Public Finance Management Act (PFMA) implementation: briefing by Treasury & SAMDI
Public Accounts (SCOPA)
29 August 2007
Meeting Summary
A summary of this committee meeting is not yet available.
Meeting report
STANDING COMMITTEE ON PUBLIC ACCOUNTS & JOINT BUDGET COMMITTEE
29 August 2007
PUBLIC FINANCE MANAGEMENT ACT (PFMA) IMPLEMENTATION: BRIEFING BY ACCOUNTANT
GENERAL & SAMDI
Co-Chairpersons: Ms L Mabe (ANC) Mr T Godi (PAC)
Relevant documents
Progress Report on Implementation of Public Finance Management Act by
Accountant General
Building Capacity for Effective Financial Management in Public Service:
SAMDI presentation
Audio recording of meeting
SUMMARY
The Accountant General spoke on the implementation of the Public Finance
Management Act and its Regulations by Departments. He said the Act was being
adhered to more closely each year, but the levels of adherence were not
satisfactory. He had interesting comments about the misinterpretation of the
role of internal auditors and the incorrect deployment of accountants, amongst
other trends. Generally he could see progress and targets were being attained,
but there were also good and proper reasons why the standards were not being
implemented. He outlined a diagnosis and not a justification for certain poor
and unacceptable standards. Generally the poor standards were the result of the
lack of a work ethic and a lack of management and leadership rather than due to
the perennial excuse of lack of skills.
The presentation by the South African Management Development Institute (SAMDI)
outlined the attempts to collaborate with the three tiers of Government to
train officials to have an understanding of, and implement, the PFMA. SAMDI
emphasised that its intention was not to take over or replace but rather
collaborate with the Sector Education and Training Authorities. Members were
concerned that attendees at training courses were the incorrect attendees,
having insufficient authority to thereafter implement the policies and
strategies to which they had been exposed. Alternatively attendees treated
attendance at the course as relief from their departmental duties and were not
diligent in their attendance at, or attentive to, the courses presented.
MINUTES
Implementation of Public Finance Management Act (PFMA) and Regulations by
Departments
Mr Lesetja Kganyago, Treasury Director General, introduced the Accountant
General.
Mr
Freeman Nomvalo, Accountant General, said that this was the eighth presentation
on the PMFA before this Committee. He personally was of the opinion that the
former constant references to skills capacity and shortages had been overplayed
and that the role players concerned should now accept accountability, and
responsibility, for their actions or lack of actions, as the case might be.
Further
he urged all persons concerned to study, and make use of, the reports by the
Auditor General (AG) This was the only way that the Administration of South
Africa could and would be improved so that there was in fact service delivery.
He added that there were improvements as almost without exception, reports were
being provided more timeously and there was greater adherence to budgets but in
both respects there was room for greater improvement, even by the best role
players.
The major challenges remained internal audits, risk management, internal
control and performance managements.
Internal Audits
Mr Nomvalo said that it seemed that there were some role players who
did not understand or take the importance of internal audits sufficiently seriously.
Internal audits themselves frequently required qualification in respect of
internal control. He was of the opinion that the Internal Auditors should
become proactive, rather than reactive, and insist on compliance by the
Departments. On the other hand some Departments were complying with their
Internal Auditors but the question arose was this effective compliance with the
PFMA Act in the light of the Reports by the AG. He conceded that there were
many vacancies in many Departments but he added that the role of the Internal
Auditor was erroneously interpreted. He illustrated that a receptionist at the
front desk could dispense receipts on production of payments, and at the end of
the working day collate the amount of money received, and balance such against
the receipts issued and the total of the receipts issued, and similarly collate
these figures weekly, fortnightly, and monthly. It did not take an auditor, or
even a graduate, to perform such function.
He was of the opinion that there was a misallocation of resources because
either the function and purpose of internal auditing was not properly
understood or the persons appointed as Internal Auditors were not appointed at
the appropriate level with the authority their positions demanded. This inappropriate
or misuse of auditor staff led to their changing to other departments or to the
private sector, where they obtained greater job satisfaction. Associated with
the question of the role of Internal Auditors was their immediate access to the
CFO when necessary. It all turned on the status accorded to the Internal
Auditors within their Departments and by the CFO. This status was more
important than their job descriptions which may well be grandiosely misleading
and differ from the actual status accorded the individual.
