PFMA SEMINAR. February Carin Strickett

Transcription

1 PFMA SEMINAR February 2005 Carin Strickett

2 The rules of the presentation Three sessions Now After tea Before lunch Clarification of issues in question time at end of each session

3 Agenda Introduction of PFMA Framework of the PFMA Focus of the PFMA Roles and responsibilities Practical impact of the PFMA Conclusion Questions

4 The PFMA A Framework Session 1

5 Introduction of the PFMA What is the PFMA? Why is the PFMA necessary? Who does the PFMA apply to? When is PFMA applicable?

6 What is the PFMA? Public Finance Management Act no. 1 of 1999 amended by Act no. 29 of 1999 supported by Treasury Regulations Mandated in terms of section 214 of the Constitution Overriding Financial Legislation

7 Where does the PFMA fit? The Constitutional Framework The Constitution of the Republic of South Africa, 1996 Act 108 of 1996

8 The Constitution RSA is one sovereign democratic state with specific constitutional values Supreme law of the country Law or conduct inconsistent with it is invalid Obligations imposed by it must be fulfilled There is a Bill of Rights

9 The Constitution Co-operative operative government: Three spheres of distinctive, interdependent & interrelated governance Establishment of Parliament as the Legislative authority of the Republic The President and the Deputy President National Cabinet as the Executive Authority

10 The Constitution There is a National Council of Provinces National Legislative Process Establishment of nine provinces with own Legislatures State institutions to support Constitutional Democracy

11 The Constitution Establishment of Local Government consisting of three levels of municipalities Judicial framework of Courts & Administration of Justice State institutions to support Constitutional Democracy

12 The Constitution There is a public administration Protection of the State through the security services A role for Traditional Leaders The Finance Framework! General provisions

13 National Government Courts & Administration of Justice The Constitution of the Republic of South Africa Act No. 108 of 1996 Parliament 350 to 400 delegates State Institutions Supporting Constitutional Democracy Public Protector Human Rights Commission Commission for Gender Equality Auditor General Electoral Commission National Assembly National Council of Provinces 10 Delegates per Province (6 Perm) FFC National Executive - Cabinet President, Deputy President, Ministers & Deputy Ministers Public Administration - National Departments 36 Departments National Public Enterprises

14 Provincial Government The Constitution of the Republic of South Africa Act No. 108 of Section 103 to 150 Legislature 9 Provincial Legislatures Provincial Executive Executive Council Premier & 10 MEC s Public Administration - Provincial Departments Accounting Officers Heads of Department Agriculture Economic Affairs Finance Health Education Welfare Transport Housing Sports Safety Premier

15 Why is the PFMA necessary? The objectives of the post 1994 government The advent of the RDP as a philosophy Economic stability and certainty Limited resources to meet unlimited needs Working to a balanced budget Deficit before borrowings not exceeding 2,5%

16 Why is the PFMA necessary? The PFMA and the PSA Corporate governance Best financial management practices Predictable financial performance by the state and its agents Introducing Best Practice human resource management Accountability and responsibility framework A changing world if you don t t catch up, nobody will wait for you

17 A point of departure Financial administration is rule bound Accounting Officers are passive lack of active financial management Focus on inputs with a disregard for outputs Non-consumer orientated public service Fiscal constraints hampering the eradication of backlogs Need to improve value obtained for money spent

18 Achievements since 1994 Budget decentralisation Shift to multi-year budgeting and annual budget review In-year management & reporting- early warning system and practice guideline Programme management system Less focus on inputs more on outputs International classifications Presentation of AFS by August 31

19 The Status Quo Still division of physical & financial responsibilities Priorities are not fully reflected in budget Expending cash main measure of performance Poor use of capital resources Entries on ledger and budget inconsistent

20 The Status Quo Lack of reliable and timely information Poor monthly revenue & expenditure monitoring Non-compliance with existing legislation - unauthorised expenditure Fraud, theft and wastage remains a problem Legacy systems lack integration

21 Vision of the PFMA Essentially a new approach Government performance measured against international standards and expectations RDP philosophy: maximise service delivery Limited resources vs. Unlimited needs Satisfy constitutional obligations Transparency and accountability (s216) Replaces former Exchequer Acts at national government and provinces

22 Difference between Acts Exchequer Act Cash based accounting Focus on measurement of inputs Non customer orientated Treasury Instructions rule bound Little accountability and penalties Lack of reporting guidelines & obligations PFMA Accrual based accounting Focus on outputs & outcomes Devolvement of accountability & responsibility Treasury Regulations focus on making managers accountable Better reporting & information

