A. Introduction
Sound financial management makes the difference between goals achieved and opportunities missed. Government cannot afford to lose any chance to improve the lives of our people – the only true measure of good governance.
Economist and Nobel Prize winner Milton Friedman said, “Nobody spends somebody else’s money as carefully as he spends his own. Nobody uses somebody else’s resources as carefully as he uses his own.”
Given the huge resource gap we have, we have no choice other than to treat public money as if it is our own, because it is in fact our “own” money, i.e. tax payers’ money. However, we can only spend the money of our people wisely if we have a collective culture of responsible spending in our provincial and local governments.
B. Instilling a collective culture of responsible spending
B.1 Working together
To this end I have committed myself and the Provincial Treasury to build strong relationships with all MECs and their departments, as well as all local government authorities. These relationships are built on trust and effective advice and support. This entails regular interaction with the MECs and their departments on the financial status of the province.
Sometimes the financial medicine we prescribe is not sweet, given the challenging environment 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. When looking at our present financial situation we have indeed honoured our commitment to spending your money wisely.
B.2 Doing more with less
As a nation we have come a long way since achieving democracy, but we are still confronted with massive challenges. Unemployment remains very high, poverty and inequality and opportunities to better education, healthcare, public transport and basic household amenities remain a problem for many. Over the next few years, government must deliver more services more efficiently with less money.
This means that we must spend scarce resources effectively, efficiently and economically. Value for money is paramount. Doing more with less, must be our watch word.
B.3 Good governance
Good governance, which can be defined as accountable, participatory and transparent, includes the strengthening of public institutions. We have intensified our engagement with our clients to achieve in the following areas of good governance, namely:
On-budget expenditure.
- clean audit reports
- elimination of fraud and corruption
- transparent supply chain management practices.
B.3.1 Responsible spending
a) Paying off the overdraft
7.5% reduction in goods and services budgets
- continuing the baseline trajectory of departments taking into account the 7.5 percent reduction in the value of the Goods and Services budgets
Cost-cutting measures
- The Cabinet-approved cost-cutting measures to save money on unnecessary items remain in place even after the provincial overexpenditure has been eliminated as these measures are pillars of fiscal prudence and good governance. By keeping these measures in place, the province will ultimately be able to augment its fiscal capacity to finance more service delivery programmes, and invest in projects that will improve the economic performance of KwaZulu-Natal.
The cost-cutting measures have brought down our overdraft dramatically from a projected R5.6 billion in 2009/10 to below R1.7 billion by the end of that financial year. As a result other provinces and national departments have been advised to follow the KwaZulu-Natal model. Our projected over-expenditure for 2010/11 is much lower and by exercising prudence and keeping the cost cutting measures in place we are hoping to achieve on budget spending by the end of this financial year.
The cost-cutting measures have also acted as a deterrent to fraud and corruption and have made top management more aware of managing finances in their departments.
Implementing the first charge rule
Implementing the First Charge Rule for departments that overspend by reducing their budget available for spending in order to pay back the over-expenditure they incurred in the previous financial years.
b) Spending on budget
Spending on budget to prevent over- and underspending is monitored through:
- Daily cashflow reports & monthly in-year reports
We now check our cashflow situation daily. In addition to interaction with individual MECs and departments the Provincial Cabinet is also briefed monthly. The province’s cash position has not looked so good in years - for the first time in two years we have cash in the bank. Our monthly in-year reports have also shown a positive change in spending trends. However, we are not complacent as the situation can change rapidly. We cannot afford to take our collective foot off the brake.
B.3.2 Clean audit reports
Audits are widely accepted as a way to curb corruption and act as a potent deterrent to waste and abuse of public funds by, e.g. helping restrain any tendency to divert public resources for private gain and exposing non-transparent decision making which is clearly not in the public interest.
To this end we have launched the 2014 Clean Audits campaign to intensify efforts to obtain unqualified audit reports for all public institutions in KwaZulu-Natal, i.e. all municipalities and municipal entities, as well as provincial departments and provincial entities must achieve unqualified audit opinion reports by 2014. By setting that target we do not say that a clean audit always guarantees real service delivery, but it is a crucial step in the promotion of a culture of transparency, accountability and responsibility.
The Audit Outcomes (both for municipalities and provincial government departments) clearly shows a general improvement in compliance with financial reporting. The recent 2009/10 audit outcomes have been encouraging. Auditor-General, Mr Terence Nombembe, expressed his satisfaction with the progress of financial management in KZN, saying that he was most encouraged and pleased with the improvement. He attributed the success to the commitment of the Premier and his Executive.
The phasing in of performance auditing, i.e. the measuring of performance as opposed to compliance has certainly been adding more value by shifting the focus to results-oriented auditing. In other words, the Auditor General is now also measuring whether we actually do what we say we will do.
B.3.1 Elimination of fraud and corruption
Fraud and corruption distorts economic and social development by engendering wrong choices and encouraging competition in bribery rather than in the quality and price of goods and services
a) Dealing with allegations
The Internal Audit unit in the Provincial Treasury has been tasked to respond to issues of fraud and corruption in provincial departments, public entities and municipalities. Allegations of fraud, corruption, maladministration, theft, mismanagement of funds and misrepresentations are constantly received through:
- NACH (Hotline) via the Office of the Premier
- Directly from whistle blowers
- Executing authorities
- Senior management of government institutions
- Members of the public
- Identified through normal assurance reviews.
The Unit presents the outcomes of the internal investigations to the relevant institutions with recommendations, e.g. civil recoveries, disciplinary action, or referral for criminal investigations.
b) Prevention
i. Initiatives to reduce risk:
- Enhanced risk management processes
- Implementing systems to prevent cyber fraud (Project Unembeza and Biometric Access Control System)
ii. Initiatives to improve accountability
- Close relationships with law enforcement agencies
- Working jointly with the Office of the Premier to facilitate prosecution of criminal cases
- Establishing Disciplinary tribunals
- Following up on irregular and unauthorised expenditure reported in financial statements
iii. Review of supply chain management
- Addressing loopholes in the PFMA, which allows abuse of deviation
- Dealing with inflated prices (price list)
- Enforcing the use of transversal or general period contracts
- Extending the compulsory declaration of interest in companies that benefit from government to lower ranks
- Assigning SCM delegations to the correct level of responsibility
- Reviewing and strengthening contract management
- Implementing a tender appeals tribunal also in municipalities
- Cleaning up suppliers’ databases
- Linking the suppliers’ databases with external organisations (SARS, CIPRO and CIDB)
C. Financial literacy:
KwaZulu-Natal has many poor communities who live under unfavourable socioeconomic conditions. Financial literacy is a prerequisite for the successful implementation of the numerous programmes initiated by government and the private sector for the social and economic upliftment of the nation. Economic transformation initiatives such as BEE, and full participation in the economy requires financially competent individuals.
Financial literacy and inclusion are issues of critical importance as we all strive for a more robust and sustainable economy, and a more equitable society. Our vision is to reduce poverty by extending social and economic opportunities to all citizens in KwaZulu-Natal through financial education. Our mission is to empower our people to make informed and confident financial decisions.
On 10 December we will be having a Potential Partners briefing session to find ways which will enable government, business, NGOs and NPOs to work together to intensify the impact of our financial literacy initiatives. We hope that our media houses will also be interested to invest in the financial literacy of our people, which will ultimately contribute to the realisation of an informed and literate citizenry.
Source: KwaZulu-Natal Treasury
