However, the original design of some four years ago have with some adjustments been holding up well and have raised the capacity of Treasury to fulfil its change agent role and on this basis that I am presenting Treasury's 2006/07 proposed budget to this House.
I would now like to turn to the expected deliverables and challenges for each of the different components in Treasury:
CORPORATE OR HR SERVICES
A key priority is a concerted effort to build capacity and align functions within Corporate or more accurately Human Resource Services with the rest of Treasury for an integrated and enhanced service delivery. Transformation processes within Treasury to improve efficiency, efficacy and to provide for the additional MFMA responsibilities have resulted in a large number of vacancies. Although still high at around 27% currently, it has come down from a vacancy rate of around 41% a year ago. This challenge has been made more difficult by high staff turnovers as a result of a highly competitive labour market. For the financial year ending March 2005/06 fifty appointments and seventeen resignations were recorded. This emerging trend will require close attention in order to retain and enhance skills gained within the Treasury environment.
A further key challenge is to find alternative methods of sourcing for skills with the intended introduction of an external internship programme for Provincial Treasury. This programme is to be geared at relieving scarce skills constraints and enhancing employment opportunities and skills development. Building a competent, dedicated and learning organisation remains a continuing challenge; therefore HR will focus on integrating its strategies with both the external and internal environment and the changing and more diverse culture of the Provincial Treasury, which should improve the appropriateness of our recruiting methods and the retention rate of good candidates.
FINANCIAL MANAGEMENT OR CHIEF FINANCIAL OFFICER
Specific key responsibilities to be strengthened in this year are those of efficient budget management, including proper and full use of assigned funding resources to Treasury, and to close the financial cycle, driving the monthly, quarterly and annual financial and non-financial reporting processes for Vote 3, and maintenance of good financial, accounting and supply chain management.
Challenges for 2006/07 will be to ensure adequate office accommodation conducive to a productive and safe working environment, the evolvement of Treasury's library resource and improvement of document control services, improving the efficiency and standards of risk assessments by the Internal Control section, and more sophisticated financial management resource mechanisms to make ends meet within a tighter fiscal framework over the new MTEF.
Document control and tracking is already receiving attention and a service provider is in the process of developing a system that should become operative in the course of this year. Furthermore the Supply Chain Management unit is currently in the process of reconciling its assets with unique asset numbers for verification and location purposes.
RESOURCE MANAGEMENT COMPONENTEconomic Analysis
The team has made considerable progress over the last year, culminating in the production of the 2 nd Provincial Economic Review and Outlook (PER&O) in 2006 which was both tabled in this House for discussion and a publicly launched to try and deepen the analytical understanding of the Western Cape's socio-economic environment amongst stakeholders, as this informs the annual budget decisions and local government engagements.
Given direct competition with the private sector, the key challenge for 2006 will be to ensure stability and greater depth of this team over time through targeted recruitment and selection processes with clear goals of career pathing for junior economists. Secondly, to consolidate the team while undertaking appropriate and more sophisticated analytical and economic research.
The 2006 PER&O gave the Economic analysis team a starting point, preparing them for future publications and careers over the next three years. The major achievement of the economic analysis team is the capacity built through the local government socio-economic profiling in support of the LG MTEC 3 process. This culminated in a contributory chapter in the PER&O featured as an abridged version of the socio-economic profiling of local government. The detailed socio-economic profiles will be published later in 2006.
Future projects are and will be based on strategic partnerships formed with the analytical research teams involved in the main iKapa elihlumayo lead strategies. These partnerships are vital to ensure coherent and coordinated research in the broader iKapa team during 2006/07.
Fiscal Policy: Provincial and Local Government
This provincial part of the unit has made considerable progress in the attainment of its strategic objectives. Some of these, which have been successfully initiated, and will be pursued further in 2006/07, are:
• Analysis and review of the Provincial Equitable Share;
• Quantitative analysis of Provincial own revenue;
• Investigating the introduction of a revenue estimation and forecasting model;
• Investigating the feasibility, efficiency and effectiveness of motor vehicle licence fees in the Western Cape ;
• Investigating the feasibility and introduction of a fuel tax, which will now run its course as we have received approval from Minister Manuel to proceed with a possible 10c addition to the current fuel price, and
• Initiated a study into the introduction of a bed or tourist levy.
