Reviewing fiscal decentralisation
(part 2)
“Monitoring of provincial and local government
budgets”
CABRI
21 – 22 June 2007
1
Overarching role of treasuries
• Establish and enforce:
– Aggregate fiscal discipline
• Budgets must be respected like all laws
• Fiscal aggregates stay within set limits
– Allocative efficiency
• Resource allocation in line with priorities
• Good programmes get more and vice versa
– Operational efficiency
• Delivering more outputs for less resource outlays
2
Context and Background to Presentation
3
Budget Reforms in SA
Improving
operational &
allocative
efficiency
• Accounting Reform
• Procurement Reform
Publication of Quarterly
Performance Information
MFMA
Measurable objectives
SPP tabled
AR tabled
SCOA
Publication of Section 32 &
CG information
Estimates of National Expenditure &
Provincial Budget Statements 1 & 2
Public Finance Management Act
National Expenditure Survey & IGFR
Medium Term Expenditure Framework
Intergovernmental System
4
CD: Provincial Budget Analysis
• Provincial Budget Preparation
– Support and benchmarking
• Provincial Budget Implementation
– Monitoring, Oversight and Reporting
• Provincial Budget Reform
– Initiate, facilitate (Champion) and oversee
• Provincial Financial Management and Training
– Promote and build capacity
• Financial and Non–Financial Data
– Data management
5
CD: Local Government Budget Analysis
• Local Government Budget Preparation
– Support and advise municipalities on budgeting
• Local Government Budget Implementation
– Monitoring, Oversight and Reporting
– Collect, consolidate and analyse municipal
information and prepare publications
– Monitor implementation of intergovernmental grant
system
• Local Government Budget Reform
– Initiate, facilitate (Champion) and oversee
– Support the implementation of the MFMA
6
Budget Preparation and Support
7
National Treasury Support
National Treasury has responsibility to oversee
implementation of PFMA and provide support and
guidance to constitutional entities
Hence the development of the “Provincial Good
Practice Programme” for Provinces:
Improve efficiency, economy and effectiveness
Facilitate peer learning through collective experiences
Provide support measures to assist with the building of
capacity and improve financial management processes
Various platforms are utilised to execute this mandate
8
National Treasury Support (1)
Budget Process Schedule
Legislative deadlines for submissions
Budget Preparation Guidelines
Consistent with national guidelines
Sectoral Meetings
Engage sectoral issues and revise priority spending
10 x 10
4 x 4
Provincial Visits
June/July visits – expenditure status, spending challenges
November visits – capital spending, visitation to infrastructure projects
MTEC Hearings
Attend as observers
Benchmark Exercise
9
Assess credibility of provincial budgets prior to tabling in provincial EXCOs
National Treasury Support (2)
Database
Budgets Statements
IYM
Annual Financial Statements
IGFR / Provincial Budget and Expenditure
Review
Focus on sectoral issues
Aggregate picture of provincial and local
governmental budgets
10
National Treasury Support (3)
 In-Year Management and Reporting
 Effective and efficient financial management
 Proactive towards possible spending challenges
 Interrogate deviations and prompt corrective action
 Guidelines
 Effective implementation of legislation – PFMA & MFMA
 Ensures transparency
 Efficient financial management
 Budget Formats
 Efficient budget allocation
 Aggregation and consolidation
11
National Treasury Support (4)
Chief Financial Officer (CFO) Forum Meetings
Peer learning forum
Sharing of imperative information
Training
Budget Formulation
Budget Analysis
IYM
SCOA
Workshops
Strategic Planning
Budget Processes
Financial Management
12
In-year Management, Monitoring and
Reporting System
13
Background
• Sparked by 1997/98 financial crisis in provinces
– Provinces overspent by R5,8 billion in
aggregate
• Approved by Cabinet
• Change the Budget Process
• IYM constitutes:
Expenditure management
Revenue management
Cash flow management
Movements in Bank balances
Suspense Accounts
14
Background - continued
• Impossible to manage without reliable
financial and non-financial information to:
– Develop plans
– Evaluate alternatives
– Institute corrective actions where necessary
• Public Finance Management Act, 1999
(PFMA):
– New emphasis on accountability, regular
monitoring and performance reporting on a
monthly basis
15
Legal Requirements
• Section 32 of PFMA
– Publishing reports on state of budgets
• Section 40(4) of PFMA
• Treasury Regulations (Part 7 - Section 18)
• Sections 10(5), 12(1)&(2) and 32(2) of the
Division of Revenue Act, 2007 (CGs)
• Acts require monthly expenditure and
revenue reporting to the provincial treasuries
and National Treasury
16
In-year Management, Monitoring and
Reporting
• Accountability Cycle:
– Strategic and Performance Plans
– Budget
– In-year monitoring (IYM) (Inform SP targets)
– Quarterly Performance Reports
– Annual Reports
• Purpose:
– Focus on performance against budget
– Alert managers where remedial action is required
– Reports serve as management tool
– Feed the Budget Process
– Feed into publications such as the Annual
Intergovernmental Fiscal Review
• Political level to make decisions
17
In-year Management, Monitoring and
Reporting
• Monthly reports facilitate:
– Flow of information
– Internal control measures to deal with problems
timeously (Early Warning System)
– AO is more proactive
– Use data to make decisions
– Compilation of annual reports and financial statements
which complete the accountability cycle
– Assist the external auditor
– Reduced timeframe for audit - strengthen accountability
to legislatures
– Reports consolidated and published in Government
Gazette
18
Monthly Reporting Process (1)
• Accounting officer must submit reports to relevant
treasuries and executive authorities within 15 days
of the end of each month
• To improve accountability, AOs are required to signoff on the monthly reports before submitting to
relevant treasury or executive authority
• Contents of reports – legal requirement (S40):
–
–
–
–
Actual revenue and expenditure
Projections for remainder of financial year
Information on conditional grants
Any material variances
• Format determined by the National Treasury in
terms of PFMA and annual DoRA
– Revised annually
19
Monthly Reporting Process (2)
• Number of steps in the process to convert the millions of
individual transactions that occur as a result of
government activities into the information to be published
monthly
–
–
–
–
–
Undertake reconciliations
Check allocation of transactions
Clear errors and suspense items
Balance various type of accounts
Return date 15th of each month to provincial treasuries and 22nd
of each month to National Treasury
– System resources: BAS, PERSAL and Vulindlela
– From 1 April 2004:
•
•
•
•
New Economic Reporting Format
Migration to BAS
Standard Chart of Account (SCOA)
Single version of the truth
20
A CONCEPTUAL VIEW OF THE MONTHLY
REPORTING PROCESS:
SOURCE DOCUMENTS
FEEDER SYSTEMS
ACCOUNTING SYSTEMS
MONTH-END
REPORTS PRODUCED
ANALYSE
SIGN OFF AND SUBMIT
COLLATE
PUBLISH
21
Formats and Projections
• Formats determined by the National Treasury in terms of
the PFMA and Division of Revenue Act
– Require variances between the actual result for the period and that
budgeted
– Projections to the end of the financial year
– Reasons for deviations
• What has happened so far?
• What will happen for the rest of the year?
• What actions to be taken to achieve agreed plan?
• The following serves as an example:
– In-year Management, Monitoring and Reporting
Model in use by provinces
– National Government Gazette in terms of Section
32 of the PFMA
22
• Screen Shots – IYM Model
23
Office OfConditional
The Premier
Grants : Flow of information
Provincial
Legislature department
Provincial
Health
Submit a report within 15 days
the end of each month.
Socialafter
Development
National department
Submit a report within 20 days after
the end of each month.
Roads And Public Works
Education
Housing,Local Government And Traditional Affairs
Agriculture
EconomicProvincial
Affairs,Environment
And Tourism
Treasury
Submit a report within 22 days
Transport
11 after the end of each month as
part of consolidated monthly
Provincial Treasury
report.
13
Safety And Liaosn
National Treasury
Legislation
16
* Public Finance Management Act.
17
* Division of Revenue Act.
