2.5 The target in relation to information requests for committee work or members’ individual studies, was not met. The institution only succeeded in responding to such information requests within the required timeframe in 95.5 per cent of instances instead of the targeted 98 per cent. Performance was negatively affected in the third and fourth quarters especially, owing to industrial action and delays in accessing information.
4.2.6 With regard to the production of minutes, the institution had aimed to produce 85 per cent of its minutes within three days. This target was not met. Although all draft minutes were available, only 73.7 per cent was produced within the required timeframe. In the third quarter, the industrial action and the budgetary review and recommendation process impacted negatively on the production of draft minutes.
4.2.7 Although the 95 per cent target in relation to the production of the official record of House-proceedings was not met, the record of proceedings was available to the public upon request. The 64.5 per cent under performance was attributed to inadequate resources which effected performance in all four quarters.
4.2.8 With regard to language services, targets set in relation to interpretation and translation were not met. Interpretation was only available in 84 per cent of the instances in which it was required. The 16 per cent under-performance was due to capacity constraints, and the absence of stand-ins where language specialists were not available. Only 99.9 per cent of translations was produced within the agreed time. The minimal under-performance was due to staff unavailability in the last two quarters owing to industrial action and unavoidable sick-leave.
4.2.9 The Oversight and Accountability Model (OAM) was not reviewed as planned. By the end of the financial year, the review was at the conceptualisation phase. The business case for the review had however been finalised.
4.2.10 The legislative model aimed at ensuring enhanced support, advice and systems for law-making was not developed as planned. Like the OAM, the model was only at the conceptualisation stage by the end of the financial year. The business case for the model had however been developed.
4.2.11 The cooperative government oversight mechanism to ensure coordination of government programmes was not developed as targeted. By the end of the financial year it was only at conceptualisation stage.
4.3 Programme 3: Public Participation and International Engagement
4.3.1 This programme is aimed at providing public education, information and access to support public participation; as well as to provide advice and support for international agreements. The programme received R133 204 million, of which 91.08 per cent was spent. At the end of the financial year 27.1 per cent of the posts under the programme were vacant.
4.3.2 The strategic objectives under this programme are to improve access and participation in parliamentary processes; improve support for Parliament’s international engagement; increase Parliament’s oversight capacity to monitor the implementation of international agreements; and to provide professional protocol and ceremonial services. Of the five targets under this programme, three were met. The targets which were not met are discussed in brief in paragraphs 4.3.3 and 4.3.5.
4.3.3 To increase access to Parliament in order to promote participatory democracy, the institution had intended to host two Taking Parliament to the People-sessions. Only one was hosted, in April 2015. The report back session which was scheduled for March 2016 had to be rescheduled to April 2016 i.e. in the current financial year.
4.3.4 The institution had aimed to table 85 per cent of its reports on international engagements. Although all reports had been prepared, the Parliamentary Group on International Relations (PGIR) only tabled 43.33 per cent of them.
- Programme 4: Members’ Facilities
- This programme provides support to Members of Parliament during constituency periods and when they are working on the Parliamentary precinct or away. The programme received R234 170 million and underspent by 1.27 per cent. At the end of the financial year, 15 per cent of the posts under this programme were vacant.
4.4.2 The strategic objectives under this programme are to allow full access to facilities, directly or by reimbursement, without onerous administrative processes; to reduce the administrative burden on members; and to optimise the use of technology. Only one of the two targets set in relation to this programme was achieved. The target that was not met is discussed in paragraph 4.4.3.
- The institution did not succeed in developing an integrated services strategy. The concept document and business case were however reviewed and completed.
- Programme 5: Associated services
- This programme facilitates the transfer of payments to political parties represented in Parliament. The programme received R364 518 million, and overspent by 0.2 per cent. This programme does not have dedicated personnel.
- The strategic objectives under this programme are to provide financial support to parties’ political leadership and their constituency offices. Only one of the two targets set in relation to this programme was met. The target that was not met is discussed in brief in paragraph 4.5.3.
- The institution had set out to make 65 payments, but only 60 were made. One party did not comply with the policy on Political Party Allowances and therefore could not receive payment.
