PROGRESS WITH THE IMPROVEMENT

OF FINANCIAL MANAGEMENT

Office of the Accountant-General

Presenter: Jayce M Nair| Chief Director: Governance Monitoring and Compliance| 11 August 2015

PRESENTATION OUTLINE

Summary of 2013/2014 audit outcomes;

Unauthorised, Irregular & Fruitless and Wasteful Expenditure;

Non-compliance with laws and regulations;

Payments within 30 days;

National Treasury’s initiatives to improve financial management;

Financial Management Capability Maturity Model (FMCMM); and

Conclusion

2

SUMMARY OF AUDIT OUTCOMES

(2013/2014)

Audit Opinion Financial Year End

2012/2013

Financial Year End

2013/2014 Movement

Improvement/

Regression

Unqualified with no Findings 104 120 21%

Unqualified with Findings 232 222 -4%

Qualified 62 60 -3%

Adverse 0 1 1%

Disclaimer 13 7 -46%

Audit not Finalised 8 7 -11%

TOTAL ASSESSED 419 417

3

SUMMARY OF AUDIT OUTCOMES

(2013/2014)

NO DEPARTMENT FINANCIAL YEAR END

2012/2013

FINANCIAL YEAR END

2013/2014

IMPROVEMENT /

REGRESSION

1 Mineral Resources Qualified Unqualified (With Findings)

2 Public Works Qualified Unqualified (With Findings)

3 Environmental Affairs Unqualified (With Findings) Unqualified (With No Findings)

4 Public Enterprise Unqualified (With Findings) Unqualified (With No Findings)

5 Sports & Recreation Unqualified (With Findings) Unqualified (With No Findings)

6 Statistics Unqualified (With Findings) Unqualified (With No Findings)

7 Tourism Unqualified (With Findings) Unqualified (With No Findings)

8 Home Affairs Qualified Disclaimer

9 Arts and Culture Unqualified (With Findings) Qualified

10 International Relations and

Cooperation Unqualified (With Findings) Qualified

11 Public Service Commission Unqualified (With No Findings) Unqualified (With Findings)

COMPARATIVE ANALYSIS OF

AUDIT OUTCOMES (NATIONAL DEPTS)

5

0% 2% 2% 0% 2%

33%

26%

17% 17% 15%

57%

64%

73% 75%

65%

10% 8% 8% 8%

18%

0%

10%

20%

30%

40%

50%

60%

70%

80%

2009/10 2010/11 2011/12 2012/13 2013/14

Graph - National Departments - 2009/10 to 2013/14 Audit Outcomes

Disclaimer Qualified Unqualified (with findings) Unqualified (with no findings)

COMPARATIVE ANALYSIS OF

AUDIT OUTCOMES (PROVINCIAL DEPTS)

…

6

62%

55% 59%

56%

50%

11% 15%

9%

17%

27%

20%

27% 27%

23% 22%

7% 3%

5% 4% 1%

0%

10%

20%

30%

40%

50%

60%

70%

2009/10 2010/11 2011/12 2012/13 2013/14

Graph - Provincial Departments - 2009/10 to 2013/14 Audit Outcomes

Unqualified (with findings) Unqualified (with no findings) Qualified Disclaimer

Audit outcomes of national & provincial departments;

Reduction in fruitless & wasteful expenditure;

Quality of annual performance reports;

Compliance with SCM legislation;

Human Resource Management;

Information Technology controls;

Gauteng and Western Cape performed admirably; and

40 departments and 79 public entities -

strong leadership, good governance, financial and performance

management controls that prevent, or detect and correct, errors

and non-compliance.

IMPROVEMENTS IDENTIFIED BY THE AUDITOR-GENERAL

7

QUALIFICATION AREAS - DEPARTMENTS

Property, infrastructure, plant and equipment;

Supply Chain Management (irregular expenditure);

Contingent liabilities and commitments; and

Receivables and revenue

8

UNAUTHORISED EXPENDITURE

9

2 855

1 727

1 678

Graph - Unauthorised Expenditure Provincial Departments R‘ Million

2011/2012

2012/2013

2013/2014

49

467

913

Graph - Unauthorised Expenditure National Departments R‘ Million

2011/2012

2012/2013

2013/2014

IRREGULAR EXPENDITURE

Non-compliance with laws and regulations;

Transgressions mainly SCM related:

Competitive bidding processes not followed for contracts above R500k;

Awards of contracts to employees and close family members;

Lack of controls to ensure declaration of interest;

Ineffective management of contracts;

SCM officials not adequately trained; and

Procurement without quotations.

