EXERCISING OVERSIGHT IN TERMS OF THE PFMA & TREASURY REGULATIONS

Presentation to APACPresenter: Freeman Nomvalo | National Treasury | 31 July 2012

APAC TRAINING WORKSHOP JULY 2012

CONTENTS

• PFMA at a glance

• Key definitions

• Responsibilities of Accounting Officers

• Supply Chain Management

• Issues raised by AGSA

• Financial misconduct

• Conclusion

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PFMA AT A GLANCE

• CH 1 –Interpretations and application(s1-4)

• CH 2 –National Treasury and National Revenue Fund(s5-16)

• CH 3 –Provincial treasuries & Provincial Revenue

Funds(s17-25)

• CH 4 –National & provincial budgets(s26-35)

• CH 5 –Departments and constitutional institutions(s36-45)

• CH 6 –Public entities (s46-62)

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(CONT……….)

• CH 7-Executive Authority (s63-65)

• CH 8-Loans, guarantees & other commitments (s66-75)

• CH 9-General Treasury Matters(s76-80)

• CH 10-Financial Misconduct (s81-86)

• CH 11-Accounting Standard Board (s87-91)

• CH 12-Miscellaneous (s92-94)

• Schedules 1, 2, 3, 4, 5 & 6

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KEY DEFINITIONS

Unauthorised expenditure- means• overspending of a vote or a main division within a vote;• expenditure not in accordance with the purpose of a vote or, in the

case of a main division, not in accordance with the purpose of the main division.

Vote-means • One of the main segments into which an appropriation Act is

divided and which-– specifies the total amount which is appropriated per

department; – is separately approved by Parliament or provincial legislature

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(DEFINITIONS CONT………..)

Irregular Expenditure – means• expenditure other than unauthorised expenditure, incurred in

contravention of or that is not in accordance with a requirement of any applicable legislation including-

• PFMA, state tender board Act & provincial legislation providing for procedures in that provincial government

Fruitless and Wasteful Expenditure – means expenditure which was made in vain and would have been avoided had reasonable care been exercised

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RESPONSIBILITIES OF ACCOUNTING OFFICERS

Section 38- General Responsibilities of Accounting OfficerMust have and maintain a system of;• Risk management• Internal audit• Procurement system which is fair, equitable, transparent, competitive &

cost effective• Use of resources in line with the 3E`s• Safeguarding & maintenance of assets• Settling all contractual obligations and pay all money owing, including

intergovernmental claims, within the prescribed or agreed period• Discovering, reporting & preventing on the three unwanted expenditures• Take appropriate disciplinary steps against an official who fail to comply

with the Act, permits or makes unauthorized, irregular, fruitless & wasteful expenditure

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(CHAP 5 CONT………….)

Section 43- virement between main divisions within a vote• Accounting officer may utilise a saving to defray excess

expenditure under another main division within the same vote

Three conditions • Existence of a saving in one main division • Under spending in another main division- • Threshold condition of 8% under that main division

Note! National Treasury’s approval is obtained when utilizing savings from transfers and subsidies and from amounts appropriated for payment of capital assets(sec5(1)App Act)

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THE THREE UNWANTED EXPENDITURES

Expenditure

ExpenditureNOT

In accordance

Exceed

Test for UEExpenditure

ExpenditureMade

In Vain

Yes

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REPORTING OF IRREGULAR EXPENDITURE

Discovered by AO & the AGSA

AO to report monthly

treasury, TR 9.1.2 & sec 40

(4)(b)

AO report in writing to

treasury, sec 38(1)(g)

Record IE in the register

Is anyone liable

Raise debt,TR12.7 Yes

NoRecoverable

Irrecoverable

Write off debt,

TR11.4Revenue

AO to consider financial misconduct

Relevant Authority to consider

condoning IE

CondonedDisclose in AFS

Expenditure remains in relevant programme till

condoned

No

Investigate the nature &

extent

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SUPPLY CHAIN MANAGEMENT (TR16A)

Accounting officer or accounting authority must ensure that;

• Establishment and maintenance of an SCM system (TR 16A.3-5)• Procurement within the threshold values (TR 16A.6.1)• Bid process including advertisement in Government Tender

Bulletin (TR 16A.6.3)• Impractical to invite competitive bids (TR 16A.6.4)• Transversal contracts facilitated by the treasury (TR 16A.6.5)• Participation in bids arranged competitively by other spending

agencies (TR 16A.6.6)• Disposal and letting of state assets (TR 16A.6.7)• Disclosure of interest (TR 16A.8.4)

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(SCM CONT……….)

The accounting officer or accounting authority must – (TR16A9.1)

• take all reasonable steps to prevent abuse of the SCM system;• investigate any allegations against an official or other role players• take steps against such official or other role player and inform the

relevant treasury• report any conduct that may constitute an offence to the SAPS• check the restricted suppliers database prior to awarding any

contract• reject any bid from a supplier who`s tax obligations are not in order• cancel a contract awarded to a supplier if he/she committed any

corrupt or fraudulent act

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ISSUES REPORTED BY AGSA

Expenditure Management

• Payments to creditors not paid within 30 days (sec38(1)(f)& TR

8.2.3)

• Expenditure incurred without proper delegation(sec44 & TR 8.2.1)

• Lack of systems to detect & prevent unauthorised, irregular,

fruitless & wasteful expenditure(sec 38(1)(c)(ii) & TR 9.1.1)

• PPP contracts not properly implemented, managed, enforced &

monitored (TR16.7.1)

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(ISSUES: CONT…….)

Governance• No audit committees in certain departments• Internal Audit not under the control of Audit committees• Risk assessments not done• Action plans to address control deficiencies were not monitored• Lack of evidence to determine if the AO ensured that investigations into

all allegations of financial misconduct were conducted Leadership• Several of policies were not developed or were not in place• Annual reports not aligned with strategic plans • Lack of sufficient oversight regarding financial reporting over capital

assets, compliance & related controls

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(ISSUES: CONT…….

Key SCM ISSUES

• Awards to state officials and their close family members• Uncompetitive or unfair procurement processes Inadequate contract management• Contracts amended or extended without approval• Contracts renewed to circumvent competitive bidding process• Payments in excess of approved contract price Inadequate controls• Inadequate controls to ensure that interest is declared• No supply chain policies

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FINANCIAL MISCONDUCT

Investigation of alleged financial misconduct

• Investigation must be conducted within a reasonable period

• Disciplinary proceedings must be carried out

• If AO commits FM – treasury to ensure EA takes appropriate steps

Criminal Proceedings

• Treasury may direct an institution to lay criminal charges against a person

should AO fail to take action

Reporting

• AO advise EA, RT and AGSA on any disciplinary proceedings instituted

• AO to inform EA, RT,DPSA, PSC of the outcome of criminal proceedings

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CONCLUSION

“If we have chosen the position in life in which we can most of all work for mankind, no burdens can bow us down, because they are sacrifices for the benefit of all, then we shall experience no petty, limited, selfish joy, but our happiness will belong to millions, our deeds will live on perpetually at work, and our ashes will be shed the hot tears of noble people”

Karl Marx, 183717

THE END

THANK YOUTHANK YOU

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