JOINT
BUDGET COMMITTEE REPORT On BUDGET ANALYSIS WORKSHOP
1. Introduction
Parliamentary oversight over the executive has reached
a point where the Legislature and its committees need to build capacity to keep
up with reforms in the public sector. Such reforms have included new
requirements for planning, budgeting, financial management and reporting. As a
result the Legislature has had to refine and develop its oversight processes to
ensure that information from the executive can be comprehensively interrogated
to ensure better service delivery. More specifically it has impacted on the
manner in which parliamentary committees perform their functions.
The Joint
Budget Committee (henceforth the JBC) has, over the past years, held several
workshops to develop aspects of its functioning. In accordance with this approach, the JBC
held a workshop on budget analysis, practices and techniques on Monday the 19th
and
This Report
serves both as a recap of the event and a summary of challenges and action
points for the JBC on how to be more effective in its oversight role.
2. Joint
Budget Committee’s Terms of Reference
Parliament
has, for the past several years, been occupied with the process of reviewing
and strengthening its oversight function. Part of this involves developing
oversight practices over budgetary matters. As a result, Parliament decided to,
amongst other things, establish a committee, the Joint Budget Committee, with the
following Terms of Reference (TOR):
(1)
Consider proposed allocations in the Medium-Term Expenditure Framework
and the Appropriation Bill and whether these allocations are broadly in keeping
with the policy directions of the Government;
(2)
Make proposals regarding the processes Parliament should follow with
regard to its role in the developing of budgets in accordance with
constitutional requirements;
(3) On a regular basis monitor monthly published actual revenue and expenditure
per department, and to ascertain whether they are in line with budget
projections;
(3)
consider, when tabled, the Medium-Term Budget Policy Statement, with the
exception of those sections dealing with the macro-economic situation and
revenue;
(4)
conduct hearings on the Medium-Term Expenditure Framework and Budget
Policy Review Document, with the exception of those sections dealing with the
macro-economic situation and revenue;
During the Workshop, the need to operationalise the
JBC’s TOR was noted as fundamental. In the process of operationalising its TOR,
the Committee identified various ongoing concerns, which needed to be
addressed. These include consolidating its mandate, especially its role and
relationship vis-ŕ-vis other Parliamentary structures and other state
institutions, addressing issues of capacity and programming and reviewing its
own progress.
2.1. The
Joint Budget Committee’s TOR and Relationship with other Committees
In terms of
its general mandate, the JBC identified the need to ensure that budget
oversight was practiced in conjunction with other parliamentary committees, for
example those engaged in overseeing state finances.
To prevent
overlap and improve operations, the JBC recognized that the roles and
responsibilities of each required clarification. The Committee discussed, for
example, to what extent it could assess issues of institutional performance,
such as value for money - which falls within the Standing Committee on Public
Accounts (SCOPA’s) remit. The issue of the JBCs engagement with the provincial
and local spheres and other organs of state, such as the institutions
supporting constitutional democracy – the Chapter Nine Institutions – were also
raised.
Once
clarified, each committee could then design analytical tools to engage the
executive in its respective focus area effectively. Generally, the JBC felt it
would be appropriate for the Committee to be making recommendations to
Parliament. Related to this, the JBC also felt that 2007 was a suitable
juncture to revisit and update its 2005-2009 Strategic Plan.
In relation
to the role of JBC in influencing Money Bills, the Committee stated that
clarity was required in terms of the JBC’s role in the Appropriation Bill,
currently formally referred to the Portfolio Committee on Finance and the
Division of Revenue Bill, which the Select Committee on Finance engages with.
The JBC
further recognized that it should be informed of progress and make inputs into
the work of the Task Team established by the Joint Rules Committee with the aim
of developing legislation in accordance with Section 77 of the Constitution to
allow Parliament to amend Money Bills.
In
addition, the JBC recognized that, in conducting oversight, the imperative of
facilitating public participation from both organized interest groups and from
disadvantaged stakeholders, such as those active in the second economy, was an
ongoing challenge. The Committee felt that, to supplement informational inputs
of this kind, it could also engage in more direct oversight through, for
instance, visiting sites of service delivery.
Lastly, the
JBC highlighted that due to Members busy schedules and the programming
arrangements for the National Assembly and National Council of Provinces, the
ability of the Committee to fulfill its mandate in a timely manner was
considered to be serious challenge.
2.2
Oversight over Parliament’s Budget
A further
specific oversight issue identified was the question of the JBCs role in
monitoring and assessing Parliament’s budget and expenditure. The Committee
felt that, until the legislation regulating Parliament’s financial management
has been adopted – the development of which the JBC should track – the
Committee should hold Parliament accountable for budgetary matters.
3.
Capacity and Training Needs
In terms of
workload and capacity, the JBC highlighted a lack of human resources and other
support as an ongoing concern. To better manage its workload, the Committee
discussed the option of restructuring the Committee and utilising a
sub-committee system, similar to that used by SCOPA. In this regard, it was
emphasised that the mandates of these sub-committees should be very clear. The
Committee also examined the possibility of developing relations, perhaps
through memorandums of understanding, with service providers and non-executive
organs of state such as the Auditor-General and the Financial and Fiscal
Commission.