In terms of Treasury regulations a Quality Assurance of the Internal Auditors /
Audits was required every five years and this forthcoming year was the fifth
year and would require such Quality Assurance. Additional to this being ongoing
work in progress there was also the question of a National Framework and
National Training of Internal Auditors to ensure uniformity.
Interwoven with this was the fact that in an age of shortage of accountants and
accountancy skills, there was the incorrect deployment of accountants in
positions which were either too low in the hierarchical organogram or because
of personality factors, either from the CFO or even the accountants themselves,
led to the curtailing of the Internal Audit function and process.
Risk Management
This was regarded as a management tool, and as such played an increased
role and there was an increasing demand for data to be pulled out or extracted
from the relevant records and where deficiencies were found for disciplinary
processes to be taken to determine the responsibility of those concerned. This
was tied up or interwoven with training and although there were 203 officials
in training, the optimum use of their training and skills was not being made.
There were programmes to help the provinces and municipalities establish and
implement certain programmes and these would be implemented and officials from
his department rotated to ensure compliance by the provinces and
municipalities.
The AG had drawn attention to the fact that the minimum was Level 2 internal
controls but many of the departments and municipalities had not implemented
this. The framework had now been established with a template, which could be
established and imposed from 2007, and with ongoing work towards establishing
support strategies.
Asset Management
Here the challenges were twofold. Firstly certain departments such as
Defence have an enormous volume of assets to be retained in the legal system
but there was no stability and training in this field. Secondly there were
departments which had a high incidence of turnover of assets, especially at
Level 6-12. He was of the opinion that the relevant Accounting Officer could
take this more seriously and he was engaging with them about this on an ongoing
basis.
Supply Chain Management procedures
There was ongoing implementation of the procedures and again the task
was to persuade and convince the Accounting Officer that the Accounting Officer
was responsible and accountable for the alignment of the Supply Chain Procedures
in line with BBBEE requirements.
With regard to performance, there were ongoing workshops to ensure the
implementation of the requirements in terms of legislation so that there was
assistance of the Auditor General in his work.
Conclusions
Mr Nomvalo stated that he could see progress and targets were being
attained, but there were also good and proper reasons why the standards were
not being implemented. Chief of these was the reason of the multiplicity of
different standards and the lack of a suitable reporting framework. He had met
with representatives of the Accounting and Auditing professions the previous
week for another meeting on the standardization of the framework. This was
another work in progress.
He was intending to use the Internal Audits as an early warning report system
and to this effect was devoting staff and resources to implement this plan.
Additionally he was working towards acquiring these reports earlier in the year
so that rectification work could be undertaken, where necessary, to ensure
compliance with Treasury requirements and forestall any adverse audit reports
by the AG. The provincial bodies were improving but unfortunately there was
always room for improvement.
Further, he was working towards the training within government departments of
chartered accountants, but fully in compliance with the standards of the
profession. The first ten candidates would be beginning their course in January
2008. He hoped that this would have an impact on the shortage of skills.
Another aspect of concern was under-spending which amounted to 2%. In this
regard National Government, notably the Department of Home Affairs, was
“guilty” while the other two tiers of government, especially Local Government,
was improving. However, overall there was an improvement and this question did
not relate to inefficiencies. However, it must be remembered that these were
the preliminary numbers. A matter of interest was that Parliament itself was
not spending all its money but further he could not comment, as he did not have
access to all the data. Unlike the Departments, which have to return all
unspent funds, Parliament retained the funds. His task was to ensure compliance
with the PMFA Act. The task of the respective Accounting Officers was to ensure
compliance with section 38 of the PMFA by their Departments.
