COST CONTAINMENT MEASURES

1. COST CONTAINMENT MEASURES OFFICE OF THE ACCOUNTANT-GENERAL Presenter: Jonas Shai | Office of the Accountant General, RMS | August 2014

2. Spirit of the Instruction

3. Outline • Background • Current Climate • Why the CRO and Expectation • Treasury Instruction • Conclusion

4. Background • Section 38(1)(c)(iii) and 51(1)(b)(iii) of the PFMA – accounting officers and accounting authorities must manage available working capital efficiently and economically; • Accounting officers and accounting authorities – ensure key expenditure control measures are in place and working as planned; • Cabinet resolution of 23 October 2013 - all public sector institutions to contain operational costs and eliminate all non-essential expenditure;

5. Current Climate • Quarterly Labour Force Survey: Unemployment rate 25.5 per cent. • Consumer inflation: 6.6 per cent • Labour unrest • NDP: alignment of allocation of resources & strategic objective

6. Why the CRO? • Risk-Based • Risk assessments • Internal Audit rely on this for their work • Protect your organisation • Protect your Accounting Officer/Authority • Key focus/audit area

7. Risk Universe

8. Expectation Source: EY : Expecting More from Risk Management

9. Expectation • Understanding of the whole business • All assessment sessions should be speaking this language • This is not a CFO instruction • Silo mentality demolishing • Advice on process design • Review of system descriptions/ operating procedures

10. Expectation • Ability to identify “what could go wrong” • Risk Assessment process • Ability to identify assertion deficiencies • Occurrence, Completeness, Accuracy, Cut-off • Ability to suggest process improvements • E.g. King Code: Information Technology

11. Engagement of Consultants

12. Engagement of Consultants • Gap analysis • Innovation and area of efficiency gains • Rates payable • Assist Internal audit’s risk based plans • Penalty clauses in contracts to curb poor performance; • Risk Monitoring Activities • Consultancy reduction plans before 31 March of each year; • Risk Monitoring Activities

13. Risk Monitoring Activities • Chapter 9 • Allocated responsibilities are being executed effectively • Response strategies are producing the desired result of mitigating risks or exploiting opportunities; and • A positive correlation exists between improvements in the system of risk management and institutional performance

14. Travel and subsistence

15. Travel and Subsistence • Domestic hotel accommodation • Ask the question • Review of the process/documentation design • Car hire – Only Group B or any other lower class of vehicle • Ask the question • Review of the process/documentation design • Flights

16. Travel and Subsistence • Official or Parliamentary duties – limited to 3 employees • How many of you are here

17. Credit/ Debit Cards • Amendment to Treasury Regulation 15.10.3 & 31.2 • Prohibit useof credit or debit card • May retain or obtain credit or debit card for other specific purposes • National Treasury may grant exemption • Ask the question during risk assessments

18. Catering and Events Expenses

19. Catering and Events Expenses • No catering for internal meetings, unless approved by AO or AA; • Entertainment allowance – may not exceed R2000 per financial year; • Team building exercises and year-end functions; • In-house strategic, corporate and related planning sessions;

20. Guidelines on Cost Containment • Travel and Subsistence • Limiting international travel only for meetings – absolutely essential; • Using corporate voyager miles to acquire air tickets; • Three quotes for all international travel; • Prohibit claims for meals if already included in hotel arrangements; • Inventory • Bulk purchases of related items; • Settlement discounts; • Full cost recovery on promotional items;

21. Guidelines on Cost Containment Inventory- continued • Minimizing printing costs; • Use of electronic mail other than registered mail; • Prohibit of newspaper and magazine allowances, existing contracts not to be renewed; • Water and Electricity • Prudent use to lower utility costs;

22. Guidelines on Cost Containment • Communications • Private calls – Limit allowances to reasonable value; • Cellular phones and 3G – Consider nature of work; • Telephone calls – Distinguish between private and official calls; • Tele and/or video conferencing – To avoid travel and subsistence costs; • Financial assets • Debts write-off – limit - impact on savings;

23. Guidelines on Cost Containment • Miscellaneous measures • Avoid duplication of activities, processes and efforts; • Optimize capacity use of machines by sharing between divisions; • Extend warranties – Motor vehicles and computer equipment; • Prohibit unnecessary new furniture or office refurbishments; • E-learning – In-house training; • Transversal contracts – Procurement of goods and services;

24. Conclusion • AO and AA - appropriate expenditure control measures in their respective institutions; • Limited resources be applied effectively and efficiently to achieve economic means; • Institutions to implement measures to contain operational costs and to eliminate all non-essential expenditure; • The Treasury Instruction note is applicable to all public sector institutions - Effective from 01 December 2013;

25. Questions and Answers • Technical Queries with regards to the Instruction Jayce Nair Chief Director Office of the Accountant General oagqueries@treasury.gov.za (012) 315 5482