Training for Members on budget analysis was also
raised as a focus area. Specifically the JBC, with the assistance of AFReC,
identified the following training requirements or topics:
·
Topic 1: Information
and training on in-year monitoring activities and instruments, specifically how
to effectively utilise departments’ Strategic Plans and monthly and quarterly expenditure reports.
As an
initial step, the JBC stated that guidelines on the annual programme of the
Committee as well as a manual on best practice to inform topical and technical
questions to departments would be of practical assistance and be useful for
developing institutional memory.
4. Presentation by the National Treasury and JBC Discussions
The
National Treasury (NT) presented on various subjects including the
implementation of financial management legislation, expenditure reports and
monitoring, infrastructure projects and under expenditure.
4.1 The Implementation of Financial
Management Legislation
Concerning
the implementation of financial management legislation such as the PFMA,
Treasury stated that the lack of project planning and management capacity was a
serious problem evident throughout government. Although enthusiasm was present,
information and skills were often lacking at under-performing departments and
entities. Examples of this were the
recurring requests by some departments for monthly disbursements of one twelfth
of the total annual funding envelope – this often does not coincide with the
practical expenditure needs.
The JBC
noted the lack of financial management skills within government. The Committee
further stressed the need for departments to comply with legislative
requirements and, in this context, made the example of departments not paying
suppliers within the 30 day time period. Small suppliers in particular needed
to be protected from extended delays in payments. Treasury stated that the necessary funds for
payment of suppliers were normally adequate although, due to internal
inefficiencies and poor cash management in departments, these payments were
often not made within the prescribed time periods.
4.2
Monitoring Expenditure and Infrastructure
Treasury
highlighted the importance of monitoring budgeted versus actual revenue and
expenditure figures as well as audited outcomes of previous budgets. Treasury agreed that PFMA Section 32 reports
- whose purpose was to report on the implementation of the Appropriation Act,
and after October of each year, the Adjustments Appropriation Act – were
important but limited oversight instruments: they could not, for example,
assist the JBC and other oversight bodies in picking up on fiscal dumping in
the last quarter of each financial year. Apart from Section 32 Reports, NT also
produces an internal report, which monitors departments and entities’
expenditure patterns and service delivery.
These reports are not published.
Treasury
also presented on the financing, expenditure and monitoring of infrastructure
projects. Some of the problems in infrastructure roll-out were highlighted,
such as the lengthy delays in environmental impact assessments and delays
associated with litigation. Treasury also explained its national infrastructure
project register, which tracks the progress of governmental infrastructure
projects from the identification phase through to the design, construction and
completion phases. Similar registers were also being established for provincial
government infrastructure programmes. Notably, the register was not currently
reflected in Section 32 reports. Treasury stated that it was reliant on
accurate and timeous input from departments and provinces for the updating of
this register. Treasury added that it would be difficult to utilise the
register for oversight purposes as it was complex system.
Treasury
also indicated that there were separate teams to monitor individual
infrastructure projects although their ability in this regard varied: large
construction projects, such as dam construction, were easy to monitor whilst
smaller projects, such as the Department of Trade and Industry (DTI)’s small enterprises
development agency outlets in towns, were more difficult. The NT stated that
the monitoring of these projects should also be a bottom-up participative
process in that communities should assist with the verification of completion
and quality standards. The NT could only
effectively focus on the financial reporting aspect of departments’ service
delivery programmes and outputs. Some monitoring functions are delegated to
Provincial Treasuries.
Treasury
added that the monitoring of infrastructure projects at local level was
particularly problematic. The example of
the multi-purpose community centres (MPCCs) was used – with NT indicating that
local authorities often did not want to maintain and operate these centres. The
tracking of Housing was also noted as a challenge – Treasury explained that the
nature of the Department of Housing’s database as well as its internal tracking
systems made it difficult to count finalized units. The example of the slow
pace of the N2 Gateway project was given.
This project generated unique delivery problems and delays, compounded
by community preferences for the location of houses and the relative cost of
temporary relocation.
The JBC
noted the lack of proper asset registers and the need for departments,
provinces and municipalities to properly value and account for their assets was
emphasized. In addition, the Committee referred to the importance of
parliamentary oversight over the Gautrain rapid rail project and the issue of
monitoring the transfers of funds from national to provincial government for
this purpose. Treasury indicated it was currently piloting a project monitoring
tool to ease financial accounting of transfers and subsidies.
Concerning
the question of monitoring and enforcing conditional grants, Treasury explained
that, in cases where government departments failed to meet conditions for
grants, it had yet to use the legislated mechanisms to enforce compliance.
Instead, the practice had been for NT to facilitate quarterly meetings with the
relevant departments and entities. The NT added that it would welcome the
assistance of the JBC in formulating and overseeing the implementation of
criteria for grants.
