As part of a national standardisation process the Provincial Treasury's programmes have been renamed and reduced from six in 2004/05 to four in 2005/06. Public Finance and Accounting has also been split with the Public Finance part incorporated into a newly formed Programme 2: Sustainable Resource Management while Accounting was moved to Programme 4: Financial Governance. In addition, a new sub-programme, Programme Support, has been created under each of the programmes excluding Programme 1: Administration to improve administration within each of the three line function programmes. The newly reconfigured programmes should better gear the Provincial Treasury towards achieving its set goals and objectives.
Furthermore, in our efforts to improve financial governance the Provincial Treasury is assisting with the establishment of risk management and internal control capacity in all departments combined with the development of financial norms and standards. Assessment of provincial departments' measurable information in line with their objectives and ultimately the outcomes of the Province, will also receive close attention.
It is also envisaged that analytical instruments will be designed which will be used in assessing the qualitative impact of provincial service delivery on provincial socio-economic variables. In addition, new sources of revenue will have to be explored as a means to increase the Province's own revenue base.
Coupled to this, the liquidity position of the Provincial Revenue Fund will have to be optimised to ensure maximum returns within acceptable levels of risk. A major challenge facing the Provincial Treasury over the MTEF is its envisaged role as required by the Municipal Finance Management Act (MFMA). Amongst others this would require an aggressive recruitment and training process to build the necessary capacity over the next six to twelve months.
As the name implies, this Programme is responsible for the staff functions of the Provincial Treasury and the Office of the Provincial Minister. Programme One also makes provision for a newly created additional sub-programme, Management Services, that over time is to assist the Accounting Officer with the co-ordination and evaluation of the Provincial Treasury's expanding activities in pursuit of its overall priorities, strategic goals and objectives. However, this sub-programme will only become operative in the latter part of 2005/06.
Corporate Services
Subsequent to implementing Phase 1 of the restructuring of Provincial Treasury, the biggest challenge for the sub-programme has been to achieve a reasonable capacitated establishment, while improving on broader strategic and operational human resource functions.
Key priorities have, inter alia, been concerted efforts to build capacity and align functions within Corporate Services for an integrated and enhanced service delivery. The results thereof have been the reduction from 41% to 29% of the vacancy rate. In addition, Treasury has managed to achieve a 50% landmark towards gender representivity. Not only has this contributed towards our Premier's and Government's priorities, but also qualifies in respect of the national and international declaration for the Beijing Platform of Action for Gender Equality.
Provincial Treasury has not been immune to problems of high staff turnover as a result of a highly competitive labour market. During the period March 2004/05, 39 and 27 appointments and resignations were recorded respectively.
This emerging trend is not sustainable, hence the focus on other measures to retain skills including, short and long term skills development programmes.
In addition, the Directorate has to ensure that the Department is geared and capacitated in meeting new responsibilities derived from the MFMA. New challenges include enhanced recruitment processes that will ensure that highly sought-after skills in the finance and economic sectors are sourced and retained by Provincial Treasury.
It is expected that over time we will meet our goals of maintaining representivity, building a competent and learning organisation.
Financial Management
The next phase of restructuring within the Provincial Treasury (namely the implementation of the MFMA), will once again require substantive relocation of staff, making more extensive use of open space accommodation to improve cohesion, efficiency and operational synergy between the new or reconfigured components. The newly established resource centre will become fully operative during 2005/06.
In addition, document control and tracking of information will receive priority attention during 2005/06. This important function has been outsourced to a private BEE service provider to assist the Provincial Treasury to upgrade its record management to acceptable standards. Improved focus will also be placed on the provision and development of a supply chain management database with regard to stock, IT equipment, stores and assets.
Economic Analysis
The Economic Analysis (EA) Unit was set up two years ago to provide provincial economic, social policy analysis and advice that informs fiscal policy development and the annual budget process, thereby contributing to the achievements of iKapa Elihlumayo. The first two years were spent recruiting economically trained personnel - a scarce resource - and contracting academic researchers and developing key innovative analytical instruments. This is to be further pursued in the new year.
Despite capacity constraints, the team has made considerable progress over the last year, culminating in the production of the 2005 Provincial Economic Review & Outlook (PER&O) deepening our analytical understanding of the Western Cape's socio-economic environment, that informs our annual budget decisions.
The major output for this year is the 2006 version that builds on the 2005 version and the 2003 SER.
In summary, the annual PER&O's consider the economic outlook for the Western Cape over the subsequent three years, examining the Province's sectoral growth and employment trends and prospects, reviewing Western Cape employment and unemployment trends and highlighting the Province's challenges in respect of equity and development prospects. Moreover, as with the 2005 version, the 2006 PER&O will further shape and give direction to the work programme that a more fully capacitated EA team will carry out over the next three years.
