Introduction
Provincial Treasury derives its mandate primarily, but not exclusively, from the Constitution of the Republic of South Africa, the Public Finance Management Act (PFMA) and the Municipal Finance Management Act (MFMA).The services and support provided by Provincial Treasury are largely to provincial government departments, municipalities and related entities and not directly to the public. We endeavour to achieve our objectives and goals via these institutions and entities, hence the Treasury’s role as a change agent. It sets service standards and objectives in liaison with its clients, and follows this through with monitoring and evaluating to ensure that these standards and goals are being met in terms of governance and implementation.
The Provincial Treasury endeavours to improve social and economic equity in the province of KwaZulu-Natal mainly through:
- financial resource allocation,
- sound financial management, and
- the promotion of prudent corporate governance.
On the one hand we seek to maximise the financial resources available for distribution but we must equally ensure the optimal use of such finite resources, i.e. we must get value for money, we require indeed wisdom and expertise in the Provincial Treasury: -
- to find the best combination of available choices in response to unlimited needs and demands
- to achieve the best sustainable socio-economic and governance benefits;
- to provide expert financial management advice and support to provincial spending agencies as well as municipalities; and
- to ensure compliance and good governance culminating in clean audits in all government institutions.
The funds requested in Vote 6 are in the main to retain present expertise, to build in-service capacity in the various components and where required, to source in scarce skills. We have made substantial progress in achieving our strategic goals and will continue to cultivate the “habit of excellence” and build upon the progress we have made in making our vision “To be the centre of excellence in financial and fiscal management in the country” a reality. We are committed to further improve on the Provincial Treasury’s function of financial oversight and support. I am committing myself and the Provincial Treasury again in 2011/12 to:
- ensure equitable resource allocations for the province of KwaZulu-Natal;
- analyse and monitor government (provincial and local, including public entities) revenue and expenditure;
- instil prudent financial management and good governance;
- do robust public policy research; and
- contribute to the realisation of government policy priorities by ensuring that government interventions in the economy are targeted, efficient, sustainable, and empower our people.
In my budget speech last year I committed myself and the Provincial Treasury to, amongst others-
- ensure on-budget expenditure (in all departments) through effective budget and cash management; and
- a further significant improvement in the provincial cash position.
- We are pleased to report that through the leadership of the Premier and the cooperative approach of the members of the Executive and their Departments, we have achieved both.
- We have turned a substantial bank overdraft into a healthy positive bank balance.
- We have been able to build a budget surplus which will in future assist us in the allocation of more funds to the service delivery priorities of the Province.
- We have indeed honoured our commitment to spending the money of our people wisely.
Having said that, I must, however, emphasise as I have done in my main budget speech, that the needs of our people in this province far outweighs our resources.
In regard to MFMA support to municipalities I am also pleased to report significant progress in budgeting, reporting and financial management in most municipalities. We were also able to substantially reduce the provincial government debt to municipalities. Apart from some disputed accounts, the payments for property rates for all Provincial Government properties and for services to certain schools are now up to date. The debt owed by national departments (although we ensured some payments) is being followed up through the National Treasury.
Commitment of the Provincial Treasury
The Provincial Treasury is and will remain responsible for maintaining the financial integrity of this Province. In managing the Province’s finances, our endeavours for the 2011/12 financial year will again be directed towards:
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the formulation of a transparent, equitable and fair budget for the province that will improve service delivery;
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the provision of effective financial management advice and support to all our clients;
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the institution and maintenance of processes to improve overall financial management practices across departments, public entities and municipalities;
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the timely production of in-year early warning financial and non-financial reports;
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the revision and tightening of systems and processes in supply chain management that will reduce the possibility of financial abuse; and
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the detection and elimination of fraud and corruption in government through our Internal Audit Branch.
I am committed, as custodian of provincial finances, to lay a strong foundation for the best possible return on resources expended, and be the key channel in collaboration with the Premier and the Executive to improve efficiency in our operations to achieve optimum service delivery. This role includes taking steps to achieve clean governance and full compliance with both the PFMA and the MFMA.
It is required of me to ensure that greater attention is paid to budget implementation, which includes enhanced transparency in budget planning and execution. It is also imperative that we ensure timely interventions where necessary and to achieve this, the utmost discipline by ALL role-players is required. (The Executive, the members of this House, Councillors and the civil servants at all levels).
Overview for the 2011/12 financial year
The financial recovery processes instituted by the Executive since March 2008 produced remarkable success. Although the Provincial Treasury will continue to enforce financial discipline, on-budget spending and sound cash management, the emphasis will shift to ensuring enhanced service delivery in the 2011/12 MTEF cycle and to ensure value for money. We will still enforce the majority of the cost cutting measures in the Provincial Treasury but have also provided for increased capacity in all our support services and governance functions.