PART B: REPORT OF THE AUDITOR GENERAL OF SOUTH AFRICA
- Areas highlighted by the Auditor General of South Africa
5.1 The AGSA submitted that Parliament has sustained its audit outcome of unqualified with no findings for the past two years. This was due to a stronger focus by leadership on monitoring the implementation of the action plan to address past audit findings, adequate risk assessment as well as improved internal control. Continued focus on these areas will ensure a sustained audit opinion.
5.2 The AGSA recommended the following:
- that Parliament should continue to enhance existing processes for reconciling and reviewing financial information supporting other disclosures in the financial statements;
- that Parliament should enforce workflow processes to ensure that all invoices are paid within the prescribed 30 days of receipt;
- that processes and controls around the supply chain management process should continue to be enhanced to sustain a control environment that supports compliance with the regulations;
- that action plans be implemented to ensure that quarterly financial and performance reports are tabled in Parliament within the legislated time frames to allow for effective oversight;
- that Parliament should strengthen record management controls to ensure that supporting documentation for the reported performance contained in the annual performance report is properly maintained and can be easily retrieved. Emphasis was placed on the implementation of appropriate consequence management measures.
PART C: OBSERVATIONS AND RECOMMENDATIONS
6. Observations
6.1 Compliance with legislative requirements
6.1.1 The Committee welcomes the fact that Parliament has sustained its audit outcome of unqualified with no findings for the past two years. The Committee further notes that Parliament’s commitment to maintain and further improve the internal control environment should ensure that the audit outcome is sustained.
6.1.2 Although the institution’s failure to table quarterly financial and performance reports was not significant enough to raise a material finding, it presented a risk. The Committee concurs with the AGSA that interventions are required to ensure that quarterly financial and performance reports are tabled within the legislated timeframes to allow for effective oversight.
6.2 Performance and expenditure
6.2.1 The Committee notes with concern that although the institution only succeeded in meeting 16 of the 33 targets it had set for the period under review, it had over-spent on its budget. Of particular concern is the performance under Programme 2: Legislation and Oversight which includes functional areas that are core to the institution’s business. This discord between expenditure and performance may be indicative of inadequate planning and unrealistic target-setting.
- The Committee notes the explanation that the annual performance plan reflects strategic, but not necessarily operational interventions, and that the bulk of the spending in Programme 2 went towards operational interventions. We also note that efforts are underway to address this weakness, and that future plans will reflect both strategic and operational interventions.
- The Committee notes that only employees below management level had received performance bonuses in the period under review. The Committee further notes that the performance management system, particularly the awarding of performance bonuses, was the subject of a long-standing dispute between organised labour and the institution. We therefore welcome efforts that are underway to review and improve the performance management system, and urge the institution to include organised labour in the process.
- The Committee welcomes efforts underway to improve capacity and enhance efficiencies and effectiveness in the manner in which the institution operates.
- Financial Management
- The Committee notes with concern that in addition to the irregular expenditure incurred in the 2015/16 financial year, the institution was still awaiting the condonation of R15.483 million accumulated in previous years.
- The Committee notes with concern that in addition to the R276 thousand fruitless and wasteful expenditure incurred in 2015/16, an accumulated amount of R554 thousand incurred between 2009/10 and 2014/15 is still awaiting condonation.
- The Committee expressed concern at Parliament’s net liability totalling R978.810 million at the end of the 2015/16 financial year.
- The Committee notes with concern the reported budget deficit of R110.272 million at the end of the period under review and is of the view that its recurrence may pose risks to the institution meeting its future obligations.
6.4 Post establishment/Vacancies
6.4.1 The institution reported 336 active vacancies at the end the period under review. Despite the high number of vacancies, the institution did not report any under-spending resulting from the slow filling of vacancies. The Committee notes that vacant posts were not funded due to National Treasury-imposed cost containment measures which dictate that posts that have not been filled for a number of years should be frozen. The Secretary to Parliament confirmed that monies allocated for the filling of vacancies had not been shifted elsewhere. The Committee is pleased that the institution was consulting with National Treasury on how additional funds may be made available to fill critical vacancies.
6.4.2 The Committee is concerned about the vacancy rate which has in all likelihood contributed to the institution’s under-performance. The Committee notes that an institution-wide process was underway to identify critical posts.
