Honourable Acting Speaker; Premier;
Members of the Executive Council and Members of the Free State Legislature Community Leadership present
Ladies and Gentlemen;
It is appropriate that the schedule of budget vote debates kick-off this year in the small town of Reddersburg.
Yesterday, I outlined some of the potential benefits that our smaller rural areas may derive from the revised funding formula that will be applicable to the local government sector with effect this year. The Kopanong Local Municipality is one of the areas that should benefit from the implementation of the revised local government funding model.
The general debate on the Appropriation Bill that took place yesterday sufficiently addressed the national and provincial financial framework. We have dealt with the identified funding priorities of the provincial government and it is now time to unpack the details of the financial allocations of all provincial departments.
Hon Acting Speaker, allow me to use this opportunity to outline key issues arising from the basic mandate of the Provincial Treasury as expressed in our four budget programmes, namely
1) Administration,
2) Sustainable Resource Management,
3) Assets and Liability Management, and
4) Financial Governance.
Even though Municipal Finance is an objective under Programme Four, we will treat it here with some prominence since municipal finance is a strategic function and key to the mandate of Provincial Treasury.
Allow me to first assess the performance of the Provincial Treasury in carrying out the injunctions of the 2012/13 financial year, and then to proceed to detail the forthcoming 2013/14 financial year.
The 2013/14 financial year injunctions will constitute the programmatic perspective for the activities of the Provincial Treasury this year. The broad provincial context within which we will carry out our tasks as the Provincial Treasury this year has been set out in the State of the Province Address.
The Provincial Treasury within the Provincial Context
The Honourable Premier outlined in detail the imperatives for the Province arising from the National Development Plan and the Free State Growth and Development Strategy which also contains Vision 2030.
This was done against the backdrop of the raging global economic crisis that has put our national and, inevitably, our provincial economy on a slowdown. The Honourable Premier detailed some of the progress with regards to major infrastructure projects since these are our main economic programmes.
When my predecessor, Mr Seiso Mohai, tabled the Provincial Budget last week he indicated that we are sailing in difficult times on the economic front. Acting Speaker we will not go through this path without thinking about new ways and approaches that we can use to sail through the difficult economic times.
Our fiscal stance as a nation has been clearly communicated in terms of the three policy objectives, two of which are applicable to the provincial government. These objectives are moderating growth in government expenditure and the reprioritisation of spending away from current expenditure towards capital expenditure. Hon Acting Speaker, with the support of the Executive Council, the Provincial Treasury will play a key role in making sure that these policy priorities are achieved in this province.
The Executive Council Implementation Lekgotla that was recently held also adopted certain resolutions that require of us to urgently integrate such into the Provincial Treasury’s programme for the forthcoming financial year.
The resolutions that are immediately applicable to the Provincial Treasury include, but are not limited to, the following:
- The on-going monitoring and compliance with the requirement to ensure that payment of suppliers occur within 30 days.
- Together with the Department of Cooperative Governance & Traditional Affairs, the Provincial Treasury is required to report by the end of the first quarter to the Executive Council on the review of composition and functioning of Audit Committees, Risk Management Committees and Internal Audit Units.
- The strengthening of anti-corruption capacity of both provincial and local government
- The review of the procurement process for infrastructure in line with new draft legislation. This will be done in consultation with the Department of Public Works and State Law Advisors.
- A provincial debt collection and revenue enhancement campaign will be led by the Provincial Treasury and COGTA.
- Sustained joint campaigns with COGTA, SALGA and municipalities to encourage people to pay for services, sanitation, rates and taxes at municipal level as well as
- Education and awareness campaigns and sustained interaction with our communities on financial and audit terminology, audit findings and other issues related to Financial Management.
Progress and Challenges in 2012/13
Acting Hon Speaker, allow me to give a brief outline of progress and challenges arising from our main activities as the Provincial Treasury.
On the realisation of Vision 2014 Clean Audit, there are signs of improvement in the Provincial Departments and Entities as well as in some of our municipalities with regard to audit outcomes. This progress remains insufficient viewed against the ambitious target of clean audits in all Departments, Entities and municipalities by 2014. Provincial Treasury has focused on the facilitation of training for departments and entities in various identified areas.
Provincial Treasury was actively involved during the 2011/12 external audit process to resolve 102 matters and grant support to departments and entities. To address the 2011/12 audit findings the following were undertaken:
- All remedial action plans were assessed and recommendations to enhance implementation plans were provided to departments and entities.
- CFO’s are required to assess monthly progress and must report interventions required to Accounting Officers and Executive authorities. It appears that in some instances, this requirement continues to present challenges to some Departments.