Many of these analytical projects are and will be based on strategic partnerships formed with the analytical research teams involved in the key iKapa Elihlumayo lead strategies - the Microeconomic Development Strategy (MEDS), the Human Resource Development Strategy (HRDS), the Social Capital (SC) Strategy, the Provincial Spatial Development Framework (PSDF) and the Strategic Infrastructure Plan (SIP). These partnerships are vital to ensuring coherent and coordinated research in the broader iKapa team.
Fiscal Policy
The renamed Fiscal Policy (FP) Unit - previously known as the Resource Acquisition team - is all about enabling Provincial Government to finance its service delivery obligations under iKapa Elihlumayo in a sustainable and fiscally prudent manner. The stakes in the financing debate are high, and the team engages with research and analysis that pushes the technical and political boundaries on the financing debate of our evolving intergovernmental system. In brief, the team will engage on three fronts.
Firstly, ensuring our fair share of national revenues in respect of the Provincial Equitable Share and conditional grants - key among which are the National Tertiary Services Grant (NTSG) and the new Social Security grant.
Secondly, the team is already busy building key stakeholder partnerships among revenue collecting departments and working in collaboration with such to optimise our own revenue sources, and get on top of debtor management in the Province. The development of a revenue estimation model over the next year will go a long way to enhancing the credibility of own revenue estimates in the annual budget process.
And thirdly, the team is actively raising the bar in the extension of the provincial revenue base through the development of new provincial tax proposals, researched under the ambit of a framework of evolving fiscal governance concerns.
Budget Management
In the previous financial year Budget Management (previously named Budget Office) has appointed a team of highly skilled economists. Work processes have been established and refined and the appropriate institutional infrastructure (including technical working groups) is being put in place with different provincial departments and municipalities.
The eight lead strategies as per iKapa Elihlumayo are currently being developed for completion in the course of the 2005/06 financial year. The WC-MTBPS for 2006/09 will shed light on the progress that will have been made and identify new challenges that are anticipated with the lead strategies. One of the key assessment products that is close to completion is the 2005 Service Delivery Review that will be taken forward into future provincial budget processes, but most likely as part of a reformatted MTBPS.
As the analytical abilities of Treasury staff improve Budget Management intends to assist with the improvement of measurable information contained in departmental strategic plans Other challenges for Budget Management this year are:
- The building of specific skills in areas such as costing, performance measurement, strategic planning and econometric modelling.
- Better quality of departmental strategic plans and municipal IDP'sinterface with their budgets and other developmental objectives.
- To assist with the development of specific indicators to monitor theperformance of Government towards achieving the iKapa Elihlumayoobjectives. This will enable the Provincial Treasury to better alignallocations with outcomes-based performance.
- Supporting the National Treasury in unfolding the process of collectingand aggregating non-financial information, the development and introduction of quarterly performance reports integrated with the current financial reporting. This initiative should enhance the Provincial Parliament's oversight role as it will reflect on what departments spent their money on, and not only how much they actually spent at a given moment, and place more focus on key measurable objectives and service delivery.
Public Finance
Public Finance has been refocused and consists of two sub-components, Provincial Government Finance and Local GovernmentFinance.
Provincial Government Finance
One of the key responsibilities of Provincial Government Finance is to ensure budget implementation, inclusive of monitoring, trend analysis, interpretation, reporting and intervention, exercising fiscal discipline as well as promoting and enforcing effective management of expenditure.Key challenges to achieve these are:
- Building analytical capacity both in the Provincial Treasury and provincial departments to gain a deepened understanding from a service delivery perspective of what expenditure performance and budget allocations actually mean. Responses thereto will translate into improved expenditure management because of early detection of issues requiring appropriate invention.
- Improving financial management in the public sector through continuedsupport of budget reforms related to strategic and performance plans,annual reports, budget statement formats and improving the measurabilityof objectives.
- Monitoring of specific functions and economic classifications by means of cost analyses and the introduction of efficiency indicators.
Local Government Finance
Both the PFMA and the MFMA creates a uniform management approach to fiscal and financial governance across all municipalities that goes beyond the ambit of not only regulating fiscal and financial management practices but also seeks sustainable local government finance. The Act 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.Legally mandated Provincial Treasury roles and responsibilities of the MFMAonly takes effect from 1 July 2005, but for the last fifteen months in line with the spirit of the Act, various related activities in the Province have been initiated. It would appear that for the time being we would only be directly responsible for 24 out of the 30 municipalities but this is still to be confirmed by my national counterpart.
As a joint exercise the Provincial Treasury and the Department of Local Government and Housing will shortly, as a first attempt, start assessing and commenting on municipal draft budgets together with their IDP interfaces as required by the MFMA. This would for the first time allow municipal mayors to take account of the provincial input into their budgets for 2005/06 and beyond.