6.4.3 At the end of the financial year, the vacancy rate for the C- and D-bands stood at 16 and 24 per cent respectively. The sick leave utilisation rate for the same period was 23 per cent for both the C- and D-bands, and 16 per cent for senior management level. The Committee notes the high sick-leave utilisation rate which might be attributed to the high vacancy rate and the strain it places on other employees.
6.5 Disciplinary processes
6.5.1 Of the eleven disciplinary matters reported in the year under review, seven had not been concluded by the end of the financial year. All seven matters relate to non-adherence to procurement processes. The Committee is concerned about slow progress in finalising these disciplinary matters. Of particular concern is the impact the delays had on service delivery when those involved are not able to perform their day-to-day duties, and the associated risks.
6.6 Debt recovery
6.6.1 The Committee notes with concern that the R19 million classified under ‘Staff and Members debt owed to Parliament’ includes the salary deductions still to be made as a result of the unprotected strike that employees had undertaken in the third quarter of the financial year. The Committee viewed the R16.799 million relating to the above-mentioned salary deductions as money overdrawn which should not be classified as debt.
6.6.2 The institution’s reason for including the afore-mentioned amount as debt is noted, however and the Committee is acutely aware of the dispute around the implementation of the salary deductions and the risks should an amicable solution not be reached.
7. Recommendations
7.1 Compliance with legislative requirements
7.1.1 The Executive Authority should ensure that action plans are implemented to ensure that the monthly financial statements, and quarterly financial and performance reports are tabled within the legislated timeframes.
7.2 Performance and expenditure
7.2.1 The Committee should be provided with a breakdown of the operational interventions implemented in the period under review, and related expenditure.
7.2.2 The Executive Authority should ensure that annual performance plans and budgets are properly aligned, and that performance targets are specific, measurable, achievable, realistic and time-bound (SMART). The implementation of the annual performance plans and related spending should be closely monitored.
- The review of the performance management system should be prioritised as the outcome will go a long way towards creating a motivated and high performing workforce. The Committee strongly recommends that interventions aimed at strengthening the performance system should include the application consequence management for non-performance. The Committee should be provided with the regular updates and timeframes on the review.
- The Committee should be provided with the timeframes for the exercise referred to in paragraph 6.2.4, and should be provided with a briefing on the outcome and the implementation plans for interventions emanating from that process.
- Financial Management
- Every effort should be made to finalise investigations involving irregular, fruitless and wasteful expenditure, so as to commence the process of condoning the accumulated irregular, fruitless and wasteful expenditure.
- Although Parliament is viewed as a going concern, the Committee is of the view that measures should be explored to contain the net liability and deficit which poses future risks to the institution.
- Vacancies
- The Committee urges the institution to identify and fill all critical vacancies with the necessary urgency. The Committee should be provided with a breakdown of all vacancies as at 21 October 2016 including the period of time for which they had been vacant, the reasons for the delays in recruiting persons/inability to fill them, and efforts underway to fill them. In addition, the Committee should be provided with the timeframes for the exercise referred to in paragraph 6.2.2.
7.5 Disciplinary processes
7.5.1 The Committee should be provided with a full report on the investigations underway, the impact delays in their completion have had on service delivery, and the timeframes for their conclusion.
7.6 Debt recovery
7.6.1 Every effort should be made to ensure that the debt reported in 2015/16 was recovered within acceptable timeframes. The institution is urged to accelerate efforts to arrive at an amicable resolution to the labour dispute around the implementation of the salary deductions emanating from the unprotected strike which took place in the third quarter of the period under review.
Report to be considered.
[1] The baseline for direct charges (Members' salaries) was increased during the 2009/2010 financial year due to the payment of “Loss of Office” gratuities to Members of Parliament who lost their seats after the 2009 general elections. Members of Parliament with service exceeding five years are paid “Loss of Office” gratuity calculated at four months pensionable salary for every five years in service, on termination of service. Each financial year in which there has been a general election these payments increase the direct charges. It is only in financial years where there are no general elections that underspending on direct charges is significant. For the 2014/15 financial year the underspending was only R1,2 million. The underspending on direct charges is surrendered to National Revenue Fund in terms of section 23 (4) of FMPPLA
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