Honourable Speaker,
Honourable Premier,
Honourable Members,
Heads of Departments
Distinguished guests, friends, comrades,
Ladies and gentlemen,
Honourable Members, our main challenge moving forward is obviously to accelerate service delivery and to improve its quality. This challenge is uncontroversial. Our main problem, Honourable Members, is that the poor management of our provincial fiscus contributes to the deceleration of service delivery and poorer services. Therefore it is imperative that we establish the integrity of our provincial finances as quickly as possible.
This speech shows how we intend to do this in concrete and practical terms, and so outlines what we are going to do and what we want to achieve in the coming financial year.
Specifically, Honourable Speaker, we wish to speak to our four main focus areas for the coming fiscal year.
These are:
- Elimination of over-spending and under-spending
- Improving human resource management and supply chain management Improving provincial planning; and
- Tackling corruption and maladministration
As you are aware, Honourable Speaker, the Provincial Treasury is the custodian of the Public Finance Management Act (PFMA), and we will ensure that it is enforced to the core. Good quality financial management is non-negotiable. To this end, Honourable Speaker, I have already instructed all staff in Provincial Treasury to have zero tolerance regarding PFMA contraventions.
Priorities for the 2011/12 financial year
Elimination of over-spending and under-spending:
Honourable Speaker and Members of this House, we cannot afford in a Province characterized by poverty any under-spending on infrastructure or on any of our high priority conditional grants, such as school nutrition and our HIV programme.
Moreover, Honourable Members, given a fixed overall budget, over-spending in one area necessarily implies under-spending in another. So any spending deviations from budget need to be immediately corrected. So what are our concrete actions in the coming year?
Honourable Members, it is essential that we embed and solidify the system whereby Provincial Treasury closely monitors actual expenditures and expenditure commitments so that any deviations from budget are immediately apparent. These deviations will be brought to the attention of the relevant MEC for appropriate action.
I also reserve the right to elevate the matter to the Premier and Provincial Cabinet, in the event that the responsible MEC fails to take action.
On our part, as Provincial Treasury, we will be putting in place early warning systems that ensure we do not discover major deviations after the fact.
Honourable Members, Provincial Treasury will continue to strengthen its internal capacity by filling critical funded positions before the end of June 2011.
Honourable Members, there is a growing realisation that the financial management challenges that confront the province require a more agile Treasury to turn the situation around. We have begun reducing vacancies from the last quarter of this financial year and plans are afoot to fill other key vacancies, in particular the post of Head of Department and posts in the Municipal Finance Unit, and the Head of the new Planning Unit.
It must be recognised, Honourable Members, that Provincial Treasury activity alone will not realise the desired results, and that better collaboration is required between Treasury and the departments. Hence, a critical intervention will be to step up efforts of ensuring adequate capacity in departments, public entities and municipalities, in terms of operational processes and oversight. A key component in this intervention is to ensure that people with the right competence occupy the critical areas of budgeting, accounting, procurement, cash management and asset management.
To ensure that there exists requisite capacity in the short term, our programme for a mobile multi-disciplinary team of experts from the “Technical Support Unit” within Provincial Treasury, will be rolled out. The recruitment in this Unit has gathered momentum. This will augment the monitoring element in departments, especially those contributing the most in the over-expenditure position of the province.
The team has developed a detailed implementation plan which incorporates priorities identified by the departments. Following this, a scoping exercise was performed on HR management and supply chain management, the aim of which was to identify how the systems are currently operating, identify gaps (including lack of appropriate staff to perform the activities) and provide recommendations to close these gaps. The focus for 2011/12 will be the robust implementation of the plan. In the short term, the Technical Support Unit specialists will drive the processes hands-on, while in the medium term, the focus will be on building sustainable capacity within the two departments.
A variety of other support measures will be accelerated.
These include:
- Provincial Treasury will be organising 2011 budget hearings in the next two weeks on the readiness of departments to implement their budgets, focusing on the payment of creditors, reasonability of annual cash flows, conditional grant business plans, procurement plans and the loading of the budget onto our payments system.
