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PUBLIC FINANCE MANAGEMENT ACT AND LEGISLATIVE OVERSIGHT OF ANNUAL REPORTS

PUBLIC FINANCE MANAGEMENT ACT AND LEGISLATIVE OVERSIGHT OF ANNUAL REPORTS. NOLS DU PLESSIS NATIONAL TREASURY 17 AUGUST 2004. CONTENT – PART ONE. PHILOSOPHY BEHIND THE PFMA ACCOUNTABILITY FOR PERFORMANCE PERFORMANCE MANAGEMENT INFORMATION TECHNOLOGY SYSTEMS

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PUBLIC FINANCE MANAGEMENT ACT AND LEGISLATIVE OVERSIGHT OF ANNUAL REPORTS

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  1. PUBLIC FINANCE MANAGEMENT ACT AND LEGISLATIVE OVERSIGHT OF ANNUAL REPORTS NOLS DU PLESSIS NATIONAL TREASURY 17 AUGUST 2004

  2. CONTENT – PART ONE • PHILOSOPHY BEHIND THE PFMA • ACCOUNTABILITY FOR PERFORMANCE • PERFORMANCE MANAGEMENT • INFORMATION TECHNOLOGY SYSTEMS • OTHER SUPPORT STRUCTURES • PFMA FINANCIAL MANAGEMENT MODEL • SUCCESS FACTORS • LONG TERM VISION • RESPONSIBILITIES OF ROLEPLAYERS

  3. CONTENT – PART TWO • LEGISLATIVE OVERSIGHT OF ANNUAL • REPORTS • BACKGROUND • SUBMISSION OF ANNUAL REPORTS • OVERSIGHT PROCESSES FOR ANNUAL REPORTS • OVERSIGHT OF NON FINANCIAL SECTIONS OF ANNUAL REPORTS • TYPICAL CONTENT FOCUS AREAS AND QUESTIONS

  4. PHILOSOPHY BEHIND THE PFMA

  5. ACCOUNTABILITY FOR PERFORMANCE

  6. BROADER APPROACH TO ACCOUNTABILITY THE FUNDAMENTAL DEVELOPMENT IS THE ENHANCED CONCEPT OF ACCOUNTABILITY TRADITIONALLY ACCOUNTABLE FOR EXPENDITURE WHICH IS ACCOUNT- ABILITY FOR THE USE OF INPUTS ACCOUNTABILITY HAS BEEN BROADENED TO INCLUDE AN ADDITIONAL DIMENSION - ACCOUNTABILITY FOR PERFORMANCE

  7. ACCOUNTABILITY FOR PERFORMANCE MINISTER / MEC ACCOUNTABLE TO THE LEGISLATURE AND COMMUNITY FOR OUTCOMES ADDRESSED IN A FORMALISED WAY THROUGH APPROPRIATION PROCESS, ANNUAL REPORTING AND STATEMENT OF SERVICE DELIVERY PERFORMANCE AGREEMENT ENTERED INTO BETWEEN THE EXECUTIVE AUTHORITY AND ACCOUNTING OFFICER WHICH SETS OUT SPECIFIC ACTIVITIES AND OUTPUTS PERFORMANCE AGREEMENTS BETWEEN ACCOUNTING OFFICER AND MEMBERS OF THE SENIOR MANAGEMENT SERVICE PERFORMANCE REVIEW AND ASSESS- MENT OF STAFF

  8. THE ACCOUNTABILITY CHAIN LEGISLATURE/ COMMUNITY ANNUAL REPORT APPROPRIATION STATEMENT OF SERVICE DELIVERY STRATEGIC PLANS AND MINISTER/MEC (Outcomes) SPECIFICATION OF PERFORMANCE REQUIREMENTS Performance Agreement ACCOUNTING OFFICER (Outputs) Performance Agreement DELEGATIONS SENIOR MANAGERS BUDGET Performance Assessment REPORTING STAFF REVIEW AND ASSESSMENT

