Introduction
"Be the centre of excellence in financial and fiscal management in the country" – this is the vision of the KwaZulu-Natal Provincial Treasury. What does it entail?
Sometimes organisations can become heavily buzz-word oriented. One such company wanted to establish "Centres of Excellence" within various occupational groups in the company, (e.g. Accounting, Engineering, information technology (IT), etc.) The media and staff members received many statements on how absolutely swell it was going to be to have "Centres of Excellence". They would attract the best and brightest in each field who would then share their collective wisdom with the masses.
Sadly, someone quietly asked "Yes, but what will they actually do?" A thunderous silence followed. The KwaZulu-Natal Provincial Treasury does not want to be a place of "eccentric excellence" where our stakeholders are locked out and don't know what we actually do. But we strive to be a place where the highest standards of financial and fiscal management are achieved for our province and for our people.
Our ultimate measurement is the improvement of the lives of all our people. This vision clearly commits each and every Treasury employee and myself to be competent, committed and the best at what we do. Martin Luther King said "All labour that uplifts humanity has dignity and importance and should be undertaken with painstaking excellence."
Equally important is our Treasury mission which spells out our overall goal of empowering our people through:
* an equitable distribution of financial resources
* strategic leadership in areas of financial and fiscal management and corporate governance.
By balancing social and economic sector funding in managing the allocation framework we ensure that all the people of the Province are looked after. In the areas of financial and fiscal management the Provincial Treasury also provides strategic leadership and guidance to departments, public entities and municipalities thereby supporting them to perform their financial functions with integrity.
Our mission underscores the necessity for Provincial Treasury to have strong relationships with all MECs and their departments, as well as all local government authorities. These relationships will be built on trust and effective advice and support. I will ensure regular interaction with the MECs and their departments on the financial status of the province and promote sound relationships between the Provincial Treasury and departments.
This process has already started and I thank my colleagues and their management teams for working with us as partners in good governance. The financial medicine we need to prescribe at present may not be sweet, given the challenging environment where we all compete for a share of the limited fiscal resources, where we all compete for a share of the limited fiscal resources. But, like medicine, the test of its value is not in its taste, but in its effects. We are committed to deal effectively with constructive criticism and reasonable requests but we urge all government departments, municipalities and public entities to commit themselves to fiscal prudence through efficient, effective and economical cash management. Only then can we can honour our commitment to spending the money of our people wisely.
In line with our vision and mission, the strategic goals and the supporting strategic objectives of the Provincial Treasury have been developed and are contained in the Budget Statement and the Annual Performance Plan for 2009/10.
Commitment of the provincial Treasury
Our endeavours for the 2009/10 financial year will be directed towards the following goals:
1. Clean audit reports for 2009/10 and an improvement in the 2008/09 audit outcomes
2. Effective steps toward the elimination of fraud and corruption in government
3. Ensuring transparent and fair supply chain management practices
4. On-budget expenditure (in all departments) through effective cash management
5. A marked improvement in the provincial cash position
6. Enhanced assistance to municipalities and public entities to ensure prudence in financial management.
To achieve these goals the Provincial Treasury relies heavily on the performance of the departments, public entities and municipalities. Our role remains one of support through guidance, enabling, monitoring and assisting. If we want to reach the finish line of the race of delivering services to our people, each and every public institution and public official must abide by the laws and regulations governing good governance and prudent financial management.
We must all ensure that public funds are spent wisely, transparently and towards the improvement of the lives of all our people. We need to work as a team to succeed in making KwaZulu-Natal a winning province.
Constraints in the provincial treasury
Two major constraints emerged since the time I assumed office at the provincial Treasury:
Firstly, the cash situation of the province will obviously require both robust and careful management. Systems are already in place to monitor the situation on a daily basis with monthly reporting to the Executive Council. The service delivery demands on the coffers of the province exceed the available funds for 2009/10 and the actual cash shortfall places a further burden on the limited resources.
