APAC ANNUAL TRAINING 2010 UNDERSTANDING THE PUBLIC FINANCE MANAGEMENT ACT (PFMA) S. F. Nomvalo Accountant-General: Republic of South Africa 24 May 2010

Agenda Old government regime PFMA: New philosophy Overview of the PFMA Dealing with non-compliance Reports required by the PFMA

What is democracy about? “We must always remember that people do not fight for ideals or things on other people’s minds. People fight for practical things: for peace, for living better in peace, and for their children’s future. Liberty, fraternity and equality continue to be empty words for people if they do not mean a real improvement in the conditions of their lives” Amilca Cabral, 1969

Old governance 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

Philosophy of the PFMA Cars have brakes so they can run faster not slower: Financial Management rather than Financial Admin Flexibility in exchange of holding managers accountable Securing transparency – a constitutional imperative Efficiency, effectiveness and economy (VFM) – Financial Management of REAL (better service delivery) BUT Higher Flexibility = higher risks therefore? Fin Man vs Fin admin – e.g you now have more managers than clerks (old admin)

PERFORMANCE ASSESSMENT PFMA: FINANCIAL MANAGEMENT MODEL LEGISLATURE/ COMMUNITY INTERNAL CONTROL Policies & Priorities STRATEGIC PLANS Outcomes/Outputs PERFORMANCE REQUIREMENTS Medium Term Budget Process Statement of Service Delivery DELEGATIONS SERVICE DELIVERY IMPROVEMENT PROGRAMME (Outputs) EXECUTIVE AUTHORITY (Outcomes) IN-YEAR MANAGEMENT AND REPORTING (Financial & non- financial) Performance Agreement ACCOUNTING OFFICER (Outputs) BUDGET (Outputs) FINANCIAL STATEMENTS/ ANNUAL REPORT Performance Agreement SENIOR MANAGERS REVIEW AND ASSESSMENT PERFORMANCE ASSESSMENT OF STAFF ASB - GRAP - GAAP INTEGRATED FINANCIAL MANAGEMENT SYSTEM - Compilation of medium term budgets and costing of outputs - Accounting system (accrual) - Creditor, Debtor, Stock and Asset Systems - Human Resource Management System - Management information system (Financial and non-financial)

PFMA at glance CH 1 – interpretations and application (ss1 – 4) CH 2 – National Treasury and National Revenue Fund (ss5 -16) CH 3 – provincial treasuries & Provincial Revenue Funds (ss17 – 25) CH 4 – national & provincial budgets (ss26 – 35) CH 5 – departments and constitutional institutions (ss36 – 45) CH 6 – public entities (ss46 – 62)

National & Provincial Treasuries Functions of the National Treasury Development of frameworks (banking, cash management, investment and supply chain management Consolidation of Financial Statements Delegations by National Treasury National and Provincial Revenue Funds Use of funds in emergencies

National & Provincial Budgets Annual appropriations Tabling of annual budgets Expenditure before annual budget is passed Adjustments budgets Publishing of reports on state of budget Withholding of appropriated funds Unauthorized expenditure Unfunded mandates

Departments & constitutional institutions Accounting officers General responsibilities of accounting officers Budgetary & reporting responsibilities Information to be submitted by accounting officers Transfer of assets and liabilities Virements between main divisions within a vote Assignment of powers and duties Responsibilities of other officials

Public entities Unlisted public entities Classification of public entities Accounting authorities General responsibilities Annual budgets, corporate plans and annual reports Info to be submitted by accounting authorities

PFMA at glance CH 7 – executive authorities (ss 63 – 65) CH 8 – loans, guarantees & other commitments (ss66 – 75) CH 9 – general treasury matters (ss76 – 80) CH 10 – financial misconduct (ss81 – 86) CH 11 – Accounting Standard Board (ss87 – 91) CH 12 – miscellaneous Schedules 1 – 5

Ensuring compliance Primary responsibility lies with the accounting officer(AO) and accounting authority(AA) Executive authority is required to oversee the AO/AA Legislature National Treasury provides support and is also required to enforce legislation Chapter 10 deals with disciplinary and criminal proceedings in the event of non-compliance