To ensure value for money, it will therefore be opportune for us as the Provincial Treasury to focus with renewed vigour on the structure and efficiency of government institutions, and the necessary task of fighting corruption and fraud.
We are committed to ensuring sound financial management across all government institutions; hence we have taken note of the findings of the Auditor General and our own Internal Auditors. An analysis in this regard has revealed a number of shortcomings including skills and capacity constraints in many government departments, municipalities and public entities. As a department we have set ourselves the target of ensuring clean audits in all government departments, municipalities and public entities. This can only be done through focusing on improved support and reporting by all relevant institutions including municipalities and public entities.
Members will notice that the Treasury allocation has been reduced by 22, 5% or R156 million. Most of the time this would have been extremely bad news: But not this year! We are in fact very pleased to announce this reduction mainly resulting from the positive cash position of the Province. Our cash management is back as a revenue generating item through earning interest, as opposed to a major expenditure item in the Treasury budget through the payment of interest.
Through these interest earnings we have been able to contribute funds for the
finalisation of the immovable assets register and the Government Immoveable Asset Management Act (GIAMA) process in the Department of Public Works (R44 million) and to assist in heeding the call from National Treasury for a reduction of 0.3% in our equitable share (R50 million).
In terms of an agreement with the Department of Education a further amount of some R50 million will also be earmarked for the payment of outstanding municipal accounts at certain schools.
Job creation
Before I deal with the Vote 6 budget in terms of its programmes, allow me to clarify the issues raised by various groups regarding job creation or the lack of details thereof. The Treasury has no specific function which can create jobs per se. As stated in my main budget speech, the budget should set the pathway to decent work and economic growth. The Premier in his address also indicated that government departments should put in place and establish the right environment for the creation of decent and sustainable jobs. There are many of these programmes already in place and more to come following our improved cash situation. We have been able to fund Departmental requests in this regard to a large extent and we should see an increase in employment by the Provincial Government early in the new year, especially in Education and Health.
Furthermore, we are allocating almost R700 million in additional funds for infrastructure initiatives for projects already in the pipeline and departments with major infrastructure allocations will be able to provide details thereof. As I pointed out in my main speech each department will put the flesh on their piece of the skeleton and give the necessary details.
What is important to note is that we have budgeted for surpluses in the MTEF which will give us leverage to recommend to the legislature the funding of well planned, appropriate and sustainable programmes that will ensure service delivery, job creation and financial growth.
The Provincial Treasury will therefore play a major monitoring role and its budget is structured to ensure that the Provincial financial management and pre-determined objectives are met.
I will now turn to the details of Vote 6 and indicate the functions of each programme and its commitment to this control and monitoring function.
Overview per programme for the 2011/12 Financial Year
Programme 1: Administration – R99,861 million (up from R94,339 million)
The increase covers the inflationary adjustments, whilst the increase in the fees of the Auditor General for a once-off performance audit is covered by the reduction in the MEC’s allocation.
This programme caters for the executive direction, and the overall managerial and corporate functions of the Provincial Treasury. It comprises the Offices of the MEC, Head of Department, Chief Financial Officer, Corporate Services and Human Resource Management.
Both the MEC for Finance and Head of the Department have substantial national commitments in the Budget Council and other national structures, and funds have been allocated for this purpose.
As a team, the HOD and I together with our Senior Management will continue to interact with Departments at executive and senior management level to fulfil our mandates of support, guidance, monitoring and control. We have been able to foster in 2010/11 a better and a more cooperative liaison between the Treasury and its client departments. To a large extent the same approach has been adopted with our municipalities through our support programmes. However, as Treasury we have not been sufficiently involved with public entities (both provincial and municipal). Public entities in the Province will play a vital role in the job creation drive and the provision of services to our people. They remain public institutions and needs to be supported and monitored. Therefore Provincial Treasury will intensify its efforts in respect of entities, in line with our legislative mandate and obligations in terms of both the PFMA and the MFMA. In this regard we refer the House in particular, but not limited to, the provisions of section 18 of the PFMA and section 5 of the MFMA.
Funds for the promotion of communication with all the people of our province are also included in the MEC’s and HOD’s budgets. Our efforts to establish real dialogue between government and ordinary citizens will continue. We have proved that as part of our cost-cutting measures we can do more campaigns at significantly reduced costs – thus giving effect to our credo of “Doing more with Less” In addition we will ensure that we get the best value for the money we spend.