  9. PERFORMANCE MANAGEMENT

  10. STRATEGIC PLANS KEY INSTRUMENTS IN THE ACCOUNT- ABILITY AND BUDGETING PROCESS MAKING GOVERNMENTS OPERATIONS TRANSPARENT TO LEGISLATURE ESSENTIAL INFORMATION FOR LEGISLATURE TO ASSESS AND DEBATE PROGRAMMES AND FUNDING ENABLES LEGISLATURE TO EVALUATE DEPARTMENTAL PERFORMANCE

  11. STRATEGIC PLANS • STRATEGIC PLANNING WILL ASSIST • DEPARTMENTS IN: • FORMALLY COMMUNICATING MISSION • AND VISION STATEMENTS • FOCUSSING MANAGEMENT AND STAFF • ON ACHIEVING OBJECTIVES THROUGH • VARIOUS PROGRAMMES • DEVELOPING SERVICE DELIVERY INDICA- • TORS FOR EACH STRATEGY AND PROGRAM- • MES TO MEASURE PERFORMANCE • ESTABLISH A BASIS FOR CONTINUOUS IM- • PROVEMENT TO MEET CLIENT'S NEEDS • FACILITATING SPECIFIC PLANNING • ARRANGEMENTS BETWEEN DEPARTMENTS • (CROSS CUTTING FUNCTIONS)

  12. STRATEGIC PLANS • STRATEGIC PLANS CANNOT BE DEVELOPED • IN ISOLATION AND MUST BE LINKED TO AND • CONSISTENT WITH: • SERVICE DELIVERY IMPROVEMENT • PROGRAMME • PERFORMANCE CONTRACT BETWEEN • MINISTER AND HOD • ESTIMATES OF EXPENDITURE • DEPARTMENTAL ANNUAL REPORTS

  13. STRATEGIC PLANNING PROCESS Examine mandate, functions and strategic policy priorities Evaluate past performance Strategic planning for next three years Objectives & outputs still relevant? Have service delivery targets been met? High degree of alignment Low degree of alignment Amend strategic plan to improve service delivery Review strategic plan in detail Develop detailed operational plan Develop revised strategic plan Assess costs for reviewed strategic plan

  14. MEDIUM TERM EXPENDITURE FRAMEWORK / BUDGET THE MTEF DETAILS 3 YEAR ROLLING EXPENDITURE AND REVENUE PLANS PREPARING DEPARTMENTAL MTEF BUDGETS INVOLVES BOTTOM UP ESTIMATION OF COST IMPLICATIONS OF STRATEGIC PLAN INCREMENTAL / ZERO-BASED COSTING PROVIDE FOR SUBMISSION OF NEW OPTIONS

  15. ESTIMATES OF NATIONAL EXPENDITURE • IN TERMS OF SEC 27(4) OF THE PFMA, • DEPARTMENTS MUST SUBMIT MEASURABLE • OBJECTIVES PER PROGRAMME • THE REVISED FORMATS OF THE ESTIMATES • OF NATIONAL EXPENDITURE REQUIRES THE • FOLLOWING INFORMATION: • AIM OF THE VOTE • PROGRAMME AND SUB-PROGRAMME • SUMMARY OF EXPENDITURE TRENDS AND • MEDIUM TERM EXPENDITURE ESTIMATES • POLICY DEVELOPMENTS • OUTPUTS AND SERVICE DELIVERY • INDICATORS

  16. IN-YEAR MANAGEMENT MONITORING AND REPORTING THE PFMA EMPHASIS THE IMPORTANCE OF REGULAR MONITORING AND REPORTING MANAGERS HAVE THE FLEXIBILITY TO REPRIORITISE RESOURCES IN LINE WITH CHANGES IN OPERATIONAL PLANS THE PFMA ENABLES AN ACCOUNTING OFFICER TO SHIFT FUNDS BETWEEN PROGRAMMES THE PFMA SPECIFIES REGULAR MONTHLY AND QUARTERLY REPORTS FOR SUB- MISSION TO THE EXECUTIVE AUTHORITY

