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

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

3. 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

4. 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

5. 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)

6. 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)

7. 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)

8. 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

9. 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

10. 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

11. 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

12. 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

13. 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

14. 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

15. 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

16. 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

17. 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

18. 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

19. 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

20. Statutory responsibilities of the EA

21. Reports required by the PFMA

22. 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

23. 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

24. 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

25. THE END
THANKS FOR LISTENING!!!

26. Reports required by the PFMA