23 The PFMA as a solution Modernising financial management and creating a best practice based financial management framework Enabling managers to manage - better information Make managers accountable Best Practice Innovation

24 Therefore PFMA is a process and NOT an event good financial management as a principle of governance

25 Desired Outcomes: Medium Term Employment of competent managers, CFOs Standardised chart of accounts across departments & provincial administrations Data on assets and liabilities recorded and maintained

26 Desired Outcomes: Medium Term Performance measures defined (budget/outcome based) Personnel trained on new PFMA requirements and processes Public entity financial management & reporting framework agreed

27 Desired Outcomes : Long Term Implementation of sound financial management systems and processes Development of transparent budgeting process Effective management of revenue, expenditure, assets and liabilities Timely, accurate reporting that reflects the actual financial and delivery situation

28 Desired Outcomes : Long Term Strive for unqualified consolidated financial statements, prepared on the accrual basis Accountability of public entities & external agencies on the same level as other entities Competent civil service focussed on delivering quality results to its clients

29 What Will PFMA Change? Formalisation of in-year monitoring to improve information flows and performance Accountability of all managers through implementation of performance contracts requirement of the PSA CFO Effective internal audit Audit committee

30 What Are the Act s Benefits? Greater flexibility, within framework Basis for assessing performance Linkages between planning, budget & delivery Focus on outputs & responsibilities Improved accountability Clarity of role of accounting officer A basis for - Better use of resources & improved delivery of services

31 Who does the PFMA apply to? Legislative Authority Provincial Government National Government Oversight Parliament Executive Authority National Cabinet Legislative Authority Oversight Legislature ExecutiveAuthority Executive Council Control Environment GRAP s 6(2)(b) Treasury Regulations s76 Risk Management s 38(1)(a)(i) Performance measurements Internal Controls s 38(1)(a)(i) AO Instructions Control Environment GRAP s 6(2)(b) Treasury Regulations s76 Risk Management s 38(1)(a)(i) Performance measurements Internal Control s 38(1)(a)(i) AO Instructions Major Public Entities Other Public Entities Provincial Public Entities Constitutional Entities Departments Programmes Departments Programmes Auditor General Audit of Annual Report and Financial Statements s 40(2) & s 55(1)(c) Audit Framework GRAP / Annual Financial Statements Performance Auditing of Annual Report Provincial Auditors General Audit of Annual Report and Financial Statements s 40(2) & s 55(1)(c) Audit Framework GRAP / Annual Financial Statements Performance Auditing of Annual Report

32 Since when is the PFMA applicable? Effective 1 April 2000 Some sections phased in over a period of 5 years most now in place GRAP not finalised yet Accrual accounting not implemented yet

33 Questions

34 The Accountability Framework Session 2

35 Accountability Framework of the PFMA The Constitution Vision (focus) of the PFMA Why did we have to transform Finance?

36 Constitution Chapter 13 Section deals with Finance Section 214 Finance Act (PFMA & MFMA) and allocates revenue Section 215 Budgets Section 216 Treasury Section Procurement

37 Vision (Focus) of the PFMA Accountability Transparency Output focused Expenditure control Measuring performance

38 Accountability Instruments The parliament,, as representative of the people and custodian of their resources Portfolio committees - role in planning, budgeting & monitoring Standing committee on public accounts - proxy for parliament Auditor-General eneral: : ParliamentP arliament s independent and objective assurance provider the proverbial watchdog!

39 Accountability relationships Legislature Independent, objective information Transparency Constitution confers Accountability reporting Audit Reporting Constitutionally empowers Auditor-General Executive Audit Political Operational

40 ELEMENTS OF ACCOUNTABILITY Parliament/Legislature 1. ACCOUNTABILITY for OUTCOMES 2. AGREEMENT - OUTCOMES Minister MEC A O Line managers 3. PERFORMANCE CONTRACT - OUTPUTS 4. DELEGATION - OUTPUTS (Budgets) 5. STATUTORY ACCOUNTABILITY - OUTPUTS 6. MANAGERIAL ACCOUNTABILITY

41 Political & Statutory Accountability Political accountability Convention and tradition, leading to political sanction Political direction & policy (outcomes) Relationship with cabinet, parliament and voters Single point and collective Statutory accountability Statutory sanction Execution of political direction within legislative criteria (outputs) & operational policy Relationship with parliament Single point

42 How Accountability may work Suppose Unauthorised expenditure occurs - SCOPA MAY ask AA these questions: Did you appoint a competent CFO? Were Monthly reports produced on time? Was remedial action instigated timeously? Are Internal Controls operating as designed? IF NO, may find FINANCIAL MISCONDUCT

43 Framework for Accountability The PFMA provides a legislative framework for managers to manage their departments focusing on these key elements in a flexible, innovative way, but still holding them accountable

44 Why do we need controls in an environment of accountability? Some entities understand how risks and controls can be optimised to enable their resource utilisation, for meeting service delivery needs, to be effective, efficient, economical and transparent. Cars have brakes so that they can go faster, not slower.