• Investigation of a possible developer levy will follow later.
On the local government side filling of critical positions has been achieved. It is required to be at the forefront of development in the intergovernmental fiscal governance system. The following strategic objectives have been identified during 2006/07:
• Assess and optimise local government's share of nationally raised revenue in respect of the vertical division of revenue - between national, provincial and local level - and of the horizontal division in respect of the local equitable share and conditional grants transfers from national and provincial levels to the local government level.
• Assess and optimise local government's own base, in respect of revenue collected from tariffs levied on water, electricity, sanitation and refuse removal services, property rates, regional services council levies, and other sources (traffic fines, sale of property, goods and services, developer levies).
• Assess the effective and efficient management of debtors in respect of local governments' own revenue bases in relation to their credit control polices and procedure.
Fiscal Policy has taken a number of steps to improve the quality of services provided by the component. These services include the introduction of a provincial tariff register, timely approval of tariffs adjustment and the retention of revenue collected above the adjusted budget. Further, of importance to the functioning of the unit, is the creation of partnerships, both internal and external. These partnerships aim to improve services through leveraging of technical expertise and capacity; streamlined revenue analysis and advice; and building the dialogue and debate amongst and between the various spheres of government.
Ultimately it has to provide professional advice and support on provincial and local government revenue collection and fiscal policy that will inform the future budget processes.
BUDGET MANAGEMENT COMPONENT
The budget management team, known as the Budget Office, steers the provincial budget process. This means helping to determine provincial priorities, ensuring provincial alignment vis a vis national government, and understanding service delivery challenges.
In 2006/07, the Budget Office will continue to support the finalisation of the outstanding iKapa Elihlumayo strategies and their subsequent implementation. This will be done by way of assessing quarterly performance reports submitted by departments, based on expenditure trends as well as narrative programme progress. This monitoring will be based, firstly , on the key deliverables per department as made public in the Budget 2006 Overview (Budget Statement 1) and secondly , the earmarked allocations to departments as indicated in the 2006 Western Cape Appropriation Bill as well as the Estimates of Expenditure per Departments for 2006 (Budget Statement 2).
In the 2006/07 financial year, the Budget Office intends appointing additional economists to improve capacity to fulfil its role with regard to the MFMA. As the office expands and sufficient capacity is acquired, the Budget Office will progressively take on this function by developing systems, support and capacity-building strategies to enable the Budget Office to fully perform its functions in this regard.
Another major challenge will be the promotion of processes and electronic systems within the Treasury, which will facilitate integration of Provincial Treasury components in order to improve understanding of departmental business and improve data bases for the province.
Four further major challenges confront the Budget Office over the next three years. They are: t he need to acquire skilled persons for municipal budget analysis, to set up this new component of the Budget Office team (including institutional and human resource issues), the quality of the IDP link to municipal and provincial budgets and practically, perhaps more importantly, to ensure that where the rubber hits the ground/tar we will see real positive changes over time as we increasingly manage to synchronise expenditures by the different spheres and private sector.
THE PUBLIC FINANCE COMPONENT
Provincial Government Finance
The main responsibility of this sub-programme is to ensure efficient budget management in provincial departments. This includes expenditure monitoring, trend analysis, interpretation reporting and intervention, exercising fiscal discipline as well as promoting and enforcing effective management of expenditure, especially in relation to the attainment of spending efficiency.
Some key challenges in this area entail:
• Development and introduction of quarterly performance reports integrated with current financial reporting and institutionalisation thereof.
• Building analytical capacity both in the Provincial Treasury and provincial departments.
• Understanding the core business of departments, ultimately to implement financial management reforms to improve efficiency of spending.