Financial Misconduct and Non-compliance Non-compliance 60% PFMA, 12% DORA,11%SCM,17% other - Payment of supplies within 30 days (very NB) Sec 38(1)(n) – AO must comply and ensure compliance with PFMA Sec 40(5) – unable to comply must report to EA and relevant treasury Similar requirements for AA Failure to comply with section 38(1)(n) – Financial Misconduct Sec 81 (NB all noncompliance with PFMA) 14

PFMA and Accountability ACCOUNTABILITY broadly defined as: Relationship An individual fulfills an obligation To explain and justify his or her conduct – account To a significant other – oversight Political accountability vs Legal responsibility (KEY) PFMA deals with legal accountability responsibilities CH 5&6 – responsibilities of AA/AO CH 7 – responsibilities of the EA Constitution deals with political accountability of EA

Who must account to Parliament/Legislature Should Ministers/MEC appear before SCOPA No provision in the PFMA therefore amendment necessary? CH 5&6 do not make AO/AA directly accountable to parliament (sec 56 Constitution created a misconception) AO/AA account indirectly for outputs & EA directly for outcomes PFMA must be read with the Constitution’s sec 92(2) PFMA cannot undermine those powers and responsibilities PFMA - AO/AA legally liable for financial management Minister obligated to hold AO/AA liable Minister politically accountable to parliament for the performance of that function These are all key governance provisions ull find in the PFMA How do we limit the risk Pfma is an act – must comply with regulations and guidelines issued by treasury in terms of sec 76 When things are not done we know who to hit Support – understands that the AO/AA is but one person and cannot fullfill his responsibilities on his own hence the requirement to have A CFO Flexibility = high risk – need a proactive independent body to minimise the risk of things not being done, also keep management in check. Protect the public purse before its stolen. AG/SCOPA comes after the fact once the purse has been stolen. Therefore IA/Aud comm very nb institutions

Accountability Framework LEGISLATIVE AUTHORITY 1. ACCOUNTABILITY for OUTCOMES 2. AGREEMENT - OUTCOMES 3. PERFORMANCE CONTRACT - OUTPUTS A O Line managers EXECUTIVE AUTHORITY 4. DELEGATION - OUTPUTS 5. STATUTORY ACCOUNTABILITY - OUTPUTS 6. MANAGERIAL ACCOUNTABILITY National Treasury

PFMA and Governance Direction, control and striking the balance between social & economic goals Policy, strategic plan, corporate plan Appoint AO/AA and CFO Have internal audit/audit committee Risk Management Reporting requirements – accountability AO/AA does not comply - EA may charge for non-compliance or Financial Misconduct

Financial Misconduct and Non-compliance EA commit an act of Financial Misconduct? (NB difference between political accountability and PFMA accountability) Who must charge AO/AA with FM? PFMA requires AO/AA to sign contract (accountable) with EA – EA must therefore charge AO/AA If not NT or relevant Treasury may direct – sec 85 & TR 4 EA must account to PAC on remedial action against AO AO/AA must be fined or imprisoned if found willful or grossly negligent – sec 86 19

Statutory responsibilities of the EA

Reports required by the PFMA

Reports required by the PFMA Monthly sec 40 report – actual revenue, expenditure and transfers Quarterly sec 32 report – NT publishes a statement detailing revenue and expenditure on each of the RF AFS submitted to AG 2 months after financial year end AG must audit and issue audit opinion within 2 months of receipt Audited AFS and AR submitted to EA 1 month after receipt of opinion EA tables AR 1 month after receipt of audited AFS and AR New requirement for quarterly AFS 22

Treasury Regulations Issued in terms of section 76 of the PFMA Facilitates implementation of the PFMA NT also issues practice notes in terms sec 76 TR and practice notes are therefore law Mainly deal with governance frameworks aimed at ensuring that PFMA is properly implemented Certain guidelines and circulars issued by NT not law Clarity in future will be provided 23

Key factors for successful implementation of the PFMA Political and administrative will to implement the Act both in letter and spirit Buy-in and unconditional support from top management for the implementation process Competent and skilled workforce Sufficient resources

THE END THANKS FOR LISTENING!!!

Reports required by the PFMA