45 Transparency of the PFMA Transparent but not.. Naked!!!!!

46 Output focused Where we came from versus what we want Outputs and outcomes

47 Inputs versus Outputs Directives Tasks Processes Resources Don t t always address the what ifs Achievements Measurable goals Signposts Significant indicators which reflect desired performance The end result Directed towards outcomes

48 Mapping outcomes & outputs Outcomes & Outputs Departmental, Functional or Business Planning Balanced Scorecard Perspective Strategic level, purpose Tactical level, products & services, deliverables Operational level, activities Outcomes (indicators: effectiveness) Output (indicators: quality, quantity & price) Processes/ Activities Departmental Vision/ Mission/ Objectives Directorate Strategies, Goals, Key Result Areas Functional & Directorate/ Sub-Directorate Plans Financial Innovation & Improvement Internal Processes Customer Service

49 VFM 3Es Value for money Economy Are we getting the right inputs at the best cost.. (getting a good deal)? Efficiency Are we getting the most output from our inputs.. (getting a lot for the efforts)? Effectiveness Are the outputs achieving the results we want.. (doing the right things)?

50 Expenditure Control Deficit situation increasing prior to PFMA Expenditure out of control spending what we don t t have Not yielding results that had an impact on society

51 Measuring performance Performance measurement is directly linked to the concept of managing for results Performance measurement Measuring programme performance against predetermined objectives Performance contracts Management instrument used to define and measure the outcomes of responsibilities and expectations

52 Why did we have to transform? Lack of timeous management information & not meeting reporting deadlines De-motivated staff Finance function & IT systems are not aligned Reporting process is too manually intensive Various unclear lines of respon -sibility Consolidation & Aggregation process is ineffective Accounting systems do not fully support the administration No meaningful analysis of information or results produced No measurement of performance & strategies

53 Questions

54 Roles Defined Session 3

55 Roles and responsibilities Overview Clarity of roles Minister/MEC Accounting Officer (AO) Chief Financial Officer (CFO) Other Officials Auditors (Internal and External)

56 Overview Executive authorities responsibilities: Financial, S63 Directives, S64 Tabling in legislature, S65

57 Overview Accounting officer s s responsibilities: General, S38 Budgetary control, S39 Reporting, S40

58 Overview Chief Financial Officer (CFO) responsibilities ito the Treasury Regulations, Part 2 Specific responsibilities for other officials ito: Delegations by the AO (S44) and S45

59 Clarity of roles Executive authority Policy priorities Outcomes Present, approve & report on the budget Accounting officer Accountable for outputso Accountable for financial management Implement the departmental budget

60 Clarity of roles Executive authority Table annual report & audit opinion Monitor performance of the accounting officer Oversight for public entities Accounting officer Maintain efficient, effective & transparent systems of financial management Performance contracts Enforce discipline Delegation of powers to the CFO and other officials

61 MIN/MEC: Financial responsibilities, S63 Perform statutory functions within the limits of authorised funds of vote Consider monthly reports ito S39(2)(b) and S40(4)( c), in performing statutory functions Ensure that public entities comply to the Act and financial policies of the executive

62 MIN/MEC: Directives, S64 Where directives of the MEC has financial implications: The directive must be in writing If the directive results in unauthorised expenditure, the AO will be responsible unless the AO has informed the MEC accordingly If the MEC proceeds to implement the directive it must be in writing and include the reasons for doing so the AO must file a copy of this instruction with the relevant Treasury and the AG

63 MIN/MEC: Tabling in legislature, S65 The executive authority must table the following: Annual report and annual financial statements [S40(1)(d) and S55(1)(d)] and the audit report within one month of receipt of the audit report Failure to table the aforementioned by 30 September: The executive authority must table a written explanation for the delay The AG may issue a special report for the delay

64 MIN/MEC: Tabling in legislature, S65 The executive authority must table the following: Findings of any financial misconduct cases heard against the AO or accounting authority of a public entity [S81 and S83] If the directive results in unauthorised expenditure, the AO will be responsible unless the AO has informed the MEC accordingly

