PUBLIC FINANCIAL MANAGEMENT REFORMS

What really works?

A South African Perspective

Sithembiso F NomvaloAccountant-General - South Africa

National Treasury1 – 3 December 2008

ICGFM ConferenceWashington D.C

2

Contents

• Old financial management regime

• Structure of SA government

• Reforms at a glance

• What makes it work?

• Challenges

• Conclusion

3

Old Regime

• Exchequer Acts – no uniformity in FM

• Rule based – treasury instructions

• Three houses of parliament

• No strategic plans

• No governance structures

• Annual reports done very late

4

Structure of the SA Government

55

Legislative Framework

• Chapter 13 of the Constitution especially Sec 216(1)

• PFMA– Focus on performance, outputs & responsibilities

– Flexibility with accountability & transparency

– Efficiency, Effectiveness & Economy

– Clarity of roles

• Let managers manage

• and hold them accountable

6

2. AGREEMENT - OUTCOMES

6. MANAGERIAL ACCOUNTABILITY

3. PERFORMANCE CONTRACT - OUTPUTS

1. ACCOUNTABILITY for OUTCOMES

Accountability Framework

LEGISLATURE

A O

Line managers

MINISTER 4. DELEGATION - OUTPUTS

5. STATUTORY ACCOUNTABILITY - OUTPUTS

Governance & Control Framework in SA

Legislature

Executive Authority(Accountability)

Accounting Officer/Authority(Responsibility)

Office of the Auditor-General

(External Auditors)

Audit CommitteeRisk Management

Committee

Internal Audit

Internal Control

Other Management

Activity

Risk Management

Management

Watchdog for the citizens

Cabinet Member or Provincial

MEC accountable to Legislature

Has ultimate responsibility for

the execution of policies, plans

and objectives of the entity

Provides advice to AO on enterprise RM

Reviews and provides assurance over internal

control, risk management and governance processes

Management activity

must include internal

control & risk

management

8

Reforms at a glance

99

1010

Planning, budgeting and reporting cycle

11

Relationship between Strategic Plans & Annual Performance Plans

Reconciliation withBudget

Whole of Department

Sub-programme

Programme

Changes to StrategicGoals

Changes to OverallStrategic Objectives

Measurable Objectives

RevisedSituation Analysis

Situation Analysis

Part A

Part B

Situation Analysis(if required)

Annual Performance Plan

Whole of Department

Sub-programme

Programme

Strategic Goals

Overall StrategicObjectives

Measurable Objectives

Situation Analysis

Situation Analysis

Resource Information

Part A

Part B

Part C

Analysis of Service Delivery Environment

Organisational and Institutional Environment

Background Information

Situation Analysis(if required)

Five-year Strategic and Performance Plan

Performance Measures

Performance Targets

Analysis of Changes to Programmes

Part C

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MTEFFive-year Strategic & Performance Plan

Developing Strategic PlansMedium Term Strategic FrameworkT

op

-do

wn

Lin

kages

Local Government IDPs

Local Government IDPs

Local Government IDPs

Bo

tto

m-u

p L

inka

ges

National Spatial Development Perspective Provincial Growth &

Development Strategy

Sectoral Strategies

President’s ‘State of

the Nation’ address

13

Updating Strategic Plans

MTEF

Medium Term Strategic Framework

National Spatial Development Perspective Provincial Growth &

Development Strategy

Sectoral Strategies

Local Government IDPs

Local Government IDPs

Local Government IDPs

To

p-d

ow

n L

inkag

es

Bo

tto

m-u

p L

inka

ges

Current Planning and

Budgeting Cycle

Next Year’s Part A of the

Annual Performance Plan

President’s ‘State of

the Nation’ address

Activities and Timeframes

National Treasury developsMedium Term Fiscal Framework

National Budget ProcessSetting the Fiscal Framework

and Revenue Sharing Provincial Budget Process

Executive Committees set provincial priorities

Departments develop Strategic Plans and initial MTEF estimates

Medium Term Policy Prioritiesset by MinComBud FFC makes division of

revenue recommendations

National Treasury refines fiscal framework and makes division of revenue proposal

