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Oversight over the Budget Cycle

This research unit focuses on the legislative framework, budget cycle, budget principles, and important documents for budget oversight. It also explores the important elements of the national budget, budget priorities, and various oversight tools.

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Oversight over the Budget Cycle

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  1. Oversight over the Budget Cycle Research Unit 20 July 2010

  2. Legislative Framework Budget Cycle Budget Principles Important Documents for Budget Oversight Important Elements of the National Budget Budget Priorities The ENE, Strat. Plan, and other oversight tools Performance Measures Purpose of Annual Reports Contents of AR Financial Statements Role of Committees Other important committees in the budget process Learning outcomes

  3. Legislative Framework (Budgets) • The Constitution (Section 215) • The PFMA – national and provincial spheres of government (Section 27) • Treasury Regulation (TR 6.2 format of budgets) • Strategic Plan(ning) (TR 5.2 and Part III (B) of Public Service Regulations, 2001)

  4. Budgetary Principles • Aggregate Fiscal Discipline - Effective control of resources • Allocative Efficiency - Allocating resources according to strategic priorities • Operational Efficiency - Utilizing resources in a way that maximizes outputs

  5. Budget Oversight Cycle

  6. Different aspects of the budget • Political process - competition among various groups for limited resources • Economic process - resource allocation • Administrative process - planning, coordinating, control and evaluation • Human rights process - allocation of funds in compliance with State obligations towards the full realisation of constitutional rights

  7. Important Documents for Budget Oversight • Medium Term Strategic Framework. • Current year and previous years’ SoNA. • Current year and previous years’ budget speech and all budget documents. • Minister and accounting officer’s speeches and presentations to committees of Parliament, including financial/expenditure reports. • Departmental Strategic Plans • Departmental Annual Operational Plans • Departmental current and past annual performance plans

  8. Important Documents for Budget Oversight • Adjusted Estimates of National Expenditure – Mid-year • Section 32 reports – quarterly expenditure reports are important as part of mid-year monitoring. • Annual reports – including State organs reporting to the department • Committee Reports • National Treasury documents • Auditor General’s Reports • PSC Reports, etc

  9. Adequacy - how much is allocated to a specific vote, programme or sub programme, as well as whether this is adequate or enough to enable the department to achieve its goals. Priority - how much is spent on each programme. Progress can only be established over time – measures change in monetary and percentage terms between two years or two periods Equity - have resources/funds been spent fairly or equitably? National Budget – important elements

  10. Budget Priorities • MTSF - national government’s strategic plan • guides planning at national and provincial departments and must be complemented by five year strategic plans covering the current electoral cycle • SONA – Details priorities for the year • Five year strategic plans must be accompanied by indication of resource requirements in the form of five year MTEFs

  11. Medium Term Strategic Framework • Objectives of MTSF are: • Halve poverty and unemployment by 2014 • Ensure a more equitable distribution of the benefits of economic growth and reduce inequality • Improve the nation’s health profile and skills base and ensure universal access to basic services • Improve the safety of citizens by reducing incidents of crime and corruption • Build a nation free of all forms of racism, sexism, tribalism and xenophobia.

  12. Medium Term Strategic Framework • Strategic priority 1: Speeding up growth and transforming the economy to create decent work and sustainable livelihoods • Boosting economic growth • Creating decent employment • Implementing trade and industrial policy action plan to create employment and increase ratio of exports to GDP by 2014 • Increasing ratio of exports to GDP requires: • Beneficiation of raw materials (requires skills improvement) • Simplification of labour laws and streamlining of labour dispute resolution processes • Industrial policy to be developed and fine tuned in consultation with industry stakeholders • Industrial policy coherence and coordination of state organs

  13. Medium Term Strategic Framework • Strategic priority 4: Strengthen the skills and human resource base • Improve education outcomes indicators by 20% by 2014 • Improved ECD with universal access to Grade R and double the number of ECD learners between aged 0 -4 by 2014 • Improve secondary enrolment rate to 95% by 2014 • Reduce illiteracy by 50% by 2014 through ABET Kha Ri Gude programme • Improve teacher remuneration through OSD and subject content knowledge of teachers • OBE has proven to be a challenge • Broaden access to post-secondary education and resources to be allocated to areas of study that address skills challenges • Better coordination of institutions providing skills development

  14. Estimates of National Expenditure • Shows a seven year period of national expenditure. • Provides information relating to the strategies of the department, policy developments and spending plans. • In increasing transparency of government spending in relation to the attainment of objectives, the Estimates of National Expenditure provides detailed objectives and measures per Vote, per programme, as well as the selection of performance indicators per Vote and for public entities.