65 Changes for the Minister, MEC For department Delegate to AO, performance contract to specify outputs Receive & consider monthly & quarterly reports Monitor performance of AO against contract Present financial statements, annual report & audit opinion to legislature by 31 August annually

66 Changes for the Minister, MEC For public entity Approve budget of Schedule 3 non business entities Receive & consider monthly & quarterly reports Table financial statements, annual report & audit opinion in legislature

67 AO: General responsibilities, S38 The accounting officer must ensure: Effective, efficient and transparent systems of financial & risk management & internal control System of internal audit under the control and direction of an audit committee Appropriate procurement and provisioning system which is fair, equitable, transparent, competitive and cost-effective Proper evaluation of capital projects prior to final decision

68 AO: General responsibilities, S38 The AO is responsible for the effective, efficient, economical and transparent use of resources The AO must take effective and appropriate steps to: Collect all money due Prevent unauthorised,, irregular, fruitless and wasteful expenditure Prevent losses from criminal conduct

69 AO: General responsibilities, S38 The AO must take effective and appropriate steps to: Manage working capital efficiently and economically Safeguard and maintain all assets Manage liabilities Comply with tax, levy, duty, pension and audit commitments required in law

70 AO: General responsibilities, S38 The AO must take effective and appropriate steps to: Settle contractual obligations within agreed periods normally 30 days after invoice Disciplinary action where necessary Transfer payments - written assurance on financial management and internal control systems Take into account all relevant financial considerations, including value for money, when policy proposals are considered

71 AO: General responsibilities, S38 The AO must take effective and appropriate steps to: Consult with treasury when new entities are established Compliance with banking, cash management and investment frameworks Deposits into Revenue Funds Budgeting and reporting requirements

72 AO responsibility: Budgetary control, S39 The AO must ensure that: Expenditure is in accordance with the vote and the main divisions Effective steps are taken to prevent unauthorised expenditure

73 AO responsibility: Budgetary control, S39 The AO must report to the executive authority & the relevant treasury any impending: Under collection of revenue due Shortfalls in budgeted revenue Overspending of the department s s vote or a main division Comply with remedial measures imposed by the relevant treasury to prevent overspending

74 AO s reporting requirements Section 40 (1) & (2) 1 April Start of Fin Year AO must keep full, proper records of financial affairs Prepare financial statements annually - GRAP To AG for auditing; Relevant Treasury consolidated FS Submit AFS 31 May 2 Months after start of Fin Year To Relevant Treasury; Executive authority (Dept /Trading entity) Submit audited AFS; AG s report on AFS & Annual report on activities 31 Aug 5 Months after start of Fin Year AG must audit & submit audit report on AFS to AO within 2 months of receipt of AFS

75 AO s reporting requirements - Department Section 40 (3) Annual report & audited AFS must: Fairly present state of Dept / Trading Entity / Constitutional Institution >Business >Financial results >Performance: Predetermined objectives >Financial Position Include particulars of: >Material losses through criminal conduct >Unauthorised expenditure >Irregular expenditure >Fruitless & Wasteful expenditure >Any material losses recovered / written off >Any other matters that may be prescribed If unable to comply: AO report with reasons to Executive Authority & Treasury

76 What changed for the AO? Accountability becomes explicit Procedural controls replaced by frameworks Accountable for outputs, not only propriety Planning responsibilities linked to budget

77 What changed for the AO? Specific assignment of AO responsibilities Appointment of CFO with greater competence Specific statutory timeframes & sanctions Obligatory transparency not left to AG to discover sins

78 AA s reporting requirements Section 55 Start of Fin Year AA must keep full, proper records of financial affairs Prepare financial statements annually - GRAP / GAAP To auditors for auditing; GBE / Ownership control; to relevant treasury Submit AFS 2 Months after start of Fin Year To relevant Treasury, Executive authority; If AG not auditor, to AG Submit audited AFS; Auditor s report on AFS & Annual report on activities 5 Months after start of Fin Year

79 AA s reporting requirements Section 55 Annual report & audited AFS must: Fairly present state of Public Entity >Business >Financial results >Performance: Predetermined objectives >Financial Position Include particulars of: >Material losses through criminal conduct >Unauthorised expenditure >Irregular expenditure >Fruitless & Wasteful expenditure >Disciplinary actions iro losses, irregular, fruitless, Wasteful expenditure >Any losses recovered / written off >Financial assistance received from State; >Commitments made by State on its behalf (Guarantees) >Any other matters that may be prescribed >Include AFS of subsidiaries If unable to comply: AO report with reasons to Executive Authority & Treasury