South African Management Development Institute (SAMDI) presentation
Mr Oliver Seale explained that SAMDI was transferring to an academy, so as
not to impose itself upon the area of the Sector Education and Training
Authorities. He pointed out that 43% of all level staff in Provincial
Departments reported that they had had no training exposure in 2006. SAMDI was
reconstituting its mandate and was intending to change 100 000 person training
days (PTD) per year to 1 000 000 to approach the international norm of 5 PTD
per annum per employee. The emphasis was on collaboration with existing
structures and not replacement thereof. SAMDI and National Treasury had
identified ten challenges but these were merely the tip of the iceberg. The
implementation strategy for the capacity building for financial management was
in place and has been rolled out since July but the industrial action of June
2007 had had a markedly deleterious effect on this. Capacity building for financial
management in the municipalities (JIPSA ASGISA projects) was supported by
Liberty Life and internal audit training and assistance was supported by Old
Mutual.
Discussion
Mr V Smith (ANC) remarked that he was pleased that the Treasury
Department was not in the “guilty” category. Since 1999 the AG had been
producing qualified reports on Departments emphasising the necessity for
internal controls, maintenance of a full and up to date asset register,
separation of duties and so on and yet you say part of the problem was the lack
of skills. He felt that SCOPA could no longer accept this, the lack of skills
could no longer be an excuse. In his opinion it was not a lack of skills. One
must comply with legislation and regulations but they were fobbed off with the
“lack of skills” story. What skills were in short supply? He was of the opinion
that this problem could not continue and that a skills shortage could no longer
be offered as an excuse. The focus was on the procurement budget and the asset
register. He was of the opinion that a matriculant, not a graduate or an
accountant, should be able to maintain such. He felt the skills shortage was in
management skills in middle management.
Mr E Trent (DA) agreed with Mr Smith. SCOPA could no “longer accept the excuse
of a lack of skills.” Skills and capacity went hand in hand. In fact there was
no shortage of skills for the skills required to defraud the Government on a
massive scale existed and were being implemented. He was of the opinion that
what was lacking was an appropriate “work ethic” from top to bottom.
Additionally, he wished to know who comprised the steering committee of SAMDI
and finally what was the time frame with regard to the plan and monitoring to
make a difference?
A committee member remarked that that the changes to SAMDI were exciting.
Mr Nomvalo replied that there was no ‘critical information’ tests but they
needed a critical institutional railway to produce such.
Ms Dreyer (DA) asked what progress there was with monitoring departmental expenditure,
especially Home Affairs. She asked for clarity on the figure not spent by
Parliament.
Ms Dambuza (ANC) stated that lower level people should not be sent on SAMDI
courses just to have a departmental presence at the courses. All course
attendees should be monitored both while on the courses and on return to normal
duties to determine the efficacy of the courses. Proceeding to the vacancy
rates, she asked what retention strategies were in place to retain staff. The
expense and interacting between departments seemed to be a lack of planning.
Departments applied for budget allocations and did not spend such allocations
appropriately and then claimed to have made savings. Employees could not work
without tools and she wondered what the Human Resources departments were doing
to assist employees.
With regard to SAMDI, she tended to agree with Mr Trent that what was required
was a change in the work ethic and she felt that leadership would provide
effective management and create a different work ethic. She felt that even
Senior Mangers should go on training. She was of the opinion that there should
be standardised synergies which would or could lead to a staggered roll out and
essentially there were no quick fixes to the problems. It all rested upon Management
to provide effective leadership. If the staff at the higher levels lacked
specific accounting knowledge perhaps there should be a specific unit of
“firefighters”. What seemed to be lacking was knowledge among the managerial
units.
The Chair remarked that the training needs had already been identified and that
this was a work in progress but that the departments had problems.
Mr Nomvalo replied that the questions and issues raised were important and that
what he had outlined was a diagnosis and not a justification for the poor and
unacceptable standards. Section 38 of the PMFA did not require capacity, it
required compliance. He conceded that in certain areas there were shortages of
skill. For example in Internal Auditing there were shortages but often those
with the skills were not employed or deployed in the specific area required, or
where they could make an effect. To this effect there were service providers
who could provide leverage, training and supervision. He was of the opinion
that there could always be strategies and a search for the required skills.