- There will be improved co-ordination and monitoring by relevant units within Provincial Treasury to ensure that, among other things, spending on conditional grants, including infrastructure, is within acceptable levels.
Honourable Speaker, it goes without saying that given the financial challenges we are facing, Provincial Treasury’s monitoring role should be improved so that it provides accurate and timely information that will lead to early interventions.
Specifically, Honourable Members, Provincial Treasury will be invoking its powers of suspending financial delegations in terms of section 20 of the Public Finance Management Act, for all entities that show persistent breach of the Act. Already, we have centralised the cash disbursement as well as the appointment functions in certain departments, and this will continue until the situation normalises.
Honourable Speaker, we have a firm belief that these moves will contribute to our efforts to increase the effectiveness of oversight by all those charged with this function, and will add more impetus in our planning and monitoring capacity in general.
Improving Human Resources Management
Honourable Speaker, in collaboration with the Office of The Premier, we will continue to strengthen the value derived from our provincial government human resource base. Good quality HR management is a precondition for any high performing state agency, in the context of a developmental state.
The province’s overspending is largely attributable to compensation of employees. Some of the causes of this over-expenditure are higher personnel costs than budgeted, as a result of higher than budgeted nationally-negotiated wage agreements or poor implementation of such wage agreements, like irregular promotions and the appointment of personnel without budget. We plan to totally overhaul human resources management, especially of Health and Education.
Our planned activities include:
- Fast tracking the work currently underway with the national Department of Public Service and Administration and National Treasury to review organograms of departments. The focus of this review is to ensure a lean top structure and appropriate placement of staff at service delivery points.
- A joint project between the Provincial Treasury and the Departments of Health and Education on payroll clean-up. Terms of reference for this project have already been developed.
- Close monitoring of the hiring of new staff, including a review of personnel numbers in the payroll system, and where necessary, centralizing HR recruitment at the departmental level.
- Provincial Treasury, working with the Office of the Premier, will strictly monitor the reversal of irregular salaries and report regularly on progress made to Provincial Cabinet.
Supply chain management, including contract management, is one of the focal areas of sound financial management.
Honourable Members, we continue to be plagued by challenges in this area and so we intend to step up our efforts in this regard in 2011/12.
In the coming financial year, Provincial Treasury will review the impact of the price index on provincial government’s cost of doing business, as well as extending its application to other expenditure categories (such as high value contracts).
An added focus will also be given to ensuring compliance with the provincial price index, through for example, random auditing of payments by departments. There will be regular reporting on departments found not to be fully implementing the price index which will be made available to the Provincial Cabinet, for appropriate action by our MECs.
Other activities in this area include:
- Classification and profiling of service providers for each supplier category for better contract management
- Enforce compliance with recommendations from the Provincial Treasury’s Bid Adjudication Committee
- Strengthen internal controls in procurement
- Audit of selected high value procurement contracts.
- Standardisation of requirements related to the appointment of consultants
Improving Provincial Planning:
Honourable Speaker, the ruling party in Polokwane identified the requirement to strengthen the technical capacity for state planning, and our Premier, having identified the critical linkage between planning and budgeting, determined that the new centralised provincial planning function should be located in Provincial Treasury.
Accordingly, Honourable Members, our new centralised planning machinery will be in place and in operation to inform the 2012/13 budget allocations.
In the next few months we will be undertaking a review of existing departmental planning capacities and presenting a proposal to EXCO which will include recommendations on:
- institutional configuration
- planning assumptions
- medium versus long term planning
- integration of delivery problem diagnostics and evaluation with planning
- improving local government IDPs
- integration of spatial planning with other forms of planning
- harmonisation of provincial planning with planning of national state-owned enterprises
Honourable Members, it is well known that our province has been in the media around issues of corruption and maladministration. It is also well recognised and obvious that corruption diverts resources from service delivery.
We are therefore pleased to announce, Honourable Speaker, that we have assembled a multi-agency team to expedite the investigation and prosecution of all cases of corruption involving provincial government and its entities. The team comprises Provincial Treasury, National Treasury, SARS, and the Special Investigating Unit, and will be reporting to provincial cabinet on a monthly basis.