80 CFO: Position on the Organisational structure Example: a large department Accounting officer/ HOD Chief Director Chief Director CFO Example: a smaller department Accounting officer/ HOD Director Director CFO

81 CFO duties (TR 2) Provision of timely and accurate flows of financial and other operational information Maintain an efficient and effective system of internal control Maintain full and proper accounts and records of the financial affairs Efficient and effective management of expenditure and expenditure commitments, revenue collection, assets (including debtors and inventories), liabilities and cash flows

82 CFO duties (TR2) Monitor financial risks to which the organisation may be exposed Costing and pricing of the organisation s products and services Assist with programme performance measurement Sound budgeting and budgetary control practices

83 CFO duties (TR2) Timely production of financial reports Preparation of the annual financial statements Sound budgeting and budgetary control practices Timely production of financial reports

84 Delegations to officials by the AO, S44 Accounting officer may delegate powers in writing Subject to limitations and conditions of PFMA Subject to limitations imposed by Accounting officer Delegate to position or individual Responsibility remains with Accounting officer

85 Delegations to officials by the AO, S44 Assign duties in terms of the PFMA Accounting officer may confirm, vary or revoke decisions taken by other officials Responsibilities (within area of responsibility) Must ensure that the system of financial management and internal control is carried out Ensure the t effective, efficient, economical & transparent use of financial & other resources

86 Responsibilities: Other officials, S45 Responsibilities (within area of responsibility) Prevent unauthorised, irregular, fruitless & wasteful expenditure and under collection of revenue Must comply with provisions of the Act (including delegations ito S44) Management, including safeguarding, of assets and liabilities

87 Questions

88 PFMA and the external auditor Session 4

89 Importance of public sector auditing Audit assists in the accountability process contributes to the change and reform process contributes to improving public sector management

90 Types of audits Auditing of outcomes and outputs (Annual Report) Regularity audits Performance Auditing (Value for money) 3Es

91 Regularity Audit Accounting Officer / Authority Responsibility: AFS Compliance to statutory and policy directives Section 38, 39 & 40 Section 50 & 55 AG Responsibility: Express opinion on AFS & compliance to directives Draw attention to material cases: Grant exceeded / utilised for other purpose Detrimental use of assets Unauthorised expenditure Inefficient / Ineffective internal controls & management measures Matter in public interest

92 Standards Internationally developed Generally Accepted Government Auditing Standards Field Standards: High quality Economic, efficient, effective and timely manner Work of audit staff: Supervised, documented, reviewed Judgment & Conclusion re organisation, program & activity of function supported by competent, relevant & reasonable evidence Study and evaluate reliability of internal control determine external control Extent & Scope of audit Test compliance with laws & regulations REPORT R E P O R T Analyse AFS acceptable accounting standards for financial reporting & disclosure are complied with; Analyses of AFS rational basis express opinion on AFS

93 Modus Operandi Planning Execution Reporting Audit Plan Focus: High risk areas Steering Committee: Management Audit Team Audit Findings May not impede Auditors independence Final Report: No surprises Time / Opportunity for corrective action

94 Performance Audit Accounting Officer / Authority Responsibility: Resources procured economically; Used efficiently. AG Responsibility: Express opinion Measures implemented? Uneconomical use of resources; Not in best interest Performance audit of management arrangements address: Measures to monitor: Results: Predetermined objectives & Performance standards Section 38, 39 & 40 Section 50 & 55 Systems for planning, budgeting, authorisation, Control & Evaluation of Revenue, Expenditure, Resources Factors beyond control -> Impact on institution Proper resource management Measures aimed at: Deriving economics of scale / expertise (provision of goods / service) Steps aimed at: Improving 3E s Proper assignment of responsibilities, powers, accountability

95 Investigate effects of policy Not function of AG to question policy Must report on overall management measures governing policy decisions & effect of policy Necessary authority? Based on adequate & reliable information? Goals defined adequately? Decisions on implementation <-> approved goals & objectives Resulting instructions clearly understood? Discrepancies policy goals: implementation methods? Cost of alternative service levels?