True communication goes beyond providing people with information to interacting in a two-way process of sharing ideas, knowledge and opinions. My office will continue to organise business breakfasts, community izimbiso, savings and financial literacy campaigns and other information sharing and gathering events that offer invaluable opportunities for citizen participation.
Financial literacy is a pre-requisite for the successful implementation of the numerous programmes initiated by government and the private sector for the social and economic advancement of the nation. Increased social delivery and accelerated transformation through economic growth initiatives such as Black Economic Empowerment(BEE) and full participation in the economy need financially competent individuals.
As custodian of public funds, the KwaZulu-Natal Treasury realises the impact that financial education can have on households, emerging entrepreneurs and our young people. Sound financial management, whether on a personal level or a public level, makes the difference between opportunities missed and goals achieved.
My office has also been instrumental in establishing the KwaZulu-Natal Financial Literacy Association. This is a vital partnership with the financial sector, businesses, academic institutions, regulating bodies, Non-Governmental Organisations and sister departments.
Five target groups have been identified, namely: Women & vulnerable groups; In School Youth; Out of School Youth; SMMEs & Government employees. Working together in a co-ordinated way, government, business, the non-governmental and non-profit sectors will certainly make a much greater impact than working in fragmented isolation, which often leads to some communities being over serviced, while others miss out. The first projects will be launched in April and we invite members of this House to be part of this unique initiative which is a first in the country.
The offices of the Chief Financial Officer and the Human Resource Manager play vital roles in ensuring good finance and human resource practices. They must ensure that the Provincial Treasury leads by example. We have made provision for these functions and special funds have been provided for a National transversal performance audit on consultants.
This programme also funds most of the Treasury budget for bursaries and training. We will be spending some R365 000 on bursaries, R546 000 for formal training and R1, 7 million on the internship programmes. Any funding required for the Financial Literacy Initiative will be met by this programme. This programme has passed its planning and discussion phase and will gain momentum in 2011. We believe that this will be money extremely well spent.
Programme 2: Fiscal Resource Management – R72,236 million (up from R68,076 million)
Members are well aware of the vital importance of this programme which main purpose is the effective management and monitoring of the Provincial and Local Government Fiscal Resources and Budget processes. The achievements of the teams responsible for the functions of this programme are commendable and we will continue to improve the fiscal stability in the Province through monitoring departmental and municipal revenue and expenditure. We will also ensure more involvement of the Provincial Treasury in the budget process and reporting requirements of Public Entities.
The sub-programmes: Public Finance, Economic Analysis and Infrastructure Development will continue to provide an informed and well-researched fiscal framework for the allocation of resources and the monitoring of expenditure trends against the appropriated funds. As a team their annual efforts culminate in preparation of the Estimates of Provincial Revenue and Expenditure which members will be debating during the present sitting of the Legislature. Their functions do not end once the Appropriation Bill is passed by the House:
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The economic analysis unit undertakes various ad hoc analyses, including analysis of municipal areas.
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The Infrastructure unit assist departments with the planning and monitoring of infrastructure spending and management over the MTEF process relating to Infrastructure.
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The Public Finance unit will continue during the year with it important control of the in-year monitoring systems.
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The Provincial Own Revenue will be conducting continuous assessments of revenue generation and collection capacity of all KZN departments.
Infrastructure Crack Team
The Provincial Treasury will during 2011/12, establish a panel of Infrastructure experts covering all disciplines in the planning, designing, construction, monitoring and maintenance of infrastructure projects. In this regard a ‘Request for Proposals’ has been issued and the process will be finalised during the first quarter of 2011/12. The Panel will function transversally and will be available for utilisation by all departments. The experts that will be available on the Panel will include: -
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Project managers to ensure that projects are planned realistically and well in advance and progress constantly monitored.
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Project planners and architects to ensure proper planning, cost effective, and cost efficient designs which are suitable for the purpose.
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Engineers of all disciplines to ensure structural integrity, environmental friendliness, least cost solutions and energy consciousness.
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Quantity surveyors to ensure accurate costing, proper cash flow estimates and monitoring to prevent overruns.
It is envisaged that through this exercise we will have expertise readily available to assist and to ensure value for money and on-budget spending of our Infrastructure allocations.
Programme 2 also houses the Municipal Finance unit, which gives effect to the duties and functions of Provincial Treasury in terms of the Municipal Finance
Management Act (MFMA). This is an area that still needs to be given more attention to improve service delivery to ordinary people. It is at this level of government where the real differences are made to the everyday lives of the citizens of this province.