Priorities for the medium term
Honourable Members, areas that we will strengthen over the medium term include the following:
Improvement in Audit outcomes:
Provincial Treasury is responsible for improving financial management of provincial departments and for ensuring compliance with the PFMA in the Province. Performance in this regard can be measured with reference to the opinions of the Auditor General on departmental financial statements.
In the financial year 2009/10, ten departments received unqualified audit opinions with other matters, two departments received qualified audit reports and two departments received disclaimer of opinion. This was an improvement from the 2008/09 financial year, where nine departments received unqualified audit reports, three qualified reports and two adverse reports.
Similarly, good improvements were registered for public entities, with eleven entities receiving unqualified audits for 2009/10. Of these, we were very proud to receive four clean reports! In the coming year we will focus on increasing the number of entities receiving clean audit opinions and endeavouring to ensure that all entities receive unqualified audits.
Honourable Speaker, an overriding concern remains that our two big spending departments of Health and Education, continue to receive negative audit opinions. The same departments account for the greater part of the challenges of budget management.
It is therefore necessary, Honourable Members, that more attention is given to these departments, with a view to support them to improve their financial management and become more accountable for funds allocated to them.
The additional capacity that Provincial Treasury has made available through the Technical Support Unit will also help achieve better audit outcomes.
One of the initiatives undertaken during the past year was to decentralise Provincial Treasury’s Shared Internal Audit Services to the departmental level. We firmly believe that this decentralisation will go a long way towards improving internal controls within departments, and hence contribute to better audit outcomes.
To support and further ensure the effectiveness of the internal audit function within departments, a Provincial Treasury internal audit oversight unit is being established to set norms, standards and guidelines, review operations, perform quality assessments and provide strategic leadership to internal audit within departments.
Local government support
Honourable Members, local government support is a collaborative effort between Provincial Treasury and the Department of Local Government and Traditional Affairs. Our medium term activities are informed by the Five Year Local Government Strategic Agenda which identifies key areas of support. One of them is on financial viability, for which financial sustainability and audit outcomes are key indicators of performance.
The audit outcomes for municipalities have been improving over the years, although from a low base. Building on the national effort to improve audit outcomes, in October 2009 the Honourable Premier launched a provincial campaign for clean audits, targeting clean municipal audits by 2014.
The main challenge is to strengthen Provincial Treasury’s Municipal Finance Unit in order to achieve this 2014 target.
Provincial Treasury activities in this area include:
- Hands-on support to municipalities in preparing budgets and reporting.
- Working with our national counterparts (SALGA and National Treasury) to help train municipalities on financial management reforms (supply chain management, preparation of financial statements etc)
- Ensuring that there is general improvement in compliance with MFMA and our focus being on improving information that is reported, to help strengthen oversight.
- Engaging National Treasury on sustainable ways in which the revenue capacity of municipalities can be strengthened.
- Working with municipalities to improve their existing revenues through reducing debtors, proper billing, and regular valuations of properties.
Honourable Speaker, we have now completed our overview of Provincial Treasury activities, and I now present the budget proposals that will support the initiatives identified in 2011/12. A budget of R302.5 million is proposed for the 2011/12 financial year, with programme allocations as follows:
• Programme 1: Administration: R108.028 million
• Programme 2: Sustainable Resource Management: R65.168 million
• Programme 3: Assets and Liability Management: R72.831 million
• Programme 4: Financial Governance: R56.499 million
In terms of economic classification the breakdown is as follows:
- Current Payments: R298.781 million
Compensation of employees is: R 231.700 million
Goods & Services is: R 67.081 million
- Transfer and subsidies: R2.195 million
- Payment for capital assets (Machinery & equipment): R1.550 million
Conclusion
Honourable Members, when we have succeeded in making the improvements outlined in this speech, we will have gone a long way towards solving our major delivery problems in education and health, and thereby achieving the electoral priorities of the ruling party.
Honourable Speaker, I now formally table the Policy Speech, the Annual Performance Plan and the Service Delivery Improvement Plan for Provincial Treasury: Vote 12, for the 2011/12 financial year.
Thank you.
Source: Eastern Cape Treasury