Local Government Finance
The MFMA mandates the Provincial Treasury, in partnership with our national counterpart to monitor financial compliance for municipalities and municipal entities in the Province and to assist municipalities in budget preparation, supply chain management and others.
As a joint exercise the Provincial Treasury, Department of Economic Development and Tourism and the Department of Local Government and Housing recently assessed and commented on municipal draft budgets, IDP's and LED's. Each and every municipality were subsequently visited (Oudtshoorn still has to happen) to engage on the findings of these assessments, both at an executive and technical level.
This initiative forms part of a formal process to ensure consultation and interaction between provincial departments and municipalities in aligning planning priorities, development strategies and resources, particularly so in a spatial context.
Some key challenges in this area entail:
• Developing a competent Provincial Treasury with the ability to fulfill its responsibilities in terms of the Local Government: MFMA (Act 56 of 2003).
• Full compliance by all municipalities with monthly reporting on the state of their finances to both the Mayor and to Treasury.
• Subsequent analysis of the monthly in-year reporting (IYM) and appropriate feedback or corrective action.
• Optimal placements of functions between the provincial and local spheres of government and across Provincial Treasury components.
ASSET AND LIABILITIES MANAGEMENT COMPONENT
Financial Asset Management
This unit controls the Provincial Revenue Fund, consisting of the provincial exchequer account and fourteen departmental bank accounts as well as two provincial banking accounts held with the corporation for public deposits (CPD), an entity of the South African Reserve Bank. The main challenges are to ensure that provincial departments stay within their monthly cash flow projections, that all banking accounts remain cash positive at all times with minimal balances, and that any funds not immediately required to defray expenditure are invested at various financial institutions in terms of an approved investment policy.
Provincial Supply Chain Management
Although the SCM function vests within the Provincial Treasury, the moveable asset unit, in conjunction with the departments will promote a strategic sourcing business model and procurement strategies in line with provincial objectives as well as accurate and valid market research methodologies. These are all aimed at reducing procurement cost and exploiting economies of scale by arranging transversal contracts to provide for crosscutting procurement of goods and services. Some key challenges in this area will entail the implementation of monitoring and compliance procedures to address any non-compliance within minimum norms and standards. Furthermore, new methods are to be introduced to adequately address concerns from the public with regard to the awarding of contracts and the implementation and development of an efficient e-procurement system.
Municipal Supply Chain Management
The Provincial Treasury has at the beginning of 2006/07 financial year embarked on capacitating its current SCM component by giving effect to new appointments to facilitate the implementation of the regulatory framework on supply chain management in municipalities. The focus of the current structure will be to roll-out supply chain management to municipalities as regulated by the current SCM Regulations and the MFMA. Challenges that face the component will be, aligning the existing municipal policy framework with the requisite SCM framework and legislation, thereby ensuring efficient and effective economical procurement processes as well as defining the principles of accountability and transparency. One of the section's key objectives is to perform a skills audit or an assessment of the current status of supply chain management in municipalities that will result in training on SCM principles, guidelines and prescripts of municipal officials thereby enabling SCM reform as envisaged by the MFMA and its regulations. The unit endeavours to utilise a phased approach in meeting these key objectives with its short-term goal of achieving nominal compliance of legislative requirements.
Supply chain management: Compliance
Since the inception and roll-out of SCM in 2004, one of the main objectives of Treasury is to oversee the adherence to supply chain management legislation. Hence, a compliance component vested within the sub-programme was established in 2005 that is responsible for assessing the state of SCM within departments. The main focus of the unit is on the physical assessment of transactions relating to the cost effective and efficient procurement of goods and services.
Moveable Asset Management section
The asset management reform launched by National Treasury resulted in the establishment of an Asset Management Unit in the Provincial Treasury and Asset Management Teams in departments. The principal objective of the Asset Management Unit is to monitor departments for compliance with their Asset Management Strategic Plans. These plans must be consistent with the strategic objectives of the departments and integrated with other key management strategies. The effective incorporation of Asset Management into a strategic planning framework will address programme costs in terms of reduced demand for new assets and the maximising of the service potential of existing assets.