Budget Council and Forum considerdivision of revenue proposals

Medium Term Policy Priorities presented to Cabinet

Draft provincial MTEFs presented to Executive Committees and MinMEC’s

Cabinet sets Medium Term PolicyPriorities and makes indicative allocations

Departments adjust Strategic Plans and MTEF’s

and submit to National Treasury

Sectoral teams (10X10’s) review policies and work out budget implications for concurrent functions

March

April

May

June

July

August

Prioritisation

Preparation &

review of M

TE

F subm

issions

Review

of fiscal framew

ork & D

oRMedium Term Strategic Framework andPresident’s State of the Nation Address

Budget Council considersMedium Term Fiscal Framework

February

Sectoral teams (10X10’s) review policies and spending pressures

on concurrent functions

Departments develop Strategic Plans and initial MTEF estimates

National Treasury issues Budget Guidelines

Departments adjust Strategic Plans and MTEF’s

MTEC reviews Departments’ MTEF’s

MinComBud reviews the MTEC recommendations Budget Council and Forum make

final division of revenue proposals

Extended Cabinet finalises macro and fiscal framework and division of revenue

Division of Revenue Workshop on macro and fiscal framework

MTBPStabled in Parliament

Departments finalise annual budgets and MTEF’s

Departments finalise annual budgets and MTEF’s

Cabinet approves finalnational budget and MTEF

Executive Committees approves provincial budgets and MTEF’s

National Treasury finalises annual fiscal framework

MinComBudmakes pre-final MTEF allocations

Executive Committees make pre-final allocations

Publication of Division of Revenue Bill

Make final adjustments and preparenational budget documentation

Make final adjustments and prepare provincial budget documentation

Minister of Financetables Division of Revenue Bill

and national budget in Parliament

MEC’s for Financetable provincial budgets

in legislatures

August

September

October

December

November

February

January

MT

EF

recomm

endations

Final decisions

Preparation of budget docum

ents

Technical Committee on Finance reviews division of revenue proposals

Provincial MTEC reviews Departments’ MTEF’s

Provincial MTEC reviews Departments’ MTEF’s

Activities and Timeframes

National Budget ProcessSetting the Fiscal Framework

and Revenue Sharing Provincial Budget Process

Review

of fiscal framew

ork & D

oR

1616

Key Role Players

• Parliament & Legislature

• Treasury

• Executive Authorities

• Accounting Officers, Accounting Authorities

• Auditor General

• Accounting Standards Board (ASB)

1717

• 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

PFMA environment

1818

Accounting Standards Board

• Establishment in 2002, started work 2003

• Sets standards of GRAP

• Prepare & publish directives and guidelines

• Recommend effective date of implementation of

GRAP standards

Financial Statements consists of ..

• Statement of financial performance

• Statement of financial position

• Statement of changes in Net Assets

• Cash flow statement

• Notes to the annual financial statements

• Disclosure notes and annexures

Value realisedonly in an accrualenvironment

Accrual information

31 March

31 May

Complete reporting template

Annual reporting

Submit AFS to AG &relevant treasury

31 August

External audit

Submit annual report & AFS to relevant treasury & EO

31 JulyAudit report to AO

31 September

Table in Parliament/Legislature

31 March

31 June

Consolidations

Submit consolidation to AG

30 September

Submit audited consolidation to

treasury

31 October

Table consolidation in Parliament/Legislature

31 May Consolidation of reporting templates

31 July

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Why it works?

• Legal framework underpins the reforms

• Legislation clarifies the roles and responsibilities

• Process relied on broad consultation

• Compulsory to report progress on implementation

• Clearly defined reporting timeframes enabling effective oversight

• Sufficient political will

2323

Challenges

• Cash Accounting in departments

• Relevance & understandability of annual reports

• Sufficient buy-in

• Skills availability

• Information systems

• Reporting deadlines

• Strengthening governance & oversight

2424

Way forward

• Secure sufficient buy-in

• Focus on capacity building

• Transition to a more comprehensive accounting basis

• Explore possibility of government wide reporting

• Strengthening governance & oversight

2525

Although the South African Government

has made great strides in transforming

financial management, there are still

considerable challenges to be overcome.

Conclusion

Thank you