This could have a negative service delivery impact if we carry-on with an attitude of "business as usual". However, I am convinced that we will be able to enhance service delivery if we do not deviate from the rules and regulations of the Public Finance Management Act and the Municipal Finance Management Act, as well as the issued guidelines. We must all refrain from wasteful and extravagant expenditure. We must do more with the limited resources and be accountable for all expenditure we incur.
Allowing debt to accumulate rapidly is the surest way to put critical service delivery programmes to our people in jeopardy. We now need a monumental collective effort to restore the health of our provincial balance sheet. In Treasury as well as my own Office we have already started to implement savings and promote cost containment mainly in the following areas:
* Subsistence and travelling: the department will encourage officials where possible to travel on the morning of a meeting or event rather than a night before in order to save on accommodation costs
* Advertisement costs: the departmental human resources unit has embarked on doing abridged advertisement formats when advertising jobs with a website reference for comprehensive advertisement details
* Office catering; the department has drastically scaled down on catering for office meetings. In my office we no longer provide lunch for managers who attend meetings over lunch time. We break for lunch and everyone makes his or her own arrangements as they would have done if there had been no meeting
* Public events: community outreach events will continue but the department endeavours to make use of available resources in areas of visits e.g. community and town halls to save on marquee hiring and associated costs.
Treasury's second constraint is the high vacancy rate in senior positions. Five of the thirteen top managerial posts in the Treasury are presently vacant placing additional strain on the Treasury's ability to provide assistance and to effectively monitor performance. The Treasury has sourced-in some assistance but needs to fill these posts urgently. We said non-critical posts will be frozen. However, the above-mentioned posts are critical for service delivery and most of the vacancies have been advertised and will be filled over the next two months.
As with most finance institutions, provincial Treasury struggles to recruit and retain sufficient numbers of suitably qualified, capable and dedicated staff. Talent management would include finding solutions to the high vacancy rates in finance components across both local and provincial government spheres, as well as career planning, retention strategies and competency building.
In an attempt to find solutions KwaZulu-Natal Treasury introduced a Trainee Rank Programme aimed at the unemployed graduates in relevant areas of study. This programme is additional to the general internship programme. The Trainee Rank Programme seeks to:
* increase employment opportunities for graduates (especially the previously marginalised) who experience difficulty in entering the Labour Market due to a lack of experience
* to fill those posts, mainly in scarce skills, where it is evident that there is an inadequate supply of the required skills and experience in the Labour Market.
* contribute to the reduction of the vacancy rate.
I will now deal specifically with the main service delivery objectives of and funding for each of the Treasury's programmes for the coming year.
Programme 1: Administration: R175,090 million
This programme caters for two main functions, namely the overall managerial and corporate functions, as well as the management of the transversal computerised financial management systems of the province. It comprises the Offices of the MEC, Head of Department, Chief Financial Officer, Corporate Services, Human Resource management and Supporting and interlinked Financial Systems. Both the Head of the Department and myself have national commitments in the Budget Council and other national structures, which require substantial funding for transport and subsistence. Money has been allocated for this purpose.
Funds for the promotion of communication with all the people of our province are also included in the MEC and HoD budgets. Communication efforts by government have had a significant positive impact and the proportion of the public who feel that they are receiving "enough" information from government. However, as the Minister in the Presidency, Collins Chabane reported in Parliament on 18 June 2009, the proportion is still too low and it is the poorest who are among those most in need of such information. Therefore efforts will be intensified to establish real dialogue between government and ordinary citizens going beyond providing people with information to interacting in a two-way process of sharing ideas, knowledge and opinions with our citizens.
In South Africa communication is not only through the mainstream media. While such media play a vital role, we cannot solely rely on private media to inform our people – given the developmental nature of our state. I strongly believe that the Provincial Treasury has a major role to play in promoting financial literacy in KwaZulu-Natal. Financial literary, which includes saving, is at very low and almost insignificant levels in South Africa. I agree with Minister Pravin Gordhan that not enough has been done in the areas of financial education and economic literacy for South Africans.