  17. MEASURING PERFORMANCE AND SERVICE DELIVERY IN TERMS OF SEC 45 OF THE PFMA, AN OFFICIAL IN A DEPARTMENT IS RESPONSIBLE FOR EFFECTIVE, EFFICIENT, ECONOMICAL AND TRANSPARENT USE OF FINANCIAL AND OTHER RESOURCES WITHIN THAT OFFICIAL'S AREA OF RESPONSIBILITY PURSUIT OF VALUE FOR MONEY ENTAILS MARRYING FINANCE AND SERVICE DELIVERY ACCOUNTABILITY FOR THE EFFICIENT AND EFFECTIVE USE OF RESOURCES DOES NOT REMAIN THE PRESERVE OF FINANCE OFFICIALS ALONE

  18. ECONOMY • THE CHEAPEST POSSIBLE OPTION FOR • THE PRODUCTION OF A PARTICULAR • OUTPUT • CONCENTRATES ON INPUTS • QUESTIONS • - WAS THE SERVICE DELIVERED AS • BUDGETED? • - DID THE SERVICE DELIVERED COST • MORE THAN COMPARABLE SERVICES • ELSEWHERE?

  19. EFFICIENCY • TRIES TO CAPTURE HOW PRODUCTIVELY • RESOURCES ARE TRANSLATED INTO • SERVICE DELIVERY • MEASURE BY RATIO OF OUTPUT:INPUT • (INPUT/OUTPUT) • - R300 WORTH OF INPUTS TO CARRY • OUT 900 VACCINATIONS • - EFFICIENCY RATIO OF 3 VACCINA- • TIONS PER RAND OF INPUTS • MORE OUTPUT PER UNIT => GREATER • EFFICIENCY • QUESTIONS • - DID WE PERFORM THE JOB WITHOUT • WASTING RESOURCES? • - DID WE DO THINGS RIGHT? • BEWARE OF PRICE FLUCTUATIONS

  20. EFFECTIVENESS • CAPTURES THE DEGREE TO WHICH OBJECTIVES/DESIRED OUTCOMES ARE ACHIEVED • PROGRAMME/SUB-PROGRAMME LEVEL: HAS THE OUTCOME BEEN ACHIEVED? • QUESTIONS • - DID THE JOB ACHIEVE THE DESIRED • RESULT? • - DID WE DO THE RIGHT THING? • LIMITATIONS • - OUTCOMES ARE DIFFICULT TO • QUANTIFY AND TRACK • - FAILURE TO ACHIEVE OUTCOMES MAY • BE DUE TO FACTORS BEYOND THE • CONTROL OF A PARTICULAR DEPART- • MENT (E.G. WEATHER, UNEMPLOY- • MENT LEVELS, POVERTY, ETC.)

  21. FRAMEWORK FOR EVALUATING PERFORMANCE • 3 E's ARE INTERRELATED • - ECONOMY: INPUTS • - EFFICIENCY: INPUTS/OUTPUTS • - EFFECTIVENESS: OUTPUTS/OUTCOMES • SHOULD NOT BE USED IN ISOLATION • ECONOMY: CHEAPEST POSSIBLE SERVICE IS USELESS UNLESS IT ACHIEVES ITS GOALS • EFFICIENCY/EFFECTIVENESS IS OF LIMITED USE UNLESS COST OF ACHIEVEMENT IS KNOWN

  22. MEASURING PERFORMANCE AND MONITORING SERVICE DELIVERY PROGRESS Economy refer to the cost of inputs Efficiency relates inputs and outputs, that is the cost per unit of output. Are outputs produced at an affordable cost? Performance measures for outputs - quantity - quality - cost - timeliness …are used to produce ... Input Output Effectiveness: Extent to which outputs or services of a programme are successful in achieving its stated objective or outcome …that realise or achieve ... Performance indicator Assesses whether out- comes and priorities have been achieved Outcomes