96 Modus Operandi Planning Field work Reporting Limited to more important aspects Steering Committee: Management Audit Team Follow-up Audit Focus areas Criteria Findings Conclusions Final Report: No surprises Time / Opportunity for inputs & corrective action

97 Auditing of outcomes and outputs Outcomes & Outputs Departmental, Functional or Business Planning Balanced Scorecard Perspective Strategic level, purpose Tactical level, products & services, deliverables Operational level, activities Outcomes (indicators: effectiveness) Output (indicators: quality, quantity & price) Proceses/ Activities Departmental Vision/ Mission/ Objectives Directorate Strategies, Goals, Key Result Areas Functional & Directorate/ Sub-Directorate Plans Financial Innovation & Improvement Internal Processes Customer Service

98 Auditing of outcomes and outputs Accounting Officer / Authority Responsibility: Reporting on performance against predetermined objectives AG Responsibility: Express opinion Performance against Targets as stipulated In objectives (reflected in KPIs) Auditing of outcomes and outputs Section 38, 39 & 40 Section 50 & 55 Measures to monitor: Results: Predetermined objectives & Performance standards Effectiveness reporting framework Is a good guideline to base your audit on Proper assignment of responsibilities, powers, accountability

99 Public Entity Auditors Appointment of Auditors for Public Entities If audit is not performed by AG Section 15 Public Accountants & Auditors Act, 1991 Auditor-General Section 58 Must consult with AG on appointment Not veto

100 Public Entity Auditors Discharge of Auditors Before expiry of term of appointment AG must report any discharge ito this section to Parliament Section 59 By Executive Authority after: Consultation with Accounting Authority If EA intends discharging: must Give written notice of proposed discharge with reasons Give auditor opportunity to make written representation to EA & AG within 20 days. Concurrence of AG

101 Public Entity Auditors Perform function of office as auditor ito sect 20 of Public Accountants & Auditors Act, 1991 Section 60 (1) & (2) Access at all reasonable times to accounting records (Books, vouchers, documents & other property) May require from accounting authority such information, explanations as are necessary for purpose of audit May investigate if there are adequate measures and procedures for proper application of sound economic, efficient & effective management

102 Public Entity Auditors Section 60 (3) & (4) Auditor duly appointed may consult with AG concerning any matter relating to the auditing of the public entity concerned: Auditor duly appointed: Must receive notice of every audit committee meeting of entity May attend & participate in any meeting of audit committee at entity s expense

103 Public Entity Auditors Report of Auditor duly appointed Address to Executive Authority State separately iro each of following matters if in auditor s opinion: If entity s AFS fairly represents financial position & results obtained in accordance with GAAP (GRAP) Applied on basis consistent with that of preceding year Section 61 (1) If required by AG: Performance measurement in AFS Is fair in all material respects, If applicable: consistent with previous year Transactions that came to auditor s attention were in all material respects in accordance with mandatory functions of public entity ito law or otherwise determined

104 Public Entity Auditors The auditor: Section 61 (2) Report to EA result of investigation Sect 60(2)(c ) May investigate if there are adequate measures and procedures for proper application of sound economic, efficient & effective management In such report: draw attention to any other matter within auditor s investigation, which, in auditor s opinion, in public interest, be brought under Parliament s attention.

105 The Role of Internal Audit Session 5

106 Internal Audit s Traditional Role monitoring compliance with policies and procedures and reviewing financial controls SAICA

107 How Does Internal Audit Fulfil its New Role? By enhancing managements understanding of risk management and the underlying concepts, and assisting them to implement an effective risk management process Providing objective feedback on the quality of organisational controls and performance

108 Internal Audits New Role The role of the internal audit function in corporate governance is to support the board and management in identifying and managing risks and thereby enabling them to manage the organisation effectively SAICA 1998

109 An effective Internal Audit Organisations should have an effective internal audit function that has the respect and cooperation of management

110 Effective? Effective Respect and co-operation

111 Effective Internal Audit Traditional role monitoring compliance with policies and procedures & financial controls Best Practice dynamic management tool responding to organisation & managerial changes positive contribution to achievement of organisation s objectives

112 Characteristics of an Effective Internal Audit Function Independence Professional proficiency Scope of work Performance of audit work Management of the internal audit function Ensuring quality SAICA 1998

113 Scope of IA Work encompass all areas in which IA can further the aims of the department by assisting the executive and management to identify and manage risks

114 Questions

115 Practical Impact of PFMA Session 5

116 Practical impact of the PFMA How ready is/was Government for PFMA implementation? What needed to change? PFMA key deliverables Actions implemented Observations Key issues in times of change Did implementation happen? PFMA goal Priorities