4.3
Under-Expenditure
Treasury reported that under-expenditure was still a
concern, especially in some essential services such as Health – the Hospital
Revitalization Programme was used as an example. Funds were, however, still
allocated to these services due to their importance. In other cases funds were
redirected to other departments. Generally reasons for under-expenditure varied
but, as was the case of Health, dysfunctional supply chain management and a
lack of management skills were often cited as causes. A further example related
to the construction of certain correctional centres, where the lack of proper
feasibility studies severely hampered roll out. Even though the NT proposed
that Public Private Partnership’s (PPP) arrangements should be followed with
the building of these centres, the relevant Department resisted. The issue of the correctional centres was of great concern to the
JBC as the centres were supposed to be near completion.
Finally Treasury asserted not all instances of
under-expenditure were due to poor financial management: in the case of the
Department of Land Affairs, for instance, money destined for land restitution
projects was taken away due to external difficulties in the restitution
process. Generally, however, most cases of under- expenditure could often be
traced to inadequate strategic planning.
4.4 Vacancies
On the subject of vacancies in the public sector, Treasury revealed that
employee appointment procedures in government were complex and lengthy and
should perhaps be streamlined. In addition, NT indicated that vacancies in
departments were sometimes inflated to that they could vire from these budget
line items at the end of financial year to cover other expenditure.
The JBC stated its concern
about the skills mismatch in the public service as well as the payment of
bonuses despite the failures and lack of performance contracts. The Committee
further raised the issue of unrealistic bonuses when Key Performance Indicators
have not been met. Key Performance
Indicators (KPI’s) should be thoroughly researched and require focused
scrutiny.
5.
Presentation by the Auditor General and JBC Discussions
The Auditor General, Mr Terence Nombembe, in his first
interaction with the JBC, presented on the Financial Capability Model. Prior to discussing the model, the AG
explained the three types of audits undertaken by his office:
(a)
audits on the reliability of
financial information presented in annual reports, which look for adequate evidence for the financial
info presented in annual report. The AG
noted the increasing intensity of doubt about evidence in some entities’ annual
reports.
(b) audits of service delivery information – officially known as “audits of
predetermined objectives”. Underlying
information should support objectives set out in strategic plan. The AG reported that the NT and the Dept. of
Public Services and meet to define what information should be included in
annual reports.
(c)
performance audits, which take a closer look at the delivery competence of
entities. Performance audits cover
issues of efficiency, effectiveness, and economy (the three “Es”) of public
expenditure management. For example,
such audits examine the input/output ratios of entities service delivery
programmes.
The Auditor General conceded that it is a common
mistake to confuse the last two types of audits. It is the intention of the AG to reverse the
level of concentration in the first type of audit towards a focus on the last
two types of audits. A balance between
the three types of audits would bring the operations of the AG closer to
similar benchmark institutions in the world. The AG informed the Committee that
for purposes of performance audits his office would work together with
stakeholders such as the JBC.
The Financial Management Capability Model
The Auditor General of
The AG
explained the various levels of analysis contained in the model:
The AG
indicated that the model provided a benchmark for improvement and assists by
asking the most relevant questions, and in simplifying conclusions over the
capacities of entities. The AG stated that explanations and assessments based
on the Financial Management Capability Model would be included in the next
General Report of the AG.
6. Recommendations
In line with its Terms of
Reference, the Joint Budget Committee recommends the following:
6.1 For the JBC to fulfill its oversight
and monitoring responsibilities, the Committees TOR must be further clarified
and developed. It follows that an
operational system for the Committee should be designed and implemented. An
operational system should address, amongst other issues, the overlapping
functional areas between the JBC and other committees, for example SCOPA and
the Portfolio and Select Committees on Finance, as well as the Committee’s
reporting functions. Such a plan would empower the JBC to alert the relevant
sector committees to interrogate departments on expenditure management issues
as they arise. One additional option may be for the JBC to include a matrix of
key questions as an annexure to every quarterly report.
6.2 In addition, the Committee should
undertake a formal training needs assessment. As an initial step, guidelines on
the annual programme of the Committee as well as a manual detailing topical and
technical questions to departments could be developed.
6.3 Related to the above, the capacity
needs of the Committee should to be addressed. This would necessitate, amongst
other things, addressing the issue of institutional memory and ensuring
continuity in the Committee’s human resources and technical support.
6.4 The JBC should confer with other
committees on strategic plans and budget votes in order to track input/output
ratios and later assess the outcomes achieved. The Committee also indicated
that PFMA Section 32 reports provide little information that could be used by
committees to detect early warning signs on spending and service delivery. The
JBC will further engage with National Treasury on this matter.
6.5 That the JBC should consult with the
AG in future, specifically on the Financial Management Capability Model and
whether departments have reflected on this model.
Report for Consideration.
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Ms LL Mabe Mr BJ Mkhaliphi
Chairperson Chairperson
National Assembly National Council of Provinces
Committee
Secretary: Perran Hahndiek Tel: (021) 403 3842