Mr Speaker, this Programme was formerly known as Asset Management and renamed Asset and Liability Management to fully reflect its role and responsibilities.
The Sub-programme: Asset Management comprises the following subcomponents: Financial Asset Management; Physical Asset Managementencompassing both Movable and Immovable Assets; and Public PrivatePartnerships. I will briefly elaborate on these sub-components:Financial Asset Management controls the Provincial Revenue Fund thatconsists 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. With effect from 1 April 2005, the inter-governmental cash co-ordination initiative was also successfully implemented in our Province whereby the Province's equitable share and conditional grants are credited directly to these CPD accounts. The main challenges are to ensure 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.
The sub-component Physical Asset Managementis further subdivided between Movable and Immovable Assets. Movable Assets deals solely with the supply chain management of goods and services, focusing on procurement processes and the management thereof, as well as obsolescence planning. An immediate challenge will be the implementation of the regulatory framework on supply chain management in municipalities. Immovable Assets, on the other hand, is primarily concerned with strengthening and enhancing departments efficient and effective spending on infrastructure - one of its challenges will be to address the decline in spending by departments on infrastructure as a result of systemic bottlenecks, red tape, inappropriately skilled practitioners and procurement procedures that limit initiative and innovation. Further, it will play an integral role in the full roll-out of the Infrastructure Development Improvement Programme (IDIP) in the Province, inclusive of a toolkit which maps out the different processes and sub-processes when executing the delivery management process.
This unit was instrumental in driving the process for approval from theProvincial Cabinet on 10 February 2005 for the shifting of infrastructure-related funds from the Department of Transport and Public Works to theEducation and Health Departments, effective from 1 April 2005, as well asensuring the seamless implementation of such shift. The aforementionedgave effect to the national policy to improve accountability in Education andHealth Departments for such expenditure.
The Public Private Partnership unit is closely allied to Immovable Assets, as conscious decisions are made by public managers to involve the private sector in the provision of infrastructure. This unit intends to facilitate and act as the catalyst for the building of schools and related services via the PPP mechanism working in conjunction with the Education Department and National Treasury. Public Private Partnerships over time intends building thenecessary capacity to take over all PPP assessment-related responsibilitiescurrently performed by National Treasury.
The sub-programme Liabilities Management as its name implies, is mandated to over time assist and monitor the effective and efficient management of liabilities in departments and municipalities. However, as provincial borrowing is still frowned upon by National Treasury, only a nominal amount has been provided for this. Secondly, in the absence of new sustainable own provincial revenue streams, borrowing will remain wishful thinking.
The last sub-programme is Supporting and Interlinked Financial Systems,previously known simply as Financial Systems. This sub-programme plays apivotal part 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 departments, such as BAS (Basic Accounting System), Persal (Personnel and Salary Administration System) and Logis(Logistical Information System), are further objectives that are performed by this sub-programme.
Slow response times were experienced on BAS, especially during month-ends and year-end since the system was not capable of handling large volumes of data. This unit is in the process of urgently addressing this matter by facilitating a process of consultations on the said problems with the relevant role-players, namely SITA, National Treasury and the Centre for E-Innovation.
One of the strategic objectives of iKapa Elihlumayo is to improve financial governance, which promotes the most effective, efficient and economic utilisation of resources in an ethical environment. The restructured Programme: Financial Governance consists of the most significant drivers and enablers for financial governance improvement. In essence, it houses the Provincial Accountant General, a new position that has only been filled on a permanent basis as from 1 April of this year. I will deal with each of the four sub-programmes or components housed withinthis Programme:
Accounting Services
This sub-programme is a key link between the Financial Accounting teams of provincial departments and the Provincial Treasury to encourage the development of sound accounting practices and ensure that financial reporting is a full reflection of the financial position of the Province. In establishing the Office of the Provincial Accountant General, Accounting Services as the finishing touch have been relocated from Public Finance to Financial Governance. Some of the key deliverables of this component are evolving as the result of Financial Management reforms. One of these is the transition from cash to accrual basis of accounting, which poses the biggest challenge. In this regard the National Treasury has introduced the concept of the Financial Management Improvement Programme (FMIP) to effect this transition. The Accounting Services Component will play an active role in the FMIP initiative in partnership with National Treasury in gearing up for accrual accounting.
Some of the other key challenges facing the sub-programme entail:- Improving the formats of annual financial statements and the preparation of annual consolidated financial statements for the Province. Last year saw the first attempt at the consolidation of Annual Financial Statements of Departments and Public Entities. We expect this process to run more smoothly this year through improved process planning.
- Further development in interpretative and analytical capacity of theProvincial Treasury and of departments, related to annual financialstatements in order to improve planning and financial management. o Aligning the reporting formats of Public Entities to the Standard Chart ofAccounts that have been implemented in departments as from1 April 2004 and the introduction of the Standard Chart of Accounts forPublic Entities will be assessed in conjunction with National Treasury forimplementation.
