The new approach to the management of public finances will be phased in over a number of years, as the current position is far from the vision underlying the PFMA. During the first year, the focus will be on empowering accounting officers, who are expected to adopt a problem-solving approach to the issues that will arise. To this end, some sections of the Act have been delayed and several exemptions granted (see Annexure A).

The more qualitative improvements, including further reforms to the budgetary process and the introduction of GRAP, will evolve over the medium term. The quality of financial management will be raised each year in a process of continuous improvement.

Each accounting officer will have prepared an implementation plan to address the immediate priorities of their departments. These issues are considered in subsequent chapters of the Guide, and in summary are:

The national Treasury has published a Guide on the compilation of departmental implementation plans (which is available on the web site) and will provide further assistance where possible.

Treasuries should submit quarterly progress reports to the Cabinet/Exco on departmental progress against the agreed implementation plans. Such progress should be taken into account when assessing the performance of each accounting officer.

The immediate steps, in order of priority, are summarised in the remainder of the chapter.

1.        In-year management, monitoring and reporting

The most important requirement of the PFMA is to expect accounting officers to act as managers with immediate effect, ensuring that mechanisms for the in-year management of resources are effective.

They must monitor progress on the department’s operational plan (which includes the budget), and produce, consider and act on monthly and quarterly reports, which are then submitted to the executive authority and the treasury. Systems and processes already exist for monitoring and reporting monthly budgetary performance, but accounting officers will have to scrutinise the financial reports, including data on grants and transfers, before signing off and submitting the required reports (see Chapter 4 and the best practice guide published by the national Treasury).

The PFMA focuses on financial indicators because they are a leading performance indicator, i.e. they are normally produced before other non-financial data become available. While financial reports must be submitted on a monthly basis to the executive authority and treasury, they should be complemented by non-financial indicators at least on a quarterly basis. A broader issue is the quality of the information available; this depends crucially on the accuracy and timeliness of the data entered into the various systems. Accounting officers will need to ensure that all staff involved in these processes have suitable capacity.

It is only when accounting officers and CFOs actively use such information that weaknesses become apparent and the quality of the information can be improved.

Similarly, in order to interpret and, where necessary, act on the information produced, accounting officers will require high-level financial advice. The person appointed as the CFO will ultimately provide this, and the role of this post is considered in Chapter 6.

2.         Clear up audit queries

Accounting officers must urgently address any outstanding queries raised by the Auditor-General or audit committee. These will be followed up by the relevant public accounts committee and monitored by the relevant treasury. Public accounts committees will report to the legislature and could consider submitting reports to Cabinet/Exco on accounting officers’ progress or lack thereof.

3.        Establish effective internal controls

All organisations have systems of internal control, and Government is no exception. The PFMA places a clear responsibility on accounting officers to ensure that the department’s revenue, expenditure, assets and liabilities are efficiently and effectively managed. This requires appropriate systems and procedures.

Accounting officers must evaluate whether existing controls are appropriate, assess the risks facing the department, and introduce the necessary changes to the system of internal control. This may require improvements in capacity to adhere to the requirements of the PFMA.

In particular, the Regulations require each department to appoint a CFO.

Although internal audit has been a requirement for some years, not all departments have established this function. Even where an internal audit function has been established, it is often not fully operational.

Reasons include a lack of capacity or the assumption that the function will perform a traditional ‘inspectorate’ role, instead of an appreciation of the services it can provide to management.

Similarly, while most departments have established an audit committee, they have not necessarily appointed appropriate people to the committee, thus rendering it ineffective. This is particularly relevant in some provinces, and the accounting officers of such departments must consult with the relevant treasury (see Chapter 6).

4.         Improve expenditure management and transfers

Accounting officers must plan properly before spending or transferring funds or benefits. Any transfer not specified in an appropriation Act and/or DoRA will be unauthorised expenditure.

Transfers to public entities within the same sphere of government or to a private institution must be reported in terms of the PFMA and the Regulations. Transfers from a national department to a province or municipality must be in accordance with the schedules contained in the DoRA, and reported in terms of that Act. Transfers from a provincial department to a municipality must be reported in terms of section 13 of the DoRA. A transfer from a national department to a municipality, which passes through a province, represents a direct charge on that province’s revenue fund.

Fiscal dumping (the transfer of funds late in the financial year) to conceal a national department’s underspending may constitute financial misconduct.

The Act also requires that, unless otherwise contracted, payments be made within 30 days of receiving an invoice. Accounting officers delaying payment may undermine government objectives such as promoting small, medium and microenterprises.

5.          Banking arrangements

Accounting officers must take full responsibility for ensuring that all revenue received by their department is deposited only in the relevant revenue fund. Any exception must be in terms of section 13(1) of the PFMA.

Accounting officers must ensure that all suspense accounts are cleared and correctly allocated to the relevant cost centres each month. Any uncleared items should be reported to the CFO. A failure to clear suspense accounts each month will open the accounting officer to charges of financial misconduct.

6.       Complete financial statements on time

The Act requires annual financial statements to be submitted to the Auditor-General within two months of the year-end. This timescale will be difficult to achieve unless the routine month-end procedures are completed systematically during the year, and the accounting officer must therefore ensure that the necessary measures are in place to ensure that good quality reports are produced. Accounting officers must note that the Auditor-General will not complete poor quality financial statements submitted by departments. These will not only be referred back to the department, but will also constitute strong grounds for charges of financial misconduct.

Accounting officers must therefore ensure that:

The Auditor-General will comment on both the quality and timeliness of the reports submitted.

7.        Delegation of responsibilities

The PFMA and the Regulations require new delegations of financial responsibilities to appropriate officials within departments. This must be done urgently if accounting officers are to manage their departments effectively and to spread management responsibility to all senior managers. Examples of delegations are available on the national Treasury’s web site.

Summary

Accounting officers are expected to make significant progress in these areas, which will have been included in their departmental implementation plans. The table below summarises these steps, indicating sources of additional information. A failure to make any progress, for example not attempting to appoint a CFO, will constitute grounds for financial misconduct. Treasuries are expected to report progress quarterly to their Cabinet/Exco.

Table 3: Summary of immediate steps