18
24
• Screen Shots – Section 32 Publication
25
• Screen Shots – Press Release
26
• Screen Shots – IYM Dataset
27
• Screen Shots – Newspaper Reports
28
Evolvement of the Model
• Initially (2000/01) - different formats between
provinces
• As result, very difficult to consolidate –
8 months to consolidate all provinces (No
standardisation)
• Decision to standardise format to:
– Improve turnaround time in producing numbers
– Improve quality of data
– Enhance comparability – Education, Health, Social
Development
29
Evolvement of the Model (2)
• Initial model (2001/02) consisted of 4 files – Extremely cumbersome,
not very user friendly
• 2002/03, developed model in one file – big improvement, much more
user friendly and introduction of data file concept
• Following round, introduction of programme level model – separate
model but could upload data from data file
• Current model – combined two models (dept + prog level) into one
file
• Over time also expanded data requested – Cash flow, suspense
accounts, transfers to municipalities, FET colleges, infrastructure,
EPWP, Personnel numbers, etc.
30
Progress in data process
• Initially - 8 months to consolidate provinces – Currently 2
hours excl. data verification process – Improved
turnaround time
• Improved quality of data – balancing between
programmes / economic classification, summary and
detail
• Improved coverage of reporting
• Improved capacity in provinces
31
Latest developments
• Over past few years – dramatic improvement in quality of data BUT on
closer investigation, not there yet – considerable differences between
IYM and BAS
• Discrepancy in numbers between IYM, AFS and Annual Reports – very
difficult to explain
• During 2006/07 - model adjusted to include upload functionality from
Vulindlela - Reason, one source of data
• Vulindlela fixed format created to download data from system in IYM
format
• Data files are placed on Vulindlela website – file per department,
contains a sheet for each programme
32
Data process
Vulindlela runs update from BAS
(2 days after dept closes for month)
User saves applicable file on PC
(One file per department,
programmes)
User uploads data from data file
into IYM model
33
One source of data
Reporting
Source
National Treasury
IYM, AFS, AR
Reserve Bank
Vulindlela
Stats SA
Vulindlela
In-year
BAS?/Own
AFS
BAS?
AR
BAS?
34
Challenge!!!
• Incorrect economic classification
– Use of items and not objective structure as basis for
economic classification
• Variances in programme structures in BAS and
Budget Statements
– Differences between BAS and Budget
– Previous years structure not deactivated on BAS
• Correction of misclassifications
35
Reports Generated
• Section 32 Publication
• Press Release
• Technical Committee for Finance
(TCF)
• Budget Council
• President’s Co-ordinating Council
(PCC)
• Select Committee for Finance (NCOP)
36
Conclusion
37
First Lesson from SA
• Budget reform goes with fiscal
decentralisation
– It is even more important for fiscally decentralised
– Co-ordinating policy and sector interests across
tiers of government is really difficult but necessary
– Ignore the nay-sayers and implement 3 year
budgets
– Budgets should not require line-item political and
legislative approval
• Reserve line-item budgets (to the extent they are even
necessary) for internal management purposes only
38
Budget Reforms and Fiscal
Decentralisation
• Budget reforms are even more important for
fiscally decentralised countries
– Are budgets sustainable?
– Is consolidated tax to GDP stable or declining?
– Is consolidated borrowing or deficit sustainable (i.e.
consolidated debt to GDP stable or declining)
– Are provincial budgets comparable with each other?
• Standard chart of accounts, uniform budget formats etc
– How quickly can we produce consolidated budget
information?
• How much are we spending on school education?
• Need to aggregate school budgets from 9 provinces
39
Conclusion - IYM
• Over the past five years we have made a
great deal of progress in improving quality
and scope of data - There are, however still
a few areas that need attention
• In order to really add value we need to
combine non-financial (performance) data
with the financials, but let’s eat the elephant
one bite at a time
40
LG: Budget Reform Agenda
•
•
Mirror image of national and provincial budget reform package
Development of Budget Format Regulations
–
–
–
–
–
Budget Statements
Adjustments Estimate
In-year Management, Monitoring and Reporting
Municipal Entities
Annual Reports
– Target date: March 2008
•
Development of a In-year Management, Monitoring and Reporting System for
Municipalities (Early Warning System) – two year project
–
–
–
–
–
•
Continue to improve the Publication of the Local Government Budgets and
Expenditure Review
–
•
Initial focus on non-delegated municipalities
Enhance the Publication of Section 71 reports
Include reporting on Conditional Grant spending
Infrastructure spending
Ultimately reporting on all 283 Municipalities
Focus on actual expenditure for all municipalities over a seven year horizon
Development of reporting standard – equivalent of Standard Chart of Accounts
(SCOA) for Municipalities
– 18 Month Project
•
Database Enhancements
41
Thank You
42