  15. Strategic Plan • Provides an indication of budget information to be presented in the forthcoming budget. • Measurable objectives, performance indicators and service delivery targets. • Information in the strategic plans is considered when budget allocations are made. • Links directly to the budget and annual report

  16. Performance Measurement Information Budgets are developed in relation to inputs, activities and outputs, while the aim is to ultimately achieve certain outcomes and impacts • Inputs:measure what is put into the process. • Activities: the processes or actions that use a range of inputs to produce the desired outputs, and ultimately outcomes. • Outputs:direct products of a particular programme or project. • Outcomes:Measure the results of the policy or programme.

  17. Check List • Quality of reporting • Consistency between performance targets and performance indicators • Clarity of information – report any vague reporting that could be misleading

  18. Annual Report • The annual report reports on performance against the departmental budget and strategic plan. • Check whether department has reviewed its performance or service delivery results of the previous period, undertaken an assessment of service delivery or performance targets and re-examined departmental strategic objectives against broader government priorities.

  19. LEGISLATIVE REQUIREMENTS • PFMA: S 65(1) - table annual report within six months of the end of financial year. • PFMA & Public Service Act - AO should table performance targets for each main division of a Vote before the beginning of the financial year. • Treasury Regulations – Financial statements.

  20. PURPOSE OF ANNUAL REPORTS • Contract of accountability between government and the citizens • Inform the citizens on the objectives planned to achieve and report as to whether they have achieved these or not • Assessment of achievement of performance targets as determined in the annual performance plan • Provide info on financial position, financial performance and changes in financial position • Human Resource Management

  21. ROLE PLAYERS • Auditor-General. • Accounting Officers. • Minister/MEC. • National Treasury. • National Departments in concurrent functions. • Public entities. • Constitutional entities. • Committees. • Committee staff (incl. Researchers).

  22. PURPOSE OF ANNUAL REPORTS – Service Delivery • Accountability tools. • Performance measurement. • Progress report on service delivery commitments and targets. • Test of whether government is performing its functions in meeting its socio-economic objectives.

  23. PURPOSE OF ANNUAL REPORTS: Budgeting • Indications on how the budget for that financial year was implemented. • Indicate efficiency and effectiveness of government spending. • Part of budget process: backward-looking

  24. PURPOSE OF ANNUAL REPORTS: Oversight Enables Parliament to evaluate departmental performance. Key reporting instruments against the performance targets and budgets outlined in strategic plans and the ENE.

  25. CONTENTS OF ANNUAL REPORTS • Management report. • Report of the Auditor General. • Statement of Accounting Policies and Related Matters. • Appropriation Statement and Notes. • Income Statement (Statement of Financial Performance). • Balance Sheet (Statement of Financial Position). • Statement of changes in Net Assets and Equity. • Cash flow statement. • Notes to the financial statements. • Disclosure notes to the financial statements. • Annexures.

  26. CONTENTS OF ANNUAL REPORTS (Cont.) • Financial statements The primary aim of the annual financial statements is to report on the department’s use of funds. Aims to report on the department’s management of income, expenditure, transfers, cash and assets, as well as the state of its financial management systems. • Audit report Unauthorised, wasteful, irregular and fruitless expenditure. • Non-financial performance and human resource information.

  27. NOTES TO FINANCIAL STATEMENTS • Provide more detailed information on the figures. • Contain important annexes on all transfers, including all intergovernmental transfers. • Provide an opportunity to audit nonfinancial information (outputs), e.g. no. of beneficiaries paid per month for each type of social grant, no. of employees paid per month, etc.

  28. PARLIAMENTARY COMMITTEES • Have Organs of State delivered on their service delivery targets - strategic plans and Budgets? • Are they delivering quality services in an economical, effective and efficient manner? • Are they delivering in line with their constitutional and legislative mandates? • Committees should aim to complete annual report process by mid-November – for recommendations to be taken into account for the following year’s budget allocation process.

  29. PARLIAMENTARY COMMITTEES (Cont.) • Main focus on service delivery. • Financial performance: committee must develop holistic understanding of the department or public entity’s performance • Portfolio committees might deal with issues that fall within the ambit of SCOPA mandate - need to build links between the committees for the consideration of annual reports.

  30. Important Role Players • Committee on Public Accounts – Auditor General’s reports, Annual reports • Committees on Appropriations – Monthly and Quarterly Expenditure Reports

  31. CHALLENGES - Committees • Improve capacity to hold departments and entities to account for their performance – expertise, training . • Explore links and close working relationships between SCOPA, Committee on Appropriations and Portfolio Committees. • Facilitate effective sharing of information between Committees. • Ensure that Annual Reports are aligned to the ENE and Strategic Plan.

  32. CONCLUSION • Effective oversight requires thorough preparation and analysis of each of the Budget Documents. • Understanding of Financial Terms is Important

  33. THANK YOU

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