PUBLIC FINANCE MANAGEMENT ACT NOLS DU PLESSIS PFMA IMPLEMENTATION UNIT NATIONAL TREASURY

1. PUBLIC FINANCE MANAGEMENT ACTNOLS DU PLESSISPFMA IMPLEMENTATION UNITNATIONAL TREASURY

2. CONTENTS • Introduction & Background • Overview of the Public Finance Management Act • Overview of the Treasury Regulations • Accountability & Responsibility under the Act • Implementation of the PFMA • Performance Management

3. Introduction and Background - Public Finance Management Act and Treasury Regulations

4. Why a new approach? • RDP: maximise service delivery • Limited resources vs. 'Unlimited' demands • Satisfy constitutional obligations • Transparency and accountability (s216)

5. Budget Reforms Since 1994 • Budget decentralisation • Shift to multi-year budgeting • In-year management - early warning • Less focus on inputs • International classifications

6. Where Were We Starting From? • Financial administration : rule-bound • AO passive • Focus on inputs • Need to transform the public services • Fiscal constraints vs. Service backlogs In summary, Need to improve value for money

7. Components to Change Line managers Financial management Technical Transactional Accounting Procedures Financial Administration

8. The Solution • Modernising financial management • Enabling managers to manage - better information • Make managers accountable • Clearer definition of roles • Minister/MEC responsible for outcomes • DG /HOD responsible for output • Greater transparency & accountability • Better information & reporting; improved management Result - Improved value for money & service delivery

9. How Will Things Change – Practicalities • Budgeting by outputs - • From an "input" to "output" budget • (Legislature will always 'vote' on cash) • Formats changes to 'standard form' • Introduce service standards & costing systems • Greater responsibilities over transfers • Interdepartmental charges (eg public works) • Role of programme managers emphasised

10. Clarity of Roles: Minister & DG • ‘Executive authority’(Minister/ MEC) • Policy matters • Outcomes • Presentation & approval of Departmental budget & report

11. Clarity of Roles: Minister & DG (Continue) • Accounting officer (DG/ HOD/ board) • Outputs & implementation • Accountable to parliament for financial management • Implementation of departmental budget

12. What Are the Act’s Benefits? • Greater flexibility, within framework • Basis for assessing achievements • Linkages between planning & budget • Focus on outputs & responsibilities • Better accountability • Clarity of role of accounting officer A basis for - Better use of resources & improved delivery of services

13. Desired Outcomes : Long Term • Sound financial management systems and processes • Transparent budgeting process • Effective management of revenue, expenditure, assets and liabilities • Unqualified consolidated financial statements, prepared on the accrual basis • Accountability of public entities & external agencies

14. Overview of the Act

15. What Does the PFMA Do? • Repeals or overrides 10 exchequer acts • Establishes national treasury • Provides frameworks in place of procedures • Oversight over public entities • Accounting Standards Board • Treasury regulations

16. The New Act : Modalities • Coverage • National departments & constitutional institutions • Provinces & provincial departments • ‘Public entities’ • Excludes university • Excludes local govt: similar bill to follow • Phased implementation • Mostly 1 April 2000 • Planning for future ‘qualitative’ changes

17. National & Provincial Treasuries • Broad national powers to monitor and enforce • Frameworks • Cash management, banking and investment • Procurement • Leadership in financial management: • Design, guidance, support • Consolidation of financial statements • Importance of provincial treasuries

18. Budgets • Outputs and measurable objectives • Voting by main division • Monthly reports • Publication of information • Virement & adjustments budgets • Approving unauthorised expenditure • Unfunded mandates

19. Executive Authorities • Statutory responsibilities • Consider monthly reports • Reporting to cabinet/ executive council • Tabling of annual report & audit opinion • Oversight over public entities • Written explanations of failure to table • Directives with financial implications

20. Role of Accounting Officer • All departments and constitutional institutions • Performance contracts • Duties • Maintaining efficient, effective & transparent systems of financial management • Enforcing discipline • Delegations • CFO and others

