EXERCISING OVERSIGHT IN TERMS OF THE PFMA & TREASURY REGULATIONS APAC TRAINING WORKSHOP JULY 2012 EXERCISING OVERSIGHT IN TERMS OF THE PFMA & TREASURY REGULATIONS Presentation to APAC Presenter: Freeman Nomvalo | National Treasury | 31 July 2012

CONTENTS PFMA at a glance Key definitions Responsibilities of Accounting Officers Supply Chain Management Issues raised by AGSA Financial misconduct Conclusion

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)

(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 4th E = equity

KEY DEFINITIONS Unauthorised expenditure- means Vote-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

(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

RESPONSIBILITIES OF ACCOUNTING OFFICERS Section 38- General Responsibilities of Accounting Officer Must 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

(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)

THE THREE UNWANTED EXPENDITURES Exceed Vote Main division UE Expenditure NOT In accordance UE Vote Main division Exp NOT in accordance with PFMA & other relevant leg Expenditure Test for UE Irregular Exp If Not UE & violates prescripts F&W Expenditure Made In Vain Could it be avoided ? Yes If reasonable care was exercised

REPORTING OF IRREGULAR EXPENDITURE Discovered by AO & the AGSA AO report in writing to treasury, sec 38(1)(g) AO to report monthly treasury, TR 9.1.2 & sec 40 (4)(b) Investigate the nature & extent Record IE in the register Raise debt, TR12.7 Is anyone liable Irrecoverable Yes No Write off debt, TR11.4 Recoverable Disclose in AFS Relevant Authority to consider condoning IE Revenue Condoned No AO to consider financial misconduct Expenditure remains in relevant programme till condoned

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)

(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

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)

(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

(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

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

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, 1837

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