With regard to accounting skills it was not only a question of having chartered
accountants but of accountants. Use could always be made of interns in training
to maximise the effect of what skills existed. He conceded that it was a
question of attitude.
As an example he referred to the Chief Finance Officers who were appointed and
held the title but had neither the training, skills nor experience to perform
the work. This unfortunately occurred in the Municipalities where one could
find cashiers holding the position of CFO. There were too many cases of square
pegs in round holes. He agreed that the work ethic could be greatly improved
upon and added that financial management required processes not skills, merely
the energy to implement the processes. Sufficient training together with
supervision could ensure compliance with requirements. Turning to Risk
Management, he conceded that there were technical issues but there was support.
A South African company had produced an acceptable software programme but the
implementation thereof required planning and continuity, neither of which were
skills.
With regard to the Department of Home Affairs, most of the problems had been
identified. There were systemic issues but these had been reported to the
Minister who has appointed a task team. The issues had been identified and
progress was being made. Earlier training did not take into account all the
issues but the treatment of Section 6(1)(d) has motivated the staff and
progress and the benefits would soon be seen.
With regard to Parliament the exact figures could not be seen. It was in the
region of R104 million and comprises both under-spending and vacancies. Whereas
all other departments were accountable to Treasury, it was well documented that
Parliament held that it was not accountable to Treasury. This was an area
beyond his competence and authority to comment upon. However, he was of the
opinion that a modus operandi needed to be arrived at.
With regard to the problem of vacancies and retention strategy, he felt that
this was inevitable. Governmental employment practices were too rigid and this
placed a challenge especially when there were opportunities elsewhere. He
reminded all that he had presented a diagnosis not a cure.
He conceded that there was a lack of planning but the overcoming of this
problem was a question for the executive authorities to combat and devise the
necessary strategies and approaches and put them in place.
Mr D Gumede then took the floor and while commending the Department expressed
the opinion that it was a “people problem at middle management level”, which
was giving rise to all the adverse audits by the AG. He conceded that there
might be adequate strategies, approaches and protocols but middle management
was not implementing these. He asked what were the qualifications of middle
management for he felt the weaknesses at this level were giving rise to poor
morale and disaffection among the staff. He added that the diligent were not
being commended, and promoted, while the less than diligent were being promoted
to middle management, compounding the problems and leading to disaffection. The
punishing of those when there was no implementation was a problem as
implementation was out of the hands of those punished; while those who had
control and were not implementing were not being punished. Finally he asked if
the high vacancy rate arose not from a skills shortage but from management
incompetencies and what analysis of this had been done.
Ms Hlengethwa (ANC) asked about those employees who went on training courses.
What was the responsibility of those who were their superiors to monitor their
performance when they returned to their posts? She was of the opinion that many
regarded their training courses as “holidays.”
Mr T Mofokeng (ANC) raised the problem of solving the accountability issue. He
felt that this was compounded by senior officials being placed on suspension,
which lasted two, or three years on full salaries. When the disciplinary case
was finalised the department lost it and the person was reinstated. He felt
that this was a lack of discipline of those conducting the disciplinary
enquiries. The decision to proceed with a disciplinary enquiry should be made
at the right time. Then when there were questions the officials concerned left
for “greener pastures” but in reality they left to avoid hot water.
Mr Trent added that as a “diagnosis” the departmental officials present were to
be congratulated but he felt the higher officials should not interfere with the
training assessments which he felt were an excellent starting point. With
regard to Parliament’s underspending, he felt that the ball was in their court
for they, the Members of Parliament, must do something about this.
Mr V Smith (ANC) agreed and said that he too was impressed with the production,
as a report. He was of the opinion that SCOPA were specialists and the
department presented the diagnosis but that SCOPA must utilise the powers
contained in Section 81 and fire people. Placing them on suspension did no
good. A few firings would be a salutary lesson to all concerned. He reiterated
the view that it was not a skills shortage but a lack of management or
leadership, which was the problem. He then proceeded to ask to what extent the
labour laws were impacting upon poor performance delivery by the departments.