10

IRREGULAR EXPENDITURE

(NATIONAL)

11

1.3 B 1.8 B

2.3 B

5.2 B

1.6 B

3.0 B

4.6 B

12.7 B

5 M 50 M 76 M 45 M -

2 000

4 000

6 000

8 000

10 000

12 000

14 000

2010/11 2011/12 2012/13 2013/14

Graph: Irregular Expenditure by National Institutions

National Departments

National Public Entities

Const Institutions

IRREGULAR EXPENDITURE

(PROVINCIAL)

12

4.2 B

6.4 B

1.4 B 507 M

5.8 B

11.8 B

18.1 B

15. 1 B

-

2 000

4 000

6 000

8 000

10 000

12 000

14 000

16 000

18 000

20 000

2010/11 2011/12 2012/13 2013/14

Graph - Irregular Expenditure by Provincial Institutions

Provincial Public Entities

Provincial Departments

TYPES OF TRANSGRESSIONS (FWE)

Interest on overdue accounts and late payments;

Litigations and claims;

Penalties;

Other:

Travel, accommodation and training bookings – no shows;

Reprinting of publications due to negligence;

Cancellation fees; and

Goods acquired but not utilised.

13

FRUITLESS AND WASTEFUL EXPENDITURE

(NATIONAL)

14

96 M 97 M

96 M

356 M

102 M

281 M

123 M

153 M

15 M

0

50

100

150

200

250

300

350

400

2010/11 2011/12 2012/13 2013/14

Graph 7 – Fruitless and Wasteful Expenditure

National Departments

National Public Entities

Constitutional Institutions

FRUITLESS AND WASTEFUL EXPENDITURE

(PROVINCIAL)

15

67 M 65 M 24 M

60 M

135 M

659 M

763 M

459 M

0

100

200

300

400

500

600

700

800

900

2010/11 2011/12 2012/13 2013/14

Graph - Fruitless and Wasteful Expenditure

Provincial Public Entities

Provincial Departments

NON-COMPLIANCE WITH LAWS

AND REGULATIONS

80% - General non-compliance with laws and regulations;

40% - Unauthorised, irregular and fruitless/wasteful expenditure;

40% - Human Resource Management (overtime paid without policy);

65% - Material misstatements in AFS; and

43% - Non- compliance with SCM regulations.

16

PAYMENTS WITHIN 30 DAYS

17

0%

10%

20%

30%

40%

50%

60%

70%

80%

64% 60%

66%

76%

39%

58%

73%

63% 67%

56% 56%

44%

Timeous submission of exception reports

National Departments Provincial Treasuries

NUMBER OF INVOICES PAID AFTER 30 DAYS

18

-

5 000

10 000

15 000

20 000

25 000 22 873

14 956 14 817 13 905

15 967

9 789 8 673

6 391 7 803

5 306 3 805 3 902

National Departments Number of invoices not paid within 30 days

Invoices paid after 30 days Invoices older than 30 days and not paid

RAND VALUE OF INVOICES

PAID AFTER 30 DAYS

19

-

100 000 000

200 000 000

300 000 000

400 000 000

500 000 000

600 000 000

700 000 000

800 000 000

900 000 000

382 M 384 M 382 M 378 M 377 M

255 M

143 M

225 M

860 M

664 M

591 M

147 M

National Departments Rand Value of invoices not paid within 30 days

Invoices paid after 30 days Invoices older than 30 days and not paid

NUMBER OF INVOICES OLDER THAN

30 DAYS AND NOT PAID

20

-

5 000

10 000

15 000

20 000

25 000

30 000

35 000

40 000

45 000

24 380 25 144

31 174

24 231

33 745 34 157

22 132

35 918 35 774

40 651

43 989 41 162

Provincial Departments Number of invoices not paid within 30 days

Invoices paid after 30 days Invoices older than 30 days and not paid

RAND VALUE OF INVOICES

OLDER THAN 30 DAYS AND NOT PAID

21

-

500 000 000

1 000 000 000

1 500 000 000

2 000 000 000

2 500 000 000

3 000 000 000

3 500 000 000

4 000 000 000

944 M

1.4 B

1.8 B

3.8 B

2.0 B 1.9 B

1.1 B

2.2 B

2.7 B 2.7 B 2.8 B

3.3 B

Provincial Departments Rand Value of invoices not paid within 30 days

Invoices paid after 30 days Invoices older than 30 days and not paid

MAIN REASONS FOR THE

LATE AND/OR NON-PAYMENT OF INVOICES

22

Standard Chart of Accounts (SCoA) related system problems;

Inadequate internal capacity to process payments timeously

Unresolved Supply Chain Management related queries;

IT system (BAS, LOGIS and SafetyWeb) related issues;

Delays in the submission of invoices for processing;

Delays in the timeous approval of payments;

Inadequate budget/cash flow management;

Incorrect banking details of suppliers;

Unresolved invoice discrepancies; and

Tax clearance certificate issues.