Minister Gordhan was quoted in the media last week, saying that we have to attract foreign investment because savings in South Africa are so low. This was said at the release of the Consumer Financial Vulnerability Index, which showed that we are not making great progress in saving. Even though South Africa’s savings rate had climbed to 17% of gross domestic product from 15% a year ago, it is not enough to finance the investments needed to boost growth. The National Treasury is now planning to increase the maximum limit which individuals could invest in retail bonds from R1 million to R5 million as part of its efforts to boost savings.
I want to repeat the Premier's and the Provincial Government's views on the matter of citizen participation in this house: "We seek to communicate more, not less, with the people of KwaZulu-Natal. However, this government will do so prudently, professionally and as a team working together." No government in the world can be expected to cut itself off from its people and work in isolation between the four walls of our offices. However, what we must do, is to tighten the belt significantly on "nice to haves" and wastage without compromising essential interaction with our people and stakeholders. This can be achieved if we plan properly and use available resources as far as possibly, as mentioned above. It is essential that we get value for money at all times.
I have further agreed that the budget for the Office of the MEC be reduced by R4, 7 million in the Adjustments Estimate for allocation to the Office of the MEC for Economic Development and Tourism (Vote 4). An area of concern in Programme 1 is the sub-programme: Supporting and Interlinked Financial Systems (R93, 280 million). These funds will have to be managed carefully to remain within budget. The expenditure on this sub-programme is mainly for SITA services for all departments. The charges of SITA will be monitored by the responsible unit and any non essential services will be curtailed or discontinued where appropriate.
Programme 2: Fiscal Resource Management – R51,701 million.
The purpose of this programme is the effective management and monitoring of the
Provincial and Local Government Fiscal Resources and Budget processes. We will continue to ensure fiscal stability in the province by closely monitoring departmental and municipal revenue and expenditure. In order to improve the robustness of the budget 1 Business Day, 24 July 2009: More in SA battle to survive – survey by Mariam Isa process, the Treasury will engage the Finance Portfolio Committee throughout the process in the 2009/10 budget. This process will include both the provincial budget processes and the municipal budget process and will empower the Committee to exercise its oversight role fully.
One of the main functions in this programme is providing an informed and well-researched fiscal framework for the allocation of resources and the monitoring of expenditure trends against the appropriated funds. These functions include the economic analysis of the province; the monitoring of infrastructure spending and management of the MTEF process; the preparation of the budget statements and control of the in-year monitoring systems. We have a competent team of men and women in these units who will have to ensure on budget spending in this financial year under extremely difficult circumstances.
Systems are now also in place for this team to effectively monitor the performance of departments against their service delivery targets. A crucial unit has been included in this programme, namely the Municipal Finance unit, which gives effect to the duties and functions assigned to Provincial Treasury in the Municipal Finance Management Act (MFMA). Being at the coalface of service delivery, municipalities who don't maximise their service delivery often make headlines in the media.
The Municipal Finance unit monitors the budgets of municipalities to establish whether they promote sound fiscal management; it also monitors implementation of municipal budgets, which includes expenditure, revenue collections and borrowing. This is an area that needs to be given more attention if government wishes to ensure service delivery at grassroots level. This is where the real differences are made to the everyday lives of the citizens of this province.
Our observations at the municipalities have revealed the following challenges:
* significant lack of financial controls
* poor recordkeeping (partly due to inadequate systems and training)
* lack of adequate policies, procedures and appropriate delegations of authority
* lack of good governance in supply chain practices
* inappropriate use of conditional grants
* inadequate billing systems
* no process of in year reporting
* inadequately skilled financial staff
KwaZulu-Natal Provincial Treasury has supported nine municipalities through the Municipal Support Programme (MSP) since November 2007. The support has had a significant effect on the 2007/08 audit opinions of those municipalities supported by the programme The success of the programme, using the Audit Opinion, is outlined below:
* two municipalities moved from Disclaimers to Unqualified audit opinions
(uMgungundlovu District and Greater Kokstad Local municipalities)
* two municipalities moved from Qualified to Unqualified audit opinions (Ingwe, and Mandeni Local municipalities)
* two municipality moved from a Disclaimer to a Qualified audit opinion (Sisonke
District and Impendle local municipality)
* one unchanged qualified audit opinion (Ubuhlebezwe local municipality).