21. Public Entities • Schedule 2 entities • Report directly to parliament via minister • Managerial autonomy • Provide info on budget and corporate plan • Borrowing powers - annual limits • Schedule 3 entities • Govt. Business enterprises may have autonomy • Non-business entities treated as departments

22. Loans and Guarantees • Restricted authority to borrow or ‘guarantee’ - Minister of Finance, MEC of finance, accounting authority (for public entity) • Foreign liabilities and borrowing illegal • State not bound by individual ‘organs’

23. General Treasury Matters • Norms and standards • Treasury regulations • Financial misconduct • Disciplinary procedures & criminal sanctions • Accounting Standards Board • GRAP

24. OVERVIEW OF THE TREASURY REGULATIONS

25. New Treasury Regulations Less restrictive than previous Treasury Instructions and Financial Regulations Focus on principle rather than detail More autonomy to accounting officers in financial decision making Enable accounting officers to manage better

26. Management arrangements Chief Financial Officer Must appoint a CFO no later than 1 April 2001 CFO is directly accountable to the AO Audit Committees Constituted so as to ensure independence Report to the Accounting Officer May communicate any concerns to Executive Authority and/or the Auditor-General Internal Controls and Internal Audit May be contracted to external body Treasuries may establish shared Internal Audit units Independent with no limitation on accessing information

27. Financial misconduct Investigation of alleged financial misconduct AO must ensure that disciplinary proceedings are carried out to investigate alleged financial misconduct Investigation must be conducted within a reasonable period If an AO is alleged to have committed financial misconduct the treasury must ensure appropriate disciplinary proceedings Criminal Proceedings AO must advise Treasury and AG of any charges laid for criminal financial misconduct Treasury may direct an institution to lay charges of criminal financial misconduct Reporting AO must advise Treasury and AG of any disciplinary proceedings instituted AO must report to Treasury and the Auditor-General of outcome Advise Treasury of any changes to its systems of financial and risk management

28. Strategic planning Strategic Plan 3 Year rolling plan consistent with MTEF Programme objectives and outcomes identified by Minister Key performance measures and indicators Include requirements of Public Service Regulations Form the basis for annual reports First date of submission is 30 June 2001

29. Strategic planning Evaluation of Performance Establish procedures for quarterly reporting Quarterly reporting to Executive Authority Must form the basis for report of the institution in the annual report

30. Budgeting and related matters Comply with annual circular issued by Treasury AO must ensure that budget submissions of constitutional institutions & public entities receiving transfers via departments are included Estimates of expenditure and revenue must conform to formats prescribed by National Treasury Virement * Max 8% of savings * Personnel expenditure and transfer payments * Allocations earmarked not to be used for other purposes Unspent funds may be rolled over subject to certain limitations and conditions Additional funds through an Adjustment Estimate

31. Revenue management AO must manage revenue efficiently and effectively Implementing appropriate processes for * Identification * Collections * Safeguarding * Recording Must review fees and charges annually Information of tariff policy must be disclosed in Annual Report

32. Expenditure management AO must ensure that internal procedures and control measures are in place for payment approval Official may not spend or commit to spend except with express approval of a properly delegated officer Payments due to creditors must be settled within 30 days No contract can be cancelled or amended to the detriment of the State without prior Treasury approval

33. Expenditure management AO making or receiving grants to or from other spheres of governments must comply with reporting require- ments of the division of Revenue Act AO must ensure that institutions receiving grants submits with its certificate of compliance (sec 38(I)(j)) the most recent audited statements and any annual report before any funds are transferred Approving transfer payments includes, ensuring that: * beneficiary complied with conditions attached to previous year's assistance * continued financial aid are still necessary * agreed objectives were attained * transfer payment expense provide reasonable value for money

34. Unauthorized expenditure Overspending of a Vote or Main Division Expenditure not in accordance with purpose of Vote or Main Division Must be reported to Treasury on discovery Recover expenditure if not authorised by Legislature Amounts must be disclosed in annual financial statements

35. Irregular expenditure Not in accordance with PFMA or Procurement Legislation or Regulations Must be reported to Treasury or Procurement Authority on discovery Treasury or Procurement Authority may condone If not condoned losses must be recovered Amounts must be disclosed in annual financial statements