We must increase the pace at which we deliver services to our people and most of all, the quality of services that we deliver. It is vital that we must take bold and decisive actions that will show visible improvements to give our people more hope.
Municipal Support Programme
This unit is responsible for the Treasury Municipal Support Programme (MSP) to assist municipalities in doing proper planning and credible budgeting thereby securing their ability to meet their obligations to provide basic services. The project seeks to identify the causes of financial problems experienced by the municipalities and to implement measures through a financial recovery plan that will place the municipalities in a sound and sustainable financial position. The municipal finance environment has improved where assistance was provided by Treasury, but the budget credibility and sustainability of municipalities remain major challenges. A further challenge remains the lack of skilled human resources to address, not only the financial management, but the highly technical nature of municipal services.
The MSP has had a positive impact on the financial management of municipalities using the audit outcome of the municipalities for 2009/10 it is evident that the support programmes of the Province have had noted success. We do not say that a “clean” or “improved” audit outcome necessarily implies real service delivery, but I do believe it is a crucial step in the realisation of a culture of accountability and responsible spending.
Programme 3: Financial Management – R262,595 million (down from R379,320 million)
As alluded to in my general overview earlier on the overall reduction in the Provincial allocation, the substantial decrease in the allocation to this programme is directly due to the reduction in the cost of servicing the cash provision for the province.
Although the reduction is reported under this programme the success of the turnaround strategy of cost cutting measure, improved cash flow reporting and sound cash management is a direct result of the teamwork of the Public Finance and Financial Reporting units. The Executive is being informed on a monthly basis, of both the ‘In Year Monitoring’ reports of departments as well as their actual cash position resulting in greater oversight over departments. We must however, guard that this positive situation does not breed complacency and a reversal to the old ways.
The purpose of the Financial Management programme 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. The Public Private Partnership (PPP) Unit housed in this programme provides technical support on any possible PPP project envisaged by Departments, Public Entities and Municipalities.
The Financial Management team plays a major role in building the capacity of institutions to ensure sound financial management practices in the Province. In some areas it was found that, although we have as a Province extensive practice notes and policies in place in both general financial management and supply chain management, prescripts are blatantly ignored by some officials. These practice notes are reviewed regularly in consultation with all stakeholders. However, good practice notes per se are not worth much in cases where these prescripts are simply ignored.
This will eventually result in qualified audit opinions as well as irregular and wasteful expenditure. The Financial Management unit will continue to promote a culture of compliance in all our institutions because circumvention or bending of these rules opens up opportunities for fraud and corruption.
I will again 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. Although there was a steady progress in the 2009/10 audit outcomes and the audit readiness for 2010/11, it is clear that substantial work is still required to achieve our objective of clean audits by 2014 in Departments and Public Entities.
The special areas we will be focussing on in 2011/12 are as follows:
1. The completion and updating of the immovable assets register and compliance with the Government Immovable Assets Management Act.
Special funds have been provided to the Department of Public Works for this exercise in which Provincial Treasury will participate.
2. A continuation of the “Reduction in Government Debt to Municipalities” exercise. Although the special task team has almost completed its mandate, it has become clear that the situation should be carefully monitored to ensure that arrears in certain areas do not occur again. We will therefore in the new year concentrate on the improvement of our systems as well as the billing systems of some municipalities. We will also address the disputes with certain municipalities as identified by the team.
3. In collaboration with the Department of Education we will assist to find an amicable solution to the payment of municipal debt by Section 21 Schools. Last year I quoted Minister Gordhan in regard to Supply Chain Management and I do so again:
“A major site of both wastage and inefficiency is in our procurement system.
Through a combination of corrupt practices, inefficient procurement, poor planning and in some instances, collusion by the private sector, we are not getting the kind of value from our purchases that our people deserve”.
2011/12 is the year in which it will be expected from us as government to ensure that we receive quality, sustainable products delivered within the agreed times-frames. We cannot keep on paying exorbitant prices for our goods and services. In the spirit of transforming the service delivery, we will continue with the initiatives and projects commenced in 2010/11.
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Comprehensive Compliance Assessment for both departments and municipality.
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Population of the new Provincial Supplier’s Database.
A new system has been introduced to address the identified challenges andthe population should be finalised by June 2011. -
Effective Contract Management systems
This Unit is in the process of developing a contract database to actively monitor and manage contract performance by Departments. This system will assist in ensuring that suppliers of similar services / goods are subject to consistent, standardized and fair performance measures. -
In conjunction with the Office of the Premier the Strategic Sourcing Project
The ongoing challenge of fraud and corruption through price inflation has necessitated a review on how we procure goods and services. We need to continuously monitor suppliers’ quoted prices against market prices for different goods and services procured by government departments. This system/methodology makes use of market research and value chain analysis to assist in the negotiation of price with suppliers. It is anticipated this project will be completed on or before 30 November 2012. -
Assistance to municipalities.