- Together with the Forum of HODs and the Office of the Provincial Auditor-General, main areas of concern were dealt with through information sessions and forums. These areas of concern include unauthorised, irregular as well as fruitless and wasteful expenditure, Supply Chain and Asset management, accruals, staff debt, predetermined objectives and IT governance issues.
- A template was developed to enable Accounting Officers to assess compliance with laws and regulations.
- Various capacity building initiatives aimed at strengthening governance was facilitated in the identified areas
With regard to payment of creditors within 30 days by the Provincial Treasury, we can report resounding progress, particularly with regard to the third quarter of 2012/13 wherein we recorded 100 per cent. However, we need to strengthen monitoring and oversight over other departments with regard to this injunction.
On small, medium and micro enterprise (SMME) development through public procurement, 72.21 per cent of procurement spend was on SMMEs, of which 98.9 per cent were paid within 20 days.
On monitoring of infrastructure delivery and spending on conditional grants, quarterly Provincial Infrastructure Management Committee meetings were convened which focussed both on the quantity and quality of infrastructure spending. The turnaround in the ability of the province to spend its conditional grants is imminent. We are also making some considerable progress in the implementation of the new Integrated Delivery Management System (IDMS). In terms of the reforms alluded to in the provincial budget speech last week, Provincial Treasury is the custodian of IDMS and there is a need to expand and consolidate the capacity that we currently have.
With regard to building technical competence and skills in financial management within municipalities, we can confirm that we continue to work with municipalities to help build effective budgeting, improved cash flow management and effective administration of indigent management to avert incorrect revenue projections.
We began the reprioritisation of the provincial budget and unlocked approximately R200 million. This was followed up by the introduction of the revised cost containment strategy and measures approved by the Executive Council.
The need to improve our procurement processes and systems has been emphasised in various platforms, namely the 53rd ANC Congress in Mangaung, State of the Nation Address, State of the Province Address, National Budget Speech, our own provincial budget speech, and most recently by the Auditor General.
Certain steps have been taken by the Provincial Treasury to deal with this issue. We are confident that this will translate into significant benefits over time. Among these steps is the launch of the pilot of the provincial supply chain data base to include municipalities in the Xhariep District. It will be extended to other municipalities once the pilot is completed this year.
The objective of this initiative is to:
- Build the capacity and support the municipalities.
- Improve financial governance in the areas of supply chain management with specific reference to supplier management best practice
- Enhance Supplier Management
- Improve prospects for better Audit Outcomes
The successful implementation of this project will assist municipalities to have a credible database of suppliers and will also lessen the administrative burden of SMME’s doing business within the Free State Province.
SMMEs will only have to register once and their information will be available to all municipalities who intend using their services. Municipalities will also have access to a wide variety of sector services at their disposal at the click of a button, because this database web- based.
The Provincial Treasury arranged corporate membership for relevant officials in the Free State provincial government with the Association of Certified Fraud Examiners. Municipalities have as yet not utilised this opportunity. This membership provides the following benefits:
- Capacitates members to detect incidents of fraud and white collar crime at an early stage and be able to apply them during the investigations
- Facilitate the accredited trainings for the preparation of the ACFE International exams
- Members of the ACFE can access data to deliver a comprehensive financial profile of an individual who is investigated at fraction of the cost.
I should also point out that the Free State province is the only province who compiled and tabled the Annual Report on Consolidated Financial Statements within the legislative timeframe.
2013/14 and beyond
Hon Acting Speaker, I will now turn to the 2013/14 financial year and beyond and will outline injunctions programme by programme.
Programme One: Administration
The internship programme that has consistently been implemented since 2006 has proven to be a success as our flagship programme for experiential training in the Provincial Treasury. Today we can count among its products some of our junior and middle level managers.
We lag behind in terms of equity of women in management in the Provincial Treasury as well as equity for disabled persons throughout the Department. We will address this inequity with more determination and implement training and development programmes aimed specifically at women at leadership and management level as well as the disabled sector in general.
In addition, the Provincial Treasury will accommodate FET learners for experiential training through the joint programme coordinated by the Office of the Premier and in conjunction with the Department of Higher Education.
We will ensure that 70 per cent of the mostly procured items are sourced from SMME’s and make sure that creditors are paid within 30 days.
We will improve effective management of all departmental assets to meet minimum LOGIS asset register requirements.
Programme Two: Sustainable Resource Management
Hon Acting Speaker, in response to the ever shrinking provincial fiscal envelope, we introduced the element of alternative funding as one of the key competencies of this programme in 2012/13. To date, we have developed a publication on all sources of alternative funding for the province and the requirements to access such funding.
This information will be shared with all affected parties. Treasury will also build its internal capacity to develop, on behalf of government, credible business cases in order to access such funds. Our Unit for Research and Economic Analysis will play a critical and leading role in this regard.