36. Fruitless and wasteful expenditure Expenditure in vain that could have been prevented Must be reported to relevant Treasury Expenditure must be recovered Must be disclosed in annual financial statements

37. Asset management AO must ensure that proper control systems exists Preventative mechanisms are in place to eliminate theft, losses, wastage and misuse Stock levels are at an optimum and economical level Sale of immovable property must be at market value Letting of immovable State property must be at market- related tariffs and reviewed annually by AO

38. Management of debtors AO must take effective and appropriate steps to collect money due to the Institution Debts owing to the State may at discretion of AO be recovered in installments Interest must be charged on all debts to the State Debt may only be written off after reasonable steps have been taken to recover All debts written off must be disclosed as a note in Annual Financial Statements

39. Management of losses and claims Complexities are taken out of the prescripts AO can deal with losses without referral to Treasury Losses or damages for which an official is liable must be recovered Debts arising from losses and claims must be dealt with in terms of chapter on Management of Debtors

40. Loans, guarantees and other commitments The executive authority of a provincial department may not issue a guarantee, security of indemnity except with written approval of MEC for Finance AO must ensure that no official borrow money on behalf of the department Should the AO be responsible for transgressions with regard to borrowings the treasury must initiate misconduct proceedings

41. Banking, cash management and investment Framework issued by National Treasury in terms of the PFMA Framework deals with a whole host of issues * Deposits into revenue funds * Withdrawals from and investment of funds * Surrender of surplus funds AO must establish processes for efficient and effective cash management CFO must monitor cash management on a regular basis and report monthly to the AO Treasury must report monthly to Minister on its Revenue Fund

42. Public private partnerships Private party perform departmental function on behalf of department AO must do a feasibility study Obtain National Treasury approval AO is responsible for ensuring that a PPP agreement is properly enforced

43. Financial reports AO must submit to Treasury a break-down of expenditure and revenue by end of February for the following year Institutions may not draw funds in excess of amounts approved by Treasury Institutions must submit to Treasury and Minister within 15 days of end of month * Actual revenue and expenditure * Projections for remainder of year * Reasons for any deviation and steps to remain within budget AO effecting transfer payments must submit quarterly reports to Treasury outlining, per organisation, funds transferred

44. Annual financial statements Departments in accordance with GRAP * For 2000/01 still on a cash basis Unaudited financial statements must be submitted to Treasury 2 months after year end Financial statements must be submitted to Treasury and Minister not later than 5 months after year end Minister must table financial statements in legislature within 1 month after receipt

45. Annual Reports Report is on activities of department and must comply with requirements of PFMA Comply with requirements prescribed in PSR Include information about the institution's efficiency, effectiveness in delivering programs and achieving its objectives (1 April 2002) Report on the use of foreign aid assistance Information on transfer payments per organisation including compliance with sec 38(1)(j)) of the Act Minister must table in legislature 1 month after receipt

46. Other issues covered in Treasury Regulations Money and property held in trust Trading entities Commission and Committees Gifts, donations and sponsorships Payments, refunds and remissions as an act of grace or favour Public entities

47. Accountability & Responsibility Under the Act

48. Accountability & Responsibility Under the Act • Accountability relationships • Elements of accountability • Accountability instruments • Political & statutory accountability • How will accountability change? • Support mechanisms for the AO • Empowering managers

49. Legislature Constitutionally empowers Conferred Responsibility Audit Reporting Accountability reporting Auditor-General Executive Audit Political Operational Accountability relationships Independent, objective information Transparency

50. 1. ACCOUNTABILITY for OUTCOMES LEGISLATURE 3. PERFORMANCE CONTRACT - OUTPUTS MINISTER A O 2. AGREEMENT - OUTCOMES Line managers 4. DELEGATION - OUTPUTS (BUDGET) 5. STATUTORY ACCOUNTABILITY - OUTPUTS 6. MANAGERIAL ACCOUNTABILITY ELEMENTS OF ACCOUNTABILITY