Most of the municipalities do not have a proper functioning supply chain management (SCM0 system as required by MFMA and municipal policies and this is hindering our efforts in ensuring that the Municipalities are fully compliant. Direct assistance with policy formulation and the establishment of an appeals management process is being undertaken by the unit.
Included in Programme 3 and moved from programme 1 is an allocation to the subprogramme: Supporting and Interlinked Financial Systems (R107,254 million up from R101,248 million). These funds are mainly for the transversal financial systems utilised by the Province.
I announced last year that the Biometric Access Control System (BACS) project is now fully operational for all BAS and PERSAL users. Some of the features of the system required some changes to BAS to be fully effective. This has now been affected and full utilisation will to a large extent eliminate password irregularities and fraud. It is the intention to also roll-out BACS to the Hardcat system.
Programme 4: Internal Audit – R89,270 million (up from R82,634 million)
The Internal Audit Component provides a legislated function which covers an independent objective assurance and consulting services on issues of internal controls, risk management and governance as provided in the PFMA. It remains one of the most important vehicles Province can utilise to promote good governance and combating fraud and corruption throughout the province. The Unit also plays a significant role in the municipal support programmes.
The Assurance component is visible in all provincial departments and will constantly implement more strategies that will increase its visibility and effectiveness throughout the Provincial Government, including other agencies supporting provincial departments and local government. This component is the most important vehicle which can be utilised by Accounting Officers to take corrective action before an identified challenge becomes an external audit query. As with many prescripts some of our officials do not act and in some cases ignore these reports. The number of internal audit reports and client relationship meetings indicates an increasing trend in our interaction with departments over the last three years.
The Risk management component has made good progress in promoting a culture of effective risk management by promoting continuous awareness through focussed strategic and operational risk assessments. The challenge that confronts the component will always be to obtain the buy-in of Departments as in many cases the actual management of risks is not always the priority of the Department. The Forensic investigation component of the unit has as its main objective the promotion a culture of zero tolerance to fraud and corruption. It works with organisations within the forensic fraternity to identify and investigate a variety of fraud and corruption activities concerning provincial departments and entities.
The Unit also continues to focus on pro-active and preventative strategies of combating IT fraud and corruption through Project Unembeza. Since the implementation of the programme no new cases of external manipulation through our systems have been reported. However, we remain vigilant and follow up any suspicious activity that is reported.
Reviews on the status of fraud management have been undertaken in all provincial departments during 2010/11 and will be repeated annually.
Programme 5: Growth and Development – R12,524 million (reduced from R68,131 million)
The reduction in the allocation to this programme is mainly as result of a R40 million once–off contribution towards the upgrading of the Pietermaritzburg airport approved by the Legislature in the Adjusted Appropriation in December 2010. The balance of R16 million in the reduction is due to the transfer payment of casino taxes which is only allocated in the adjustment estimates when the actual revenue is known.
Impact of the Budget for the 2011/12 Financial Year
The budget of the Provincial Treasury for the 2011/12 financial year as indicated in the Estimates of Provincial Expenditure for 2011/12 has been reduced from R692, 500 million to R536, 486 million as a result of the savings in the cost of servicing the cash provision. It is however, still a healthy budget which greatly assisted the Treasury to recommend the allocations of funds for a number of important projects during 2011/12, namely:
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Funds for the finalisation of the Immovable Assets Register by the Department of Public Works.
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Funds for the finalisation of the Municipal debt project.
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Funds for the provision of assistance to Education to resolve the challenges relating to payment to municipalities by certain section 21 schools.
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Funds for the expansion of assistance to municipalities.
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Funding the requirements relating to Operation Clean Audit, and
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Funding the finalisation of the SCM reform initiatives.
Conclusion
With a relatively healthy budget and with an expected complement of 460 staff, the Provincial Treasury must be the force that guides all the other departments to stay on course within their own financial and fiscal constraints. We must also assist department to deliver on their own pre-determined objectives. The greatest challenge facing Vote 6 is to utilise our voted funds with caution so that it will encourage all other departments within the Province to wisely spend their allocations to the best benefit of all the people living within KwaZulu-Natal.
I trust that with these commitments, you will be able to support the 2011/12 budget of R536, 86 million for Vote 6: Provincial Treasury. It is now my honour to formally table this budget for your consideration.