  23. ANNUAL REPORTS • GOVT VOTED INTO POWER - CONTRACT • OF ACCOUNTABILITY IS ENTERED INTO • WITH CITIZENS • EXECUTIVE MUST INFORM THE CITIZENS • ON ACHIEVEMENTS AGAINST PRE- • DETERMINED CRITERIA • PRE-DETERMINED CRITERIA AS • REFLECTED IN STRATEGIC PLANS AND • BUDGET DOCUMENTATION • ACCOUNTABILITY PROCESS IS • COMPLETED WITH PUBLISHING OF THE • ANNUAL REPORT

  24. IN-YEAR MANAGEMENT, MONITORING AND REPORTING Executive Authority Treasury Accounting officer Executive Authority Auditor- General Treasury Operational plan Treasury Published (national) Opinion Rand Published Published in annual report Outputs Legislator

  25. SUMMARY OF PERFORMANCE 3 years Key departmental objectives (outcomes/outputs) Includes budget information STRATEGIC PLAN Environmental changes Expenditure outcomes and new budget allocations Strategic direction changes ANNUAL REVIEW YEAR 1 Detailed focus on first year of strategic plan Includes output and service delivery information MEDIUM TERM BUDGET Expenditure trends 3 year forward estimates Strategic direction explained Previous year’s outcome incorporated when deciding resource allocation Staff have performance agreements & individual development plans Linked to departmental key objectives (outcomes/outputs) Indicate individual contribution towards achieving departmental objectives Progress against budget & implementing strategic plan Highlights departmental performance (financial & non-financial) against targets INDIVIDUAL PERFORMANCE PLANS Performance against budget and strategic plan Meeting reporting re- quirements - Treasury & PS Regu- lations ANNUAL REPORTS MONTHLY/ QUARTERLY REPORTS

  26. INFORMATION TECHNOLOGY SYSTEMS EXISTING SYSTEMS DESIGNED TO SUPPORT FINANCIAL INFORMATION APPROPRIATE SYSTEMS TO LINK FINANCIAL AND NON-FINANCIAL INFORMATION BUDGETING BY OUTPUTS REQUIRES A PROPER COSTING SYSTEM INTRODUCTION OF ACCRUAL ACCOUNTING IN OTHER COUNTRIES FORCED THE ADOPTION OF NEW SYSTEMS SUCCESSFUL IMPLEMENTATION OVER THE LONGER TERM WILL DEPEND ON AN INTEGRATED FINANCIAL MANAGEMENT SYSTEM

  27. OTHER SUPPORT STRUCTURES APPOINTMENT OF CFO FINANCIAL STAFF INTER CONTROL ACCOUNTING STANDARDS BOARD

  28. PFMA: FINANCIAL MANAGEMENT MODEL LEGISLATURE/ COMMUNITY INTERNAL CONTROL STRATEGIC PLANS Outcomes/Outputs PERFORMANCE REQUIREMENTS Policies & Priorities Medium Term Budget Process Statement of Service Delivery DELEGATIONS SERVICE DELIVERY IMPROVEMENT PROGRAMME (Outputs) EXECUTIVE AUTHORITY (Outcomes) IN-YEAR MANAGEMENT AND REPORTING (Financial & non- financial) Performance Agreement ACCOUNTING OFFICER (Outputs) BUDGET (Outputs) FINANCIAL STATEMENTS/ ANNUAL REPORT Performance Agreement SENIOR MANAGERS REVIEW AND ASSESSMENT PERFORMANCE ASSESSMENT OF STAFF ASB - GRAP - GAAP INTEGRATED FINANCIAL MANAGEMENT SYSTEM - Compilation of medium term budgets and costing of outputs - Accounting system (accrual) - Creditor, Debtor, Stock and Asset Systems - Human Resource Management System - Management information system (Financial and non-financial)