THE EFFECTS OF NON-COMPLIANCE

WITH TR 8.2.3

Impact on the cash flow positions of SMME’s;

SMME’s - forced to borrow money to meet their contractual obligations;

Retrenchments & forced closures due to constrained cash flow positions;

NDP; NGP and 9 point plan – economic growth & job creation;

Corruption factor; and

Reputational risk to Government.

23

FOSAD AND CABINET RESOLUTIONS

24

The National Treasury, DPSA and DPME - convene workshop with CFO’s;

National Treasury, DPSA and DPME - develop a guideline;

DPME – establish unit to monitor and engage with transgressing depts;

Establishment of hotline for suppliers;

Minister of PME and PSA – submit quarterly progress reports to Cabinet; &

National Treasury, DPSA and DPME – investigate appropriate sanctions

to hold accounting officers accountable.

NATIONAL TREASURY INTERVENTIONS TO

IMPROVE COMPLIANCE WITH TR 8.2.3 Development of a web based system to collate monthly information;

Standing item on the CFO Forum;

Improved monthly and annual reports to FOSAD;

Supplier queries on late/non-payment of invoices; and

Workshop with Chief Financial Officers on 20 August 2015 – develop

strategies to improve compliance with TR 8.2.3

25

PAYMENTS WITHIN 30 DAYS

OBSERVATIONS

The number and Rand value of unpaid invoices - acceptably high;

Lack of internal controls and systems to track invoices;

Little appetite to rectify continuing situation of unpaid invoices;

Little or no consequence management;

Little or no management oversight in the payment process;

Late submission of information to the National Treasury – impacts on

completeness of information submitted to FOSAD.

26

NATIONAL TREASURY INITIATIVES TO

IMPROVE FINANCIAL MANAGEMENT

Financial Management Improvement Programme (FMIP III);

Revised Treasury Regulations;

Payment of Suppliers within Thirty (30) Days;

Instruction Note 34

Bi-Monthly FOSAD Reports

Training Programme Initiatives

Manual for Head Officials of Provincial Treasuries

Members of the Executive Council for Finance

The Chartered Accountants Academy (CAA)

27

NATIONAL TREASURY INITIATIVES TO

IMPROVE FINANCIAL MANAGEMENT

Development of a Compliance Framework;

Internal Audit Quality Reviews;

PFMA Queries Portal

PFMA Guidelines:

Accounting Officers Guide to the PFMA;

Accounting Authority’s Guide to the PFMA;

Executive Authority’s Guide to the PFMA

Cost Containment Guidelines; and

Payments within 30 days

28

REVISION OF THE FINANCIAL MANAGEMENT

CAPABILITY MATURITY MODEL (FMCMM)

FMCMM is the self-assessment and

monitoring tool developed by the

National Treasury with a view to

assess the financial maturity of

PFMA-compliant institutions in order

to determine whether public funds

are being spent economically,

efficiently and effectively.

Governance,

Performance Management,

Financial Management (financial and management accounting),

Supply Chain Management,

Reporting

29

LAYOUT OF NEW FMCMM MODEL

30

MODULE 1 - GOVERNANCE

LEADERSHIP CONTROL

ENVIRONMENT ASSURANCE

COMMITTEES DELEGATIONS

INTERNAL AUDIT

RISK MANAGEMENT

CAPACITY BUILDING

IT GOVERNANCE

ANTI-CORRUPTION

MODULE 2 – PERFORMANCE MANAGEMENT

PLANNING BUDGET MANAGEMENT

MODULE 3 – FINANCIAL MANAGEMENT

EXPENDITURE MANAGEMENT

TRANSFER PAYMENTS AND

GRANTS

ASSET MANAGEMENT

INVENTORY MANAGEMENT

COMPENSATION OF EMPLOYEES

REVENUE MANAGEMENT

BANK, CASH & INVESTMENT MANAGEMENT

LIABILITY MANAGEMENT

MODULE 4 – SUPPLY CHAIN MANAGEMENT

ETHICS BID COMMITTEES CONTRACT MANAGEMENT SCM SYSTEM

MODULE 5 – REPORTING

PERFORMANCE REPORTING FINANCIAL STATEMENTS FINANCIAL MISCONDUCT

CONCLUSION

Audit outcomes – improvement in unqualified audit opinions;

Irregular expenditure – increasing exponentially in all institutions;

National departments - UIF expenditure increasing year on year;

Provincial departments - irregular expenditure too high;

Cabinet Memorandum on Audit Outcomes:

AO to submit correctives steps to their relevant EA to address concerns;

AO to act on AG recommendations to address audit findings; and

EA to monitor the progress and receive regular reports thereon.

31

SUMMARY OF AUDIT OUTCOMES OF

NATIONAL DEPARTMENTS (2014/2015)

32

0

5

10

15

20

25

30

6

29

5

2

0

9

19

4

0

10

2014/2015 Audit Opinions

2014 2015

THANK YOU

33