The Municipal Support Programme, which is now jointly run by Treasury and Local
Government and supported by the Development Bank of South Africa assists in the following areas:
* budget formulation
* revenue and expenditure
* capital expenditure analysis
* operating budget analysis
* management of debtors
* supply chain management
* cashflow management
* generally recognised accounting practice (GRAP) implementation
At present the available funding provided (R34, 717 million, some R10 million up from last year) can only provide for the monitoring and co-ordination functions effectively. Despite this substantial increase, funding for the support of low capacity municipalities is not sufficient and only a limited number of the 31 municipalities requiring assistance can effectively be supported.
This is of great concern to me. I have indicated to Treasury officials that any savings in the Treasury's budget, including that in my own office, must be utilised to include more municipalities in the Municipal Support Programme.
Programme 3: Financial Management - R42,182 million
The purpose of this branch is to ensure effective and efficient management of the provincial and local government's physical and financial assets. It is responsible for ensuring that norms and standards for financial management and supply chain management are in place. Public Private Partnerships (PPPs) are also housed in this branch. This team plays a major role in building the capacity of institutions to ensure sound financial management practices in the province.
I am pleased to confirm that this province has extensive practice notes and policies in place in both general financial management and supply chain management. These practice notes and policies are reviewed regularly in consultation with all stakeholders. However, I am concerned that some of our officials are not abiding by these directives and guidelines and the legislation governing financial management in the country. In fact, we have cases where these prescripts are blatantly ignored by certain officials resulting in qualified audit opinions as well as irregular and wasteful expenditure.
Circumvention or bending of these rules opens up opportunities for fraud and corruption which I have publicly denounced and government will have no mercy for the perpetrators. I will lean heavily on the team managing this programme to take proactive steps to ensure that timely interventions are in place to prevent negative audit opinions, irregular and wasteful expenditure and fraud and corruption. We must ensure that our systems, policies and procedures are robust and that our capacity building initiatives are enhanced.
A particularly difficult challenge for the financial management team in this financial year is the control over the actual cash flow of the province. Although we are at the moment well within the debt facilities available to the province, the situation will have to be extremely carefully managed to ensure the Province honour its financial obligations.
This will require sound cash management by every Department and on budget expenditure. The controls and reporting systems that we have put in place will ensure daily monitoring of the actual cash situation of each Department.
One of the major contributors to the present situation is that the cash flow decisions are taken at payment stage and not at ordering stage. It is imperative that we change this behaviour at the level where the decision to buy something or appoint someone is taken. If no funds are available, orders must not be issued and appointments not be made. We cannot allow spending agencies to shop a trolley full of goods at the supermarket and expect to get away with it without paying. This is exactly what departments are expecting from the Provincial Treasury who is the custodian of the Provincial Bank Accounts.
We need to ensure that the goods we place in the trolley are essential and that they constitute value for money and are affordable before we reach the cashier! We have paid an arm and a leg for goods as much as 10 times the real price in some instances because some procurement officials had no idea of what the goods should cost, or, worse, it is done deliberately! A further challenge facing us in our cash management control is the funding for the servicing of the debt, which will eventually be debited against this programme.
In the enforced savings exercise contained in the Explanatory Memorandum to the Budget Statements this servicing of the debt has been included in the calculations. Provision will be made in the Adjustments Estimate for such expenditure.
Programme 4: Internal Audit – 78,231 million
The Provincial Internal Audit Unit is one of the most important vehicles we can utilise to promote good governance throughout the province. It focuses on the following strategic objectives to:
* promote a credible risk profile for the province
* audit service delivery performance of spending agencies and identify areas of concern which could result in negative audit outcomes
* promote a culture of zero tolerance for fraud and corruption.