  29. SUCCESS FACTORS FOR PFMA IMPLEMENTATION POLITICAL WILL AND SUPPORT BUY-IN AND SUPPORT FROM TOP MANAGEMENT CAPACITY BUILDING SUFFICIENT RESOURCES ( FUNDS AS WELL AS PERSONNEL)

  30. LONG TERM VISION SOUND FINANCIAL MANAGEMENT SYSTEMS AND PROCESSES TRANSPARENT BUDGETING PROCESSES EFFECTIVE MANAGEMENT OF REVENUE, EXPENDITURE, ASSETS AND LIABILITIES UNQUALIFIED CONSOLIDATED FINANCIAL STATEMENTS PREPARED ON THE ACCRUAL BASIS

  31. RESPONSIBILITIES OF VARIOUS ROLEPLAYERS

  32. RESPONSIBILITIES OF VARIOUS ROLEPLAYERS EXECUTIVE AUTHORITY - POLICY/OUTCOMES ACCOUNTING OFFICERS - OUTPUTS ACCOUNTING OFFICERS RESPONSIBILITIES OF PRIMARY STATUS “MICRO-CONTROL” BY TREASURY REPLACED BY MINIMUM NORMS AND STANDARDS TREASURY MONITOR AND ENFORCE IMPLEMENTATION

  33. RESPONSIBILITIES OF VARIOUS ROLE PLAYERS (Continued) EXECUTIVE AUTHORITIES STRATEGIC PLAN CONSIDER MONTHLY EXPENDITURE REPORTS PROGRESS AGAINST STRATEGIC PLAN - QUARTERLY TABLE ANNUAL REPORTS REPORT TO PARLIAMENT ON DISCIPLINARY ACTIONS OVERSIGHT OVER PUBLIC ENTITIES

  34. RESPONSIBILITIES OF VARIOUS ROLE PLAYERS (Continued) ACCOUNTING OFFICERS • EFFECTIVE, EFFICIENT AND ECONOMICAL • USE OF RESOURCES. MORE SPECIFICALLY: • EFFECTIVE SYSTEMS OF INTERNAL • CONTROL; • EFFECTIVE PROCUREMENT AND • PROVISIONING SYSTEMS • PREVENTION OF UNAUTHORIZED, • IRREGULAR AND FRUITLESS AND WASTEFUL • EXPENDITURE

  35. RESPONSIBILITIES OF VARIOUS ROLE PLAYERS (Continued) ACCOUNTING OFFICERS • MANAGEMENT OF ASSETS AND LIABILITIES • STEPS AGAINST OFFICIALS WHO FAIL TO • COMPLY WITH PFMA • PROPER BUDGETARY CONTROL • REPORTS (MONTHLY, QUARTERLY • AND ANNUALLY) TO EXECUTIVE AUTHORITY • AND TREASURY • NON-COMPLIANCE WITH PFMA - FINANCIAL • MISCONDUCT

  36. RESPONSIBILITIES OF VARIOUS ROLE PLAYERS (Continued) NATIONAL TREASURY • FISCAL POLICY FRAMEWORK/MACRO- • ECONOMIC POLICY • INTERGOVERNMENTAL • FINANCIAL AND FISCAL RELATIONS • MANAGE BUDGET PROCESS • IMPLEMENTATION OF ANNUAL BUDGET • ANNUAL DIVISION OF REVENUE ACT • MONITOR PROVINCIAL BUDGETS

  37. RESPONSIBILITIES OF VARIOUS ROLE PLAYERS (Continued) NATIONAL TREASURY • PROMOTE AND ENFORCE EFFECTIVE • MANAGEMENT OF RESOURCES • TO ACHIEVE THE ABOVEMENTIONED • TREASURY MUST: • PRESCRIBE UNIFORM TREASURY NORMS • AND STANDARDS • ENFORCE THE PFMA AND PRESCRIBED • NORMS AND STANDARDS IN NATIONAL • DEPARTMENTS • MONITOR & ASSESS IMPLEMENTATION IN • PROVINCES

