PUBLIC FINANCE MANAGEMENT ACT

NOLS DU PLESSISNOLS DU PLESSISPFMA IMPLEMENTATION PFMA IMPLEMENTATION

UNITUNITNATIONAL TREASURYNATIONAL TREASURY

CONTENTS

Introduction & BackgroundOverview of the Public Finance

Management ActOverview of the Treasury RegulationsAccountability & Responsibility under

the ActImplementation of the PFMAPerformance Management

Introduction and Background - Public Finance Management Act and Treasury Regulations

Why a new approach?

RDP: maximise service deliveryLimited resources vs. 'Unlimited' demands

Satisfy constitutional obligationsTransparency and accountability (s216)

Budget Reforms Since 1994

Budget decentralisation

Shift to multi-year budgeting

In-year management - early warning

Less focus on inputs

International classifications

Where Were We Starting From?

Financial administration : rule-boundAO passiveFocus on inputsNeed to transform the public servicesFiscal constraints vs. Service backlogs

In summary,

Need to improve value for money

Components to Change

FinancialAdministration

Financialmanagement Technical

Line managers

Procedures Transactional Accounting

The Solution

Modernising financial managementEnabling managers to manage - better information Make managers accountable

Clearer definition of rolesMinister/MEC responsible for outcomes DG /HOD responsible for output

Greater transparency & accountabilityBetter information & reporting; improved

managementResult -

Improved value for money & service delivery

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 systemsGreater responsibilities over transfersInterdepartmental charges (eg public

works)Role of programme managers emphasised

Clarity of Roles: Minister & DG

‘Executive authority’(Minister/ MEC)Policy mattersOutcomesPresentation & approval of Departmental budget & report

Clarity of Roles: Minister & DG (Continue)

Accounting officer (DG/ HOD/ board)Outputs & implementationAccountable to parliament for financial

managementImplementation of departmental budget

What Are the Act’s Benefits? Greater flexibility, within frameworkBasis for assessing achievementsLinkages between planning & budgetFocus on outputs & responsibilitiesBetter accountabilityClarity of role of accounting officerA basis for - Better use of resources & improved

delivery of services

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

Overview of the Act

What Does the PFMA Do?

Repeals or overrides 10 exchequer acts

Establishes national treasury Provides frameworks in place of

proceduresOversight over public entities Accounting Standards BoardTreasury regulations

The New Act : Modalities

Coverage National departments & constitutional

institutionsProvinces & provincial departments‘Public entities’ Excludes universityExcludes local govt: similar bill to follow

Phased implementation Mostly 1 April 2000Planning for future ‘qualitative’ changes

National & Provincial Treasuries

Broad national powers to monitor and enforce

FrameworksCash management, banking and investmentProcurement

Leadership in financial management: Design, guidance, support

Consolidation of financial statements Importance of provincial treasuries

Budgets

Outputs and measurable objectivesVoting by main division

Monthly reportsPublication of information

Virement & adjustments budgets Approving unauthorised

expenditureUnfunded mandates

Executive Authorities

Statutory responsibilitiesConsider monthly reportsReporting to cabinet/ executive councilTabling of annual report & audit

opinionOversight over public entitiesWritten explanations of failure to tableDirectives with financial implications

Role of Accounting Officer

All departments and constitutional institutionsPerformance contracts

DutiesMaintaining efficient, effective & transparent

systems of financial managementEnforcing discipline

DelegationsCFO and others

Schedule 2 entitiesReport directly to parliament via ministerManagerial autonomyProvide info on budget and corporate planBorrowing powers - annual limits

Schedule 3 entitiesGovt. Business enterprises may have

autonomyNon-business entities treated as

departments

Public Entities

Loans and Guarantees

Restricted authority to borrow or ‘guarantee’- Minister of Finance, MEC of finance,

accounting authority (for public entity)Foreign liabilities and borrowing

illegalState not bound by individual

‘organs’

General Treasury Matters

Norms and standardsTreasury regulations

Financial misconduct Disciplinary procedures & criminal

sanctions

Accounting Standards BoardGRAP

OVERVIEW OF THE 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

New Treasury Regulations

Chief Financial Officer Must appoint a CFO no later than 1 April 2001 CFO is directly accountable to the AO