We are all agreed that optimizing revenue remains critical. Significant breakthroughs have been made in this regard. Proposals that have been developed together with revenue-generating departments and entities must be implemented to create additional scope to respond to our priorities as a province. This includes projects funded through the Revenue Enhancement Allocations. The Unit for Fiscal Policy will also play a leading role in the process of debt recovery.
Hon Acting Speaker, the effects of the constrained economic and fiscal environment have been evident in the challenges faced by various Departments to contain expenditure within their allocated budgets. Executive Authorities and Accounting Officers must ensure appropriate and credible budget planning that will be consolidated with fiscal discipline.
Our Budget Management and Public Finance units will continue to bolster effective monitoring of spending in particular to earmarked funds to continue to promote value for money. Furthermore, the Provincial Medium-Term Expenditure Hearing (PMTEC) will be strengthened to ensure that our bidding and reprioritisation processes cater for reform in the budget process.
One critical subject for the province is our inability to manage the quality and quantity of our personnel. For this reason, more effective controls over personnel expenditure will need to be implemented, as government seeks to shift composition of expenditure towards infrastructure investment. This imperative, however, needs to be balanced against the programme of insourcing of identified services by government.
Hon Acting Speaker, we are currently considering the appointment of a Compensation Analyst whose primary function will be to manage the province’s personnel budget. In this regard, some of the delegations and functionalities of the system may be centralized to this key position. We will soon engage the Executive Council on this proposal.
Lastly, we will continue with our pre and post budget benchmark exercises to assess the extent to which the departments’ budgets give effect to the agreed sector and provincial priorities. We will boldly highlight possible risks in the budgets and propose measures to be undertaken.
Programme Three: Assets and Liability Management
Programme Three deals with Assets and Liability Management. Critical vacancies falling under this programme have been advertised and the recruitment process will be prioritized for finalization.
A toolkit for SCM practitioners to deal with capacity issues and the eradication of irregular expenditure - caused by non-adherence to supply chain procedures - is in the process of being developed. The toolkit will assist and guide SCM practitioners in the execution of their day to day tasks and is linked to intensive training to be provided by the University of Pretoria in the Free State.
We will actively engage provincial departments and entities to ensure that SCM practitioners embrace these developments. The success of this project is dependent on their full support and participation. The second phase of the project is a full roll-out of the toolkit to all Municipalities within the Province.
Logistics has put together a Role and Responsibility Guide that details the functions and selections of all relevant roleplayers on the system. It has varied uses, including as a guide to assess competencies within the scope of LOGIS. It could also be used to align these roles and responsibilities with the Job Descriptions and Performance Development Management Systems in order to monitor and weigh progress and challenges faced by officials within the use and scope of LOGIS.
The recurrence of the same negative audit findings with regard to asset management is clearly a serious problem for the province. We have to make a conscious effort to recruit skilled and experienced asset management practitioners and strengthen the capacity of our officials dealing with asset management.
We have compiled a detailed Guide on Asset Management that addresses a variety of challenges raised in various consultative forums with practitioners.
Furthermore a LOGIS Roles and Responsibility guide to strengthen the availability of information to Accounting Officers and responsible senior managers and this should enable management to take a decisive lead in achieving their departmental objectives and to reduce audit queries.
The implementation of the Infrastructure Delivery Management System will be among our main activities during the forthcoming financial year. The IDMS is aimed at infrastructure and procurement planning, project implementation, and operation and maintenance of facilities. We are currently finalising the implementation framework which will soon be tabled for consideration and approval by the Executive Council. Infrastructure planning, spending and delivery will be improved through rigorous monitoring and the implementation of the new Integrated Delivery Management System.
Programme Four: Financial Governance and Municipal Finance
Hon Acting Speaker, Programme Four deals with financial governance and municipal finance.
Financial Governance
In addressing the problem of non-compliance by Departments with legislative requirements, the Provincial Treasury provided additional guidelines and streamlined the reporting requirements. An internal consultative process was also facilitated to improve on the quality of assessment and to address the timeliness for reporting feedback to departments.
Formal training sessions have been organised and will continue in the new financial year so as to build and strengthen capacity in Provincial Departments and Entities identified areas.
We will also continue holding bi-annual assessments for Departments and Public Entities to promote compliance with Risk Management and Internal Audit frameworks.
The quarterly Interim Financial Statements prepared by departments are assessed by Treasury to identify deficiencies, non-compliance with the reporting framework and to improve the completeness and quality thereof.
Provincial Treasury will be embarking on the roll out of Combined Assurance to provincial departments and public entities in order to integrate the results of assurance providers on the critical identified risks. This will also enable Audit Committees to provide overall oversight on the combined model of assurance and advice to Accounting Officers / Executive Authorities.