Ms Dreyer said that she felt that Parliament should be like Caesar’s wife,
beyond reproach. With regard to vacancies in the Public Service she wished to know
at what level they occurred and the percentage thereof.
The Chair said that she felt that there were no monthly figures provided by
Parliament as to the under-spending. With regard to the skills shortage, she
wished this neither to be over or under estimated. She conceded that there was
a skills shortage but she felt it was aggravated by having too many square pegs
in round holes as a result of wrong promotions.
Mr Nomvalo agreed that the problem was the implementation or control of an
acceptable work ethic but he was of the opinion that there were capacity
problems which arose from leadership which failed to implement the right
corrective measures or do so timeously. Some Departments had competent people
but the DG was never in the office. There was one occasion when the CFO had to
go to the airport to have the DG sign the annual report for the Department. In
such circumstances when the DG was away, the CFO acts, but without the
authority and so he would not be effective. Often although there was a job
description and requirements for appointment, because of political influence
the wrong person was appointed. It all came down to Administration!
Administration! Administration. Leadership was important. With regard to
courses there was one instance where an attendee had sloped off early and had
been disciplined for it. At the enquiry he had given evidence but because he
was unable to state that the accused had left at 13h00 or 15h30 or 16h00 hours,
the accused had been found not guilty and absolved.
With regard to the international norm of five days at courses, he felt that
everyone required the re-charging of batteries, monitoring and mentoring and
that perhaps five days were too few for this but it was necessary.
The AG was going to qualify departments, then meet with the DGs and departments
concerned and focus on the future, not the past, for effective management to
ensure that there would no longer be adverse audit reports regarding the lack
of documents, supervision and the whereabouts of the assets. As had been stated
earlier, such activities did not need high skill levels but merely the will to
enforce them. What was required was that in future there must be no pulling
wool over eyes and the people would respond appropriately.
Any dismissal of staff must be in terms of the labour laws which he felt were
an attempt to introduce equity to labour relations for the labour laws were
based on fairness. If human beings were afraid then there would be
inappropriate reactions, which would bring the wrong message to all concerned.
He was of the opinion that there was a fear of dealing with problems up front.
If they were dealt with at an early stage before they could be regarded as
“serious” then all problems could be solved proactively rather than reactively.
He felt that management must manage.
Wasteful expenditure to avoid under-spending was not defined and must be
identified properly in terms of the PMFA and if no action was taken then this
gave rise to major questions.
Vacancies must be treated with fairness and equity. When vacancies were
identified it took ages for the selection panels to be formulated, the
shortlisted to appear before the panels and not selected. It was this time
wasting process which led to skills in short supply being recruited by the
private sector which operated more swiftly. He suggested that when a vacancy
was identified that simultaneously with the stage of establishing the job
criteria and the decision to advertise, the selection committee be formulated
and advised of the dates when they were to meet and be required to enter such
in their diaries.
Mr Seale stated that training, capacity and performance could not be separated,
as they were all inextricably intertwined and that the effectiveness of the
training to be established so that the impact of the training could be
measured.
Mr Nols du Plessis (Chief Director: Specialist Services, Treasury) said that it
all amounted to a people problem for people were not doing what was required of
them. Chapter 10 of the PMFA set out what was required. Disciplinary procedures
were to take place in terms of the provisions of the Labour Relations Act.
There were 3 to 4000 cases of financial mismanagement where it was the
responsibility of the CFO who did not enforce regulations and no action in
terms of Chap 10 was taken. He suggested that the right or correct signals
should be sent out as a salutary lesson and any money lost should be recovered.
The Chair stated that they were happy with the presentation but felt that a
closed-door session going into a focus on departments might be beneficial and
advantageous.
Ms Letibe remarked that the presentation was of a gloomy nature but wanted to
know what the general trends might be What had been the general indicators over
2001 to 2006 was there a declined an increase in misconduct and a failure to
apply leadership.
Mr Swart wanted to know whether this would be applied to the municipalities as
well.
Ms R Mashigo wanted to know what the relationship between SAMDI and the SETA
was. She wanted to know whether SAMDI was planning to take over the SETA and
just what was the role of SAMDI?