Immovable Asset management and PPP's
The Immovable assets unit's main objective is to play a pivotal role in the facilitation of effective and efficient management pertaining to fixed assets and infrastructure within the Province.
Some of the challenges will be to analyse infrastructure plans and ensure alignment with strategic objectives of the departments. The unit will further monitor the timeous submission of quality infrastructure plans and quarterly expenditure reports in compliance with the Division of Revenue Act (DORA) to avoid delays of conditional grant instalments. The unit will also provide assistance, guidance and facilitate the effective and efficient management of fixed assets in terms of the Government's Immovable Asset Management (GIAM) programme. A further challenge to this component will be to influence the capital spending programmes of the three spheres of government to such an extent that they complement each other.
Public Private Partnerships (PPP's)
Public Private Partnerships (PPP's) are co-operative arrangements between the public and private sector, and are considered as an alternative acquisition option for service delivery, investment and management of infrastructure. The increase in the formation of partnerships indicates that the public and private sectors are now working more closely in the provision of services and infrastructure. The pursuance of PPP initiatives is necessary to address socio-economic problems and infrastructure backlogs, enhance service delivery and increase revenue in the Province.
The Provincial Government is currently engaged in a number of partnerships, which vary in scope, nature and level of private sector participation. These projects are primarily toll roads, eco-tourism and health sector initiatives.
Supporting and Interlinked Financial Systems
This sub-programme plays a pivotal role in the development and eventual transition of departments to a new financial system, namely the Integrated Financial Management System (IFMS). The simultaneous management, implementation and training of officials on existing financial systems in the departments viz BAS (Basic Accounting System), Persal (Personnel and Salary Administration System), LOGIS (Logistical Information System) and Vulindlela (Management Information System) are objectives pursued by this sub-programme.
Slow response time was experienced on BAS and LOGIS: procurement integration since April 2004, especially during month and year-ends, as the system was not capable of handling large volumes of data. In an attempt to prevent a re-occurrence of such unacceptably slow response times, particularly at financial year-end, this unit successfully engaged National Treasury and SITA (State Information Technology Agency) to address the problem. This resulted in a mainframe upgrade on 16 January 2006. Since then, a significant improvement in response time has been experienced.
FINANCIAL GOVERNANCE COMPONENT
Accounting Services
This unit has broadened its responsibilities since 1 July 2005 to include the requirements of the MFMA. It provides a key link between the financial accounting teams of provincial departments, entities and municipalities and the Provincial Treasury to encourage the development of sound accounting practices and ensure that financial reporting is a true reflection of the final position of the Province. Some of the key deliverables of this sub-programme are evolving as a result of financial management reforms required in terms of PFMA and MFMA for departments and municipalities respectively.
The biggest challenge facing departments still remains the transition from cash to accrual basis of accounting. In the case of municipalities, the immediate challenge is the transformation of the reporting format of annual financial statement from that of the Institute of Municipal Financial Officers (IMFO) to Generally Recognised Accounting Practice (GRAP) format as prescribed by National Treasury. In this regard the Accounting services unit in partnership with National Treasury will play an active role in meeting these reforms.
Other key challenges facing the sub-programme entail:
• Improving the format of consolidated annual financial statements and preparation of annual consolidated financial statements separately for departments and for public entities inclusive of trading entities. We expect this process to run more smoothly in 2006/07 through the continuous improvement in process planning.
• Further development in interpretive and analytical capacity of financial statements of municipalities in order to improve planning and financial management.
• Roll-out of the Standard Chart of Accounts to public entities.
• Performing an oversight function of provincial trading entities.