117 How ready is/was government for PFMA? Over optimistic will have it all implemented within 5 years Much slower than anticipated especially i.t.o. technical issues GRAP, Budgeting, Strategic Planning Extent of lack of financial capacity significant Performance measurement (internal and external including auditors) Remains a fantastic opportunity for growth

118 What needed to change? Reporting process too manually intensive Consolidation / aggregation process ineffective Reporting deadlines are seldom met There is a lack of timeous management information Accounting systems not clearly supportive of business of department

119 What needed to change? Finance function and IT systems not clearly aligned - not integrated - there are different accounting and recording systems No meaningful analysis of information / results produced No measurement of performance/strategies No clear lines of responsibility/various lines Demotivated staff

120 What Do the Changes Mean? Business NOT as usual

121 Implementation Effort Needed From All 9 Provinces 738 AD/DD in Financial Management Accounting Clerks 36 National Departments 10 Constitutional Institutions in Financial Management Support 10 legislatures 47 National Public Entities 26 National Business Enterprises State Accountants 20 Major Public Entities in Salary Administration 11 Provincial Business Enterprises in Gen. Financial Management 83 in Internal Audit 101 Provincial Public Entities 414 Treasury & Financial Systems Support Assistant Director & Above

122 PFMA key deliverables Environmental changes Expenditure outcomes and new budget allocations Strategic direction changes Annual review Strategic plan Medium term budget 3 years Updated annually Includes budget information Year 1 Detailed focus on first year of strategic plans Includes output and service delivery information Expenditure trends 3 Year forward estimates Strategic direction explained Previous year's outcome incorporated when deciding resource allocation Individual performance plans Staff have performance agreements and individual development plans Linked to departmental key objectives and outputs Indicate individual contribution towards achieving departmental objectives Performance against budget and strategic plan Meeting reporting requirements - Treasury and Public Service Regulations Annual reports Monthly/ quarterly reports Progress against budget and implementing strategic plans Highlights departmental performance (financial and non-financial) against targets

123 Treasury Regulations A Framework Part 7 - Underlying Philosophy: Accounting & Reporting Requirements Basic accounting records and standards, financial reports, annual financial statements and annual reports Part 1 Definitions Part 4: Revenue and expenditure management Part 2: Management Arrangements CFO Misconduct Internal control Part 3: Planning and Budgeting Part 8: Miscellaneous: Trading entities Commissions & Committees of inquiry Gifts, donations, etc. Payments and refunds Repeal of legislaion Part 6: Frameworks Banking & cash management PPP s Part 5: Asset and liability management Part 9: Public Entities

124 Vision, Strategies & Plans Vision years Strategy 3-5 years Plans 1 years

125 Why plan? Many people will say that planning is unnecessary and that they get by without it This may be fine in some circumstances, but where the environment is complex it will result in failure Low High Degree of planning Possible overkill Muddle through Success Failure Low Environmental complexity High

126 Planning & Measurement Framework Management instrument used to define responsibilities and expectations Performance Contracts Performance Measurement Measuring programme performance against predetermined goals Strategic Plan Operational Plan Strategic Plan is basis for programme identification Year 1 of Strategic Plan including Programme objectives

127 Budgeting & Costing of Services How much? Quality? When? Cost? Organisation: Provinces Departments Public Entities Outcomes Outputs Activities = Budget Effectiveness Economy Efficiency Type of expense: Salaries Supplies Depreciation, etc.

128 Actions implemented for PFMA Assessing systems of internal control, risk management, reporting, etc. Establishment of Internal Audit function Developing, implementing & maintaining guides, procedures, processes & internal departmental prescripts to ensure 3 E se Determining and granting delegations Elimination audit query backlogs

129 Observations in implementing PFMA Factors that have hampered PFMA implementation include: Resistance to change by key role players Ineffective and insufficient planning (SP process flawed) Skill shortages at support level especially Resulting in: Statutory violation Inefficient and ineffective management of resources and wasteful expenditure

130 Lack of communication LET s TALK! What is my responsibility? I do not know how to I was never informed about What procedure must I follow? What new regulations?

131 Lack of capacity NON DELIVERY - WHY? We do not know how We did not receive training It is not my job The person who does it, is not here I DON T T KNOW!

132 Information technology HELP! My computer is too slow I can t t access the file My computer has a virus I did not receive the e request I cannot use Excel How do I: save a file to a disk? how do I retrieve my e-e mail?

133 Basic Accounting System (FMS/BAS) MURPHY s LAW! If anything can go wrong, it probably will! What report do I need? How do I request it? Conversion to what? Where do I get it from? The system is down! The print queue is backed up! Who can I ask for help?