  38. RESPONSIBILITIES OF VARIOUS ROLE PLAYERS (Continued) NATIONAL TREASURY • ASSIST WITH CAPACITY BUILDING - • FINANCIAL MANAGEMENT • INVESTIGATE ANY SYSTEM OF FINANCIAL • MANAGEMENT • INTERVENE WHEN MATERIAL BREACH OF • PFMA

  39. LEGISLATIVE OVERSIGHT OF ANNUAL REPORT

  40. BACKGROUND CONSTITUTION VESTS POWER OF OVERSIGHT OVER THE EXECUTIVE WITH THE NATIONAL ASSEMBLY (SEC 55(2) OF THE CONSTITUTION) EXECUTIVE AUTHORITIES MUST PROVIDE PARLIAMENT WITH REGULAR REPORTS (SEC 92(3) OF THE CONSTITUTION) ANNUAL REPORTS ALLOW PARLIAMENT TO EVALUATE PERFORMANCE AFTER YEAR END

  41. SUBMISSION OF ANNUAL REPORTS IN ACCORDANCE WITH SEC 65 OF THE PFMA ANNUAL REPORTS MUST BE TABLED BY 30 SEPTEMBER WRITTEN EXPLANATION MUST BE TABLED IF THE EXECUTIVE AUTHORITY FAILS TO SUBMIT ANNUAL REPORT TIMEOUSLY (SEC 65(2) OF THE PFMA) PARLIAMENT SHOULD COMMUNICATE WITH EXECUTIVE AUTHORITIES THE LATE TABLING OF ANNUAL REPORTS

  42. OVERSIGHT PROCESSES FOR ANNUAL REPORTS WHEN ANNUAL REPORTS ARE TABLED THE SPEAKER REFER TO SCOPA / PORTFOLIO COMMITTEE OVERSIGHT PREPARATION PROCESS OVERSIGHT HEARING PHASE OVERSIGHT REPORT-WRITING PHASE FOLLOW UP PHASE

  43. OVERSIGHT OF NON-FINANCIAL SECTIONS OF ANNUAL REPORTS AIM OF OVERSEEING NON FINANCIAL INFORMATION PREPARATIONS TO EXERCISE OVERSIGHT OF ANNUAL REPORTS OVERSIGHT OF THE TECHNICAL QUALITY OF ANNUAL REPORTS

  44. OVERSIGHT OF THE NON-FINANCIAL SECTIONS OF ANNUAL REPORTS DEPARTMENTS STRATEGIC PLAN FOR THE YEAR TO WHICH THE ANNUAL REPORT APPLIES INFORMATION ON THE INTERNAL & EXTERNAL CHALLENGES FACED BY THE DEPARTMENT INFORMATION FROM CLIENTS NEED TO BE FAMILIAR WITH THE PARTICULAR DEPARTMENT

  45. TYPICAL CONTENT FOCUS AREAS AND QUESTIONS ORGANISATIONAL CONCERNS AND OPTIONS EVALUATING PERFORMANCE AGAINST OBJECTIVES AND PERFORMANCE TARGETS DEVELOPING EFFECTIVE PARTNERSHIPS MAKING BETTER USE OF NEW TECHNOLOGY HUMAN RESOURCE DEVELOPMENTS

  46. CONCLUSION ANNUAL REPORTS ARE KEY INSTRUMENTS IN THE ACCOUNTABILITY PROCESS PROPER EVALUATION OF ANNUAL REPORTS SHOULD IMPROVE DELIVERY OF SERVICES PROVIDE OPPORTUNITY TO GIVE INPUT INTO THE CURRENT PLANNING AND BUDGET PROCESSES

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