Financial Management in National Departments: 2012 progress report

Meeting report

Financial Management in National Departments 2012 progress report

Mr Freeman Nomvalo, Accountant-General in National Treasury, introduced the Committee to Mr Michael Sass, a new Deputy Director General who would be sharing his workload. He said the Public Finance Management Act (PFMA) was in its 13^th year and there had been progress and regressions in that period. Public finance was undoubtedly more transparent because of the high requirements for accounting and reporting. There was still a need to find a scientific way to assess progress so as to empower departments. The audit was an independent objective measure of an organisation. His view, in layman’s terms, was that both the adverse opinion and the disclaimer in audit results indicated that things were going bad in an organisation.  A qualified opinion indicated that the audit was able to determine that the reports did not reflect what was happening in the organisation. In all cases it was important to remember that an audit was a sample and also that it was a report based on a report. The real report was the annual report of an organisation. The audit report gave an assurance that the annual report was a fair reflection of the organisation. This was important because many times questions were raised in Committees based on the Auditor General’s report of a department and not based on the Annual Report and the Departments service delivery.

In 1999, combined clean audits and unqualified audits stood at 56%, at a time when reporting standards were not as stringent as they were presently. PFMA compliance started in 2003/4.  Combined clean audits and unqualified audits stood at 66% in 2007/8, 72% in 2010/11 and 84% in 2011/12 indicating an improvement trend. The constant improvements in the audited outcomes meant that credible information was at hand which would lead to better informed decision making and which would lead to service delivery improving.

Financial Management Capability Maturity Model (FMCMM)
Departments were given a set of 583 questions to assess their financial management maturity and empowering them by discovering what was troubling them. The questions were linked to risks, their likely consequences and risk mitigation. There were six levels of maturity. Levels 1-3 focussed on the development and implementation of frameworks and policies while levels 4-6 measured optimal use of information and resources to achieve objectives.

In 2010 the average scores of departments were 2.75 which were close to the target score of 3. In 2012 the average had increased to 2.93, but Treasury were picking up problems in individual departments like Defence and Public Works. There had been improvements in asset management and in goods and services and compensation.  IT might not be a true reflection and there were still problems in procurement such that the Treasury had established an office dealing specifically with procurement issues. The issue of payments to government suppliers being made within 30 days still remained a challenge.

Identified weaknesses were that departments did not document processes and services, especially for goods and services; there were still high vacancy rates; strategic and annual plans were not implemented; the lack of understanding of risk management and controls, even though implemented; the excessive use of consultants; the lack of systems to improve processes and a poor compliance environment and culture. He said he was disappointed with the level of discussion regarding the Auditor General’s report on consultants. The debate had revolved around the extent of the use of consultants whereas he felt the real issue was the management of the consultants. 

The institutional weaknesses that had been identified had been addressed through a number of initiatives. He said Treasury had many frameworks to create understanding amongst management of the departments. It ran 34 courses to improve departments’ financial management capacity and to develop skills. Treasury had developed an e –tool to help with risk management. It had established a procurement office to deal with Supply Chain Management (SCM) issues. Currently there were too many places where decisions were being made which allowed for people to be lobbied and corrupted. If this was reduced and there were fewer times when SCM decisions were made, it would lead to increased certainty and increased monitoring of the decision-making. The Multi Agency Working Group (MAWG) had also been established to assist. Treasury had an investigative unit that specialised in audit outcomes. He said it should still be possible for an ordinary person to sit on the Public Sector Audit Committee Forum and work was being done in this regard. It had developed a CFO handbook, reporting frameworks, contract management frameworks. It had introduced the submission of interim financial statements on a quarterly basis and had revised the FMCMM. 

In conclusion he said management should set the right tone at the right time, the departments had to comply with legislation not question it. Disciplinary action should not be dropped without good reason. It was the responsibility of all officials to ensure adequate financial management.

Discussion
Ms T Chiloane (ANC) said that SCOPA became frustrated as accounting officers were changed in departments and the new personnel could not account for matters that had occurred prior to their placement.

Mr R Ainslie (ANC) said that attaining a clean audit should be made requirement in management’s performance agreements. What were the consequences of not meeting the requirements of the performance agreements as there was a lack of consequence for non-compliance which was a matter that needed to be addressed? He asked what the consequences would be for the 12 institutions that did not respond to be part of the FMCMM survey. 

Dr Dion George (DA) said the executive of the institutions had to be acquainted with the survey and had to be held accountable.  A CFO had left the Public Works Department, was she somewhere else in the public service? Was the Accountant General leaving the Department?