134 Commitment by all GO THE EXTRA MILE! Work within the framework of the PFMA and abide by the Treasury Regulations Be committed to getting the job done: On time Accurately Completely

135 Key Issues in times of change A people centered approach is vital focusing on: Change management issues Succession planning Career planning Suitably qualified with relevant experience

136 Key Issues in times of change A people centered approach is vital focusing on: Ongoing training and capacity building Results oriented culture Good work ethic Performance evaluation Incentives for performance

137 Did implementation happen - ST? Implementation plan 31/8/ Employment of financial personnel and (CFO) by 31/3/ Fraud prevention plan by 31/3/2001- Monthly reporting (IYM) - Internal Audit & Audit Committees - Financial Statements and Annual Reports -

138 Did implementation happen - MT? Standardised chart of accounts - Managing assets and liabilities - ongoing Performance measures - evolving PFMA training - ongoing Framework for financial management of public entities -

139 Did implementation happen - LT? Sound financial management systems and processes foundation has been laid Transparent budget process ongoing Effective management of revenue, expenditure, assets and liabilities (REAL) ongoing Unqualified consolidated AFS on GRAP not yet Accountability of public entities & external agencies on the same level as other entities - ongoing

140 PFMA goal... and they are changing from a traditional role as a scorekeeper to a proactive service delivery partner Finance s transformation journey Finance today Finance tomorrow Finance is regarded as a scorekeeper Lack of access to information User dissatisfaction with present processes and applications Lack of confidence in data quality Outdated systems and technology Value Added Commentator Policeman Scorekeeper Advocate Delivery Partner Time Finance is regarded as a business partner Customer focused with business understanding Availability of high quality data Accessible information Timely delivery of information Efficient Advanced technology Integrated applications Coherent migration strategy assisting the administration to maximise efficiency, effectiveness and delivery of strategic objectives in an economic manner

141 Three key accountabilities for finance Deliver value to stakeholders in accordance with expectations Challenge functional managers to generate value and monitor their success Manage financial risk and maintain financial control Strategic Operational Specialist skills Transaction processing Discrete Decision support Risk management & control Integrated While the three key accountabilities for finance remain the same, technology is transforming the way finance fulfils them.

142 Best Practice Financial Management Best Practice Financial Management as a basis for implementing the PFMA is aligned to the value chain of the government finance function Business Alignment 1 Information Processes Technology Transaction Processing Reporting & Controls Information Management People / Organisational Development Business Decision Making Human Resources efinance 7 and incorporates best practices

143 Human Resources 7 efinance Financial Management Function Technology Processes Information Processing Making Controls Development Management Decision Reporting & Organisational Transaction Information / People Business 1 Business Alignment Links in Finance Value Chain Objectives Business Alignment Transaction Processing Reporting and Controls Information Management People/Organisation Development Business Decision Making Ensuring that the finance and admin functions are properly aligned with the core business and their requirements Provide low cost services rapidly and accurately Provide meaningful information for decision making and performance measurement on a timely basis, while maintaining relevant and cost effective controls Manage and deliver relevant information effectively, efficiently and in a timely manner Maintain a team orientation, develop empowered workers in a new organisation structure Provide financial management leadership and insight to the business team 7 efinance Integrate e-financial management into the e-government strategy

144 Exploring new opportunities EXPLORE Decision support Clients Transaction processing Risk management & control Suppliers Stakeholders Partners CFO Regulators Alliances Executive & Non-executive Employees Increasingly, HOD s are looking for finance to operate outside the department working with customers, suppliers and partners to create value.

145 Top priorities for CFOs Emerging role of the CFO progressing from being a worker to an adviser Service delivery convergence Satisfying stakeholders Risk management governance and approaches Customer relationship management and the need for multi-dimensional cost and efficiency information

146 Top priorities for CFOs Availability of new technologies impact of new channels on service delivery, especially PPP s systems integration approaches no or as little rework as possible replacement of legacy systems

147 Top priorities for CFOs Approaches to IT governance (centralised or decentralised) Capital deployment / strategy Process improvement around finance functions Technical accounting issues i.e. the implementation of GRAP

148 Top priorities for Auditors Understanding the business you are auditing Comprehensive knowledge of the legislation Fast tracking technical support Becoming involved

149 Top priorities for Service Providers Understanding the client you are dealing with Knowledge of the legislation Knowing your rights Becoming involved

150 Conclusion We are still on a best practice financial management journey.. always keeping in mind Finance is an enabler NOT a driver of the business

151 Questions?