Download The Public Finance Management Act

PUBLIC FINANCE
MANAGEMENT
ACT
NOLS DU PLESSIS
PFMA
IMPLEMENTATION
UNIT
NATIONAL TREASURY
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
Introduction and
Background Public Finance
Management Act
and Treasury
Regulations
Why a new approach?
RDP: maximise service delivery
Limited resources vs. 'Unlimited' demands
Satisfy constitutional obligations
Transparency 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-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
Components to Change
Financial
management
Financial
Administration
Line
managers
Technical
Procedures
Transactional
Accounting
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
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
Clarity of Roles: Minister & DG
‘Executive authority’(Minister/ MEC)
Policy matters
Outcomes
Presentation & approval of
Departmental budget & report
Clarity of Roles: Minister & DG
(Continue)
Accounting officer (DG/ HOD/ board)
Outputs & implementation
Accountable to parliament for financial
management
Implementation of departmental budget
What Are the Act’s 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
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
procedures
Oversight over public entities
Accounting Standards Board
Treasury regulations
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
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
Budgets
Outputs and measurable objectives
Voting by main division
Monthly reports
Publication of information
Virement & adjustments budgets
Approving unauthorised expenditure
Unfunded mandates
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
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
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
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’
General Treasury Matters
Norms and standards
Treasury regulations
Financial misconduct
Disciplinary procedures & criminal
sanctions
Accounting Standards Board
GRAP
OVERVIEW OF THE TREASURY
REGULATIONS
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
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
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
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
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
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
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
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
Expenditure management
AO making or receiving grants to or from other spheres
of governments must comply with reporting requirements 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
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
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
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
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 marketrelated tariffs and reviewed annually by AO
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
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
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
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
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
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
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
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
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
Accountability &
Responsibility
Under the Act
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
Accountability relationships
Legislature
Independent,
objective information
Transparency
Auditor-General
Audit
Executive
Political Operational
ELEMENTS OF ACCOUNTABILITY
LEGISLATURE
1. ACCOUNTABILITY
for OUTCOMES
2. AGREEMENT OUTCOMES
3. PERFORMANCE
CONTRACT OUTPUTS
MINISTER
AO
Line managers
4. DELEGATION OUTPUTS (BUDGET)
5. STATUTORY
ACCOUNTABILITY OUTPUTS
6. MANAGERIAL
ACCOUNTABILITY
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 - parliament’s independent
and objective assurance provider
Political & Statutory
Accountability
Political accountability
Statutory accountability
Convention and tradition, Statutory sanction
leading to political sanction
Political direction & policy
(outcomes)
Execution of political
direction within legislative
criteria (outputs) &
operational policy
Political & Statutory
Accountability (Continue)
Political accountability
Relationship with
cabinet, parliament
and voters
Statutory accountability
Relationship with
parliament
 Single point and
collective
 Single point
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
Responsibilities of Ministers
From 1 April 2000
Ensure delegations to AO in terms of PSA
regulations
Monthly monitoring of AO’s 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
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 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’
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
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
What Do the Changes Mean?
Business not as usual
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
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
Empowering Responsible
Managers
User friendly rules required to impose
effective sanctions, if needed
Let managers manage
But hold them accountable