The ultimate value of Internal Audit does not lie in the number of assignments conducted, but in the acceptance and effective implementation of the recommendations made to the management in various client departments. This area is still a matter of concern as any delay by management to institute corrective actions impedes the effectiveness and efficiency of the audit. Lack of meaningful actions by management in client departments on issues raised results in continued risk exposures to those departments. However, the Unit continues to engage with management in client departments to enhance relationships.
These include regular meetings with clients, facilitating road shows to define and clarify roles and responsibilities, attending Audit Steering Committee meetings, strategic planning sessions and MANCO meetings of departments.
The new Audit Committee is functioning well and has the capacity to access top departmental management structures to ensure that risk exposures are addressed. The team received a bronze award in the Premier's Service Excellence Awards in 2008. The main challenge for this unit is the demand for skilled internal auditors which contributes to a high staff turnover. This is aggravated by the lack of specialised internal audit skills in general. The Accelerated Promotion Programme is aimed at promoting staff internally by providing development and growth opportunities, resulting in staff retention. The Internal Audit Training programme is also – aimed at retaining staff as it is designed to contractually bind staff for a period of time, providing the Unit with trained specialists and the staff in question with the required experience in Internal Auditing.
Programme 5: Growth and Development – R277,719
The funds provided for in this programme need some explanation. In this financial year the breakdown of funds are as follows:
* Provision for the Occupational Specific Dispensation for doctors and specialists – R108,109 million. These funds have not yet been allocated to the Department of Health pending the outcome of the negotiations with the unions and additional funding. Once clarity is obtained the funds will be suspended in Vote 6 and allocated to Vote 7 (Health).
Provision for the Moses Mabhida Soccer Stadium – R150 million
This is the second and final payment to the eThekwini Metro of the Province's contribution towards the construction of the stadium.
Provision for special projects – R19,610 million
These projects include the funds for the:
* Ifihlile Training Academy for the training and skills development of historically disadvantaged individuals (R11,518 million)
* Budget and financial literacy public outreach programme (R6,452 million)
* Other projects as may be approved by the Executive Council (R1, 64 million).
Estimates by programme
Medium-Term estimates R'000
2009/10
Administration: 175 090
Fiscal Resource Management: 51 701
Financial Management: 42 182
Internal Audit: 78 231
Growth and Development: 277 719
2010/11:
Administration: 187 562
Fiscal Resource Management: 43 870
Financial Management: 44 365
Internal Audit: 81 547
Growth and Development: 229 315
2011/12
Administration: 198 794
Fiscal Resource Management: 46 504
Financial Management: 47 020
Internal Audit: 87 044
Growth and Development: 355 615
Total:
2009/10: 624 923
2010/11: 586 659
2011/12: 734 977
Impact of the budget for the 2009/10 financial year
The budget of the Provincial Treasury for the 2009/10 financial year as indicated in the Explanatory Memorandum to the Budget Statements has been reduced by R17, 854 million in line with the enforced cost saving exercise. Apart from the SITA payments and a need to bring more municipalities into the Municipal Support Programme, we are confident that Treasury will be able to perform its functions through better management of its resources.
Conclusion
As custodian of the finances of this province, the Provincial Treasury bears a onerous responsibility both to the Executive and this Legislature. We have placed great emphasis on excellence in all aspects of service delivery. I am committing myself and the Treasury team to set the standards and to lead by example by providing value for money, ensuring optimum service delivery performance, and creating a culture of good governance. If we want to fulfil our role as Provincial Treasury, it is imperative that we first ensure that our own house is in order.
We will raise our level of performance to realise our vision to be the centre of excellence in financial and fiscal management in the country. After all, in the words of Ralph Marston, "Excellence is not a skill. It is an attitude." Close to 10 million people in our Province rely on our attitude to improve their lives.
I trust that with these commitments, you will be able to support the 2009/10 budget of R624, 923 million for Vote 6: Provincial Treasury. It is now my honour to formally table this budget for your consideration.