Norms and Standards
This sub-programme is primarily responsible for ensuring that norms and standards within the financial legislative framework are developed, implemented and monitored for compliance in provincial departments and public entities, and secondly, the development of a communication strategy to deal with change and capacity building.
Some of the key areas that will be focused on during the year entail the following:
- Increasing internal resource capacity to verify consistency with current financial prescripts and policies within the provincial government.
- Identifying and addressing critical and transversal deficiencies in normsand where applicable facilitate solutions with relevant line functionTreasury units and other role players.
- Substantive compliance by departments with the PFMA, which entail thesetting of benchmarks for financial management.
- Advice to municipalities on the legal compliance aspects of the MFMA.Communication Information Management is incorporated in this sub-programme. Effective communication plays a vital role in social capital building and human capital building, external and internal in the Provincial Government as it informs, educates and assists with a common understanding of the need for efficiency improvements. The key focus during the current financial year will thus be to get the basics in place and to place less reliance on external service providers. This would include the :
- Development of an internal communication strategy, interlinked withTreasury's objectives, in liaison with Human Resource Management;
- Maintenance and expansion of Treasury's functional databases andinformation system in liaison with the Budget Office; and
- Update of Treasury's intranet and Cape Gateway sites for use bydepartments and other stakeholders and to assist with the disseminationof information.
Risk Management
This 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. The component is tasked with the specific mandate to develop a standardised and integrated risk management methodology for the Western Cape Provincial Government as a whole and develop a financial government governance model and related norms and standards.
The primary focus of the sub-programme for the current financial year will be the finalisation of Risk Management methodologies and the Financial Governance Framework and training manuals, as well as the training of junior, middle and senior management. Further focus will be on establishing Risk Management, inclusive of Internal Control capacity within provincial departments and the embedding of governance and risk management practices into normal management processes.
Provincial Internal Audit
In accordance with a three year strategic plan, full roll-out of Internal Audit services to all provincial departments and the Provincial Parliament, will only be achievable during 2006. Many lessons have been learnt over the past year and with the development of both individual departmental and a consolidated provincial risk profile, the time has arrived to seriously consider the organisational fit of the Internal Audit function across the different departments, i.e. centralised, shared service, decentralised, detached or a combination of these. This will require redirecting of resources to adequately and appropriately cover the internal audit function that must promote efficiency, encourage recruitment of competent staff, which has been a headache, and achieve a much closer tie-in with accounting officers.
Currently separate audit committees exist for the Departments of Health, Education and Social Services and Poverty Alleviation. A Shared Services audit committee remains in place for the remaining eleven departments, inclusive of Provincial Parliament. However, the Provincial Treasury is considering a single audit committee for the Province to achieve greater expertise and ensure consistent and overarching oversight. Should this approach be supported, consideration will have to be given to amalgamating the current audit committees. However, it is still early days, real expertise is scarce and this process goes hand-in-hand with designing an appropriate organisational fit of the Internal Audit function across the different departments so as to best achieve the objectives of the PFMA. Nonetheless, we hope to begin to put in place a new organisational model as from 1 April 2006.
Some of the other key focus areas for the year ahead include the following:
- Building internal capacity to increasingly take over internal audit work from the current service provider and obtaining of moderate reliance on internal audit work by the Auditor-General;
- Fully functional, competent and independent Audit Committees underwhose guidance and control Internal Audit resorts;
- To obtain audit committee approval for the three year strategic and one year operational Internal Audit plans for all provincial departmentsincluding Provincial Parliament;
- Increasing relevance of the internal audit function in assisting accounting officers in mitigating operational and strategic risks, and
- Closer liaison between Audit Committees, the Provincial Parliament(SCOF and SCOPA) and the Auditor-General.
In conclusion Mr Speaker, as Head of the Western Cape Provincial Treasury I am privileged to be supported by a dedicated team of officials. A team who I am confident will meet the challenges posed by the two lead strategies we must promote, namely, that of improving financial governance and a more effective interface between the provincial and local spheres of government. So, to Dr Stegmann, my Head Official Treasury, I want to express my sincere gratitude for supporting me in a job that has so many challenges and responsibilities. Please allow me to also express my appreciation to the following officials:
- Shirley Robinson and your Resource Management team.
- Albert van Zyl and your Budget Office team.
- Klaas Langenhoven and your Public Finance team.
- Joey Pillay and your Asset Management team.
- Terence Arendse and your PAG team.
- The Head of my Office: Ms Nontsikie Mgayiya and your team.
- The Human Resource Manager, Mrs Madikizela-Renene and your team.
- The Chief Financial Officer, Andre Gildenhuys and your team.