The Free State Provincial Treasury will also be capacitating the provincial departments and public entities to develop and implement Integrated Business Continuity Plans to enable provincial departments and public entities to operate even if there can be catastrophic disaster around their environment.
Municipal Finance Management
The Local Government: Municipal Finance Management Act (MFMA), 2003 (Act 56 of 2003) introduces a performance based system on outputs and measurable objectives which will enable municipalities to maximise their capacity to promote effective service delivery as well as to modernise the way in which municipal finances are managed.
The role of Provincial Treasury in relation to local government is set out in Section 5(4) of the Municipal Finance Management Act (Act 56 of 003) and provides essentially that a provincial treasury must monitor –
- Compliance with this Act by municipalities and municipal entities in the province;
- The preparation by municipalities in the province of their budget;
- The monthly outcome of those budgets; and
- The submission of reports by municipalities in the province as required in terms of the MFMA.
In light of the above, the Provincial Treasury expanded the Municipal Finance Management branch to specialise in the following areas.
- Accounting Services
- Budgets and IYM
- SCM/ Compliance
- Internal Audit and Risk Management;
- Revenue and Debt management
Hon Acting Speaker, despite internal human capital constraints, the Municipal Finance Unit made moderate progress in a short space of time. Some of the contributions made by the unit are, as follows.
- Deployment of MFIP advisors from National Treasury to 15 municipalities in the province at an estimated cost of R15 Million. It is imperative that Free State municipalities utilise these advisors to change the current capacity constraints and inefficiencies
- A Centralised Supplier Database is being piloted in the Xhariep District; this will be expanded to other districts in the 2013/2014 financial year
- Intergovernmental Debt has been reduced by 50 per cent and this is expected to further reduce in the 2013/14 financial year
- Monitoring of Monthly In-Year Reports on budget performance will continue to strengthen the spending priorities and outcomes of municipalities in the 2013/14 financial year
- Strengthening the Municipal Budget Process and monitoring implementation of the Council approved budgets
- The limited progress we have achieved on audit outcomes is recognised. Provincial Treasury is in the process of introducing mid- year financial statements to improve audit outcomes and monitoring of Key Controls; and
- Up skilling of training on functional areas will continue in the 2013/14 financial year.
Hon Acting Speaker, in the spirit of co-operative governance the Provincial Treasury, the AGSA, SALGA and CoGTA have established an audit technical steering committee, which seeks to resolve complex audit matters identified during the audit process. The audit matters are also escalated to a national forum with the AGSA and National Treasury.
Provincial Treasury has also established the Free State MFMA Joint Forum. This Forum provides an opportunity to engage Municipal Managers and Manager reporting directly to the Municipal Managers on the reforms agenda and strengthen the implementation processes. The Forum also presented an opportunity for Provincial Treasury to provide the Municipal Managers with an objective view of the status of their municipal finances.
In light of the state of the nation address, municipalities must pay their creditors including audit fees within 30 days after the receipt of invoices as per MFMA section 65(2). Provincial Treasury is responsible for the monitoring of compliance with this section and to ensure that the necessary corrective measures are taken as and when required.
Whilst Provincial Treasury together with CoGTA and other stakeholders will continue supporting municipalities on Financial Statements, Budgets, Supply Chain Management, Revenue Management, Risk Management and Internal Audit, the primary responsibility to avoid, identify and resolve financial problems in a municipality rests with the municipality itself.
It is therefore incumbent upon the political and administrative leadership at the municipalities to be vigilant with regard to the early identification of financial problems that could threaten service delivery obligations. The ability of municipalities to rise to these challenges will ultimately be determined by the quality of their governance and administrative practices.
Stronger and more participatory governance practices will only have a meaningful effect if municipalities provide stable and attractive work environments. One ingredient for success of for Municipal Council is to ensure that they appoint the right people with the right qualifications and experience to lead their municipalities.
Hon Acting Speaker, the Provincial Treasury and National Treasury are preparing a standard chart of accounts for Municipalities. This seeks to introduce uniformity and effective monitoring. This project is still work in progress.
Way forward
To achieve what has been set out Honourable Speaker, Treasury has been allocated an amount of R670 m over the MTEF period of which R216 m will be utilised in the 2013/14 financial year, R223 m for 3014/15 and R230 m for 2015/16 the outer year of the MTEF.
Conclusion
The role of the Provincial Treasury is particularly challenging in the constraints of the provincial fiscal framework.
We continue to rely on the cooperation and collaboration of all provincial departments, provincial public entities and the local government sector to ensure that we achieve our mandate and objectives.
I thank you.
