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

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PUBLIC FINANCE MANAGEMENT ACTNOLS DU
PLESSISPFMA IMPLEMENTATION UNITNATIONAL TREASURY
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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

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Introduction and Background - Public Finance
Management Act and Treasury Regulations
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Why a new approach?

• RDP maximise service delivery
• Limited resources vs. 'Unlimited' demands
• Satisfy constitutional obligations
• Transparency and accountability (s216)

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Budget Reforms Since 1994

• Budget decentralisation
• Shift to multi-year budgeting
• In-year management - early warning
• Less focus on inputs
• International classifications

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

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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

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Clarity of Roles Minister DG

• Executive authority(Minister/ MEC)
• Policy matters
• Outcomes
• Presentation approval of
• Departmental budget report

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Clarity of Roles Minister DG (Continue)

• Accounting officer (DG/ HOD/ board)
• Outputs implementation
• Accountable to parliament for financial
  management
• Implementation of departmental budget

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What Are the Acts 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

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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

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Overview of the Act
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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

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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

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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

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Budgets

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

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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

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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

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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

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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

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General Treasury Matters

• Norms and standards
• Treasury regulations
• Financial misconduct
• Disciplinary procedures criminal sanctions
• Accounting Standards Board
• GRAP

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OVERVIEW OF THE TREASURY REGULATIONS
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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
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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
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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
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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
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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
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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
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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
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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
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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
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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
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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
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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
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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
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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
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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
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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

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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
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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
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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
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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
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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
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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
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Accountability Responsibility Under the Act
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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

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Accountability relationships
Independent, objective information
Transparency
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ELEMENTS OF ACCOUNTABILITY
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Accountability Instruments

• The legislature, as representatives of the people
  and custodian of their resources
• Portfolio committees - role in planning,
  budgeting monitoring
• Standing committee on public accounts - proxy for
  parliament
• Auditor-General - parliaments independent and
  objective assurance provider

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Political Statutory Accountability

• Political accountability
• Convention and tradition, leading to political
  sanction
• Political direction policy (outcomes)

• Statutory accountability
• Statutory sanction
• Execution of political direction within
  legislative criteria (outputs) operational
  policy

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Political Statutory Accountability (Continue)

• Political accountability
• Relationship with cabinet, parliament and voters

• Statutory accountability
• Relationship with parliament

• Single point and
• collective

• Single point

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Changes for the Executive Authority

• For department
• Delegate to AO, performance contract to specify
  outputs
• Receive consider monthly quarterly reports
• Monitor performance of AO against contract
• Present financial statements, annual report
  audit opinion to legislature
• For public entity
• Approve budget of Schedule 3 non business
  entities
• Receive consider monthly quarterly reports
• Table financial statements, annual report audit
  opinion in legislature

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Responsibilities of Ministers From 1 April 2000

• Ensure delegations to AO in terms of PSA
  regulations
• Monthly monitoring of AOs budget performance
• Ensure that AO submits in-year monitoring report
  to Treasury
• Assess the reasons for any over- or
  under-spending
• Assess performance on conditional grants
• Consider whether any appropriate steps required

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Responsibilities of Ministers From 1 April 2000
(Continue)

• Ensure AO ready to submit completed financial
  statements to Auditor-General by 31 May 2001
• Ensure AO submits annual report by
• 31 August 2001 for Minister to table

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Responsibilities of Ministers From 1 April 2000
(Continue)

• Ensure AO enforces disciplinary measures
• Ensure in-year oversight over public entities
• Ensure that the accounting authority of a public
  entity (board) exercises its fiduciary
  responsibilities
• Ensure receipts of corporate plans and budget
  from public entities

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What Will Change for the AO?

• Accountability becomes explicit
• Procedural controls replaced by frameworks
• Accountable for outputs, not only inputs
• Planning responsibilities linked to budget
• Specific assignment of AO responsibilities
• CFO with greater competence
• Specific statutory timeframes sanctions
• Obligatory transparency not left to AG to
  discover sins

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Obligations on Accounting Officers From 1 April
2000

• Monthly in-year reporting
• Use monthly information to manage department
• To Minister by main division, with appropriate
  steps to address any problems identified
• To treasury for reporting to Cabinet
• To treasury for monthly publication
• Submission of financial statements to
  Auditor-General by 31 May 2001
• Submission of annual report and financial
  statements to Minister by 31 Aug 2001

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Obligations on Accounting Officers From 1 April
2000 (Continue)

• Expenditure in line with the purpose voted
• Appropriate steps to prevent unauthorised
  expenditure
• Internal control system, internal audit audit
  committees functioning during 2000/1
• Enforce disciplinary measures
• Obligations over transfers
• Conditional grants - monthly reporting
  requirements in terms of Div of Revenue Act
• Other transfers - certificate on internal controls

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What Do the Changes Mean?
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Support for the Accounting Officer

• Competent line and financial managers
• Mechanisms to ensure proper assessments of risk
  and focus management attention on high risk areas
• Appropriately qualified CFO, with necessary
  infrastructure, to provide expert assistance
• Clearly defined responsibilities for all
  officials
• Internal audit and audit committee

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Empowering Responsible Managers

• Systems and procedures must be
• Effective, efficient, economic and transparent
• Prevent unauthorised, irregular, fruitless and
  wasteful expenditure as well as fraud
• Be well documented,
• Regularly evaluated,
• Made available to all

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Empowering Responsible Managers

• User friendly rules required to impose effective
  sanctions, if needed
• Let managers manage
• But hold them accountable