Mr Titha commended the presenters on their diagnosis of the lack of skills and
lack of capacity. He felt that if the wrong person was selected for a training
course, this was wasteful expenditure especially since with the costs involved,
the trainee did not add value. Were the departments aware of the diagnosis?
Mr Mnchunu said that when MPs tried to assist it appeared as interference and
he wanted to know how they could work together. Additionally at the end of the
financial year no one seemed to account for the money spent.
Mr Trent felt that the Central Government was transferring money and only about
90% was being spent and that perhaps the conditions were too onerous. Further
with regard to Supply Chain Management and Asset Management he felt that they
were two sides of the same coin.
Mr Godi (PAC) remarked that the AG also provided a report outlining the
problems and he asked to what extent these reports mirrored the AG. Out of the
28 departments, which were the problem departments? He felt that a focus on
such department would be beneficial. Additionally Treasury wished to have the
PMFA applied and he wanted to know whether it was not time to apply Section
6(1)(c). He asked to what extent were all the Directors General utilised in
complying with the PMFA. With regard to fiscal dumping, how were the CFOs
monitored and observed. What measures were there to monitor training for it
could be wrong training, or the wrong person being training?
With regard to the people issues, it seemed that having the hierarchy in mind
and with compliance and management in mind, the lower the level, the less
responsibility was taken or demanded.
The Chair wished to know in terms of the division of revenue, what percentage
went to training
Mr Seale replied that the responsibility of SAMDI was not to take over from the
SETAs but to work in collaboration, especially with cross departmental issues.
The left hand of government needed to know what the right hand of government
was doing. Training was not to be regarded in the abstract but that there
needed to be a more realistic assessment of training.
Mr Nomvalo said that the general trend was that the PMFA was being adhered to
more closely each year, but of course the levels of adherence were not
satisfactory. In addition there were increasing levels of reporting required
and achieved and so the perception might be disadvantageous to the departments.
Even with regard to asset management there were increasing requirements each
year and these were in advance of the developments by the Departments and so
the levels of achievement were not necessarily deteriorating.
In terms of leadership, this was focussed on the DGs and the CFOs. There were DGs
who left everything to the last possible moment. However, they were successful
in bringing about changes of attitude among the DGs. With regard to Local
Government, he was of the opinion that they were halfway between the issues of
the past and where they should be. Last year was the first year that
municipalities had to report in terms of PMFA and although nothing was
satisfactory, there were ongoing meetings and the challenges in skills and
accountancy requirements were being met.
With regard to training he agreed that if the person who should not be on the
course was there, it was a waste and also where there was a person on training
but no plan by the department for utilising him after training. The picture was
being monitored and analysed. He has written to municipalities about the
requirements and municipalities were taking disciplinary action against non
compliers.
Wasteful expenditure instances were being analysed to see where, and why, such
arose and what could be done to minimise or obviate it in future.
Mr Mnchunu’s questions require interaction between Portfolio Committees that
have oversight functions. Supply Chain Management was a problem with political
influences which people shy away from confronting. In the municipalities
especially there needs to be a recognition of, and challenge to, the
relationship between the executive and the political authorities, as there
would always be an issue of conditions between Treasury and the departments.
Money being made available where there was no capacity to spend it, would
always be a problem but there was a responsibility to develop capacity. The
difference between Asset Management and Supply Chain management was recognised
as a weak link but it would be monitored and attended to. The problem was where
Supply Chain Management acquires, asset management supposedly preserves and
Supply Chain needed to dispose of the (missing) asset.
The problem was to get the departments forwarding the correct information
timeously to Treasury and then Treasury acting on it. It was different from
four years ago and there were now systems of analysis. The aim was to
anticipate what the AG would report, before he reported it and to install or
implement the necessary corrections instantly.
Section 6(2)(c) of PMFA allowed investigations and Treasury was trying to
anticipate, to be proactive, to obviate adverse audits from the AG.
Finally there was a forum of DGs at which mutual problems were highlighted
discussed and attempts made at solving the problems. But above all what was
required was a change of attitude among the Financial Officers.
The meeting was adjourned.
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