Management arrangements

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

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

Financial misconduct

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

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

Strategic planning

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

Budgeting and related matters

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

Revenue 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

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

Expenditure management

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

Unauthorized 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

Irregular 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

Fruitless and wasteful expenditure

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

Asset management

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

Management of debtors

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

Management of losses and claims

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

Loans, guarantees and other commitments

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

Banking, cash management andinvestment

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

Public private partnerships

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

Financial reports

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

Annual financial statements

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

Annual Reports

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

Other issues covered in TreasuryRegulations

Accountability & Responsibility Under the Act

Accountability & Responsibility Under the Act

Accountability relationshipsElements of accountabilityAccountability instruments Political & statutory accountabilityHow will accountability change?Support mechanisms for the AOEmpowering managers

LegislatureLegislature

Auditor-GeneralAuditor-General ExecutiveExecutive

Independent, objective information

Transparency

Audit

Aud

it Rep

ortin

g

Con

stitu

tiona

lly e

mpo

wer

s

Con

stitu

tiona

lly e

mpo

wer

s Conferred R

esponsibility

Accountability reporting

Accountability relationships

Political Operational

2. AGREEMENT - OUTCOMES

6. MANAGERIAL ACCOUNTABILITY

3. PERFORMANCE CONTRACT - OUTPUTS

1. ACCOUNTABILITY for OUTCOMES

ELEMENTS OF ACCOUNTABILITY

LEGISLATURE

A O

Line managers

MINISTER 4. DELEGATION - OUTPUTS (BUDGET)

5. STATUTORY ACCOUNTABILITY - OUTPUTS

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 - parliament’s independent and objective assurance provider

Accountability Instruments

Political & Statutory Accountability

Political accountabilityPolitical accountabilityConvention and

tradition, leading to political sanction

Political direction & policy (outcomes)

Statutory accountabilityStatutory accountabilityStatutory sanction

Execution of political direction within legislative criteria (outputs) & operational policy

Political & Statutory Accountability (Continue)

Political Political accountabilityaccountability

Relationship with cabinet, parliament and voters

Statutory Statutory accountabilityaccountability

Relationship with parliament

Single point and collective

Single point

Changes for the Executive Authority

For departmentDelegate to AO, performance contract to specify outputsReceive & consider monthly & quarterly reportsMonitor performance of AO against contractPresent financial statements, annual report & audit

opinion to legislatureFor public entity

Approve budget of Schedule 3 non business entitiesReceive & consider monthly & quarterly reportsTable financial statements, annual report & audit

opinion in legislature

Responsibilities of Ministers From 1 April 2000

Ensure delegations to AO in terms of PSA regulations

Monthly monitoring of AO’s budget performanceEnsure that AO submits in-year monitoring report to

TreasuryAssess the reasons for any over- or under-spendingAssess performance on conditional grantsConsider whether any appropriate steps required

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

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

What Will Change for the AO?

Accountability becomes explicitProcedural controls replaced by frameworksAccountable for outputs, not only inputsPlanning responsibilities linked to budgetSpecific assignment of AO responsibilitiesCFO with greater competence Specific statutory timeframes & sanctionsObligatory transparency – not left to AG to

discover ‘sins’

Obligations on Accounting Officers From 1 April 2000

Monthly in-year reportingUse monthly information to manage

departmentTo Minister by main division, with appropriate

steps to address any problems identifiedTo treasury for reporting to CabinetTo 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

Obligations on Accounting Officers From 1 April 2000 (Continue)

Expenditure in line with the purpose votedAppropriate steps to prevent unauthorised

expenditureInternal control system, internal audit &

audit committees functioning during 2000/1

Enforce disciplinary measuresObligations over transfers

Conditional grants - monthly reporting requirements in terms of Div of Revenue Act

Other transfers - certificate on internal controls

What Do the Changes Mean?

Business not as usual

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

Support for the Accounting Officer

Systems and procedures must be:Effective, efficient, economic and

transparentPrevent unauthorised, irregular, fruitless

and wasteful expenditure as well as fraudBe well documented, Regularly evaluated, Made available to all

Empowering Responsible Managers

User friendly rules required to impose effective sanctions, if needed

Let managers manage But hold them accountable

Empowering Responsible Managers