Mr Nomvalo replied that the financial reports of a department reflected the service delivery of that department. One could not continue the disciplinary process with accountants who left, but if there was   financial misconduct of a criminal nature then sanctions had to be imposed.  This went back to the question of a lack of consequence when one read of an official committing financial misconduct and he was given the option of leaving or of charges being brought against him. He himself did not have the answer, except that he had to bring it to the attention of the executive officer. Whether the executive office took any action, required engagement at the Committee and Executive level. He agreed fully that clean audits should be part of the performance agreements. He said the fact that 12 departments did not respond to the FMCMM survey did dilute its findings, but that there was a close correlation between the FMCMM and the audit outcomes. He said the appointment of Mr Michael Sass to share his workload would increase the capacity at Treasury.

Dr P Rabie (DA) asked if the investigations unit had capacity to carry out its investigations or were they under staffed. The Department of Public Works did not have a full asset register and it was important that they had one.

Mr Nomvalo replied there was a deadline on the asset management register.

Ms M Mangena (ANC) said that the Accountant- General should be present when departments interviewed for the post of CFO. What must the Committee do regarding financial misconduct? She wanted consultants to transfer their skills to the departments.

Mr S Thobejane (ANC) said the issue was to plan sustainable oversight. Of concern was the failure of accountable officials to say who was responsible to open a criminal case.

Mr N Singh (IFP) asked if any amendments to the PFMA were envisaged Could Treasury set up a unit to assist a department  in a preparing a criminal case because the police wanted a prepared case. Did Treasury have the capacity to do what it should do? He said the Auditor Generals’ reports and the lack of financial management of municipalities reports were a disgrace. What was Treasury doing when Treasury regulations were ignored for example in the abuse of variation orders? Have Treasury and the Auditor General met to perfect value for money audits?

Mr Nomvalo replied that the Treasury’s capacity should be finite and build to where it was in balance.  With the understanding that it would not be able to deal with everything and that where specialist skills were needed it would tap the private sector. The Treasury structure had grown for around a decade. The area of need was in fact in procurement and the solution lay in the correct deployment of the employees it had currently. He said the preparation of charges was the duty of police. Treasury could assist in the context of the Multi Agency Working Group (MAWG) and the anti-corruption task force fed into the police’s work. Regarding his presence when CFOs were being selected, he said that it was done by invitation. On the abuses of variations, he said that Treasury had established a procurement office because of the realisation that it had not been effective in that area. He said there would be amendments to the PFMA.

Ms Chiloane asked if municipalities could be assisted as their finances had led to Eskom electricity supplies possibly being stopped. This resulted in people being without electricity. Would municipalities get a bailout?

Mr Nomvalo replied that technical teams were dispatched to municipalities to assist with municipal financial management. He said there was a possibility of constitutional intervention under the Municipal Finance Management Act (MFMA). There would be no bailout to municipalities regarding Eskom electricity supply. Eskom was responsible only to supply bulk electricity, they were not the suppliers to individuals. Legislation made provision for processes to be followed before electricity or water was cut.

Mr I Mfundisi (UCDP) asked if it was possible to do a survey on how government was responding to the instruction to pay suppliers within 30 days.

Mr Nomvalo replied that for specific departments the answer was yes.   

Ms Mangena asked if the Accountant general told director Generals whether a particular candidate was not good for a position he was applying for.

Mr Nomvalo replied that happened when serious reservations of the candidates existed. He was usually sent a short list of candidates beforehand.

Mr George asked if Treasury knew whether the interim financial statements would have to be done from the 1^st of April.

Ms Karen Maree, Chief Director Treasury, said that they were monitoring them and they did have a list of those that did not comply. Some departments saw it just as a paper exercise and therefore their reports were not of a good quality.

The Chairperson said the Auditor General’s report suggested that departments were stuck on being unable to deliver unqualified and clean audits. He said there could be irregular spending of half a billion rands, yet if the department reported it, the department received an unqualified audit report. He asked if participation in the FMCMM was voluntary, in view of their list of departments that had not participated. He said elementary controls in some departments were absent.  Was this not an area that required a singular elevated focused effort? He asked this in the light of fruitless and wasteful expenditure. He asked what the trend was on the payments of government suppliers within 30 days. He said many departments failed to note the threat or danger of a weak IT control environment. It worried him that there appeared not to be a sense of urgency in the Treasury’s report. It appeared South Africa was a country looking backwards rather than a country looking forwards in assessing the progress it had made. Departments appeared to be stuck at level three and not able to move beyond this.

Mr Nomvalo replied that the Auditor General’s report was a report on a report and that it was not sufficient if a department received an unqualified report. The accountability report had to be improved. He said participation was not by choice and Treasury had tried to use persuasion and not a stick. Regarding departments being stuck on level three, he said that the value of the report lay in its utilisation.  He said elementary controls did require singular sustained focus. Regarding the payment of suppliers within 30 days, he said at first some departments did not respond. A letter was sent to these departments signed by the Director General of the Office of the President. He agreed that the Treasury and the departments should be forward looking. Regarding IT controls, he said it was important because crime syndicates posed as vendors to gain access to information. Elementary issues had to be dealt with so that management could focus on bigger issues. Treasury was dealing with the issue of Municipal Public Services.

The meeting was adjourned.