Norms and Standards
This programme has also broadened its responsibilities since 1 July 2005 to include the requirements of MFMA. It is primarily responsible for ensuring that norms and standards within the financial legislative framework are developed, implemented and monitored for compliance in provincial departments, public entities and municipalities. The new staff members recruited to carry out functions assigned in terms of the MFMA will undergo training on the MFMA to familiarise themselves with the responsibilities assigned to the unit.
Some key challenges that will be focused on during the year entail:
• Increasing internal resource capacity in terms of the unit's MFMA responsibilities.
• Addressing critical and transversal matters identified by both internal and external audits, and where applicable facilitate solutions with relevant line function Treasury units and other role-players.
• Improving the current monitoring tool to include measurement of substantive compliance.
• Advise municipalities on the legal compliance aspects of the MFMA.
Risk management
This sub-programme is mandated to facilitate the establishment of risk management capacity and promote good governance principles in the PGWC. In achieving this, the sub-programme has to create streamlined processes within departments that generate executive decision-making, information on an integrated basis and consequent internal controls that are aligned to the key risks.
Cabinet recently approved an ideal organisational structure for the establishment of risk management units within departments. In promoting the spirit of line management accountability these units will operate on a decentralised basis and reside within each department to ensure that risks per department are properly dealt with and management responsibility for risks are enhanced. This sub-programme will provide the necessary support to departmental risk management units in respect of risk management norms and standards, procedures and techniques as well as the relevant training.
Some of the challenges facing the sub-programme entail:
• Filling of posts with suitable risk management practitioners and implementing the risk management roll-out plan more rigorously.
• Training of junior, middle and senior management on the concepts of both risk management and principle of good governance.
• The development of a monitoring tool to assess the risk management implementation progress in departments and to take remedial action, which will ensure good quality improvement processes.
Provincial Internal Audit
In 2005 internal audit services have been rolled out to all provincial departments as well as the Provincial Parliament. An intensive recruitment drive was undertaken to capacitate the current organisational structure, which was fully capacitated by the end of March 2006.
The organisational structure was also redesigned during 2005 to create the capacity to take over the function from the external service provider that was appointed in 2004 to deliver a co-ourced internal audit service to the Province for a 3-year period. The internal audit service for the Province will continue to function as a centralised service as this allows the optimal use of scarce human and technological resources, ensure consistency in the application of internal audit methodologies and contribute to the quality of the internal audit work performed.
The dedicated audit committees for Health, Education, Social Services, in addition to the shared audit committee for the remainder, continue to function reasonably well and build professional relationships with the departments they serve. For the audit committees to fulfil the duties conferred on them by the PFMA and Treasury regulations it is crucial that they understand the business processes of the relevant departments and the risks these departments are facing. The audit committees rely heavily on the service providers that report to them (i.e. Office of the Auditor-General, internal audit and forensic audit). It is therefore essential that these service providers are effective and provide the committee with the information they need to assess the state of internal controls within departments.
Some of the key challenges facing the sub-programme:
• To finalise and capacitate the new organisational structure for Provincial internal audit which is contemplated to run as a trading entity, with detached allocation of its resources to the larger departments.
• To transfer the responsibility from the service provider to PGWC's own internal audit team.
• To establish a structured internship program that will serve as a feeder to ensure continuous flow of skilled resources.
CONCLUSION
Mr Speaker, we ought to remember that Rome was not built in a day. Instant success is never possible in an ever-changing environment. Competence and desired outcomes will therefore only result from sustained, consistent and self-disciplined efforts over an extended period of time by all within the Provincial Treasury.
The well known poet Anthony Robbins said:
"It is not what we do once in a while that counts, but our habitual actions. What ultimately determines who we become and where we go in life are our decisions. These decisions shape our destiny".
It is thus indeed our decisions (and ultimately our actions) that are intended to shape our destiny and remain our guiding lights.
In this context I and my Treasury team are ultimately accountable to manage Provincial finances so that we stay on route with the strategic financial and economic direction of the Province as conceived in the 2006 Provincial MTBPS and in my main budget speech of February of this year.
I thank you Mr Speaker.
